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

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FORM 10-Q

|(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, 2004                          
|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(IRS Employer Identification No.)
|------------------------------------------------------------------------------ |  | -------------------------------------------
|100 City Square, Boston, Massachusetts(Address of principal executive offices) |  | 02129(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

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

As of June 30, 2004, there were issued and outstanding 61,787,078 shares of the registrant's Common Stock (excluding 14,042,912 shares held in treasury) and no shares of
the registrant's Class B Common Stock.



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Keane, Inc.

Table of Contents

|Part I.       |  | Financial Information                                                                                           |  |   
|------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --
|Item 1.       |  | Unaudited Condensed Consolidated Statements of Income for the three and six months ended June 30, 2004 and 2003 |  | 3 
|              |  | Unaudited Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003                       |  | 4 
|              |  | Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003       |  | 5 
|              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                  |  | 6 
|Item 2.       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |  | 19
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 32
|Item 4.       |  | Controls and Procedures                                                                                         |  | 33
|Part II.      |  | Other Information                                                                                               |  |   
|Item 2.       |  | Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities                               |  | 34
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                             |  | 34
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                                                |  | 35
|Signatures    |  | 37                                                                                                             
|Exhibit Index |  | 38                                                                                                             

2

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Keane, Inc.

Part I. Financial Information

Item 1. Financial Statements

Keane, Inc.
Unaudited Condensed Consolidated Statements of Income

|                                                                                |                                               | Three Months Ended June 30, |         | Six Months Ended June 30, |  
|------------------------------------------------------------------------------- | --------------------------------------------- | --------------------------- | ------- | ------------------------- | -
|
|
|                                                                                |                                               |                             |         |                           |  
|Revenues                                                                        |                                               | $                           | 231,712 |                           | $
|Operating expenses                                                              |                                               |                             |         |                           |  
|                                                                                | Salaries, wages, and other direct costs       |                             |         | 161,710                   |  
|                                                                                | Selling, general, and administrative expenses |                             |         | 52,665                    |  
|                                                                                | Amortization of intangible assets             |                             |         | 4,035                     |  
|                                                                                | Restructuring charges, net                    |                             |         |                          |  
|                                                                                |                                               |                             |         |                           |  
|Operating income                                                                |                                               |                             | 13,302  |                           |  
|Other income (expense)                                                          |                                               |                             |         |                           |  
|                                                                                | Interest and dividend income                  |                             |         | 875                       |  
|                                                                                | Interest expense                              |                             |         | (1,400                    | )
|                                                                                | Other income (expense), net                   |                             |         | 166                       |  
|                                                                                | Minority interest                             |                             |         | 509                       |  
|                                                                                |                                               |                             |         |                           |  
|Income before income taxes                                                      |                                               |                             | 13,452  |                           |  
|Provision for income taxes                                                      |                                               |                             | 5,381   |                           |  
|                                                                                |                                               |                             |         |                           |  
|Net income                                                                      |                                               | $                           | 8,071   |                           | $
|                                                                                |                                               |                             |         |                           |  
|Basic earnings per share                                                        |                                               | $                           | 0.13    |                           | $
|Diluted earnings per share                                                      |                                               | $                           | 0.13    |                           | $
|Basic weighted average common shares outstanding                                |                                               |                             | 62,746  |                           |  
|Diluted weighted average common shares and common share equivalents outstanding |                                               |                             | 63,721  |                           |  

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

3

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Keane, Inc.

Unaudited Condensed Consolidated Balance Sheets

|                                     |                                        | June 30,
2004                              |          | December 31,
2003 |        
|------------------------------------ | -------------------------------------- | ------------------------------------------ | -------- | ----------------- | -------
|
|
|Assets                               |                                        |                                            |          |                   |        
|Current:                             |                                        |                                            |          |                   |        
|                                     | Cash and cash equivalents              |                                            | $        | 39,813            |        
|                                     | Restricted cash                        |                                            |          | 393               |        
|                                     | Marketable securities                  |                                            |          | 117,079           |        
|                                     | Accounts receivable, net               |                                            |          | 136,606           |        
|                                     | Prepaid expenses and deferred taxes    |                                            |          | 17,334            |        
|                                     |                                        |                                            |          |                   |        
|                                     |                                        | Total current assets                       |          |                   | 311,225
|Property and equipment, net          |                                        |                                            | 77,825   |                   |        
|Goodwill                             |                                        |                                            | 303,770  |                   |        
|Customer lists, net                  |                                        |                                            | 59,035   |                   |        
|Other intangible assets, net         |                                        |                                            | 11,048   |                   |        
|Deferred taxes and other assets, net |                                        |                                            | 24,910   |                   |        
|                                     |                                        |                                            |          |                   |        
|                                     |                                        | Total assets                               |          | $                 | 787,813
|Liabilities                          |                                        |                                            |          |                   |        
|Current:                             |                                        |                                            |          |                   |        
|                                     | Short-term debt                        |                                            | $        | 1,393             |        
|                                     | Accounts payable                       |                                            |          | 13,977            |        
|                                     | Accrued restructuring                  |                                            |          | 5,517             |        
|                                     | Unearned income                        |                                            |          | 6,021             |        
|                                     | Accrued compensation                   |                                            |          | 36,052            |        
|                                     | Accrued expenses and other liabilities |                                            |          | 48,423            |        
|                                     |                                        |                                            |          |                   |        
|                                     |                                        | Total current liabilities                  |          |                   | 111,383
|Long-term debt                       |                                        |                                            | 150,036  |                   |        
|Accrued long-term building costs     |                                        |                                            | 39,799   |                   |        
|Accrued long-term restructuring      |                                        |                                            | 5,726    |                   |        
|Deferred income taxes                |                                        |                                            | 34,940   |                   |        
|                                     |                                        |                                            |          |                   |        
|                                     |                                        | Total liabilities                          |          |                   | 341,884
|Minority Interest                    |                                        |                                            | 7,272    |                   |        
|Stockholders' Equity                 |                                        |                                            |          |                   |        
|Common stock                         |                                        |                                            | 7,583    |                   |        
|Class B common stock                 |                                        |                                            |         |                   |        
|Additional paid-in capital           |                                        |                                            | 168,532  |                   |        
|Accumulated other comprehensive loss |                                        |                                            | (7,750   | )                 |        
|Retained earnings                    |                                        |                                            | 412,359  |                   |        
|Unearned compensation                |                                        |                                            | (577     | )                 |        
|Less treasury stock, at cost         |                                        |                                            | (141,490 | )                 |        
|                                     |                                        |                                            |          |                   |        
|Stockholders' equity                 |                                        |                                            | 438,657  |                   |        
|                                     |                                        |                                            |          |                   |        
|                                     |                                        | Total liabilities and stockholders' equity |          | $                 | 787,813
|                                     |                                        |                                            |          |                   |        

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

4

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Keane, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

|                                                     |                                                                                              | Six Months Ended June 30,                                         |                                              
|---------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------
|
|
|Cash flows from operating activities:                |                                                                                              |                                                                   |                                              
|                                                     | Net income                                                                                   |                                                                   | $                                            
|                                                     | Adjustments to reconcile net income to net cash provided by (used for) operating activities: |                                                                   |                                              
|                                                     |                                                                                              | Depreciation and amortization                                     |                                              
|                                                     |                                                                                              | Deferred income taxes                                             |                                              
|                                                     |                                                                                              | Provision for doubtful accounts, net                              |                                              
|                                                     |                                                                                              | Minority interest                                                 |                                              
|                                                     |                                                                                              | Loss (gain) on sale of property and equipment                     |                                              
|                                                     |                                                                                              | Gain on sale of investments                                       |                                              
|                                                     |                                                                                              | Other charges, net                                                |                                              
|                                                     |                                                                                              | Changes in operating assets and liabilities, net of acquisitions: |                                              
|                                                     |                                                                                              |                                                                   | (Increase) decrease in accounts receivable   
|                                                     |                                                                                              |                                                                   | Increase in prepaid expenses and other assets
|                                                     |                                                                                              |                                                                   | Increase (decrease) in other liabilities     
|                                                     |                                                                                              |                                                                   | Increase 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 debt                        |                                              
|                                                     |                                                                                              | Debt issuance costs                                               |                                              
|                                                     |                                                                                              | 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              |                                                                                              |                                                                   | 24                                           
|Net (decrease) increase in cash and cash equivalents |                                                                                              |                                                                   | (16,923                                      
|Cash and cash equivalents at beginning of period     |                                                                                              |                                                                   | 56,736                                       
|                                                     |                                                                                              |                                                                   |                                              
|Cash and cash equivalents at end of period           |                                                                                              | $                                                                 | 39,813                                       
|                                                     |                                                                                              |                                                                   |                                              
|Supplemental information:                            |                                                                                              |                                                                   |                                              
|Income taxes paid                                    |                                                                                              | $                                                                 | 5,367                                        
|Interest paid                                        |                                                                                              | $                                                                 | 1,546                                        

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

5

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Keane, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1.     Basis of Presentation



Note 2.     Earnings Per Share Data



Three Months Ended
June 30,

Six Months Ended
June 30,2004

2003

2004

2003Net income

$
8,071

$
6,620

$
13,595

$
17,181Weighted average number of common shares outstanding used in calculation of basic earnings per share


62,746


66,309


63,221


67,665Incremental shares from restricted stock, employee stock purchase plan and the assumed exercise of dilutive stock options


975


510


1,077


281Weighted average number of common shares and common share equivalents outstanding used in calculation of diluted earnings per share


63,721


66,819


64,298


67,946Earnings per shareBasic

$
0.13

$
0.10

$
0.22

$
0.25Diluted

$
0.13

$
0.10

$
0.21

$
0.25


6

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Note 3.     Stock-Based Compensation



7

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Three Months Ended
June 30,

Six Months Ended
June 30,2004

2003

2004

2003Net incomeas reported

$
8,071

$
6,620

$
13,595

$
17,181Add: Stock-based employee compensation expense included in reported net income, net of related tax effects


110


15


226


24Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of tax effects


(1,078
)

(824
)

(2,177
)

(3,030
)Net incomepro forma

$
7,103

$
5,811

$
11,644

$
14,175Earnings per shareBasicas reported

$
0.13

$
0.10

$
0.22

$
0.25Basicpro forma

$
0.11

$
0.09

$
0.18

$
0.21Dilutedas reported

$
0.13

$
0.10

$
0.21

$
0.25Dilutedpro forma

$
0.11

$
0.09

$
0.18

$
0.21


Note 4.     Comprehensive Income and Accumulated Other Comprehensive Loss



8

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Note 5.     Business Acquisitions



9

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10

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Note 6.     Restructurings



11

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12

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The activity for the six months ended June 30, 2004 associated with restructuring charges is as follows (in thousands, except per share data):

January 1,
2004 Balance

Cash
Expenditures

Acquisition
Related
Charges in
Fiscal 2004

June 30,
2004 BalanceBranch office closures and other expenditures1999

$
156

$
(115
)
$


$
412000


478


(351
)




1272001


2,343


(1,285
)




1,0582002


9,935


(2,037
)




7,8982003


871


(133
)




7382004





(49
)

1,373


1,32413,783


(3,970
)

1,373


11,1862002 Workforce reduction


24


(24
)




2003 Workforce reduction


213


(213
)




2004 Workforce reduction





(264
)

321


57Total Restructuring Balance

$
14,020

$
(4,471
)
$
1,694

$
11,243




Note 7.     Convertible Subordinated Debentures



13

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Note 8.     Capital Stock



Note 9.     Related Parties, Commitments, and Contingencies



14

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15

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16

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17

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Note 10.   Segment Information



Three Months Ended June 30,

Six Months Ended June 30,2004

2003

2004

2003Revenues:Domestic

$
218,332

$
198,777

$
423,547

$
397,749International


13,380


4,734


23,989


10,424Total Revenues:

$
231,712

$
203,511

$
447,536

$
408,173


At June 30,
2004

At December 31,
2003Property & Equipment:Domestic





$
65,576

$
64,799International






12,249


10,632Total Property & Equipment





$
77,825

$
75,431




Note 11.   Subsequent Event



18

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Keane, Inc.

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

This Quarterly Report on Form 10-Q 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. We caution investors not to place undue reliance on any forward-looking statements in this Quarterly Report on Form 10-Q. 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 below under the caption "Certain Factors That May Affect Future Results." These
factors and the other cautionary statements made in this quarterly report should be read as being applicable to all related forward-looking statements wherever they appear in this quarterly report. If
one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may vary materially from any future results, performance or
achievements expressed or implied by these forward-looking statements.

The
following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on
Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on From 10-K for the year ended December 31, 2003, and
with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2003.

OVERVIEW

Components of Revenues

We
help clients improve business and information technology ("IT") effectiveness. In order to align our reporting with our strategic priorities, beginning January 1, 2004, we are classifying
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. Prior period amounts have been reclassified to conform to the current
presentation. Below is description of each of our service offerings:

Outsourcing:Our outsourcing services include Application and Business Process Outsourcing, as well as ongoing maintenance related to
Development & Integration work for our Healthcare Solutions Division. 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. Application Outsourcing typically
provides us with large, long-term contracts, which generally do not require any capital outlay by us. These contracts usually span three to five years with the ability to renew. We receive
a fixed monthly fee in return for meeting or exceeding a contractually agreed upon service level. However, because our customers typically have the ability to reduce services under their contracts,
our monthly fees may be reduced from the stated contract amounts.

19

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Through
our global delivery model we can offer customers 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 offshore at one of our three development centers in India. 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
Business Process Outsourcing ("BPO") services are provided by our majority owned subsidiary, Worldzen, Inc., now Keane Worldzen, Inc. ("Keane Worldzen"), which we acquired on
October 17, 2003. Keane Worldzen specializes in providing BPO 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 United States ("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 customer service. Many of our Development &
Integration projects focus on solutions for the integration of enterprise applications, supply chain, and customer 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 continue to cause companies to be cautious about increasing their use of consulting and IT services, but we are beginning to see an upturn in 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 increases in demand for our services, and gross margin as a percentage of revenue has stabilized
over the past three quarters, we believe that it is too early to determine if developments will translate into sustainable improvements in our pricing or margins during the remainder of 2004 and over
the longer term.

Components of Operating Expenses

The
primary categories of 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

20

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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 the 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 from the consultant.

EMPLOYEES

As
of June 30, 2004, we had 8,382 total employees, including 7,062 business and technical professionals whose services are billable to clients. This includes a base of 1,708 employees (of which
1,427 employees are billable) in India, including our Keane Worldzen operations.

NEW CONTRACT BOOKINGS

New
contract bookings represent the engagement value of contracts signed in the current reporting period. New contract bookings for the three months ended June 30, 2004 were
$282.3 million, an increase of $57.1 million, or 25.3%, over new bookings of $225.2 million for the three months ended
June 30, 2003. For the three months ended June 30, 2004, Outsourcing bookings increased 13.5% to $149.4 million, Development & Integration bookings increased 124.9% to
$42.6 million and Other IT bookings increased 20.9% to $90.3 million over the same period last year.

New
contract bookings for the six months ended June 30, 2004 were $692.0 million, an increase of $262.2 million, or 61.0%, over new bookings of $429.8 million for the six
months ended June 30, 2003. For the six months ended June 30, 2004, Outsourcing bookings increased 104.8% to $417.4 million, Development & Integration bookings increased
65.3% to $80.5 million and Other IT bookings increased 9.4% to $194.1 million over the same period last year.

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.

21

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CONSOLIDATED RESULTS OF OPERATIONS
2004 COMPARED TO 2003
REVENUES (in thousands, except percentages)

|                          |  | Three Months Ended
June 30, |         | Increase
(Decrease) |     | Six Months Ended
June 30, |   | Increase
(Decrease) | 
|------------------------- |  | --------------------------- | ------- | ------------------- | --- | ------------------------- | - | ------------------- | 
|
|Outsourcing               |  | $                           | 116,515 |                     | 50  |                           | $ | 91,463              | 
|Development & Integration |  |                             | 44,780  |                     | 20  |                           |   | 41,677              | 
|Other IT Services         |  |                             | 70,417  |                     | 30  |                           |   | 70,371              | 
|                          |  |                             |         |                     |     |                           |   |                     | 
|Total                     |  | $                           | 231,712 |                     | 100 | %                         | $ | 203,511             | 
|                          |  |                             |         |                     |     |                           |   |                     | 

Revenues

Revenues for the Second Quarter ended June 30, 2004 were $231.7 million, an increase of $15.9 million, or 7.4% compared to revenues of
$215.8 million for the First Quarter ended March 31, 2004. Revenues for the Second Quarter ended June 30, 2004 increased $28.2 million, or 13.9%, compared to the Second
Quarter of 2003 due primarily to the growth in Outsourcing services and revenues from our newly acquired business. We completed our acquisition of Nims Associates, Inc. ("Nims") on
February 27, 2004, and as a result, the operating results of Nims have been included in our condensed consolidated financial statements beginning March 1, 2004.

Revenues
for the six months ended June 30, 2004 were $447.5 million, an increase of $39.4 million, or 9.6%, compared to revenues of $408.2 million for the same period last
year due primarily to the growth in Outsourcing services and revenues from our newly acquired business.

Outsourcing.Outsourcing service revenues for the Second Quarter ended June 30, 2004 were $116.5 million, an increase of
$11.3 million, or 10.7%, compared to the First Quarter ended March 31, 2004. Outsourcing service revenues for the Second Quarter ended June 30, 2004 increased
$25.1 million, or 27.4%, and for the first six months of 2004 increased $36.8 million, or 19.9%, over the same periods in 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 Health Systems, Inc. ("PacifiCare"), one of our largest clients, has 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. Revenues from this contract in the Second
Quarter of 2004 were unchanged from the First Quarter 2004 revenues from this contract. 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. As a result of our discussions, PacifiCare has agreed to comply with the terms of the contract. We anticipate that we will be renegotiating our Outsourcing contract with
PacifiCare at some point in the future. However, we expect the growth in new contract bookings of Application Outsourcing services, as well as the revenues from our newly acquired Nims business, will
more than offset the impact of this contract reduction on Outsourcing service revenues.

Development & Integration.Development & Integration service revenues for Second Quarter ended June 30, 2004 were
$44.8 million, an increase of $2.9 million, or 6.9%, compared to the First Quarter ended March 31, 2004. Development & Integration service revenues for the Second Quarter
ended June 30, 2004 increased $3.1 million, or 7.4%, and for the six months ended June 30, 2004 increased $3.7 million, or 4.5% over the same periods in 2003.

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Other IT Services.Other IT Services revenues for the Second Quarter ended June 30, 2004 were $70.4 million, an increase of
$1.7 million, or 2.5%, compared to the First Quarter ended March 31, 2004. Other IT Services revenues for the Second Quarter ended June 30, 2004 increased $46,000, or 0.1%, and
for the first six months of 2004 decreased $1.2 million, or 0.8% over the same periods in 2003. During the Second Quarter ended June 30, 2004 we agreed to a 5% price reduction for one of
our large customers and mitigated the impact of that price reduction on gross margin by negotiating lower pricing of our subcontractor personnel.

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

|                                        |  | Three Months Ended June 30, |         | Increase
(Decrease) |   | Six Months Ended
June 30, |   | Increase
(Decrease)
|--------------------------------------- |  | --------------------------- | ------- | ------------------- | - | ------------------------- | - | -------------------
|
|Revenues                                |  | $                           | 231,712 |                     | $ | 203,511                   |   | $                  
|Salaries, wages, and other direct costs |  |                             | 161,710 |                     |   | 138,260                   |   |                    
|                                        |  |                             |         |                     |   |                           |   |                    
|Gross margin                            |  | $                           | 70,002  |                     | $ | 65,251                    |   | $                  
|                                        |  |                             |         |                     |   |                           |   |                    
|Gross margin %                          |  |                             | 30.2    | %                   |   | 32.1                      | % |                    

Salaries, wages, and other direct costs

Salaries, wages, and other direct costs for the Second Quarter ended June 30, 2004 were $161.7 million, an increase of $11.7 million compared to
$150.0 million in the First Quarter ended March 31, 2004. Salaries, wages, and other direct costs for the Second Quarter ended June 30, 2004 increased $23.5 million, or
17.0%, and for the first six months of 2004 increased $31.0 million, or 11.0%, over the same periods in 2003. These increases were 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 newly acquired Nims business. Salaries, wages, and other direct costs were
$161.7 million, or 69.8%, of total revenues, for the Second Quarter ended June 30, 2004 and for the first six months of 2004 were $311.7 million, or 69.6% of total revenues,
compared to $138.3 million, or 67.9%, and $280.7 million, or 68.8%, of total revenues for the same periods in 2003.

Total
billable employees for all operations were 7,062 as of June 30, 2004, compared to 6,971 total billable employees as of March 31, 2004 and 5,819 as of June 30, 2003. This
includes a base of billable employees within our India operations of 1,084, which represents an increase of 25 employees, or 2.4%, over the First Quarter ended March 31, 2004 and an increase of
461 employees, or 74.0%, over the Second Quarter ended June 30, 2003. We added our India operation in March 2002 with our acquisition
of SignalTree Solutions. In addition, this includes a base of 367 billable employees within our Keane Worldzen operations, which represents an increase of 95 employees, or 34.9%, over the First
Quarter ended March 31, 2004. 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 641 subcontractors as of June 30, 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 Second Quarter ended June 30, 2004 increased $4.8 million, or 7.3%, and for the first six months of 2004 increased $8.4 million, or 6.6%,
over the same periods in 2003. Gross margin as a percentage of revenues for the Second Quarter ended June 30, 2004 was 30.2% and for the first six months of 2004 was 30.4% compared to 32.1% and

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31.2%
for the same periods in 2003 and 30.5% for the First Quarter ended March 31, 2004. We believe that the relatively constant gross margin percentage over the past three quarters is
indicative of a more stable environment for IT services, and firmer utilization rates, as well as the benefit of our global sourcing 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

SG&A expenses for the Second Quarter ended June 30, 2004 increased $2.3 million, or 4.7%, and for the first six months of 2004 increased $7.5 million, or
7.6%, over the same periods in 2003. SG&A expenses for the Second Quarter ended June 30, 2004 were $52.7 million, or 22.7% of total revenues, and for the first six months of 2004 were
$105.9 million, or 23.7% of total revenues, as compared to $50.3 million, or 24.7% of total revenues, and $98.4 million, or 24.1% of total revenues, respectively, for the same
periods in 2003. The increase in SG&A expenses for the first six months of 2004 was due in part to the additional expenses associated with our newly acquired businesses, Keane Worldzen in the Fourth
Quarter ended December 31, 2003 and Nims in the First Quarter ended March 31, 2004. Also contributing to the increase in SG&A expenses were higher marketing costs and higher costs
associated with the growth of our India operations. We have begun to see SG&A expenses as a percentage of revenues decrease as a result of the integration of the operations of Nims.

Amortization of intangible assets

Amortization of intangible assets for the Second Quarter ended June 30, 2004 was $4.0 million, and for the first six months of 2004 was $7.9 million, which
is flat compared to the same periods in 2003. The amortization of intangible assets for 2004 was reduced by certain intangibles that have become fully amortized, offset in part by the additional
intangible assets resulting from our Nims acquisition in the First Quarter ended March 31, 2004.

Restructuring charges, net

During the Second Quarter of 2003, we reevaluated our estimates recorded for the restructuring charge taken in 2002 and as a result recorded an expense reduction of
$0.6 million for workforce reductions.

Interest and dividend income

Interest and dividend income for the Second Quarter ended June 30, 2004 was $0.9 million and for the first six months of 2004 was $1.9 million compared to
$0.7 million and $1.0 million, respectively, for the same periods in 2003. The increases in interest and dividend income were 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 six months ended June 30, 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 Second Quarter ended June 30, 2004 was $1.4 million and for the first six months of 2004 was $2.8 million, compared to
$1.1 million for both comparable periods in 2003. The increase in interest expense was primarily related to the issuance of our Debentures and our corporate facility. The accounting for the
facility as explained in Note 9 "Related Parties, Commitments, and Contingencies" requires us to impute interest expense on the accrued building costs.

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Other income (expense), net

Other income, net was $0.2 million for the Second Quarter ended June 30, 2004 and was $0.3 million for the first six months of 2004 compared to expense of
$83,000 and income of $7.2 million, respectively, for the same periods in 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 BPO 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 40.0% for the Second Quarters ended June 30,
2004 and 2003 and the first six months of 2004 and 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.

Net income

Net income increased to $8.1 million for the Second Quarter ended June 30, 2004 compared to the Second Quarter of 2003 due to the improved operating income. Net
income for the Second Quarter ended June 30, 2004 increased $2.5 million, or 46.1%, compared to the First Quarter ended March 31, 2004 as a result of generating higher revenues
while keeping SG&A expenses flat. Net income decreased to $13.6 million for the first six months of 2004 compared to $17.2 million, for the same period in 2003 due to the absence during
the First Quarter of 2004 of the $4.4 million after tax proceeds from a favorable judgment in an arbitration award during the same period in 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

In
January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," as amended by FASB
Interpretation No. 46(R) ("FIN 46(R)"), 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(R) is effective prospectively for all variable
interests obtained subsequent to December 31, 2002. For variable interests existing prior to December 31, 2002, consolidation is required for periods ending after March 15, 2004,
with the exception of interests in special purpose entities, which were required in financial statements of public companies for periods ending after December 15, 2003. We have evaluated the
applicability of FIN 46(R) 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

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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
May 2003, the EITF reached a consensus on Issue No. 01-08, "Determining Whether an Arrangement Contains a Lease." EITF Issue No. 01-08 provides guidance
on how to determine whether an arrangement contains a lease that is within the scope of SFAS No. 13 ("SFAS 13"), "Accounting for Leases." The guidance in EITF Issue
No. 01-08 is based on whether the arrangement conveys to the purchaser (lessee) the right to use a specific asset. EITF Issue No. 01-08 will be effective for
arrangements entered into or modified in the Second Quarter of 2004. The adoption of this statement did not have a significant effect on our consolidated financial position or results of operations.

In
December 2003, the FASB issued SFAS No. 132 (revised 2003) ("SFAS 132 as revised"), "Employers' Disclosures about Pensions and Other Post Retirement Benefits." This Statement
revises employers' disclosures about pension plans and other postretirement benefit plans but does not change the measurement or recognition provisions of SFAS No. 87, "Employers' Accounting
for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" and SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other than Pensions." SFAS 132 as revised requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other postretirement plans. This Statement is effective for financial statements with fiscal years ending after December 15, 2003, except the additional
disclosure information about foreign plans is effective for fiscal years ending after June 15, 2004. We have a foreign defined benefit plan and, as a result, will include the required
additional disclosures as of December 31, 2004.

In
March 2004, the EITF reached consensuses on Issue No. 03-6 ("EITF 03-6"), "Participating Securities and the Two-Class Method under FASB Statement
No. 128,Earnings per Share", 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 condensed consolidated statements of income. See Note 8 "Capital Stock" in the notes to the accompanying condensed consolidated financial statements for
further discussion.

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LIQUIDITY AND CAPITAL RESOURCES



|Six Months Ended June 30,                        |                                   | 2004 |         | 2003    |  
|------------------------------------------------ | --------------------------------- | ---- | ------- | ------- | -
|                                                 | Cash Flows Provided By (Used For) |      |         |         |  
|                                                 | Operating activities              |      | $       | 6,412   |  
|                                                 | Investing activities              |      |         | 4,116   |  
|                                                 | Financing activities              |      |         | (27,475 | )
|Effect of exchange rate on cash                  |                                   |      | 24      |         |  
|                                                 |                                   |      |         |         |  
|(Decrease) increase in Cash and cash equivalents |                                   | $    | (16,923 | )       | $
|                                                 |                                   |      |         |         |  

We
have historically financed our operations from cash generated from operations. We use the net cash generated from our operations 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 June 30, 2004, we had $156.9 million in cash and cash equivalents, and
marketable securities. We intend to continue to use our cash and cash equivalents and marketable securities for general corporate 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 provided by operating activities

Net cash provided by operating activities totaled $6.4 million for the six months ended June 30, 2004, as compared to cash provided by operations of
$36.4 million for the six months ended June 30, 2003. The decrease in net cash provided by operating activities was driven in part by the absence of a $7.3 million payment that we
received in connection with an arbitration proceeding in the First Quarter of 2003, $3.1 million of higher tax payments during the six months ended June 30, 2004 and higher working
capital requirements. Accounts receivable increased $19.5 million to $136.6 million in the six months ended June 30, 2004 compared to the Fourth Quarter ended December 31,
2003. The accounts receivable increase was largely driven by the revenue growth experienced in the first six months of 2004. However, Day Sales Outstanding ("DSO"), an indicator of the effectiveness
of our accounts receivable collections, was 53 days as of June 30, 2004 compared to 53 days as of December 31, 2003 and 57 days as of June 30, 2003. We
calculate DSO using the trailing three months total revenue divided by the number of days in the quarter to determine daily revenue. The average accounts receivable balance for the three-month period
is then divided by daily revenue.

Cash flows provided by (used for) investing activities

Investing activities in the six months ended June 30, 2004 and 2003 were primarily for investments, acquisitions, and capital expenditures.

During
the six months ended June 30, 2004, we purchased $32.5 million and sold $61.1 million in marketable securities, generating a net source of cash of $28.6 million, as
compared to purchases of $13.3 million and sales of $6.3 million in the Second Quarter ended June 30, 2003. In addition, we invested $6.4 million and $6.8 million in
property and equipment, and capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning applications as of June 30, 2004 and 2003,
respectively. Also, on February 27, 2004, we acquired Nims, an information technology and consulting services company. We paid $18.0 million in cash, including transaction costs

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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 the next three years, contingent upon the achievement of certain future financial targets. We paid $0.9 million as earn-out consideration in the first six months
of 2003 in relation to a 2002 acquisition.

Cash flows (used for) provided by financing activities

Net cash flows used for financing activities was $27.5 million for the six months ended June 30, 2004 compared to net cash provided of $87.0 million for
the six months ended June 30, 2003. The increase reflects $150.0 million of proceeds from our issuance of the Debentures. Net proceeds from the issuance were approximately
$108.3 million after investing $37.3 million in a repurchase of 3 million shares of our common stock and approximately $4.4 million in debt issuance costs. See
Note 7 "Convertible Subordinated Debentures" in the notes to the accompanying unaudited condensed consolidated financial statements for additional information on the Debentures. Net cash flows
used for financing activities were primarily for the repurchase of our common stock. The following is a summary of our repurchase activity for the six months ended June 30, 2004 and 2003
(dollars in thousands):

2004

2003Shares

Amount

Shares

AmountPrior year authorizations at January 1,

3,181,200




3,676,400Authorizations

3,000,000




6,000,000Repurchases

(2,127,300
)
$
30,096

(6,052,100
)
$
60,894Expirations

(1,182,300
)



Shares remaining as of June 30,

2,871,600




3,624,300


These
share repurchases more than offset the shares issued under our various stock ownership programs. Under these stock ownership programs, we issued 285,769 shares and 294,297 shares and received
proceeds of $2.9 million and $2.3 million for the six months ended June 30, 2004 and 2003,
respectively. Between May 1999 and June 30, 2004, we have invested approximately $259.8 million to repurchase approximately 20.6 million shares of our common stock under
ten separate authorizations.

In
February 2003, we entered into a $50.0 million unsecured revolving credit facility ("credit facility") with two banks. The credit facility replaced a previous $10.0 million
demand line of credit, which expired in July 2002. The terms of the credit facility require us to maintain a maximum total funded debt and other financial ratios. The credit facility also
includes covenants that, subject to certain specific exceptions and limitations, among other things, restrict our ability to incur additional debt, make certain acquisitions or disposition of assets,
create liens, and pay dividends. On June 11, 2003, we and the two banks amended certain provisions of the credit facility relating to financial covenants. These covenants, which include total
indebtedness and leverage ratios, are no more restrictive than those initially contained in the credit facility. On October 17, 2003 and February 5, 2004, we and the two banks further
amended certain provisions of the credit facility to expand our ability to make certain acquisitions. The annual commitment fee for maintaining the credit facility is 30 basis points on the unused
portion of the credit facility, up to a maximum of $150,000. As of June 30, 2004, we had no debt outstanding under the credit facility. We may draw upon the credit facility up to
$50.0 million less any outstanding letters of credit that have been issued against the credit facility. Any amounts drawn upon the credit facility constitute senior indebtedness for purposes of
the Debentures. Borrowings bear interest at one of the bank's base rate or the Euro currency reserve rate. Based on our current operating plan, we believe that our cash and cash equivalents on hand,
marketable securities, cash flows from operations, and our line of credit will be sufficient to meet our current capital requirements for at least the next 12 months.

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(Decrease) increase in Cash and cash equivalents

Our cash and cash equivalents totaled $39.8 million and $155.5 million at June 30, 2004, and 2003, respectively.

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.

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

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. 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.

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 June 30, 2004, we have completed 13 acquisitions. The
aggregate merger and consideration costs of these acquisitions totaled

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approximately
$412.5 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.

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.

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, and India, 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 three software development facilities in
India. As of June 30, 2004, we had approximately 1,449 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

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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, and India, and have offices throughout the U.S., UK, Canada, and India. 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, and India 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.

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 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. 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 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

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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 June 30, 2004, we had approximately $191.7 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:

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 3. 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. We invest primarily in tax-exempt
municipal bonds as well as U.S. government obligations 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. Since January 1, 2001, the United States Federal Reserve Board has significantly decreased certain benchmark interest rates, which has led to a general
decline in market interest rates. Recently, the United States Federal Reserve Board has begun increasing benchmark interest rates and raised them 25 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. 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

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accompanying
condensed consolidated balance sheets. However, when the investments are sold, the unrealized losses are recorded as realized losses and included in net income in the accompanying
condensed consolidated statements of income. For the three and six months ended June 30, 2004, we had net unrealized losses of $1.4 million and $1.1 million, respectively.

Additionally,
we transact business in the UK, Canada, and India and as such have exposure associated with movement in foreign currency exchange rates. For the six months ended June 30, 2004
compared to the same period in 2003, the fluctuation in foreign currency exchange rates negatively impacted net income by approximately $1.2 million. Relative to the foreign currency exposures
existing at June 30, 2004, a 10% unfavorable movement would have resulted in an additional $1.5 million reduction of net income for the six months ended June 30, 2004. Net
revenues derived from our foreign operations totaled approximately 5% of our total revenues for the six months ended June 30, 2004.

Item 4. Controls and Procedures

Our
management, with the participation of our President and Chief Executive Officer and our Senior 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 June 30, 2004. Based on this evaluation, our
President and Chief Executive Officer and our Senior Vice President of Finance and Administration and Chief Financial Officer concluded that, as of June 30, 2004, 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
Senior 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 Security and Exchange Commission's rules and forms.

No
change to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended
June 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Keane, Inc.

Part II. Other Information

Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities



ISSUER PURCHASES OF EQUITY SECURITIES

|                  |  | (a)       |  | (b) |       | (c) |           | (d)
|----------------- |  | --------- |  | --- | ----- | --- | --------- | ---
|
|04/01/04-04/30/04 |  |          |  | $   |      |     |          |    
|05/01/04-05/31/04 |  | 1,016,000 |  | $   | 13.87 |     | 1,016,000 |    
|06/01/04-06/30/04 |  | 655,300   |  | $   | 14.11 |     | 655,300   |    
|                  |  |           |  |     |       |     |           |    
|Total:            |  | 1,671,300 |  | $   | 13.97 |     | 1,671,300 |    
|                  |  |           |  |     |       |     |           |    

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

The following matters were submitted to a vote of the stockholders at our 2004 Annual Meeting of Stockholders held on May 27, 2004 (the "Annual Meeting"): (1) to
elect three Class III directors for the ensuing three years (2) to amend our Amended and Restated 1992 Employee Stock Purchase Plan ("ESPP") to increase the number of shares of common
stock issuable thereunder from 4,550,000 to 6,550,000 shares, and (3) to ratify and approve the selection of Ernst & Young LLP as our independent accountants for the current year. The
number of shares of common stock outstanding and eligible to vote as of the record date of March 29, 2004 was 63,428,873. Each of these matters was approved by the requisite vote of our
stockholders. Set forth below is the number of votes cast for, against, or

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withheld,
as well as the number of abstentions and broker non-votes as to the respective matter, including a separate tabulation with respect to each nominee for director.

Proposal I: electing three Class III directors for the ensuing three years

Nominees

For

WithheldJohn H. Fain

53,332,357

5,543,727John F. Keane

52,118,456

6,757,628John F. Rockart

51,920,970

6,955,114


The
other members of the Keane Board of Directors whose terms of office continued after the Annual Meeting were Maria A. Cirino, Philip J. Harkins, Winston R. Hindle, Jr.,
Brian T. Keane, John F. Keane Jr., James T. McBride, Stephen D. Steinour, and James D. White.

Proposal II: amending Keane's Amended and Restated 1992 Employee Stock Purchase Plan to increase the number of shares of common stock issuable thereunder from 4,550,000 to
6,550,000 shares

For

Against

Abstain

No Vote47,414,704

2,778,137

2,604,303

6,078,940


Proposal III: ratifying and approving the selection of Ernst & Young LLP as Keane's independent accountants for the current year

For

Against

Abstain57,153,841

1,670,240

52,003


Item 6. Exhibits and Reports on Form 8-K





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We
filed or furnished the following Current Reports on Form 8-K during the three months ended June 30, 2004



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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 5, 2004 |  | /s/ Brian T. KeaneBrian T. Keane
President and Chief Executive Officer                                                                                     
|Date        August 5, 2004 |  | /s/ John J. LeahyJohn J. Leahy
Senior Vice President of Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)

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Exhibit Index

|Exhibit
No. |  | Description                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------
|            |  |                                                                                               
|3.5         |  | Amendment No. 2 to Second Amended and Restated By-Laws of the Registrant.                     
|10.17       |  | Amended and Restated 1992 Employee Stock Purchase Plan, as amended.                           
|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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