Use these links to rapidly review the documentTABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

|(Mark One)                                                         |                                                                                         
|------------------------------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                                                  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2005                       
|OR                                                                
|o                                                                  | 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 1-7516

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KEANE, INC.(Exact Name of Registrant as Specified in Its Charter)

|Massachusetts(State or Other Jurisdiction
of Incorporation or Organization)    |  | 04-2437166(I.R.S. Employer
Identification Number)
|------------------------------------------------------------------------------ |  | -------------------------------------------------
|100 City Square, Boston, Massachusetts(Address of Principal Executive Offices) |  | 02129(Zip Code)                                  

Registrant's telephone number, including area code:(617) 241-9200

Securities registered pursuant to Section 12(b) of the Act:

|Title of Each ClassCommon Stock, $.10 par value |  | Name of Each Exchange on Which RegisteredNew York Stock Exchange
|----------------------------------------------- |  | ----------------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. Yes o    No ý

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. Large accelerated
filer o    Accelerated filer ý    Non-accelerated
filer o

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

The aggregate market value of the common stock held by non-affiliates of the registrant, based on the last sale price of the common stock on the New
York Stock Exchange on June 30, 2005, was approximately $645,632,000. As of March 3, 2006, there were 58,192,415 shares of common stock, $.10 par value per share and no shares of
Class B common stock, $.10 par value per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant intends to file a definitive proxy statement pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934, as
amended, to be used in connection with the Registrant's Annual Meeting of Stockholders to be held on May 18, 2006. The information required in response to Items 10-14 of
Part III of this Form 10-K is hereby incorporated by reference to such proxy statement.



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TABLE OF CONTENTS



|           |  |                                                                                                                  
|---------- |  | -----------------------------------------------------------------------------------------------------------------
|           |  | PART I                                                                                                           
|Item 1.    |  | BUSINESS                                                                                                         
|Item 1A.   |  | RISK FACTORS                                                                                                     
|Item 1B.   |  | UNRESOLVED STAFF COMMENTS                                                                                        
|Item 2.    |  | PROPERTIES                                                                                                       
|Item 3.    |  | LEGAL PROCEEDINGS                                                                                                
|Item 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                              
|           |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                                                                  
|           |  | PART II                                                                                                          
|Item 5.    |  | MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|Item 6.    |  | SELECTED FINANCIAL DATA                                                                                          
|Item 7.    |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            
|Item 7A.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                       
|Item 8.    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                      
|Item 9.    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             
|Item 9A.   |  | CONTROLS AND PROCEDURES                                                                                          
|Item 9B.   |  | OTHER INFORMATION                                                                                                
|           |  | PART III                                                                                                         
|Item 10.   |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                               
|Item 11.   |  | EXECUTIVE COMPENSATION                                                                                           
|Item 12.   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                   
|Item 13.   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                   
|Item 14.   |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                           
|           |  | PART IV                                                                                                          
|Item 15.   |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                          
|SIGNATURES

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PART I

This annual report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. For purposes of these Acts, any statement that is not a statement of historical fact may be deemed a forward-looking statement. For
example, statements containing the words "believes," "anticipates," "plans," "expects," "estimates," "intends," "may," "projects," "will," "would," and similar expressions may be forward-looking
statements. However, we caution investors not to place undue reliance on any forward-looking statements in this annual report because these statements speak only as of the date when made. We undertake
no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. There are a number of factors that could cause our actual results
to differ materially from those indicated by these forward-looking statements, including without limitation, the factors set forth in this Annual Report on Form 10-K under the
caption "RISK FACTORS."

ITEM 1.    BUSINESS

OVERVIEW

Keane, Inc. is a leading provider of Information Technology ("IT") and Business Process Services ("BPS"). In business since 1965, our mission is to enable
clients to achieve world-class performance through the transformation of their IT and business operations.

We
deliver our IT services through an integrated network of regional offices in North America, the United Kingdom ("UK") and Australia, and through Advanced Development Centers ("ADCs")
in the United States ("U.S."), Canada, and India. This global delivery model enables us to provide our services to clients onsite, at our nearshore facilities in Canada, and through our offshore
development
centers in India. Our regional offices are supported by centralized Strategic Practices and Quality Assurance Groups.

Our
clients consist primarily of Global 2000 companies across several industries. We have specific expertise and depth of capability in a variety of verticals, including financial
services, insurance, healthcare, and the public sector. We strive to build long-term relationships with our clients by improving their business and IT performance, reducing their costs,
and increasing their organizational flexibility.

We
are a Massachusetts corporation headquartered in Boston. Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "KEA." We maintain a Web site with the
address www.keane.com. Our Web site includes links to our Corporate Governance Guidelines, our Code of Business Conduct, and our Audit Committee, Compensation Committee, and Nominating and Corporate
Governance Committee charters, which are available in print to any shareholder upon request. We are not including the information contained in our Web site as part of, or incorporating it by reference
into, this Annual Report on Form 10-K. We make available, free of charge, through our Web site our annual reports on Form 10-K, quarterly reports on
Form 10-Q, and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practical after we electronically file these materials with, or
otherwise furnish them to, the Securities and Exchange Commission ("SEC").

We
are registered as a reporting company under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Accordingly, we file or furnish with the SEC annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as required by the Exchange Act and the rules and
regulations of the SEC. We refer to these reports as Periodic Reports. The public may read and copy any Periodic Reports or other materials we file with the SEC at the SEC's Public Reference Room at
100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling 1-800-SEC-0330. In addition, the SEC
maintains an Internet Web site that contains reports, proxy and information statements and other

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information
regarding issuers, such as Keane, that file electronically with the SEC. The address of this Web site is http://www.sec.gov.

Our
registered trademarks or service marks include: Application Lifecycle Optimization, EZ-Access, Keane, the Keane logo, Patcom and We Get IT Done. Other trademarks and
service marks include: Application Development and Integration Services, Application Development and Management Outsourcing Services, Enterprise Application Integration, Keane InSight, and VistaKeane.

All
other trademarks, service marks, or tradenames referenced in this Form 10-K are the property of their respective owners.

SERVICES

We seek to improve our clients' business performance by maximizing the effectiveness of their business and IT operations. We apply our rigorous processes and
management disciplines to our client engagements, enabling clients to reduce costs and increase organizational flexibility and efficiency. We focus on three service offerings:



We
deliver our services using a global delivery model, from operations in the U.S., UK, Canada, Australia, and India. See Note 17 "SEGMENT INFORMATION" in the notes to the
accompanying consolidated financial statements for a discussion of our domestic and international revenues.

We
experience a moderate amount of seasonality. Our consulting revenue and profitability are affected by the number of workdays in a quarter. Typically our billable hours per employee
are reduced in the second half of the fiscal year, especially during the fourth quarter, due to an increased number of holidays and vacation time taken by employees.

Outsourcing Services

Application Outsourcing.Our Application Outsourcing services help clients manage existing business systems more efficiently
and more reliably, improving the performance of these applications while
frequently reducing costs. In a typical Application Outsourcing engagement, we assume responsibility for managing a client's business applications with the goal of instituting operational efficiencies
that enhance flexibility, increasing availability of client personnel resources, and achieving higher user satisfaction. We seek to obtain competitive advantages in the application outsourcing market
by targeting our Global 2000 client base and generating measurable operational and financial benefits to our clients. We achieve these client benefits through the use of our world-class methodologies,
continuous process improvement, and our global delivery model.

Our
global delivery model offers clients the flexibility and economic advantage of allocating work among a variety of delivery options, including onsite at a client's facility, nearshore
in Halifax, Nova Scotia and Toronto, Ontario, and offshore at one of our four locations in India. This integrated, highly flexible mix of cost-effective onsite, nearshore, and offshore
delivery is now a component of most of our new outsourcing engagements. The distribution of work across multiple locations is typically based on a client's cost, technology, and risk management
requirements. Our project management approach ensures common methodologies and disciplines across locations, and provides a single point of accountability to the client.

Our
four ADCs in India, located in Hyderabad, Delhi, and Gurgaon, were independently evaluated at Level 5 on the Software Engineering Institute's ("SEI") Capability Maturity Model,
("CMMI") and

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comply
with ISO 9001: 2000 standards. Our ADC in Halifax, Nova Scotia, has also been independently evaluated at Level 5 on the SEI CMMI. The SEI CMM has five levels of process maturity, and many IT
organizations typically operate at Level 1, the lowest level of maturity. Since 1997, we have used the SEI CMM as a standard for objectively measuring our success in improving our clients' application
management environments. The SEI CMM has become the industry's standard method for evaluating the effectiveness of an IT environment and the process maturity of outsourcing vendors.

We
enter into large, long-term contracts for the provision of Application Outsourcing services. These client engagements usually span three to five years. Application
Outsourcing projects typically supply us with contractually obligated recurring revenue and with an ability to cross-sell other solutions to those clients. We believe that our ability to
consistently provide measurable business value for an existing client fosters profitable and long-term client relationships and positions us to win additional outsourcing engagements, as
well as development and integration projects.

Business Process Services.We provide BPS through Keane Worldzen, our majority owned subsidiary. Keane Worldzen specializes
in providing BPS to clients with complex operational processes in the financial services, insurance, and healthcare industries, and to clients with back office processes in several industries. Keane
Worldzen's deep expertise in process redesign and optimization is an important competitive differentiator. We believe that Keane Worldzen leverages this expertise in delivering both
front-end business consulting and follow-on Business Process Outsourcing ("BPO") services. These services are designed to reduce the cost of processing and increase the
efficiency of our clients' business transactions, enabling companies to focus on their more strategic activities, and avoid the overhead and management distraction of
non-core back-office processes. Keane Worldzen provides these low-cost, high-value outsourcing services from operations in both the U.S. and India.

Development and Integration Services

AD&I.As application software becomes more complex, it requires sophisticated integration between front-end and
back-end systems to enhance access to critical corporate data, enable process improvements, and improve client service. Many of our AD&I projects leverage "best of breed" technology
platforms to support integrated development, Application Outsourcing and BPS solutions for our clients. These "best of breed" solutions are often industry-specific, and therefore leverage Keane's
vertical expertise. Frequently, these solutions can be bundled into integrated "solution sets" that are repeatable and cost-effective delivery vehicles. AD&I services include custom
development, Enterprise Resource Planning ("ERP") implementations, and other vertically aligned solutions.

As
a result of our significant expertise and experience, including our technical experience in leading edge and commercially accepted tools, we have become a top-tier
provider of large, complex software development and integration projects for Global 2000 companies. We also provide AD&I services to the public sector, which includes agencies within the U.S. Federal
Government, various states, and other local government entities. We believe that we are well positioned to bid on and win large-scale AD&I projects from both the commercial and public sector markets
due to our core competencies in project management, integration, and global delivery. We believe that these competencies, together with our long-term relationships with Global 2000
companies, particularly with those clients for which we provide Application Outsourcing services, will provide a foundation for future growth through cross-selling of our complementary service
offerings.

Healthcare Solutions.Our Healthcare Solutions Division ("HSD") develops and markets a complete line of
open-architecture financial management, patient care, clinical operations, enterprise information, long-term care, and practice management systems for healthcare organizations.
The consulting, development, and integration of these systems is included in Development and Integration services. In addition, HSD provides maintenance of these software applications, which is
included in Outsourcing Services.

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HSD's
products help healthcare organizations overcome the challenge of providing higher quality patient care while administering more efficient operations through the use of information
technology. HSD's core healthcare solutions include EZ-Access, Keane InSight, and VistaKeane.
EZ-Access is a browser-based family of healthcare information systems designed to improve access to patient data, reduce the occurrence of medical errors, and protect client investment in
information technology. EZ-Access includes our widely installed Patcom Plus, a patient management system that is considered a market leader by industry analysts. Keane InSight is a
comprehensive healthcare information system that provides immediate access to patient information using secure, browser-based technology. VistaKeane is a fully integrated financial and clinical
solution for long-term and post-acute care providers. HSD's clients include integrated delivery networks, hospitals, long-term care facilities, and physician group
practices. HSD currently provides proprietary software and services to more than 280 hospital-based clients and approximately 4,000 long-term care facilities throughout the U.S.

Other Services

IT Consulting.Our IT Consulting services include several offerings that help companies develop and implement their IT and
business process improvement strategies. Many clients engage us to provide Project Management services to ensure consistency of quality and delivery over multiple projects within a client
organization. Other IT Services also includes our Network Integration Planning, Strategic Information Planning, and Package Selection offerings.

Business Consulting.Our Business Consulting services play an important role in our ability to help clients transform their
IT and business operations for maximum business performance. Our Business Consulting services are designed to consider a broad view of business processes, organizational design, and technology
architecture. Typically, Business Consulting engagements deliver specific, tactical recommendations for process improvement, often resulting in a follow-on engagement to deliver IT or
business outsourcing services. We provide our Business Consulting services through both Keane and Keane Worldzen, our majority-owned BPS subsidiary.

Staff Augmentation.Our Staff Augmentation service provides clients with a team of professionals with specialized technical
skills to augment their in-house staffs. These professionals help clients develop or manage their applications or assist with short-term IT services requirements without adding
to their fixed personnel costs. In many instances, we provide staff augmentation resources to clients who are also utilizing our outsourcing or AD&I services. In addition, we believe that staff
augmentation services provide us with a foundation from which to establish new client relationships and ultimately expand our base of services by cross-selling our other offerings.

Transportation Ticketing Solutions

In 2005, we entered into the market of being a provider of automated fare collection systems for public transport authorities worldwide. The public transport
market includes a range of services and systems
solutions for bus, bus rapid transit, commuter rail, and heavy rail. The solutions and services within this market include, but are not limited to system design, equipment design, integration,
testing, installation, maintenance, card management and distribution services, cash collection, application support and outsourcing and software design.

The
automated fare collection business is a niche market able to sustain only a relatively few number of suppliers. There is significant competition to win contracts due to the
long-term expectancy of these systems and few suppliers; therefore, the bidding process is often long, with price competitiveness being a key differentiating factor.

There
is a growing trend for regional ticketing systems, usually built around a large metropolitan area transit agency and often including neighboring agencies that share a common
regional smart card-based system. There is an emerging trend for other applications to be added to these regional systems to expand the utility of the smart card. This offers higher value
and incentives to the end users

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and
improves the return on investment for the regional system operators. As a result, these regional systems have incorporated additional capabilities, including call center support, smart card
production and distribution, financial clearing and settlement, and multi-application support to their smart card payment programs. The growing new market provides the opportunity to establish lasting
relationships and grow revenues and profits over the long-term.

We
formed Keane Australia Micropayment Consortium Pty Ltd ("Kamco"), a wholly-owned subsidiary of Keane, in order to deliver these services in Australia. On July 26, 2005,
Kamco and the Public Transport Ticketing Body trading as Transport Ticketing Authority (the "TTA") of the State of Victoria, Australia, entered into a $494.0 million AUD, or approximately
$367.0 million (based on the exchange rate of $.74285 AUD per $1.00), contract (the "Victoria TTA contract") to deliver a public transit ticketing system for the State of Victoria. The Victoria
TTA contract has a term of approximately twelve years, including two years of development work, referred to as the Build phase, and ten years of operation and maintenance, referred to as the Operate
phase. The Build phase represents the development and implementation of the comprehensive solution including hardware, card distribution and software. The Operate phase represents the maintenance of
the software, hardware and comprehensive solution, refurbishments and replacements, hosting and management of the subcontractors. Keane has established and is leading a consortium of four transit and
technology experts to design, build, implement, and maintain a micropayment smartcard technology system and related equipment for the TTA. Keane's consortium includes automatic fare collection
specialists Ascom, ERG, and Giesecke & Devrient Australasia ("G&D"). See Note 2 "SIGNIFICANT CONTRACTS" in the notes to the accompanying consolidated financial statements for further
detail on the terms of the Victoria TTA contract.

With
the entrance into the Transportation Ticketing Solution market in 2005 as a result of our winning the Victoria TTA contract, we have determined that the economic characteristics of
the services and the distinct client base would require a separate reportable segment. See Note 17 "SEGMENT INFORMATION" in the notes to the accompanying financial statements for further
discussion.

STRATEGY

Our goal is to be recognized as one of the world's premier business process and IT service providers by our clients, employees, and shareholders. We believe that
we can achieve this goal by helping clients transform their IT and business operations through the consistent delivery of high-value consulting, development, and outsourcing services.
Specifically, we believe that applications services and business process services are large and synergistic growth markets, and that a significant business trend is corporations leveraging Application
Outsourcing, BPS, and global delivery to achieve meaningful cost reductions and business improvement. We believe that our depth of capability in each of these areas, along with our vertical expertise,
strong client relationships and process management capabilities, position us well to capitalize on this market opportunity.

In
support of this evolution in market demand, we are migrating Keane's organizational structure from a geographic network of local branches to an integrated global matrix, which we have
termed "One Keane." In the future we plan to align client relationships and business development activities by geographic region, but business solutions will be designed and delivered by integrated
global Business Lines and Vertical Practices. We believe that this new organization better positions Keane to deliver high-value, transformational solutions that bundle vertical expertise,
business process and applications services, intellectual property through a technology platform or a proprietary reference architecture, and cost effective global delivery. Moreover we expect it will
increase Keane's flexibility and scalability, eliminate redundancy and excess costs, and improve the career growth opportunities that we offer our employees.

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Each
of Keane's six major strategic priorities for 2006 is aligned with the "One Keane" initiative:

Achieve sustainable revenue and earnings growth in order to build per share value.

Our objective is to achieve long-term revenue expansion by growing our Application Outsourcing, AD&I and BPS businesses, as well as by leveraging our
strong position in less cyclical industries such as healthcare and in the public sector. We seek to increase our operating margins by improving billing rates and utilization, and increasingly
leveraging lower-cost offshore resources in providing services to our clients. We strive to effectively manage our working capital, most notably Days Sales Outstanding ("DSO"), and capital
spending in order to generate strong operating cash flow. We plan to use excess cash to complete attractive acquisitions and to continue to repurchase shares of our common stock from
time-to-time.

Rapidly grow our global delivery capabilities.

Global delivery has become an important component of our clients' overall sourcing strategies. Use of nearshore and offshore delivery enables clients to access a
large pool of cost-effective technical personnel, while enhancing productivity by taking advantage of time differences among Keane delivery centers around the world. As a result, global
delivery capability is critical for success in today's IT services market. Over the past several years, we have significantly enhanced our global delivery capabilities, and now operate four offshore
development centers in India and two nearshore development centers in Canada. During 2006, we expect to further invest in our India and Canada operations in order to support anticipated acceleration
in client demand for lower cost delivery resources.

Build scale and market share in growing Business Process Services market.

We entered the BPS market in October 2003 through our majority investment in Keane Worldzen, which provides clients with high-value business
consulting and business process outsourcing, including process optimization and transaction outsourcing. We believe that client demand for transformational business process outsourcing, often bundled
with applications outsourcing, represents a significant future growth opportunity. As a result, in 2006, we plan to invest in additional capability and scale in our BPS operations, both through Keane
Worldzen and potential additional investments.

Build a flexible, adaptable, and cost-effective organization to anticipate client and marketplace demands.

The dynamic nature of the IT and business process marketplace requires real-time market insight and the ability to rapidly respond to changing client
demands. In 2006, as part of our One Keane initiative, a key Keane priority is to improve the flexibility of our internal organization and operating model, so that Keane's sales, delivery and support
teams are able to respond and adapt more quickly to market demands. We also believe that the improved alignment and effectiveness of Keane's internal organization will provide our employees with
increased opportunities for challenging work, career growth, and improved overall employee satisfaction, and improve Keane's standing as a choice employer. We expect that, over the long term, this
organizational model will drive cost efficiencies, and will result in a more competitive go-to-market cost structure.

Continue to build compelling value propositions for our clients, leveraging vertical expertise and superior technical solutions.

We seek to deliver integrated solutions, incorporating innovative application of technology and solutions development expertise. In addition, we feel that deep
industry knowledge is increasingly an important strategic differentiator as clients decide to outsource a broader portfolio of IT and business initiatives. Accordingly, in 2006 we plan to invest in
building further expertise in the financial services, insurance, healthcare, and public sector verticals, and in developing integrated business solutions. We

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believe
this will enable Keane to go beyond simply delivering cost and performance improvements to our clients and allow us to deliver transformational business benefits.

Enhance growth and market positioning through mergers and acquisitions.

Our long-term growth strategy includes both a strong focus on organic expansion and enhanced growth through mergers and acquisitions ("M&A"). In 2003,
2004, and 2005, we acquired several companies that met specific strategic criteria, including enhancing Keane's capabilities and client relationships. In 2006, we will continue to proactively focus
resources on identifying, evaluating, and, when appropriate, consummating M&A transactions that have the potential to create long term per share value. We proactively target applications services and
business process outsourcing firms that provide scale and/or are additive to Keane's strategic positioning.

COMPETITION

The IT services market is highly competitive and driven by continual changes in client business requirements and advances in technology. Our competition varies by
the type of service provided and by geographic markets.

We
compete with traditional players in the IT services industry, including large integrators (such as Accenture, Electronic Data Systems, Computer Sciences Corporation, IBM Global
Services, and Perot Systems); offshore solution providers, including Wipro and Infosys; IT solutions providers (such as Sapient Corporation, BearingPoint, and Ciber); and management consulting firms
(such as McKinsey and Booz Allen). Some of these competitors are larger and have greater financial resources than we do.

We
believe that competition in the IT services industry is based on a firm's ability to deliver integrated solutions that best meet the needs of clients, provide competitive pricing,
develop strong client relationships, generate recurring revenue, and offer flexible delivery options. We believe that we compete favorably with respect to these factors.

CLIENTS

Our clients consist primarily of Global 2000 organizations, government agencies, and healthcare organizations. These organizations generally have significant IT
budgets and frequently depend on service providers for outsourcing services.

In
2005, we derived our revenue from the following industry groups:

Industry

Percentage of RevenueFinancial services

32.9
%Healthcare

19.0Government

18.7Manufacturing

12.6Other

7.1High Technology/Software

3.8Retail/Consumer goods

3.8Energy/Utilities

2.1


Our
10 largest clients, including various agencies of the Federal Government, accounted for approximately 30.9%, 35.9%, and 35.6% of our total revenues during the years ended
December 31, 2005, 2004, and 2003, respectively. Our two largest clients during 2005 were the various agencies of the Federal Government and a leading insurance provider, with approximately
9.8% and 5.4% of our total revenues in 2005, respectively. Our two largest clients during 2004 and 2003 were the various agencies of the Federal Government and PacifiCare Health Systems, Inc.
("PacifiCare"), with approximately

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9.4%
and 5.3% of our total revenues in 2004, respectively, and approximately 9.2% and 6.5% of our total revenues in 2003, respectively. A significant decline in revenue from the various agencies of
the Federal Government and a leading insurance provider would have a material adverse effect on our total revenue. With the exception of the various agencies of the Federal Government, a leading
insurance provider, and PacifiCare, no single client accounted for more than 4.0% of our total revenues during any of the three years ended on or before December 31, 2005.

In
accordance with industry practice, many of our orders are terminable by either the client or us on short notice. Moreover, any and all orders relating to the Federal Government may be
subject to renegotiation of profits or termination of contract or subcontractors at the election of the Federal Government. We had orders at December 31, 2005 and 2004 of approximately
$776.6 million and $600.4 million, respectively, representing backlog for the fiscal years ended December 31, 2006 and 2005, respectively. Because our clients can cancel or reduce
the scope of their engagements on short notice, we do not believe that backlog is a reliable indication of future business.

SALES, MARKETING, AND ACCOUNT MANAGEMENT

We market our services and software products through our direct sales force, which is based close to our clients in regional field offices. Our account executives
are vertically aligned, and are assigned to a limited number of accounts so they can develop an in-depth understanding of each client's individual needs and form strong client
relationships. We believe that Keane's existing clients collectively represent a significant future growth opportunity. Accordingly, we have assigned certain of our account representatives solely to
these clients; these account executives identify IT and business services needs and lead the development of solutions that meet these requirements. They also ensure that clients receive responsive
service that achieves their objectives. In addition, we have identified a specialized team of account executives focused solely on identifying opportunities and leading solution development for
companies that are not currently Keane clients. All account executives receive training in our sales processes and service offerings and are supported by enterprise knowledge management systems in
order to efficiently share organizational learning. Account executives collaborate with our vertical practices, other regional offices, and our offshore team as needed to address specialized client
requirements.

We
focus our marketing efforts on organizations with significant IT budgets and recurring software development and outsourcing needs. We maintain a corporate branding campaign focused on
communicating our value proposition of reliably delivering application solutions with quantifiable business results. These branding efforts are actively executed through multiple channels.

EMPLOYEES

As of December 31, 2005, we had 9,586 total employees, including 8,208 business and technical professionals whose services are billable to clients. This
includes a base of 2,626 employees in India, including our Keane Worldzen operations. We sometimes supplement our technical staff by utilizing subcontractors, which as of December 31, 2005,
consisted of 646 full-time professionals.

We
believe our growth and success are dependent on the caliber of our people and will continue to dedicate significant resources to hiring, training and development, and career
advancement programs. Our efforts in these areas are grounded in our core values, namely: respect for the individual, commitment to client success, achievement through teamwork, integrity, continuous
improvement, and commitment to shareholder value. We strive to hire, promote, and recognize individuals and teams who embody these values.

We
have change in control and/or employment agreements with each executive officer. None of our employees are subject to a collective bargaining agreement and we believe that our
relations with our employees are good.

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ITEM 1A.    RISK FACTORS

The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this
Annual Report on Form 10-K and presented elsewhere by management from time-to-time.

Our "One Keane" transformation initiative may not be successfully implemented, which could materially affect our results of
operations.We have recently undertaken the early stages of a multi-faceted internal reorganization, which we call the "One Keane Transformation." Our goals in
implementing the One Keane Transformation include: the replacement of our current regional operations structure with an overlapping structure including regional client relationship organizations,
delivery organizations based on business lines (such as applications services and business transformation services) and vertical industry expertise (including financial and health care) and global
shared services for sales and human resources, aimed at lowering cost. We expect that the One Keane Transformation will be an ongoing process over the next 12-24 months and will
touch all areas of Keane, requiring significant internal resources, including significant attention from our management. If we are
unable to successfully implement the One Keane Transformation, or a successful implementation that does not achieve our stated objectives, it could result in loss of employee morale, an inability to
lower our delivery costs and compete in the global market, and could materially affect our results of operations.

Our quarterly operating results have varied, and are likely to continue to vary significantly. This may result in volatility in the market price of our common
stock.We have experienced and expect to continue to experience fluctuations in our quarterly results. Our gross margins vary based on a variety of factors
including employee utilization rates and the number and type of services performed during a particular period. A variety of factors influence our revenue in a particular quarter, including:



A
significant portion of our expenses does not vary relative to revenue. As a result, if revenue in a particular quarter does not meet expectations, our operating results could be
materially adversely affected, which in turn may have a material adverse impact on the market price of our common stock. In addition, many of our engagements are terminable without client penalty. An
unanticipated termination of a major project could result in an increase in underutilized employees and a decrease in revenue and profits.

We continue to position ourselves to achieve increasing percentages of revenues and growth through outsourcing. If we are successful in obtaining new outsourcing
contracts, we may experience increased pressure on our overall margins during the early stages of these contracts.This could result in higher concentrations of
revenues and contributions to income from a smaller number of larger clients on customized outsourcing solutions. If we were to receive a higher concentration of our revenues from a smaller number of
clients, our revenues could decrease significantly if one or more of these clients decreased their spending with us. Outsourcing contracts are generally long-term contracts that require
additional staffing in the initial phases of the contract period, which often results in lower gross margins at the beginning of these contracts.

If our clients are not satisfied with our services, we may have exposure to liabilities, which could adversely affect our profitability and financial condition as
well as our ability to compete for future work.If we fail to meet our contractual obligations, we could be subject to legal liability, which could

11

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adversely
affect our business, operating results and financial condition. The provisions we typically include in our contracts that are designed to limit our exposure to legal claims relating to our
services and the applications we develop may not protect us or may not be enforceable under some circumstances or under the laws of some jurisdictions. It is possible, because of the nature of our
business, that we will be sued in the future. In addition, although we maintain professional liability insurance, the policy limits may not be adequate to provide protection against all potential
liabilities. Moreover, as a consulting firm, we depend to a large extent on our relationships with our clients and our reputation for high-quality services to retain and attract clients
and employees. As a result, claims made against our work may damage our reputation, which in turn, could impact our ability to compete for new work and negatively impact our revenue and profitability.

The termination of a contract by a significant client could reduce our revenue and profitability or adversely affect our financial
condition.Our five largest clients, excluding the Federal Government, accounted for approximately 19.6% of our revenue for the year ended December 31,
2005, although no individual client accounted for more than 5.4% of our total. The various agencies of the Federal Government represent our largest client, accounting for approximately 9.8% of the
total revenue for the year ended December 31, 2005. We strive to develop long-term relationships with our clients. Most individual client assignments are from three to twelve
months; however, many of our client relationships have continued for many years. Our clients typically retain us on a non-exclusive, engagement-by-engagement basis.
Although they may be subject to penalty provisions, clients may generally cancel a contract at any time. Under many contracts, clients may reduce their use of our services under such contract without
penalty. In addition, contracts with the Federal Government contain provisions and are subject to laws and regulations that provide the Federal Government with rights and remedies not typically found
in commercial contracts. Among other things, the Federal Government, as well as other public sector clients, may terminate contracts with short notice, for convenience and may cancel
multi-year contracts if funds become unavailable. When contracts are terminated, our revenue may decline and if we are unable to eliminate associated costs in a timely manner, our
profitability may decline. For the year ended December 31, 2005, approximately 18.7% of our revenue was from public sector clients, including U.S. Federal, state, and local governments and
agencies. Often government spending programs are dependent upon the budgetary capability to support such programs. Most states must operate under a balanced budget. As a result of such budget and
deficit considerations, our existing and future revenues and profitability could be adversely affected by reduced government IT spending.

Our engagement with Melbourne, Victoria Transport Ticketing Authority, or Victoria TTA contract, exposes us to a number of different risks inherent in such
long-term, large-scale, fixed-fee projects.We have been awarded a contract to perform services in relation to the development, operation
and maintenance of a public transport ticketing system for the state of Victoria, Australia. This engagement will require significant management attention and financial resources, and could adversely
affect our results of operations in a number of ways. These include:



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Unfavorable government audits could require us to refund payments we have received, to forego anticipated revenue, and could subject us to penalties and
sanctions.The government agencies we contract with generally have the authority to audit and review our contracts with them. As part of that process, the
government agency reviews our performance on the contract, our pricing practices, our cost structure and our compliance with applicable laws, regulations, and standards. If the audit agency determines
that we have improperly received reimbursement, we would be required to refund any such amount. If a government audit uncovers improper or illegal activities by us or we otherwise determine that these
activities have occurred, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines, and
suspension or disqualification from doing business with the government. Any such unfavorable determination could adversely impact our ability to bid for new work.

We have pursued, and intend to continue to pursue, strategic acquisitions. Failure to successfully integrate acquired businesses or assets may adversely affect
our financial performance.In recent years, we have grown significantly through acquisitions. From January 1, 1999 through December 31, 2005, we
completed 17 acquisitions. The aggregate merger and consideration costs of these acquisitions totaled approximately $429.2 million. Our future growth may be based in part on selected
acquisitions. At any given time, we may be in various stages of considering acquisition opportunities. We may not be able to find and identify desirable acquisition targets or be successful in
entering into a definitive agreement with any one target. In addition, even if we reach a definitive agreement with a target, we may not be able to complete any future acquisition.

We
typically anticipate that each acquisition will bring benefits, such as an increase in revenue. Prior to completing an acquisition, however, it is difficult to determine if these
benefits will be realized. Accordingly, there is a risk that an acquired company may not achieve an increase in revenue or other benefits for us. In addition, an acquisition may result in unexpected
costs, expenses, and liabilities. Any of these events could have a material adverse effect on our business, financial condition, and results of operations.

We
have recorded a significant amount of goodwill and other intangible assets resulting from our acquisitions. We review our goodwill and identifiable assets for impairment in accordance
with SFAS No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," and SFAS No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets. If the estimated future cash flows of the reporting units related to the underlying assets are not sufficient to support the carrying value of the associated underlying assets, we may be
required to record impairment charges related to goodwill and other intangible assets. Any material loss resulting from an impairment charge could have a material adverse effect on our results of
operations. As of December 31, 2005, our
goodwill totaled $314.5 million, customer lists totaled $41.1 million, and other intangibles assets totaled $6.2 million.

The
process of integrating acquired companies into our existing business might also result in unforeseen difficulties. Unforeseen operating difficulties may absorb significant management
attention, which we may otherwise devote to our existing business. In addition, the process may require significant financial resources that we might otherwise allocate to other activities, including
the ongoing development or expansion of our existing operations.

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Finally,
future acquisitions could result in our having to incur additional debt and/or contingent liabilities. We may also issue equity securities in connection with acquisitions, which
could have a dilutive effect on our earnings per share. Any of these possibilities could have a material adverse effect on our business, financial condition, and result of operations.

We face significant competition for our services, and our failure to remain competitive could limit our ability to maintain existing clients or attract new
clients.The market for our services is highly competitive. The technology for custom software services can change rapidly. The market is fragmented, and no
company holds a dominant position. Consequently, our competition for client assignments and experienced personnel varies significantly from city to city and by the type of service provided. Some of
our competitors are larger and have greater technical, financial, and marketing resources and greater name recognition in the markets they serve than we do. In addition, clients may elect to increase
their internal information systems resources to satisfy their custom software development and integration needs.

In
the healthcare software systems market, we compete with some companies that are larger in the healthcare market and have greater financial resources than we do. We believe that
significant competitive factors in the healthcare software systems market include size and demonstrated ability to provide service to targeted healthcare markets.

We
may not be able to compete successfully against current or future competitors. In addition, competitive pressures may materially adversely affect our business, financial condition,
and results of operations.

We conduct business in the UK, Canada, India, and Australia, which exposes us to a number of difficulties inherent in international
activities.As a result of our acquisition of a controlling interest in Keane Worldzen in October 2003 and the acquisition of SignalTree Solutions in
March 2002, we now have four software development facilities in India. As of December 31, 2005, we had approximately 2,298 technical professionals in the region, including Keane
Worldzen. India is currently experiencing conflicts with Pakistan over the disputed territory of Kashmir as well as clashes between different
religious groups within the country. These conflicts, in addition to other unpredictable developments in the political, economic, and social conditions in India, could eliminate or reduce the
availability of these development and professional services. If access to these services were to be unexpectedly eliminated or significantly reduced, our ability to meet development objectives
important to our strategy to add offshore delivery capabilities to the services we provide would be hindered, and our business could be harmed.

If
we fail to manage our geographically-dispersed organization, we may fail to meet or exceed our financial objectives and our revenues may decline. We perform development activities in
the U.S., Canada, India, and Australia, and have offices throughout the U.S., UK, Canada, India, and Australia. This geographic dispersion requires us to devote substantial management resources that
locally based competitors do not need to devote to their operations.

Our
operations in the UK, Canada, India, and Australia are subject to currency exchange rate fluctuations, foreign exchange restrictions, changes in taxation, and other difficulties in
managing operations overseas. We may not be successful in managing our international operations.

In
addition, there has been political discussion and debate related to worldwide competitive sourcing, particularly from the United States to offshore locations. There is proposed
federal and state legislation currently pending related to this issue. It is too early to determine whether or in what form this legislation will be adopted; however, future legislation, if enacted,
could have an adverse effect on our business, results of operations and financial condition.

We may be unable to re-deploy our professionals effectively if engagements are terminated unexpectedly, which would adversely affect our results of
operations.Our clients can cancel or reduce the scope of their engagements with us on short notice. If they do so, we may be unable to reassign our

14

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professionals
to new engagements without delay. The cancellation or reduction in scope of an engagement could, therefore, reduce the utilization rate of our professionals, which would have a negative
impact on our business, financial condition, and results of operations. As a result of these and other factors, our past financial performance should not be relied on as an indication of future
performance. We believe that period-to-period comparisons of our financial results are not necessarily meaningful and we expect that our results of operations may fluctuate
from period-to-period in the future.

Our growth could be limited if we are unable to attract and retain personnel in the information technology and business consulting
industries.We believe that our future success will depend in large part on our ability to continue to attract and retain highly-skilled technical and management
personnel. The competition for such personnel is intense, including attracting and retaining qualified personnel in India. We may not succeed in attracting and retaining the personnel necessary to
develop our business.
If we do not, our business, financial condition, and results of operations could be materially adversely affected.

We may be prohibited from repurchasing, and may not have the financial resources to repurchase, our 2.0% Convertible Subordinated Debentures due 2013 (our
"Debentures") on the date for repurchase at the option of the holder or upon a designated event, as required by the indenture governing our Debentures, which could cause defaults under our senior
revolving credit facility and any other indebtedness we may incur in the future.The Debenture holders have the right to require us to repurchase all or a portion
of their Debentures on June 15, 2008. The Debenture holders may also require us to repurchase all or a portion of their Debentures upon a designated event, as defined in the indenture governing
the Debentures. If the Debenture holders elect to require us to repurchase their Debentures on any of the above dates or if a designated event were to occur, we may not have enough funds to pay the
repurchase price for all tendered Debentures. We are currently prohibited under our senior revolving credit facility from repurchasing any Debentures if a designated event were to occur. We may also
be prohibited under any indebtedness we may incur in the future from purchasing any Debentures prior to their stated maturity. In these circumstances, we will be required to repay all of the
outstanding principal of, and pay any accrued and unpaid interest on, such indebtedness or to obtain the requisite consents from the holders of any such indebtedness to permit the repurchase of the
Debentures. If we are unable to repay all of such indebtedness or are unable to obtain the necessary consents, we will be unable to offer to repurchase the Debentures, which would constitute an event
of default under the indenture for the Debentures, which itself could constitute a default under our senior revolving credit facility or under the terms of any future indebtedness that we may incur.
In addition, the events that constitute a designated event under the indenture for the Debentures are events of default under our senior revolving credit facility and may also be events of default
under other indebtedness that we may incur in the future.

We incurred indebtedness when we sold our Debentures. We may incur additional indebtedness in the future. The indebtedness created by the sale of our Debentures,
and any future indebtedness, could adversely affect our business and our ability to make full payment on the Debentures.Our aggregate level of indebtedness
increased in connection with the sale of our Debentures. As of December 31, 2005, we had approximately $189.6 million of outstanding indebtedness and had the ability to incur additional
debt under our revolving credit facility. We may also obtain additional long-term debt and working capital lines of credit to meet future financing needs, which would have the effect of
increasing our total leverage. Any increase in our leverage could have significant negative consequences, including:



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Our
ability to satisfy our future obligations, including debt service on our Debentures, depends on our future operating performance and on economic, financial, competitive, and other
factors beyond our control. Our business may not generate sufficient cash flow to meet these obligations or to successfully execute our business strategy. If we are unable to service our debt and fund
our business, we may be forced to reduce or delay capital expenditures, seek additional financing or equity capital, restructure or refinance our debt or sell assets. We may not be able to obtain
additional financing or refinance existing debt or sell assets on terms acceptable to us or at all.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

Our principal executive office as of December 31, 2005, was located at 100 City Square, Boston, Massachusetts 02129, in an approximately 95,000 square foot
office building which is leased from Gateway Developers LLC ("Gateway LLC"). John Keane Family LLC is a member of Gateway LLC. The members of John Keane Family LLC are trusts for the benefit of John
F. Keane, Chairman of the Board of Directors of Keane, and his immediate family members. See Item 13 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

Based
upon our knowledge of rental payments for comparable facilities in the Boston area, we believe that the rental payments under the lease for 100 City Square, which will be
approximately $3.2 million per year ($33.00 per square foot for the first 75,000 square feet and $35.00 per square foot for the remainder of the premises) for the first six years of the lease
term and approximately $3.5 million per year ($36.00 per square foot for the first 75,000 square feet and $40.00 per square foot for the remainder of the premises) for the remainder of the
lease term, plus specified percentages of any annual increases in real estate taxes and operating expenses, were, at the time we entered into the lease, as favorable to us as those which could have
been obtained from an independent third party.

As
of December 31, 2005, we leased and maintained sales and support offices in approximately 70 locations in North America, the UK, Australia, and India. The aggregate annual
rental expense for all of our facilities, including our sales and support offices, was approximately $17.9 million in 2005. For additional information regarding our lease obligations, see
Note 16 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES" in the notes to the accompanying consolidated financial statements.

ITEM 3.    LEGAL PROCEEDINGS

We are involved in various litigation and legal matters, which have arisen in the ordinary course of business. We do not believe that the ultimate resolution of
these matters will have a material adverse effect on our financial condition, results of operations, or cash flows.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY:The executive officers and directors of Keane as of March 3, 2006 are
as follows:

|Name                   |  | Committee |  | Age |  | Position                                                                          
|---------------------- |  | --------- |  | --- |  | ----------------------------------------------------------------------------------
|John F. Keane          |  |           |  | 74  |  | Chairman of the Board and Director                                                
|Brian T. Keane         |  |           |  | 45  |  | President, Chief Executive Officer, and Director                                  
|John J. Leahy          |  |           |  | 47  |  | Executive Vice President of Finance and Administration and Chief Financial Officer
|Robert B. Atwell       |  |           |  | 57  |  | Senior Vice President                                                             
|Russell J. Campanello  |  |           |  | 50  |  | Senior Vice President                                                             
|Georgina L. Fisk       |  |           |  | 37  |  | Vice President                                                                    
|Richard S. Garnick     |  |           |  | 45  |  | President North American Services                                                 
|Raymond W. Paris       |  |           |  | 68  |  | Senior Vice President                                                             
|Laurence D. Shaw       |  |           |  | 44  |  | Senior Vice President                                                             
|Lawrence P. Begley     |  | (1)(3)    |  | 50  |  | Director                                                                          
|Maria A. Cirino        |  | (2)(3)    |  | 42  |  | Director                                                                          
|John H. Fain           |  | (1)(3)    |  | 57  |  | Director                                                                          
|Philip J. Harkins      |  | (2)(3)    |  | 58  |  | Director                                                                          
|Winston R. Hindle, Jr. |  | (1)(3)    |  | 75  |  | Director                                                                          
|John F. Keane, Jr.     |  |           |  | 46  |  | Director                                                                          
|John F. Rockart        |  | (1)(2)    |  | 74  |  | Director                                                                          
|James D. White         |  | (2)(3)    |  | 45  |  | Director                                                                          

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Officers
of Keane serve at the discretion of our Board of Directors.

Our
directors are elected to serve in classes as follows:



Mr. John
Keane, the founder of Keane, has served as Chairman of the Board of Directors since Keane's incorporation in March 1967. Mr. Keane served as Chief Executive
Officer and President of Keane from 1967 to November 1999. Mr. John Keane is a director of American Power Conversion Corporation, a designer, developer, and manufacturer of power
protection and management solutions for computer, communications, and electronic applications. Mr. John Keane is the father of Mr. Brian

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Keane,
the President, Chief Executive Officer, and a director of Keane, and Mr. John Keane, Jr., a director of Keane.

Mr. Brian
Keane joined Keane in 1986 and has served as Keane's President and Chief Executive Officer since November 1999 and as a director of Keane since May 1998.
From September 1997 to November 1999, Mr. Keane served as Executive Vice President and a member of the Office of the President of Keane. From December 1996 to
September 1997, he served as Senior Vice President. From
December 1994 to December 1996, he was an Area Vice President of Keane. From July 1992 to December 1994, Mr. Keane served as a Business Area Manager, and from
January 1990 to July 1992, he served as a Branch Manager. Mr. Keane is a trustee of the Boston Museum of Science, as well as an overseer of the Boys and Girls Club of Boston and
the Boston Symphony Orchestra. Brian Keane is a son of John Keane, the founder, and Chairman of Keane, and the brother of John Keane, Jr., a director.

Mr. Leahy
joined Keane in August 1999 as Senior Vice President of Finance and Administration and Chief Financial Officer. During 2005, Mr. Leahy was promoted to
Executive Vice President of Finance and Administration and Chief Financial Officer. From 1982 to August 1999, Mr. Leahy was employed by PepsiCo, Inc., a multinational consumer
products corporation, during which time he held a number of positions, serving most recently as Vice President of Business Planning and Development for Pepsi-Cola International.

Mr. Atwell
initially joined Keane in 1974 and held a number of positions through 1986. Mr. Atwell left Keane from 1986 to 1991. In 1991, Mr. Atwell rejoined Keane
when we acquired a branch of Broadway and Seymour, a regional applications services company where Mr. Atwell was serving as Vice President. Since that time, Mr. Atwell has held several
positions with Keane and has held the position of Senior Vice President since 1999.

Mr. Campanello
joined Keane in September 2003 as Senior Vice President of Human Resources. From July 2000 to February 2003, he served as Chief People Officer
at NerveWire, a technology and business consulting company. From January 1998 to July 2000, he led the human resource function at Genzyme Corporation, a biotechnology company.

Ms. Fisk
joined Keane in August 1998 as Marketing Manager of Keane Ltd in the UK. From October 2000 to January 2001, Ms. Fisk served as the
Director of Marketing of Keane Ltd in the UK. Since January 2001, Ms. Fisk has served as Director of Marketing for Keane, Inc. and in January 2004, was promoted to
Vice President, Marketing of Keane, Inc.

Mr. Garnick
joined Keane in September 2005 as President of North American Services. From September 1999 to September 2001, Mr. Garnick was Chairman and
Chief Executive Officer of Global Digital Media, a technology company. From September 2001 to August 2005, Mr. Garnick served as Chief Executive-Americas & Enterprise
Application Service at Wipro Technologies, an IT solutions and services provider.

Mr. Paris
joined Keane in November 1976. Mr. Paris has served as Senior Vice President of Healthcare Solutions since January 2000 and served as Vice President
and General Manager of the Healthcare Solutions Practice from August 1986 to January 2000. Mr. Paris also served as Area Manager of the Healthcare Solutions Practice from 1981 to
1986.

Mr. Shaw
joined Keane in September 2002 as Managing Director of Keane Ltd. From 1996 to September 2002, Mr. Shaw was employed by Headstrong, a global
restructuring corporation, during which time he held a number of positions, serving most recently as Chief Operating Officer of European Operations. During 2004, Mr. Shaw was promoted to Senior
Vice President, International Operations for Keane, Inc.

Mr. Begley
has served as a director of the Company and the audit committee financial expert since March 2005. Mr. Begley has served as an independent financial
consultant since May of 2001. From March 2000 to May 2001, Mr. Begley served as Executive Vice President, Chief Financial Officer and

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Treasurer
of CCBN.com. From November 1999 to February 2000, he was Executive Vice President, Chief Financial Officer, and director of Razorfish, Inc. From 1996 to
November 1999, Mr. Begley served as Executive Vice President, Chief Financial Officer, and director of iCube, Inc., a systems integration company, which was acquired by
Razorfish, Inc. in November 1999. Mr. Begley is a director of MTI Technology Corporation, a global provider of storage, storage management, and data protection.

Ms. Cirino
has served as a director of Keane since July 2001. From February 2000 to February 2004, Ms. Cirino was CEO and Chairman of
Guardent, Inc., ("Guardent") a managed security services corporation. On February 27, 2004, Guardent was acquired by VeriSign, Inc., ("VeriSign"), a provider of critical
infrastructure services for Internet and telecommunications networks. Since then, Ms. Cirino has held the position of Senior Vice President of VeriSign Managed Security Services, a division of
VeriSign. From November 1999 to February 2000, Ms. Cirino served as Vice President of Sales and Marketing for Razorfish Inc., a strategic digital communications company.
From July 1997 to November 1999, Ms. Cirino served as Vice President of Sales and Marketing for iCube, Inc., a systems integration company, which was acquired by Razorfish
in November 1999.

Mr. Fain
has served as a director of Keane since November 2001 and served as Senior Vice President of Keane from November 2001 to March 2002. Prior to joining
Keane, Mr. Fain was the founder, Chief Executive Officer, and Chairman of the Board of Directors of Metro Information Services Inc. ("Metro"), a provider of IT consulting, and custom
software development services and solutions, which was acquired by Keane in November 2001. Mr. Fain's role at Metro also included serving as President from July 1979 until
January 2001.

Mr. Harkins
has served as a director of Keane since February 1997. Mr. Harkins is currently the President and Chief Executive Officer of Linkage, Inc., an
organizational development company founded by Mr. Harkins in 1988. Prior to 1988, Mr. Harkins was Vice President of Human Resources of Keane.

Mr. Hindle
has served as a director of Keane since February 1995. Mr. Hindle is currently retired. From September 1962 to July 1994, Mr. Hindle
served as a Vice President and, subsequently, Senior Vice President of Digital Equipment Corporation, a computer systems and services firm. Mr. Hindle is also a director of Mestek, Inc.,
a public company that manufactures and markets building and industrial products.

Mr. John
Keane, Jr. has served as a director of Keane since May 1998. From its founding in July 2000 until April 2005, Mr. Keane was President and
Chief Executive Officer of ArcStream Solutions, Inc., ("ArcStream") a consulting and systems integration firm focusing on mobile and wireless solutions. We acquired certain assets of ArcStream
in April 2005. See Note 7 "BUSINESS ACQUISITIONS" for further discussion on the terms of the acquisition. From September 1997 to July 2000, he was Executive Vice President
and a member of the Office of the President of Keane. From December 1996 to September 1997, he served as Senior Vice President. From December 1994 to December 1996, he was
an Area Vice President. From January 1994 to December 1994, Mr. Keane served as a Business Area Manager. From July 1992 to January 1994, he acted as manager of
Software Reengineering, and from January 1991 to July 1992, he served as Director of Corporate Development. John Keane, Jr. is a son of John Keane, the founder and Chairman of Keane, and
the brother of Brian Keane.

Dr. Rockart
has served as a director of Keane since Keane's incorporation in March 1967. Dr. Rockart has been a Senior Lecturer Emeritus at the Alfred J. Sloan
School of Management of the Massachusetts Institute of Technology ("MIT") since July 2002. Dr. Rockart served as a Senior Lecturer at the Alfred J. Sloan School of Management of MIT from
1974 to July 2002 and was the Director of the Center for Information Systems Research from 1998 to 2000. Dr. Rockart is also a director of Selective Insurance Group, a public holding
company for property and casualty insurance companies.

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Mr. White
has served as director of Keane since February 2004. From July 2002 to October 2005, Mr. White was the Senior Vice President of Business
Development for The Commercial Operations North America of The Gillette Company. Since October 2005, Mr. White has held the position of Senior Vice President, Corporate Brands, at
Safeway, Inc., a large food and drug retailer in North America. From June 1986 to May 2002, Mr. White was employed by Nestlé, during which time he held a
number of positions, serving most recently as the Vice President of Customer Interface for Nestlé Purina Pet Care Company.

The
compensation of the non-employee members of the Board of Directors is as follows:

|Compensation                                                                |  | Amount                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Annual retainer                                                             |  | $20,000                                                                                                                                                                                                                                         
|Additional compensation:                                                    |  |                                                                                                                                                                                                                                                 
|Fee per Board Meeting                                                       |  | 2,000                                                                                                                                                                                                                                           
|Annual fee for Chairperson of Nominating and Corporate Governance Committee |  | 5,000                                                                                                                                                                                                                                           
|Annual fee for Chairperson of Compensation Committee                        |  | 15,000                                                                                                                                                                                                                                          
|Annual fee for Chairperson of Audit Committee                               |  | 25,000                                                                                                                                                                                                                                          
|Committee meetings and telephonic meetings of the Board                     |  | No additional fee (part of annual retainer)                                                                                                                                                                                                     
|Initial stock option grant for a new Director                               |  | 10,000 shares of common stock to be granted on the date of election. These options vest in three equal annual installments and have an exercise price equal to the closing price of our common stock on the
NYSE on the date of grant.          
|Annual stock option grant                                                   |  | 5,000 shares of common stock to be granted on the date of each Annual Meeting. These options vest in three equal annual installments and have an exercise price equal to the closing price of our common
stock on the NYSE on the date of grant.

The
compensation of our non-employee directors is determined on an approximate 52-week period (the "Annual Directors Term") that runs from annual meeting date to
annual meeting date rather than on a calendar year. A director may elect to receive his or her annual fee or meeting attendance fees for an Annual Directors Term in the form of shares of common stock
in lieu of cash payments. If a director elects to receive shares of common stock in lieu of cash as payment for the annual fee or meeting attendance fees, the number of shares to be received by the
director will be determined by dividing the dollar value of the annual fee or the meeting attendance fees owed by the closing price of our common stock as reported on the NYSE on the last day of the
Annual Directors Term.

Directors
generally make their elections as to the form of compensation for his or her annual fee or meeting attendance fees in July of each year and such election is valid for the
Annual Directors Term beginning in the calendar year in which the election is made.

Non-employee
directors are also eligible to receive stock options under our stock incentive plans. During 2005, we did not grant stock options to non-employee
directors, other than the initial stock option grant or the annual stock option grant discussed above. Directors who are officers or employees of Keane do not receive any additional compensation for
their services as directors.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our authorized capital stock consists of 200,000,000 shares of common stock, $.10 par value per share, 503,797 shares of Class B common stock, $.10 par
value per share, and 2,000,000 shares of preferred stock, $.01 par value per share. As of March 3, 2006, there were 58,192,415 shares of common stock outstanding and held of record by
approximately 2,128 registered stockholders and no shares of Class B common stock or preferred stock outstanding. Effective February 1, 2004, each share of our Class B common
stock, $.10 par value per share, was automatically converted into one share of common stock.

COMMON STOCK

Voting.Each share of our common stock is entitled to one vote on all matters submitted to stockholders. Voting for directors
is non-cumulative.

On
January 13, 2004, we announced that our Board of Directors voted to convert all of the outstanding shares of Class B common stock into shares of our common stock on a
one-for-one basis, effective February 1, 2004. As of December 31, 2003, the Class B common stock represented less than 1% of our outstanding equity, but
had approximately 4.3% of the combined voting power of our combined stock.

Dividends and Other Distributions.The holders of common stock are entitled to receive ratably such dividends, if any, as may
be declared by our Board of Directors, out of funds legally available therefore. In the event of a liquidation, dissolution, or winding up of Keane, holders of common stock have the right to ratable
portions of our net assets after the payment of all debts and other liabilities.

Other Matters.The holders of common stock have no preemptive rights or rights to convert their stock into any other
securities and are not subject to future calls or assessments by Keane. All outstanding shares of common stock are fully paid and non-assessable. The rights, preferences, and privileges of
holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock, which we may designate and issue in the future.

PREFERRED STOCK

Our articles of organization authorize the issuance of up to 2,000,000 shares of preferred stock. Shares of preferred stock may be issued from
time-to-time in one or more series, and our Board of Directors is authorized to determine the rights, preferences, privileges, and restrictions, including the dividend rights,
conversion rights, voting rights, terms of redemption, redemption price or prices, and liquidation preferences, of any series of preferred stock, and to fix the number of shares of any such series of
preferred stock without any further vote or action by the stockholders. The voting and other rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future. The issuance of shares of preferred stock, while providing desirable flexibility in connection with acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of Keane. We have
no present plans to issue any shares of preferred stock.

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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

We began trading our common stock on the NYSE under the symbol "KEA" on October 30, 2003. The following table sets forth, for the periods indicated, the
high and low sales price per share as reported by NYSE.

Stock PricePeriod

High

Low2005First Quarter

$
14.51

$
12.60Second Quarter


13.93


11.35Third Quarter


14.11


11.01Fourth Quarter


11.60


10.052004First Quarter

$
18.20

$
14.00Second Quarter


16.44


12.68Third Quarter


15.67


12.70Fourth Quarter


16.39


14.52


The
closing price of our common stock on the NYSE on March 3, 2006 was $13.30.

We
have not paid any cash dividend since June 1986. We currently intend to retain all of our earnings to finance future growth and therefore do not anticipate paying any cash
dividend in the foreseeable future. Our $200.0 million credit facility with a syndicate of banks contains restrictions that may limit our ability to pay cash dividends in the future.

The
following table provides information about purchases by Keane during the three months ended December 31, 2005 of equity securities that are registered by Keane pursuant to
Section 12 of the Exchange Act:

ISSUER PURCHASES OF EQUITY SECURITIES

|Period            |  | Total
Number of
Shares (or Units)
Purchased |  | Average Price
Paid per Share
(or Unit) |       | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or Programs (1)(2) |           | Maximum Number of Shares that
May Yet Be Purchased
Under the Plans or Programs (1)(2)
|----------------- |  | ------------------------------------------- |  | -------------------------------------- | ----- | --------------------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------------------
|
|10/01/05-10/31/05 |  | 590,480                                     |  | $                                      | 10.85 |                                                                                         | 590,480   |                                                                                      
|11/01/05-11/30/05 |  |                                            |  | $                                      |      |                                                                                         |          |                                                                                      
|12/01/05-12/31/05 |  | 446,100                                     |  | $                                      | 10.54 |                                                                                         | 446,100   |                                                                                      
|Total:            |  | 1,036,580                                   |  | $                                      | 10.72 |                                                                                         | 1,036,580 |                                                                                      

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ITEM 6.    SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

|Years ended December 31,                                                            |  | 2005 |         | 2004 |   | 2003    |   | 2002 |         | 2001 |  
|----------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | -
|
|Income Statement Data:                                                              |  |      |         |      |   |         |   |      |         |      |  
|Revenues                                                                            |  | $    | 955,855 |      | $ | 911,543 |   | $    | 804,976 |      | $
|Operating income                                                                    |  |      | 50,982  |      |   | 51,433  |   |      | 42,180  |      |  
|Net income (1)                                                                      |  |      | 33,426  |      |   | 32,282  |   |      | 29,222  |      |  
|Basic earnings per share                                                            |  |      | 0.55    |      |   | 0.52    |   |      | 0.44    |      |  
|Diluted earnings per share (2)                                                      |  | $    | 0.52    |      | $ | 0.48    |   | $    | 0.43    |      | $
|Basic weighted average common shares outstanding                                    |  |      | 60,540  |      |   | 62,601  |   |      | 65,771  |      |  
|Diluted weighted average common shares and common share equivalents outstanding (2) |  |      | 69,281  |      |   | 71,807  |   |      | 70,817  |      |  
|Balance Sheet Data:                                                                 |  |      |         |      |   |         |   |      |         |      |  
|Cash, restricted cash and marketable securities                                     |  | $    | 169,111 |      | $ | 199,152 |   | $    | 206,136 |      | $
|Total assets                                                                        |  |      | 807,294 |      |   | 805,535 |   |      | 793,101 |      |  
|Total debt (3)                                                                      |  |      | 189,626 |      |   | 190,952 |   |      | 193,371 |      |  
|Stockholders' equity                                                                |  |      | 440,612 |      |   | 461,703 |   |      | 458,132 |      |  
|Book value per share                                                                |  | $    | 7.58    |      | $ | 7.42    |   | $    | 7.20    |      | $
|Number of shares outstanding                                                        |  |      | 58,135  |      |   | 62,184  |   |      | 63,629  |      |  
|Financial Performance:                                                              |  |      |         |      |   |         |   |      |         |      |  
|Revenue growth (decline)                                                            |  |      | 4.9     | %    |   | 13.2    | % |      | (7.8    | )%   |  
|Net margin                                                                          |  |      | 3.5     | %    |   | 3.5     | % |      | 3.6     | %    |  

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this annual report.

OVERVIEW

Our goal is to be recognized as one of the world's premier business process and IT service providers by our clients, employees, and shareholders. We believe that
we can achieve this goal by helping clients transform their IT and business operations through the consistent delivery of high-value consulting, development, and outsourcing services.
Specifically, we believe that applications services and business process services are large and synergistic growth markets, and that a significant business trend is corporations leveraging Application
Outsourcing, BPS, and global delivery to achieve meaningful cost reductions and business improvement. We believe that our depth of capability in each of these areas, along with our vertical expertise,
strong client relationships, and process management capabilities, position us well to capitalize on this market opportunity.

In
support of this evolution in market demand, we are migrating Keane's organizational structure from a geographic network of local branches to an integrated global matrix, which we have
termed, "One Keane." In the future, we plan to align client relationships and business development activities by geographic region, but business solutions will be designed and delivered by integrated
global Business Lines and Vertical Practices. We believe that this new organization better positions Keane to deliver high-value, transformational solutions that bundle vertical expertise,
business process and applications services, intellectual property through a technology platform or a proprietary reference architecture, and cost effective global delivery. Moreover, we expect it will
increase Keane's flexibility and scalability, eliminate redundancy and excess costs, and improve the career growth opportunities that we offer our employees.

Components of Revenues

We seek to help clients improve their business and IT effectiveness. We classify our service offerings into the following three categories: Outsourcing,
Development & Integration, and Other IT Services.

Outsourcing:Our outsourcing services include Application and Business Process Outsourcing. Our Application Outsourcing
services help clients manage existing business systems more efficiently and more reliably, improving the performance of these applications while frequently reducing costs. Under our Application
Outsourcing service offering, we assume responsibility for managing a client's business applications with the goal of instituting operational efficiencies that enhance flexibility, free up client
personnel resources, and achieve higher user satisfaction. We enter into large, long-term contracts for the provision of Application Outsourcing services, which generally do not require
any capital outlay by us. These contracts usually span three to five years with the ability to renew. We typically receive a fixed monthly fee in return for meeting or exceeding a contractually agreed
upon service level. However, because our clients typically have the ability to reduce services under their contracts, our monthly fees may be reduced from the stated contract amounts. Outsourcing
services also includes ongoing maintenance related to the product sales for our Healthcare Solutions Division.

Through
our global delivery model we can offer clients the flexibility and economic advantage of allocating work among a variety of delivery options. These include onsite at a client's
facility, nearshore in Halifax, Nova Scotia, and Toronto, Ontario, and offshore at one of our four development centers in India. This integrated, flexible mix of cost-effective onsite,
nearshore, and offshore delivery is now a component of most of our new Application Outsourcing engagements. The distribution of work across multiple locations is typically based on a client's cost,
technology, and risk management requirements.

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Our
BPS are provided by our majority owned subsidiary, Keane Worldzen, which we acquired on October 17, 2003. Keane Worldzen specializes in providing BPS services to clients with
complex processes in the financial services, insurance, and healthcare industries, and to clients with back-office processes in several industries. Keane Worldzen's BPO services are
designed to reduce the cost and increase the efficiency of our clients' business transactions, enabling companies to focus on their more profitable activities and avoid the distraction of
non-core back-office processes. Keane Worldzen provides these low-cost, high-value outsourcing services from operations in both the U.S. and India.

Development & Integration:As application software becomes more complex, it requires sophisticated integration between
front-end and back-end systems to enhance access to critical corporate data, enable process improvements, and improve client service. Many of our Development &
Integration projects focus on solutions for the integration of enterprise applications, supply chain, and client service problems. We also provide Development & Integration services to the
public sector, which includes agencies within the U.S. Federal Government, various states, and other local government entities. Additionally, our Healthcare Solutions Division provides software
solutions and integration support to both acute and long-term care providers.

Other IT Services:Other IT Services are primarily comprised of IT consulting, project management, and supplemental staff
engagements that are principally billed on a time and materials basis.

Global
economic and political conditions may cause companies to be cautious about increasing their use of consulting and IT services, but we continue to see a demand for our services. We
continue to experience pricing pressure from competitors as well as from clients facing pressure to control costs. In addition, the growing use of offshore resources to provide lower-cost
service delivery capabilities within our industry continues to be a source of pressure on revenues. We also experience wage inflation, primarily in India, as the demand for those resources increases.
In order for us to remain successful in the near term, we must continue to maintain and grow our client base, provide high-quality service and satisfaction to our existing clients, and
take advantage of cross-selling opportunities. In the current economic environment, we must provide our clients with service offerings that are appropriately priced, satisfy their needs, and provide
them with measurable business benefits. While we have recently experienced a more steady demand for our services, we believe that it is too early to determine if developments will translate into
sustainable improvements in our pricing or margins for 2006 and over the longer term.

There
is a great deal of competition in the provision of Outsourcing services. We believe our evolving go-to-market strategy, where we seek to provide high value,
repeatable business solutions to our clients, differentiates us from our competitors. We offer solutions that combine various Keane services and capabilities in response to a specific industry or
client need. These vertically-focused solution sets may include application services, business process outsourcing, an underlying technology platform or intellectual property, and global delivery. The
solution sets that we offer to our clients may be comprised of five major elements.



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We
believe that our deep industry knowledge differentiates us from our competitors, allowing us to go beyond simply delivering cost and performance improvements to our clients, and
allowing us to deliver transformational business benefits and, ultimately, help grow our business and integrate our comprehensive capabilities.

Components of Operating Expenses

The primary categories of our operating expenses include: salaries, wages, and other direct costs; selling, general, and administrative expenses; and amortization
of intangible assets. Salaries, wages, and other direct costs are primarily driven by the cost of client-service personnel, which consists mainly of compensation, sub-contractor, and other
personnel costs, and other non-payroll costs. Selling expenses are driven primarily by business development activities and client targeting, image-development and branding activities.
General and administrative expenses primarily include costs for non-client facing personnel, information systems, and office space, which we seek to manage at levels consistent with
changes in the activity levels in our business. We continue to anticipate changes in demand for our services and to identify cost management initiatives to balance our mix of resources to meet current
and projected future demand in our markets. We will also continue to use our global sourcing as part of our cost-effective delivery model.

We
evaluate our improvement in profitability by comparing gross margins, and selling, general, and administrative ("SG&A") expenses as a percentage of revenues. Other key metrics that we
use to manage and evaluate the performance of our business include new contract bookings, the number of billable personnel, and utilization rates. We calculate utilization rates by dividing the total
billable hours per consultant by the total hours available, including sick, holiday, and vacation, from the consultant.

NEW CONTRACT BOOKINGS

New contract bookings for the year ended December 31, 2005 were approximately $1.4 billion, an increase of $268.4 million, or 24.4%, over new
contract bookings of $1.1 billion for the year ended December 31, 2004. New contract bookings for the year ended December 31, 2005 include the $367.0 million Victoria TTA
contract with the State Government of Victoria, Australia; $256.9 million of the Victoria TTA contract is included in Outsourcing bookings and $110.1 million of the Victoria TTA contract
is included in Development & Integration bookings. For the year ended December 31, 2005, Outsourcing bookings increased 25.7% to $722.7 million, Development & Integration
bookings increased 113.1% to $266.0 million, and Other IT bookings decreased 5.2% to $378.7 million compared to the same period in 2004.

We
provide information regarding our bookings because we believe it represents useful information regarding changes in the volume of our new business over time. However, information
regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues. Cancellations and/or reductions in existing contracted amounts are not reflected in new
contract bookings.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. On an on-going basis, we evaluate our estimates including those related
to revenue earned but not yet billed, costs to complete fixed-price projects, the collectibility of accounts receivable, acquisition accounting, the valuation of goodwill, certain accrued liabilities
and other reserves, income taxes, and others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of

26

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assets
and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates. Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Application of these policies is particularly
important to the portrayal of our financial condition and results of operations. We believe that the accounting policies described below meet these characteristics. Our significant accounting policies
are more fully described in the notes to the accompanying consolidated financial statements.

Revenue Recognition

We derive our revenues from the sale of professional services, software licenses, software maintenance, and equipment. We derive the majority of our revenues from
the sale of professional services, which are recognized on a time and materials basis and proportional performance and represented approximately 94%, 93% and 92% of total revenues for the years ended
December 31, 2005, 2004, and 2003, respectively. In addition, we recognize revenue from the sale of software licenses, maintenance and equipment through our Healthcare Solutions Division, which
represented approximately 6%, 7% and 8% of total revenues for the years ended December 31, 2005, 2004, and 2003, respectively. In accordance with Staff Accounting Bulletin ("SAB")
No. 104 ("SAB 104"), "Revenue Recognition," we recognize revenue when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable and
collectibility is probable. We consider a non-cancelable fully executed agreement or client purchase order to be persuasive evidence of an arrangement. We consider delivery to have
occurred upon completion of services rendered or transfer of product title to the client. We consider the fee to be fixed or determinable if the fee is not subject to adjustment, or if we have not
granted extended payment terms to the client. We consider collection to be probable if our internal credit analysis indicates that the client will be able to pay amounts as they become due under the
arrangement.

For
general consulting engagements, we recognize revenue on a time and materials basis as services are delivered. For the majority of our outsourcing engagements, we provide a specific
level of service each month for which we bill a standard monthly fee. We recognize revenue for these engagements in monthly installments over the billable portion of the contract. These installments
may be adjusted to reflect changes in staffing requirements and service levels consistent with terms of the contract.

For
fixed-price engagements, we recognize revenue on a proportional performance basis over the life of the contract. We use estimated labor-to-complete to measure
the proportional performance. Proportional performance recognition relies on accurate estimates of the cost, scope, and duration of each engagement. If we do not accurately estimate the resources
required or the scope of the work to be performed, then future revenues may be negatively affected or losses on existing contracts may need to be recognized. All future anticipated losses are
recognized in the period they are identified.

For
our sales arrangements that contain multiple revenue elements, such as software licenses, professional services and software maintenance, we first determine whether the arrangement
is within the scope of Emerging Issues Task Force ("EITF") EITF No. 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables", Statement of Position
("SOP") SOP 97-2 ("SOP 97-2"), "Software Revenue Recognition," SOP 97-2 or SOP 81-1 ("SOP 81-1"), "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts." We recognize revenue on arrangements with multiple deliverables as separate units of accounting only if certain
criteria are met. In general, a deliverable (or a group of deliverables) meets the separation criteria if the deliverable has standalone value to the client and if there is objective and reliable
evidence of the fair value of all remaining undelivered elements in the arrangement. We allocate the total arrangement consideration to each separate unit of accounting based on the relative fair
value of each separate unit of accounting or using the residual method. The amount of arrangement consideration that is allocated to a delivered unit of accounting is limited to the amount that is not
contingent upon the delivery of another separate unit of accounting. If such criteria are not met, then all deliverables are accounted for as a single unit of

27

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accounting
whereby all revenue is recognized based on the accounting applicable to the last element to be delivered.

Revenue
earned on software arrangements involving multiple elements which qualify for separate element treatment is allocated to each undelivered element based on the relative fair
values of those elements based on vendor-specific objective evidence with the remaining value assigned to the delivered element, the software license. Revenue allocated to the software license is
based on the residual method in accordance with SOP 97-2 and SOP 98-9 ("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions", under which revenue equal to the fair value of professional services and software support is allocated to those items and recognized as revenue as those items are
delivered. Any residual or remaining portion of the total arrangement fee is then allocated to the delivered software license. We generally recognize software maintenance fees on installed products on
a pro-rated basis over the term of the agreement. Revenue is recognized for each element when each of the aforementioned revenue recognition criteria has been met.

Key
factors in determining revenue recognition for multiple element arrangements, including software and software-related services are management assessments that installation services
are essential to the functionality of the software. We evaluate revenue recognition for these types of arrangements on a contract-by-contract basis as the terms of each
arrangement vary. If the services are essential to the functionality of the software, payment of the license fees and are dependent upon the performance of the services, the arrangement includes
milestones or client specific acceptance criteria or the services include significant modification or customization of the software, then both the software license and services are recognized under
SOP 81-1. Generally, these agreements contain milestone provisions that vary by contract but relate to code load, installation, commencement of training, and demonstration that the
software performs the functions requested by the client. The milestones approximate progress to complete based upon input measures. We utilize client acceptance of contract milestones in order to
track progress to completion.

Under
EITF 00-21, in order to account for the deliverables within a contract separately, all delivered items must have standalone value, the vendor must have objective and
reliable evidence of fair value of the undelivered item(s), and if the client has a general right of return relative to the delivered item, delivery or performance of the undelivered items must be
probably and substantially within the vendor's control. We have concluded that objective evidence of fair value does not exist for all of the elements within the Victoria TTA contract. Accordingly,
each of the elements cannot be separated into multiple units of accounting and therefore, must be accounted for as a single unit of accounting. As a result, we are deferring all revenues and costs
directly associated with the delivery of services during the two years of development work, referred to as the Build phase, and we will recognize all revenues and direct costs for the contract over
the period of the ten years of operation and maintenance, referred to as the Operate phase, currently estimated to begin in mid-2007.

In
all consulting engagements, outsourcing engagements, and software application sales, the risk of issues associated with satisfactory service delivery exists. Although we believe these
risks are adequately addressed by our adherence to proven project management methodologies, proprietary frameworks, and internal project audits, the potential exists for future revenue charges
relating to service delivery issues. Historically, we have not experienced major service delivery issues.

Contract Costs

Costs to deliver services are expensed as incurred, with the exception of set-up costs and the cost of certain construction and
non-construction services for which the related revenues must be deferred under EITF 00-21 or other accounting literature. By analogy to SFAS No. 91 ("SFAS 91"),
"Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases", deferred contract set-up costs may include costs incurred
during the set-up phase of a client arrangement relating to employee transition, and relocation of key personnel. By analogy to FASB Technical Bulletin (As Amended) 90-1 ("FTB
90-1"), "Accounting for Separately Priced

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Extended
Warranty and Product Maintenance Contracts," we defer and subsequently amortize certain direct and incremental costs directly associated with the delivery of products and services related to
activities that enable the provision of contracted services to clients. For contracts in which multiple elements are accounted for as a single unit of accounting, the direct and incremental costs
directly associated with the delivery of products and services are deferred and recognized over the period revenues are recognized. We amortize deferred contract costs on a straight-line
basis over the lesser of their estimated useful lives or the period in which it was determined we would recognize the associated revenue. Useful lives range from 3 years up to a maximum of the
period when the associated revenue is recognized.

We
review deferred contract costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Our review is based on our
projection of the
undiscounted future operating cash flows of the related client contract. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts
of related assets, we record a charge is to reduce the carrying amount to equal projected future discounted cash flows.

Allowance for Bad Debts

We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to cover the risk of collecting less than full payment on our
receivables. Our allowance for bad debts is based upon specific identification of likely and probable losses. Each accounting period, we evaluate accounts receivable for risk associated with a
client's inability to make contractual payments or unresolved issues with the adequacy of our services. Billed and unbilled receivables that are specifically identified as being at risk are provided
for with a charge to revenue in the period the risk is identified. We use considerable judgment in assessing the ultimate realization of these receivables, including reviewing the financial stability
of the client, evaluating the successful mitigation of service delivery disputes, and gauging current market conditions. If our evaluation of service delivery issues or a client's ability to pay is
incorrect, we may incur future reductions to revenue.

Business Combinations

In connection with acquisitions, we estimate the fair value of assets acquired and liabilities assumed. Some of the items, including accounts receivable, property
and equipment, other intangible assets, certain accrued liabilities, and legal and other reserves require a high degree of management judgment. Certain estimates may change as additional information
becomes available. In particular, restructuring liabilities are subject to change as we complete our assessment of the acquired operations and finalize our integration plan.

Valuation of Goodwill

We have recorded a significant amount of goodwill resulting from acquisitions. We account for goodwill and other intangible assets at their estimated fair values
in accordance with SFAS No. 142, ("SFAS 142"), "Goodwill and Other Intangible Assets," which we adopted effective January 1, 2002. Under SFAS 142, goodwill is no longer
amortized but is subject to annual impairment testing. The impairment test involves the use of estimates related to the fair value of the business operations with which the goodwill is associated. Our
reporting units consist of aggregated branches that have similar economic characteristics, share the benefit of goodwill, and for which results are regularly reviewed by business operations
management. Our goodwill is allocated to these reporting units for impairment assessment. In performing our review of the recoverability of goodwill, we consider several factors, including the fair
value of the reporting unit to which the goodwill is assigned. If, as a result of examining any of these factors, we conclude that the carrying value of the reporting unit's goodwill exceeds its
estimated fair value, we will record an impairment charge and reduce the carrying value of the reporting unit to its estimated fair value.

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The
estimate of fair value requires significant judgment. We estimate the fair value of the business operations using a discounted cash flow model based on the future annual operating
plan of each reporting unit. This model determines the present value of the estimated cash flows of the reporting unit. Any loss resulting from an impairment test would be reflected in operating
income in our consolidated statement of income. The annual impairment testing process is subjective and requires judgment at many points throughout the analysis. If these estimates or their related
assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. As of December 31, 2005, our goodwill totaled $314.5 million.

Valuation of Intangible Assets

In connection with our acquisitions, we are required to recognize other intangible assets separate and apart from goodwill if such assets arise from contractual
or other legal rights or if such assets are separable from the acquired business. Other intangible assets include, among other things, client-related assets such as order backlog, client contracts,
and client relationships. We account for other intangible assets at their estimated fair values in accordance with SFAS 142. Determining a fair value for such items requires a high degree of
judgment, assumptions, and estimates. In addition, these intangible assets are amortized over their estimated useful lives.

We
review our identifiable intangible assets for impairment in accordance with SFAS 144. In performing our review of the recoverability of other intangible assets, we consider
several factors. These factors include the expected cash flows that an asset is expected to generate over its estimated economic life, whether there have been significant changes in legal factors or
the overall business climate that could
affect the underlying value of an asset or whether there is an expectation that the asset will be sold or disposed of before the end of its originally estimated useful life.

In
determining whether an intangible asset is impaired, we must make assumptions regarding estimated future cash flows from the asset, intended use of the asset, and other related
factors. If, as a result of examining the factors, we conclude that the carrying value of the other intangible assets exceeds its estimated fair value, we will record an impairment charge and reduce
the carrying value of the asset to its estimated fair value. If the estimates or the related assumptions used to determine the value of the intangible assets change, we may be required to record
impairment charges for these assets. As of December 31, 2005, our intangible assets totaled $47.2 million.

Income Taxes

To record income tax expense, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We account for income taxes in
accordance with SFAS No. 109 ("SFAS 109"), "Accounting for Income Taxes," which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of
temporary differences between the book and tax basis of recorded assets and liabilities. In addition, income tax expense at interim reporting dates requires us to estimate our expected effective tax
rate for the entire year. This involves estimating our actual current tax liability together with assessing temporary differences that result in deferred tax assets and liabilities and expected future
tax rates.

We
record a valuation allowance to reduce our deferred tax assets to an amount we believe is more likely than not to be realized. We consider future taxable income and prudent and
feasible tax planning strategies in assessing the need for a valuation allowance. We have recorded a valuation allowance for the tax benefits of certain subsidiary net operating losses and the minimum
pension liability.

Our
policy is to establish reserves for taxes that may become payable in future years as a result of an examination by the tax authorities. In accordance with SFAS No. 5 ("SFAS
5"), "Accounting for Contingencies," we establish the reserves based upon our assessment of exposure associated with permanent tax differences and interest expense applicable to both permanent and
temporary difference adjustments. The tax reserves are analyzed periodically and adjusted, as events occur to warrant the

30

---



adjustment
to the reserve. If we determine that we will require more or less of our reserves in the future, such adjustment would be recorded as an increase or reduction of income tax expense in the
period such determination is made. Circumstances that could cause our estimates of income tax expense to change include: the impact of information that subsequently becomes available as we prepare our
tax returns; revision to tax positions taken as a result of further analysis and consultation; the actual level of pre-tax income; changes in tax rules, regulations, and rates; and changes
mandated as a result of audits by taxing authorities.

Stock-based Compensation

We grant stock options for a fixed number of shares of our common stock to employees with an exercise price equal to the closing price of our common stock at the
date of grant. We also grant restricted stock for a fixed number of shares to employees for a nominal purchase price.

We
adopted the disclosure provisions of SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based CompensationTransition and Disclosure," an amendment to SFAS
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." As permitted by SFAS 148 and SFAS 123, we account for our stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." In accordance with APB 25, we recognize compensation expense based on the difference
between the market value at grant date and the grant price and record the compensation expense ratably over the restriction period. We do not recognize compensation expense on our stock option grants
as the stock options are granted at the market price at the date of grant.

Had
expense been recognized using the fair value method described in SFAS 123, using the Black-Scholes option-pricing model, we would have recorded additional compensation expense
and reduced net income by approximately $13.5 million, $4.9 million, and $5.5 million in 2005, 2004, and 2003, respectively. The stock-based compensation expense for 2005 includes
the impact of the acceleration of certain Keane stock options granted prior to August 1, 2005 with an exercise price of $11.44 or greater. As a result of the acceleration, we would have had to
record approximately $10.5 million in pretax non-cash compensation expense or approximately $8.7 million net of taxes in the Fourth Quarter of 2005.

See
"RECENT ACCOUNTING PRONOUNCEMENTS" for discussion on SFAS No. 123 (revised 2004) ("SFAS 123(R)") "Share-Based Payment," which was issued in December 2004 and is
a revision of SFAS 123 and supersedes APB 25 and its related implementation guidance.

Restructuring

We have recorded restructuring charges and reserves associated with restructuring plans approved by management in the last six years. As of January 1,
2003, we adopted SFAS No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities," which requires us to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to exit or disposal plan exists. These reserves include estimates pertaining to employee separation costs and real estate
lease obligations. The reserve associated with lease obligations could be materially affected by factors such as the ability to obtain subleases, the creditworthiness of our sub-lessees,
market value of properties, and the ability to negotiate early termination agreements with lessors. While we believe that our current estimates regarding lease obligations are adequate, future events
could require adjustments to these estimates. Based on the assumptions included in our analysis as of December 31, 2005, to the extent that we are unable to maintain all of our current,
contractual subleases, we could incur an additional restructuring charge up to approximately $2.6 million. In addition, if we are able to negotiate early terminations of our operating leases or
to obtain a subleasee, we would record a reduction to the restructuring liability and a corresponding expense reduction. In 2005 and 2004, we recorded a reduction to restructuring expense
$0.6 million and $2.4 million, respectively, associated with early lease terminations and unanticipated subleases.

31

---



Accrued Compensation and Other Liabilities

Employee compensation costs are our largest expense category. We have a number of different variable compensation programs, which are highly dependent on
estimates and judgments, particularly at interim reporting dates. Some programs are discretionary while others have quantifiable performance metrics. Certain programs are annual, while others are
quarterly or monthly. Often, actual compensation amounts cannot be determined until after we report our results. We believe we make reasonable estimates and judgments using all significant information
available. We also estimate the amounts required for incurred but not reported health claims under our self-insured employee benefit programs. Our accrual for health costs is based on
historical experience and actual amounts may vary from these estimates. In addition, with respect to our potential exposure to losses from litigation, claims and other assessments, we record a
liability when such amounts are believed to be probable and can be reasonably estimated.

Pension Costs

We have a foreign defined benefit plan that provides pension benefits to employees of our subsidiary located in the UK ("UK DBP"). The measurement of our pension
obligation and costs is dependent on
a variety of assumptions used by our actuary. These assumptions include estimates of the present value and timing of projected future pension payments to plan participants taking into consideration
retirement rates and mortality rates. Assumptions used in determining projected benefit obligations and the fair values of plan assets for our UK DBP are evaluated periodically by management in
consultation with outside actuaries and investment advisors. Changes in assumptions are based on relevant Company data. Critical assumptions, such as the discount rate used to measure the benefit
obligations, the expected long-term rate of return on plan assets and healthcare cost projections, are evaluated and updated annually. Changes in these assumptions could have a material
impact on the projected benefit obligations and the fair values of the plan assets, pension expense, and the required minimum liability. We have assumed that the expected long-term rate of
return on plan assets will be 7.75%. At the end of each year, we determine the discount rate that reflects the current rate at which the pension liabilities could be effectively settled. This rate
should be in line with rates for high quality, fixed-income investments available for the period to maturity of the pension benefits, and changes as long-term interest rates change. At
December 31, 2005, we determined this rate to be 4.9%.

During
2004, we closed the UK DBP to future salary accruals effective April 1, 2004. Accordingly, we accounted for the closing of the UK DBP as a curtailment under SFAS
No. 88 ("SFAS 88"), "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." As a result, in 2004, we recorded a curtailment loss
of approximately $0.2 million to expense the unrecognized prior service cost, and we recorded an additional required minimum pension liability of approximately $6.6 million as a
non-cash adjustment through Accumulated other comprehensive loss in the accompanying consolidated balance sheets. In 2005, we recorded a net increase in the required minimum pension
liability of approximately $2.8 million through Accumulated other comprehensive loss primarily due to lower investment yields on high quality corporate bonds. As of December 31, 2005 and
2004, the minimum pension liability was $15.3 million and $13.5 million, respectively, and is included in other long-term liabilities in the accompanying consolidated balance
sheets. Expected employer contributions for 2006 are approximately $0.2 million. However, recent legislation in the UK could have a significant impact on the funding levels required under the
UK DBP in the future. See Note 14 "BENEFIT PLANS" in the notes to the accompanying consolidated financial statements for further discussion. We are reviewing various alternatives regarding the
structure of the UK Pension. Based upon information available to date, we believe the increase in future funding levels could range from approximately $1.0 million to approximately
$2.0 million on an annual basis in 2006 and beyond.

32

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CONSOLIDATED RESULTS OF OPERATIONS

2005 Compared to 2004

REVENUES (Dollars in thousands)Years Ended December 31,

Increase (Decrease)2005

%

2004

%

$

%Outsourcing

$
506,548

53

$
465,077

51

$
41,471

8.9Development & Integration


171,003

18


176,781

19


(5,778
)
(3.3
)Other IT Services


278,304

29


269,685

30


8,619

3.2Total

$
955,855

100
%
$
911,543

100
%
$
44,312

4.9


Revenues

Revenues for the year ended December 31, 2005 were $955.9 million, an increase of $44.3 million, or 4.9%, compared to revenues of
$911.5 million for the year ended December 31, 2004. The increase in revenues compared to the year ended December 31, 2004 was partly due to revenues from netNumina
Solutions, Inc. ("netNumina"), which we acquired on February 28, 2005, and higher revenues from new and existing clients, offset by decreases in revenues from PacifiCare and IBM, as
discussed below, and the termination of a contract with a large client in the Third Quarter ended September 30, 2004. The increase was also due to the revenues associated with our acquisitions
of Nims Associates, Inc. ("Nims"), which we acquired on February 27, 2004, and Fast Track Holdings Limited ("Fast Track"), which we acquired on July 13, 2004. See Note 7
"BUSINESS ACQUISITIONS" for a description of our acquired businesses.

During
the Fourth Quarter of 2004, both a large UK client and IBM notified us that they would be reducing their purchasing requirements. The reduction of purchasing requirements from the
UK client reduced our total annual revenues by approximately $11.3 million in 2005. During the First Quarter ended March 31, 2005, IBM also notified us that Keane and other current
vendor resources would be included in a proposal process for both current and future business. In July 2005, we decided to withdraw from our staff augmentation relationship with IBM. In the
Third Quarter ended September 30, 2005, we sold our IBM business to another provider. These lower volumes from IBM and the sale of the business resulted in a revenue reduction for the year
ended December 31, 2005 of approximately $21.7 million compared to the year ended December 31, 2004.

We
have concluded that objective evidence of fair value does not exist for all of the elements within the Victoria TTA contract. Accordingly, each of the elements cannot be separated
into multiple units of accounting and therefore, must be accounted for as a single unit of accounting. As a result, we are deferring all revenues and costs directly associated with the delivery of
products and services during two years of development work, referred to as the Build phase, and we will recognize all revenues and direct costs for the contract over the period of the ten years of
operation and maintenance, referred to as the Operate phase, currently estimated to begin in mid-2007. In 2005, all revenues
and direct and incremental costs associated with the delivery of products and services have therefore been deferred.

Outsourcing.Outsourcing service revenues for the year ended December 31, 2005 were $506.5 million, an increase
of $41.5 million, or 8.9%, compared to the year ended December 31, 2004. The increase in Outsourcing service revenues compared to the year ended December 31, 2004 was partly due
to revenues generated from new and existing clients from our application maintenance and BPO offerings, as well as revenues associated with netNumina. The increase reflects approximately
$14.5 million of higher revenues generated by Nims in 2005 compared to 2004 and approximately $8.5 million of revenues associated with Nims due to a full twelve months of results in
2005. These increases in Outsourcing service revenues more than offsets lower revenues associated with PacifiCare, as discussed below, reductions from a large UK client and the termination of a
contract with a large client in the Third Quarter ended September 30, 2004.

33

---



PacifiCare,
one of our largest clients, reduced the level of service from the stated baseline contract amounts in accordance with its right under the contract terms, thereby reducing the
contract value. We have provided services at or above the baseline levels set forth in the contract at agreed upon rates. Revenues from PacifiCare for the year ended December 31, 2005, were
approximately $10.4 million lower than revenues from PacifiCare for the year ended December 31, 2004.

On
December 20, 2005, UnitedHealth Group Incorporated, an affiliate of United HealthCare Services, Inc. ("United HealthCare"), completed its acquisition of PacifiCare. On
January 20, 2006, we entered into a 5-year master services agreement with United HealthCare Services, Inc. effective January 1, 2006. Simultaneously, we and PacifiCare
terminated our Information Technology Services Agreement, dated January 11, 2002, effective January 1, 2006. Our original Information Technology Services Agreement with PacifiCare
provided for an outsourcing arrangement with a ten-year term and $500 million in contract value. The remaining contract value under that agreement as of January 1, 2006 would
have been approximately $226 million. As a result of the ending of the original agreement with PacifiCare we will receive a $10.1 million payment in two equal installments on
July 30, 2006 and July 30, 2007. Under the new master services agreement with United HealthCare we will receive approximately $21 million for a specified level of services
provided from January 1, 2006 through June 30, 2007.

Development & Integration.Development & Integration service revenues for the year ended December 31,
2005 were $171.0 million, a decrease of $5.8 million, or 3.3%, compared to the year ended December 31, 2004. The decrease was primarily due to lower revenues from our healthcare
product and services and lower revenues from the large UK client.

Other IT Services.Other IT Services revenues for the year ended December 31, 2005 were $278.3 million, an
increase of $8.6 million, or 3.2%, compared to the year ended December 31, 2004. The increase was primarily due to additional supplemental staffing placements offset by lower revenues
from IBM.

The
following table summarizes certain line items from our consolidated statements of income (dollars in thousands):

|                                        |  | Years Ended December 31, |         | Increase (Decrease) |  
|--------------------------------------- |  | ------------------------ | ------- | ------------------- | -
|
|Revenues                                |  | $                        | 955,855 |                     | $
|Salaries, wages, and other direct costs |  |                          | 669,949 |                     |  
|                                        |  |                          |         |                     |  
|Gross margin                            |  | $                        | 285,906 |                     | $
|                                        |  |                          |         |                     |  
|Gross margin %                          |  |                          | 29.9    | %                   |  
|                                        |  |                          |         |                     |  

Salaries, wages, and other direct costs

Salaries, wages, and other direct costs for the year ended December 31, 2005 were $669.9 million, an increase of $32.7 million, or 5.1%,
compared to $637.2 million for the year ended December 31, 2004. The increase was primarily attributable to higher costs of client service personnel to support our increased service
revenues. Salaries, wages, and other direct costs were 70.1% of total revenues for the year ended December 31, 2005, compared to 69.9% of total revenues for the same period in 2004.

Total
billable employees for all operations were 8,208 as of December 31, 2005, compared to 7,235 as of December 31, 2004. This includes 2,283 billable employees in India,
which includes Keane Worldzen, and represents and increase of 829 employees, or 57.0%, over the year ended December 31, 2004. We added our India operation in March 2002 with our
acquisition of SignalTree Solutions and we acquired our controlling interest in Keane Worldzen in October 2003. In addition to these employees, we occasionally use subcontract personnel to
augment our billable staff, which represented 646 full-time professionals as of December 31, 2005. Overall utilization rates for all three periods remained stable as we increased
the number of billable employees.

34

---



Gross margin

Our management believes gross margin(revenues less salaries, wages, and other direct costs)provides an important
measure of our profitability. Gross margin for the year ended December 31, 2005 increased $11.6 million, or 4.2%, compared to the year ended December 31, 2004. Gross margin as a
percentage of revenues for the year ended December 31, 2005 was 29.9% compared to 30.1% for the year ended December 31, 2004. The lower labor cost associated with the increased use of
offshore resources at our India facilities contributed to maintaining our gross margins. We continue to closely monitor utilization rates and other direct costs in an effort to avoid adverse impacts
on our gross margin.

Selling, general, and administrative expenses

Years Ended December 31,

Increase2005

2004

$

%Selling, general, and administrative expenses (SG&A)

$
219,275

$
206,747

$
12,528

6.1
%SG&A as a % of revenue


22.9
%

22.7
%


SG&A
expenses include salaries for our corporate and branch administrative employees, sales and marketing expenses, as well as the cost of our administrative facilities,
including related depreciation expense. SG&A expenses for the year ended December 31, 2005 increased $12.5 million, or 6.1% over the same period in 2004. These increases in SG&A expenses
were primarily due to labor and labor-related costs, expenses associated with the Victoria TTA contract and costs associated with our growth in India. The year ended December 31, 2005 includes
approximately $3.4 million of indirect expenses associated with the Victoria TTA contract. SG&A expenses for the twelve months ended December 31, 2005 were 22.9% of total revenues, as
compared to 22.7% of total revenues for the same period in 2004. The increases in SG&A expenses as a percentage of revenue were mainly due to the costs of the Victoria TTA contract and the labor and
labor related costs.

Amortization of intangible assets

Amortization of intangible assets for the year ended December 31, 2005 was $15.6 million, a decrease of $0.6 million, or 3.6%, over the same
period in 2004. The decrease in amortization of intangible assets was primarily due to certain intangibles becoming fully amortized offset by the amortization of intangible assets resulting from the
Fast Track and Nims acquisitions.

Restructuring charges, net

During the Fourth Quarter of 2004, we reevaluated our estimates recorded for the restructuring charge taken in 2002 and 2003 and as a result recorded an expense
reduction of $2.4 million and a charge of $2.3 million, resulting in a net expense reduction of $0.1 million.

Years Ended December 31,

Increase
(Decrease)2005

2004

$Other income (expense)Interest and dividend income

$
4,651

$
3,906

$
745Interest expense


(5,624
)

(5,682
)

58Other (expense) income, net


(714
)

(665
)

(49
)Minority interest


1,023


2,516


(1,493
)Other (expense) income, net

$
(664
)
$
75

$
(739
)


35

---



Interest and dividend income

Interest and dividend income for the year ended December 31, 2005 was $4.7 million compared to $3.9 million for the same period in 2004. The
increase in interest and dividend income was primarily attributable to higher interest rates and lower amortization of discount for the year ended December 31, 2005 compared to the same period
in 2004. To the extent we use our cash and marketable securities to fund acquisitions, our operations, and capital investments, our interest income will decline in future periods.

Interest expense

Interest expense for the year ended December 31, 2005 was $5.6 million, unchanged compared to $5.7 million for the same period in 2004.
Interest expense was unchanged because our Debentures were outstanding for the entire twelve months ended December 31, 2005 and 2004. We also record interest expense on the accrued building
costs associated with our corporate facility as explained in Note 16 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES" in the notes to the accompanying consolidated financial statements.

Other (expense) income, net

Other expense, net was $0.7 million for the year ended December 31, 2005, unchanged compared to expense of $0.7 million for the same period
in 2004 and consists primarily of foreign exchange gains and losses.

Minority Interest

Minority interest income for the year ended December 31, 2005 was $1.0 million, a decrease of $1.5 million compared to the same period in
2004. The decrease in minority interest income was due to
Keane's higher ownership percentage of Keane Worldzen and due to a decrease in Keane Worldzen's net loss during 2005 compared to 2004. The amount in minority interest income represents the loss
attributable to minority shareholders of Keane Worldzen for the period presented. We completed our acquisition of a controlling interest in Keane Worldzen in the Fourth Quarter for 2003, which
resulted in an initial equity position of approximately 62% of the issued and outstanding capital stock of Keane Worldzen and our consolidation of the results of Keane Worldzen. Consistent with the
right to increase our ownership position over time, we increased our equity position to approximately 81% in April 2005 with an additional capital contribution of approximately
$5.0 million in cash and $3.0 million from the conversion of existing cash advances to equity. Consistent with the minority shareholders' rights, the minority shareholders exercised
their first put option in December 2005, which required us to purchase approximately 5% of their outstanding shares for $2.8 million. As a result of our additional capital contribution
and the minority shareholders' exercise of the first put option, we own approximately 86% of the outstanding capital stock of Keane Worldzen and the minority interest shareholders own approximately
14% of the issued and outstanding capital stock of Keane Worldzen. We continue to consolidate the results of Keane Worldzen but recognize 86% of the results of operations. The put options are
explained in further detail in Note 7 "BUSINESS ACQUISTIONS" in the notes to the accompanying consolidated financial statements.

Income taxes

The provision for income taxes represents the amounts owed for federal, state, and foreign taxes. Our effective tax rate was 33.6% for the year ended
December 31, 2005. Our effective tax rate was 37.3% for the year ended December 31, 2004. The determination of the provision for income tax expense, deferred tax assets and liabilities
and related valuation allowance involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves
making judgments regarding the recoverability of deferred tax assets, which can affect the overall effective tax rate. In addition, changes in the geographic mix or

36

---



estimated
level of pre-tax income can also affect the overall effective tax rate. During the year ended December 31, 2005, we recorded a $3.5 million reduction to our tax
reserves due to the expiration of certain statutes of limitation and changes in estimates. In accordance with SFAS 5 and SFAS No. 109 ("SFAS 109"), "Accounting for Income Taxes," we
adjusted our tax reserves in the period where the conditions under SFAS 5 were no longer met, which resulted in a reduction to our tax provision. In addition, as a result of owning greater than 80% of
the outstanding voting stock of Keane Worldzen, beginning April 1, 2005, we are able to record a tax benefit on the losses associated with Keane Worldzen, thereby reducing our annual effective
tax rate.

During
the year ended December 31, 2004, certain events occurred which impacted our tax provision. These events included the expiration of certain state statutes and changes in
estimates, which resulted in a reduction to our tax provision of approximately $1.1 million, and the enactment of certain tax laws, which resulted in an imposition of tax retroactive to
January 1, 2004 and that resulted in an increase to our tax provision of approximately $0.6 million. The net impact of these events was a reduction of our tax provision by approximately
$0.5 million. For the year ended December 31, 2004 we identified errors relating to deferred tax balances arising from transactions in prior years. As a result, we recorded an adjustment
to record an additional deferred tax asset totaling approximately $2.2 million and a
corresponding decrease to the provision for income taxes. This income tax adjustment resulted from book to tax timing differences related to depreciation expense that management believes related to a
period, or periods prior to 2004. Since the specific period to which this adjustment related could not be identified with certainty, the adjustment was recorded in the year ended December 31,
2004.

Year ended
December 31,2005

2004Income before income taxes

$
50,318

$
51,508Provision for income taxes


16,892


19,226Net Income

$
33,426

$
32,282Reported Tax Rate


33.6
%

37.3
%Impact of certain discrete items


7.0
%

5.3
%


Net income

Net income for the year ended December 31, 2005 was $1.1 million higher compared to the year ended December 31, 2004. The increase is due to
the lower effective tax rate resulting from the reduction of tax reserves discussed above for the year ended December 31, 2005.

2004 Compared to 2003

REVENUES (Dollars in thousands)Years Ended December 31,

Increase (Decrease)2004

%

2003

%

$

%Outsourcing

$
465,077

51

$
371,294

46

$
93,783

25.3Development & Integration


176,781

19


162,113

20


14,668

9.0Other IT Services


269,685

30


271,569

34


(1,884
)
(0.7
)Total

$
911,543

100
%
$
804,976

100
%
$
106,567

13.2


Revenues

Revenues for the year ended December 31, 2004 were $911.5 million, an increase of $106.6 million, or 13.2%, compared to revenues of
$805.0 million for the year ended December 31,

37

---



2003.
Revenues in 2004 increased compared to 2003 due primarily to the growth in Outsourcing services and revenues from our acquired businesses. We completed our acquisition of Nims
Associates, Inc. ("Nims"), an IT and consulting services company with offices in the Midwest, on February 27, 2004, and as a result, the operating results of Nims have been included in
our consolidated financial statements beginning March 1, 2004. In addition, we completed the acquisition of Fast Track Holdings Limited ("Fast Track") on July 13, 2004, and have included
its operating results in our consolidated financial statements beginning July 14, 2004. Fast Track was a privately held consulting firm based in the UK that manages the design, integration, and
rapid deployment of large-scale SAP implementations.

Outsourcing.Outsourcing service revenues for the year ended December 31, 2004 were $465.1 million, an increase
of $93.8 million, or 25.3%, compared to the year ended December 31, 2003. The increase in Outsourcing service revenues was primarily due to increased revenues from large outsourcing
contracts, as well as the revenues generated by Nims. PacifiCare, one of our largest clients, reduced the level of service from the stated baseline contract amounts in accordance with its right under
the contract terms, thereby reducing the contract value. During the Second Quarter ended June 30, 2004, PacifiCare requested that we further reduce service levels to levels below the minimums
provided in our contract. The requested change was not consistent with the terms of our contract with PacifiCare and would have resulted in a reduction in our monthly billings to PacifiCare.
Accordingly, we did not agree to this change. Since then, through the year ended on December 31, 2004, we have continued providing services at or above the minimum levels set forth in the
contract. In accordance with the contract terms, we and PacifiCare jointly engaged an independent third party to conduct a study to compare our billing rates with benchmark rates. The results assert
that our rates are higher than the benchmark rates. To the extent that the lower rates identified in the study would go in effect in the Second Quarter of 2005, our annual revenues and operating
income would decline. We have thirty days to evaluate the results of the study and expect that we will enter into discussions with PacifiCare thereafter.

Development & Integration.Development & Integration service revenues for the year ended December 31,
2004 were $176.8 million, an increase of $14.7 million, or 9.0%, compared to the year ended December 31, 2003 partly due to the revenues associated with the acquisition of Fast
Track in the Third Quarter ended September 30, 2004.

Other IT Services.Other IT Services revenues for the year ended December 31, 2004 were $269.7 million, a
decrease of $1.9 million, or 0.7%, compared to the year ended December 31, 2003. During the Second Quarter ended June 30, 2004 we agreed to a 5% price reduction for one of our
large clients and mitigated the impact of that price reduction on gross margin by negotiating lower pricing of our subcontractor personnel. Additionally, this client also notified us in the Fourth
Quarter of 2004 that they would be reducing their purchasing requirements, which will have an impact of reducing annual revenues by approximately $7.0 million to $8.0 million in 2005
from that client. In addition, a large client in the UK has notified us that they would be reducing their purchasing requirements, which will have an impact of reducing annual revenue by approximately
$10.0 million to $14.0 million in 2005.

38

---



The
following table summarizes certain line items from our consolidated statements of income (dollars in thousands):

Years Ended December 31,

Increase (Decrease)2004

2003

$

%Revenues

$
911,543

$
804,976

$
106,567

13.2Salaries, wages, and other direct costs


637,240


554,375


82,865

14.9Gross margin

$
274,303

$
250,601

$
23,702

9.5Gross margin %


30.1
%

31.1
%


Salaries, wages, and other direct costs

Salaries, wages, and other direct costs for the year ended December 31, 2004 were $637.2 million, an increase of $82.9 million compared to
$554.4 million for the year ended December 31, 2003. The increase was primarily attributable to costs of client service personnel to support the increased service revenues as well as an
increase in direct costs to support the revenues generated by our acquired Nims business. Salaries, wages, and other direct costs were 69.9% of total revenues for the year ended December 31,
2004 compared to 68.9% of total revenues for the year ended December 31, 2003.

Total
billable employees for all operations were 7,235 as of December 31, 2004, compared to 6,369 total billable employees as of December 31, 2003. This includes a base of
billable employees within our India operations of 1,454, which represents an increase of 421 employees, or 40.8%, over the year ended December 31, 2003. We added our India operation in
March 2002 with our acquisition of SignalTree Solutions. In addition, total billable employees include a base of 370 billable employees within our Keane Worldzen operations. We acquired our
controlling interest in Keane Worldzen in October 2003. In addition to these employees, we occasionally use subcontract personnel to augment our billable staff, which represented 585
subcontractors as of December 31, 2004. Overall utilization rates for all three periods remained stable as we increased the number of billable employees.

Gross margin

Our management believes gross margin(revenues less salaries, wages, and other direct costs)provides an important
measure of our profitability. Gross margin for the year ended December 31, 2004 increased $23.7 million, or 9.5%, compared to the year ended December 31, 2003. Gross margin as a
percentage of revenues for the year ended December 31, 2004 was 30.1% compared to 31.1% for the year ended December 31, 2003. Although gross margin for the year ended December 31,
2004 decreased by approximately 100 basis points compared to the year ended December 31, 2003, we believe that the relatively constant gross margin percentage over the past two years is
indicative of a more stable environment for IT services, and firmer utilization rates, as well as the benefit of our global delivery capabilities. The lower labor cost associated with the increased
use of offshore resources at our India facilities helped reduce the impact of lower pricing of our services on gross margin. We continue to closely monitor utilization rates and other direct costs in
an effort to avoid adverse impacts on our gross margin.

Selling, general, and administrative expenses

Years Ended December 31,

Increase2004

2003

$

%Selling, general, and administrative expenses (SG&A)

$
206,747

$
192,900

$
13,847

7.2SG&A as a % of revenue


22.7
%

24.0
%


39

---



SG&A
expenses include salaries for our corporate and branch administrative employees, sales and marketing expenses, as well as the cost of our administrative facilities, including
related depreciation expense. SG&A expenses for the year ended December 31, 2004 increased $13.8 million, or 7.2%, compared to the year ended December 31, 2003. The increase in
SG&A expenses was due to higher compensation costs in 2004 compared to 2003, resulting from higher headcount associated with our acquired business, Keane Worldzen in the Fourth Quarter ended
December 31, 2003, Nims in the First Quarter ended March 31, 2004 and Fast Track in the Third Quarter ended September 30, 2004. Also contributing to the increase in SG&A expenses
were higher costs associated with the growth of our India operations. SG&A expenses for the year ended December 31, 2004 were 22.7% of total revenues, as compared to 24.0% of total revenues for
the year ended December 31, 2003. The decrease in SG&A expenses as a percentage of revenue in 2004 was due in part to the acquisition of Nims, the integration of the operations of Nims, and
increasing revenues.

Amortization of intangible assets

Amortization of intangible assets for the year ended December 31, 2004 was $16.2 million, compared to $15.8 million for the year ended
December 31, 2003. The amortization of intangible assets for 2004 increased $0.4 million due to the additional intangible assets resulting from our Nims acquisition in the First Quarter
ended March 31, 2004 and, to a lesser extent, our Fast Track acquisition in the Third Quarter ended September 30, 2004. These amounts were offset in part by certain intangibles that have
become fully amortized.

Restructuring charges, net

During the Fourth Quarter of 2004, we reevaluated our estimates recorded for the restructuring charge taken in 2002 and 2003 and as a result recorded an expense
reduction of $2.4 million and a charge of $2.3 million, resulting in a net expense reduction of $0.1 million. During 2003, we reevaluated our estimates recorded for the
restructuring charge taken in 2002 and as a result recorded an expense reduction of $1.5 million for workforce reductions, and $1.0 million related to the costs of consolidating and/or
closing certain non-profitable offices. In addition, during 2003 we recorded a restructuring charge of $2.2 million. Of this charge, $1.3 million was for an additional
workforce reduction of 75 employees and $0.9 million was for the costs associated with a branch office closing. The net impact of these actions resulted in a net expense reduction to the
restructuring charge of $326,000 in our consolidated statement of income.

Years Ended
December 31,Increase
(Decrease)
$2004

2003Other income (expense)Interest and dividend income

$
3,906

$
2,981

$
925Interest expense


(5,682
)

(4,156
)

(1,526
)Other (expense) income, net


(665
)

7,119


(7,784
)Minority interest


2,516


572


1,944Other (expense) income, net

$
75

$
6,516

$
(6,441
)


40

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Interest and dividend income

Interest and dividend income for the year ended December 31, 2004 was $3.9 million compared to $3.0 million for the year ended
December 31, 2003. The increase in interest and dividend income was the result of higher average cash balances and marketable securities. The higher average cash balances and marketable
securities was due to the investment of the net proceeds from the issuance of our 2.0% Convertible Subordinate Debentures due 2013 ("Debentures") issued in June 2003 and strong cash flow,
offset in part by the impact of our share repurchases during 2003 and the year ended December 31, 2004. To the extent we use our cash and marketable securities to fund acquisitions, our
operations, and capital investments, our interest income will decline in future periods.

Interest expense

Interest expense for the year ended December 31, 2004 was $5.7 million compared to $4.2 million for the year ended December 31, 2003.
The increase in interest expense was primarily related to a full year of interest recognized on our Debentures and the imputed interest expense on the accrued building costs as a result of our
occupation of our corporate facility. As explained in Note 16 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES" in the notes to the accompanying consolidated financial statements, the
accounting for the facility requires us to impute interest expense on the accrued building costs.

Other (expense) income, net

Other expense, net was $0.7 million for the year ended December 31, 2004 and other income, net was $7.1 million for the year ended
December 31, 2003. Other income, net during the First Quarter of 2003 included a $7.3 million, $4.4 million after tax, favorable judgment in an arbitration award proceeding
related to damages for breach of an agreement between Signal Corporation and our Federal Systems subsidiary.

Minority Interest

During the Fourth Quarter of 2003, we completed our acquisition of a controlling interest in Keane Worldzen, a privately held BPS firm. Our initial investment
resulted in an equity position of approximately 62% of the issued and outstanding capital stock of Keane Worldzen with the right to increase our ownership position over time. As a result of this
transaction, we began to consolidate Keane Worldzen's financial results with ours in the Fourth Quarter of 2003. The amount in minority interest represents the loss attributable to minority
shareholders for the period that we consolidated Keane Worldzen.

Income taxes

The provision for income taxes represents the amounts owed for federal, state, and foreign taxes. Our effective tax rate was 37.3% for the year ended
December 31, 2004. Our effective tax rate was 40% for the year ended December 31, 2003. The determination of the provision for income tax expense, deferred tax assets and liabilities and
related valuation allowance involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves making
judgments regarding the recoverability of deferred tax assets, which can affect the overall effective tax rate. In addition, changes in the geographic mix or estimated level of pre-tax
income can affect the overall effective tax rate. During the Third Quarter ended September 30, 2004, certain events occurred, which impacted our tax provision. These events include the
expiration of certain state statutes and changes in estimates, which resulted in a reduction to our tax provision of approximately $1.1 million, and the enactment of certain tax laws, which
resulted in an imposition of tax retroactive to January 1, 2004 and that resulted in an increase to our tax provision of approximately $0.6 million. The net impact of these events was a
reduction of our tax provision by approximately $0.5 million. In accordance with SFAS 5 and SFAS No. 109 ("SFAS 109"),

41

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"Accounting
for Income Taxes," we adjusted our tax reserves in the period where the conditions under SFAS 5 were no longer met and as of the enactment date of the new tax laws.

For
the year ended December 31, 2004, the Company identified errors relating to deferred tax balances arising from transactions in prior years. As a result, the Company recorded
an adjustment to record an additional deferred tax asset totaling approximately $2.2 million and a corresponding decrease to the provision for income taxes. This income tax adjustment results
from book to tax timing differences related to depreciation expense that management believes relate to a period, or periods prior to 2004. Since the specific period to which this adjustment relates
cannot be identified with certainty, the adjustment has been recorded in the year ended December 31, 2004.

Net income

Net income for the year ended December 31, 2004 was $3.1 million higher compared to the year ended December 31, 2003. The increase is due to
higher income before taxes and the lower effective tax rate as a result of the reduction of tax reserves discussed above for the year ended December 31, 2004.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 153 ("SFAS 153"), "Exchanges of Nonmonetary Assetsan amendment of APB Opinion
No. 29." This standard eliminates the exception for nonmonetary exchanges of similar productive assets to be measured based on the fair value of the assets exchanged and replaces it with a
general exception for exchanges of nonmonetary assets that do not have commercial substance. This standard is effective January 1, 2006 and we do not believe the adoption of SFAS 153
will have a material impact on our consolidated financial position, results of operations, and financial condition.

In
December 2004, the FASB issued SFAS 123(R), which is a revision of SFAS 123 and supersedes APB 25 and its related implementation guidance. Generally, the approach
in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative. In April 2005, the Securities and Exchange Commission
("SEC") announced that it would provide for a phased-in implementation process for SFAS 123(R). Specifically, the SEC will require public companies that are not small business
issuers as defined in SEC Regulation S-B to adopt SFAS 123(R) no later than the beginning of the first fiscal year beginning after June 15, 2005. Therefore, we were
required to adopt SFAS 123(R) on January 1, 2006.

SFAS 123(R)
permits public companies to adopt its requirements using one of two methods: a "modified prospective" method, in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123
for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date, and a "modified retrospective" method which includes the requirements
of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either
(a) all prior periods presented or (b) prior interim periods of the year of adoption. Effective January 1, 2006, we have adopted SFAS 123(R) using the modified prospective
method. As permitted by SFAS 123, we currently account for share-based payments to employees using APB 25's intrinsic value method. On October 20, 2005 and December 30, 2005, our
Board of Directors and Brian T. Keane, by our Board of Directors' delegation of authority to him, approved the acceleration of the vesting of certain Keane stock options granted prior to
August 1, 2005 with an exercise price of $11.44 or greater. See Note 1 "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," in the footnotes to the accompanying consolidated financial
statements for further discussion on the impact of the option acceleration. We are continuing to evaluate the impact of the adoption of FAS 123(R) for the First Quarter of 2006. Our evaluation
is based on awards

42

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granted
as of December 31, 2005, but does not contemplate future awards which may be granted. We do not believe the adoption of FAS 123(R) will have a significant impact on our
consolidated results of operations and financial condition for the First Quarter of 2006.

In
March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107 regarding the Staff's interpretation of SFAS 123(R). This interpretation provides the Staff's
views regarding interactions between SFAS 123(R) and certain SEC rules and regulations and provides interpretations of the valuation of share-based payments for public companies. The
interpretive guidance is intended to assist companies in applying the provisions of SFAS 123(R) and investors and users of the financial statements in analyzing the information provided. We
will follow the guidance prescribed in SAB No. 107 in connection with our adoption of SFAS 123(R) in the First Quarter of 2006.

In
May 2005, the FASB issued SFAS No. 154 ("SFAS 154"), "Accounting Changes and Error Corrections," which replaces Accounting Principles Board Opinion No. 20,
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial StatementsAn Amendment of APB Opinion No. 28." SFAS 154 provides guidance on
the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. We do not believe that the adoption of SFAS 154 will have a material impact on our consolidated results of operations and financial condition.

In
November 2005, the FASB issued Staff Position No. FAS 115-1 ("FSP 115-1"), "The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments." FSP 115-1 provides accounting guidance for determining and measuring other-than-temporary impairments of
debt and equity securities, and confirms the disclosure requirements for investments in
unrealized loss positions as outlined in EITF issue 03-01, "The Meaning of Other-Than-Temporary Impairments and its Application to Certain Investments." The
accounting requirements of FSP 115-1 are effective for us on January 1, 2006. We do not believe the adoption of FSP 115-1 will have a material impact on our consolidated
financial position, results of operations or cash flows.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated Financial Condition (Dollars in thousands)

|                                                 |                                  | 2005 |       | 2004    |   | 2003   |        
|------------------------------------------------ | -------------------------------- | ---- | ----- | ------- | - | ------ | -------
|Years Ended December 31,                         |                                  |      |       |         |   |        |        
|                                                 | Cash Flows Provided By (Used in) |      |       |         |   |        |        
|                                                 | Operating activities             |      | $     | 45,476  |   | $      | 51,919 
|                                                 | Investing activities             |      |       | 10,826  |   |        | (16,436
|                                                 | Financing activities             |      |       | (51,497 | ) |        | (25,240
|                                                 | Effect of exchange rate on cash  |      |       | (723    | ) |        | 509    
|                                                 |                                  |      |       |         |   |        |        
|Increase (Decrease) in Cash and Cash Equivalents |                                  | $    | 4,082 |         | $ | 10,752 |        
|                                                 |                                  |      |       |         |   |        |        

We
have historically financed our operations with cash generated from operations. In addition, we raised $150.0 million in proceeds from the issuance of our Debentures. We use the
net cash generated from these sources to fund capital expenditures, mergers and acquisitions, and stock repurchases. If we were to experience a decrease in revenue as a result of a decrease in demand
for our services or a decrease in our ability to collect receivables, we would be required to reduce discretionary spending related to SG&A expenses and adjust our workforce in an effort to maintain
profitability. At December 31, 2005, we had $167.4 million in cash and cash equivalents and marketable securities. In addition, on September 15, 2005, we entered into a
$200 million five-year credit facility, of which approximately $166.8 million was available for borrowing, subject to certain financial covenants, as of December 31,
2005, after considering $33.2 million of outstanding letters of credit. We intend to continue to use our cash and cash equivalents and marketable securities for general corporate

43

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purposes,
which may include additional repurchases of our common stock under existing or future share repurchase programs and the funding of future acquisitions and other corporate transactions.

Cash flows from operating activities

Net cash provided by operating activities totaled $45.5 million in 2005 as compared to net cash provided by operating activities of $51.9 million in
2004. The decrease in net cash provided by operating activities was driven by lower accounts receivable collection and the timing of certain cash payments. Days Sales Outstanding ("DSO"), an indicator
of our accounts receivable collections, was 58 days as of December 31, 2005 compared to 52 days as of December 31, 2004 and 53 days as of December 31, 2003.
We calculate DSO using the trailing three months total revenues divided by the number of days in the quarter to determine daily revenues. The average accounts receivable balance for the three-month
period is then divided by daily revenues. Changes in accounts receivable have a significant effect on our cash flow. Items that can affect our accounts receivable DSO include, contractual payment
terms, client payment patterns (including approval or processing delays and cash management), fluctuations in the level of IT product sales and our level of collection efforts. Many individual reasons
are outside of our control. As a result, our DSO will normally fluctuate from period to period affecting our liquidity.

Net
cash provided by operating activities decreased $25.7 million in 2004 compared to net cash provided by operating activities of $77.6 million in 2003. The decrease in
net cash provided by operating activities was driven in part by our receipt of a $7.3 million payment in connection with an arbitration proceeding in the First Quarter of 2003, a
$10.4 million increase in tax payments during 2004 as compared to 2003 and higher working capital requirements due to the timing of payroll and subcontractor costs. Accounts receivable
increased $13.2 million to $125.3 million as of December 31, 2004, compared to $126.5 million
as of December 31, 2003. The accounts receivable increase was largely driven by revenue growth in 2004.

We
believe that cash generated from our operating activities will be sufficient to fund our working capital requirements through the next 12 months and beyond. However, in order
to protect against the current economic conditions persisting in 2006 and beyond, we have taken and will continue to take, as we deem necessary, steps to reduce our expenses and align our cost
structure to our revenue. We anticipate that current cash on hand and cash generated from operations will be adequate to fund our planned capital and financing expenditures for the next
12 months and beyond.

Cash flows used in investing activities

Net cash provided by and used in investing activities in each of 2005, 2004, and 2003 was primarily related to investments, acquisitions, and capital
expenditures.

Marketable Securities:During 2005, we purchased $36.3 million and sold $70.2 million in marketable securities,
generating a net source of cash of $33.9 million. During 2004, we purchased $62.6 million and sold $77.6 million in marketable securities, generating a net source of cash of
$15.0 million. During 2003, we purchased $144.2 million and sold $18.1 million in marketable securities, generating a net use of cash of $126.1 million.

Property and Equipment:During 2005, we invested $16.3 million in property and equipment primarily associated with the
expansion of our ADCs nearshore and offshore as well as capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning applications in 2005. During
2004, we invested $10.3 million in property and equipment, and capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning applications in
2004. During 2003, we invested $15.3 million on property and equipment, and capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning
applications.

44

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Business Acquisitions:On June 1, 2005, we acquired Cresta Testing, Inc. ("Cresta"). In exchange for all of the
outstanding capital stock of Cresta, we paid $0.6 million in cash, of which $60,000 was held back to secure indemnification obligations of the Cresta stockholders, with the potential to pay up
to an additional $0.5 million in earn-out consideration over two years from the acquisition, contingent upon the achievement of certain future financial targets. The $60,000 held
back was deposited as restricted cash and also accrued and included in Accrued expenses and other liabilities in the accompanying consolidated balance sheet.

On
February 28, 2005, we acquired netNumina. In exchange for all of the outstanding capital stock of netNumina, we paid $5.7 million in cash, of which $0.6 million
was held back to secure indemnification obligations of the netNumina stockholders and acquired $4.6 million in cash. The $0.6 million held back was deposited as restricted cash, and
included in Accrued expenses and other liabilities in the accompanying consolidated balance sheet.

In
connection with our acquisition of Keane Worldzen on October 17, 2003, the minority shareholders of Keane Worldzen were given the right to require us to purchase certain of
their remaining shares at various times ("put options") subject to the achievement of certain operating and financial milestones related to Keane Worldzen's business performance. The first put option,
the term of which was October 17, 2003 through December 31, 2005, was exercisable based on a stated value for the underlying shares of $2.8 million. The minority shareholders
exercised their first put option in December 2005, which required us to purchase approximately 5% of their outstanding shares for $2.8 million. The fair value of this put option, using a
Black-Scholes valuation model, was approximately $279,000 at the acquisition date and was recognized as compensation expense in the accompanying consolidated financial statements through the
expiration date of the option. The other put options are exercisable at fair market value for attaining up to stated ownership percentages during the applicable put periods, which are exercisable at
certain times during the period January 1, 2008 through March 1, 2010.

On
February 27, 2004, we acquired Nims. We paid $18.2 million in cash, including transaction costs and net of cash acquired, for all of the outstanding capital stock of
Nims. The purchase price may increase with the potential to pay up to an additional $15.0 million in earn-out consideration over three years from the acquisition, contingent upon
the achievement of certain future financial targets. The first earn-out was achieved as of March 1, 2005 and as a result, we paid $3.3 million in earn-out
consideration in April 2005. Based on Nims' financial performance as of December 31, 2005, the second earn-out was achieved. As a result, we accrued an additional
$3.3 million in earn-out consideration, which we expect to pay in April 2006. As of December 31, 2005, there is remaining approximately $8.3 million in
earn-out consideration that could be achieved over the next two years. During 2005, we also received a tax refund related to an acquisition of approximately $0.2 million.

On
July 13, 2004, we acquired Fast Track. In exchange for all of Fast Track's outstanding capital stock, we paid approximately $3.4 million in cash, including transactions
costs, with the potential to pay up to approximately $5.0 million, additionally, in earn-out consideration over two years from the acquisition, contingent upon the achievement of
certain future financial targets. We did not pay any earn-out consideration related to Fast Track in 2005.

During
2003, we invested $7.5 million, net of cash acquired, for the controlling interest in Keane Worldzen and paid $0.9 million related to prior year's acquisitions.

Cash flows provided by (used in) financing activities

Net cash flows used for financing activities were $51.5 million and $25.2 million in 2005 and 2004, respectively, and were primarily for the
repurchase of our common stock.

In
June 2003, we received $150.0 million in proceeds from our issuance of convertible subordinated debentures. From these proceeds, we simultaneously invested approximately
$37.3 million to repurchase approximately 3.0 million shares of our common stock from authorizations approved by our Board of Directors in October of 2002 and May of 2003. Net proceeds
after the repurchase of

45

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shares
and approximately $4.4 million debt issuance costs were approximately $108.3 million. See Note 10 "CONVERTIBLE SUBORDINATED DEBENTURES" in the notes to the accompanying
consolidated financial statements for additional information on our Debentures.

Additionally
during 2005 and 2004, we were authorized to repurchase shares of our common stock on the open market or in negotiated transactions, with the timing and amount of shares
purchased determined by our management based on its evaluation of market and economic conditions and other factors. From January 1, 2003 through December 31, 2005, our Board of Directors
authorized us to repurchase up to 15.0 million shares of our common stock. The following is a summary of our repurchase activity for 2005, 2004, and 2003 (dollars in thousands):

|                                               |  | 2005       |   | 2004 |        | 2003
|---------------------------------------------- |  | ---------- | - | ---- | ------ | ----
|
|Prior year authorizations at January 1,        |  | 2,871,600  |   |      |        |     
|Authorizations                                 |  | 6,000,000  |   |      |        |     
|Repurchases                                    |  | (4,553,800 | ) | $    | 54,932 |     
|Expirations                                    |  | (1,763,900 | ) |      |        |     
|                                               |  |            |   |      |        |     
|Authorized shares remaining as of December 31, |  | 2,553,900  |   |      |        |     
|                                               |  |            |   |      |        |     

Between
May 1999 and December 31, 2005, we invested approximately $314.7 million to repurchase approximately 25.2 million shares of our common stock under
twelve separate authorizations. These share repurchases more than offset the shares issued under our various stock ownership programs. Under these stock ownership programs, we issued 505,530 shares,
682,250 shares, and 603,235 shares and received proceeds of $5.4 million, $5.6 million, and $4.4 million for the years ended December 31, 2005, 2004, and 2003,
respectively.

In
February 2003, we entered into a $50.0 million unsecured revolving credit facility ("credit facility") with two banks. The terms of the credit facility required us to
maintain a maximum total funded debt and other financial ratios. The credit facility also included covenants that, subject to certain specific exceptions and limitations, among other things,
restricted our ability to incur additional debt, make certain acquisitions or disposition of assets, create liens, and pay dividends. Between June 2003 and July 2005, we amended certain
provisions of the credit facility with the two banks, including the allowable limit for letters of credit within the total facility and for the purposes of issuing a letter of credit to satisfy bank
guarantees with respect to the Victoria TTA contract. One of the banks issued a $32.4 million ($45 million AUD) letter of credit dated July 14, 2005 against our credit facility in
connection with our Victoria TTA contract. This credit facility was terminated in connection with the execution of a new credit facility, described below, on September 15, 2005.

On
September 15, 2005, we entered into a five-year revolving credit facility ("the new credit facility") with a syndicate of banks (the "lenders") in the amount of
$200.0 million, plus an additional amount of up to $50.0 million subject to certain terms and conditions (the "loan amount"). The new credit facility has various nonfinancial and
financial covenants, which include a total leverage ratio, a senior leverage ratio and a quick ratio. The new credit facility replaced our $50.0 million unsecured revolving credit facility.
Pursuant to the new credit facility, we may borrow funds from the lenders up to the loan amount with a $50.0 million sub limit for letters of credit. The annual commitment fee payable quarterly
is at an initial rate of 0.20% per annum on the unused amount of revolving credit commitments, subject to adjustment based on a senior leverage ratio as defined in the new credit facility and up to a
maximum per annum rate of 0.25%. To the extent there are letters of credit outstanding under the new credit facility, we are required to pay the administrative agent a letter of credit fee, initially
1.0% annually, subject to adjustment based on the senior leverage ratio as defined and up to a maximum per annum rate of 1.5%. In connection with the new credit facility, we paid $1.3 million
in related debt issuance costs. As of December 31, 2005, there was approximately $166.8 million available for borrowing, subject to certain financial covenants, after considering

46

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$33.2 million
of outstanding letters of credit. These letters of credit, which include the $32.4 million ($45 million AUD) letter of credit issued in July 2005 against our
previous credit facility in connection with our Victoria TTA contract, remain outstanding against the new credit facility.

Increase (Decrease) in Cash and Cash Equivalents

Our cash and cash equivalents totaled $71.6 million, $67.5 million, and $56.7 million at December 31, 2005, 2004, and 2003,
respectively.

The
following table summarizes our contractual obligations by year as of December 31, 2005:

|                                       |  | Payments due by Period (Dollars in thousands)
|-------------------------------------- |  | ---------------------------------------------
|
|Long-term debt (1)                     |  |                                              
|Operating leases (2)                   |  |                                              
|Capital lease obligations              |  |                                              
|                                       |  |                                              
|Total contractual cash obligations (3) |  | $                                            
|                                       |  |                                              

---

Our
material commitments are primarily related to our Debentures, our Credit Facility, and our office rentals. Further discussion regarding our Debentures can be found in Note 10
"CONVERTIBLE SUBORDINATED DEBENTURES" in the notes to the accompanying consolidated financial statements. Further discussion regarding our Credit Facility can be found in Note 16 "RELATED
PARTIES, COMMITMENTS, AND CONTINGENCIES." Contractual obligations related to operating leases reflect existing rental leases and the corporate facility as discussed in Note 16 "RELATED PARTIES,
COMMITMENTS, AND CONTINGENCIES."

Seasonality

We experience a moderate amount of seasonality. Our consulting revenue and profitability are affected by the number of workdays in a quarter. Typically our
billable hours are reduced in the second half of the year, especially during the fourth quarter, due to the large number of holidays and vacation time.

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OFF-BALANCE SHEET ARRANGEMENTS

In January 2003, the FASB issued FIN 46, which requires the consolidation of a variable interest entity, as defined, by its primary beneficiary. Primary
beneficiaries are those companies that are subject to a majority of the risk of loss or entitled to receive a majority of the entity's residual returns, or both. In determining whether it is the
primary beneficiary of a variable interest entity, an entity with a variable interest shall treat variable interests in that same entity held by its related parties as its own interests. FIN 46 is
effective prospectively for all variable interests obtained subsequent to December 31, 2002. For variable interests existing prior to December 31, 2002, consolidation will be required
beginning
July 1, 2003. In December 2003, the FASB agreed to a broad-based deferral of the effective date of FIN 46 for public companies until the end of periods ending after March 15,
2004, with the exception of interests in special purpose entities, which are required in financial statements of public companies for periods ending after December 15, 2003.

We
have evaluated the applicability of FIN 46 to our relationship with each of City Square Limited Partnership ("City Square") and Gateway LLC and determined that these entities are not
required to be consolidated within our consolidated financial statements. We have determined that Gateway LLC is not a variable interest entity as the equity investment is sufficient to absorb the
expected losses and the holders of the equity investment do not lack any of the characteristics of a controlling interest. We have concluded that as we no longer occupy the space at Ten City Square
and no longer derive any benefit from leasing the space, we would not be determined to be the related party most closely associated with City Square. As a result, we will continue to account for our
leases with City Square and Gateway LLC consistent with our historical practices in accordance with generally accepted accounting principles. We believe that we do not have an interest in any variable
interest entities that would require consolidation. In February 2006, our lease for Ten City Square expired and the building was sold to a third party.

We
are a guarantor with respect to a line of credit for Innovate EC, an entity in which we acquired a minor equity position as a result of a previous acquisition. The total line of
credit is for $600,000. We guarantee $300,000 of this obligation. The line is subject to review by the lending institution. We would be required to meet our guarantor obligation in the event the
lending institution refuses to extend the credit facility and Innovate EC is unable to satisfy its obligation.

In
connection with certain contracts, we have been required to deliver security or performance bonds for the benefit of our clients. These bonds give the beneficiary the right to obtain
payment from the issuer of the bond if certain specified events occur or fail to occur. In addition, we have various agreements in which we may be obligated to indemnify our clients or third parties
with respect to certain matters. Generally, these indemnification provisions are included in contracts arising in the normal course of business under which we customarily agree to hold the indemnified
party harmless against losses arising from a breach of representations related to such matters as title to assets sold and licensed or certain intellectual property rights, improper disclosures of
confidential information, personal injuries or property damages. Typically, there are no specific dollar limits associated with indemnifications. In general, the term of the indemnifications will
correspond to the contract term such that the harm or damage must occur during the contract period. Therefore, claims may be raised after completion of the contract associated with the indemnification
provision, but the damage must have been caused during the contract term. As a prime contractor under certain contracts, we are responsible for the performance of our subcontractors and would be
required to arrange for performance in the event the subcontractors failed to perform. However, we would retain our right to enforce the subcontracts and to seek damages for nonperformance from our
subcontractors. A limited number of our contracts include liquidated damages provisions, which would require us to make per diem payments for late deliveries. Further, our obligations under these
agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties, including our subcontractors, for certain payments made by us. It is not
possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular
agreement.

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We have agreed to numerous indemnification provisions in connection with the Victoria TTA contract. As the prime contractor for the Victoria TTA contract, Kamco is the beneficiary of
corresponding indemnifications obligations by its subcontractors. Subject to a number of exclusions, Kamco's maximum liability is capped at $72 million ($100 million AUD). Under the
Victoria TTA contract, liquidated damages, for which Kamco may be liable, are assessed at $36,000 ($50,000 AUD) per day for each day the specified phase completion is behind schedule, but are limited
to $7.2 million ($10 million AUD). The first $3.6 million ($5 million AUD) in liquidated damages is split evenly amongst Kamco and certain subcontractors. The next
$3.6 million ($5 million AUD) is apportioned based on responsibility for the delay. In addition, we have a total of $32.4 million ($45 million AUD) letters of credit issued
against the new facility as surety bonds to ensure due and proper performance of our obligations under the Victoria TTA contract.

On
September 15, 2005, we entered into a five-year revolving credit facility with a syndicate of banks in the amount of $200 million, plus an additional amount
of up to $50 million subject to certain terms and conditions. See Note 16 "RELATED PARTIES, COMMITMENTS AND CONTINGENCIES" in the notes to the accompanying consolidated financial
statements for further discussion on the new credit facility.

IMPACT OF INFLATION AND CHANGING PRICES

Inflationary increases in costs have not been material in recent years and, to the extent permitted by competitive pressures, are passed on to clients through
increased billing rates. Rates charged by us are based on the cost of labor and market conditions within the industry.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not engage in trading market risk, sensitive instruments or purchasing hedging instruments or "other than trading" instruments that are likely to expose us
to market risk, whether interest rate, foreign currency exchange, and commodity price or equity price risk. We have not purchased options or entered into swaps or forward or futures contracts.
However, on October 20, 2005, our Board of Directors approved our foreign exchange risk management policy, which will allow us to invest in hedging instruments for the purpose of hedging
foreign currency risk.

Interest Rate Risk

We invest primarily in U.S. government obligations as well as tax-exempt municipal bonds and corporate bonds. As a result, our primary market risk
exposure is that of interest rate risk to our investments, which would affect the carrying value of those investments. During 2004, the United States Federal Reserve Board began increasing benchmark
interest rates and at the December 2005 meeting of the Federal Open Market Committee increased rates for the thirteenth time, a total of 325 basis points. A significant increase in interest
rates would increase the rate of return on our cash and cash equivalents, but would have a negative impact on the carrying value of our marketable securities. Our interest income would change by
approximately $0.7 million for each of the years ended December 31, 2005 and December 31, 2004, for each 100 basis point increase or decrease in interest rates. The fair value of
our investment portfolio at December 31, 2005 would decrease by approximately $1.0 million for a 100 basis point increase in rates and increase $0.9 million for a 100 basis point
decrease in rates. The fair value of our investment portfolio at December 31, 2004 would have changed by approximately $1.8 million for each 100 basis point increase or decrease in
rates.

Changes
in market rates and the related impact on the fair value of our investments would not generally affect net income as our investments are fixed-rate securities and are
classified as available-for-sale. Investments classified as available-for-sale are carried at fair value with unrealized gains and losses recorded as a
component of accumulated other comprehensive loss in the accompanying consolidated balance sheets. However, when the investments are sold, the unrealized

49

---



losses
are recorded as realized losses and included in net income in the accompanying consolidated statements of income.

As
of December 31, 2005, we had a net unrealized loss of approximately $1.2 million, which represents an increase of $0.3 million compared to a net unrealized loss
of approximately $0.9 million as of December 31, 2004. At December 31, 2005 and December 31, 2004, we held available-for-sale securities with an
aggregate fair value of approximately $92.7 million and $100.6 million, respectively, that had aggregate gross unrealized losses of approximately $1.3 million and
$1.0 million, in those years. Factors considered in determining whether a loss is temporary include the length of time and extent to which the securities have been in an unrealized loss
position and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. All such securities have been in a continuously declining unrealized
loss position for less than 12 months. We believe that the impairments to these investments are not other-than-temporary at this time as these securities are all highly
rated investments which have been subject to routine market changes that have not been significant to date.

Foreign Currency Risk

We transact business in the UK, Canada, India, and Australia and as such have exposure associated with movement in foreign currency exchange rates. For the year
ended December 31, 2005 compared to the same period in 2004, the fluctuation in foreign currency exchange rates negatively impacted our operating income by approximately $2.7 million.
Relative to the foreign currency exposures existing at December 31, 2005, a 10% unfavorable movement would have resulted in an additional $7.1 million reduction of operating income for
the year ended December 31, 2005. For the year ended December 31, 2004 compared to the same period in 2003, the fluctuation in foreign currency exchange rates negatively impacted
operating income by approximately $2.3 million. Relative to the foreign currency exposures existing at December 31, 2004, a 10% unfavorable movement would have resulted in an additional
$5.2 million reduction of operating income for the year ended December 31, 2004.

Net
revenues derived from our foreign operations totaled approximately 5.9%, 5.6%, and 2.9% of our total revenues for the year ended December 31, 2005, 2004, and 2003,
respectively.

50

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|Report of independent registered public accounting firm                                              
|-----------------------------------------------------------------------------------------------------
|Consolidated statements of income for the years ended December 31, 2005, 2004, and 2003              
|Consolidated balance sheets as of December 31, 2005 and 2004                                         
|Consolidated statements of stockholders' equity for the years ended December 31, 2005, 2004, and 2003
|Consolidated statements of cash flows for the years ended December 31, 2005, 2004, and 2003          
|Notes to consolidated financial statements                                                           

51

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Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders of Keane, Inc.:

We
have audited the accompanying consolidated balance sheets of Keane, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Keane, Inc. at December 31, 2005
and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted
accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Keane, Inc.'s internal control over
financial reporting as of December 31, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 3, 2006 expressed an unqualified opinion thereon.

|                                    |  | /s/ Ernst & Young LLP
|----------------------------------- |  | ---------------------
|Boston, Massachusetts
March 3, 2006 |  |                      

52

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KEANE, INC.        CONSOLIDATED STATEMENTS OF INCOME

|                                                                                |                                               | For the years ended December 31, |        
|------------------------------------------------------------------------------- | --------------------------------------------- | -------------------------------- | -------
|
|
|Revenues                                                                        |                                               | $                                | 955,855
|Operating expenses                                                              |                                               |                                  |        
|                                                                                | Salaries, wages, and other direct costs       |                                  |        
|                                                                                | Selling, general, and administrative expenses |                                  |        
|                                                                                | Amortization of intangible assets             |                                  |        
|                                                                                | Restructuring charges, net                    |                                  |        
|                                                                                |                                               |                                  |        
|Operating income                                                                |                                               |                                  | 50,982 
|Other income (expense)                                                          |                                               |                                  |        
|                                                                                | Interest and dividend income                  |                                  |        
|                                                                                | Interest expense                              |                                  |        
|                                                                                | Other income (expense) net                    |                                  |        
|                                                                                | Minority interest                             |                                  |        
|                                                                                |                                               |                                  |        
|Income before income taxes                                                      |                                               |                                  | 50,318 
|                                                                                |                                               |                                  |        
|Provision for income taxes                                                      |                                               |                                  | 16,892 
|                                                                                |                                               |                                  |        
|Net income                                                                      |                                               | $                                | 33,426 
|                                                                                |                                               |                                  |        
|Basic earnings per share                                                        |                                               | $                                | 0.55   
|                                                                                |                                               |                                  |        
|Diluted earnings per share                                                      |                                               | $                                | 0.52   
|                                                                                |                                               |                                  |        
|Basic weighted average common shares outstanding                                |                                               |                                  | 60,540 
|                                                                                |                                               |                                  |        
|Diluted weighted average common shares and common share equivalents outstanding |                                               |                                  | 69,281 
|                                                                                |                                               |                                  |        

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

53

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KEANE, INC.        CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                        |                                        | As of December 31,                         |        
|------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------ | -------
|
|
|Assets                                                                                                                                                  |                                        |                                            |        
|Current:                                                                                                                                                |                                        |                                            |        
|                                                                                                                                                        | Cash and cash equivalents              |                                            | $      
|                                                                                                                                                        | Restricted cash                        |                                            |        
|                                                                                                                                                        | Marketable securities                  |                                            |        
|                                                                                                                                                        | Accounts receivable, net:              |                                            |        
|                                                                                                                                                        |                                        | Trade                                      |        
|                                                                                                                                                        |                                        | Other                                      |        
|                                                                                                                                                        | Prepaid expenses and deferred taxes    |                                            |        
|                                                                                                                                                        |                                        |                                            |        
|                                                                                                                                                        |                                        | Total current assets                       |        
|Property and equipment, net                                                                                                                             |                                        |                                            | 77,583 
|Goodwill                                                                                                                                                |                                        |                                            | 314,536
|Customer lists, net                                                                                                                                     |                                        |                                            | 41,050 
|Other intangible assets, net                                                                                                                            |                                        |                                            | 6,173  
|Other assets, net                                                                                                                                       |                                        |                                            | 21,868 
|                                                                                                                                                        |                                        |                                            |        
|                                                                                                                                                        |                                        | $                                          | 807,294
|                                                                                                                                                        |                                        |                                            |        
|Liabilities                                                                                                                                             |                                        |                                            |        
|Current:                                                                                                                                                |                                        |                                            |        
|                                                                                                                                                        | Short-term debt                        |                                            | $      
|                                                                                                                                                        | Accounts payable                       |                                            |        
|                                                                                                                                                        | Accrued expenses and other liabilities |                                            |        
|                                                                                                                                                        | Accrued restructuring                  |                                            |        
|                                                                                                                                                        | Accrued compensation                   |                                            |        
|                                                                                                                                                        | Accrued income taxes                   |                                            |        
|                                                                                                                                                        | Deferred revenue                       |                                            |        
|                                                                                                                                                        |                                        |                                            |        
|                                                                                                                                                        |                                        | Total current liabilities                  |        
|Long-term debt                                                                                                                                          |                                        |                                            | 150,001
|Accrued long-term building costs                                                                                                                        |                                        |                                            | 39,004 
|Accrued long-term restructuring                                                                                                                         |                                        |                                            | 2,823  
|Other long-term liabilities                                                                                                                             |                                        |                                            | 16,493 
|Deferred long-term revenue                                                                                                                              |                                        |                                            | 11,155 
|Deferred income taxes                                                                                                                                   |                                        |                                            | 30,864 
|                                                                                                                                                        |                                        |                                            |        
|                                                                                                                                                        |                                        | Total liabilities                          |        
|Minority interest                                                                                                                                       |                                        |                                            | 3,769  
|Commitments and contingencies                                                                                                                           |                                        |                                            |        
|Stockholders' equity                                                                                                                                    |                                        |                                            |        
|Preferred stock, par value $.01, authorized 2,000,000 shares, issued none                                                                               |                                        |                                            |       
|Common stock, par value $.10, authorized 200,000,000 shares, issued and outstanding 58,135,289 at December 31, 2005 and 62,183,559 at December 31, 2004 |                                        |                                            | 5,814  
|Additional paid-in capital                                                                                                                              |                                        |                                            |       
|Accumulated other comprehensive loss                                                                                                                    |                                        |                                            | (12,124
|Retained earnings                                                                                                                                       |                                        |                                            | 449,349
|Unearned compensation                                                                                                                                   |                                        |                                            | (2,427 
|                                                                                                                                                        |                                        |                                            |        
|                                                                                                                                                        |                                        | Total stockholders' equity                 |        
|                                                                                                                                                        |                                        |                                            |        
|                                                                                                                                                        |                                        | Total liabilities and stockholders' equity |        
|                                                                                                                                                        |                                        |                                            |        

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

54

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KEANE, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(In thousands, except for share data)

|                                                                                                      |  |             |   |   |        | Class B
Common stock |          |   |   | Accumu-
lated
other
compre-
hensive loss |   |   |          |   |   | Treasury stock
at cost |   |   |        
|----------------------------------------------------------------------------------------------------- |  | ----------- | - | - | ------ | -------------------- | -------- | - | - | ---------------------------------------- | - | - | -------- | - | - | ---------------------- | - | - | -------
|
|
|
|Balance December 31, 2002                                                                             |  | 75,545,386  |   | $ | 7,555  |                      | 284,604  |   | $ | 28                                       |   | $ | 166,598  |   | $ | (1,411                 | ) | $ | 369,542
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Issuance of restricted stock award                                                                    |  |             |   |   |        |                      |          |   |   |                                          |   |   | 80       |   |   |                        |   |   |        
|Employee stock option grant and accelerated vesting of certain stock options                          |  |             |   |   |        |                      |          |   |   |                                          |   |   | 541      |   |   |                        |   |   |        
|Amortization of unearned compensation                                                                 |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Common stock issued under stock option and employee purchase plans                                    |  |             |   |   |        |                      |          |   |   |                                          |   |   | (116     | ) |   |                        |   |   |        
|Conversions of Class B common stock into common stock                                                 |  | 5           |   |   |       |                      | (5       | ) |   |                                         |   |   |          |   |   |                        |   |   |        
|Income tax benefit from stock option plans                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   | 445      |   |   |                        |   |   |        
|Repurchase of common stock                                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Minimum pension liability, net of taxes of ($773)                                                     |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | (2,342                 | ) |   |        
|Investments valuation adjustment, net of taxes of $108                                                |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | 162                    |   |   |        
|Foreign currency translation                                                                          |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | 2,199                  |   |   |        
|Net income                                                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   | 29,222 
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Comprehensive income                                                                                  |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Balance December 31, 2003                                                                             |  | 75,545,391  |   | $ | 7,555  |                      | 284,599  |   | $ | 28                                       |   | $ | 167,548  |   | $ | (1,392                 | ) | $ | 398,764
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Issuance of restricted stock award                                                                    |  | 145,000     |   |   | 14     |                      |          |   |   |                                          |   |   | 2,194    |   |   |                        |   |   |        
|Employee stock option grant and accelerated vesting of certain stock options                          |  |             |   |   |        |                      |          |   |   |                                          |   |   | 287      |   |   |                        |   |   |        
|Amortization of unearned compensation                                                                 |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Common stock issued under stock option and employee purchase plans                                    |  | 251,481     |   |   | 25     |                      |          |   |   |                                          |   |   | 3,432    |   |   |                        |   |   |        
|Conversions of Class B common stock into common stock                                                 |  | 284,599     |   |   | 28     |                      | (284,599 | ) |   | (28                                      | ) |   |          |   |   |                        |   |   |        
|Income tax benefit from stock option plans                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   | 377      |   |   |                        |   |   |        
|Repurchase of common stock                                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Reclassification of repurchased stock as unissued according to Massachusetts Business Corporation Act |  | (14,042,912 | ) |   | (1,404 | )                    |          |   |   |                                          |   |   | (140,086 | ) |   |                        |   |   |        
|Minimum pension liability, net of taxes of $0                                                         |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | (6,646                 | ) |   |        
|Investments valuation adjustment, net of taxes of $570                                                |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | (859                   | ) |   |        
|Foreign currency translation                                                                          |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | 2,240                  |   |   |        
|Net income                                                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   | 32,282 
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Comprehensive income                                                                                  |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Balance December 31, 2004                                                                             |  | 62,183,559  |   | $ | 6,218  |                      |         |   | $ |                                         |   | $ | 33,752   |   | $ | (6,657                 | ) | $ | 431,046
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Issuance of restricted stock award                                                                    |  | 20,000      |   |   | 2      |                      |          |   |   |                                          |   |   | 218      |   |   |                        |   |   |        
|Amortization of unearned compensation                                                                 |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Common stock issued under stock option and employee purchase plans                                    |  | 485,530     |   |   | 49     |                      |          |   |   |                                          |   |   | 5,235    |   |   |                        |   |   |        
|Income tax benefit from stock option plans                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   | 149      |   |   |                        |   |   |        
|Repurchase of common stock                                                                            |  | (4,553,800  | ) |   | (455   | )                    |          |   |   |                                          |   |   | (39,354  | ) |   |                        |   |   | (15,123
|Minimum pension liability, net of taxes of $0                                                         |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | (2,796                 | ) |   |        
|Investments valuation adjustment, net of taxes of $166                                                |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | (218                   | ) |   |        
|Foreign currency translation                                                                          |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   | (2,453                 | ) |   |        
|Net income                                                                                            |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   | 33,426 
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Comprehensive income                                                                                  |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        
|Balance December 31, 2005                                                                             |  | 58,135,289  |   | $ | 5,814  |                      |         |   | $ |                                         |   | $ |         |   | $ | (12,124                | ) | $ | 449,349
|                                                                                                      |  |             |   |   |        |                      |          |   |   |                                          |   |   |          |   |   |                        |   |   |        

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

55

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KEANE, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                               |                                                                                   | For the years ended December 31,                                  |                                                                                                   
|---------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------------------------------------------------------
|
|
|Cash flows from operating activities:          |                                                                                   |                                                                   |                                                                                                   
|                                               | Net income                                                                        |                                                                   | $                                                                                                 
|                                               | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                   |                                                                                                   
|                                               |                                                                                   | Depreciation and amortization                                     |                                                                                                   
|                                               |                                                                                   | Deferred income taxes                                             |                                                                                                   
|                                               |                                                                                   | Provision for doubtful accounts                                   |                                                                                                   
|                                               |                                                                                   | Minority interest                                                 |                                                                                                   
|                                               |                                                                                   | (Gain) loss on sale of property and equipment                     |                                                                                                   
|                                               |                                                                                   | (Gain) loss on sale of investments                                |                                                                                                   
|                                               |                                                                                   | Other charges, net                                                |                                                                                                   
|                                               |                                                                                   | Income tax benefit from stock options                             |                                                                                                   
|                                               |                                                                                   | Changes in operating assets and liabilities, net of acquisitions: |                                                                                                   
|                                               |                                                                                   |                                                                   | (Increase) decrease in accounts receivable                                                        
|                                               |                                                                                   |                                                                   | Increase in prepaid expenses and other assets                                                     
|                                               |                                                                                   |                                                                   | Increase (decrease) in accounts payable, accrued expenses, deferred revenue, and other liabilities
|                                               |                                                                                   |                                                                   | Increase (decrease) in income taxes payable                                                       
|                                               |                                                                                   |                                                                   |                                                                                                   
|                                               | Net cash provided by operating activities                                         |                                                                   |                                                                                                   
|                                               |                                                                                   |                                                                   |                                                                                                   
|Cash flows from investing activities:          |                                                                                   |                                                                   |                                                                                                   
|                                               | Purchase of investments                                                           |                                                                   |                                                                                                   
|                                               | Sale and maturities of investments                                                |                                                                   |                                                                                                   
|                                               | Purchase of property and equipment                                                |                                                                   |                                                                                                   
|                                               | Restricted cash                                                                   |                                                                   |                                                                                                   
|                                               | Proceeds from the sale of property and equipment                                  |                                                                   |                                                                                                   
|                                               | Payments for current year acquisitions, net of cash acquired                      |                                                                   |                                                                                                   
|                                               | Payments for prior years acquisitions                                             |                                                                   |                                                                                                   
|                                               |                                                                                   |                                                                   |                                                                                                   
|                                               | Net cash provided by (used for) investing activities                              |                                                                   |                                                                                                   
|                                               |                                                                                   |                                                                   |                                                                                                   
|Cash flows from financing activities:          |                                                                                   |                                                                   |                                                                                                   
|                                               | Proceeds from issuance of convertible debentures                                  |                                                                   |                                                                                                   
|                                               | Debt issuance costs                                                               |                                                                   |                                                                                                   
|                                               | Payments under long-term debt, net                                                |                                                                   |                                                                                                   
|                                               | Principal payments under capital lease obligations                                |                                                                   |                                                                                                   
|                                               | Proceeds from issuance of common stock                                            |                                                                   |                                                                                                   
|                                               | Repurchase of common stock                                                        |                                                                   |                                                                                                   
|                                               |                                                                                   |                                                                   |                                                                                                   
|                                               | Net cash (used for) provided by financing activities                              |                                                                   |                                                                                                   
|                                               |                                                                                   |                                                                   |                                                                                                   
|                                               | Effect of exchange rate changes on cash                                           |                                                                   |                                                                                                   
|                                               | Net increase in cash and cash equivalents                                         |                                                                   |                                                                                                   
|Cash and cash equivalents at beginning of year |                                                                                   |                                                                   | 67,488                                                                                            
|                                               |                                                                                   |                                                                   |                                                                                                   
|Cash and cash equivalents at end of year       |                                                                                   | $                                                                 | 71,570                                                                                            
|                                               |                                                                                   |                                                                   |                                                                                                   
|Supplemental information:                      |                                                                                   |                                                                   |                                                                                                   
|                                               | Income taxes paid                                                                 |                                                                   | $                                                                                                 
|                                               |                                                                                   |                                                                   |                                                                                                   
|                                               | Interest paid                                                                     |                                                                   | $                                                                                                 
|                                               |                                                                                   |                                                                   |                                                                                                   

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

56

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KEANE, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION:The accompanying consolidated financial statements include the accounts of Keane, Inc. and all
of its wholly and majority owned subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated. Our fiscal year ends on December 31. Certain
reclassifications have been made to the 2004 and 2003 financial statements to conform to the 2005 presentation. These reclassifications have no effect on our previously reported net income or
stockholders' equity.

NATURE OF OPERATIONS:We are a leading provider of Information Technology ("IT") and Business Process Services ("BPS"). In
business since 1965, our mission is to help clients improve business and IT effectiveness through outsourcing services. In order to align our reporting with our strategic priorities, beginning
January 1, 2004, we classify our service offerings into the following three categories: Outsourcing, Development & Integration, and Other IT Services. These services were previously
classified within our Plan, Build, and Manage service offerings in our Annual Report on Form 10-K for the year ended December 31, 2003. Outsourcing includes Application
Outsourcing and BPS. We optimize clients' internal processes through BPS through Keane Worldzen, Inc. ("Keane Worldzen"), our majority owned subsidiary.

We
deliver our IT services through an integrated network of regional offices in North America, the United Kingdom ("UK"), and Australia and through Advanced Development Centers ("ADCs")
in the U.S., Canada, and India. This global delivery model enables us to provide our services to clients onsite at a client's facility, at our nearshore facilities in Halifax, Nova Scotia, and
Toronto, Ontario, and through our offshore development centers in India. In 2004, we extended our Global network of Advanced Development Centers with the opening of new facilities in Toronto, Ontario
and Hyderabad,
India. Our regional offices are supported by centralized Strategic Practices and Quality Assurance Groups. This integrated, highly flexible mix of cost-effective onsite, nearshore, and
offshore delivery is now a component of most of our new Application Outsourcing engagements. The distribution of work across multiple locations is typically based on a client's cost, technology, and
risk management requirements. Our successful track record in absorbing the local staff of our clients is particularly attractive to many prospective clients.

Our
clients consist primarily of Global 2000 companies across several industries. We have specific expertise and depth of capability in financial services, insurance, healthcare, and the
public sector. We strive to build long-term relationships with our clients by improving their business and IT performance, reducing their costs, and increasing their organizational
flexibility. We achieve recurring revenue as a result of our multi-year outsourcing contracts and our long-term client relationships.

INDUSTRY SEGMENT INFORMATION:Based on qualitative and quantitative criteria established by Statement of Financial Accounting
Standards ("SFAS") No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information," we operate within two reportable segments: Professional Services and
Transportation Ticketing Solutions. In these segments, we offer an integrated mix of end-to-end business solutions, such as Outsourcing, Development and Integration, and Other
IT services. See Note 2 "SIGNIFICANT CONTRACTS" and Note 17 "SEGMENT INFORMATION" for further detail on our assessment of our reportable segments.

REVENUE RECOGNITION:We derive our revenues from the sale of professional services, software licenses, software maintenance
and equipment. We derive the majority of our revenues from the sale of professional services, which are recognized on a time and materials basis and proportional performance and represented
approximately 94%, 93% and 92% of total revenues for the years ended December 31, 2005, 2004 and 2003, respectively. In addition, we recognize revenue from the sale of

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software
licenses, maintenance and equipment through our Healthcare Solutions Division, which represented approximately 6%, 7% and 8% of total revenues for the years ended December 31, 2005,
2004 and 2003, respectively. In accordance with Staff Accounting Bulletin ("SAB") No. 104 ("SAB 104"), "Revenue Recognition", we recognize revenue when persuasive evidence of an arrangement
exists, delivery of the product has occurred, the fee is fixed or determinable and collectibility is probable. We consider a non-cancelable fully executed agreement or client purchase
order to be persuasive evidence of an arrangement. We consider delivery to have occurred upon completion of services rendered or transfer of product title to the client. We consider the fee to be
fixed or determinable if the fee is not subject to adjustment, or if we have not granted extended payment terms to the client. We consider collection to be probable if our internal credit analysis
indicates that the client will be able to pay amounts as they become due under the arrangement.

For
general consulting engagements, we recognize revenue on a time and materials basis as services are delivered. For the majority of our outsourcing engagements, we provide a specific
level of service each month for which we bill a standard monthly fee. We recognize revenue for these engagements in monthly installments over the billable portion of the contract. These installments
may be adjusted to
reflect changes in staffing requirements and service levels consistent with terms of the contract. For fixed-price engagements, we recognize revenue on a proportional performance basis over the life
of the contract. We use estimated labor-to-complete to measure the proportional performance. Proportional performance recognition relies on accurate estimates of the cost,
scope, and duration of each engagement. If we do not accurately estimate the resources required or the scope of the work to be performed, then future revenues may be negatively affected or losses on
existing contracts may need to be recognized. All future anticipated losses are recognized in the period they are identified.

For
our sales arrangements that contain multiple revenue elements, such as software licenses, professional services and software maintenance, we first determine whether the arrangement
is within the scope of Emerging Issues Task Force ("EITF") EITF No. 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple Deliverables," Statement of Position
("SOP") SOP 97-2 ("SOP 97-2"), "Software Revenue Recognition," SOP 97-2 or SOP 81-1 ("SOP 81-1"), "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts." We recognize revenue on arrangements with multiple deliverables as separate units of accounting only if certain
criteria are met. In general, a deliverable (or a group of deliverables) meets the separation criteria if the deliverable has standalone value to the client and if there is objective and reliable
evidence of the fair value of all remaining undelivered elements in the arrangement. We allocate the total arrangement consideration to each separate unit of accounting based on the relative fair
value of each separate unit of accounting or using the residual method. The amount of arrangement consideration that is allocated to a delivered unit of accounting is limited to the amount that is not
contingent upon the delivery of another separate unit of accounting. If such criteria are not met, then all deliverables are accounted for as a single unit of accounting whereby all revenue is
recognized based on the accounting applicable to the last element to be delivered.

Revenue
earned on software arrangements involving multiple elements which qualify for separate element treatment is allocated to each undelivered element based on the relative fair
values of those elements based on vendor-specific objective evidence with the remaining value assigned to the delivered element, the software license. Revenue allocated to the software license is
based on the residual method in accordance with SOP 97-2 and SOP 98-9 ("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions," under which revenue equal to the fair value of professional services and software support is allocated to those items and recognized

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as
revenue as those items are delivered. Any residual or remaining portion of the total arrangement fee is then allocated to the delivered software license. We generally recognize software maintenance
fees on installed products on a pro-rated basis over the term of the agreement. Revenue is recognized for each element when each of the aforementioned revenue recognition criteria has been
met.

Key
factors in determining revenue recognition for multiple element arrangements, including software and software-related services, are management assessments that installation services
are essential to the functionality of the software. We evaluate revenue recognition for these types of arrangements on a contract-by-contract basis as the terms of each
arrangement vary. If the
services are essential to the functionality of the software, payment of the license fees and are dependent upon the performance of the services, the arrangement includes milestones or client specific
acceptance criteria, or the services include significant modification or customization of the software, then both the software license and services are recognized under SOP 81-1.
Generally, these agreements contain milestone provisions that vary by contract but relate to code load, installation, commencement of training, and demonstration that the software performs the
functions requested by the client. The milestones approximate progress to complete, based upon input measures. We utilize client acceptance of contract milestones in order to track progress to
completion.

See
Note 2 "SIGNIFICANT CONTRACTS" for a discussion of the revenue recognition associated with our contract with the Transport Ticketing Body of the State of Victoria, Australia
("the Victoria TTA contract").

CONTRACT COSTS:Costs to deliver services are expensed as incurred, with the exception of set-up costs and the
cost of certain construction and non-construction services for which the related revenues must be deferred under EITF 00-21 or other accounting literature. By analogy to SFAS
No. 91 ("SFAS 91"), "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases," deferred contract set-up costs
may include costs incurred during the set-up phase of a client arrangement relating to employee transition, and relocation of key personnel. By analogy to FASB Technical Bulletin (As
Amended) 90-1 ("FTB 90-1"), "Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts," we defer and subsequently amortize certain direct and
incremental costs directly associated with the delivery of products and services related to activities that enable the provision of contracted services to clients. For contracts that are accounted for
as a single unit of accounting, the direct and incremental costs directly associated with the delivery of products and services are deferred and recognized over the period revenues are recognized. We
amortize deferred contract set-up costs on a straight-line basis over the lesser of their estimated useful lives or the period in which it was determined we would recognize the
associated revenue. Useful lives range from 3 years up to a maximum of the period when the associated revenue is recognized.

We
review deferred contract costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Our review is based on our
projection of the undiscounted future operating cash flows of the related client contract. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the
carrying amounts of related assets, we record a charge to reduce the carrying amount to equal projected future discounted cash flows.

ALLOWANCE FOR BAD DEBTS:Each accounting period, we evaluate accounts receivable for risk associated with a client's
inability to make contractual payments or unresolved issues with the adequacy of our services. Billed and unbilled receivables that are specifically identified as being at risk

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are
provided for with a charge to revenue in the period the risk is identified. We exercise considerable judgment in assessing the ultimate realization of these receivables, including reviewing the
financial stability of the client, evaluating the successful mitigation of service delivery disputes, and gauging current market conditions. When we determine that an account is deemed uncollectible,
we write-off the receivable against the allowance for bad debts.

FOREIGN CURRENCY TRANSLATION:For our subsidiaries in Canada, the UK, India and Australia, the Canadian dollar, British
pound, Indian rupee, and Australian dollar, respectively, are the functional currencies. All assets and liabilities of our Canadian, English, and Indian subsidiaries are translated at exchange rates
in effect at the end of the period. Income and expenses are translated at average exchange rates that approximate those in effect on transaction dates. The translation adjustments are recorded in
accumulated other comprehensive loss, a separate component of stockholders' equity in the accompanying consolidated balance sheets. Realized foreign exchange gains and losses are included in other
income, net, in the accompanying consolidated statements of income.

CASH AND CASH EQUIVALENTS:Cash and cash equivalents consist of highly liquid investments with a maturity of three months or
less at the time of purchase. Cash equivalents are currently designated as available-for-sale. Cash equivalents at December 31, 2005 included investments in money market
funds totaling $25.5 million and no investments in commercial paper. Cash equivalents at December 31, 2004 included investments in money market funds totaling $3.0 million and
investments in commercial paper totaling $33.5 million.

RESTRICTED CASH:Restricted cash is primarily related to amounts deposited to secure letters of credit for certain foreign
capital purchases and amounts deposited until the purchase prices for the acquisitions of Cresta Testing, Inc. ("Cresta"), netNumina Solutions, Inc. ("netNumina"), and Fast Track
Holdings Limited ("Fast Track") are finalized.

FINANCIAL INSTRUMENTS:The amounts reflected in the accompanying consolidated balance sheets for cash and cash equivalents,
accounts receivable, and accounts payable approximate their fair value due to their short maturities. Our marketable securities are designated as available-for-sale and are
stated at fair market value. As of December 31, 2005, based on an available market quote, the fair value of our convertible subordinated debentures was approximately $134.6 million
compared to the carrying value of $150.0 million. As of December 31, 2004, based on an available market quote, the fair value of our convertible subordinated debentures was approximately
$154.9 million compared to the carrying value of $150.0 million. Financial instruments that potentially subject us to concentration of credit risk consist primarily of marketable
securities and trade receivables. See below for a discussion of marketable securities. Our client base consists of geographically dispersed clients in many different industries. Therefore, we do not
consider concentration of credit risk with respect to trade receivables significant.

MARKETABLE SECURITIES:Marketable securities are stated at fair value as reported by the investment custodian. We determine
the appropriate classification of debt and equity securities at the time of purchase and re-evaluate such designations as of each balance sheet date. Marketable securities are currently
designated as available-for-sale, and as such, unrealized gains and losses, net of tax effect are reported in accumulated other comprehensive loss in the accompanying
consolidated balance sheets. We invest primarily in U.S. government obligations. We also invest in tax-exempt municipal bonds with at least a single A rating by Moody's grading service and
corporate bonds. The majority of our investments have a maturity date of not more than five years. We view our marketable securities portfolio as available for use in our current operations, and
accordingly, these marketable securities are

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classified
as current assets in the accompanying consolidated balance sheet. As of December 31, 2005 and 2004, our marketable securities reflect a net unrealized loss of $1.2 million and
a net unrealized loss of $0.9 million, respectively. Realized gains and losses are determined by deducting the amortized cost of the security from the proceeds received. The realized gains and
losses, as well as interest, dividends, and capital gain/loss distributions on all securities, are included in interest income in the accompanying consolidated statements of income.

PROPERTY AND EQUIPMENT:Property and equipment is carried at cost less accumulated depreciation and amortization. Property
and equipment are reviewed periodically for indicators of impairment and assets are written down to their fair value as appropriate. Depreciation expense is computed on a straight-line
basis over the estimated useful lives of 25 to 40 years for buildings and improvements, and two to seven years for office equipment, computer equipment, and software.

Leasehold
improvements are amortized over the shorter of the estimated useful life of the improvement or the term of the lease not to exceed seven years. Repair and maintenance costs are
charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the consolidated balance sheet, and any gain or loss is included in other income, net
in the accompanying consolidated statements of income.

COMPUTER SOFTWARE COSTS:We capitalize the cost of internal-use software, that has a useful life in excess of one
year in accordance with SOP No. 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Subsequent additions,
modifications, or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance
and training costs are expensed in the period in which they are incurred. Capitalized computer software costs are amortized using the straight-line method over a period of three to seven
years. The net computer software costs are included in property and equipment in the accompanying consolidated balance sheets.

SOFTWARE DEVELOPMENT COSTS:In accordance with SFAS No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software
to be Sold, Leased, or Otherwise Marketed," we capitalize costs
incurred to develop commercial software products after technological feasibility has been established. Costs incurred to establish technical feasibility are charged to expense as incurred.
Enhancements to software products are capitalized where such enhancements extend the life or significantly expand the marketability of the products. Amortization expense is computed on a
straight-line basis over three years and totaled approximately $0.6 million, $0.8 million, and $0.4 million, for the years ended December 31, 2005, 2004, and
2003, respectively. As of December 31, 2005 and 2004, the unamortized software development costs were approximately $2.4 million and $1.7 million, respectively, and are included
in other assets in the accompanying consolidated balance sheets.

GOODWILL AND INTANGIBLE ASSETS:Under SFAS No. 142, ("SFAS 142"), "Goodwill and Other Intangible Assets,"
goodwill is not amortized but subject to annual impairment testing. During the Fourth Quarters of 2003, 2004, and 2005, we completed our annual impairment review based on October 1, 2003, 2004,
and 2005 balances, respectively, and determined that there was no impairment as of those dates. Our reporting units consist of aggregated branches that have similar economic characteristics, share the
benefit of goodwill, and for which results are regularly reviewed by business operations management. Our goodwill is allocated to these reporting units for impairment assessment. We estimate the fair
value of the business operations using a discounted cash flow model based on the future annual operating plan of each reporting unit. This model determines the present value of the

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estimated
cash flows of the reporting unit. Future changes in estimates may result in a non-cash goodwill impairment that could have a material adverse impact on our financial condition
and results of operations. As of December 31, 2005 and 2004, our goodwill totaled $314.5 million and $306.0 million, respectively.

We
periodically review our identifiable intangible assets for impairment in accordance with SFAS No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." In determining whether an intangible asset is impaired, we must make assumptions regarding estimated future cash flows from the asset, intended use of the asset, and
other related factors. If the estimates or the related assumptions used to determine the value of the intangible assets change, we may be required to record impairment charges for these assets. As of
December 31, 2005 and 2004, we reported total intangibles of customer lists and other intangibles of $47.2 million and $62.9 million, respectively. Intangibles are amortized on a
straight-line basis over a period of two to 15 years.

INCOME TAXES:We account for income taxes in accordance with SFAS No. 109 ("SFAS 109"), "Accounting for Income
Taxes," which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and
liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be
realized. We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

COMPREHENSIVE INCOME:SFAS No. 130 ("SFAS 130"), "Reporting Comprehensive Income," establishes rules for the
reporting and display of comprehensive income and its components. Components of comprehensive income include net income and certain transactions that have generally been reported in the consolidated
statement of stockholders' equity. Other comprehensive income is comprised of currency translation adjustments, available-for-sale securities valuation adjustments, and
adjustments related to a foreign defined benefit plan.

The
following table summarize the components of accumulated other comprehensive loss, net of taxes (dollars in thousands):

|As of December 31,                             |  | 2005 |         | 2004 |  
|---------------------------------------------- |  | ---- | ------- | ---- | -
|Foreign currency translation adjustments       |  | $    | 1,551   |      | $
|Securities valuation adjustment                |  |      | (732    | )    |  
|Minimum pension liability adjustment (Note 14) |  |      | (12,943 | )    |  
|                                               |  |      |         |      |  
|Accumulated other comprehensive loss           |  | $    | (12,124 | )    | $
|                                               |  |      |         |      |  

See
Note 14 "BENEFIT PLANS" for further discussion on the minimum pension liability adjustment.

STOCK-BASED COMPENSATION:We have stock-based compensation plans that are described in detail in Note 14 "BENEFIT
PLANS." We have adopted the disclosure-only provisions of SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based CompensationTransition and Disclosure," an
amendment of SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." Accordingly, no compensation expense has been recognized for our stock-based compensation plans other
than for

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restricted
stock and certain stock options. As permitted by SFAS 148 and SFAS 123, we account for our stock-based compensation in accordance with Accounting Principles Board ("APB")
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." In December 2004, the FASB issued SFAS No. 123 (revised 2004) ("SFAS 123(R)"), "Share-Based Payment,"
which is a revision of SFAS 123 and supersedes APB 25 and its related implementation guidance. We adopted the provisions of SFAS 123(R) effective January 1, 2006. See "RECENT
ACCOUNTING PRONOUNCEMENTS" for further discussion of SFAS 123(R).

In
accordance with APB 25 we use the intrinsic value-based method to account for stock option grants and restricted stock awards. We grant stock options for a fixed number of shares to
employees with an exercise price equal to the closing price of the shares at the date of grant and therefore, do not recognize compensation expense. We also grant restricted stock for a fixed number
of shares to employees for nominal consideration. In 2003, in connection with our acquisition of a majority interest in Worldzen, certain employees were granted Keane Worldzen stock options. In
accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation" and SFAS No. 141
("SFAS 141"), "Business Combinations," these stock options were recorded as unearned compensation at the date of acquisition and vest over the life of the stock option. Compensation expense
related to restricted stock awards and the Keane Worldzen stock options is recorded ratably over the restriction and vesting period, respectively, and is included in the selling, general, and
administrative expenses in the accompanying consolidated statements of income. Our Employee Stock Purchase Plan ("ESPP") is non-compensatory as defined in APB 25 and accordingly, we do not
recognize compensation expense in our consolidated financial statements. See Note 14 "BENEFIT PLANS" for further discussion on the ESPP effective January 1, 2006.

On
October 20, 2005 and December 30, 2005, our Board of Directors and Brian T. Keane, by our Board of Directors' delegation of authority to him approved the acceleration of
the vesting of Keane stock options granted prior to August 1, 2005 with an exercise price of $11.44 or greater, including those held by our executive officers. The exercise price of the
unvested options accelerated ranged from $12.16 to $18.30. On October 20, 2005 and December 30, 2005, the closing stock price per share of our common stock on the New York Stock
Exchange, which was used for measurement of compensation, was $10.63 and $11.01, respectively. Under APB 25 and FIN 44, no compensation expense was recognized for the acceleration of vesting of these
options since the closing stock price per share on the dates of acceleration were greater than the exercise prices of the unvested options accelerated.

We
and our Board of Directors considered several factors in determining whether to accelerate the vesting of these options. The primary purpose of the accelerated vesting was to enable
us to avoid recognizing in our income statement non-cash compensation expense associated with these options in future periods, upon our adoption of SFAS 123(R) effective
January 1, 2006. Absent the
acceleration of the options described above, from and after our adoption of SFAS 123(R), we would have been required to recognize approximately $10.5 million in pre-tax
non-cash compensation expense over the remaining vesting terms of the stock options, based on valuation calculations using the Black-Scholes methodology.

We
also believe that because the accelerated stock options had exercise prices in excess of the fair market value of our common stock on the date of their acceleration, the accelerated
stock options were not fully achieving their original objective of incentive compensation and employee retention. We believe that the acceleration may have a positive effect on employee morale and
retention. We believe this decision is in the best interests of Keane and its shareholders. As a result of the acceleration,

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approximately
2.1 million shares subject to options constituting approximately 47% of the total number of outstanding shares subject to unvested options at that time became immediately
exercisable.

Had
compensation cost for our stock-based compensation plans been determined based on the fair value at the grant dates as calculated in accordance with SFAS 123 and using the
Black-Scholes option-pricing model, we would have recorded additional compensation expense and our net income and earnings per share for the years ended December 31, 2005, 2004, and 2003 would
have been reduced to the pro forma amounts indicated below (in thousands, except per share data):

|Years ended December 31,                                                                                                                      |  | 2005 |         | 2004 |   | 2003   |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------ | -
|Net incomeas reported (1)                                                                                                                    |  | $    | 33,426  |      | $ | 32,282 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                    |  |      | 340     |      |   | 366    |  
|Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects (2) |  |      | (13,853 | )    |   | (5,311 | )
|                                                                                                                                              |  |      |         |      |   |        |  
|Net income (loss)pro forma                                                                                                                   |  | $    | 19,913  |      | $ | 27,337 |  
|                                                                                                                                              |  |      |         |      |   |        |  
|Earnings (loss) per share:                                                                                                                    |  |      |         |      |   |        |  
|Basicas reported                                                                                                                             |  |      | 0.55    |      |   | 0.52   |  
|Basicpro forma                                                                                                                               |  |      | 0.33    |      |   | 0.44   |  
|Dilutedas reported (1)                                                                                                                       |  |      | 0.52    |      |   | 0.48   |  
|Dilutedpro forma (1)                                                                                                                         |  |      | 0.32    |      |   | 0.41   |  

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LEGAL COSTS:We accrue costs of settlement, damages, and under certain conditions, costs of defense when such
costs are probable and estimable. Otherwise, such costs are expensed as incurred.

GRANT ACCOUNTING:Our ADC in Halifax, Nova Scotia, has received grants from Nova Scotia Business Inc. and the Nova
Scotia Office of Economic Development. These grants include employment and research and development grants. Employment grants, which relate to employee hiring and training, and research and
development grants are recognized as a reduction to salaries expense in earnings in the accompanying consolidated statements of income in the period in which the related expenditures are incurred. For
the years ended December 31, 2005 and 2004, we received payments of approximately $1.2 million and $1.0 million, respectively, as a result of achieving and maintaining certain
conditions under the grant, all of which has been recognized as a reduction to salaries expense. These payments represent all of the payments under the grant.

In
addition, in January 2004, we were granted $1.0 million, which is part of a two-year $3.0 million H-1B Technical Skills Training Grant
("H-1B Grant") that is shared by us and two other unrelated third parties. As part of the grant, we are the financial administrator of the authorized funds. For the years ended
December 31, 2005 and 2004, we received payments of approximately $0.2 million each year, which has been recognized as a reduction of salaries and training expense and represents the
reimbursements to us under the H-1B Grant. We will be eligible for the remaining payments if we are able to achieve and maintain the remaining required milestone.

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USE OF ESTIMATES:The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. Actual results could differ from those estimates.



In December 2004, the FASB issued SFAS No. 153 ("SFAS 153"), "Exchanges of Nonmonetary Assetsan amendment of APB Opinion
No. 29." This standard eliminates the exception for nonmonetary exchanges of similar productive assets to be measured based on the fair value of the assets exchanged and replaces it with a
general exception for exchanges of nonmonetary assets that do not have commercial substance. This standard is effective January 1, 2006. We do not believe the adoption of SFAS 153 will
have a material impact on our consolidated financial position, results of operations or cash flows.

In
December 2004, the FASB issued SFAS 123(R), which is a revision of SFAS 123 and supersedes APB 25 and its related implementation guidance. Generally, the approach
in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative. In April 2005, the Securities and Exchange Commission
("SEC") announced that it would provide for a phased-in implementation process for SFAS 123(R). Specifically, the SEC will require public companies that are not small business
issuers as defined in SEC Regulation S-B to adopt SFAS 123(R) no later than the beginning of the first fiscal year beginning after June 15, 2005. Therefore, we were
required to adopt SFAS 123(R) on January 1, 2006.

SFAS 123(R)
permits public companies to adopt its requirements using one of two methods: a "modified prospective" method, in which compensation cost is recognized beginning with
the effective
date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards
granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date, and a "modified retrospective" method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of adoption. We have adopted SFAS 123(R) using the modified prospective method. As permitted by SFAS 123, we
currently account for share-based payments to employees using APB 25's intrinsic value method. On October 20, 2005 and December 30, 2005, our Board of Directors approved the acceleration
of the vesting of certain Keane stock options granted prior to August 1, 2005 with an exercise price of $11.44 or greater. We are continuing to evaluate the impact of the adoption of
FAS 123(R) for the First Quarter of 2006. Our evaluation is based on awards granted as of December 31, 2005, but does not contemplate future awards which may be granted. We do not
believe the adoption of FAS 123(R) will have a significant impact on our consolidated results of operations and financial condition for the First Quarter of 2006.

In
March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107 regarding the Staff's interpretation of SFAS 123(R). This interpretation provides the Staff's
views regarding interactions between SFAS 123(R) and certain SEC rules and regulations and provides interpretations of the valuation of share-based payments for public companies. The
interpretive guidance is intended to assist

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companies
in applying the provisions of SFAS 123(R) and investors and users of the financial statements in analyzing the information provided. We will follow the guidance prescribed in SAB
No. 107 in connection with our adoption of SFAS 123(R) in the First Quarter of 2006.

In
May 2005, the FASB issued SFAS No. 154 ("SFAS 154"), "Accounting Changes and Error Corrections," which replaces Accounting Principles Board Opinion No. 20
"Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial StatementsAn Amendment of APB Opinion No. 28." SFAS 154 provides guidance on
the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. We do not believe that the adoption of SFAS 154 will have a material impact on our consolidated results of operations and financial condition.

In
November 2005, the FASB issued Staff Position No. FAS 115-1 ("FSP 115-1"), "The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments." FSP 115-1 provides accounting guidance for determining and measuring other-than-temporary impairments of
debt and equity securities, and confirms the disclosure requirements for investments in unrealized loss positions as outlined in EITF issue 03-01, "The Meaning of
Other-Than-Temporary Impairments and its Application to Certain Investments." We do not believe the adoption of the accounting requirements of FSP 115-1 on
January 1, 2006 will have a material impact on our consolidated financial position, results of operations or cash flows.

2.    SIGNIFICANT CONTRACTS

On July 26, 2005, Keane Australia Micropayment Consortium Pty Ltd ("Kamco"), a wholly-owned subsidiary of Keane and the Public Transport Ticketing
Body trading as Transport Ticketing Authority (the "TTA") of the State of Victoria, Australia, entered into a $494.0 million AUD, or approximately $367.0 million (based on the exchange
rate of $.74285 AUD per $1.00), contract (the "Victoria TTA contract") to deliver a public transit ticketing system for the State of Victoria. The Victoria TTA contract has a term of approximately
twelve years, including two years of development work, referred to as the Build phase, and ten years of operation and maintenance, referred to as the Operate phase. The Build phase represents the
development and implementation of the comprehensive solution including hardware, card distribution and software. The Operate phase represents the maintenance of the software, hardware and
comprehensive solution, refurbishments and replacements, hosting and management of the subcontractors. The TTA has an option to extend the contract for an additional two years at the completion of the
Operate phase. The Build phase of the project is comprised of twelve phases beginning with the mobilization phase and ending with the operational proving phase. Each phase during the Build phase
requires acceptance by the TTA. At the end of the fifth year of the Operate phase, the TTA can cancel the Victoria TTA contract at its option. Keane has established and is leading a consortium of four
transit and technology experts to design, build, implement and maintain a micropayment smartcard technology system and related equipment for the TTA. Keane's consortium includes automatic fare
collection specialists Ascom, ERG, and Giesecke & Devrient Australasia ("G&D"). In connection with the Victoria TTA contract, Keane delivered a guarantee to the TTA (the "Guarantee") pursuant
to which Keane has guaranteed certain obligations of Kamco under the Victoria TTA contract.

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Payments under the Victoria TTA contract are based on the completion of milestones during the Build phase. Payments during the Operate phase are based on the
level of service provided and are billed monthly. During the Operate phase the TTA may benchmark rates following the fourth and ninth anniversary dates of the Victoria TTA contract and negotiate
adjustments if the rates exceed prevailing market costs for comparable services.

The
TTA may terminate the Victoria TTA contract for convenience at any time and pay only for work completed, subject to certain termination fees. Such termination fees consist primarily
of 1% of the remaining amount of contractual revenues over the twelve-year term. During the contract term, the TTA may terminate the Victoria TTA contract for events of default, subject to
Kamco's right to cure. Upon the failure to perform by Kamco or its subcontractors, the TTA may step in and take over the role of prime contractor in place of Kamco.

Kamco
has obligations under the Victoria TTA contract with respect to both project management and performance of subcontractors. There are numerous indemnification provisions within the
Victoria TTA contract, some of which are customarily included through the normal course of business. We have agreed to hold TTA harmless against losses arising from a breach of representations related
to such matters as title to assets sold and licensed or certain intellectual property rights, improper disclosures of confidential information, personal injuries or property damages. As the prime
contractor for the Victoria TTA contract, in certain cases Kamco is entitled to the benefit of corresponding indemnifications from its subcontractors. We also retain the right to enforce the
subcontracts and to seek damages for nonperformance from our subcontractors. Subject to a number of exclusions, Kamco's maximum liability is capped at $72 million ($100 million AUD).
Under the Victoria TTA contract, liquidated damages, for which Kamco may be liable, are assessed at $36,000 ($50,000 AUD) per day for each day the specified phase completion is behind schedule, but
are limited to $7.2 million ($10 million AUD). The first $3.6 million ($5 million AUD) in liquidated damages is split evenly amongst Kamco and certain subcontractors. The
next $3.6 million ($5 million AUD) is apportioned based on responsibility for the delay.

The
Victoria TTA contract also requires that Kamco provide security and performance bonds in the amount of $21.6 million ($30 million AUD) during the two-year
Build phase and in the amount of $10.8 million ($15 million AUD) during the twelve-year term. One of the banks associated with our credit facility issued a
$32.4 million ($45 million AUD) letter of credit dated July 14, 2005 against our credit facility in fulfillment of the security and performance bonds. Keane has
guaranteed performance and payment by Kamco in the event that Kamco is unable to complete the work or meet its payment obligations.

Under
EITF 00-21, in order to account for the deliverables within a contract separately, all delivered items must have standalone value, the vendor must have objective and
reliable evidence of fair value of the undelivered item(s) and if the client has a general right of return relative to the delivered item, delivery or performance of the undelivered items is probably
and substantially within the vendor's control. We have concluded that objective evidence of fair value does not exist for all of the elements with the Operate phase. Accordingly, the elements within
the Build and Operate phases cannot be separated into multiple units of accounting and therefore, must be accounted for as a single unit of accounting. As a result, we are deferring all revenues and
costs directly associated with the delivery of services during the Build phase and we will recognize all revenues and direct costs for the contract over the period of the Operate phase currently
estimated to begin in mid-2007. The mobilization phase of the project is complete and during the Fourth Quarter of 2005, Kamco received its first milestone payment of $8.8 million
USD ($12 million AUD). In 2005, we deferred all revenues and direct costs and expensed approximately $3.4 million in indirect costs. As of December 31, 2005,

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there
is approximately $8.8 million of deferred long-term revenue and approximately $8.6 million of deferred costs included in Other assets in the accompanying consolidated
balance sheet. See Note 17 "SEGMENT INFORMATION" for a discussion on the determination of reportable segments.

See
Item 1. BUSINESS for additional discussion of the automated fare collection systems industry.

3.    MARKETABLE SECURITIES

The following is a summary of our available-for-sale marketable securities (dollars in thousands):

Gross unrealizedAs of December 31, 2005

Cost

Gains

Losses

Fair valueUnited States Government obligations

$
54,681

$
14

$
(511
)
$
54,184Corporate bonds


29,203





(601
)

28,602Municipal bonds


13,149





(139
)

13,010Total

$
97,033

$
14

$
(1,251
)
$
95,796As of December 31, 2004United States Government obligations

$
71,744

$
64

$
(595
)
$
71,213Corporate bonds


32,282





(333
)

31,949Municipal bonds


27,506


51


(41
)

27,516Total

$
131,532

$
115

$
(969
)
$
130,678


The following is a summary of the cost and fair value of current available-for-sale marketable securities at
December 31, 2005, by contractual maturity (dollars in thousands):

Cost

Fair valueDue in one year or less

$
58,661

$
58,221Due after one year through three years


34,425


33,696Due after three years


3,947


3,879$
97,033

$
95,796


Proceeds from the sale and maturity of available-for-sale securities were approximately $70.2 million with
$0.1 million realized gains and $0.3 million realized losses, $77.6 million with $0.4 million realized gains and $0.4 million realized losses, and
$18.1 million with $69,000 realized gains and $18,000 realized losses, for the years ended December 31, 2005, 2004, and 2003, respectively.

At
December 31, 2005 and December 31, 2004, we held available-for-sale securities with an aggregate fair value of approximately $92.7 million
and $100.6 million, respectively, that had aggregate gross unrealized losses of approximately $1.3 million and $1.0 million, respectively. Factors considered in determining
whether a loss is temporary include the length of time and extent to which the securities have been in an unrealized loss position and our ability and intent to hold the investment for a period of
time sufficient to allow for any anticipated market recovery. All such securities have been in a continuously declining unrealized loss position for less than 12 months. We believe that the
impairments to these investments are not other-than-temporary at this time as these securities are all highly rated investments which have been subject to routine market
changes that have not been significant to date.

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4.    TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable consists of the following (dollars in thousands):

As of December 31,

2005

2004Billed

$
88,351

$
81,616Unbilled


73,701


47,250Allowance for doubtful accounts


(3,063
)

(2,693
)Total

$
158,989

$
126,173


Trade accounts receivable is presented net of doubtful accounts. The activity in the allowance for doubtful accounts is as follows (dollars in
thousands):

Years ended December 31,

2005

2004

2003Beginning of year balance

$
2,693

$
4,232

$
7,053Provision/ (recoveries), net


2,625


2,332


(1,166
)Write-offs


(2,255
)

(3,871
)

(1,655
)End of year balance

$
3,063

$
2,693

$
4,232


5.    PROPERTY AND EQUIPMENT

Property and equipment consists of the following (dollars in thousands):

As of December 31,

2005

2004Buildings and improvements

$
46,776

$
47,964Office equipment


16,554


16,140Computer equipment and software


80,777


77,293Leasehold improvements


14,645


10,294158,752


151,691Less accumulated depreciation and amortization


(81,169
)

(74,930
)Total

$
77,583

$
76,761


Depreciation expense, including amortization of assets under capital leases, was $13.2 million, $12.5 million, and
$11.2 million, for the years ended 2005, 2004, and 2003, respectively. Computer equipment and software includes assets arising from capital lease obligations at a cost of $1.1 million
and $1.6 million, with accumulated amortization totaling $1.1 million and $1.6 million as of December 31, 2005 and 2004, respectively.

In
2002, we began capitalizing the costs of internally developed software with a useful life in excess of one year in accordance with SOP 98-1. We have classified these costs
within computer equipment and software. During 2005, 2004, and 2003, we capitalized approximately $0.3 million, $2.5 million, and $4.3 million, respectively, which consists
primarily of internal and external labor costs associated with internally developed software. As of December 31, 2005, 2004, and 2003, these unamortized capitalized costs, which were related to
the implementation of our PeopleSoft Enterprise Resource Planning applications, were approximately $9.4 million, $10.3 million, and $8.4 million, respectively.

Our
principal executive office is located at 100 City Square in Boston, Massachusetts (the "New Facility"). We lease the New Facility from Gateway LLC as described further in
Note 16 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES." In view of the related party transactions discussed in Note 16, we concluded that during the construction phase of the New
Facility, the estimated construction in progress costs for the New Facility would be capitalized in accordance with

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EITF
Issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction." We began occupying the New Facility and making lease payments in March 2003. As a result of
the completion of the construction phase and our current occupancy, the related capitalized costs are now classified as "Building" within property and equipment, net, in the accompanying consolidated
balance sheets. A liability for the same amount appears as accrued building costs in both our short- and long-term liabilities. The costs of the building are being amortized on a
straight-line basis over a 39-year useful life.

We
own several condominiums that had in the past been used as an employee benefit. As of December 31, 2005, we have designated these units, with a carrying value of approximately
$1.6 million, as held for sale within Property and equipment. We expect to sell these condos in 2006.

6.    GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized, but are reviewed annually (or more frequently if
impairment indicators arise) for impairment. Any impairment would be measured based upon the fair value of the related asset based upon the provisions of SFAS 142. There were no impairment
losses related to goodwill during the years ended December 31, 2005, 2004 and 2003. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over
their useful lives.

The
following table presents the change in the carrying amount of goodwill (dollars in thousands):

2005

2004Balance as of January 1,

$
305,965

$
292,924Goodwill acquired during the year


352


13,890Additional purchase price for prior year acquisitions


10,737


Currency translation adjustment effect


(2,518
)

1,383Adjustments to goodwill balances





(2,232
)Balance as of December 31,

$
314,536

$
305,965


During 2005, the additional purchase price recorded includes approximately $6.7 million in earn-out consideration associated
with Nims Associates, Inc. ("Nims") and $4.0 million associated with our increased ownership in Keane Worldzen. See Note 7 "BUSINESS ACQUISITIONS" for a discussion of these
acquired businesses. The adjustment to the 2004 goodwill balances represents an adjustment to the acquired balance and additional transaction costs for prior year acquisitions. In addition, goodwill
in 2004 was adjusted by $2.1 million related to deferred tax liabilities established in purchase accounting, which has been reclassified from deferred tax liabilities to goodwill as of
December 31, 2004. See Note 15 "INCOME TAXES" for further discussion.

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Amortized
intangible assets consist of the following:

|Intangible assets (dollars in thousands): |  | Cost |         | Accumulated
Amortization |   | Net Book
Value
|----------------------------------------- |  | ---- | ------- | ------------------------ | - | --------------
|As of December 31, 2005                   |  |      |         |                          |   |               
|Customer lists                            |  | $    | 88,532  |                          | $ | (47,482       
|Contracts                                 |  |      | 30,111  |                          |   | (25,339       
|Non-compete agreements                    |  |      | 7,524   |                          |   | (7,524        
|Technology                                |  |      | 7,775   |                          |   | (6,510        
|Tradename                                 |  |      | 173     |                          |   | (37           
|                                          |  |      |         |                          |   |               
|Total                                     |  | $    | 134,115 |                          | $ | (86,892       
|                                          |  |      |         |                          |   |               
|As of December 31, 2004                   |  |      |         |                          |   |               
|Customer lists                            |  | $    | 88,532  |                          | $ | (35,492       
|Contracts                                 |  |      | 30,213  |                          |   | (23,091       
|Non-compete agreements                    |  |      | 7,524   |                          |   | (7,299        
|Technology                                |  |      | 7,775   |                          |   | (5,399        
|Tradename                                 |  |      | 193     |                          |   | (12           
|                                          |  |      |         |                          |   |               
|Total                                     |  | $    | 134,237 |                          | $ | (71,293       
|                                          |  |      |         |                          |   |               

Amortization expense for the years ended December 31, 2005, 2004, and 2003, was approximately $15.6 million, $16.2 million,
and $15.8 million, respectively. Future estimated amortization expense is $15.3 million, $13.0 million, $11.9 million, $3.7 million and $1.3 million for the
years ended December 31, 2006, 2007, 2008, 2009, and 2010, respectively.

7.    BUSINESS ACQUISITIONS

Cresta Testing, Inc.

On June 1, 2005, we acquired Cresta Testing, Inc. ("Cresta"), a software testing company that specialized in managed services, test strategy and
training, and functional and performance testing. In exchange for all of the outstanding capital stock of Cresta, we paid $0.6 million in cash, of which $60,000 was held back to secure
indemnification obligations of the Cresta stockholders. We also agreed to pay up to an additional $0.5 million in earn-out consideration over the next two years, contingent upon the
achievement of certain future financial targets. The earn-out consideration is also dependent on the employment of a certain Cresta employee, therefore, in accordance with SFAS 141,
we will record any additional earn-out consideration as compensation expense. The $60,000 held back was deposited as restricted cash and accrued and included in Accrued expenses and other
liabilities in the accompanying consolidated balance sheet. The acquisition has been accounted for under the purchase method in accordance with SFAS 141 and SFAS 142. The total cost of
the acquisition through December 31, 2005 was $0.6 million, which included net assets acquired of approximately $0.4 million. Total assets acquired of $0.7 million
consisted primarily of cash of $0.1 million and accounts receivable of $0.6 million. The purchase price allocation is final as of December 31, 2005. The operating results of
Cresta have been included in our consolidated statement of operations beginning June 2, 2005.

ArcStream Solutions, Inc.

On April 4, 2005, we acquired certain assets and assumed specified liabilities of ArcStream Solutions, Inc. ("ArcStream") for a base purchase price
of zero ($0.00) dollars, subject to a working capital adjustment, and an additional earn-out consideration based on the performance of the ArcStream business during the remainder of 2005.
The earn-out period ended on December 31, 2005

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and
no earn-out consideration was paid. ArcStream was a business and technology consulting firm based in Watertown, Massachusetts, that specializes in helping organizations compete through
the use of advanced technologies and process improvement. As a former stockholder of ArcStream, John Keane, Jr. would have been entitled to a portion of any additional consideration. John Keane, Jr.
was the founder, President and Chief Executive Officer of ArcStream. He is also the brother of Brian Keane, our CEO, the son of John Keane, Sr., the Chairman of our Board, and a member of our Board of
Directors. In addition, in connection with the transaction, John Keane, Jr., agreed to guarantee certain indemnification obligations of ArcStream and we paid John Keane, Jr. $21,875 pursuant to a
consulting arrangement to assist in the transition of the acquired business. The transaction was approved by both our Audit Committee and our Board of Directors. The operating results of the acquired
ArcStream assets have been included in our consolidated statement of operations beginning April 5, 2005.

netNumina Solutions, Inc.

On February 28, 2005, we acquired netNumina Solutions, Inc. ("netNumina"), a software development company based in Cambridge, Massachusetts that
specialized in technology strategy, architecture, and custom development, to enhance our capabilities in Development and Integration services. In exchange for all of the outstanding capital stock of
netNumina, we agreed to pay $5.7 million, of which $0.6 million was held back to secure indemnification obligations of the netNumina stockholders. As of December 31, 2005, we had
paid the $5.1 million not held back and the $0.6 million held back was deposited as restricted cash and included in Accrued expenses and other liabilities in the accompanying
consolidated balance sheet. The acquisition has been accounted for under the purchase method in accordance with SFAS 141 and SFAS 142. The total cost of the transaction through
December 31, 2005
was $4.8 million, which included net assets of approximately $5.2 million. Total assets acquired of $7.8 million consisted primarily of cash of $4.6 million and accounts
receivable of $2.3 million. In connection with the purchase price allocation we recorded a $0.5 million fair value adjustment to reduce property and equipment that resulted from an
excess book value of the assets acquired over the purchase price and recorded deferred tax assets of $2.0 million. As a result, we have not recorded any goodwill or intangible assets in
connection with this acquisition. The valuation and purchase price allocation are final as of December 31, 2005. The operating results of netNumina have been included in our consolidated
statements of income beginning March 1, 2005.

At
the date of the acquisition of NetNumina, we entered into a plan to implement a workforce reduction of eight non-billable employees. As a result, we recorded a
restructuring liability of $1.0 million related to severance. In accordance with EITF Issue No. 95-3 ("EITF 95-3"), "Recognition of Liabilities in Connection with
a Purchase Business Combination," these costs, which are not associated with the generation of future revenues and have no future economic benefit, are reflected as assumed liabilities in the
allocation of the purchase price to the net assets acquired.

Fast Track Holdings Limited

On July 13, 2004, we acquired Fast Track Holdings Limited ("Fast Track"), a privately held consulting firm based in the United Kingdom that manages the
design, integration, and deployment of large-scale SAP implementations. In exchange for all of Fast Track's outstanding capital stock, we paid approximately $3.4 million in cash, including
transaction costs. We also agreed to pay up to an additional approximately $5.0 million in earn-out consideration over the next two years, contingent upon the achievement of certain
future financial targets. Based on Fast Track's financial results through July 31, 2005, the first earn-out totaling approximately $2.0 million was not achieved. Payment for

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earn-out
consideration earned through July 31, 2006, if any, may range up to approximately $2.9 million. The additional payment for earn-out consideration, if
any, will be accounted for as additional purchase price. The acquisition has been accounted for under the purchase method in accordance with SFAS 141 and SFAS 142. The portion of the
purchase price related to the intangible assets was finalized and identified utilizing standard valuation procedures and techniques. The total cost of the acquisition through December 31, 2005
was $4.1 million, which included net assets acquired of approximately ($0.2) million, goodwill of approximately $3.1 million and intangible assets of approximately $1.1 million,
the majority of which is being amortized on a straight-line basis over two years, and approximates the expected period of benefit. Total assets acquired of $2.1 million consisted
primarily of accounts receivable of $1.9 million. The operating results of Fast Track have been included in our consolidated statement of operations beginning July 14, 2004.

At
the date of acquisition, we entered into a plan to exit certain activities, to consolidate facilities and to implement a workforce reduction. As a result, we recorded a restructuring
liability of $0.3 million
related to the lease obligations and certain other costs for those facilities and $0.1 million related to severance and retention. In accordance with EITF 95-3, these costs, which
are not associated with the generation of future revenues and have no future economic benefit, were reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

Nims Associates, Inc.

On February 27, 2004, we acquired Nims, an information technology and consulting services company with offices in the Midwest and Advanced Development
Centers ("ADCs") in Indianapolis and Dallas, to expand our client base, primarily in the financial and insurance industries. In exchange for all of Nims' outstanding capital stock, we paid
$18.2 million in cash to the shareholders of Nims, with the potential to pay up to an additional $15.0 million in earn-out consideration over the next three years, contingent
upon the achievement of certain future financial targets. The additional payments for earn-out consideration will be accounted for as additional purchase price. The first
earn-out was achieved as of March 1, 2005 and, as a result, we paid $3.3 million in earn-out consideration in April 2005 and recorded a corresponding
increase in Goodwill. Based on the financial performance as of December 31, 2005, the second earn-out was achieved; therefore, we accrued the related $3.3 million contingent
consideration as of December 31, 2005 with a corresponding increase to Goodwill and expect to pay it in April 2006. As of December 31, 2005, there is a remaining
$8.3 million in earn-out consideration that could be achieved over the next year. The acquisition was accounted for under the purchase method in accordance with SFAS 141 and
SFAS 142. The total cost of the acquisition through December 31, 2005 was $29.5 million, which includes net assets acquired of approximately $5.4 million, goodwill of
approximately $17.1 million and intangible assets of $7.0 million. The intangible assets are primarily amortized on a straight-line basis over 10 years, which
approximates the expected period of benefit. Total assets acquired of $8.8 million consisted primarily of accounts receivable of $5.6 million. The portion of the purchase price related
to the intangible assets was finalized and identified by utilizing standard valuation procedures and techniques. The operating results of Nims have been included in our consolidated statements of
income beginning March 1, 2004.

At
the date of acquisition, we entered into a plan to exit certain activities, to consolidate facilities and to implement a workforce reduction of 22 non-billable employees.
As a result, we recorded a restructuring liability of $1.3 million related to the lease obligations and certain other costs for those facilities and $0.3 million related to severance and
retention. In accordance with EITF 95-3, these costs, which were not associated with the generation of future revenues and had no future economic benefit, were reflected as assumed
liabilities in the allocation of the purchase price to the net assets acquired.

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The
unaudited pro forma combined statements of income below present our historical statements and our acquisition of Nims on February 27, 2004 as if the purchase had occurred at
January 1, 2004. The following unaudited pro forma combined financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that
would have actually been reported
had the purchase occurred at the beginning of the periods presented, nor is it necessarily indicative of future financial position or results of operations (dollars in thousands, except per share
data):

2004UnauditedRevenues

$
920,048Net income (1)


32,481Basic earnings per share


0.52Diluted earnings per share


0.49


---

Keane Worldzen

On October 17, 2003, we acquired a controlling interest in Keane Worldzen, a privately held Business Process Outsourcing ("BPO") firm. In connection with
the acquisition, we paid $9.0 million to acquire the Series A preferred shares of Worldzen Holdings Limited held by an unrelated third party. We contributed to Keane Worldzen our
Worldzen Holdings Limited shares, $4.3 million in cash and certain assets of our Keane Consulting Group ("KCG"), our business consulting arm. This transaction was accounted for under the
purchase method in accordance with SFAS 141 and SFAS 142. As a result of the initial transaction, we owned approximately 62% of Keane Worldzen's outstanding capital stock. The former
majority shareholders of Worldzen Holdings Limited contributed their Worldzen Holdings Limited shares to Keane Worldzen in exchange for approximately 38% of Keane Worldzen's outstanding capital stock
and are currently members of Keane Worldzen's management. The assets and liabilities contributed to Keane Worldzen were recorded in relation to each shareholder's ownership percentage in Keane
Worldzen as follows: (i) carryover basis related to assets and liabilities contributed
to Keane Worldzen for which the individual shareholder had a prior interest; and (ii) fair value for assets and liabilities for which an individual shareholder had no prior interest. The
acquisition was intended to strengthen our position in the BPO market. As a result, we initially recorded goodwill of approximately $13.8 million in the accompanying consolidated balance
sheets.

On
April 1, 2005, we increased our equity position in Keane Worldzen pursuant to the purchase option discussed below to approximately 81% with an additional capital contribution
of approximately $5.0 million in cash and $3.0 million from the conversion of existing cash advances to equity. We purchased approximately 36.0 million shares at a cost of
approximately $.22 per share. As a result of the additional capital contribution, we continue to consolidate the results of Keane Worldzen, but are also able to consolidate its results for tax
purposes beginning April 1, 2005. Upon our additional capital contribution, the minority interest shareholders own approximately 19% of the issued and outstanding capital stock of Keane
Worldzen. In December 2005, the minority shareholders executed their right under the first put option to require us to purchase approximately 5% of their shares for a stated value of
$2.8 million as discussed below. As a result, we paid the $2.8 million for an additional 5% ownership interest associated with the first put option and as of December 31, 2005,
own approximately 86% of the issued and outstanding capital stock of Keane Worldzen.

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In
connection with our acquisition of a controlling interest in Keane Worldzen in October 2003, we obtained the right to purchase certain of the remaining shares held by the
minority shareholders of Keane Worldzen at different times during 2006 to 2009 ("call options") and the right to acquire additional shares directly from Worldzen at a fixed price stated at the
acquisition date through 2005 ("purchase option"). Our purchase option allowed us to purchase additional shares directly from Worldzen to obtain up to 80% of the total outstanding shares of Worldzen
through December 31, 2005. Our first call option is exercisable during the period beginning on January 1, 2006 and ending on December 31, 2006, is based on the same fixed price as
is the purchase option and allows us to acquire up to 80% of the total outstanding shares of Worldzen at the time the first call option is exercised. The fair value of the purchase and first call
option, using a Black-Scholes valuation model, was approximately $3.8 million and was recorded at the original acquisition date. During 2005, we acquired 80% of the outstanding shares of Keane
Worldzen through the exercise of the purchase option and reclassified the value of the purchase and first call option to goodwill. The other call options are exercisable at the fair market value of
the underlying shares to obtain specified ownership levels during the call periods, which are exercisable at certain times during the period January 1, 2007 through December 31, 2009.
Since these other call options can only be exercised at the fair value of the underlying shares, no amounts have been recorded for these call options in our consolidated financial statements.

Also
in connection with the acquisition, the minority shareholders were given the right to require us to purchase certain of their remaining shares at various times ("put options")
subject to the achievement of certain operating and financial milestones related to Keane Worldzen's business performance. The first put option, the term of which is October 17, 2003 through
December 31, 2005, was exercisable based on a stated value for the underlying shares of $2.8 million and was exercised and paid in December 2005. The fair value of this put
option, using a Black-Scholes valuation model, was approximately $279,000 at the acquisition date and was recognized as compensation expense in the accompanying consolidated financial statements
through the expiration date of the option or
December 31, 2005. The other put options are exercisable at fair market value for the underlying shares during the put periods, which are exercisable at certain times during the period
January 1, 2008 through March 1, 2010. Because these other put options can only be exercised at the fair value of the underlying shares, no amounts have been recorded for these put
options in our consolidated financial statements.

In
addition to acquisitions of Cresta, Arcstream, netNumina, Fast Track, Nims, and Keane Worldzen, we completed an acquisition of a business complementary to our business strategy during
the Third Quarter of 2002. The merger and consideration costs of this acquisition, which was accounted for using the purchase method of accounting, totaled $13.2 million, which included a
$0.2 million liability adjustment in the First Quarter of 2004. The purchase price included contingent consideration based upon operating performance of the acquired business. As of
December 31, 2002, in connection with this acquisition, we had recorded a contingent liability of approximately $0.9 million related to certain earn-out considerations. The
$0.9 million was paid out during the First Quarter of 2003. As of September 25, 2004, the earn-out periods had expired and no additional consideration was paid as a result of
not reaching the required operating performance measures.

The
results of operations of these acquired companies have been included in our consolidated statements of income from the dates of acquisition. The excess of the purchase price over the
fair value of the net assets has been allocated to identifiable intangible assets and goodwill. Identifiable intangible assets associated with these acquisitions are being amortized on a
straight-line basis over periods ranging from two to 10 years and approximate the expected periods of benefit. Pro forma results of operations for Cresta, ArcStream, netNumina, and
Fast Track have not been provided since these acquisitions were not material either individually or in the aggregate in the year of acquisition.

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8.    ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (dollars in thousands):

|As of December 31,            |  | 2005 |        | 2004
|----------------------------- |  | ---- | ------ | ----
|Accrued building costs        |  | $    | 541    |     
|Accrued employee benefits     |  |      | 6,556  |     
|Accrued deferred compensation |  |      | 8,034  |     
|Purchased services            |  |      | 11,630 |     
|Other                         |  |      | 19,768 |     
|                              |  |      |        |     
|                              |  | $    | 46,529 |     
|                              |  |      |        |     

Refer
to Note 14 "BENEFIT PLANS" for additional information.

9.    NOTE PAYABLE

During the Third Quarter of 2002, in connection with the purchase of a business complementary to our operations, we initially issued a $3.0 million
non-interest bearing note payable as partial consideration. The note could be settled in cash or through the provision of services. The note had a one-year term with a
one-year extension expiring on September 25, 2004. Effective September 25, 2004, the term of the note was extended one year, but expired on September 25, 2005. During
2005 and 2004, we reduced the note payable balance by approximately $0.7 million and $1.3 million, respectively, as a result of delivering related service credits. As of
December 31, 2005, the remaining deferred revenue and note payable balances were each zero.

10.    CONVERTIBLE SUBORDINATED DEBENTURES

In June 2003, we issued in a private placement $150.0 million principal amount of 2.0% Convertible Subordinated Debentures due 2013. The Debentures
are unsecured and subordinated in right of payment to all of our senior indebtedness. The Debentures accrue regular interest at a rate of 2.0% per year. Interest is payable semi-annually
in arrears on June 15 and December 15 of each year, beginning December 15, 2003. Beginning with the six-month interest period commencing June 15, 2008, we will
pay additional contingent interest during any six-month interest period if the trading price of the Debentures for each of the five trading days immediately preceding the first day of the
interest period equals or exceeds 120% of the principal amount of the Debentures. During any interest period when contingent interest is payable, the contingent interest payable per $1,000 principal
amount of Debentures will equal 0.35% calculated on the average trading price of $1,000 principal amount of Debentures during the five trading days immediately preceding the first day of the
applicable six-month interest period and will be payable in arrears.

On
or after June 15, 2008, we may, by providing at least 30-day notice to the holders, redeem any of the Debentures at a redemption price equal to 100% of the
principal amount of the Debentures, plus accrued interest and unpaid interest, if any, and liquidated damages, if any, to, but excluding, the redemption date.

The
Debentures are convertible at the option of the holder into shares of our common stock at an initial conversion rate of 54.4989 shares per $1,000 principal amount of Debentures,
which is equivalent to an initial conversion price of approximately $18.349 per share, subject to adjustments, prior to the close of business on the final maturity date only under the following
circumstances: (a) during any fiscal quarter commencing after September 30, 2003, and only during such fiscal quarter, if the closing

76

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sale
price per share of our common stock exceeds 120% of the conversion price (approximately $22.019) for at least 20 trading days in the 30 consecutive trading day period ending on the last trading
day of the preceding fiscal quarter; (b) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of Debentures for
each day of that period was less that 98% of the product of the closing sale price per share of our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the
Debentures; (c) if the Debentures have been called for redemption; or (d) upon the occurrence of specified corporate transactions. See Note 13 "EARNINGS PER SHARE" for further
discussion of the Debentures.

Debt
issuance costs were approximately $4.4 million and are included in other assets, net, in the accompanying consolidated balance sheets. These costs are being amortized to
interest expense over five years on a straight-line basis. As of December 31, 2005 and 2004, the unamortized debt issuance costs were approximately $2.2 million and
$3.1 million, respectively.

11.    RESTRUCTURING CHARGES

Workforce reductions

In connection with the netNumina acquisition discussed in Note 7 "BUSINESS ACQUISITIONS", we entered into a plan to reduce the workforce by eight
employees, most of whom had an expected termination date in the Second Quarter of 2005. The employees affected in the reduction are non-billable personnel whose responsibilities have been
integrated into our existing operations to realize the synergies of the two operations. We recorded a liability of $1.0 million associated with severance and other termination benefits and the
plan is substantially completed as of December 31, 2005. In accordance with EITF 95-3, these costs have been reflected as assumed liabilities in the allocation of the purchase price
to the net assets acquired. Cash expenditures in 2005 related to the netNumina severance and retention accruals were $0.8 million. As of December 31, 2005, the remaining balance was
$0.2 million and we expect to complete the plan in the First Quarter of 2006.

In
connection with the Fast Track acquisition discussed in Note 7 "BUSINESS ACQUISITIONS", we entered into a plan to reduce the workforce by seven employees, most of whom had a
termination date of October 31, 2004. The employees affected in the reduction were non-billable personnel whose responsibilities were integrated into our existing operations to
realize the synergies of the two operations. We recorded a liability of approximately $0.1 million associated with severance, retention, and other termination benefits, completed the plan by
the end of the First Quarter of 2005, and paid the entire $0.1 million in severance and retention. In accordance with EITF 95-3, these costs were reflected as assumed liabilities in
the allocation of the purchase price to the net assets acquired.

In
connection with the Nims acquisition discussed in Note 7 "BUSINESS ACQUISITIONS", we entered into a plan to reduce the workforce by 22 employees, most of whom had a termination
date of April 30, 2004. The employees affected in the reduction were non-billable personnel whose responsibilities were integrated into our existing operations to realize the
synergies of the two operations. We recorded a liability of $0.3 million associated with severance, retention, and other termination benefits and had substantially completed the plan by
December 31, 2004. As of December 31, 2004, we had paid approximately $0.3 million in severance and retention costs and had a remaining reserve balance of $15,000. In accordance
with EITF 95-3, these costs were reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

During
2003, we had two additional workforce reductions related to our business consulting arm and one of our North American branches, which included a headcount reduction of 25 and 50

77

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employees,
respectively. As a result of these reductions, we recorded a total restructuring charge of $1.3 million, consisting of retention and severance costs. In accordance with SFAS
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities," we accrued for these costs beginning at the time of an employee's notification through the
termination date. No further costs were anticipated to be incurred related to either of the two workforce reductions in 2003. During the Fourth Quarter of 2003, we evaluated the remaining balances of
the current and prior year's workforce restructuring charges and determined that $0.1 million and $1.4 million of charges taken in 2003 and 2002, respectively, were no longer deemed to
be necessary due to employee resignation prior to termination or revised workforce needs. The net impact of the workforce reductions to the 2003 consolidated statement of income was a reduction to
restructuring expense of $0.2 million.

As
of December 31, 2004, we had completed all of the terminations related to the reductions in force for our business consulting arm and one of our North American branches,
respectively. Cash expenditures in 2004 and 2003 related to the 2003 severance and retention restructuring accruals were $0.2 million and $1.1 million, respectively. No further costs are
anticipated related to these restructurings.

In
the Fourth Quarter of 2002, we recorded a restructuring charge of $17.6 million, of which $3.2 million related to a workforce reduction of approximately 229 employees
for the year 2002. In 2002, we also had a change in estimate of $0.3 million in connection with the 2002 and prior year workforce reductions, which resulted in a net workforce restructuring
charge of $2.9 million. Cash expenditures in
2003 related to the 2002 workforce reduction were $1.8 million. As of January 1, 2004, we had a remaining balance of approximately $24,000 related to the 2002 workforce reduction, all of
which we paid in the First Quarter of 2004.

Branch office closures

During December 2005, in accordance with SFAS 146, we accrued $0.6 million for a restructuring of one of our real estate locations that we
vacated. Also during the Fourth Quarter of 2005, we performed an evaluation of our restructuring balances for properties restructured in prior periods and determined we had approximately
$0.6 million in excess cost over our current needs. This change in estimate was a result of negotiating early lease terminations, obtaining a subtenant, or lower facility costs. The net impact
of these actions did not have an effect on our consolidated statement of income. For the year ended December 31, 2005, there were no cash expenditures related to the 2005 property
restructurings. As of December 31, 2005, the remaining reserve balance was $0.6 million.

During
December 2004, in accordance with SFAS 146, we accrued $2.3 million for a restructuring of one of our real estate locations that we vacated. Additionally,
during the Fourth Quarter of 2004, we performed an evaluation of our restructuring balances for properties restructured in prior periods and determined that we had excess costs-accrued of
$2.4 million, as a result of negotiating early lease terminations or obtaining a subtenant. The net impact of these actions resulted in a net expense reduction to the restructuring charge of
$0.1 million in the Fourth Quarter of 2004 in our consolidated statement of income. Cash expenditures in 2005 related to the 2004 property restructurings totaled $0.4 million. As of
December 31, 2005, the remaining reserve balance was $2.1 million.

In
connection with the Fast Track acquisition noted above, we entered into a plan to exit certain activities and to consolidate certain facilities. As a result, we recorded a
restructuring liability of $0.3 million related to the lease obligation and certain other costs for one facility. In accordance with EITF 95-3, these costs, which were not
associated with the generation of future revenues and had no

78

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future
economic benefit, were reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired. The total restructuring liability was paid in the First Quarter of
2005.

In
connection with the Nims acquisition noted above, we entered into a plan to exit certain activities and to consolidate certain facilities. As a result, we recorded an initial
restructuring liability of $1.4 million related to the lease obligation and certain other costs for eight facilities. During the Fourth Quarter of 2004, we revised our original estimate for
Nims-related lease obligations and reduced the accrual by $0.1 million. In accordance with EITF 95-3, these costs, which were not associated with the generation of
future revenues and had no future economic benefit, were reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired. Cash expenditures in 2005 and 2004 related
to all Nims-related branch office closings totaled
$0.3 million and $0.4 million, respectively, which is net of approximately $0.1 million and $0.2 million, respectively, of sublease payments received. As of
December 31, 2005, the remaining reserve balance was $0.5 million.

During
December 2003, in accordance with SFAS 146, we accrued $0.9 million for a restructuring of two of our real estate locations from which we no longer were
receiving economic benefit. Additionally, during the Fourth Quarter of 2003, we performed an evaluation of our restructuring balances for properties restructured in prior periods and determined as a
result of negotiating early lease terminations or obtaining a subtenant had approximately $1.0 million in excess costs accrued. In prior years, in accordance with EITF Issue
No. 94-3 ("EITF 94-3"), "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)," we performed reviews of our business strategy and concluded that consolidating some of our branch offices was key to our success. Cash expenditures in 2005, 2004, and 2003 for all
branch office closings relating to restructuring charges in 2003 and prior years were $2.1 million, $6.3 million, and $9.0 million, respectively, which is net of approximately
$1.2 million, $1.5 million, and $1.7 million, respectively, of sublease payments received. As of December 31, 2005, the total remaining reserve balance for branch office
closings relating to restructuring in 2003 and prior years was $2.3 million.

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A
summary of restructuring activity during 2005, 2004, and 2003, which is reported in the accompanying consolidated balance sheets, is as follows (dollars in thousands):

|                                                                |  | January 1,
2003
Balance |  | Cash
Expenditures,
Net |   | Change in
current and prior year's estimate |   | Charges in
Fiscal 2003 |  | Acquisition
Related
Charges in
Fiscal 2003 |  | December 31,
2003 Balance
|--------------------------------------------------------------- |  | ----------------------- |  | ---------------------- | - | ------------------------------------------- | - | ---------------------- |  | ------------------------------------------ |  | -------------------------
|Branch office closures and other expenditures by year of action |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|1999                                                            |  | 623                     |  | (466                   | ) |                                            |   |                       |  |                                           |  | 157                      
|2000                                                            |  | 761                     |  | (531                   | ) | 248                                         |   |                       |  |                                           |  | 478                      
|2001                                                            |  | 6,615                   |  | (3,727                 | ) | (545                                        | ) |                       |  |                                           |  | 2,343                    
|2002                                                            |  | 14,951                  |  | (4,309                 | ) | (708                                        | ) |                       |  |                                           |  | 9,934                    
|2003                                                            |  |                        |  |                       |   |                                            |   | 870                    |  |                                           |  | 870                      
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|                                                                |  | 22,950                  |  | (9,033                 | ) | (1,005                                      | ) | 870                    |  |                                           |  | 13,782                   
|2002 Workforce reduction                                        |  | 3,285                   |  | (1,784                 | ) | (1,477                                      | ) |                       |  |                                           |  | 24                       
|2003 Workforce reduction                                        |  |                        |  | (1,072                 | ) | (59                                         | ) | 1,345                  |  |                                           |  | 214                      
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|Total Restructuring Balance                                     |  | 26,235                  |  | (11,889                | ) | (2,541                                      | ) | 2,215                  |  |                                           |  | 14,020                   
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          

|                                                                |  | January 1,
2004
Balance |  | Cash
Expenditures,
Net |   | Change in
current and prior year's estimate |   | Charges in
Fiscal 2004 |  | Acquisition
Related
Charges in
Fiscal 2004 |  | December 31,
2004 Balance
|--------------------------------------------------------------- |  | ----------------------- |  | ---------------------- | - | ------------------------------------------- | - | ---------------------- |  | ------------------------------------------ |  | -------------------------
|Branch office closures and other expenditures by year of action |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|1999                                                            |  | 157                     |  | (115                   | ) | (23                                         | ) |                       |  |                                           |  | 19                       
|2000                                                            |  | 478                     |  | (473                   | ) |                                            |   |                       |  |                                           |  | 5                        
|2001                                                            |  | 2,343                   |  | (1,754                 | ) | (30                                         | ) |                       |  |                                           |  | 559                      
|2002                                                            |  | 9,934                   |  | (3,661                 | ) | (1,995                                      | ) |                       |  |                                           |  | 4,278                    
|2003                                                            |  | 870                     |  | (318                   | ) | (318                                        | ) |                       |  |                                           |  | 234                      
|2004                                                            |  |                        |  | (402                   | ) | (11                                         | ) | 2,266                  |  | 1,638                                      |  | 3,491                    
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|                                                                |  | 13,782                  |  | (6,723                 | ) | (2,377                                      | ) | 2,266                  |  | 1,638                                      |  | 8,586                    
|2002 Workforce reduction                                        |  | 24                      |  | (24                    | ) |                                            |   |                       |  |                                           |  |                         
|2003 Workforce reduction                                        |  | 214                     |  | (214                   | ) |                                            |   |                       |  |                                           |  |                         
|2004 Workforce reduction                                        |  |                        |  | (363                   | ) |                                            |   |                       |  | 454                                        |  | 91                       
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|Total Restructuring Balance                                     |  | 14,020                  |  | (7,324                 | ) | (2,377                                      | ) | 2,266                  |  | 2,092                                      |  | 8,677                    
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          

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|                                                                |  | January 1,
2005
Balance |  | Cash
Expenditures,
Net |   | Change in
current and prior year's estimate |   | Charges in
Fiscal 2005 |  | Acquisition
Related
Charges in
Fiscal 2005 |  | December 31,
2005 Balance
|--------------------------------------------------------------- |  | ----------------------- |  | ---------------------- | - | ------------------------------------------- | - | ---------------------- |  | ------------------------------------------ |  | -------------------------
|Branch office closures and other expenditures by year of action |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|1999                                                            |  | 19                      |  |                       |   | (19                                         | ) |                       |  |                                           |  |                         
|2000                                                            |  | 5                       |  | 41                     |   | 32                                          |   |                       |  |                                           |  | 78                       
|2001                                                            |  | 559                     |  | (202                   | ) | (114                                        | ) |                       |  |                                           |  | 243                      
|2002                                                            |  | 4,278                   |  | (1,762                 | ) | (581                                        | ) |                       |  |                                           |  | 1,935                    
|2003                                                            |  | 234                     |  | (141                   | ) | (78                                         | ) |                       |  |                                           |  | 15                       
|2004                                                            |  | 3,491                   |  | (1,082                 | ) | 179                                         |   |                       |  |                                           |  | 2,588                    
|2005                                                            |  |                        |  |                       |   |                                            |   | 581                    |  |                                           |  | 581                      
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|                                                                |  | 8,586                   |  | (3,146                 | ) | (581                                        | ) | 581                    |  |                                           |  | 5,440                    
|2004 Workforce reduction                                        |  | 91                      |  | (91                    | ) |                                            |   |                       |  |                                           |  |                         
|2005 Workforce reduction                                        |  |                        |  | (821                   | ) |                                            |   |                       |  | 985                                        |  | 164                      
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          
|Total Restructuring Balance                                     |  | 8,677                   |  | (4,058                 | ) | (581                                        | ) | 581                    |  | 985                                        |  | 5,604                    
|                                                                |  |                         |  |                        |   |                                             |   |                        |  |                                            |  |                          

12.    CAPITAL STOCK

On June 14, 2005, we announced that our Board of Directors had authorized us to repurchase an additional 3 million shares of our common stock over
the next 12 months effective June 13, 2005, all of which was repurchased by October 19, 2005.

On
October 25, 2005, we announced that our Board of Directors had authorized us to repurchase an additional 3 million shares of our common stock over the next twelve months
effective October 20, 2005. Between May 1999 and December 31, 2005, we invested approximately $314.7 million to repurchase approximately 25.2 million shares of our
common stock under twelve separate authorizations. The additional paid in capital was reduced to zero as of December 31, 2005 as a result of our cumulative share repurchases. During 2005, we
repurchased a total of approximately 4.6 million shares of common stock for $54.9 million, which resulted in a reduction of $0.4 million to common stock, a reduction of
$39.4 million to additional paid in capital, and the remaining $15.1 million as a reduction of retained earnings.

Effective
July 1, 2004, companies incorporated in Massachusetts became subject to the Massachusetts Business Corporation Act, Chapter 156D. Chapter 156D provides that shares that
are reacquired by a company become authorized but unissued shares. As a result, Chapter 156D eliminates the concept of "treasury shares" and provides that shares reacquired by a company become
"authorized but unissued" shares. Accordingly, as of July 2, 2004, we redesignated our existing treasury shares, at an aggregate cost of $141.5 million, as authorized but unissued and
allocated this amount to the common stock's par value and additional paid in capital.

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On January 13, 2004, we announced that our Board of Directors had voted to convert all of our outstanding shares of Class B common stock into shares
of our common stock on a one-for-one basis, effective February 1, 2004. Class B shares were entitled to 10 votes per share whereas shares of our common stock are
entitled to only one vote per share on matters submitted to shareholders for vote. As of January 31, 2004, the Class B common stock represented less than 1% of the total of our
outstanding shares of our Class B common stock and our common stock, net of treasury stock, but had approximately 4.3% of the combined voting power of our outstanding shares of our
Class B common stock and our common stock, net of treasury stock.

Subsequent
to February 1, 2004, we have two classes of stock: preferred stock and common stock. Holders of common stock are entitled to one vote for each share held. The Board of
Directors is authorized to determine the rights, preferences, privileges, and restrictions of any series of preferred stock, and to fix the number of shares of any such series. For the period
January 1, 2002 through December 31, 2005, our Board of Directors authorized us to repurchase up to an aggregate of 23.6 million shares of our common stock. See Management's
Discussion and Analysis of Financial Condition and Results of Operations, "LIQUIDITY AND CAPITAL RESOURCES" for further discussion.

13.    EARNINGS PER SHARE

A summary of our calculation of earnings per share is as follows (in thousands, except per share data):

Years Ended December 31,

2005

2004

2003Net income used for basic earnings per share

$
33,426

$
32,282

$
29,222Interest expense associated with convertible debentures, including amortization of debt issuance costs


3,881


3,880


2,062Related tax effect


(1,585
)

(1,585
)

(842
)Net income used for diluted earnings per share

$
35,722

$
34,577

$
30,442Weighted average number of common shares outstanding used in calculation of basic earnings per share


60,540


62,601


65,771Incremental shares from restricted stock, employee stock purchase plan, and the assumed exercise of dilutive stock options


566


1,031


652Incremental shares from assumed conversion of convertible debentures


8,175


8,175


4,394Weighted average number of common shares and common share equivalents outstanding used in calculation of diluted earnings per share


69,281


71,807


70,817Earnings per shareBasic

$
0.55

$
0.52

$
0.44Diluted

$
0.52

$
0.48

$
0.43


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Potential
common shares consist of employee stock options and restricted common stock. Employee stock options to purchase 1,939,000, 1,217,000, and 1,453,000 shares for the years ended
December 31, 2005, 2004, and 2003, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the stock options was
greater than the average share price of the common shares during the period and therefore, their effect would have been anti-dilutive. Unvested shares of restricted common stock totaling
approximately 136,000, 39,000, and 6,000 shares for the years ended December 31, 2005, 2004, and 2003, respectively, were excluded from the computation of diluted earnings per shares as their
effect would have been anti-dilutive.

Our
Debentures are convertible at the option of the holder into shares of our common stock at an initial conversion rate of 54.4989 shares of common stock per $1,000 principal amount of
Debentures, which is equivalent to an initial conversion price of approximately $18.349 per share. The Debentures become convertible under the following circumstances: (a) during any fiscal
quarter commencing after September 30, 2003 when, among other circumstances, the closing price per share of our common stock is more than 120% of the conversion price (approximately $22.019 per
share) for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (b) during the five business days after any five
consecutive trading day period in which the trading price per $1,000 principal amount of Debentures for each day of that period was less that 98% of the product of the closing sale price per share of
our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the Debentures; (c) if the Debentures have been called for redemption; or (d) upon the
occurrence of specified corporate transactions. Approximately 8.2 million shares of our common stock would be issuable upon the conversion of all of the outstanding Debentures.

We
adopted the provisions of EITF 04-8 in the Fourth Quarter of 2004. EITF 04-8 requires that we include contingently convertible debt in the calculation of
diluted earnings per share using the if-converted method regardless of whether the market price trigger has been met. Under the if-converted method, the debt is considered
converted to shares, with the resulting number of shares included in the denominator of the earnings per share calculation and the related interest expense (net of tax) added back to the numerator of
the earnings per share calculation. EITF 04-8 also requires the restatement of previously reported diluted earnings per share upon adoption. Therefore, the weighted average impact of the
8.2 million shares issuable upon conversion of the Debentures has been included in the calculation of diluted earnings per share for the years ended December 31, 2005, 2004, and 2003
based upon the period the Debentures were outstanding.

During
the quarter ended June 30, 2004, we adopted the provisions of EITF 03-6, which requires that convertible participating securities should be included in the
computation of basic earnings per share using the two-class method. Our Debentures are not participating securities under the provisions of EITF 03-6 as they do not participate
in undistributed earnings with our common stock. No separate disclosure of basic or diluted earnings per share has been made for the Class B common stock as the impact was immaterial and,
effective February 1, 2004, all of the Class B common stock was converted into shares of our common stock. In addition, there was no impact on the basic and diluted earnings per share
for our common stock for all periods presented in the accompanying consolidated statements of income. See Note 12 "CAPITAL STOCK" for further discussion.

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14.    BENEFIT PLANS

STOCK OPTION PLANS:Pro forma financial measures regarding net income and earnings per share are required by SFAS 123
for stock-based awards as if we had accounted for our stock-based compensation to employees under the fair value method prescribed in SFAS 123. As permitted by SFAS 148 and
SFAS 123, we account for our stock-based compensation in accordance with APB 25, FIN 44, and related implementation guidance and apply the disclosure provisions of SFAS 148 and
SFAS 123. Accordingly, our adoption of disclosure provisions of SFAS 148 does not impact our financial condition or results of operations.

The
fair market value of each stock option is estimated using the Black-Scholes option pricing model, assuming no expected dividends with the following weighted-average assumptions:

Years ended December 31,

2005

2004

2003Expected life (in years)

5.1

5.2

5.2Expected stock price volatility

48
%
56
%
61
%Risk-free interest rate

3.96
%
4.14
%
3.87
%


The
weighted-average fair value of options granted under our option plans during the years ended December 31, 2005, 2004, and 2003, was $5.79, $7.99, and $4.90, respectively. The
weighted-average fair value of restricted stock granted under the option plans during the years ended December 31, 2005, 2004, and 2003 was $10.91, $15.14, and $11.09, respectively.

Our
1992 Stock Option Plan provides for grants of stock options for up to 3,600,000 shares of our common stock to our employees, officers, directors, consultants, and advisors.
Generally, options expire five years from the date of grant, require a purchase price of not less than 100% of the fair market value of the stock as of the date of grant, and are exercisable at such
time or times as the Board of Directors in each case determines. As of December 31, 2005, 2004, and 2003, there were no options outstanding under this plan and the plan has expired.

Our
1998 Stock Incentive Plan, amended in December 1999, provides for grants of stock options and restricted stock for up to 7,000,000 shares of our common stock to our employees,
officers, directors, consultants, and advisors. The contractual life of options ranges from five to ten years from the date of grant, require a purchase price of not less than 100% of the fair market
value of the stock as of the date of grant, and are exercisable at such time or times as the Board of Directors in each case determines.

In
December 2000, we initiated a new "Time Accelerated Restricted Stock Award Plan" ("TARSAP") under our 1998 Stock Incentive Plan, whereby the vesting of certain stock options is
directly impacted by our performance. The vesting of stock options granted under the TARSAP accelerates upon the meeting of certain profitability criteria. If these criteria are not met, such options
will vest five years after the date of grant and expire at the end of 10 years.

Our
2001 Stock Incentive Plan provides for grants of stock options for up to 7,000,000 shares of our common stock to our employees, officers, directors, consultants, and advisors. The
contractual life of options ranges from five to ten years from the date of grant, require a purchase price of not less than 100% of the fair market value of the stock as of the date of grant, and are
exercisable at such time or times as the Board of Directors in each case determines.

For
all of our stock plans, we may grant options that are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code ("incentive stock options")
or nonstatutory options not intended to qualify as incentive stock options.

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In
November 2001, we completed a merger with Metro Information Services, Inc. ("Metro"). In connection with the merger, we assumed all options, vested and unvested, to
purchase Metro's common stock, issued under Metro's stock option plan. Each option to purchase shares of Metro's common stock outstanding as of November 30, 2001 became an option to acquire a
number of shares of our common stock equal to the number of shares of Metro's common stock subject to such option, multiplied by a conversion ratio of 0.48. The option price was proportionally
adjusted. The number of adjusted shares under the Metro plan was 570,818, of which no shares, 6,864 shares, and 480 shares were exercised during 2005, 2004 and 2003, respectively.

In
September of 2002, we completed the purchase of a business complementary to our business strategy. In connection with this acquisition, we assumed all vested and unvested options to
purchase the stock of the acquired company, under the respective stock option plan. Each option to purchase shares of the acquired company, as of September 25, 2002, became an option to acquire
a number of shares of our common stock equal to the number of shares of the acquired company subject to such option, multiplied by conversion ratio of 0.1766. The option price was proportionally
adjusted. The number of adjusted shares under the acquired company's plan is 87,502, of which 3,444 shares, 9,706 shares, and 27,652 shares, were exercised from this plan during 2005, 2004, and 2003,
respectively.

On
August 20, 2002, our Board of Directors approved a stock option exchange offer. The offer was to exchange outstanding options to purchase shares of our common stock, which were
granted on or after January 1, 2000 and had an exercise price of $12.00 or greater per share, for new options to purchase shares of common stock on substantially the following terms ("the
Offer"). Pursuant to the terms of the Offer:



The
Offer expired on October 7, 2002 ("expiration date"). Options for 1,888,394 shares of our common stock with a weighted average exercise price of $20.45 were eligible for the
Offer. Of this amount, 1,348,949 options were surrendered for exchange, with 324,902 options being retained, and the balance of the 214,543 being cancelled because of terminations.

For
the 1,348,949 options surrendered for exchange at a rate of four new options for every five surrendered, we granted new stock options for an aggregate of 1,079,159 shares at an
exercise price of $8.28 per share on April 8, 2003.

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Information
with respect to activity under our stock option plans, including restricted stock awards, is set forth below:

Common stock

Weighted average
exercise priceOutstanding at December 31, 2002

4,346,753

$
17.25Granted

1,820,909


8.57Exercised

(93,160
)

7.15Canceled/expired

(1,428,642
)

21.65Outstanding at December 31, 2003

4,645,860


12.42Granted

1,357,700


15.08Exercised

(157,188
)

8.73Canceled/expired

(1,200,880
)

16.19Outstanding at December 31, 2004

4,645,492


12.35Granted

1,108,700


12.16Exercised

(157,704
)

8.73Canceled/expired

(525,558
)

15.43Outstanding at December 31, 2005

5,070,930

$
12.10


Shares
available for future issuance under our stock option plans at December 31, 2005 are 9,004,935. During the years ended December 31, 2005, 2004, and
2003, we granted 20,000 shares, 145,000 shares, and 25,000 shares of restricted stock, respectively.

The
following table summarizes information about stock options and restricted stock that were outstanding at December 31, 2005:

|Range of exercise
prices |  | Number
outstanding |  | Weighted
average
remaining
contractual
life (in
years) |  | Weighted
average
exercise
price
of options
outstanding |       | Number
exercisable |           | Weighted
average
exercise
price of
exercisable
options
|------------------------ |  | ------------------ |  | ------------------------------------------------------ |  | ------------------------------------------------------ | ----- | ------------------ | --------- | ------------------------------------------------------
|$0.00-$7.44              |  | 40,877             |  | 4.10                                                   |  | $                                                      | 6.29  |                    | 21,825    |                                                       
|7.45-8.56                |  | 1,049,188          |  | 5.30                                                   |  |                                                        | 8.13  |                    | 207,538   |                                                       
|8.57-9.83                |  | 1,106,563          |  | 4.80                                                   |  |                                                        | 9.73  |                    | 1,045,063 |                                                       
|9.84-11.30               |  | 55,679             |  | 4.00                                                   |  |                                                        | 10.76 |                    | 7,179     |                                                       
|11.31-13.00              |  | 1,054,660          |  | 9.10                                                   |  |                                                        | 12.17 |                    | 692,660   |                                                       
|13.01-14.95              |  | 293,624            |  | 7.30                                                   |  |                                                        | 14.07 |                    | 260,293   |                                                       
|14.96-17.19              |  | 1,399,350          |  | 6.60                                                   |  |                                                        | 15.81 |                    | 1,247,271 |                                                       
|17.20-29.80              |  | 28,000             |  | 5.10                                                   |  |                                                        | 18.26 |                    | 8,000     |                                                       
|29.81-58.33              |  | 42,989             |  | 1.60                                                   |  |                                                        | 37.72 |                    | 42,989    |                                                       
|                         |  |                    |  |                                                        |  |                                                        |       |                    |           |                                                       
|Total                    |  | 5,070,930          |  |                                                        |  |                                                        |       |                    | 3,532,818 |                                                       
|                         |  |                    |  |                                                        |  |                                                        |       |                    |           |                                                       

STOCK PURCHASE PLANS:Our 1992 ESPP provides for the purchase of 6,550,000 shares of common stock. Effective
January 1, 2006, we modified our ESPP plan to allow qualifying employees to purchase shares at 95% of the market value of Keane stock on the last day of the six-month purchase

86

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period.
Previously, qualifying employees were able to purchase stock at 85% of the market value of the stock on the offering commencement date or the last day of the purchase period, whichever was
lower. During 2005, 2004, and 2003, participants in this plan purchased 323,646 shares, 369,056 shares, and 484,020 shares, respectively. Shares available for future purchases totaled 1,908,876 at
December 31, 2005.

On
February 13, 2003, our Board of Directors approved a new UK ESPP. We allocated 500,000 shares of the total number of shares reserved under our 1992 ESPP for issuance under the
UK ESPP. During 2005, participants in this plan purchased 5,335 shares. Shares available for future purchases as of December 31, 2005 totaled 488,030.

INCENTIVE COMPENSATION PLANS:We have established incentive compensation plans for certain officers and selected employees.
Payments under the plans are based on actual performance compared to stated plan objectives. Compensation expense under the plans in 2005, 2004, and 2003, approximated $26.5 million,
$22.6 million, and $21.3 million, respectively. In addition, management may award discretionary bonuses based upon an individual's performance and/or contribution to the Company.

DEFERRED COMPENSATION, SAVINGS, AND PROFIT SHARING PLANS:During 1984, we established a deferred savings and profit sharing
plan under Section 401(k) of the Internal Revenue Code. The plan enables eligible employees to reduce their taxable income by contributing up to 25% of their salary to the plan. After one year
of employment, we contribute $0.50 for each pre-tax dollar deferred, up to 6.0% of eligible employee's annual salary contributed. We may elect to make an additional discretionary
contribution to the plan based on our profitability each year. Our match and discretionary contributions, if any, vest 25% each year and are fully vested after five years of employment. Our
contributions for 2005, 2004, and 2003 amounted to approximately $7.5 million, $7.6 million, and $7.5 million, respectively. In addition, our UK subsidiary offers a defined
contribution plan whereby the UK subsidiary provides employer contributions ranging from 6.0% to 9.5% of the employee's annual salary based on the employees length of service. The UK employer
contributions under the UK defined contribution for 2005, 2004, and 2003 were approximately $1.2 million, $1.1 million, and $0.4 million, respectively.

In
addition, we have a deferred compensation plan for officers and eligible employees. The deferred compensation plan allows the participants to reduce their taxable income by
contributing 5-50% of their annual salary and 10-90% of their bonus or incentive compensation to the plan. We may make discretionary contributions to the plan based on
individual or corporate performance. The amounts deferred earn a yield as determined by the benchmark investments selected by the participant. As of December 31, 2005 and 2004, approximately
$8.0 million and $8.1 million, respectively, was accrued under this plan and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

DEFINED BENEFIT PLANS:

The Gratuity Plan

We provide our employees in India with benefits under a defined benefit plan (the "Gratuity Plan") as required by India law. The Gratuity Plan provides a lump sum
payment to vested employees on retirement or on termination of employment in an amount based on the respective employee's salary and years of employment with us. We determine our liability under the
Gratuity Plan by actuarial valuation using the projected unit credit method. Under this method, we determine our liability based

87

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upon
the discounted value of salary increases until the date of separation arising from retirement, death, resignation, or other termination of services. Critical assumptions used in measuring the
plan expense and projected liability under the projected unit credit method include the discount rate and the expected increase in the compensation rates. We evaluate these critical assumptions at
least annually. We periodically evaluate and update other assumptions used in the projected unit credit method involving demographic factors, such as retirement age and turnover rate, to reflect our
actual experience.

The
discount rate enables us to state expected future cash flows at a present value on the measurement date, which is December 31. The discount rate we use is equal to the yield
on high-quality fixed-income investments in India at the measurement date. As of December 31, 2005, the discount rate was 8.0% and the expected increase in compensation was 15.0%. A
lower discount rate increases the present value of benefit obligations and therefore increases gratuity expense. Since our Gratuity Plan is unfunded, we have not assumed any returns on assets. The
Gratuity Plan expense was $0.3 million for both of the years ended December 31, 2005 and 2004. As of December 31, 2005 and 2004, the amount accrued under the Gratuity Plan was
approximately $1.5 million and $1.2 million, respectively, and is included in accrued compensation in the accompanying consolidated balance sheet.

UK Defined Benefit Plan

Our United Kingdom ("UK") defined benefit plan ("DBP") provides pension benefits to employees of our UK subsidiary who were active on August 4, 1999, and
not to employees who joined after that date. Benefits are based on the employees' compensation and service. Our policy is to fund amounts required by applicable government regulations. Total pension
expense for 2005, 2004, and 2003, was approximately $0.7 million, $1.2 million, and $2.0 million, respectively.

During
the First Quarter of 2004, we decided to close our UK DBP to future salary accruals effective April 1, 2004. Accordingly, we accounted for the closing of the UK DBP as a
curtailment under SFAS No. 88 ("SFAS 88"), "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." In 2004, we recorded a
curtailment loss of approximately $0.2 million to expense the unrecognized prior service cost, and we recorded an additional required minimum liability of approximately $6.6 million
through Accumulated other comprehensive loss in the accompanying consolidated balance sheets. In 2005, we recorded an additional required minimum pension liability of $2.8 million through
Accumulated other comprehensive income.

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---



Assumptions

The following tables summarize the benefit costs and the weighted average assumptions associated with our UK DBP (dollars in thousands):

Years ended December 31,

2005

2004

2003Components of net periodic benefit cost:Service costbenefits earned during the period

$
58

$
277

$
1,304Interest cost on projected benefit obligations


1,906


1,807


1,376Expected return on plan assets


(1,752
)

(1,563
)

(1,125
)Net amortization and deferralamortization of unrecognized net loss/(gain)


444


491


441Net periodic pension cost


656


1,012


1,996Curtailment loss (gain)





183


Net periodic pension cost after allowance for curtailment

$
656

$
1,195

$
1,996


The
actuarial assumptions used are based on market interest rates, past experience, and management's best estimate of future economic conditions. Changes in these assumptions may impact
future benefit costs and obligations. We change key employee benefit plan assumptions in response to current conditions in the securities market. The discount rate has been lowered from 5.50% in 2003
to 5.40% in 2004 and to 4.9% in 2005 and is based on AA rated corporate bond yields of similar duration as the liabilities of the UK DBP. The expected rate of return on pension plan assets has
remained at 7.75% for 2003, 2004, and 2005.

Years ended December 31,

2005

2004

2003Weighted average assumptions:Discount rate at end of the year

4.9
%
5.40
%
5.50
%Expected return on plan assets for the year

7.75

7.75

7.75Rate of compensation increase at end of the year*





4.25Discretionary pension increased LPI** pension increases

0.00

0.00

0.00LPI pension increases

2.90

2.80

2.75Statutory revaluation of benefits (GMP)***

3.50

3.50

3.50


---

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---



Plan Assets

The percentages of the fair value of the UK DBP assets by major category are as follows:

Percentage of Plan AssetsAs of December 31,

2005

2004Equity securities

47
%
91
%Hedge Fund

45

Debt securities

5

6Real estate

3

3Total

100
%
100
%


Investment Strategy

The UK DBP assets are invested with the objective of achieving a total rate of return over the long-term, sufficient to fund future pension
obligations, to minimize future pension contributions and to ensure a minimum level of funding. We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded
status of the plan and the long-term nature of the UK DBP pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes.
All of the assets are managed by external investment managers. Asset allocation target ranges were established consistent with the investment objectives, and the assets are rebalanced periodically.
The expected long-term rate of return on plan assets was determined based on a variety of considerations, including the established asset allocation targets and expectations for those
asset classes, historical returns of the plans' assets and the advice of outside advisors. For 2005, the target allocation range is 80% to 90% for equity securities, 5% to 10% for debt securities, and
0% to 10% each for real estate and other assets. The UK DBP assets are not invested in Keane common stock.

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Obligation and Funded Status

The following tables summarize the benefit obligations and funded status associated with our UK DBP (dollars in thousands):

As of December 31,

2005

2004

2003Change in projected benefit obligation:Benefit obligation at beginning of year

$
37,572

$
32,080

$
22,940Service cost


58


277


1,304Interest cost


1,906


1,807


1,376Employee contributions





52


209Actuarial (gain) loss


6,378


3,525


3,516Benefits paid


(244
)

(504
)

(72
)Prior service cost








178Curtailment (gain) loss





(2,288
)

(409
)Foreign currency translation


(4,450
)

2,623


3,038Benefit obligation at end of year


41,220


37,572


32,080Change in plan assets:Fair value of plan assets at beginning of year


24,081


19,725


13,844Actual return on plan assets


4,783


2,959


3,134Employer contributions


164


297


737Employee contributions





52


209Benefits paid


(244
)

(504
)

(72
)Foreign currency translation


(2,826
)

1,552


1,873Fair value of plan assets at end of year


25,958


24,081


19,725Funded status


(15,262
)

(13,491
)

(12,355
)Unrecognized net actuarial loss


12,943


10,147


10,472Unrecognized prior service cost








178Accrued pension cost

$
(2,319
)
$
(3,344
)
$
(1,705
)Amounts recognized in consolidated balance sheet:Intangible asset (in other assets)

$


$


$
178Deferred tax asset, long-term








Accrued benefit liability (in accrued expenses and other liabilities)


(15,262
)

(13,491
)

(5,384
)Accumulated other comprehensive loss


12,943


10,147


3,501Net amount recognized

$
(2,319
)
$
(3,344
)
$
(1,705
)


As
of December 31, 2005, the accumulated benefit obligation and the projected benefit obligation were both $41.2 million. Expected employer contributions for 2006 are
approximately $0.2 million. However, recent legislation in the UK could have a significant impact on the future funding levels required under the UK DBP. We are reviewing various alternatives
regarding the structure of the UK Pension. Based upon information available to date, we expect the increase in future funding levels could range from approximately $1.0 million to approximately
$2.0 million on an annual basis in 2006 and beyond.

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Based on the same assumptions used to measure the UK DBP as of December 31, 2005, future benefit payments expected to be paid are $0.3 million,
$0.5 million, $0.4 million, $0.9 million, and $0.6 million in 2006, 2007, 2008, 2009, and 2010 respectively. In addition, we expect to pay $4.6 million in the
aggregate for the years ended 2011 through 2015.

15.    INCOME TAXES

Income before income taxes includes the following components (dollars in thousands):

Years ended December 31,

2005

2004

2003Domestic

$
50,027

$
47,151

$
48,799Foreign


291


4,357


(103
)Total income before provision for income taxes

$
50,318

$
51,508

$
48,696


The provision for income taxes consists of the following (dollars in thousands):

Years ended December 31,

2005

2004

2003Current:Federal

$
7,285

$
11,729

$
359State


3,909


1,379


(240
)Foreign


801


778


645Total


11,995


13,886


764Deferred:Federal


4,127


3,430


15,515State


770


1,910


3,195Total


4,897


5,340


18,710Total provision for income taxes

$
16,892

$
19,226

$
19,474


The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate
(dollars in thousands):

Years ended December 31,

2005

2004

2003Federal income taxes at 35%

$
17,611

$
18,028

$
17,044State income taxes, net


2,957


2,923


1,921Disallowed meals expense


346


421


293Foreign rate differential


(1,621
)

(1,228
)

(642
)Non-benefitable book losses


1,717


2,125


1,809Adjustment of prior-year's estimated tax liabilities:Expiration of statutes and changes in estimates


(3,537
)

(1,134
)

(1,669
)Deferred tax asset adjustment





(2,180
)

Retroactive state tax





608


Other, net


(581
)

(337
)

718Total

$
16,892

$
19,226

$
19,474


Our policy is to establish reserves for taxes that may become payable in future years as a result of an examination by tax authorities. In
accordance with SFAS No. 5 ("SFAS 5"), "Accounting for Contingencies," we establish the reserves based upon our assessment of exposure associated with

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permanent
tax differences and interest expense applicable to both permanent and temporary difference adjustments. The tax reserves are analyzed periodically and adjusted, as events occur to warrant
adjustment to the reserves, such as when the statutory period for assessing tax on a given tax return or period expires, the reserve associated with that period is reduced. In addition, the adjustment
to the reserve may reflect additional exposure based on current calculations. Similarly, if tax authorities provide administrative guidance or a decision is rendered in the courts, appropriate
adjustments will be made to the tax reserve.

For
the year ended December 31, 2005, we recorded a $3.5 million reduction to our tax reserves due to the expiration of certain statutes of limitation and a change in
estimates. In accordance with SFAS 5 and SFAS No. 109 ("SFAS 109"), "Accounting for Income Taxes" we adjusted our tax reserves in the period where the conditions under
SFAS 5 are no longer met, which resulted in a reduction of our tax provision. In addition, as a result of owning greater than 80% of the outstanding voting stock of Keane Worldzen, beginning
April 1, 2005, we are able to record a tax benefit on the losses associated with Keane Worldzen, thereby reducing our annual effective tax rate. For the years ended December 31, 2004,
and December 31, 2003, the reduction of our tax reserves due to the expiration of certain statutes of limitation and changes in estimates were $1.1 million and $1.7 million,
respectively. For the year ended December 31, 2004, we also had an increase to the provision due to a retroactive tax law change. In accordance with SFAS 5 and SFAS 109, we
adjusted our tax reserves in the period where the conditions under SFAS 5 were no longer met and as of the enactment date of the new tax laws. The determination of the provision for income tax
expense, deferred tax assets and liabilities and related valuation allowance involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the tax
jurisdictions where we operate. This involves making judgments regarding the recoverability of deferred tax assets, which can affect the overall effective tax rate.

For
the year ended December 31, 2004, we identified errors relating to deferred tax balances arising from transactions in prior years. As a result, we recorded an adjustment to
reduce goodwill by $2.1 million in the accompanying consolidated balance sheet as of December 31, 2004 with a corresponding reduction to deferred tax liabilities. Furthermore, as of
December 31, 2004, we recorded an adjustment to record an additional deferred tax asset totaling approximately $2.2 million and a corresponding decrease to the provision for income
taxes. This income tax adjustment results from book to tax timing differences related to depreciation expense that management believe relate to a period, or periods prior to 2004. Since the specific
period to which this adjustment relates cannot be identified with certainty, the adjustment has been recorded in the year ended December 31, 2004.

Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax

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purposes.
Significant components of net deferred tax asset and liabilities are as follows (dollars in thousands):

As of December 31,

2005

2004Deferred tax assets:Current:Allowance for doubtful accounts and other reserves

$
1,213

$
1,428Restructuring reserve


1,136


1,435Accrued expenses


1,380


2,568Deferred revenue, short term


2,136


112Net current deferred tax assets

$
5,865

$
5,543Noncurrent deferred tax assets:Restructuring reserve

$
1,153

$
2,056Deferred compensation


3,282


3,303Depreciation


6,596


6,040Minimum pension liability adjustment


4,579


4,047Acquired domestic net operating loss carryforwards


6,816


2,027Other net operating loss carryforwards


6,807


8,945Other, net


1,725


(946
)Deferred revenue


3,606


1,128Total noncurrent deferred tax assets


34,564


26,600Valuation allowance


(15,879
)

(13,136
)Net noncurrent deferred tax assets


18,685


13,464Deferred tax liabilities:Noncurrent:Intangibles


(27,762
)

(27,626
)Financing debt instrument


(12,209
)

(7,007
)Capitalized software


(4,852
)

(4,875
)Transaction costs


(2,281
)

(367
)Deferred expenses


(2,445
)

Total noncurrent deferred tax liabilities


(49,549
)

(39,875
)Total net noncurrent deferred tax liability

$
(30,864
)
$
(26,411
)


The valuation allowance for deferred tax assets increased by $2.7 million as a result of the minimum pension liability adjustment and
certain subsidiary net operating losses. The tax effect of the minimum pension liability adjustment in 2005 totaling $0.3 million was charged to other comprehensive income. Approximately
$3.9 million of the benefit of any future reduction of the valuation allowance attributable to the minimum pension liability would be directly allocated to other comprehensive income.

At
December 31, 2005, we had domestic net operating loss ("NOL") carry-forwards for tax purposes of $16.7 million expiring in years ending in 2014 through
2025. All of these NOL carry-forwards are subject to limitation pursuant to IRC Section 382.

On
October 22, 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed into law. The AJCA creates a temporary incentive for U.S. multinational corporations to repatriate
accumulated income abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. In December 2004, the FASB issued Financial Staff Position
("FSP") No. FSP 109-2 ("FSP 109-2"), "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation

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---



Provision
within the American Jobs Creation Act of 2004". FSP 109-2 is effective immediately and provides accounting and disclosure guidance for the repatriation provision.
FSP 109-2 allows companies additional time to evaluate the effects of the law on its unremitted earnings for the purpose of applying the "indefinite reversal criteria" under APB 23,
"Accounting for Income Taxes-Special Areas," and requires explanatory disclosures from companies that have not yet completed the evaluation. We have finished our evaluation of the effects of the
repatriation provisions and have made the decision to reinvest our foreign earnings indefinitely in the future expansion of our business. We have approximately $19.0 million of unremitted
foreign earnings. Given the intention to permanently reinvest these earnings, estimating the tax liability of repatriation is not practical at this time.

In
addition, our India subsidiary, part of the SignalTree Solutions acquisition, and our Keane Worldzen India subsidiary have tax holidays in India, which reduces or eliminates the
income tax in that country. The holidays expire between 2006 and 2009. Based on the currently enacted regular corporate income tax rate, the benefit to us of the tax holidays for the year ended
December 31, 2005, 2004 and 2003 was approximately $2.0 million or $.03 per share, $1.5 million or $.02 per share and $0.9 million or $.01 per share, respectively.

16.    RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES

Related Party Transactions

Our principal executive office is located at 100 City Square in Boston, Massachusetts (the "New Facility"). In October 2001, we entered into a lease with
Gateway Developers LLC ("Gateway LLC") for a term of 12 years, pursuant to which we agreed to lease approximately 95,000 square feet of office and development space in the New Facility. We
lease approximately 57% of the New Facility and the remaining 43% is, or will be, occupied by other tenants. John Keane Family LLC is a member of Gateway LLC. The members of John Keane Family LLC are
trusts for the benefit of John F. Keane, Chairman of our Board of Directors, and his immediate family members.

On
October 31, 2001, Gateway LLC entered into a $39.4 million construction loan with Citizens Bank of Massachusetts (the "Gateway Loan") in connection with the New Facility
and an adjacent building located at 20 City Square, Boston, Massachusetts. John Keane Family LLC and John F. Keane are each liable for certain obligations under the Gateway Loan if and to the
extent Gateway LLC requires funds to comply with its obligations under the Gateway Loan. Stephen D. Steinour, who was a member of our Board of Directors, was Chief Executive Officer of Citizens
Bank of Pennsylvania. On November 17, 2005, Mr. Steinour resigned as a member of the Board of Directors due to his recent promotion to President of Citizens Financial Group, Inc.
and the resultant travel demands. Citizens Bank of Massachusetts and Citizens Bank of Pennsylvania are subsidiaries of Citizens Financial Group, Inc. Mr. Steinour was not involved in the
approval process for the Gateway Loan. In June 2005, the Gateway Loan was refinanced to a non-recourse permanent loan with CitiGroup.

We
began occupying the New Facility and making lease payments in March 2003. Based upon our knowledge of lease payments for comparable facilities in the Boston area, we believe
that the lease payments under the lease for the New Facility, which will be approximately $3.2 million per year ($33.00 per square foot for the first 75,000 square feet and $35.00 per square
foot for the remainder of the premises) for the first six years of the lease term and approximately $3.5 million per year ($36.00 per square foot for the first 75,000 square feet and $40.00 per
square foot for the remainder of the premises) for the remainder of the lease term, plus specified percentages of any annual increases in real estate taxes and operating expenses, were, at the time we
entered into the lease, as favorable to us

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as
those which could have been obtained from an independent third party. Lease payments to Gateway LLC in the year ended December 31, 2005 were approximately $3.5 million.

In
view of these related party transactions, we concluded that, during the construction phase of the New Facility, the estimated construction in progress costs for the New Facility would
be capitalized in accordance with EITF Issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction." A liability in the same amount was included in the caption "Accrued
long-term building costs" in the accompanying consolidated balance sheets. For purposes of the consolidated statements of cash flows, we characterized this treatment as a
non-cash financing activity.

As
a result of the completion of the construction phase and our current occupancy, the related capitalized costs are now classified as "Building" and are included in property and
equipment, net, in the accompanying consolidated balance sheets. A liability for the same amount appears as accrued expenses and other liabilities and accrued long-term building costs,
representing our short and long-term components. The costs of the building are being amortized on a straight-line basis over a 39-year useful life. Additionally,
the obligation will be reduced over the life of the lease at an interest rate of 8.67%. The net effect of the amortization that is included in the operating results approximates the rent expense
resulting from the contractual payments we are required to make under the lease.

In
February 1985, we entered into a lease, which subsequently was extended to a term of 20 years, with City Square Limited Partnership ("City Square"), pursuant to which we
leased approximately 34,000 square feet of office and development space in a building located at Ten City Square, in Boston, Massachusetts. As of December 31, 2005, we leased approximately 88%
of this building and the remaining 12% was leased by other tenants. John F. Keane, Chairman of our Board of Directors, and Philip J. Harkins, a member of our Board of Directors, are
limited partners of City Square. Based upon our knowledge of lease payments for comparable facilities in the Boston area, we believe that the lease payments under this lease, which will be
approximately $1.0 million per year ($30.00 per square foot) for the remainder of the lease term (until February 2006), plus specified percentages of any annual increases in real estate
taxes and operating expenses, which will be approximately $0.2 million per year, were, at the time we entered into the lease, as favorable to us as those which could have been obtained from an
independent third party. As a result of our occupancy of the New Facility (as described above), we vacated and we have obtained a subtenant for approximately 17% of Ten City Square.

As
a result of the vacancy at Ten City Square in December 2002, we reserved the remaining lease payments due to City Square for the remainder of the lease term, resulting in a
charge of approximately $3.9 million in the Fourth Quarter of 2002. In the year ended December 31, 2005, we paid approximately $1.1 million in lease payments and as of
December 31, 2005 we had a remaining reserve balance of $0.4 million. In February 2006, our lease for Ten City Square expired and the building was sold to a third party.

In
January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," as amended by FASB Interpretation No. 46(R) ("FIN
46(R)") in December 2003, which requires the consolidation of a variable interest entity, as defined, by its primary beneficiary. Primary beneficiaries are those companies that are subject to a
majority of the risk of loss or entitled to receive a majority of the entity's residual returns, or both. In determining whether it is the primary beneficiary of a variable interest entity, an entity
with a variable interest shall treat variable interests in that same entity held by its related parties as its own interests.

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We
have evaluated the applicability of FIN 46(R) to our relationship with each of City Square and Gateway LLC and determined that we are not required to consolidate these entities within
our consolidated financial statements. We have determined that Gateway LLC is not a variable interest entity as the equity investment is sufficient to absorb the expected losses and the holders of the
equity investment do not lack any of the characteristics of a controlling interest. We have concluded that as we no longer occupy the space at Ten City Square and no longer derive any benefit from
leasing the space, we would not be determined to be the related party most closely associated with City Square. As a result, we will continue to account for our leases with City Square and Gateway LLC
consistent with our historical practices in accordance with generally accepted accounting principles. We believe that we do not have an interest in any variable interest entities that would require
consolidation.

In
March 2003, our Audit Committee approved a related party transaction involving a director of Keane. We had subcontracted with Guardent, Inc. ("Guardent") for a client
project. Maria Cirino, a member of our Board of Directors, was at the time an executive officer, director, and shareholder of
Guardent. In addition, the Audit Committee approved our engagement of Guardent as a sub-contractor for the purpose of providing future services to our clients. Under the terms of this
approval, no payment to Guardent for a single engagement could exceed $75,000 and no payment to Guardent for all engagements in any calendar year could exceed $250,000. We did not make any payments to
Guardent during the year ended December 31, 2005. On February 27, 2004, Guardent was acquired by VeriSign, Inc. ("VeriSign"). Since then, Ms. Cirino has held the position
of Senior Vice President of VeriSign Managed Security services.

In
July 2003, our Audit Committee approved a related-party transaction involving a member of our Board of Directors. We sub-contracted with ArcStream to develop and
assist in the implementation of a wireless electronic application at two client sites. In accordance with this transaction, we agreed to pay ArcStream a royalty fee for potential future installations
during the seven-year license period. John F. Keane, Jr., a member of our Board of Directors, was Chief Executive Officer, a director, and founder of ArcStream. John F.
Keane, Jr. is the son of John F. Keane, Sr., Chairman of our Board of Directors, and the brother of Brian T. Keane, our President, Chief Executive Officer and a director. Effective
June 21, 2004, our Audit Committee approved the termination of our agreement with ArcStream and a payment of $150,000 by us to ArcStream in exchange for a release of all parties from any
further performance or payment obligations under the original agreement. The termination was for convenience and was not related to ArcStream's performance under the agreement. On April 4,
2005, we acquired certain assets and assumed specified liabilities of ArcStream for a base purchase price of ($0.00) dollars, subject to a working capital adjustment and additional consideration based
on the performance of the ArcStream business during the remainder of 2005. In addition, in connection with the transaction, John Keane, Jr. agreed to guarantee certain indemnification obligations of
ArcStream and we paid John Keane, Jr. $21,875 pursuant to a consulting arrangement to assist in the transition of the acquired business. See Note 7 "BUSINESS ACQUISITIONS" for a further
discussion of the acquisition.

During
the Third Quarter of 2004, Keane Worldzen sold a portfolio of receivables to World Credit LLC for approximately $0.6 million. A principal of World Credit LLC is a family
member of the President of Keane Worldzen and, as a result, we have determined that World Credit LLC is a related party to Keane Worldzen. The sale of the portfolio was deemed to be an arms length
transaction. In addition, World Credit LLC is an affiliate of World Credit Fund I, LLC and World Credit Fund II, LLC and Prairie Financial LLC. Two non-executive employees of Keane
Worldzen hold non-controlling equity interests in World Credit Fund I, LLC and World Credit Fund II, LLC. Keane Worldzen entered

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into
a collection services agreement with World Credit LLC in December 2002. Under this agreement Keane Worldzen provides collection services, and related activities, to World Credit LLC. Keane
Worldzen earned a total of $228,500 and $107,800 from World Credit LLC in 2005 and 2004, respectively, for these services.

In
July 2005, our Audit Committee approved a related party transaction authorizing us to provide services to Citizens Bank, N.A., in connection with the development of an internet
application and related support services. As discussed above, Stephen D. Steinour, was a previously a member of our Board of Directors and as of November 2005 was promoted to President of
Citizen's Financial Group, Inc. an affiliate of Citizens Bank, N.A. Under the terms of this approval, the engagement value
is estimated to be approximately $1.6 million. The rates charged under this engagement are comparable to those charged to an independent third party. During the year ended December 31,
2005, $0.2 million in payments was received, and as of December 31, 2005 there were no accounts receivable outstanding.

Commitments and Contingencies

We lease the New Facility from Gateway LLC as described above. We lease additional office space and apartments in more than 70 locations in North America, the UK,
Australia and India under operating leases and capital leases, some of which may be renewed for periods up to five years, subject to increased rental fees. Rental expense for all of our facilities
amounted to approximately $17.9 million in 2005, $16.4 million in 2004, and $15.0 million in 2003. We have subleases for certain restructured properties. Our operating lease
commitment balances include lease obligations for properties that have been restructured in prior years and are accrued, net of contractual sublease income of approximately $2.6 million, on our
accompanying consolidated balance sheets. The related cash receipts for these properties is reflected against the restructuring liability and are not recorded in the accompanying consolidated
statements of income.

As
of December 31, 2005, the future minimum lease payments for the next five years and thereafter under operating and capital leases, were as follows (dollars in thousands):

Years Ended December 31,

Operating
Leases

Capital
Leases2006


17,762


72007


15,410


12008


12,261


2009


9,192


2010


8,225


Thereafter


20,287


Total minimum lease payments

$
83,137

$
8Less imputed interest





Present value of minimum capital lease payments




$
8


We are a guarantor with respect to a line of credit for Innovate EC, an entity in which we acquired a minority equity position as a result of a
previous acquisition. The total line of credit is for $600,000. We guarantee $300,000 of this obligation. The line is subject to review by the lending institution. We would be required to meet our
guarantor obligation in the event the lending institution refuses to extend the credit facility and Innovate EC is unable to satisfy its obligation.

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In
February 2003, we entered into a $50.0 million unsecured revolving credit facility ("credit facility") with two banks. The terms of the credit facility required us to
maintain a maximum total funded debt and other financial ratios. The credit facility also included covenants that, subject to certain specific exceptions and limitations, among other things,
restricted our ability to incur additional debt, make certain acquisitions or disposition of assets, create liens, and pay dividends. Between June 2003 and July 2005, we and the two
banks amended certain provisions of the credit facility including the allowable limit for letters of credit within the total facility and for the purposes of issuing a letter of credit to satisfy bank
guarantees with respect to the Victoria TTA contract with the State of Victoria, Australia. One of the banks issued a $32.4 million ($45 million AUD) letter of credit dated
July 14, 2005 against our credit facility in connection with our Victoria TTA contract. This credit facility was terminated in connection with our entrance into a new credit facility, described
below, on September 15, 2005.

On
September 15, 2005, we entered into a five-year revolving credit facility ("the new credit facility") with a syndicate of banks (the "lenders") in the amount of
$200.0 million, plus an additional amount of up to $50 million subject to certain terms and conditions (the "loan amount"). The new credit facility has various nonfinancial and financial
covenants, which include a total leverage ratio, a senior leverage ratio and a quick ratio. The new credit facility replaces our existing $50.0 million unsecured revolving credit facility.
Pursuant to the new credit facility, we may borrow funds from the lenders up to the loan amount with a $50 million sub limit for letters of credit. The annual commitment fee payable quarterly
is at an initial rate of 0.20% per annum on the unused amount of revolving credit commitments, subject to adjustment based on a senior leverage ratio as defined in the new credit facility and up to a
maximum per annum rate of 0.25%. To the extent there are letters of credit outstanding under the new credit facility, we will pay the administrative agent a letter of credit fee, initially 1.0%
annually, subject to adjustment based on the senior leverage ratio as defined and up to a maximum per annum rate of 1.5%. In connection with the new credit facility, we paid $1.3 million in
related debt issuance costs. As of December 31, 2005, there was approximately $166.8 million available
for borrowing, subject to certain financial covenants, after considering $33.2 million of outstanding letters of credit. These letters of credit include the $32.4 million
($45 million AUD) letter of credit issued in July 2005 against our previous credit facility in connection with our Victoria TTA contract is outstanding against the new credit facility.

During
the First Quarter of 2003, we paid $0.9 million related to certain earn-out considerations in connection with an acquisition made during the Third Quarter of
2002. We also recorded, in the Third Quarter of 2002, $3.0 million as deferred revenue related to contingent service credits and issued a $3.0 million non-interest bearing
note payable as partial consideration. During 2005, we recognized revenue of approximately $1.2 million in relation to the contingent service credits and reduced each of the related deferred
revenue and note by approximately $0.6 million. The note had a one-year term with a one-year extension expiring on September 25, 2004. Effective
September 25, 2004, the term of the contingent service credits was extended one year through September 25, 2005. The note expired on September 25, 2005. In connection with the
Nims acquisition and based on the financial performance related to the first earn-out, we paid $3.3 million in earn-out consideration in April 2005 and recorded a
corresponding increase to Goodwill. The second earn-out was achieved on December 31, 2005 and, as a result, we accrued the related $3.3 million in earn-out
consideration as of December 31, 2005 with a corresponding increase to Goodwill and expect to pay it in April 2006.

In
connection with certain contracts, we have been required to deliver security or performance bonds for the benefit of our clients. These bonds give the beneficiary the right to obtain
payment from

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the
issuer of the bond if certain specified events occur or fail to occur. In addition, we have various agreements in which we may be obligated to indemnify our clients or third parties with respect
to certain matters. Generally, these indemnification provisions are included in contracts arising in the normal course of business under which we customarily agree to hold the indemnified party
harmless against losses arising from a breach of representations related to such matters as title to assets sold and licensed or certain intellectual property rights, improper disclosures of
confidential information, personal injuries, or property damages. Typically, there are no specific dollar limits associated with indemnifications. In general, the term of the indemnifications will
correspond to the contract term such that the harm or damage must occur during the contract period. Therefore, claims may be raised after completion of the contract associated with the indemnification
provision, but the damage must have been caused during the contract term. As a prime contractor under certain contracts, we are responsible for the performance of our subcontractors and would be
required to arrange for performance in the event the subcontractors failed to perform. However, we would retain our right to enforce the subcontracts and to seek damages for nonperformance from our
subcontractors. A limited number of our contracts include liquidated damages provisions, which would require us to make per diem payments for late deliveries. Further, our obligations under these
agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties, including our subcontractors, for certain payments made by us. It is not
possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular
agreement.

Kamco
has obligations under the Victoria TTA contract with respect to both project management and performance of subcontractors. There are numerous indemnification provisions within the
Victoria TTA contract, some of which are customarily included through the normal course of business. We have agreed to hold TTA harmless against losses arising from a breach of representations related
to such matters as title to assets sold and licensed or certain intellectual property rights, improper disclosures of confidential information, personal injuries, or property damages. As the prime
contractor for the Victoria TTA contract, in certain cases, Kamco is entitled to corresponding indemnifications from its subcontractors. Subject to a number of exclusions, Kamco's maximum liability is
capped at $72 million ($100 million AUD). Under the Victoria TTA contract, liquidated damages, for which Kamco may be liable, are assessed at $36,000 ($50,000 AUD) per day for each day
the specified phase completion is behind schedule, but are limited to $7.2 million ($10 million AUD). The first $3.6 million ($5 million AUD) in liquidated damages is split
evenly amongst Kamco and certain subcontractors. The next $3.6 million ($5 million AUD) is apportioned based on responsibility for the delay. In addition, we have a total of
$32.4 million ($45 million AUD) letters of credit issued against the new facility as surety bonds to ensure due and proper performance of our obligations under the Victoria TTA contract.

During
the First Quarter of 2003, we received a $7.3 million award in connection with an arbitration proceeding initiated by us in 2000 against Signal Corporation for a breach of
an agreement between Signal Corporation and our Federal Systems subsidiary.

We
are involved in other litigation and various legal matters, which have arisen in the ordinary course of business. We do not believe that the ultimate resolution of these matters will
have a material adverse effect on our financial condition, results of operations, or cash flows.

17.    SEGMENT INFORMATION

Based on qualitative and quantitative criteria established by SFAS 131, we operate within two reportable segments: Professional Services and Transportation
Ticketing Solutions. In these segments,

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we
offer an integrated mix of end-to-end business solutions, such as Outsourcing, Development and Integration, and Other IT services. Keane delivers these services through an
integrated network of regional branches in North America, the UK, and Australia and through ADC's in the U.S., Canada and India. The Chief Operating Decision Maker ("CODM") evaluates performance and
determines the allocation of resources based on the operating profit or loss at the local branch level. Within Professional Services, each branch is set-up to deliver all of our service
offerings and the expectations is to provide a consistent level of profitability with each offering type. No individual branch meets the quantitative criteria established by SFAS 131 and
therefore have been presented in one reportable segment.

With
the entrance into the Transportation Ticketing Solution market in 2005 as a result of our winning the Victoria TTA contract, we have determined that the economic characteristics of
the services and
the distinct client base would require a separate reportable segment. The expertise required for the development and management of the Victoria TTA contract is unique to its delivery. We have
evaluated our provision of solutions and services under the Victoria TTA contract under the qualitative and quantitative criteria established by SFAS 131 and have concluded these services
represent a new reportable segment, in addition to our existing reportable segment Professional Services. For the year ended December 31, 2005, we have not recognized any revenues or direct
costs, there are no long-lived assets and we expensed approximately $3.4 million in indirect expenses. As a result, we have not provided any additional segment data.

See
Note 2 "SIGNIFICANT CONTRACTS" for a discussion of the Victoria TTA contract.

In
accordance with the enterprise-wide disclosure requirements of SFAS 131, our geographic information is as follows (dollars in thousands):

2005

2004

2003Revenues

Property &
equipment

Revenues

Property &
equipment

Revenues

Property &
equipmentDomestic

$
899,262

$
63,234

$
860,354

$
64,173

$
781,255

$
64,799InternationalUK


38,663


232


40,207


476


21,968


851Other


17,930


14,117


10,982


12,112


1,753


9,781Subtotal


56,593


14,349


51,189


12,588


23,721


10,632Total

$
955,855

$
77,583

$
911,543

$
76,761

$
804,976

$
75,431


Geographic revenues are presented net of intercompany revenues between the geographic locations. We have no single client that provides revenues
that equal or exceed 10 percent of our consolidated revenues, however the various agencies of the Federal Government represented 9.8%, 9.4% and 9.2% of our consolidated revenues for the years
ended December 31, 2005, 2004, and 2003, respectively.

18.    SUBSEQUENT EVENTS

On December 20, 2005, UnitedHealth Group Incorporated, an affiliate of United HealthCare Services, Inc. ("United HealthCare"), completed its
acquisition of PacifiCare. On January 20, 2006, we entered into a 5-year master services agreement with United HealthCare Services, Inc. effective January 1, 2006.
Simultaneously, we and PacifiCare terminated our Information Technology Services Agreement, dated January 11, 2002, effective January 1, 2006. Our original Information Technology

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Services
Agreement with PacifiCare provided for an outsourcing arrangement with a ten-year term and $500 million in contract value. As a result of the ending of the original
agreement with PacifiCare, we will receive a $10.1 million payment payable in two equal installments on July 30, 2006 and July 30, 2007. Under the new master services agreement
with United HealthCare, we will receive approximately $21 million for a specified level of services provided from January 1, 2006 through June 30, 2007.

19.    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                     |  | First Quarter |         | Second Quarter |   | Third Quarter |  | Fourth Quarter
|------------------------------------ |  | ------------- | ------- | -------------- | - | ------------- |  | --------------
|
|For the year ended December 31, 2005 |  |               |         |                |   |               |  |               
|Revenues                             |  | $             | 232,204 |                | $ | 237,818       |  | $             
|Gross margin (1)                     |  |               | 70,011  |                |   | 71,357        |  |               
|Income before income taxes           |  |               | 12,125  |                |   | 10,931        |  |               
|Net income (2)                       |  |               | 7,275   |                |   | 7,043         |  |               
|Basic earnings per share             |  |               | 0.12    |                |   | 0.11          |  |               
|Diluted earnings per share (3)       |  |               | 0.11    |                |   | 0.11          |  |               
|For the year ended December 31, 2004 |  |               |         |                |   |               |  |               
|Revenues                             |  | $             | 215,824 |                | $ | 231,712       |  | $             
|Gross margin (1)                     |  |               | 65,834  |                |   | 70,002        |  |               
|Income before income taxes           |  |               | 9,207   |                |   | 13,452        |  |               
|Net income (4)                       |  |               | 5,524   |                |   | 8,071         |  |               
|Basic earnings per share             |  |               | 0.09    |                |   | 0.13          |  |               
|Diluted earnings per share (3)       |  |               | 0.08    |                |   | 0.12          |  |               

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.    CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Keane maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. Our management, with the participation of our President and Chief Executive Officer and our
Executive Vice President of Finance and Administration and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2005. Based on this evaluation, our President and Chief Executive Officer and our
Executive Vice President of Finance and Administration and Chief Financial Officer concluded that, as of December 31, 2005, our disclosure controls and procedures were (1) designed to
ensure that material information relating to us, including our consolidated subsidiaries, is made known to our President and Chief Executive Officer and our Executive Vice President of Finance and
Administration and Chief Financial Officer by others within these entities, particularly during the period in which this report was being prepared, and (2) effective, in that they provide
reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

Since
2003, we have been in the process of implementing a PeopleSoft Enterprise Resource Planning ("ERP") system for the majority of our processes and operations. We currently plan to
implement the
following PeopleSoft modules: Resource Management, General Ledger, Accounts Payable, Expense and Time Reporting, Accounts Receivable, Contracts Management, Project Accounting, Billing and Enterprise
Planning Management. The implementation of the ERP system is being phased in over time throughout Keane and we currently plan to complete the implementation for the majority of our processes and
operations in 2006. During the year ended December 31, 2004, we implemented the General Ledger, Accounts Receivable, Resource Management, Accounts Payable, Expense Reporting, and Enterprise
Planning Management modules for the majority of our operations. During the year ended December 31, 2005, we began phasing in the modules for Contracts Management, Time Reporting, Project
Accounting, and Billing. Implementing an ERP system involves significant changes in business processes and extensive organizational training. We believe the phased-in approach we are
taking reduces the risks associated with making these changes. In addition, we are taking the necessary steps to monitor and maintain appropriate internal controls during this period.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive
Vice President of Finance and Administration and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2005 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management
concluded that our internal control over financial reporting was effective as of December 31, 2005.

Management's
assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report which is included elsewhere herein.

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Attestation Report of the Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders of Keane, Inc.

We
have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting that Keane, Inc. maintained effective
internal control over financial reporting as of December 31, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Keane, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal
control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, management's assessment that Keane, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our opinion, Keane, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2005, based on the COSO criteria.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Keane, Inc. as of
December 31, 2005 and 2004 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2005 of
Keane, Inc. and our report dated March 3, 2006 expressed an unqualified opinion thereon.

|                                    |  | /s/ Ernst & Young LLP
|----------------------------------- |  | ---------------------
|Boston, Massachusetts
March 3, 2006 |  |                      

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Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended December 31, 2005, there have not been any significant changes in our internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting, except as relating to the implementation of an ERP system, as described above.

ITEM 9B.    OTHER INFORMATION

None.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The response to this Item is contained in part under the caption "Directors and Executive Officers of the Company" in Item 4 of Part I hereof and the
remainder is incorporated herein by reference to our Proxy Statement for our Annual Meeting of Stockholders to be held May 18, 2006 (the "2006 Proxy Statement") under the caption "Election of
Directors" and"Sections 16(a) Beneficial Ownership Reporting and Compliance."

Codes of Business Conduct

We have adopted a Code of Business Conduct that applies to all of our officers and employees, including our principal executive officer, principal financial
officer, and principal accounting officer or controller. We have also adopted a Code of Business Conduct and Ethics for Directors. The Code of Business Conduct and the Code of Business Conduct and
Ethics are each posted on our Web site, www.keane.com, and are available in print to any shareholder upon request. Information regarding any amendments to, or waiver from, either Code of Business
Conduct will also be posted on our Web site.

ITEM 11.    EXECUTIVE COMPENSATION

The response to this Item is incorporated herein by reference to our 2006 Proxy Statement under the caption "Executive Compensation."

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this Item is incorporated herein by reference to our 2006 Proxy Statement under the captions "Stock Ownership of Certain Beneficial Owners and
Management" and "Equity Compensation Plan Information."

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The response to this Item is incorporated herein by reference to our 2006 Proxy Statement under the caption "Certain Related Party Transactions."

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The response to this Item is incorporated herein by reference to our 2006 Proxy Statement under the caption "Principal Accountant Fees and Services."

105

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:



Report of independent registered public accounting firmConsolidated statements of income for the years ended December 31, 2005, 2004, and 2003Consolidated balance sheets as of December 31, 2005 and 2004Consolidated statements of stockholders' equity for the years ended December 31, 2005, 2004, and 2003Consolidated statements of cash flows for the years ended December 31, 2005, 2004, and 2003Notes to consolidated financial statements






(b) Exhibits

See Exhibit Index attached hereto.

106

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|                     |  | KEANE, INC.(Registrant)                                              
|-------------------- |  | ---------------------------------------------------------------------
|                     |  | /s/BRIAN T. KEANEBrian T. Keane President and Chief Executive Officer
|Date: March 15, 2006 |  |                                                                      

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on March 15, 2006 and
in the capacities indicated.

|/s/JOHN F. KEANEJohn F. Keane Chairman                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|/s/BRIAN T. KEANEBrian T. Keane President, Chief Executive Officer, and
Director                                                                                               
|/s/JOHN J. LEAHYJohn J. Leahy Executive Vice President of Finance and
Administration and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
|/s/LAWRENCE P. BEGLEYLawrence P. Begley Director                                                                                                                               
|/s/MARIA A. CIRINOMaria A. Cirino Director                                                                                                                                     
|/s/JOHN H. FAINJohn H. Fain Director                                                                                                                                           
|/s/PHILIP J. HARKINSPhilip J. Harkins Director                                                                                                                                 
|/s/WINSTON R. HINDLE, JR.Winston R. Hindle, Jr. Director                                                                                                                       
|/s/JOHN F. KEANE, JR.John F. Keane, Jr. Director                                                                                                                               
|/s/JOHN F. ROCKARTJohn F. Rockart Director                                                                                                                                     
|/s/JAMES D. WHITEJames D. White Director                                                                                                                                       

107

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|Exhibit Index |  |                                                                                                                                                                                                                                                                                                           
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1           |  | Agreement and Plan of Merger, dated as of August 20, 2001, by and among the Registrant, Veritas Acquisition Corp., and Metro Information Services, Inc. is incorporated herein by reference to Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated August 20, 2001, filed on August 21, 2001.
|3.1           |  | Restated Articles of Organization dated May 10, 2005 are incorporated herein by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2005.                                                                                                  
|3.2           |  | Second Amended and Restated By-Laws of the Registrant are incorporated herein by reference to Exhibit 99.3 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2000.                                                                                                
|3.3           |  | Amendment to Second Amended and Restated Bylaws of the Registrant is incorporated by reference to Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.                                                                                                        
|3.4           |  | Amendment No. 2 to Second Amended and Restated Bylaws of the Registrant is incorporated by reference to Exhibit 3.5 to the Registrant's Quarterly Report on Form 10-K for the quarterly period ended
June 30, 2004.                                                                                       
|4.1           |  | Registration Rights Agreement, dated as of June 18, 2003, by and among Keane, Inc., Morgan Stanley & Co. Incorporated, Wachovia Securities, LLC and Fleet Securities, Inc. is incorporated
herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on June 20, 2003.     
|4.2           |  | Indenture, dated as of June 18, 2003, between Keane, Inc. and Wachovia Bank, National Association, as trustee, for 2% Convertible Subordinated Debentures due 2013 is incorporated herein by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on June 23, 2003.             
|*10.1         |  | Keane, Inc. 401(k) Deferred Savings and Profit Sharing Plan is incorporated herein by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (File No. 33-33557), as filed with the
Commission on February 21, 1990 (the "Registration Statement").                             
|*10.2         |  | 1992 Stock Option Plan is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-7516).                                                                                                                                         
|*10.3         |  | 1998 Stock Incentive Plan is incorporated herein by reference to Exhibit 10 to the Company's Registration Statement on Form S-8 (File No. 333-56119), as filed with and declared effective by the Commission
on June 5, 1998.                                                                             
|*10.4         |  | Amendment to 1998 Stock Incentive Plan is incorporated herein by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000.                                                                                                                          
|*10.5         |  | Amended and Restated 1992 Employee Stock Purchase Plan, as amended, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2001.                                                                              
|10.6          |  | Metro Information Services, Inc. Amended and Restated 1997 Stock Option Plan is incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
2001.                                                                                            
|10.7          |  | Lease dated February 20, 1985, between the Registrant and Jonathan G. Davis, as Trustee of City Square Development Trust (the "Trust"), is incorporated herein by reference to Exhibit 10.6 to the
Registration Statement.                                                                                
|10.8          |  | First Amendment of Lease dated March 19, 1985, between the Registrant and the Trust, is incorporated herein by reference to Exhibit 10.7 to the Registration Statement.                                                                                                                                   
|10.9          |  | Second Amendment of Lease dated November 1985, between the Registrant and the Trust, is incorporated herein by reference to Exhibit 10.8 to the Registration Statement.                                                                                                                                   
|*10.10        |  | Keane, Inc. 2001 Stock Incentive Plan is incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.                                                                                                                                  
|*10.11        |  | Keane, Inc. United Kingdom Employee Stock Purchase Plan is incorporated by reference Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002.                                                                                                                   
|              |  |                                                                                                                                                                                                                                                                                                           

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|10.12   |  | Lease, dated October 25, 2001 between the Registrant and Gateway Developers LLC is incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2002.                                 
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*+10.13 |  | Summary of Director Compensation.                                                                                                                                                                                                                  
|*10.14  |  | Keane Ltd. Pension Scheme with all amendments to date is incorporated herein by reference to the Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
2004.                                                
|*10.15  |  | First Amendment and Restatement of the Keane, Inc. Deferred Compensation Plan with all amendments to date is incorporated herein by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2004.
|*10.16  |  | Employment Agreement between Keane, Inc. and Robert B. Atwell is incorporated herein by reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
2004.                                            
|*10.17  |  | Change in Control Agreement between Keane, Inc. and Robert B. Atwell is incorporated herein by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2004.                                     
|*10.18  |  | Change in Control Agreement between Keane, Inc. and Brian T. Keane is incorporated herein by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2004.                                       
|*10.19  |  | Change in Control Agreement between Keane, Inc. and John J. Leahy is incorporated herein by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
 2004.                                       
|*10.20  |  | Change in Control Agreement between Keane, Inc. and Laurence D. Shaw is incorporated herein by reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2004.                                     
|*10.21  |  | Change in Control Agreement between Keane, Inc. and Raymond Paris is incorporated herein by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
2004.                                        
|*10.22  |  | Change in Control Agreement between Keane, Inc. and Russell J. Campanello is incorporated herein by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2004.                                
|*10.23  |  | Change in Control Agreement between Keane, Inc. and Georgina L. Fisk is incorporated herein by reference to Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2004.                                     
|10.24   |  | Amended and Restated 1992 Employee Stock Purchase Plan, as amended is incorporated herein by reference to Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2004.                            
|+10.25  |  | Third Amendment to the Second Amendment and Restatement of the Keane, Inc. 1992 Employee Stock Purchase Plan, dated July 21, 2005, and effective January 1, 2006.                                                                                  
|10.26   |  | Form of 1998 TARSAP award is incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005.                                                                     
|10.27   |  | Form of 2001 TARSAP award is incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005.                                                                     
|10.28   |  | Form of 1998 Restricted Stock Award is incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005.                                                           
|10.29   |  | Form of 2001 Restricted Stock Award is incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005.                                                           
|*10.30  |  | Consulting Agreement with John Keane, Jr. is incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2005.                                                     
|        |  |                                                                                                                                                                                                                                                    

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|*10.31  |   | Employment agreement, dated August 5, 2005, between Keane, Inc. and Richard Garnick, is incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on
August 22, 2005.                                                                                             
|------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.32   |   | Revolving Credit Facility dated September 15, 2005, by and between the Registrant, and Bank of America and a syndicate of banks is incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2005.                      
|10.33   |  | New Ticketing Solution Projection Agreement between Keane Australia Micropayment Consortium and the Transport Ticketing Authority dated July 26, 2005 is incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005.
|*+10.34 |   | Summary of Executive Compensation.                                                                                                                                                                                                                                                                            
|+21.1   |   | Schedule of Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                   
|+23.1   |   | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                     
|+31.1   |   | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.                                                                                                                                                                                                                
|+31.2   |   | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.                                                                                                                                                                                                                
|+32.1   |   | Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer.                                                                                                                                                                                                                              
|+32.2   |   | Certification pursuant to 18 U.S.C. Section 1350 of the Chief Financial Officer.                                                                                                                                                                                                                              

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