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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarter ended June 30, 2002

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

04-2437166(State or other jurisdictions of incorporation or organization)

(I.R.S. Employer Identification Number)Ten City Square, Boston, Massachusetts

02129(Address of principal executive offices)

(Zip Code)Registrant's telephone number, including area code

(617) 241-9200


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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

As
of June 30, 2002, the number of issued and outstanding shares of Common Stock (excluding 190,535 shares held in treasury) and Class B Common Stock are 75,310,908 and
284,854 shares, respectively.

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Keane, Inc. and Subsidiaries        TABLE OF CONTENTS

|Part IFinancial Information                                                                                           |  |   
|---------------------------------------------------------------------------------------------------------------------- |  | --
|Unaudited Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2002 and 2001 |  | 3 
|Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001                            |  | 4 
|Unaudited Condensed Consolidated Statements of Cash Flows for six months ended June 30, 2002 and 2001                  |  | 5 
|Notes to Unaudited Condensed Consolidated Financial Statements                                                         |  | 6 
|Management's Discussion and Analysis of Financial Condition and Results of Operations                                  |  | 14
|Part IIOther Information                                                                                              |  | 20
|Signature Page                                                                                                         |  | 21

2

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Keane, Inc. and Subsidiaries        Condensed Consolidated Statements of Income (unaudited)

|                                                                                  |                            | Three months ended
June 30, |         | Six months ended
June 30, |  
|--------------------------------------------------------------------------------- | -------------------------- | --------------------------- | ------- | ------------------------- | -
|
|
|Total revenues                                                                    |                            | $                           | 226,062 |                           | $
|Salaries, wages and other direct costs                                            |                            |                             | 161,905 |                           |  
|Selling, general and administrative expenses                                      |                            |                             | 51,022  |                           |  
|Amortization of goodwill and other intangible assets                              |                            |                             | 4,248   |                           |  
|                                                                                  |                            |                             |         |                           |  
|                                                                                  | Operating income           |                             |         | 8,887                     |  
|Interest and dividend income                                                      |                            |                             | 510     |                           |  
|Interest expense                                                                  |                            |                             | 72      |                           |  
|Other (income) expenses, net                                                      |                            |                             | 125     |                           |  
|                                                                                  |                            |                             |         |                           |  
|                                                                                  | Income before income taxes |                             |         | 9,200                     |  
|Provision for income taxes                                                        |                            |                             | 3,679   |                           |  
|                                                                                  |                            |                             |         |                           |  
|                                                                                  | Net income                 |                             | $       | 5,521                     |  
|                                                                                  |                            |                             |         |                           |  
|Net income per share (basic)                                                      |                            | $                           | .07     |                           | $
|                                                                                  |                            |                             |         |                           |  
|Net income per share (diluted)                                                    |                            | $                           | .07     |                           | $
|                                                                                  |                            |                             |         |                           |  
|Weighted average common shares outstanding (basic)                                |                            |                             | 75,733  |                           |  
|Weighted average common shares and common share equivalents outstanding (diluted) |                            |                             | 76,308  |                           |  

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

3

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Keane, Inc. and Subsidiaries        Condensed Consolidated Balance Sheets

|                                               |                                        | June 30, 2002 |                            | December 31, 2001 |        
|---------------------------------------------- | -------------------------------------- | ------------- | -------------------------- | ----------------- | -------
|
|
|Assets                                         |                                        |               |                            |                   |        
|Current:                                       |                                        |               |                            |                   |        
|                                               | Cash and cash equivalents              |               | $                          | 55,095            |        
|                                               | Marketable securities                  |               |                            | 14,262            |        
|                                               | Accounts receivable, net:              |               |                            |                   |        
|                                               |                                        | Trade         |                            |                   | 155,393
|                                               |                                        | Other         |                            |                   | 1,906  
|                                               | Prepaid expenses and deferred taxes    |               |                            | 25,276            |        
|                                               |                                        |               |                            |                   |        
|                                               |                                        |               | Total current assets       |                   |        
|Property and equipment, net                    |                                        |               | 53,106                     |                   |        
|Goodwill, net                                  |                                        |               | 271,304                    |                   |        
|Customer lists, net                            |                                        |               | 68,000                     |                   |        
|Other intangible assets, net                   |                                        |               | 20,871                     |                   |        
|Deferred taxes and other assets, net           |                                        |               | 33,405                     |                   |        
|                                               |                                        |               |                            |                   |        
|                                               |                                        | $             | 698,618                    |                   | $      
|                                               |                                        |               |                            |                   |        
|Liabilities                                    |                                        |               |                            |                   |        
|Current:                                       |                                        |               |                            |                   |        
|                                               | Accounts payable                       |               |                            | 9,931             |        
|                                               | Accrued expenses and other liabilities |               |                            | 43,843            |        
|                                               | Accrued compensation                   |               |                            | 27,228            |        
|                                               | Accrued income taxes                   |               |                            | 5,079             |        
|                                               | Unearned income                        |               |                            | 6,179             |        
|                                               | Current capital lease obligations      |               |                            | 875               |        
|                                               |                                        |               |                            |                   |        
|                                               |                                        |               | Total current liabilities  |                   |        
|Deferred income taxes                          |                                        |               | 37,415                     |                   |        
|Long-term portion of capital lease obligations |                                        |               | 945                        |                   |        
|Accrued construction  in-progress costs       |                                        |               | 25,000                     |                   |        
|Stockholders' Equity                           |                                        |               |                            |                   |        
|Common stock                                   |                                        |               | 7,550                      |                   |        
|Class B common stock                           |                                        |               | 28                         |                   |        
|Additional paid-in capital                     |                                        |               | 166,242                    |                   |        
|Accumulated other comprehensive income         |                                        |               | (1,577                     | )                 |        
|Retained earnings                              |                                        |               | 372,433                    |                   |        
|Less treasury stock                            |                                        |               | (2,553                     | )                 |        
|                                               |                                        |               |                            |                   |        
|                                               |                                        |               | Total stockholders' equity |                   |        
|                                               |                                        |               |                            |                   |        
|                                               |                                        | $             | 698,618                    |                   | $      
|                                               |                                        |               |                            |                   |        

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

4

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Keane, Inc. and Subsidiaries        Condensed Consolidated Statements of Cash Flows (unaudited)

|                                                                                  |                                                                        | Six Months ended June 30, |        
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------- | -------
|
|
|Cash flows from operating activities:                                             |                                                                        |                           |        
|Net income                                                                        |                                                                        | $                         | 11,074 
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                        |                           |        
|                                                                                  | Depreciation and amortization                                          |                           |        
|                                                                                  | Deferred income taxes                                                  |                           |        
|                                                                                  | Provision for doubtful accounts                                        |                           |        
|                                                                                  | Loss on sale of property and equipment                                 |                           |        
|                                                                                  | Loss on write down of equity investments                               |                           |        
|                                                                                  | Gain on sale of business unit                                          |                           |        
|Changes in operating assets and liabilities:                                      |                                                                        |                           |        
|                                                                                  | Decrease in accounts receivable                                        |                           |        
|                                                                                  | Increase in prepaid expenses and other assets                          |                           |        
|                                                                                  | Decrease in accounts payable and other liabilities                     |                           |        
|                                                                                  | Increase in income taxes payable                                       |                           |        
|                                                                                  |                                                                        |                           |        
|                                                                                  | Net cash provided by operating activities                              |                           |        
|Cash flows from investing activities:                                             |                                                                        |                           |        
|                                                                                  | Purchase of investments                                                |                           |        
|                                                                                  | Sale of investments                                                    |                           |        
|                                                                                  | Purchase of property and equipment                                     |                           |        
|                                                                                  | Proceeds from sale of business unit                                    |                           |        
|                                                                                  | Proceeds from the sale of property and equipment                       |                           |        
|                                                                                  | Payments for current and prior year acquisitions, net of cash acquired |                           |        
|                                                                                  |                                                                        |                           |        
|                                                                                  | Net cash used for investing activities                                 |                           |        
|Cash flows from financing activities:                                             |                                                                        |                           |        
|                                                                                  | Payments under long term-debt                                          |                           |        
|                                                                                  | Principal payments under capital lease obligations                     |                           |        
|                                                                                  | Proceeds from issuance of common stock                                 |                           |        
|                                                                                  | Repurchase of common stock                                             |                           |        
|                                                                                  |                                                                        |                           |        
|                                                                                  | Net cash provided by (used for) financing activities                   |                           |        
|Effect of exchange rate changes on cash                                           |                                                                        |                           | 1,135  
|Net (decrease) increase in cash and cash equivalents                              |                                                                        |                           | (10,461
|Cash and cash equivalents, beginning of period                                    |                                                                        |                           | 65,556 
|                                                                                  |                                                                        |                           |        
|Cash and cash equivalents at end of period                                        |                                                                        | $                         | 55,095 
|                                                                                  |                                                                        |                           |        

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

5

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Keane, Inc. and Subsidiaries        Notes to Unaudited Condensed Consolidated Financial Statements        (In thousands except per share amounts)

Note 1.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principals for interim
financial information and accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation of the results of operations for the interim periods reported and of the Company's financial condition as of the date of the
interim balance sheet have been included. Operating results for the three and six-month period ended June 30, 2002 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2002.

The
balance sheet at December 31, 2001 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.

For
further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

Note 2.

Computation of earnings per share for the three and six months ended June 30, 2002 and 2001.

Three months ended
June 30,

Six months ended
June 30,2002

2001

2002

2001Net income

$
5,521

$
6,698

$
11,074

$
15,152Weighted average number of common shares outstanding used in calculation of basic earnings per share


75,733


67,817


75,724


67,947Incremental shares from the assumed exercise of dilutive stock options


575


998


675


878Weighted average number of common shares outstanding used in calculation of diluted earnings per share


76,308


68,815


76,399


68,825Earnings per shareBasic

$
.07

$
.10

$
.15

$
.22Diluted

$
.07

$
.10

$
.15

$
.22


Note 3.

The Company offers an integrated mix of end-to-end business solutions, such as Business Consulting (Plan), Application Development and
Integration Services (Build), and Application Development and Management Outsourcing (Manage). The Company's Healthcare Solutions Division represented 6% of the Company's revenue during the first six
months of 2002. This revenue is included in the Company's Build service revenues.

6

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Note 4.

Total comprehensive income (i.e. net income plus available-for-sale securities valuation adjustments and currency translation adjustments
to stockholders equity) was $7.2 million for the second quarter of 2002 and $13.7 million for the year to date, and was $7.5 million for the second quarter of 2001 and
$17.2 million for the prior year to date.

Note 5.

In the fourth quarter of 2001, 2000 and 1999, the Company recorded restructuring charges of $10.4 million, $8.6 million and $13.7 million,
respectively. Of these charges, $4.4 million, $1.7 million and $3.8 million related to workforce reductions, primarily technical consultants, of approximately 900, 200 and 600
employees for the years 2001, 2000 and 1999, respectively. In addition, the Company performed a review of its business strategy and concluded that consolidating some of its branch offices was key to
its success. As a result of this review, the Company wrote off $800,000 in 2001, $3.4 million in 2000 and $4.8 million in 1999 of assets, which became impaired as a result of these
restructuring actions. The restructuring charges also included $5.1 million in 2001, $3.5 million in 2000 and $5.1 million in 1999 for branch office closings and certain other
expenditures.

7

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A
summary of recent and second quarter restructuring activity, which is recorded in accrued expenses in the accompanying balance sheet, is as follows:

|                                |  | Workforce
Reduction |        | Impaired
Assets |   | Branch Office
Closures and Other
Expenditures |   | Total |       
|------------------------------- |  | ------------------- | ------ | --------------- | - | --------------------------------------------- | - | ----- | ------
|Charges during 1999             |  | $                   | 3,800  |                 | $ | 4,753                                         |   | $     | 5,100 
|Charges during 2000             |  |                     | 1,743  |                 |   | 3,403                                         |   |       | 3,478 
|Charges during 2001             |  |                     | 4,417  |                 |   | 825                                           |   |       | 3,957 
|Change in estimates             |  |                     |       |                 |   |                                              |   |       | 1,159 
|                                |  |                     |        |                 |   |                                               |   |       |       
|                                |  |                     | 9,960  |                 |   | 8,981                                         |   |       | 13,694
|Cash expenditures during 1999   |  |                     | (1,000 | )               |   |                                               |   |       |       
|Cash expenditures during 2000   |  |                     | (3,138 | )               |   |                                               |   |       | (2,832
|Cash expenditures during 2001   |  |                     | (2,620 | )               |   |                                               |   |       | (2,494
|                                |  |                     |        |                 |   |                                               |   |       |       
|                                |  |                     | (6,758 | )               |   |                                               |   |       | (5,326
|Non cash charges during 1999    |  |                     |        |                 |   | (4,753                                        | ) |       | (819  
|Non cash charges during 2000    |  |                     |        |                 |   | (3,403                                        | ) |       |      
|Non cash charges during 2001    |  |                     |        |                 |   | (825                                          | ) |       |      
|                                |  |                     |        |                 |   |                                               |   |       |       
|                                |  |                     |        |                 |   | (8,981                                        | ) |       | (819  
|Non cash acquisition charges    |  |                     | 7,226  |                 |   |                                              |   |       | 3,746 
|                                |  |                     |        |                 |   |                                               |   |       |       
|Balance as of December 31, 2001 |  | $                   | 10,428 |                 |   |                                              |   | $     | 11,295
|Cash expenditures for 1999      |  |                     |       |                 |   |                                               |   |       | (156  
|Cash expenditures for 2000      |  |                     |       |                 |   |                                               |   |       | (307  
|Cash expenditures for 2001      |  |                     | (4,993 | )               |   |                                               |   |       | (839  
|                                |  |                     |        |                 |   |                                               |   |       |       
|Balance as of March 31, 2002    |  | $                   | 5,435  |                 |   |                                               |   | $     | 9,993 
|Cash expenditures for 1999      |  |                     |        |                 |   |                                               |   |       | (141  
|Cash expenditures for 2000      |  |                     |        |                 |   |                                               |   |       | (287  
|Cash expenditures for 2001      |  |                     | (4,649 | )               |   |                                               |   |       | (1,356
|Balance as of June 30, 2002     |  | $                   | 786    |                 |   |                                               |   | $     | 8,209 

Note 6.

In October, 2001, the Company entered into a lease with Gateway Developers LLC ("Gateway LLC") for a term of twelve years. Under this lease, the Company
has agreed to lease approximately 95,000 square feet of office and development space in a building under construction at One Chelsea Street in Boston, Massachusetts (the "New Facility"). The Company
will lease approximately 57% of the New Facility and the remaining 43% 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 the Board of the Company, and his immediate family members, including Brian Keane,
President, Chief Executive Officer and a director of the Company.

On
October 31, 2001, Gateway LLC entered into a $39.4 million construction loan (the "Gateway Loan") in connection with development of the New Facility and an adjacent
building to be located at 20 City Square, Boston, Massachusetts. John Keane Family LLC and John F. Keane are each liable for

8

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certain obligations under the Gateway Loan if and to the extent Gateway LLC requires funds to comply with its obligations under the Gateway Loan.

The
Company currently expects to occupy the new facility in January 2003. The Company will consolidate several existing facilities it has in the Boston area as part of this move.
Based upon its knowledge of rental payments for comparable facilities in the Boston area, the Company believes that the rental 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 $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 the Company entered into the lease, as favorable to the Company as those which could have
been obtained from an independent third party.

In
view of these related party transactions, the Company has concluded that, during the construction phase of the New Facility, the estimated construction in progress costs for the New
Facility will be capitalized in accordance with EITF No. 97-10, "The Effect of Lessee Involvement in Asset Construction." A credit in the same amount is included in the caption
"Accrued construction-in-progress costs" in the accompanying balance sheet. For purposes of the consolidated statement of cash flows, the Company characterizes this treatment
as a non-cash financing activity.

Note 7.

Effective January 1, 2002, the Company adopted FAS No. 142, "Goodwill and Other Intangible Assets." Under FAS 142, goodwill and indefinite
lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The amortization provisions of Statement 142 apply to goodwill and intangible assets acquired on or after June 30, 2001.
With respect to goodwill and intangible assets acquired prior to June 30, 2001, companies are required to adopt Statement 142 in their first fiscal year beginning after December 15,
2001. Because of the different transition dates for goodwill and intangible assets acquired on or before June 30, 2001 and those acquired after that date, pre-existing goodwill and
intangibles will be amortized during this transition period until adoption whereas new goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not.

The
Company is required to report, in the period of adoption, a disclosure reflecting net income and earnings per share for the prior year, adjusted to exclude amortization expense
related to goodwill and other intangible assets effected by FAS142.

The
following table discloses the reconciliation of reported net income to the adjusted net income.

9

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Goodwill & Other Intangible Assets  Adoption of Statement 142
(In thousands except per share amounts)

|                            |                             | For the three months
ended June 30, |       | For the six months
ended June 30,
|--------------------------- | --------------------------- | ----------------------------------- | ----- | ---------------------------------
|
|Reported net income         |                             | $                                   | 5,521 |                                  
|Goodwill amortization       |                             |                                     |      |                                  
|Closing costs amortization  |                             |                                     |      |                                  
|Employee value amortization |                             |                                     |      |                                  
|                            |                             |                                     |       |                                  
|Adjusted net income         |                             | $                                   | 5,521 |                                  
|                            |                             |                                     |       |                                  
|Basic earnings per share:   |                             |                                     |       |                                  
|                            | Reported net income         |                                     | $     | .07                              
|                            | Goodwill amortization       |                                     |       |                                 
|                            | Closing costs amortization  |                                     |       |                                 
|                            | Employee value amortization |                                     |       |                                 
|                            |                             |                                     |       |                                  
|                            | Adjusted net income         |                                     | $     | .07                              
|                            |                             |                                     |       |                                  
|Diluted earnings per share: |                             |                                     |       |                                  
|                            | Reported net income         |                                     | $     | .07                              
|                            | Goodwill amortization       |                                     |       |                                 
|                            | Closing costs amortization  |                                     |       |                                 
|                            | Employee value amortization |                                     |       |                                 
|                            |                             |                                     |       |                                  
|                            | Adjusted net income         |                                     |       | .07                              
|                            |                             |                                     |       |                                  

10

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Acquired Intangible Assets
(In thousands)

|                                     |  | As of June 30, 2002 |        
|------------------------------------ |  | ------------------- | -------
|
|Amortized intangible assets          |  |                     |        
|Contracts                            |  | $                   | 29,250 
|Non-competes                         |  |                     | 7,524  
|Customer lists                       |  |                     | 74,932 
|Technology                           |  |                     | 7,775  
|                                     |  |                     |        
|Total                                |  | $                   | 119,481
|                                     |  |                     |        
|Aggregate Amortization Expense       |  |                     |        
|For the six month period ended June  |  |                     |        
|Estimated Amortization Expense       |  |                     |        
|For the year ended December 31, 2002 |  |                     |        
|For the year ended December 31, 2003 |  |                     |        
|For the year ended December 31, 2004 |  |                     |        
|For the year ended December 31, 2005 |  |                     |        
|For the year ended December 31, 2006 |  |                     |        

Goodwill

The changes in the carrying amounts of goodwill for the quarter ended June 30, 2002 are as follows:

Balance as of January 1, 2002

$
224,891Goodwill acquired during the year


41,323Unamortizable intangible assets reclassified as goodwill


5,090Balance as of June 30, 2002

$
271,304


Upon
adoption of FAS 142, the Company is required to perform a transitional impairment test on all indefinite lived intangible assets. To the extent that an impairment charge is
required, it will be treated as a cumulative effect of a change in accounting principle. The Company completed its analysis of the impact of SFAS No. 142, including the transitional impairment
test, during the second quarter of the fiscal year 2002 and determined that the change in accounting principle did not yield an impairment charge.

Effective
January 1, 2002, the company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of" and provides a single accounting model for
long-lived assets to be disposed of. The Company has determined that the impact of SFAS 144 did not have a material effect on its results of operations for the second quarter.

11

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Note 8

On March 15, 2002, Keane acquired SignalTree Solutions Holding, Inc., a privately-held, U.S.-based corporation with two software
development facilities in India and additional operations in the United States. Under the terms of the merger agreement, Keane paid $68.1 million in cash for SignalTree.

In
accordance with recently issued Statement of Financial Accounting Standards No.141, "Business combinations," and certain provisions of Statement of Financial Accounting Standard
No. 142, "Goodwill and other Intangible Assets," The Company used the purchase method of accounting for a business combination to account for the acquisition, as well as the new accounting and
reporting regulations for goodwill and other intangibles. Under these methods of accounting, the assets and liabilities of SignalTree, including intangible assets, were recorded at their respective
fair values. All intangible assets will be amortized over their estimated useful life with the exception of goodwill. The
financial position, results of operations and cash flows of SignalTree were included in the Company's financial statements effective as of the purchase date.

The
total cost of the merger was $77.8 million. Portions of the purchase price, including intangible assets, were identified by independent appraisers utilizing proven valuation
procedures and techniques.

The
components of the purchase price allocation is as follows:

(in thousands)Consideration paid

$
66,927Transaction costs


1,161Deferred Tax Liability, net


9,751Total

$
77,839Allocation of purchase price:Net Asset Value Acquired

$
16,135Customer lists


18,800Non-compete agreements


2,700Goodwill


40,204Total

$
77,839


12

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The
following table presents the condensed balance sheet disclosing the amounts assigned to each of the major assets acquired and liabilities assumed of SignalTree at the acquisition
date:

(in thousands)Cash

$
2,650Accounts receivable


7,304Other current assets


3,562Property, plant & equipment, net


8,013Total assets


21,529Accounts payable


569Accrued compensation


1,569Other liabilities


3,256Net assets

$
16,135


The
unaudited pro forma combined condensed statements of income below combine the historical statements of the Company and SignalTree as if the purchase had occurred at January 1,
2001. Unaudited pro forma combined condensed 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.

|                               |  | For the Three Months
Ended June 30, |         | For the Six Months
Ended June 30
|------------------------------ |  | ----------------------------------- | ------- | --------------------------------
|
|Total revenues                 |  | $                                   | 226,062 |                                 
|Net income                     |  |                                     | 5,521   |                                 
|Net income per share (basic)   |  |                                     | .07     |                                 
|Net income per share (diluted) |  |                                     | .07     |                                 

13

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Keane, Inc. and Subsidiaries  Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to
identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below under the caption "Certain Factors That May Affect Future Results." The Company assumes no obligation to update any forward-looking
statements.

RESULTS OF OPERATIONS:

The Company's total revenue for the second quarter of 2002 was $226.1 million, a 15% increase from revenue of $197.0 million in the second quarter
of 2001. This increase in total revenue was primarily the result of the acquisition of Metro Information Services, which closed on November 30, 2001, and the acquisition of SignalTree Solutions
Holding, Inc., which closed on March 15, 2002.

For
the second quarter of 2002, revenue from the Company's Plan services was $15.3 million, down from $19.2 million during the second quarter of 2001. Plan revenue is
comprised primarily of business innovation consulting services delivered by Keane Consulting Group (KCG), the Company's business consulting arm, and IT consulting services, which are sold and
implemented out of Keane's network of branch offices. This decrease in Plan revenue was primarily the result of the deferral of consulting projects due to macroeconomic conditions.

For
the second quarter of 2002, revenue from the Company's Build Services was $55.7 million, down from $70.6 million during the second quarter of 2001. Keane's Build
revenue, which consists primarily of application development and integration business, was also adversely affected during the second quarter by the challenging economic environment and the related
deferral of new software development projects in both North America and the United Kingdom. However, revenue from the less cyclical public sector and healthcare related vertical markets, which are
also included in Build Services revenue, lends stabilization to this sector.

Revenue
from the Company's Manage services, which consist primarily of Keane's Application Development and Management (ADM) Outsourcing service, as well as Staff Augmentation services
and other Maintenance and Migration services, grew to $155.1 million during the second quarter of 2002, an increase of 45% from $107.2 million during the second quarter of 2001. This
increase was the result of increasing revenue from Keane's ADM Outsourcing service, which was $106.1 million during the second quarter of 2002, up 4% from $102.1 million during the
second quarter of 2001 and the acquisitions of Metro Information Services and SignalTree Solutions Holding, Inc.

Total
revenue for the six months ended June 30, 2002 was $447.3 million, up 12% from $400.1 million for the first half of 2001, excluding revenue associated with the
Company's Help Desk operations, which was divested during the first quarter of 2001. Total revenue for the six months ended June 30, 2002 was up 10% from $405.3 million for the first
half of 2001, including revenue associated with the Company's divested Help Desk operations. Revenue from Keane's ADM Outsourcing service was $202.6 million during the first half of 2002, and
represented 45% of total revenue, as compared to $202.1 million, or 50% of revenue during the first six months of 2001.

Plan,
Build, and Manage revenues for the first half of 2002 were $33.8 million, $111.6 million, and $302.0 million, respectively, as compared to
$39.9 million, $146.8 million, and $218.6 million, respectively, during the first half of 2001. Excluding Help Desk operations, Manage revenue, was $213.4 million for the
first six months of 2001.

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The
Company has observed no indications of a significant increase in discretionary IT spending during the Second Quarter. As a result, Keane anticipates continuing softness in its
Application Development and Integration business, which represents a majority of its Build sector, and in its Plan sector, until economic conditions improve and customers once again begin funding
capital projects. However, the Company continues to see strong opportunities in its Application Development and Management Outsourcing business, which represents a majority of its Manage sector, and
anticipates that outsourcing revenues will continue to act as a mitigating influence on future declines in Keane's revenues.

With
organic growth difficult in the current business environment, Keane's strategy is to market a mix of services to help customers optimize return on investment from business
applications and IT assets. At the same time, the Company is also seeking to tightly control its discretionary expenses, carefully manage its employee utilization and evaluate acquisition
opportunities that can provide incremental revenue and customers, while helping to leverage SG&A expense. For example, as part of its acquisition of Metro Information Services, the Company identified
approximately $15 million in redundant annualized SG&A expenses that can be eliminated and expects to realize at least $11 million of these savings during the second half of 2002. During
the first quarter of 2002, Keane completed the integration of Metro's corporate functions with those of Keane, and during the second quarter of 2002, the Company completed the consolidation and
relocation of overlapping branch offices. During the
second quarter of 2002, the Company also integrated U.S.-based operations acquired from SignalTree Solutions with those of Keane, and it anticipates integrating the corporate functions of SignalTree
with Keane's during the third quarter of 2002. The Company plans to increase utilization of its two software development facilities in India, now rebranded as Keane India Ltd, in support of its
outsourcing and software development customers.

Salaries,
wages and other direct costs for the second quarter of 2002 were $161.9 million, or 71.6% of total revenue, compared to $137.8 million, or 69.9% of total revenue,
for the second quarter of 2001. As a result, Keane's gross margins for the second quarter of 2002 were 28.4%, as compared to 30.1% during the second quarter of 2001. The decrease in gross margins
reflects continuing softness in the market for IT services and lower margins associated with Keane's ten year, $500 million dollar application outsourcing deal with PacifiCare, signed during
the first quarter of 2002. For the first six months ended June 30, 2002, salaries, wages and other direct costs were $319.7 million, or 71.5% of total revenue, compared to
$282.9 million, or 69.8% of total revenue, for the first half of 2001. As a result, Keane's gross margins for the first six months of 2002 were 28.5%, down from 30.2% during the first six
months of 2001.

Selling,
General & Administrative ("SG&A") expenses for the second quarter of 2002 were $51.0 million, or 22.6% of total revenue, as compared to $46.2 million, or
23.5% of total revenue, for the second quarter of 2001. For the first six months of 2002 SG&A expense was $103.3 million, or 23.1% of total revenue, versus $95.5 million, or 23.6% of
total revenue for the first six months of 2001. The improvement in SG&A as a percentage of revenue is the result of cost synergies obtained from the acquisition of Metro Information Services. The
Company expects further improvements in its SG&A as a percentage of revenue as it fully realizes the anticipated cost savings from this acquisition.

Amortization
of intangible assets for the second quarter of 2002 was $4.2 million, or 1.9% of total revenue, compared to $3.5 million, or 1.8% of total revenue, in the
second quarter of 2001. For the first six months of 2002, amortization of intangible assets was $7.6 million, or 1.7% of total revenue, compared to $6.9 million, or 1.7% of total
revenue, for the first six months of 2001. The increase in amortization is attributable to additional intangible assets as a result of the Company's acquisitions of Metro Information Services and
SignalTree Solutions offset by the fact that, effective January 1, 2002, goodwill is no longer amortized under generally accepted accounting principles.

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Interest
and dividend income totaled $.5 million for the second quarter of 2002, compared to $1.7 million for the second quarter of 2001. For the first six months of 2002,
interest and dividend income totaled $1.5 million, compared to $3.3 million for the first six months of 2001. The decrease in interest and dividend income was attributable to having less
cash earning interest and dividends due to the use of cash for the acquisition of Signal Tree and the repurchase of Keane stock, as well as interest rate declines. Other expense was $125,000 for the
second quarter of 2002, as compared to other income of $109,000 in the second quarter of 2001. For the first six months of 2002, other income was $345,000 versus $2.4 million for the first six
months of 2001. Other income during the first six months of 2001 was related to a gain of $4.0 million from the sale of Keane's Help Desk business partially offset by the
Company's decision to write-off certain equity investments totaling $2.0 million, as well as gains from the sale of investments.

The
Company's effective tax rate was 40.0% for the second quarter and first six months of 2002, down from 40.5% in the second quarter and first six months of 2001. This decrease is a
direct result of the adoption of FASB 142. The Company anticipates a similar rate for the remainder of 2002.

Liquidity and Capital Resources

The Company's cash and investments at the end of the second quarter increased to $69.4 million, from $63.9 million as of the end of the first
quarter of 2002. The increase in cash was primarily attributable to a decrease in accounts receivable as a result of the Company's focus on reducing its Days Sales Outstanding ("DSO"), offset in part
by decreases in accounts payable and accrued expenses along with purchases of property plant and equipment.

On
September 19, 2001, the Company announced that its Board of Directors had authorized the Company to repurchase up to 1,542,800 shares of its common stock over the next
12 months. A total of 175,000 shares of common stock were repurchased under this authorization during the second quarter of 2002 at an average price of $12.88 for a total cost of
$2.2 million. As of June 30, 2002, the balance remaining on this authorization was 1,367,800 shares. On July 26, 2002, the Board of Directors authorized a new share repurchase
program, which will allow the Company to repurchase up to 5 million shares. This represents an increase of 3,632,200 shares from the number of shares remaining available for repurchase under
the previous program which would have expired on September 18, 2002. Since May 1999, the Company has invested $111 million to repurchase 5,632,200 shares of its common stock under
three separate authorizations. The timing and amount of additional share repurchases will be determined by the Company's management based on its evaluation of market and economic conditions and other
factors.

During
the quarter, the Company paid $6.0 million associated with restructuring charges. Further details relating to restructuring and be found in the footnotes under
Note 5.

On
March 15, 2002 the Company acquired SignalTree Solutions Holding, Inc., a privatelyheld, U.S. based corporation with two software development facilities in
India and additional operations in the United States. The Company paid approximately $66.9 million in cash for the acquisition. Further details and disclosures related to this transaction can
be found in the footnotes under Note 8.

The
Company has available a $10 million unsecured demand line of credit with a major Boston bank for operations and acquisition opportunities. Currently, the Company has no
outstanding loans from this line of credit.

Based
on the Company's current operating plan, the Company believes that its cash and cash equivalents on hand, cash flows from operations, and its current available line of credit will
be sufficient to meet its current capital requirements for at least the next twelve months.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS:The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-

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looking statements made in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time.

Keane's quarterly operating results have varied, and are likely to continue to vary significantly. This may result in volatility in the market price of Keane's
shares.Keane has experienced and expects to continue to experience fluctuations in its quarterly results. Keane's gross margins vary based on a variety of factors
including employee utilization rates and the number and type of services performed by Keane during a particular period. A variety of factors influence Keane's revenue in a particular quarter,
including:



A
significant portion of Keane's expenses do not vary relative to revenue. As a result, if revenue in a particular quarter does not meet expectations, Keane's operating results could be
materially adversely affected, which in turn may have a material adverse impact on the market price of Keane common
stock. In addition, many of Keane's 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.

Keane has pursued, and intends to continue to pursue, strategic acquisitions. Failure to successfully integrate acquired businesses or assets may adversely affect
Keane's financial performance.In the past five years, Keane has grown significantly through acquisitions. From January 1, 1999 through June 30,
2002, Keane has completed nine acquisitions. The aggregate cost of these acquisitions totaled approximately $331.3 million. Keane's future growth may be based in part on selected acquisitions.
At any given time, Keane may be in various stages of considering acquisition opportunities. Keane can provide no assurances that it will be able to find and identify desirable acquisition targets or
that it will be successful in entering into a definitive agreement with any one target. In addition, even if Keane reaches a definitive agreement, there is no assurance that Keane will complete any
future acquisition.

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

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

Finally,
future acquisitions could result in Keane having to incur additional debt and/or contingent liabilities. Any of these possibilities could have a material adverse effect on
Keane's business, financial condition and result of operations.

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The complex process of integrating Metro and SignalTree Solutions with Keane may disrupt the business activities of the Company and affect employee morale, thus
affecting the Company's ability to pursue its business plan and retain key employees.Integrating the operations and personnel of Metro Information
Services, Inc., which Keane acquired in November 2001, and SignalTree Solutions, which the Company acquired in March 2002 with Keane is a complex process. The integration of each
of Metro and SignalTree Solutions may not be completed in the expected time period or may not achieve the anticipated benefits of the merger. The successful integration of Metro and SignalTree
Solutions with Keane requires, among other things, integration of finance, human resources and sales organizations. The diversion of the attention of Keane's management and any difficulties
encountered in the process
of combining the companies could cause the disruption of, or a loss of momentum in, the activities of the combined company's business. Further, the process of combining Metro and SignalTree Solutions
with Keane could negatively affect employee morale and the ability of the combined company to retain some of its key employees after the merger. The inability to successfully integrate the operations
and personnel of Metro and SignalTree Solutions with Keane could have a material adverse effect on Keane's business, financial condition and results of operations.

Keane's growth could be limited if it is unable to attract personnel in the Information Technology and business consulting
industries.Keane believes that its future success will depend in large part on its ability to continue to attract and retain highly skilled technical and
management personnel. The competition for such personnel is intense. Keane may not succeed in attracting and retaining the personnel necessary to develop its business. If Keane does not, its business,
financial condition and result of operations could be materially adversely affected.

Keane faces significant competition for its services, and its failure to remain competitive could limit its ability to maintain existing clients or attract new
clients.The market for Keane's 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, Keane's competition for client assignments and experienced personnel varies significantly from city to city and by the type of service provided. Some
of Keane's competitors are larger and have greater technical, financial and marketing resources and greater name recognition in the markets they serve than does Keane. 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, Keane competes with some companies that are larger in the healthcare market and have greater financial resources than Keane. Keane believes
that significant competitive factors in the healthcare software systems market include size and demonstrated ability to provide service to targeted healthcare markets.

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

Keane conducts business in the United Kingdom and India, which exposes it to a number of difficulties inherent in international
activities.As a result of its acquisition of SignalTree Solutions in March 2002, Keane has two software development facilities in India and has added
approximately 400 technical professionals to its professional services organization. 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, Keane's ability to meet development
objectives important to its new strategy would be hindered, and its business could be harmed.

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If
Keane fails to manage its geographically dispersed organization, it may fail to meet or exceed its financial objectives and its revenues may decline. Keane performs development
activities in the U.S. and Canada and soon will be in India, and has offices throughout the United States, the United Kingdom, Canada and India. This geographic dispersion requires substantial
management resources that locally-based competitors do not need to devote to their operations.

Keane's
operations in the U.K. and India are subject to currency exchange rate fluctuations, foreign exchange restrictions, changes in taxation and other difficulties in managing
operations overseas. Keane may not be successful in its international operations.

Keane may be unable to redeploy its professionals effectively if engagements are terminated unexpectedly, which would adversely affect its results of
operations.Keane's clients can cancel or reduce the scope of their engagements with Keane on short notice. If they do so, Keane may be unable to reassign its
professionals to new engagements without delay. The cancellation or reduction in scope of an engagement could, therefore, reduce the utilization rate of Keane's professionals, which would have a
negative impact on Keane's business, financial condition and results of operations.

As
a result of these and other factors, the Company's past financial performance should not be relied on as an indication of future performance. Keane believes that period to period
comparisons of its financial results are not necessarily meaningful and it expects that results of operations may fluctuate from period to period in the future.

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Keane, Inc. and Subsidiaries

Part IIOther Information

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

The following matters were submitted to a vote of the stockholders at the 2002 Annual Meeting of Stockholders of the Company held on May 29, 2002 (the
"Annual Meeting"): (1) electing three Class I directors for the ensuing three years, and (2) ratifying and approving the selection by the Board of Directors of Ernst &
Young LLP as the Company's independent accountants for the current year. The number of shares of common stock and Class B common stock outstanding and eligible to vote as of the record date of
April 1, 2002 were 75,461,917 and 284,866, respectively. Each of these matters were approved by the requisite vote of the stockholders. Set forth below is the number of votes cast for, against
or withheld, as well as the number of abstentions and broker non-votes as to each such matter, including a separate tabulation with respect to each nominee for director:

Proposal
#1To elect three Class I directors for the ensuing three years:

|NOMINEES            |  | FOR        |  | AGAINST    |  | ABSTAIN |  | BROKER
NON-VOTES
|------------------- |  | ---------- |  | ---------- |  | ------- |  | ----------------
|Maria A. Cirino     |  | 68,601,017 |  | 2,185,635  |  | N/A     |  | N/A             
|John F. Keane, Jr.  |  | 68,403,556 |  | 2,383,096  |  | N/A     |  | N/A             
|Stephen D. Steinour |  | 57,205,658 |  | 13,580,994 |  | N/A     |  | N/A             

Proposal
#2To ratify and approve the selection by the Board of Directors of Ernst & Young LLP as the Company's independent accountants for the current year:

FOR

AGAINST

ABSTAIN

BROKER
NON-VOTES68,023,349

2,718,036

45,267

N/A


Item 5. Other Information

The Company announced on July 26, 2002 that its Board of Directors has authorized the Company to repurchase up to 5,000,000 shares of its common stock over
the next 12 months. The authorization represents an increase from the shares remaining available for repurchase under the Company's previous stock repurchase program, which program would have
expired on September 18, 2002. The timing and amount of shares repurchased will be determined by the Company's management based on its evaluation of market and economic conditions. The Company
expects to use any shares repurchased for its stock plans, employee stock purchase and stock benefit plans, and other general corporate purposes, including acquisitions.

Item 6. Exhibits and Reports on Form 8-K





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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|     |  |                |  | KEANE, INC.
(Registrant)                                                                                                    
|---- |  | -------------- |  | ----------------------------------------------------------------------------------------------------------------------------
|Date |  | August 9, 2002 |  | /s/BRIAN T. KEANEBrian T. Keane
President and Chief Executive Officer                                                       
|Date |  | August 9, 2002 |  | /s/JOHN J. LEAHYJohn J. Leahy
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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