10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from                      to                     

Commission File No. 1-9410

COMPUTER TASK GROUP, INCORPORATED

(Exact name of Registrant as specified in its charter)

New York	16-0912632
(State of incorporation)	(I.R.S. Employer Identification No.)
800 Delaware Avenue, Buffalo, New York	14209
(Address of principal executive offices)	(Zip Code)
(716) 882-8000
Registrant’s telephone number, including area code:

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

Title of each class	Name of each exchange on which registered
Common Stock, $.01 par value	The NASDAQ Stock Market LLC
Rights to Purchase Series A Participating Preferred Stock	The NASDAQ Stock Market LLC

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

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

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  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ¨    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨ Accelerated filer  x Non-accelerated filer  ¨ Smaller reporting company  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨    NO  x

The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold on the last business day of the Registrant’s most recently completed second quarter was $110.3 million. Solely for the purposes of this calculation, all persons who are or may be executive officers or directors of the Registrant have been deemed to be affiliates.

The total number of shares of Common Stock of the Registrant outstanding at February 18, 2010 was 18,060,606.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission (SEC) within 120 days of the end of the Company’s fiscal year ended December 31, 2009, are incorporated by reference into Part III hereof. Except for those portions specifically incorporated by reference herein, such document shall not be deemed to be filed with the SEC as part of this annual report on Form 10-K.

SEC Form 10-K Index

Section		Page
Part I
Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	13
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	18
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk	28
Item 8.	Financial Statements and Supplementary Data	29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	58
Item 9A.	Controls and Procedures	58
Item 9B.	Other Information	60
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	61
Item 11.	Executive Compensation	61
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	61
Item 13.	Certain Relationships and Related Transactions, and Director Independence	62
Item 14.	Principal Accountant Fees and Services	62
Part IV
Item 15.	Exhibits and Financial Statement Schedule	63

As used in this annual report on Form 10-K, references to “CTG” or “the Company” refer to Computer Task Group, Incorporated and its subsidiaries, unless the context suggests otherwise.

PART I

Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements by the management of Computer Task Group, Incorporated (“CTG” or “the Company”) that are subject to a number of risks and uncertainties. These forward-looking statements are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will” and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, and statements regarding future levels of, or trends in, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) industry and economic conditions, including fluctuations in demand for information technology (IT) services and the further deterioration in market conditions, (ii) the availability to us of qualified professional staff, (iii) domestic and foreign industry competition for customers and talent, (iv) rate and wage inflation or deflation, (v) risks associated with operating in foreign jurisdictions, (vi) the impact of current and future laws and government regulation, as well as repeal or modification of same, affecting the IT solutions and staffing industry, taxes and the Company’s operations in particular, (vii) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (viii) consolidation among the Company’s competitors or customers, (ix) the partial or complete loss of the revenue the Company generates from International Business Machines (IBM), (x) the need to supplement or change our IT services in response to new offerings in the industry, and (xi) the risks described in Item 1A of this annual report on Form 10-K and from time to time in the Company’s reports filed with the Securities and Exchange Commission (SEC).

Item 1. Business

Overview

Computer Task Group, Incorporated (the Company, CTG, or the Registrant) was incorporated in Buffalo, New York on March 11, 1966, and its corporate headquarters are located at 800 Delaware Avenue, Buffalo, New York 14209 (716-882-8000). CTG is an information technology (IT) solutions and staffing company with operations in North America and Europe. CTG employs approximately 2,900 people worldwide. During 2009, the Company had six operating subsidiaries: Computer Task Group of Canada, Inc., providing services in Canada; and Computer Task Group Belgium N.V., Computer Task Group IT Solutions, S.A., Computer Task Group Luxembourg PSF, Computer Task Group (U.K.) Ltd., and CTG Deutschland GmbH, each primarily providing services in Europe. Services provided in North America are performed by CTG.

Services

The Company operates in one industry segment, providing IT services to its clients. These services include IT Solutions and IT Staffing. CTG provides these primary services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. A typical

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customer is an organization with large, complex information and data processing requirements. The Company’s IT Solutions and IT Staffing services are as follows:

• IT Solutions: CTG’s services in this area include helping clients assess their business needs and identifying the right IT solutions to meet these needs, the delivery of services that include the selection and implementation of packaged software and the design, development, testing, and integration of new systems, and the development and implementation of customized software and solutions designed to fit the needs of a specific client or vertical market.

Generally, IT Solutions services include taking responsibility for the deliverables on a project and may include high-end consulting services. In 2008 and 2009, CTG continued to invest in new IT Solutions development, primarily targeted to the healthcare market, and largely to support cost reductions and productivity improvements. In 2009, several healthcare solutions under development moved to the pilot stage of testing using live data. The Company continues to modify and further develop these solutions. These solutions include medical care and disease management, group underwriting risk assessment, and medical fraud, waste, and abuse detection and reduction. The Company is developing proprietary software to support these offerings which expands the potential market for sale and support of these solutions. CTG expects to begin commercial marketing of these solutions in 2010. These solutions support both the healthcare provider and payer markets.

Additionally, the Company began providing services to assist in the start-up and development of Health Information Exchanges (HIEs). HIEs are consortiums of providers, payers, and government agencies at the local level that are charged with implementing secure communitywide electronic medical records. CTG also has significant experience in implementing electronic medical records (EMR) systems in integrated delivery networks and other provider organizations. CTG’s experience in supporting EMR systems and the formation of HIEs favorably positions the Company as demand for these services increases.

Independent software testing is a common practice in western Europe and represents a significant portion of the solutions business of CTG’s European operations. In response to growing demand for independent software testing in the United States, driven in part by outsourced software development, CTG adapted the proprietary testing methodology and solution developed by its European business for the American market. This comprehensive testing offering supports IT environments across multiple industries.

Also included in IT Solutions is Application Management Outsourcing (AMO). CTG’s services in this area typically include support of single or multiple applications and help desk functions. Depending on client needs, AMO engagements are performed at client sites or CTG sites. In 2009, the healthcare market accounted for most of CTG’s AMO business with a significant portion of this business involving transitional outsourced support. In a transitional outsourcing engagement, the client hires CTG to manage an application for an extended time period, typically ranging from one to three years, while its internal IT staff focuses on implementation of a new application replacing the application being phased out.

• IT Staffing: CTG recruits, retains, and manages IT talent for its clients, which are primarily large technology service providers and companies with multiple locations and significant need for high-volume external IT resources. The Company also supports larger companies and organizations that need to augment their own IT staff on a flexible basis. Our clients may require the services of our IT talent on a temporary or long-term basis. Our IT professionals generally work with the client’s internal IT staff at client sites. Our recruiting organization works with customers to define their staffing requirements and develop competitive pricing to meet their requirement.

The primary focus of the Company’s staffing business is a managed services model that provides large clients with higher value support through cost-effective supply models

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customized to client needs, resource management support, vendor management programs, and a highly automated recruiting process and system with global reach.

A trend affecting the staffing industry in recent years is that large users of external technology support are reducing their number of approved suppliers to fewer firms with a preference for those firms able to fulfill high volume requirements at competitive rates and to locate resources with specialized skills on a national level. CTG’s staffing business model fits this profile and it has consistently remained a preferred provider with large technology services providers and users that have reduced their lists of approved IT staffing suppliers.

IT solutions and staffing revenue as a percentage of total revenue for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
IT solutions	33	%	32	%	34	%
IT staffing	67	%	68	%	66	%
Total	100	%	100	%	100	%

In recent years, a major strategic focus of the Company has been to increase the total amount of revenue from its IT solutions business and the percentage of solutions revenue to total revenue as operating margins generated by its solutions business are generally significantly higher than those of its staffing business. Overall, the Company’s revenue decreased $77.6 million or 22% from 2008 to 2009 due to very challenging worldwide economic conditions which led to a significant slowdown in our business. The higher margin solutions business decreased $22.9 million or 20.0% from 2008 to 2009, or at a rate lower than the decrease in the Company’s overall revenue. The Company’s operating margin in 2009 was 3.6%, which was the second highest level since 1999. The Company’s operating margin in 2008 was 3.7%.

Vertical Markets

The Company promotes a majority of its services through four vertical market focus areas: Technology Service Providers, Healthcare (which includes services provided to healthcare providers, health insurers, and life sciences companies), Energy, and Financial Services. The remainder of CTG’s revenue is derived from general markets.

CTG’s revenue by vertical market for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
Technology service providers	31	%	34	%	34	%
Healthcare	27	%	27	%	27	%
Energy	8	%	6	%	5	%
Financial services	8	%	9	%	11	%
General markets	26	%	24	%	23	%
Total	100	%	100	%	100	%

The Company’s growth efforts are primarily focused on the healthcare market based on its leading position in serving the provider market, its expertise and experience serving all segments of this market (providers, payers and life sciences companies), higher demand for solutions offerings and support from healthcare companies, and the greater relative strength of this sector compared with other sectors of the U.S. economy. The Company’s healthcare revenue decreased by $23.2 million or 24.0% from

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2008 to 2009, again due to the very challenging economic conditions which the company experienced in each of the markets in which it serves.

Over the last three years, the contribution of the financial services market to CTG’s total revenue declined primarily based on greater use of offshore support and lower overall demand in this sector due to the global economic recession. In recent years, most of CTG’s revenue in the financial services market was generated by its European operations. In 2009, less than 13% of CTG’s revenue from the financial services market was generated in the United States.

International Business Machines Corporation (IBM) is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. During the second quarter of 2008, the Company and IBM agreed to extend the current National Technical Services (“NTS Agreement”) contract until July 1, 2011. As part of the NTS Agreement, the Company also provides its services as a predominant supplier to IBM’s Integrated Technology Services unit and as the sole provider to the Systems and Technology Group business unit. Services provided under these agreements accounted for approximately 95% of all of the services provided to IBM by the Company in 2009. In 2009, 2008, and 2007, IBM accounted for $71.2 million or 25.8%, $108.3 million or 30.6%, and $96.0 million or 29.5% of the Company’s consolidated revenue, respectively. No other customer accounted for more than 10% of the Company’s revenue in 2009, 2008 or 2007.

In 2009, CTG provided IT services to approximately 400 clients in North America and Europe. In North America, the Company operates in the United States and Canada with greater than 99% of 2009 revenue from North America generated in the United States. In Europe, the Company operates in Belgium, Luxembourg, Germany, and the United Kingdom. Of total 2009 consolidated revenue of $275.6 million, approximately 77% was generated in North America and 23% in Europe.

Pricing and Backlog

The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably assured. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to the customer. Revenue for fixed-price contracts is recognized as per the proportional method of accounting using an input-based approach whereby salary and indirect labor costs incurred are measured and compared with the total estimate of costs at completion for a project. Revenue is recognized based upon the percentage of completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs which could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and our past experience on similar projects, and includes management judgments and estimates which affect the amount of revenue recognized on fixed-price contracts in any accounting period.

The Company’s revenue from contracts accounted for under time-and-material, progress billing, and percentage-of-completion methods for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
Time-and-material	91	%	90	%	88	%
Progress billing	7	%	7	%	8	%
Percentage-of-completion	2	%	3	%	4	%
Total	100	%	100	%	100	%

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As of December 31, 2009 and 2008, the backlog for fixed-price and all managed-support contracts was approximately $19.9 million and $25.0 million, respectively. Approximately 90.5% or $18.0 million of the December 31, 2009 backlog is expected to be earned in 2010. Of the $25.0 million of backlog at December 31, 2008, approximately 72.6%, or $18.1 million was earned in 2009. Revenue is subject to seasonal variations, with a minor slowdown in months of high vacation and legal holidays (July, August, and December). Backlog does not tend to be seasonal; however, it does fluctuate based upon the timing of entry into long-term contracts.

Competition

The IT services market is highly competitive. The market is also highly fragmented with many providers with no single competitor maintaining clear market leadership. Competition varies by location, the type of service provided, and the customer to whom services are provided. The Company’s competition comes from four major channels: large national or international vendors, including major accounting and consulting firms; hardware vendors and suppliers of packaged software systems; small local firms or individuals specializing in specific programming services or applications; and a customer’s internal data processing staff. CTG competes against all four of these channels for its share of the market. The Company believes that to compete successfully it is necessary to have a local geographic presence, offer appropriate IT solutions, provide skilled professional resources, and price its services competitively.

CTG has implemented a Global Management System, with the goal to achieve continuous, measured improvements in services and deliverables. As part of this program, CTG has developed specific methodologies for providing high value services that result in unique solutions and specified deliverables for its clients. The Company believes these methodologies will enhance its ability to compete. CTG initially achieved worldwide ISO 9001:1994 certification in June 2000. CTG received its worldwide ISO 9001:2000 certification in January 2003. The Company believes it is the only IT services company of its size to achieve worldwide certification.

Intellectual Property

The Company has registered its symbol and logo with the U.S. Patent and Trademark Office and has taken steps to preserve its rights in other countries where it operates. CTG has entered into agreements with various software and hardware vendors from time to time in the normal course of business, and has capitalized certain costs under software development projects.

Employees

CTG’s business depends on the Company’s ability to attract and retain qualified professional staff to provide services to its customers. The Company has a structured recruiting organization that works with its clients to meet their requirements by recruiting and providing high quality, motivated staff. The Company employs approximately 2,900 employees worldwide, with approximately 2,400 in the United States and Canada and 500 in Europe. Of these, approximately 2,600 are IT professionals and 300 are individuals who work in sales, recruiting, delivery, administrative and support positions. The Company believes that its relationship with its employees is good. No employees are covered by a collective bargaining agreement or are represented by a labor union. CTG is an equal opportunity employer.

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Financial Information Relating to Foreign and Domestic Operations

The following table sets forth certain financial information relating to the performance of the Company for the years ended December 31, 2009, 2008, and 2007. This information should be read in conjunction with the audited consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” included in this report.

	2009		2008			2007
(amounts in thousands)
Revenue from External Customers:
United States	$	211,265	$	272,242		$	250,097
Belgium(1)		42,326		53,773			46,499
Other European countries		20,418		24,437			25,598
Other countries		1,551		2,761			3,091
Total revenue	$	275,560	$	353,213		$	325,285
Operating Income (Loss):
United States	$	8,342	$	11,128		$	4,814
Europe		1,527		2,033			1,897
Other countries		20		(79	)		(187	)
Total operating income	$	9,889	$	13,082		$	6,524
Total Assets:
United States	$	89,015	$	87,142		$	80,619
Europe		25,007		27,901			31,085
Other countries		700		797			757
Total assets	$	114,722	$	115,840		$	112,461

⁽¹⁾ Revenues for Belgium have been disclosed separately as they exceeded 10% of our consolidated revenues for the years presented.

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Executive Officers of the Company

As of December 31, 2009, the following individuals were executive officers of the Company:

Name	Age	Office	Period During Which Served as Executive Officer	Other Positions and Offices with Registrant
James R. Boldt	58	Chairman, President and Chief Executive Officer	June 21, 2001 for President, July 16, 2001 for Chief Executive Officer, May 2002 for Chairman, all to date	Director
		Executive Vice President	February 2001 to June 2001
		Vice President, Strategic Staffing	December 2000 to September 2001
		Acting Chief Executive Officer	June 2000 to November 2000
		Vice President and Chief Financial Officer	February 12, 1996 to October 1, 2001
Michael J. Colson	47	Senior Vice President	January 3, 2005 to date	None
Arthur W. Crumlish	55	Senior Vice President	September 24, 2001 to date	None
Filip J.L. Gyde	49	Senior Vice President	October 1, 2000 to date	None
Brendan M. Harrington	43	Senior Vice President, Chief Financial Officer	September 13, 2006 to date	None
		Interim Chief Financial Officer	October 17, 2005 to September 12, 2006	None
Thomas J. Niehaus	47	Senior Vice President	July 22, 1999 to date	None
Peter P. Radetich	55	Senior Vice President, General Counsel	April 28, 1999 to date	Secretary

Mr. Boldt was appointed President and joined CTG’s Board of Directors on June 21, 2001, and was appointed Chief Executive Officer on July 16, 2001. Mr. Boldt became the Company’s Chairman in May 2002. Mr. Boldt joined the Company as a Vice President and its Chief Financial Officer and Treasurer in February 1996.

Mr. Colson joined the Company as Senior Vice President of Solutions Development in January 2005. Prior to that, Mr. Colson was Chief Executive Officer of Manning and Napier Information Services, a software and venture capital firm from September 1998 until the time he joined CTG.

Mr. Crumlish was promoted to Senior Vice President in September 2001, and is currently responsible for the Company’s Strategic Staffing Services organization. Prior to that, Mr. Crumlish was Controller of the Company’s Strategic Staffing Services organization. Mr. Crumlish joined the Company in 1990.

Mr. Gyde was promoted to Senior Vice President in October 2000, at which time he assumed responsibility for all of the Company’s European operations. Prior to that, Mr. Gyde was Managing Director of the Company’s Belgium operation. Mr. Gyde has been with the Company since May 1987.

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Mr. Harrington was promoted to Senior Vice President and Chief Financial Officer on September 13, 2006. Previously he was Interim Chief Financial Officer and Treasurer from October 17, 2005 to September 12, 2006. Mr. Harrington joined the Company in February 1994 and served in a number of managerial financial positions in the Company’s corporate and European operations, including as the Director of Accounting since 2003, before being appointed Corporate Controller in May 2005.

Mr. Niehaus joined the Company in February 1999, and was promoted to Senior Vice President of CTG HealthCare Solutions in July 1999. Previously, Mr. Niehaus was Executive Vice President of Elumen Solutions, Inc. from September 1997 to February 1999. Prior to that, Mr. Niehaus was Vice President of Exemplar Systems.

Mr. Radetich joined the Company in June 1988 as Associate General Counsel, and was promoted to General Counsel and Secretary in April 1999.

Available Company Information

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act), and reports pertaining to the Company filed under Section 16 of the Exchange Act are available without charge on the Company’s website at www.ctg.com as soon as reasonably practicable after the Company electronically files the information with, or furnishes it to, the SEC. The Company’s code of ethics, committee charters and governance policies are also available without charge on the Company’s website at www.ctg.com/investors/corporategov.htm.

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Item 1A. Risk Factors

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The following section describes some, but not all, of the risks and uncertainties that could have a material adverse effect on our business, financial condition, results of operations and the market price of our common stock, and could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.

Decreases in demand for information technology (IT) solutions and staffing services in the future would cause an adverse effect on our revenue and operating results.

The Company’s revenue and operating results are significantly affected by changes in demand for its services. During 2008 and 2009, the U.S. economy, where the Company performed greater than 77% of its total business based upon revenue, significantly deteriorated primarily due to subprime mortgage issues, financial market conditions, and other economic concerns. In 2009, these economic pressures have also extended to the European markets where the Company operates. These negative pressures on the economy have led to a worldwide contraction of the credit markets, more severe recessionary conditions, and a decline in demand for the Company’s services which negatively affected the Company’s revenue and operating results in 2009 as compared with 2008. Economic pressures also led to customers’ reducing their spending on IT projects and external professional services. Further declines in spending for IT services in 2010 or future years may additionally adversely affect our operating results in the future as they have in the past.

Our business depends on a large number of highly qualified professionals and if we are not able to recruit and retain a sufficient number of these professionals, we would not be able to provide high quality services to our current and future customers, which would have an adverse effect on our revenue and operating results.

We actively compete with many other IT service providers for qualified professional staff. The availability or lack thereof of qualified professional staff may affect our ability to provide services and meet the needs of our customers in the future. An inability to fulfill customer requirements at agreed upon rates due to a lack of available qualified staff may adversely impact our revenue and operating results in the future.

Increased competition and the bargaining power of our large customers may cause our billing rates to decline, which would have an adverse effect on our revenue and, if we are unable to control our personnel costs accordingly, our margins and operating results.

We have experienced several reductions in the rates at which we bill for services to some of our larger customers during previous highly competitive business markets. Additionally, we actively compete against many other companies for business with new and existing clients. Bill rate reductions or competitive pressures, if we are unable to make commensurate reductions in our personnel costs, may lead to a decline in revenue or the rates we bill our customers for services, which may adversely affect our margins and operating results in the future.

The currency, legislative, tax, regulatory and economic risks associated with international operations could have an adverse effect on our operating results if we are unable to mitigate or hedge these risks.

We have operations in the United States and Canada in North America, and in Belgium, the United Kingdom, Luxembourg and Germany in Europe. Although our foreign operations conduct their business in their local currencies, these operations are subject to currency fluctuations. Each of our

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operations is subject to its own legislation, employment and tax law changes, and economic climates. These factors relating to our foreign operations are different than those of the United States. Although we actively manage these foreign operations with local management teams, our overall operating results may be negatively affected by economic conditions, changes in foreign currency exchange rates or tax, regulatory or other economic changes beyond our control.

We derive a significant portion of our revenue from a single customer and a significant reduction in the amount of IT services requested by this customer would have an adverse effect on our revenue and operating results.

IBM is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. In 2009, 2008, and 2007, IBM accounted for $71.2 million or 25.8%, $108.3 million or 30.6%, and $96.0 million or 29.5% of the Company’s consolidated revenue, respectively. No other customer accounted for more than 10% of the Company’s revenue in 2009, 2008 or 2007. The Company’s accounts receivable from IBM at December 31, 2009 and 2008 amounted to $9.7 million and $8.5 million, respectively.

The IT services industry is highly competitive and fragmented, which means that our customers have a number of choices for providers of IT services and we may not be able to compete effectively.

The market for our services is highly competitive. The market is fragmented, and no company holds a dominant position. Consequently, our competition for client requirements and experienced personnel varies significantly by geographic area 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 than we have in the markets we collectively serve. In addition, clients may elect to increase their internal IT systems resources to satisfy their custom software development and integration needs. Finally, our industry is being impacted by the growing use of lower-cost offshore delivery capabilities (primarily India and Asia). There can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition.

Changes in government regulations and laws affecting the IT services industry, including accounting principles and interpretations and the taxation of domestic and foreign operations, could adversely affect our results of operations.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations which, in many instances, is due to their lack of specificity. As a result, the application of these new standards and regulations in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, tax regulations and other standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our independent auditors’ audit of internal control have required the commitment of significant internal, financial and managerial resources.

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The Financial Accounting Standards Board (FASB), the SEC, and the Public Company Accounting Oversight Board (PCAOB) or other accounting rulemaking authorities may issue new accounting rules or standards that are different than those that we presently apply to our financial results. Such new accounting rules or standards could require significant changes from the way we currently report our financial condition, results of operations or cash flows.

U.S. generally accepted accounting principles have been the subject of frequent changes in interpretations. As a result of the enactment of the Sarbanes-Oxley Act of 2002 and the review of accounting policies by the SEC as well as by national and international accounting standards bodies, the frequency of future accounting policy changes may accelerate. Such future changes in financial accounting standards may have a significant effect on our reported results of operations, including results of transactions entered into before the effective date of the changes.

We are subject to income and other taxes in the United States (federal and state) and numerous foreign jurisdictions. Our provisions for income and other taxes and our tax liabilities in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in various federal, state and international tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our financial condition, results of operations and cash flows in future periods.

Our customer contracts generally have a short term or are terminable on short notice and a significant number of failures to renew contracts, early terminations or renegotiations of our existing customer contracts could adversely affect our results of operations.

Our clients typically retain us on a non-exclusive, engagement-by-engagement basis, rather than under exclusive long-term contracts. We performed approximately 91% of our services on a time and materials basis during 2009. As such, our customers generally have the right to terminate a contract with us upon written notice without the payment of any financial penalty. Client projects may involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages of a project or that a client will cancel or delay additional planned engagements. These terminations, cancellations or delays could result from factors that are beyond our control and are unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the client, changes in client strategies or the economy in general. When contracts are terminated, we lose the anticipated future revenue and we may not be able to eliminate the associated costs in a timely manner. Consequently, our operating results in subsequent periods may be lower than expected. 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 a guarantee of similar or better future performance. Due to these factors, we believe that our results of operations may fluctuate from period to period in the future.

The introduction of new IT products or services may render our existing IT Solutions or IT Staffing offerings to be obsolete, which, if we are unable to keep pace with these corresponding changes, could have an adverse effect on our business.

Our success depends, in part, on our ability to implement and deliver IT Solutions or IT Staffing services that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these

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developments on a timely basis, and our offerings may not be successful in the marketplace. Also, services, solutions and technologies developed by our competitors may make our solutions or staffing offerings uncompetitive or obsolete. Any one of these circumstances could have a material adverse effect on our ability to obtain and successfully complete client engagements.

Existing and potential customers may outsource or consider outsourcing their IT requirements to foreign countries in which we may not currently have operations, which could have an adverse effect on our ability to obtain new customers or retain existing customers.

In the past few years, more companies are using or are considering using low cost offshore outsourcing centers to perform technology-related work and complete projects. Currently, we have partnered with clients to perform services in Russia to mitigate and reduce this risk to our Company. However, the risk of additional increases in the future in the outsourcing of IT solutions overseas could have a material, negative impact on our future operations.

A significant portion of our total assets consists of goodwill, which is subject to a periodic impairment analysis and a significant impairment determination in any future period could have an adverse effect on our results of operations even without a significant loss of revenue or increase in cash expenses attributable to such period.

We have goodwill totaling approximately $35.7 million at December 31, 2009 resulting from our acquisition of Elumen Solutions, Inc. (Elumen) in early 1999. Elumen provided IT services to healthcare and related companies, and was merged with the Company’s existing staff which also served the healthcare industry. At least annually, we evaluate this goodwill for impairment based on the fair value of the business operations to which this goodwill relates. This estimated fair value could change if there is a significant decrease in the enterprise value of CTG, if we are unable to achieve operating results at the levels that have been forecasted, the market valuation of such companies decreases based on transactions involving similar companies which could occur given the recent economic downturn in the countries in which the Company operates, or there is a permanent, negative change in the market demand for the services offered by this business unit. These changes could result in an impairment of the existing goodwill balance that could require a material non-cash charge which would have an adverse impact on our results of operations.

Changing economic conditions and the affect of such changes on accounting estimates could have a material impact on our results of operations.

The Company has also made a number of estimates and assumptions relating to the reporting of its assets and liabilities and the disclosure of contingent assets and liabilities to prepare its consolidated financial statements pursuant to the rules and regulations of the SEC and other accounting rulemaking authorities. Such estimates primarily relate to the valuation of goodwill, the valuation of stock options for recording equity-based compensation expense, allowances for doubtful accounts receivable, investment valuation, legal matters, other contingencies and estimates of progress toward completion and direct profit or loss on contracts, as applicable. As future events and their affects can not be determined with precision, actual results could differ from these estimates. Changes in the economic climates in which the Company operates may affect these estimates and will be reflected in the Company’s financial statements in the event they occur. Such changes could result in a material impact on the Company’s results of operations.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company owns and occupies a headquarters building at 800 Delaware Avenue, and an office building at 700 Delaware Avenue, both located in Buffalo, New York, operated by CTG of Buffalo, a subsidiary of the Company which is part of the Company’s North American operations. The corporate headquarters consists of approximately 40,000 square feet and is occupied by corporate administrative operations. The office building consists of approximately 39,000 square feet and is also occupied by corporate administrative operations. At December 31, 2009, these properties were not mortgaged as part of the Company’s existing revolving credit agreement.

The remainder of the Company’s locations are leased facilities. Most of these facilities serve as sales and support offices and their size varies, generally in the range from 250 to 13,200 square feet, with the number of people employed at each office. The Company’s lease terms generally vary from periods of less than a year to five years and typically have flexible renewal options. The Company believes that its present owned and leased facilities are adequate to support its current and anticipated future needs.

Item 3. Legal Proceedings

The Company and its subsidiaries are involved from time to time in various legal proceedings arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters, if any, to have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

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

There were no matters submitted to a vote of security holders in the fourth quarter of 2009.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Market Information

The Company’s common stock is traded on The NASDAQ Stock Market LLC under the symbol CTGX. The following table sets forth the high and low sales prices for the Company’s common stock for each quarter of the previous two years.

Stock Price	High		Low
Year ended December 31, 2009
Fourth Quarter	$	8.43	$	6.00
Third Quarter	$	8.50	$	5.72
Second Quarter	$	6.88	$	3.40
First Quarter	$	4.05	$	2.72
Year ended December 31, 2008
Fourth Quarter	$	7.06	$	2.46
Third Quarter	$	7.33	$	4.20
Second Quarter	$	5.50	$	4.03
First Quarter	$	5.76	$	3.75

On February 18, 2010, there were 1,867 record holders of the Company’s common shares. The Company has not paid a dividend since 2000. The Company is required to meet certain financial covenants under its current revolving credit agreement in order to pay dividends. The Company was in compliance with these financial covenants at each of December 31, 2007, 2008 and 2009. The determination of the timing, amount and payment of dividends on the Company’s common stock in the future is at the discretion of the Board of Directors and will depend upon, among other things, the Company’s profitability, liquidity, financial condition, capital requirements and compliance with the aforementioned financial covenants.

For information concerning common stock issued in connection with the Company’s equity compensation plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

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Issuer Purchases of Equity Securities

The Company has one share repurchase program. During both February 2008 and 2009, the Company’s Board of Director’s authorized 1.0 million additional shares (2.0 million shares total) for future stock repurchases under this program. The share repurchase program does not have an expiration date, nor was it terminated during the fourth quarter of 2009.

Purchases by the Company of its common stock during the fourth quarter ended December 31, 2009 are as follows:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
October 3 – October 31	12,707	$	7.45	12,707	635,454
November 1 – November 30	56,460	$	6.79	56,460	578,994
December 1 – December 31	29,199	$	7.06	29,199	549,795
Total	98,366	$	6.96	98,366	549,795

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Company Performance Graph

The following graph displays a five-year comparison of cumulative total shareholder returns for the Company’s common stock, the S&P 500 Index, and the Dow Jones U.S. Computer Services Index, assuming a base index of $100 at the end of 2004. The cumulative total return for each annual period within the five years presented is measured by dividing (1) the sum of (A) the cumulative amount of dividends for the period, assuming dividend reinvestment, and (B) the difference between the Company’s share price at the end and the beginning of the period by (2) the share price at the beginning of the period. The calculations were made excluding trading commissions and taxes.

	Base Period		INDEXED RETURNS Years Ending
	Dec 04		Dec 05		Dec 06		Dec 07		Dec 08		Dec 09
Computer Task Group, Inc.	$	100.00	$	70.54	$	84.82	$	98.75	$	57.50	$	143.04
S&P 500 Index	$	100.00	$	104.91	$	121.48	$	128.16	$	80.74	$	102.11
Dow Jones U.S. Computer Services Index	$	100.00	$	88.37	$	105.19	$	114.05	$	85.90	$	138.12

The information included under this section entitled “Company Performance Graph” is deemed not to be “soliciting material” or “filed” with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act of 1934, as amended (Exchange Act), and shall not be deemed incorporated by reference into any of the filings previously made or made in the future by our company under the Exchange Act or the Securities Act of 1933, except to the extent the Company specifically incorporates any such information into a document that is filed.

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Item 6. Selected Financial Data

Consolidated Summary—Five-Year Selected Financial Information

The selected operating data and financial position information set forth below for each of the years in the five-year period ended December 31, 2009 has been derived from the Company’s audited consolidated financial statements. This information should be read in conjunction with the audited consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” included in this report.

	2009			2008			2007			2006			2005
(amounts in millions, except per-share data)		(1	)		(1, 2	)		(1, 2	)		(1	)
Operating Data
Revenue	$	275.6		$	353.2		$	325.3		$	327.3		$	294.5
Operating income	$	9.9		$	13.1		$	6.5		$	6.9		$	4.9
Net income	$	5.9		$	7.8		$	4.2		$	3.5		$	2.4
Basic net income per share	$	0.40		$	0.51		$	0.26		$	0.21		$	0.14
Diluted net income per share	$	0.38		$	0.49		$	0.25		$	0.21		$	0.14
Cash dividend per share	$	—		$	—		$	—		$	—		$	—
Financial Position
Working capital	$	25.8		$	24.8		$	23.2		$	21.7		$	40.3
Total assets	$	114.7		$	115.8		$	112.5		$	111.7		$	128.3
Long-term debt	$	—		$	—		$	—		$	—		$	23.2
Shareholders’ equity	$	71.7		$	67.6		$	65.1		$	61.6		$	57.5

(1) As required by accounting standards, in 2006 the Company began to record equity-based compensation expense and the related tax benefit in its consolidated statements of operations as selling, general and administrative expenses. These amounts for 2009, 2008, 2007 and 2006 are as follows:

	2009		2008		2007		2006
(amounts in millions)
Equity-based compensation	$	1.4	$	1.0	$	0.9	$	0.9
Tax benefit		0.5		0.4		0.3		0.3
Net expense	$	0.9	$	0.6	$	0.6	$	0.6

For additional information regarding equity-based compensation expense, see note 9 to the consolidated financial statements in Item 8, “Financial Statements and Supplementary Data” included in this report.

(2) During 2007, the Company received two unsolicited merger proposals from RCM Technologies, Inc. After consideration of the proposals, the Company’s Board of Directors unanimously determined that the proposals were inadequate and did not reflect the value inherent in CTG’s business and the Company’s potential growth opportunities. In 2008 and 2007, included in operating income, the Company recorded $0.2 million and $0.7 million, respectively, related to advisory fees incurred in conjunction with its consideration of the two unsolicited merger proposals.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Forward-Looking Statements

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements by management and Computer Task Group, Incorporated (“CTG” or “the Company”) that are subject to a number of risks and uncertainties. These forward-looking statements are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will” and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, and statements regarding future levels of, or trends in, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) industry and economic conditions, including fluctuations in demand for information technology (IT) services and the further deterioration in market conditions, (ii) the availability to us of qualified professional staff, (iii) domestic and foreign industry competition for customers and talent, (iv) rate and wage inflation or deflation, (v) risks associated with operating in foreign jurisdictions, (vi) the impact of current and future laws and government regulation, as well as repeal or modification of same, affecting the IT solutions and staffing industry, taxes and the Company’s operations in particular, (vii) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (viii) consolidation among the Company’s competitors or customers, (ix) the partial or complete loss of the revenue the Company generates from IBM, (x) the need to supplement or change our IT services in response to new service offerings in the industry, and (xi) the risks described in Item 1A of this annual report on Form 10-K and from time to time in the Company’s reports filed with the Securities and Exchange Commission (SEC).

Industry Trends

The market demand for the Company’s services is heavily dependent on IT spending by major corporations, organizations and government entities in the markets and regions that we serve. The pace of technology change and changes in business requirements and practices of our clients all have a significant impact on the demand for the services that we provide. Competition for new engagements and pricing pressure has been strong. Since August 2009, we have noticed an increase in demand for our services, primarily in the healthcare solution and staffing businesses. Our headcount has increased by 100 in each of the last two quarters of 2009. We added seven new electronic medical records (EMR) projects in 2009 ranging from two to three years in duration and have a total of 11 EMR engagements underway as of December 31, 2009. We anticipate a continuation of the relatively strong demand for most of if not all of 2010.

We have two main services, which are providing IT Solutions and IT Staffing to our clients. With IT Solutions, we generally taking responsibility for the deliverables on a project and the services may include high-end consulting services. With IT Staffing, we typically supply personnel to customers who then take their direction from the clients managers. IT solutions and IT staffing revenue as a percentage of total revenue for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
IT solutions	33	%	32	%	34	%
IT staffing	67	%	68	%	66	%
Total	100	%	100	%	100	%

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The Company promotes a majority of its services through four vertical market focus areas: Technology Service Providers, Healthcare (which includes services provided to healthcare providers, health insurers, and life sciences companies), Energy, and Financial Services. The remainder of CTG’s revenue is derived from general markets. CTG’s revenue by vertical market for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
Technology service providers	31	%	34	%	34	%
Healthcare	27	%	27	%	27	%
Energy	8	%	6	%	5	%
Financial services	8	%	9	%	11	%
General markets	26	%	24	%	23	%
Total	100	%	100	%	100	%

The IT services industry is extremely competitive and characterized by continuous changes in customer requirements and improvements in technologies. Our competition varies significantly by geographic region, as well as by the type of service provided. Many of our competitors are larger than CTG, and have greater financial, technical, sales and marketing resources. In addition, the Company frequently competes with a client’s own internal IT staff. Our industry is being impacted by the growing use of lower-cost offshore delivery capabilities (primarily India and Asia). There can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably assured. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to the customer. Revenue for fixed-price contracts is recognized as per the proportional method of accounting using an input-based approach whereby salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at completion for a project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs which could distort the percent completed within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and our past experience on similar projects, and includes management judgments and estimates which affect the amount of revenue recognized on fixed-price contracts in any accounting period.

The Company’s revenue from contracts accounted for under time-and-material, progress billing, and percentage-of-completion methods for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
Time-and-material	91	%	90	%	88	%
Progress billing	7	%	7	%	8	%
Percentage-of-completion	2	%	3	%	4	%
Total	100	%	100	%	100	%

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Results of Operations

The table below sets forth data with the percentage information calculated as a percentage of consolidated revenue as reported on the Company’s consolidated statements of income as included in Item 8, “Financial Statements and Supplementary Data” in this report.

Year ended December 31,	2009		2008		2007
(percentage of revenue)
Revenue	100.0	%	100.0	%	100.0	%
Direct costs	77.5	%	77.7	%	77.7	%
Selling, general, and administrative expenses	18.9	%	18.6	%	20.3	%
Operating income	3.6	%	3.7	%	2.0	%
Interest and other income (expense), net	(0.1	)%	0.1	%	0.1	%
Income before income taxes	3.5	%	3.8	%	2.1	%
Provision for income taxes	1.4	%	1.6	%	0.8	%
Net income	2.1	%	2.2	%	1.3	%

2009 as compared with 2008

In 2009, the Company recorded revenue of $275.6 million, a decrease of 22.0% as compared with revenue of $353.2 million recorded in 2008. Revenue from the Company’s North American operations totaled $212.8 million in 2009, a decrease of 22.6% when compared with revenue of $275.0 million in 2008. Revenue from the Company’s European operations totaled $62.8 million in 2009, a decrease of 19.8% when compared with 2008 revenue from European operations of $78.2 million. The European revenue represented 22.8% and 22.1% of 2009 and 2008 consolidated revenue, respectively. The Company’s revenue includes reimbursable expenses billed to customers. These expenses totaled $6.1 million and $8.6 million in 2009 and 2008, respectively.

In North America, the significant revenue decrease in 2009 as compared with 2008 is due to the general weakness in IT spending associated with the current global recession. IT staffing revenue decreased 23.0% and IT solutions revenue decreased 20.0% in 2009 as compared with 2008. The IT solutions revenue decrease totaled $22.9 million and was primarily due to healthcare providers not having access to capital markets in the current economy which has limited their ability to finance new projects. Additionally, due to the poor economic conditions, customers reduced their discretionary spending on outside professional services.

During the 2008 fourth quarter, the Company was informed by a significant customer of a reduction in their need for approximately 250 of CTG’s staff, or approximately $21 million of annual revenue. Ultimately, this customer reduced its need for the Company’s personnel by an aggregate of 425 billable staff or approximately $36 million in annualized revenue, beginning in the 2008 fourth quarter. The reduction was not a result of CTG’s performance, but rather a change in our client’s business needs. These reductions coupled with a continued general weakness in 2009 in demand for our IT staffing services from our other customers resulted in our IT staffing business realizing approximately $54.7 million less revenue in 2009 as compared with 2008.

The decrease in year-over-year revenue in the Company’s European operations was primarily due to weakness in their IT staffing business. Additionally, revenue decreased due to the weakness of the currencies of Belgium, the United Kingdom, Luxembourg and Germany, the countries in which the Company’s European subsidiaries operate. In Belgium, Luxembourg and Germany, the functional currency is the Euro, while in the United Kingdom the functional currency is the British Pound. In 2009 as compared with 2008, the average value of the Euro decreased 5.2%, while the average value of the

20

British Pound decreased 15.6%. Had there been no change in these exchange rates from 2008 to 2009, total European revenue would have been approximately $4.4 million higher, or $67.2 million as compared with the $62.8 million reported.

IBM is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. During the second quarter of 2008, the Company and IBM agreed to extend the current National Technical Services (“NTS Agreement”) contract until July 1, 2011. As part of the NTS Agreement, the Company also provides its services as a predominant supplier to IBM’s Integrated Technology Services unit and as the sole provider to the Systems and Technology Group business unit. These agreements accounted for approximately 95% of all of the services provided to IBM by the Company in 2009. In 2009, 2008, and 2007, IBM accounted for $71.2 million or 25.8%, $108.3 million or 30.6%, and $96.0 million or 29.5% of the Company’s consolidated revenue, respectively. We expect to continue to derive a significant portion of our revenue from IBM in future years. However, a significant decline or the loss of the revenue from IBM would have a significant negative effect on our operating results. The Company’s accounts receivable from IBM at December 31, 2009 totaled $9.7 million. No other customer accounted for more than 10% of the Company’s revenue in 2009, 2008 or 2007.

Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 77.5% of consolidated revenue in 2009 and 77.7% of consolidated revenue in 2008. The decrease in direct costs as a percentage of revenue in 2009 compared to 2008 is due to an increase in the Company’s IT solutions business in 2009, which in aggregate has lower direct costs and higher direct margins than the Company’s IT staffing business. In 2009, the Company’s IT solutions business represented 33% of total consolidated revenue, which was an increase of 1% year-over-year.

Selling, general and administrative (SG&A) expenses were 18.9% of revenue in 2009 as compared with 18.6% of revenue in 2008. While the company has closely managed and reduced its SG&A expense as total revenues have decreased, SG&A expense as a percentage of revenue has increased year-over-year as the Company incurs certain fixed costs which cannot be rapidly reduced.

Operating income was 3.6% of revenue in 2009 as compared with 3.7% of revenue in 2008. The decrease in 2009 operating income as a percentage of revenue is due to the significant decrease in revenue year-over-year, offset by disciplined cost control. Operating income from North American operations was $8.4 million and $11.1 million in 2009 and 2008, respectively, while European operations generated operating income of $1.5 million and $2.0 million in 2009 and 2008, respectively. Operating income was not significantly affected by the change in foreign currency exchange rates year-over-year.

Interest and other income (expense), net was (0.1) % of revenue in 2009 and 0.1% in 2008. In 2009, the Company recorded expense of approximately $0.2 million to settle intercompany account balances between its subsidiaries with different functional currencies, while in 2008 the Company recorded gains totaling approximately $0.5 million for the settlement of intercompany account balances, and for those balances outstanding between its subsidiaries with different functional currencies at December 31, 2008.

The Company’s effective tax rate (ETR) is calculated based upon the full years’ operating results, and various tax related items. The Company’s normal ETR is approximately 38% to 42%. The 2009 ETR was 38.7%. The 2009 ETR was affected by an addition to the valuation allowance for net operating losses in foreign countries of approximately $0.2 million, offset by federal income tax credits of approximately $0.2 million. The 2008 ETR was 41.2%. The 2008 ETR was affected by an addition to the valuation allowance for net operating losses in foreign countries of approximately $0.4 million, offset by a reduction in the Company’s tax reserves of approximately $0.1 million and federal income tax credits of approximately $0.1 million.

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Net income for 2009 was 2.1% of revenue or $0.38 per diluted share, compared with net income of 2.2% of revenue or $0.49 per diluted share in 2008. Diluted earnings per share were calculated using 15.5 million weighted-average equivalent shares outstanding in 2009 and 15.9 million 2008. The dilutive effect of incremental shares outstanding under the Company’s equity-based compensation plans in 2009 was offset by purchases of shares for treasury by the Company during 2009.

2008 as compared with 2007

In 2008, the Company recorded revenue of $353.2 million, an increase of 8.6% as compared with revenue of $325.3 million recorded in 2007. Revenue from the Company’s North American operations totaled $275.0 million in 2008, an increase of 8.6% when compared with revenue of $253.2 million in 2007. Revenue from the Company’s European operations totaled $78.2 million in 2008, an increase of 8.5% when compared with 2007 revenue from European operations of $72.1 million. The European revenue represented 22.1% and 22.2% of 2008 and 2007 consolidated revenue, respectively. The Company’s revenue includes reimbursable expenses billed to customers. These expenses totaled $8.6 million and $7.9 million in 2008 and 2007, respectively.

During October 2008, the Company was informed by a significant customer of a reduction in their need for approximately 250 of CTG’s staff, or approximately $21 million in annual revenue. The reduction began in the 2008 fourth quarter and reduced staffing revenue in 2008 by approximately $4 million. The reduction was not a result of CTG’s performance, but rather a change in our customer’s business needs.

In North America, the revenue increase in 2008 as compared with 2007 is primarily the result of an increase in both the Company’s solutions and staffing businesses. The Company’s North American solutions business grew by 16.8% in 2008 as compared with 2007, driven by business wins resulting from investments the Company has made primarily in its healthcare business. These investments were primarily in new offerings, sales territories and additional sales staff. North American staffing revenue increased 4.4% in 2008 as compared with 2007, primarily driven by strong demand in the technology services market for the first half of 2008.

The increase in year-over-year revenue in Europe was primarily due to the strength of the currencies of Belgium, the United Kingdom, Luxembourg, and Germany, the countries in which the Company’s European subsidiaries operate. In Belgium, Luxembourg and Germany, the functional currency is the Euro, while in the United Kingdom the functional currency is the British Pound. In 2008 as compared with 2007, the average value of the Euro increased 7.3%, while the average value of the British Pound decreased 7.3%. Had there been no change in these exchange rates from 2007 to 2008, total European revenue would have been approximately $4.3 million lower in 2008, or $73.9 million as compared with the $78.2 million reported.

IBM is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. During the second quarter of 2008, the Company and IBM agreed to extend the current National Technical Services (“NTS Agreement”) contract until July 1, 2011. As part of the NTS Agreement, the Company also provides its services as a predominant supplier to IBM’s Integrated Technology Services and Systems and Technology Group business units. These agreements accounted for approximately 96% of all of the services provided to IBM by the Company in 2008. In 2008 and 2007, IBM accounted for $108.3 million or 30.6% and $96.0 million or 29.5% of the Company’s consolidated revenue, respectively. The Company continued to derive a significant portion of our revenue from IBM in 2009. However, a significant decline or the loss of the revenue from IBM would have a significant negative effect on our operating results. The Company’s accounts receivable from IBM at December 31, 2008 totaled $8.5 million. No other customer accounted for more than 10% of the Company’s revenue in 2008 or 2007.

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Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 77.7% of both 2008 and 2007 consolidated revenue. The Company’s solution business increased 8.4% during 2008 as compared with 2007, while the staffing business increased 8.7% during that time period. Direct costs as a percentage of revenue did not change year-over-year primarily due to the increase in the solutions business which yields higher margins and offset the increase in the Company’s staffing business which yields lower margins.

SG&A expenses were 18.6% of revenue in 2008 as compared with 20.3% of revenue in 2007. Overall, the decrease in SG&A expense as a percentage of revenue reflects the Company’s continued efforts to control and reduce its SG&A costs throughout the Company as a percentage of revenue. Additionally, during the second and third quarters of 2007, the Company received two unsolicited merger proposals from RCM Technologies, Inc. After consideration of the proposals, the Company’s Board of Directors unanimously determined that the proposals were inadequate and did not reflect the value inherent in CTG’s business and the Company’s potential growth opportunities. In 2008 and 2007, the Company recorded $0.2 million and $0.7 million, respectively, included in SG&A expenses related to advisory fees incurred in conjunction with its consideration of the two unsolicited merger proposals.

Operating income was 3.7% of revenue in 2008 as compared with 2.0% of revenue in 2007. The Company’s operating income as a percentage of revenue generally increased throughout 2008 primarily due to the higher operating margins associated with the Company’s new solution offerings and the reduction in SG&A costs. Additionally, operating income in 2007 was reduced due to the advisory fees described above. Operating income from North American operations was $11.1 million in 2008 as compared with $4.6 million in 2007, while European operations recorded operating income of $2.0 million in 2008 and $1.9 million in 2007. European operating income was comparable year-over-year as the $0.1 million increase from 2007 to 2008 was primarily due to the increase in the exchange rates in Belgium, Luxembourg and Germany offset by the decrease in the exchange rate in the United Kingdom.

Interest and other income, net was 0.1% of revenue in both 2008 and 2007. During 2008, the Company recorded a net exchange gain on intercompany balances totaling approximately $0.5 million on balances settled during 2008 and those balances outstanding between its subsidiaries at December 31, 2008. Additionally, there was less interest expense as a percentage of revenue as compared with 2007 as outstanding borrowings under the revolving credit agreement were generally less in 2008, and interest rates fell throughout 2008. During 2008, the average outstanding debt balance was $3.8 million as compared with $5.0 million in 2007. Additionally, during the 2007 first quarter, the Company sold an investment resulting in a gain of approximately $0.6 million.

The Company’s ETR is calculated based upon the full years’ operating results, and various tax related items. The Company’s normal ETR is approximately 38 to 42%. The 2008 ETR was 41.2%. The 2008 ETR was affected by an addition to the valuation allowance for net operating losses in foreign countries of approximately $0.4 million, offset by a reduction in the Company’s tax reserves of approximately $0.1 million and federal income tax credits of approximately $0.1 million. The 2007 ETR was 37.6%, as the Company decreased the valuation allowance for the net operating loss for U.S. state jurisdictions by approximately $0.2 million, which was offset by adding approximately $0.1 million to its tax reserves due to changes in estimate of recoverability.

Net income for 2008 was 2.2% of revenue or $0.49 per diluted share, compared with net income of 1.3% of revenue or $0.25 per diluted share in 2007. Diluted earnings per share were calculated using 15.9 million weighted-average equivalent shares outstanding in 2008 and 16.7 million 2007. The dilutive effect of incremental shares outstanding under the Company’s equity-based compensation plans in 2008 was wholly offset by purchases of shares for treasury by the Company during 2008.

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Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company’s management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s significant accounting policies are included in note 1 to the consolidated financial statements contained in this annual report on Form 10-K under Item 8, “Financial Statements and Supplementary Data.” These policies, along with the underlying assumptions and judgments made by the Company’s management in their application, have a significant impact on the Company’s consolidated financial statements. The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company’s financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The Company’s most critical accounting policies are those related to goodwill valuation and income taxes, specifically relating to deferred taxes and valuation allowances.

Goodwill Valuation

The Company has goodwill on its books which originated from the purchase in 1999 of a healthcare information technology provider. The goodwill balance of $35.7 million is evaluated annually as of the Company’s October fiscal month-end, or more frequently if facts and circumstances indicate impairment may exist. This evaluation, as applicable, is based on estimates and assumptions that may be used to analyze the appraised value of similar transactions from which the goodwill arose, the appraised value of similar companies, or estimates of future discounted cash flows. The estimates and assumptions on which the Company’s evaluations are based involve judgments and are based on currently available information, any of which could prove wrong or inaccurate when made, or become wrong or inaccurate as a result of subsequent events.

At the respective measurement dates for 2009, 2008, and 2007, with the assistance of an independent appraisal company, the Company completed its annual valuation of the business to which the Company’s goodwill relates. The valuations indicated that the estimated fair value of the business was substantially in excess of the carrying value of the business in each period, with the estimated fair value of the unit exceeding the carrying value by at least 18% in each period presented. Additionally, there are no other facts or circumstances that arose during 2009, 2008 or 2007 that led management to believe the goodwill balance was impaired.

Income Taxes—Deferred Taxes and Valuation Allowances

At December 31, 2009, the Company had a total of approximately $6.8 million of current and non-current deferred tax assets, net of deferred tax liabilities recorded on its consolidated balance sheet. The changes in deferred tax assets and liabilities from period to period are determined based upon the changes in differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities for tax purposes, as measured by the enacted tax rates when these differences are estimated to reverse. The Company has made certain assumptions regarding the timing of the reversal of these assets and liabilities, and whether taxable income in future periods will be sufficient to recognize all or a part of any gross deferred tax asset of the Company.

At December 31, 2009, the Company had deferred tax assets recorded resulting from net operating losses totaling approximately $2.8 million. The Company has analyzed each jurisdiction’s tax position, including forecasting potential taxable income in future periods and the expiration of the net operating loss carryforwards as applicable, and determined that it is unclear

24

whether all of these deferred tax assets will be realized at any point in the future. Accordingly, at December 31, 2009, the Company had offset a portion of these assets with a valuation allowance totaling $2.6 million, resulting in a net deferred tax asset from net operating loss carryforwards of approximately $0.2 million.

The Company’s deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance. Any change in the valuation allowance in the future could result in a change in the Company’s effective tax rate (ETR). An additional 1% increase in the ETR in 2009 would have reduced net income by approximately $100,000.

Other Estimates

The Company has also made a number of estimates and assumptions relating to the reporting of its assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements pursuant to the rules and regulations of the SEC. Such estimates primarily relate to the valuation of stock options for recording equity-based compensation expense, allowances for doubtful accounts receivable, investment valuation, legal matters, and estimates of progress toward completion and direct profit or loss on contracts, as applicable. As future events and their affects can not be determined with precision, actual results could differ from these estimates. Changes in the economic climates in which the Company operates may affect these estimates and will be reflected in the Company’s financial statements in the event they occur.

Financial Condition and Liquidity

Cash provided by operating activities was $3.9 million, $16.6 million and $5.3 million in 2009, 2008 and 2007, respectively. In 2009, net income was $5.9 million while other non-cash adjustments, primarily consisting of depreciation expense, equity-based compensation, deferred income taxes, and deferred compensation totaled $1.8 million. In the 2008 and 2007 periods, net income was $7.8 million and $4.2 million, respectively, while the corresponding non-cash adjustments netted to $3.8 million and $4.4 million, respectively. Accounts receivable balances decreased $3.8 million in 2009 as compared with 2008, $1.9 million in 2008 as compared with 2007, and $2.2 million in 2007 as compared with 2006. The decline in the accounts receivable balance in 2009 resulted from a decrease in revenue in the 2009 fourth quarter of approximately 19% when compared with the 2008 fourth quarter, offset by an increase in days sales outstanding (DSO) of three days to 60 days at December 31, 2009. The decreases in the accounts receivable balances in 2008 and 2007 were primarily due to improvements in the timing of the collection of outstanding invoices which resulted in decreases in DSO of one day to 57 days at December 31, 2008, and a decrease of five days to 58 days at December 31, 2007 from 63 days at December 31, 2006. The increase in DSO at December 31, 2009 is due to normal changes in the timing of the receipt of customer payments near year-end.

Other assets increased approximately $1.2 million, $0.2 million and $1.3 million in 2009, 2008 and 2007, respectively, primarily due to the increase in the cash surrender value of certain insurance policies the Company owns, net of borrowings on such policies, if any. Accounts payable decreased $1.5 million in 2009 and $0.8 million in 2008 as compared to an increase of $1.0 million in 2007. The decrease in accounts payable in 2009 is primarily due to the decrease in overall size of the company in 2009 as compared with 2008, while the changes in 2008 and 2007 are primarily due to the timing of certain payments near year-end. Accrued compensation decreased $4.7 million in 2009 primarily due to lower headcount in 2009 as compared to 2008, as well as lower year-end incentive payments in 2009. Accrued compensation increased $3.8 million in 2008 primarily due to timing of the last pay date of the U.S. biweekly payroll in relation to year-end, whereas, accrued compensation decreased $2.7 million in 2007 due to the timing of payments to subcontractors near year-end 2007. Other current

25

liabilities decreased $0.9 million in 2009 primarily due to a decrease of $0.7 million due for value-added tax remittances in our European operations as compared with 2008.

Investing activities used $3.1 million, $3.3 million and $1.3 million in 2009, 2008 and 2007, respectively, primarily due to additions to property, equipment and capitalized software of $3.1 million in 2009, $3.1 million in 2008 and $2.1 million in 2007. In 2007, additions to property, equipment and capitalized software were additionally offset by $0.8 million received from the sale of certain investments and $0.2 million received from an insurance claim. The Company has no significant commitments for the purchase of property or equipment at December 31, 2009, and does not expect the amount to be spent in 2010 on additions to property, equipment and capitalized software to significantly vary from the amounts spent in 2008 and 2009.

Financing activities used $2.1 million, $5.3 million and $4.9 million of cash in 2009, 2008 and 2007, respectively. During 2009, 2008 and 2007, the Company used $4.0 million, $5.7 million and $4.4 million, respectively, to purchase approximately 0.7 million, 1.1 million and 0.9 million shares of its stock for treasury. Approximately 0.5 million, 0.3 million and 0.4 million shares remain authorized for future purchases under the Company’s share repurchase plan at December 31, 2009, 2008 and 2007, respectively. During both February 2008 and 2009, the Company’s Board of Director’s authorized 1.0 million additional shares (2.0 million shares total) for future stock repurchases under this program. At December 31, 2009, 2008, and 2007, the Company also experienced changes in its cash account overdrafts, which are primarily due to timing of cash payments versus cash receipts, of $0.9 million, $(0.7) million, and $(1.1) million, respectively.

The Company did not have any borrowings outstanding under its revolving credit line at December 31, 2009, 2008 or 2007. The term of the revolving credit line extends to April 2011, and totals $35.0 million which can be used for borrowings or letter of credit commitments (LOC’s). LOC’s at December 31, 2009, 2008, and 2007 totaled $0.5 million, $0.5 million, and $0.4 million, respectively. The Company borrows or repays the revolving credit line as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll. The average outstanding balances under the Company’s revolving credit line for 2009, 2008 and 2007 were approximately $0.5 million, $3.8 million and $5.0 million.

The Company is required to meet certain financial covenants in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenants are measured quarterly, and at December 31, 2009 include a leverage ratio which must be no more than 3.25 to 1, a calculation of minimum tangible net worth which must be no less than $31.9 million, and total expenditures for property, equipment and capitalized software can not exceed $5.0 million annually. The Company was in compliance with these covenants at December 31, 2009 as its leverage ratio was 0.0, its minimum tangible net worth was $36.5 million, and 2009 expenditures for property, equipment and capitalized software were $3.1 million. The Company was also in compliance with its required covenants at December 31, 2008 and December 31, 2007. When considering current market conditions and the Company’ s current operating results, the Company believes it will be able to meet its covenants, as applicable, in 2010 and future years.

The Company believes existing internally available funds, cash potentially generated from operations, and available borrowings under the Company’s revolving line of credit totaling approximately $34.5 million at December 31, 2009, will be sufficient to meet foreseeable working capital, capital expenditure, and stock repurchases, and to allow for future internal growth and expansion.

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Off-Balance Sheet Arrangements

The Company did not have off-balance sheet arrangements or transactions in either 2009, 2008 or 2007.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposures consist of interest rate risk associated with variable rate borrowings and foreign currency exchange risk associated with the Company’s European operations. See Item 7A, “Quantitative and Qualitative Disclosure about Market Risk” in this report.

Contractual Obligations

The Company intends to satisfy its contractual obligations from operating cash flows, and, if necessary, from draws on its revolving credit line. A summary of the Company’s contractual obligations at December 31, 2009 is as follows:

(in millions)		Total		Less than 1 year		Years 2-3		Years 4-5		More than 5 years
Long-term debt	A	$	—	$	—	$	—	$	—	$	—
Capital lease obligations	B		—		—		—		—		—
Operating lease obligations	C		15.6		5.4		6.1		1.7		2.4
Purchase obligations	D		1.5		1.0		0.5		—		—
Deferred compensation benefits (U.S.)	E		8.8		0.8		1.5		1.5		5.0
Deferred compensation benefits (Europe)	F		—		—		—		—		—
Other long-term liabilities	G		0.4		0.0		0.1		0.1		0.2
Total		$	26.3	$	7.2	$	8.2	$	3.3	$	7.6

A In February 2008, the Company entered into an amendment to its revolving credit agreement (Credit Agreement) which allows the Company to borrow up to $35 million. This Credit Agreement has a term of three years and expires in April 2011. The Company uses this facility to fund its working capital obligations as needed, primarily funding the U.S. bi-weekly payroll. The Company currently has three outstanding letters of credit totaling approximately $0.5 million that collateralize an office lease and employee benefit programs.

B The Company does not have any capital lease obligations outstanding at December 31, 2009.

C Operating lease obligations relate to the rental of office space, office equipment, and automobiles leased in the Company’s European operations. Total rental expense under operating leases in 2009, 2008, and 2007 was approximately $7.1 million, $8.1 million, and $7.4 million, respectively.

D The Company’s purchase obligations in 2010 and 2011 total approximately $1.5 million, including $0.4 million for software maintenance, support and related fees, $0.3 million for computer-based training courses, $0.1 million for professional organization memberships, $0.1 million for recruiting services, $0.1 million for equipment, and $0.5 million for telecommunications.

E The Company is committed for deferred compensation benefits in the U.S. under two plans. The Executive Supplemental Benefit Plan (ESBP) provides certain former key executives with deferred compensation benefits. The ESBP was amended as of November 30, 1994 to freeze benefits for participants at that time. Currently, 16 individuals are receiving benefits under this plan. The ESBP is deemed to be unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities.

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The Company also has a non-qualified defined-contribution deferred compensation plan for certain key executives. Contributions to this plan in 2009 were $0.3 million. The Company anticipates making contributions totaling approximately $0.1 million in 2010 to this plan for amounts earned in 2009.

F The Company retained a contributory defined-benefit plan for its previous employees located in The Netherlands when the Company disposed of its subsidiary, CTG Nederland B.V. This plan was curtailed on January 1, 2003 for additional contributions. As this plan is fully funded at December 31, 2009, the Company does not anticipate making additional payments to fund the plan in future years.

G The Company has other long-term liabilities including payments for a postretirement benefit plan for nine retired employees and their spouses, totaling 13 participants.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

The Company’s primary market risk exposures consist of interest rate risk associated with variable rate borrowings and foreign currency exchange risk associated with the Company’s European operations.

In February 2008, the Company entered into an amendment of its credit agreement which extended the expiration date of the agreement to April 2011. This credit agreement allows the Company to borrow up to $35.0 million based upon available collateral. At both December 31, 2009 and 2008, there were no amounts outstanding under the credit agreement. However, at both December 31, 2009 and 2008, there was $0.5 million outstanding under letters of credit under the credit agreement.

The maximum amounts outstanding under the Company’s credit agreements during 2009, 2008, and 2007 were $6.2 million, $13.8 million, and $13.7 million, respectively. Average bank borrowings outstanding for the years 2009, 2008, and 2007 were $0.5 million, $3.8 million, and $5.0 million, respectively, and carried weighted-average interest rates of 2.2%, 5.0%, and 7.0%, respectively. Accordingly, during 2009, a one percent increase in the weighted-average interest rate would have cost the Company an additional $5,000. The Company incurred commitment fees totaling approximately $0.1 million in each of 2009, 2008 and 2007 relative to the agreements.

During 2009, revenue was affected by the year-over-year foreign currency exchange rate changes of Belgium, the United Kingdom, Luxembourg and Germany, which are the countries in which the Company’s European subsidiaries operate. In Belgium, Luxembourg and Germany, the functional currency is the Euro, while in the United Kingdom, the functional currency is the British Pound. Had there been no change in these exchange rates from the 2008 to 2009, total European revenue would have been approximately $4.4 million higher in 2009, or $67.2 million as compared with the $62.8 million reported. Operating income in Europe was not significantly affected by the change in these exchange rates.

The Company recorded a net exchange gain (loss) on intercompany balances totaling approximately $(0.2) million and $0.5 million on balances settled during the year and those balances outstanding between its subsidiaries with different functional currencies at December 31, 2009 and 2008, respectively. The Company has historically not used any market risk sensitive instruments to hedge its foreign currency exchange risk. The Company believes the market risk related to intercompany balances in future periods will not have a material affect on its results of operations.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Computer Task Group, Incorporated:

We have audited the accompanying consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Computer Task Group, Incorporated and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Computer Task Group, Incorporated’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Buffalo, New York

February 25, 2010

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Consolidated Statements of Income

Year ended December 31,	2009			2008			2007
(amounts in thousands, except per-share data)
Revenue	$	275,560		$	353,213		$	325,285
Direct costs		213,701			274,533			252,889
Selling, general, and administrative expenses		51,970			65,598			65,872
Operating income		9,889			13,082			6,524
Gain on investments		—			—			650
Interest and other income		90			968			298
Interest and other expense		(303	)		(712	)		(663	)
Income before income taxes		9,676			13,338			6,809
Provision for income taxes		3,743			5,501			2,563
Net income	$	5,933		$	7,837		$	4,246
Net income per share:
Basic	$	0.40		$	0.51		$	0.26
Diluted	$	0.38		$	0.49		$	0.25
Weighted average shares outstanding:
Basic		14,808			15,328			16,181
Diluted		15,549			15,878			16,654

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

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Consolidated Balance Sheets

December 31,	2009			2008
(amounts in thousands, except share balances)
Assets
Current Assets:
Cash and cash equivalents	$	10,423		$	10,973
Accounts receivable, net of allowances of $964 and $1,005
in 2009 and 2008, respectively		45,423			49,152
Prepaid and other current assets		2,000			2,272
Deferred income taxes		1,382			1,538
Total current assets		59,228			63,935
Property, equipment and capitalized software net of accumulated depreciation and amortization of $19,595 and $21,874 in 2009 and 2008, respectively		8,146			6,767
Goodwill		35,678			35,678
Deferred income taxes		5,566			4,667
Other assets		5,473			4,231
Investments		631			562
Total assets	$	114,722		$	115,840
Liabilities And Shareholders’ Equity
Current Liabilities:
Accounts payable	$	7,741		$	8,247
Accrued compensation		20,095			24,574
Advance billings on contracts		1,510			1,431
Other current liabilities		3,901			4,802
Income taxes payable		208			107
Total current liabilities		33,455			39,161
Deferred compensation benefits		8,865			8,312
Other long-term liabilities		684			733
Total liabilities		43,004			48,206
Shareholders’ Equity:
Common stock, par value $.01 per share, 150,000,000 shares authorized; 27,017,824 shares issued		270			270
Capital in excess of par value		112,473			112,111
Retained earnings		63,169			57,236
Less: Treasury stock of 8,876,891 and 8,635,687 shares at cost, respectively		(44,585	)		(42,970	)
Stock Trusts of 3,363,335 shares at cost in both periods		(55,083	)		(55,083	)
Accumulated other comprehensive loss		(4,526	)		(3,930	)
Total shareholders’ equity		71,718			67,634
Total liabilities and shareholders’ equity	$	114,722		$	115,840

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

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Consolidated Statements of Cash Flows

Year ended December 31,	2009			2008			2007
(amounts in thousands)
Cash flows from operating activities:
Net income	$	5,933		$	7,837		$	4,246
Adjustments:
Depreciation and amortization expense		1,682			1,986			2,425
Equity-based compensation expense		1,447			991			863
Deferred income taxes		(483	)		296			(261	)
Deferred compensation		(826	)		481			1,340
Gain on investments		—			—			(650	)
Loss on sales of property and equipment		11			53			—
Changes in assets and liabilities:
Decrease in accounts receivable		3,752			1,872			2,165
(Increase) decrease in prepaid and other current assets		292			920			(454	)
Increase in other assets		(1,189	)		(203	)		(1,295	)
Increase (decrease) in accounts payable		(1,464	)		(770	)		1,029
Increase (decrease) in accrued compensation		(4,658	)		3,767			(2,655	)
Increase (decrease) in income taxes payable		94			(880	)		225
Increase (decrease) in advance billings on contracts		108			518			(1,149	)
Decrease in other current liabilities		(868	)		(110	)		(289	)
Increase (decrease) in other long-term liabilities		114			(151	)		(232	)
Net cash provided by operating activities		3,945			16,607			5,308
Cash flows from investing activities:
Additions to property, equipment and capitalized software		(3,079	)		(3,148	)		(2,142	)
Proceeds from sales of investments		—			—			809
Deferred compensation plan investments		(70	)		(141	)		(113	)
Proceeds from insurance claim		—			—			187
Proceeds from sales of property and equipment		18			19			6
Net cash used in investing activities		(3,131	)		(3,270	)		(1,253	)
Cash flows from financing activities:
Change in cash overdraft, net		851			(687	)		(1,110	)
Proceeds from Employee Stock Purchase Plan		111			121			129
Purchase of stock for treasury		(4,045	)		(5,713	)		(4,415	)
Excess tax benefits from equity-based compensation		273			99			45
Proceeds from other stock plans		721			834			445
Net cash used in financing activities		(2,089	)		(5,346	)		(4,906	)
Effect of exchange rate changes on cash and cash equivalents		725			(1,308	)		383
Net increase (decrease) in cash and cash equivalents		(550	)		6,683			(468	)
Cash and cash equivalents at beginning of year		10,973			4,290			4,758
Cash and cash equivalents at end of year	$	10,423		$	10,973		$	4,290

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

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Consolidated Statements of Changes in Shareholders’ Equity

	Common Stock			Capital in Excess of Par Value			Retained Earnings			Treasury Stock					Stock Trusts					Accumulated Other Comprehensive Income (loss)			Total Shareholders’ Equity
	Shares	Amount								Shares		Amount			Shares		Amount
(amounts in thousands)
Balance as of December 31, 2006	27,018	$	270	$	111,458		$	45,235		7,020		$	(35,005	)	3,623		$	(56,189	)	$	(4,138	)	$	61,631
Employee Stock Purchase Plan share issuance	—		—		10			—		—			—		(28	)		119			—			129
Stock Option Plan share issuance	—		—		(100	)		—		3			(14	)	(131	)		559			—			445
Excess tax benefits from equity-based compensation	—		—		45			—		—			—		—			—			—			45
Restricted stock issuance/forfeiture	—		—		(339	)		—		7			(30	)	(87	)		369			—			—
Deferred compensation plan share issuance	—		—		(26	)		—		(42	)		207		—			—			—			181
Purchase of stock	—		—		—			—		925			(4,415	)	—			—			—			(4,415	)
Equity-based compensation	—		—		863			—		—			—		—			—			—			863
Comprehensive income (loss):
Net income	—		—		—			4,246		—			—		—			—			—			4,246
Foreign currency adjustment	—		—		—			—		—			—		—			—			1,258			1,258
Pension loss adjustment, net of tax	—		—		—			—		—			—		—			—			1,072			1,072
Unrealized gain on investments, net of tax	—		—		—			—		—			—		—			—			(376	)		(376	)
Total comprehensive income	—		—		—			4,246		—			—		—			—			1,954			6,200
Balances as of December 31, 2007	27,018		270		111,911			49,481		7,913			(39,257	)	3,377			(55,142	)		(2,184	)		65,079
Accounting for deferred compensation and postretirement aspects of endorsement split-dollar life insurance arrangements	—		—		—			(82	)	—			—		—			—			—			(82	)
Employee Stock Purchase Plan share issuance	—		—		(4	)		—		(18	)		93		(6	)		32			—			121
Stock Option Plan share issuance	—		—		(220	)		—		(209	)		1,027		(8	)		27			—			834
Excess tax benefits from equity-based compensation	—		—		99			—		—			—		—			—			—			99
Restricted stock plan share issuance/forfeiture	—		—		(588	)		—		(118	)		588		—			—			—			—
Deferred compensation plan share issuance	—		—		(78	)		—		(59	)		292		—			—			—			214
Purchase of stock	—		—		—			—		1,127			(5,713	)	—			—			—			(5,713	)
Equity-based compensation	—		—		991			—		—			—		—			—			—			991
Comprehensive income (loss):
Net income	—		—		—			7,837		—			—		—			—			—			7,837
Foreign currency adjustment	—		—		—			—		—			—		—			—			(1,921	)		(1,921	)
Pension loss adjustment, net of tax	—		—		—			—		—			—		—			—			175			175
Total comprehensive income	—		—		—			7,837		—			—		—			—			(1,746	)		6,091
Balances as of December 31, 2008	27,018		270		112,111			57,236		8,636			(42,970	)	3,363			(55,083	)		(3,930	)		67,634

(continued on next page)

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Consolidated Statements of Changes in Shareholders’ Equity (continued)

	Common Stock			Capital in Excess of Par Value			Retained Earnings		Treasury Stock					Stock Trusts				Accumulated Other Comprehensive Income (loss)			Total Shareholders’ Equity
	Shares	Amount							Shares		Amount			Shares	Amount
(amounts in thousands)
Employee Stock Purchase Plan share issuance	—		—		(1	)		—	(23	)		112		—		—			—			111
Stock Option Plan share issuance	—		—		(460	)		—	(244	)		1,173		—		—			—			713
Excess tax benefits from equity-based compensation	—		—		273			—	—			—		—		—			—			273
Restricted stock plan share issuance/forfeiture	—		—		(805	)		—	(161	)		800		—		—			—			(5	)
Deferred compensation plan share issuance	—		—		(52	)		—	(62	)		305		—		—			—			253
Treasury stock adjustment	—		—		(40	)		—	(8	)		40		—		—			—			—
Purchase of stock	—		—		—			—	739			(4,045	)	—		—			—			(4,045	)
Equity-based compensation	—		—		1,447			—	—			—		—		—			—			1,447
Comprehensive income (loss):
Net income	—		—		—			5,933	—			—		—		—			—			5,933
Foreign currency adjustment	—		—		—			—	—			—		—		—			496			496
Pension loss adjustment, net of tax	—		—		—			—	—			—		—		—			(1,092	)		(1,092	)
Total comprehensive income (loss)	—		—		—			5,933	—			—		—		—			(596	)		5,337
Balances as of December 31, 2009	27,018	$	270	$	112,473		$	63,169	8,877		$	(44,585	)	3,363	$	(55,083	)	$	(4,526	)	$	71,718

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

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Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of Computer Task Group, Incorporated, and its subsidiaries (the Company or CTG), located primarily in North America and Europe. There are no unconsolidated entities, or off-balance sheet arrangements. All inter-company accounts and transactions have been eliminated. When necessary, amounts in the prior period’s consolidated financial statements are reclassified to conform to the current year presentation. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Such estimates primarily relate to the valuation of goodwill, valuation allowances for deferred tax assets, actuarial assumptions including discount rates and expected rates of return, as applicable, for the Company’s defined benefit and postretirement benefit plans, the allowance for doubtful accounts receivable, assumptions underlying stock option valuation, investment valuation, legal matters, other contingencies and estimates of progress toward completion and direct profit or loss on contracts. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Actual results could differ from those estimates.

The Company operates in one industry segment, providing IT services to its clients. These services include IT Solutions and IT Staffing. CTG provides these primary services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. A typical customer is an organization with large, complex information and data processing requirements. The Company promotes a significant portion of its services through four vertical market focus areas: Technology Service Providers, Healthcare (which includes services provided to healthcare providers, health insurers, and life sciences companies), Energy, and Financial Services. The Company focuses on these four vertical areas as it believes that these areas are either higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from general markets.

CTG’s revenue by vertical market for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
Technology service providers	31	%	34	%	34	%
Healthcare	27	%	27	%	27	%
Energy	8	%	6	%	5	%
Financial services	8	%	9	%	11	%
General markets	26	%	24	%	23	%
Total	100	%	100	%	100	%

Revenue and Cost Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably assured. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to the customer. Revenue for fixed price contracts is

35

recognized as per the proportional method of accounting using an input-based approach whereby salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at completion for a project. Revenue is recognized based upon the percentage of completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs which could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and our past experience on similar projects, and includes management judgments and estimates which affect the amount of revenue recognized on fixed-price contracts in any accounting period.

The Company’s revenue from contracts accounted for under time-and-material, progress billing, and percentage-of-completion methods for the years ended December 31, 2009, 2008 and 2007 is as follows:

	2009		2008		2007
Time-and-material	91	%	90	%	88	%
Progress billing	7	%	7	%	8	%
Percentage-of-completion	2	%	3	%	4	%
Total	100	%	100	%	100	%

The Company includes billable expenses in its accounts as both revenue and direct costs. These billable expenses totaled $6.1 million, $8.6 million, and $7.9 million in 2009, 2008 and 2007, respectively.

Selling, general, and administrative costs are charged to expense as incurred.

Bad debt expense, net of recoveries was approximately $0.2 million, $0.1 million, and $0.2 million in 2009, 2008 and 2007, respectively.

Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. The Company utilizes a fair value hierarchy for its assets and liabilities, as applicable, based upon three levels of input, which are:

Level 1—quoted prices in active markets for identical assets or liabilities (observable)

Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be supported by observable market data for essentially the full term of the asset or liability (observable)

Level 3—unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)

At December 31, 2009 and 2008, the carrying amounts of the Company’s cash and cash equivalents of $10.4 million and $11.0 million, respectively, approximated fair value.

As of January 1, 2009, the Company was also allowed to elect an irrevocable option to measure, on a contract by contract basis, specific financial instruments and certain other items that are currently not being measured at fair value. The Company did not elect to apply the fair value provisions of this standard for any specific contracts during the year ended December 31, 2009.

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Investments

The Company’s investments consist of mutual funds which are allocated to the Computer Task Group, Incorporated Non-qualified Key Employee Deferred Compensation Plan. At both December 31, 2009 and 2008, the Company’s investment balances for this plan, which are classified as trading securities, totaled $0.6 million. These investment balances are measured at fair value, and the fair value was determined using Level 1 (see “Fair Value” in note 1) inputs.

Unrealized gains and losses on these securities are recorded in earnings, and were nominal in 2009, 2008 and 2007. All other investments consisting of equity securities were sold during 2007 for a gain of approximately $0.6 million.

Property and Equipment and Capitalized Software Costs

Property and equipment are generally stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of one year to 30 years, and begins after an asset has been put into service. The cost of property or equipment sold or otherwise disposed of, along with related accumulated depreciation, is eliminated from the accounts, and the resulting gain or loss, if any, is reflected in current earnings. Maintenance and repairs are charged to expense when incurred, while significant improvements to existing assets are capitalized.

As of December 31, 2009, the Company has capitalized a total of approximately $3.9 million for six projects either developed for internal use or developed to be sold, leased or otherwise marketed. During 2008, the Company began to amortize two of these six projects as they were complete and placed into service. Amortization expense for these two projects totaled $0.1 million in both 2009 and 2008.

Leases

The Company is obligated under a number of long-term operating leases primarily for the rental of office space, office equipment and automobiles based in Europe. In instances where the Company has negotiated leases that contain rent holidays or escalation clauses, the expense for those leases is recognized monthly on a straight-line basis over the term of the lease.

Goodwill

The Company has goodwill on its books which originated from the purchase in 1999 of a healthcare information technology provider. The goodwill balance of $35.7 million is evaluated annually as of the Company’s October fiscal month-end, or more frequently if facts and circumstances indicate impairment may exist. This evaluation, as applicable, is based on estimates and assumptions that may be used to analyze the appraised value of similar transactions from which the goodwill arose, the appraised value of similar companies, or estimates of future discounted cash flows. The estimates and assumptions on which the Company’s evaluations are based involve judgments and are based on currently available information, any of which could prove wrong or inaccurate when made, or become wrong or inaccurate as a result of subsequent events.

At the respective measurement dates for 2009, 2008, and 2007, with the assistance of an independent appraisal company, the Company completed its annual valuation of the business to which the Company’s goodwill relates. The valuations indicated that the estimated fair value of the business was substantially in excess of the carrying value of the business in each period, with the estimated fair value of the unit exceeding the carrying value by at least 18% in each period presented. Additionally, there are no other facts or circumstances that arose during 2009, 2008 or 2007 that led management to believe the goodwill balance was impaired.

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Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell. The Company does not have any long-lived assets that are impaired or that it intends to dispose of at December 31, 2009.

Income Taxes

The Company provides for deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. In assessing the realizability of deferred tax assets, management considers within each tax jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense.

Equity-Based Compensation

The Company records the fair value of equity-based compensation expense for all equity-based compensation awards granted subsequent to January 1, 2006, and for the unvested portion of previously granted awards outstanding as of that date. The calculated fair value cost of its equity-based compensation awards is recognized in the Company’s income statement over the period in which an employee or director is required to provide the services for the award. Compensation cost is not recognized for employees or directors that do not render the requisite services. The Company recognized the expense for equity-based compensation in its 2009, 2008 and 2007 statements of income on a straight-line basis based upon awards that are ultimately expected to vest. See note 9, “Equity-Based Compensation.”

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Net Income Per Share

Basic and diluted earnings per share (EPS) for the years ended December 31, 2009, 2008, and 2007 are as follows:

For the year ended	Net Income		Weighted Average Shares	Earnings per Share
(amounts in thousands, except per-share data)
December 31, 2009
Basic EPS	$	5,933	14,808	$	0.40
Dilutive effect of outstanding equity instruments		—	741		(0.02	)
Diluted EPS	$	5,933	15,549	$	0.38
December 31, 2008
Basic EPS	$	7,837	15,328	$	0.51
Dilutive effect of outstanding equity instruments		—	550		(0.02	)
Diluted EPS	$	7,837	15,878	$	0.49
December 31, 2007
Basic EPS	$	4,246	16,181	$	0.26
Dilutive effect of outstanding equity instruments		—	473		(0.01	)
Diluted EPS	$	4,246	16,654	$	0.25

Weighted-average shares represent the average number of issued shares less treasury shares and shares held in the Stock Trusts, and for the basic EPS calculations, unvested restricted stock.

Certain options representing 0.1 million, 2.0 million, and 1.7 million shares of common stock were outstanding at December 31, 2009, 2008, and 2007, respectively, but were not included in the computation of diluted earnings per share as their effect on the computation would have been anti-dilutive.

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for assets and liabilities using current exchange rates in effect at the balance sheet date, for equity accounts using historical exchange rates, and for revenue and expense activity using the applicable month’s average exchange rates. The Company recorded gains (losses) totaling approximately $(0.2) million in 2009, $0.5 million in 2008 and $0 in 2007 from foreign currency transactions for balances settled during the year and those balances outstanding between its subsidiaries at year-end.

Cash and Cash Equivalents, and Cash Overdrafts

For purposes of the statement of cash flows, cash and cash equivalents are defined as cash on hand, demand deposits, and short-term, highly liquid investments with a maturity of three months or less. Total cash equivalents at December 31, 2009 and 2008 totaled $0 and $7.7 million, respectively and consisted of overnight interest-bearing deposits. Additionally, as the Company does not fund its bank accounts for the checks it has written until the checks are presented to the bank for payment, the change in cash overdraft, net represents the increase or decrease in outstanding checks year-over-year.

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Taxes Collected from Customers

In instances where the Company collects taxes from its customers for remittance to governmental authorities, primarily in its European operations, revenue is not recorded as such taxes are recorded and presented on a net basis.

Accumulated Other Comprehensive Loss

The components that make up accumulated other comprehensive loss on the consolidated balance sheets at December 31, 2009, 2008, and 2007 are as follows:

	2009			2008			2007
(amounts in thousands)
Foreign currency adjustment	$	(3,205	)	$	(3,701	)	$	(1,780	)
Pension loss adjustment, net of tax of $894 in 2009, $369 in 2008 and $458 in 2007		(1,321	)		(229	)		(404	)
	$	(4,526	)	$	(3,930	)	$	(2,184	)

For the years ended December 31, 2009, 2008 and 2007, tax expense (benefit) associated with the pension loss adjustment, net was $(0.5) million, $0.1 million and $0.5 million, respectively.

Postretirement Benefit Obligations Resulting from Insurance Contracts

The Company records a liability for the cost of insurance related to the purchase of endorsement split-dollar life insurance arrangements for employees where the policy remains in place after the employee’s retirement. The Company calculated and recorded the present value of the postretirement benefit obligation as an adjustment to retained earnings as of January 1, 2008. This cumulative effect adjustment totaled approximately $82,000.

2. Property, Equipment and Capitalized Software

Property, equipment and capitalized software at December 31, 2009 and 2008 are summarized as follows:

December 31,	Useful Life	2009			2008
(amounts in thousands)	(years)
Land	—	$	378		$	378
Buildings	30		4,542			4,441
Equipment	2-5		9,122			10,328
Furniture	5-10		3,859			4,048
Capitalized software	2-5		3,856			1,654
Other software	1-5		2,851			4,477
Leasehold improvements	3-10		3,133			3,315
			27,741			28,641
Less accumulated depreciation and amortization			(19,595	)		(21,874	)
		$	8,146		$	6,767

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3. Debt

The Company’s revolving credit agreement (Agreement) allows the Company to borrow up to $35.0 million, has a term of three years, and expires in April 2011. The Agreement has interest rates ranging from 0 to 75 basis points over the prime rate and 150 to 225 basis points over LIBOR, and provides certain of the Company’s assets as security for outstanding borrowings. At December 31, 2009 and 2008, there were no amounts outstanding under this Agreement, however, there were $0.5 million assigned to letters of credit under this Agreement at both December 31, 2009 and 2008.

The maximum amounts outstanding under the Agreement during 2009, 2008, and 2007 were $6.2 million, $13.8 million, and $13.7 million, respectively. Average bank borrowings outstanding for the years 2009, 2008, and 2007 were $0.5 million, $3.8 million, and $5.0 million, respectively, and carried weighted-average interest rates of 2.2%, 5.0%, and 7.0%, respectively. The Company incurred commitment fees totaling approximately $0.1 million in each of 2009, 2008 and 2007 relative to the Agreement. Interest paid during 2009, 2008, and 2007 totaled $0 million, $0.2 million, and $0.4 million, respectively.

The Company is required to meet certain financial covenants in order to maintain borrowings under the Agreement, pay dividends, and make acquisitions. The covenants are measured quarterly, and at December 31, 2009 include a leverage ratio which must be no more than 3.25 to 1, a calculation of minimum tangible net worth which must be no less than $31.9 million, and total expenditures for property, equipment and capitalized software can not exceed $5.0 million annually. The Company was in compliance with these covenants at December 31, 2009 as its leverage ratio was 0.0, its minimum tangible net worth was $36.5 million, and 2009 expenditures for property, equipment and capitalized software were $3.1 million. The Company was also in compliance with its required covenants at December 31, 2008 and December 31, 2007.

In our European operations, the Company has a variety of guarantees in place supporting office leases and performance under government projects. These guarantees totaled approximately $0.5 million at December 31, 2009.

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4. Income Taxes

The provision for income taxes for 2009, 2008, and 2007 consists of the following:

	2009			2008			2007
(amounts in thousands)
Domestic and foreign components of income before income taxes are as follows:
Domestic	$	8,997		$	11,798		$	6,438
Foreign		679			1,540			371
	$	9,676		$	13,338		$	6,809
The provision (benefit) for income taxes consists of:
Current tax:
U.S. federal	$	2,540		$	3,344		$	1,753
Foreign		1,024			1,191			792
U.S. state and local		673			670			279
		4,237			5,205			2,824
Deferred tax:
U.S. federal		(443	)		(215	)		(132	)
Foreign		(98	)		357			(8	)
U.S. state and local		47			154			(121	)
		(494	)		296			(261	)
	$	3,743		$	5,501		$	2,563
The effective and statutory income tax rate can be reconciled as follows:
Tax at statutory rate of 34%	$	3,290		$	4,535		$	2,315
State tax, net of federal benefits		429			560			289
Benefit of state net operating losses previously offset by valuation allowances		—			(27	)		(185	)
Non-taxable income		(591	)		(606	)		(783	)
Non-deductible expenses		636			919			982
Change in estimate primarily related to foreign taxes		186			407			—
Change in estimate primarily related to state taxes and tax reserves		21			(128	)		65
Benefit of foreign net operating losses previously offset by valuation allowances		(9	)		(56	)		(60	)
Tax credits		(143	)		(79	)		—
Other, net		(76	)		(24	)		(60	)
	$	3,743		$	5,501		$	2,563
Effective income tax rate		38.7	%		41.2	%		37.6	%

The Company’s effective tax rate (ETR) is calculated based upon the full years’ operating results, and various tax related items. The Company’s normal ETR is approximately 38% to 42%. The 2009 ETR was 38.7%. The 2009 ETR was affected by an addition to the valuation allowance for net operating losses in foreign countries of approximately $0.2 million, offset by federal income tax credits of approximately $0.2 million. The 2008 ETR was 41.2%. The 2008 ETR was affected by an addition to the valuation allowance for net operating losses in foreign countries of approximately $0.4 million, offset by a net reduction in the Company’s tax reserves of approximately $0.1 million and federal income tax credits of approximately $0.1 million.

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The expected relationship between foreign income before taxes and foreign provision (benefit) for income taxes differs from the actual relationship above as a result of certain foreign losses incurred in the current year for which no tax benefit has been recognized. Management has determined that it is unclear whether operations in those jurisdictions will produce taxable income in future years sufficient to realize the benefit of the current year losses in those jurisdictions. In addition, certain costs deducted for financial statement purposes are not deductible for tax purposes in certain foreign jurisdictions, such as certain employee benefit costs, resulting in a substantial increase to foreign taxable income.

The Company’s deferred tax assets and liabilities at December 31, 2009 and 2008 consist of the following:

December 31,	2009			2008
(amounts in thousands)
Assets
Deferred compensation	$	4,898		$	3,895
Loss carryforwards		2,792			2,661
Accruals deductible for tax purposes when paid		580			702
Depreciation		94			98
Allowance for doubtful accounts		263			250
Amortization		322			441
State taxes		662			612
Gross deferred tax assets		9,611			8,659
Deferred tax asset valuation allowance		(2,649	)		(2,454	)
Gross deferred tax assets less valuation allowance		6,962			6,205
Liabilities
Accrued income not recognized for tax purposes		(122	)		(286	)
Other		(14	)		(100	)
Gross deferred tax liabilities		(136	)		(386	)
Net deferred tax assets	$	6,826		$	5,819
Net deferred assets and liabilities are recorded as follows:
Net current assets	$	1,382		$	1,538
Net non-current assets		5,566			4,667
Net current liabilities		—			(99	)
Net non-current liabilities		(122	)		(287	)
Net deferred tax assets	$	6,826		$	5,819

At December 31, 2009 and 2008, as applicable, net current liabilities and net non-current liabilities are recorded on the consolidated balance sheet in other current liabilities and other long-term liabilities, respectively. In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Factors that may affect the Company’s ability to achieve sufficient forecasted taxable income in future periods may include, but are not limited to, the following: increased competition, a decline in sales or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for IT services. Based upon the levels of historical taxable income and projections for future taxable income over the years in which the deferred tax assets are deductible, at December 31, 2009, management believes that it is more likely than not that the Company will realize the benefits, net of the established valuation allowance, of these deferred tax assets in the future.

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For tax purposes, the Company has various U.S. state net operating loss carryforwards totaling approximately $4.9 million. These state net operating losses have a carryforward period of 5 to 20 years and begin to expire in 2010. The Netherlands net operating loss carryforward of $8.8 million begins to expire in 2011, while in the United Kingdom the net operating loss carryforward is approximately $1.1 million, and has no expiration date.

At December 31, 2009, the Company has a deferred tax asset before the valuation allowance in the United States resulting from net operating losses in various states of approximately $0.2 million, in The Netherlands of approximately $2.2 million and approximately $0.4 million in various other countries where it does business. Management of the Company has analyzed each jurisdiction’s tax position, including forecasting potential taxable income in future years, and the expiration of the net operating loss carryforwards as applicable, and determined that it is unclear whether all of the deferred tax asset totaling $2.8 million will be realized at any point in the future. Accordingly, at December 31, 2009, the Company has offset a portion of the asset with a valuation allowance totaling $2.6 million, resulting in a net deferred tax asset from net operating loss carryforwards of approximately $0.2 million. During 2009, the valuation allowance increased by approximately $0.2 million net, due to a variety of factors including the expiration of certain loss carryforwards in Canada of approximately $0.1 million and $0.3 million related to the establishment of a net operating loss valuation allowance related to current year losses in certain foreign jurisdictions.

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2005.

A reconciliation of unrecognized tax benefits for 2008 and 2009 is as follows:

(amounts in thousands)
Balance at January 1, 2008	$	289
Additions based on tax positions related to the current year		29
Additions for tax positions of prior years		7
Reductions for lapse of statute of limitations		(47	)
Settlements		(211	)
Balance at December 31, 2008	$	67
Additions based on tax positions related to the current year		21
Additions for tax positions of prior years		—
Reductions for lapse of statute of limitations		—
Settlements		(7	)
Balance at December 31, 2009	$	81

The balance at December 31, 2009 of $81,000 represents gross unrecognized tax benefits that if recognized would impact the Company’s effective tax rate. No significant increase or decrease in the total amount of unrecognized tax benefits is expected within the next twelve months.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense. As of January 1, 2007, the Company accrued approximately $15,000 in interest and penalties, as applicable. At December 31, 2009, the Company had approximately $4,000 (less the associated tax benefit) accrued for the payment of interest and penalties, as applicable.

The Company has established its unrecognized tax benefits based upon the anticipated outcome of tax positions taken for financial statement purposes compared with positions taken on the Company’s tax returns. The Company records the benefit for unrecognized tax benefits only when it is

44

more likely than not that the position will be sustained upon examination by the taxing authorities. The Company reviews its unrecognized tax benefits on a quarterly basis. Such reviews include consideration of factors such as the cause of the action, the degree of probability of an unfavorable outcome, the Company’s ability to estimate the liability, and the timing of the liability and how it will impact the Company’s other tax attributes. At December 31, 2009, the Company believes it has adequately provided for its tax-related liabilities.

Undistributed earnings of the Company’s foreign subsidiaries were minimal at December 31, 2009, and are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. In the event that the foreign entities’ earnings were distributed, it is estimated that U.S. federal and state income taxes, net of foreign credits, would be immaterial.

In 2009, 2008, and 2007, 175,000, 140,000, and 131,000 shares of common stock, respectively, were issued through the exercise of non-qualified stock options or through the disqualifying disposition of incentive stock options. The tax benefit to the Company from these transactions, which was credited to capital in excess of par value rather than recognized as a reduction of income tax expense, was $273,000, $99,000, and $45,000 in 2009, 2008, and 2007, respectively. These tax benefits have also been recognized in the consolidated balance sheets as a reduction of income taxes payable.

Net income tax payments during 2009, 2008, and 2007 totaled $3.5 million, $4.3 million, and $1.7 million, respectively.

5. Lease Commitments

At December 31, 2009, the Company was obligated under a number of long-term operating leases, a number of which contain renewal options with escalation clauses commensurate to local market fluctuations, however, generally limiting the increase to no more than 5.0% of the existing lease payment.

Minimum future obligations under such leases are summarized as follows:

Year ending December 31,
(amounts in thousands)
2010	$	5,384
2011		3,827
2012		2,330
2013		1,108
2014		584
Later years		2,394
Minimum future obligations	$	15,627

The operating lease obligations relate to the rental of office space, office equipment, and automobiles leased in Europe. Total rental expense under such operating leases for 2009, 2008, and 2007 was approximately $7.1 million, $8.1 million, and $7.4 million, respectively.

45

6. Deferred Compensation Benefits

The Company maintains a non-qualified defined-benefit Executive Supplemental Benefit Plan (ESBP) that provides certain former key executives with deferred compensation benefits, based on years of service and base compensation, payable during retirement. The plan was amended as of November 30, 1994, to freeze benefits for participants at that time.

Net periodic pension cost for the years ended December 31, 2009, 2008, and 2007 for the ESBP is as follows:

Net Periodic Pension Cost—ESBP	2009		2008		2007
(amounts in thousands)
Interest cost	$	516	$	510	$	488
Amortization of actuarial loss		87		66		99
Net periodic pension cost	$	603	$	576	$	587

The Company also retained a contributory defined-benefit plan for its previous employees located in The Netherlands (NDBP) when the Company disposed of its subsidiary, CTG Nederland, B.V. Benefits paid are a function of a percentage of career average pay. This plan was curtailed for additional contributions in January 2003.

Net periodic pension cost (benefit) for the periods ended December 31, 2009, September 29, 2008, and September 30, 2007 for the NDBP is as follows:

Net Periodic Pension Cost (Benefit)—NDBP	2009			2008			2007
(amounts in thousands)
Interest cost	$	304		$	300		$	265
Expected return on plan assets		(310	)		(391	)		(338	)
Amortization of actuarial loss		(9	)		(5	)		(18	)
Net periodic pension benefit	$	(15	)	$	(96	)	$	(91	)

46

The change in benefit obligation and reconciliation of fair value of plan assets for the years ended December 31, 2009 and 2008 for the ESBP and NDBP are as follows:

	ESBP						NDBP
Changes in Benefit Obligation	2009			2008			2009			2008
(amounts in thousands)
Benefit obligation at beginning of period	$	8,132		$	8,147		$	5,529		$	5,474
Interest cost		516			510			304			300
Benefits paid		(796	)		(767	)		(86	)		(69	)
Actuarial (gain) loss		981			242			730			(169	)
Effect of exchange-rate changes		—			—			120			(7	)
Benefit obligation at end of period		8,833			8,132			6,597			5,529
Reconciliation of Fair Value of Plan Assets
Fair value of plan assets at beginning of period		—			—			7,886			7,550
Actual return on plan assets		—			—			408			372
Employer contributions		796			767			—			—
Benefits paid		(796	)		(767	)		(86	)		(69	)
Effect of exchange-rate changes		—			—			142			33
Fair value of plan assets at end of period		—			—			8,350			7,886
Accrued benefit cost (asset)	$	8,833		$	8,132		$	(1,753	)	$	(2,357	)
Accrued benefit cost (asset) is included in the consolidated balance sheet as follows:
Non-current assets	$	—		$	—		$	(1,753	)	$	(2,357	)
Current liabilities	$	772		$	791		$	—		$	—
Non-current liabilities	$	8,061		$	7,341		$	—		$	—
Discount rate:
Benefit obligation		5.34	%		6.34	%		5.00	%		5.60	%
Net periodic pension cost		6.34	%		6.57	%		5.00	%		5.60	%
Salary increase rate		—			—			—			—
Expected return on plan assets		—			—			4.00	%		4.00	%

For the ESBP, the accumulated benefit obligation at December 31, 2009 and 2008 was $8.8 million and $8.1 million, respectively. The amounts included in other comprehensive loss relating to the pension loss adjustment in 2009 and 2008, net of tax, were approximately $0.6 million and $(0.1) million, respectively. The discount rate used in 2009 was 5.34%, which is reflective of a series of bonds that are included in the Moody’s Aa long-term corporate bond yield whose cash flow approximates the payments to participants under the ESBP for the remainder of the plan. This rate was a decrease of 100 basis points from the rate used in the prior year and resulted in an increase in the plan’s liabilities of approximately $0.9 million. Benefits paid to participants are funded by the Company as needed, and are expected to total approximately $0.8 million in 2010. The plan is deemed unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities. The Company has purchased insurance on the lives of certain plan participants in amounts considered sufficient to reimburse the Company for the costs associated with the plan for those participants. The Company does not anticipate making contributions to the plan other than for current year benefit payments as required in 2010 or future years.

For the NDBP, the accumulated benefit obligation was $6.6 million and $5.5 million at December 31, 2009 and December 31, 2008, respectively. The discount rate used in 2009 was 5.0%, which is reflective of a series of corporate bonds whose cash flow approximates the payments to participants under the NDBP for the remainder of the plan. This rate was a decrease of 60 basis points from the rate used in the prior year and resulted in a net increase in the plan’s liabilities of approximately $0.7 million.

47

The assets for the NDBP are held by Aegon, a financial services firm located in the Netherlands. The assets for the plan are included in a general portfolio of government bonds, a portion of which is allocated to the NDBP based upon the estimated pension liability associated with the plan. The fair market value of the plan’s assets approximates the amount allocated to the NDBP in any given year. The fair value of the assets is determined using a Level 3 methodology (see note 1 “Summary of Significant Accounting Policies—Fair Value”). The calculation of fair value includes determining the present value of the future expected payments under the plan, including using assumptions such as expected market rates of return, equity and interest rate volatility, credit risk, correlations of market returns, and discount rates. In 2009 and 2008, the plan investments had a targeted minimum return to the Company of 4%, which is consistent with historical returns and the guaranteed 4% return guaranteed to the participants of the plan. The Company, in conjunction with Aegon, intends to maintain the current investment strategy of investing plan assets solely in government bonds in 2010. The Company does not anticipate making additional contributions to the plan in 2010 or future years, as the plan is currently fully funded.

Anticipated benefit payments for the ESBP and the NDBP expected to be paid in future years are as follows:

Year ending December 31,	ESBP		NDBP
(amounts in thousands)
2010	$	790	$	100
2011		778		107
2012		767		119
2013		748		142
2014		767		161
2015-2019		3,636		1,164
	$	7,486	$	1,793

The disclosures below include the ESBP, the NDBP, and the postretirement benefit plan discussed in note 7, “Employee Benefits,” under the caption “Other Postretirement Benefits.”

The amounts included in accumulated other comprehensive loss, net of tax, that have not yet been recognized as components of net periodic benefit cost as of December 31, 2009 are as follows:

	ESBP		NDBP			Post- Retirement Plan			Total
(amounts in thousands)
Unrecognized actuarial (gain) loss	$	1,690	$	(359	)	$	(64	)	$	1,267
Unrecognized transition obligation		—		—			55			55
Unrecognized prior service cost		—		—			(1	)		(1	)
	$	1,690	$	(359	)	$	(10	)	$	1,321

The amounts included in accumulated other comprehensive loss, net of tax, that have not yet been recognized as components of net periodic benefit cost as of December 31, 2008 were as follows:

	ESBP		NDBP			Post- Retirement Plan			Total
(amounts in thousands)
Unrecognized actuarial (gain) loss	$	1,130	$	(858	)	$	(115	)	$	157
Unrecognized transition obligation		—		—			73			73
Unrecognized prior service cost		—		—			(1	)		(1	)
	$	1,130	$	(858	)	$	(43	)	$	229

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The amounts recognized in other comprehensive loss, net of tax, for 2009, 2008, and 2007, which primarily consist of an actuarial (gain) loss and a transition obligation, totaled $(1,093,000), $175,000, and $1,072,000, respectively. Net periodic pension cost (benefit) for the ESBP and the NDBP, net periodic postretirement benefit cost, and the amounts recognized in other comprehensive loss, net of tax, for 2009, 2008, and 2007 totaled $(466,000), $724,000, and $1,640,000, respectively.

The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2010 are as follows:

	ESBP		NDBP		Post- Retirement Plan			Total
(amounts in thousands)
Unrecognized actuarial (gain) loss	$	166	$	—	$	(6	)	$	160
Unrecognized transition obligation		—		—		29			29
Unrecognized prior service cost		—		—		—			—
	$	166	$	—	$	23		$	189

The Company also maintains a non-qualified defined-contribution deferred compensation plan for certain key executives. Company contributions to this plan, if any, are based on annually defined financial performance objectives. There were $0.3 million in contributions to the plan in 2009 for amounts earned in 2008, $0.4 million in contributions to the plan in 2008 for amounts earned in 2007, and $0.4 million in contributions to the plan in 2007 for amounts earned in 2006. The Company anticipates making contributions in 2010 totaling approximately $0.1 million to this plan for amounts earned in 2009. The investments in the plan are included in the total assets of the Company, and are discussed in note 1, “Summary of Significant Accounting Policies—Investments.” During 2009, several participants in the plan exchanged a portion of their investments for stock units which represent shares of the Company’s common stock. In exchange for the funds received, the Company issued shares out of treasury stock equivalent to the number of share units received by the participants. These shares of common stock are not entitled to any voting rights and the holders will not receive dividends, if any are paid. The shares are being held by the Company, and will be released to the participants as prescribed by their payment elections under the plan.

7. Employee Benefits

401(k) Profit-Sharing Retirement Plan

The Company maintains a contributory 401(k) profit-sharing retirement plan covering substantially all U.S. employees. At its discretion, the Company may match up to 50% of the first 6% of eligible wages contributed by the participants. During part of 2009, the Company reduced its match from 50% of the first 6% of eligible wages to 50% of the first 4% of eligible wages. Company contributions consist of cash, and may include the Company’s stock, were funded and charged to operations in the amounts of $1.4 million, $2.5 million, and $2.3 million for 2009, 2008, and 2007, respectively.

Other Retirement Plans

The Company maintains various other defined contribution retirement plans covering substantially all of the remaining European employees. Company contributions charged to operations were $0.1 million in 2009 and $0.2 million in both 2008 and 2007.

The Company provides limited healthcare and life insurance benefits to nine retired employees and their spouses, totaling 13 participants, pursuant to contractual agreements.

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Net periodic postretirement benefit cost for the years ended December 31, 2009, 2008, and 2007 is as follows:

Net Periodic Postretirement Benefit Cost	2009			2008		2007
(amounts in thousands)
Interest cost	$	23		$	40	$	39
Amortization of transition amount		29			29		29
Amortization of actuarial loss (gain)		(13	)		—		4
Net periodic postretirement benefit cost	$	39		$	69	$	72

No adjustments were made to the 2009, 2008 or 2007 net periodic postretirement benefit cost due to Medicare reform as the amounts were deemed to be insignificant.

The change in postretirement benefit obligation at December 31, 2009 and 2008 is as follows:

Changes in Postretirement Benefit Obligation	2009			2008
(amounts in thousands)
Postretirement benefit obligation at beginning of year	$	379		$	655
Interest cost		23			40
Benefits paid		(52	)		(75	)
Actuarial (gain) / loss		61			(241	)
Postretirement benefit obligation at end of year		411			379
Fair value of plan assets at end of year		—			—
Accrued postretirement benefit obligation	$	411		$	379
Accrued postretirement benefit obligation is included in the consolidated balance sheet as follows:
Current liabilities	$	37		$	36
Non-current liabilities	$	374		$	343
Discount rate:
Benefit obligation		5.22	%		6.34	%
Net periodic postretirement benefit cost		6.34	%		6.51	%
Salary increase rate		—			—

The discount rate used in 2009 to calculate the benefit obligation was 5.22%, which is reflective of a series of bonds that are included in the Moody’s Aa long-term corporate bond yield whose cash flow approximates the payments to participants for the remainder of the plan. For December 31, 2009, the Company updated its methodology for determining the average cost of benefits provided to retirees from prior years which caused a decrease in accrued post retirement benefit obligation from 2008 to 2009. Benefits paid to participants are funded by the Company as needed.

Anticipated benefit payments for the postretirement medical plan are expected to be paid in future years as follows:

Year ending December 31,
(amounts in thousands)
2010	$	38
2011		39
2012		38
2013		38
2014		38
2015-2019		159
	$	350

50

The rate of increase in healthcare costs is assumed to be 8.5% for medical, 5.5% for dental, and 5.0% for Medicare Part B in 2010, gradually declining to 6.0% for medical and 5.0% for both dental and Medicare Part B by the year 2015. Increasing the assumed healthcare cost trend rate by one percentage point would increase the accrued postretirement benefit obligation by $26,600 at December 31, 2009, and the net periodic postretirement benefit cost by $1,100 for the year. A one-percentage-point decrease in the healthcare cost trend would decrease the accrued postretirement benefit obligation by $25,000 at December 31, 2009, and the net periodic postretirement benefit cost by $1,000 for the year.

Employee Health Insurance

The Company provides various health insurance plans for its employees, including a self-insured plan for its employees in the U.S.

8. Shareholders’ Equity

Employee Stock Purchase Plan

Under the Company’s First Employee Stock Purchase Plan (Plan), employees may apply up to 10% of their compensation to purchase the Company’s common stock. Shares are purchased at the closing market price on the business day preceding the date of purchase. As of December 31, 2009, approximately 73,000 shares remain unissued under the Plan, of the total of 11.5 million shares that had been authorized under the Plan. During 2009, 2008, and 2007, approximately 23,000, 24,000, and 28,000 shares, respectively, were purchased under the Plan at an average price of $4.97, $4.80, and $4.63 per share, respectively.

Shareholder Rights Plan

The Board of Directors adopted a Shareholder Rights Plan in January 1989 that was subsequently amended in 1999 to extend the expiration of the plan to November 2008. The plan expired in 2008 as it was not renewed.

Stock Trusts

The Company maintains a Stock Employee Compensation Trust (SECT) to provide funding for existing employee stock plans and benefit programs. Shares of the Company’s common stock are purchased by and released from the SECT by the trustee of the SECT at the request of the compensation committee of the Board of Directors. As of December 31, 2009, all shares remaining in the SECT were unallocated and, therefore, are not considered outstanding for purposes of calculating earnings per share.

SECT activity for the years ended December 31, 2009, 2008, and 2007 is as follows:

	2009	2008		2007
(amounts in thousands)
Share balance at beginning of year	3,304	3,318		3,564
Shares released:
Stock option plans	—	(8	)	(131	)
Employee Stock Purchase Plan	—	(6	)	(28	)
Restricted stock issuance	—	—		(87	)
Share balance at end of year	3,304	3,304		3,318

51

During 1999, the Company created an Omnibus Stock Trust (OST) to provide funding for various employee benefit programs. During 1999, the OST purchased 59,000 shares of the Company’s common stock for $1.0 million. Shares of the Company’s common stock are released from the OST by the trustee at the request of the compensation committee of the Board of Directors. During 2009, 2008, and 2007, no shares were purchased or released by the OST.

Preferred Stock

At December 31, 2009 and 2008, the Company has 2,500,000 shares of par value $0.01 preferred stock authorized for issuance, but none outstanding.

9. Equity-Based Compensation

The Company issues stock options and restricted stock in exchange for employee and director services. In accordance with current accounting standards, the calculated cost of its equity-based compensation awards is recognized in the Company’s consolidated statements of income over the period in which an employee or director is required to provide the services for the award. Compensation cost will not be recognized for employees or directors that do not render the requisite services. The Company recognizes the expense for equity-based compensation in its consolidated income statements on a straight-line basis based upon awards that are ultimately expected to vest.

Equity-based compensation expense, tax benefit and net after tax cost for 2009, 2008 and 2007 are as follows:

	2009		2008		2007
(amounts in thousands)
Equity-based compensation	$	1,447	$	991	$	863
Tax benefit		512		353		294
Net expense	$	935	$	638	$	569

On April 26, 2000, the shareholders approved the Company’s 2000 Equity Award Plan (Equity Plan). Under the provisions of the Equity Plan, stock options, restricted stock, stock appreciation rights, and other awards may be granted or awarded to employees and directors of the Company. The compensation committee of the Board of Directors determines the nature, amount, pricing, and vesting of the grant or award. All options and awards remain in effect until the earlier of the expiration, exercise, or surrender date. Options generally become exercisable in three or four equal annual installments, beginning one year from the date of grant. In certain limited instances, options granted at fair market value are expected to vest nine and one-half years from the date of grant. A total of 5,150,000 shares may be awarded under this plan, and 365,818 shares are available for grant as of December 31, 2009.

On April 24, 1991, the shareholders approved the Company’s 1991 Employee Stock Option Plan (1991 Plan). Under the provisions of the 1991 Plan, options may be granted to employees and directors of the Company. The exercise price for options granted under this plan is equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Incentive stock options generally become exercisable in four annual installments of 25% of the shares covered by the grant, beginning one year from the date of grant, and expire six years after becoming exercisable. Nonqualified stock options generally become exercisable in either four or five annual installments of 25 or 20%, respectively, of the shares covered by the grant, beginning one year from the date of grant, and expire up to 15 years from the date of grant. All options remain in effect until the earlier of the expiration, exercise, or surrender date. There are no options available for grant under this plan as of December 31, 2009.

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Under the Company’s 1991 Restricted Stock Plan, a total of 800,000 shares of restricted stock may be granted to certain key employees, and 615,750 shares are available for grant as of December 31, 2009.

The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted on the date of grant. The per-option weighted-average fair value on the date of grant of stock options granted in 2009, 2008, and 2007 was $2.01, $1.61, and $1.72, respectively. The fair value of the options at the date of grant was estimated using the following weighted-average assumptions for the years ended December 31, 2009, 2008 and 2007:

	2009		2008		2007
Expected life (years)	3.4		3.3		3.4
Dividend yield	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.8	%	3.2	%	4.7	%
Expected volatility	58.4	%	42.0	%	47.4	%

The Company used historical volatility calculated using daily closing prices for its common stock over periods that match the expected term of the option granted to estimate the expected volatility for the grants made in 2007, 2008 and 2009. The risk-free interest rate assumption was based upon U.S. Treasury yields appropriate for the expected term of the Company’s stock options based upon the date of grant. The expected term of the stock options granted was based upon the options expected vesting schedule and historical exercise patterns. The expected dividend yield was based upon the Company’s recent history of paying dividends, and the expectation of paying dividends in the foreseeable future.

During 2007, 2008 and 2009, the Company issued restricted stock to certain employees and its independent directors. For the employees, the stock vests over a period of four years, with 25% of the stock issued vesting one year from the date of grant, and another 25% vesting each year thereafter until the stock is fully vested. The Company is recognizing compensation expense for these shares ratably over the expected term of the restricted stock, or four years. For the independent directors, the issued stock vests at retirement. As the directors are eligible for retirement from the Company’s Board of Directors at any point, the Company recognized the expense associated with these shares on the date of grant. The shares of restricted stock issued are considered outstanding, and are eligible to receive dividends, if any are paid, and can be voted. However, only vested shares of outstanding restricted stock are included in the calculation of basic earnings per share.

As of December 31, 2009, total remaining stock-based compensation expense for non-vested equity-based compensation is approximately $1.7 million, which is expected to be recognized on a weighted-average basis over the next 16 months. Historically, the Company has issued shares out of treasury stock and its SECT to fulfill the share requirements from stock option exercises and restricted stock grants.

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A summary of stock option activity under the Equity Plan and 1991 Plan is as follows:

	Equity Plan Options		Weighted- Average Exercise Price		1991 Plan Options		Weighted- Average Exercise Price
Outstanding at December 31, 2006	3,348,875		$	3.91	652,826		$	12.55
Granted	475,500		$	4.52	—			—
Exercised	(87,750	)	$	3.83	(42,750	)	$	2.87
Canceled and forfeited	(122,750	)	$	4.58	(60,875	)	$	21.74
Expired	—			—	(65,654	)	$	20.18
Outstanding at December 31, 2007	3,613,875		$	3.97	483,547		$	11.21
Granted	395,300		$	4.90	—			—
Exercised	(199,422	)	$	4.03	(23,500	)	$	3.07
Canceled and forfeited	(187,953	)	$	4.80	(11,000	)	$	15.23
Expired	(24,000	)	$	5.54	(118,987	)	$	18.07
Outstanding at December 31, 2008	3,597,800		$	4.01	330,060		$	9.18
Granted	380,500		$	4.81	—			—
Exercised	(237,483	)	$	3.17	(21,750	)	$	3.93
Canceled and forfeited	(23,500	)	$	4.57	(1,500	)	$	16.19
Expired	(18,500	)	$	5.02	(41,771	)	$	12.50
Outstanding at December 31, 2009	3,698,817		$	4.14	265,039		$	9.04
Options exercisable at December 31, 2009	2,755,818		$	4.09	265,039		$	9.04

For 2009, 2008 and 2007, the intrinsic value of the options exercised under the Equity Plan was approximately $970,293, $431,995 and $101,300, respectively, while the intrinsic value of the options exercised under the 1991 Plan for the same years was $80,768, $71,888 and $72,100, respectively.

A summary of restricted stock activity under the Equity Plan and the 1991 Restricted Stock Plan is as follows:

	Equity Plan Restricted Stock		Weighted- Average Fair Value		1991 Restricted Stock Plan		Weighted- Average Fair Value
Outstanding at December 31, 2006	95,500		$	4.39	—		$	4.52
Granted	45,000		$	4.70	41,500		$	4.52
Released	(8,875	)	$	4.65	—		$	4.52
Canceled and forfeited	(1,500	)	$	4.65	(4,500	)	$	4.52
Outstanding at December 31, 2007	130,125		$	4.48	37,000		$	4.52
Granted	62,710		$	4.47	62,000		$	4.79
Released	(29,585	)	$	4.51	(9,250	)	$	4.52
Canceled and forfeited	(1,500	)	$	4.65	(3,750	)	$	4.63
Outstanding at December 31, 2008	161,750		$	4.47	86,000		$	4.71
Granted	75,000		$	6.12	89,000		$	4.90
Released	(7,625	)	$	4.65	(23,625	)	$	4.69
Canceled and forfeited	—			—	—			—
Outstanding at December 31, 2009	229,125		$	5.00	151,375		$	4.82

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Options Outstanding at December 31, 2009

A summary of options outstanding as of December 31, 2009 for the Equity Plan and 1991 Plan is as follows:

Range of Exercise Prices	Number Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Equity Plan
$1.40	120,000	$	1.40	8.0	$	793,200
$2.24 – $3.26	1,033,375	$	3.12	7.0	$	5,052,464
$3.48 – $4.90	2,061,442	$	4.51	7.3	$	7,205,359
$5.25 – $5.94	484,000	$	5.40	8.1	$	1,260,880
	3,698,817	$	4.14	7.3	$	14,311,903
1991 Plan
$2.88	10,125	$	2.88	1.3	$	51,992
$5.13 – $6.13	200,136	$	5.96	4.2	$	409,579
$16.19 – $21.94	36,958	$	17.94	2.3	$	—
$26.06 – $30.31	17,820	$	28.69	3.4	$	—
	265,039	$	9.04	3.8	$	461,571

Options Exercisable at December 31, 2009

A summary of options exercisable at December 31, 2009 for the Equity Plan and the 1991 Plan is as follows:

Range of Exercise Prices	Number Exercisable	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Equity Plan
$1.40	120,000	$	1.40	8.0	$	793,200
$2.24 – $3.26	793,375	$	3.16	7.2	$	3,846,964
$3.48 – $4.90	1,358,443	$	4.40	7.0	$	4,899,517
$5.25 – $5.94	484,000	$	5.40	8.1	$	1,260,880
	2,755,818	$	4.09	7.3	$	10,800,561
1991 Plan
$2.88	10,125	$	2.88	1.3	$	51,992
$5.13 – $6.13	200,136	$	5.96	4.2	$	409,579
$16.19 – $21.94	36,958	$	17.94	2.3	$	—
$26.06 – $30.31	17,820	$	28.69	3.4	$	—
	265,039	$	9.04	3.8	$	461,571

The aggregate intrinsic values as calculated in the above charts are based upon the Company’s closing stock price on December 31, 2009 of $8.01 per share.

55

10. Significant Customer

International Business Machines (IBM) is the Company’s largest customer. In 2009, 2008, and 2007, IBM accounted for $71.2 million or 25.8%, $108.3 million or 30.6%, and $96.0 million or 29.5% of the Company’s consolidated revenue, respectively. The Company’s accounts receivable from IBM at December 31, 2009 and 2008 amounted to $9.7 million and $8.5 million, respectively. The Company expects to continue to derive a significant portion of its revenue from IBM in 2010 and in future years. However, a significant decline in revenue from IBM would have a significant negative effect on the Company’s revenue and profits. No other customer accounted for more than 10% of revenue in 2009, 2008, or 2007.

11. Contingencies

The Company and its subsidiaries are involved from time to time in various legal proceedings and tax audits arising in the ordinary course of business. At December 31, 2009 and 2008, the Company is in discussion with various governmental agencies relative to tax matters, including income, sales and use, and property and franchise taxes. The outcome of these audits and legal proceedings, if any, involving the Company and its subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such audits cannot be accurately predicted. As management has made an estimate of its potential liability for these audits at December 31, 2009 and 2008, the Company does not expect the conclusion of these matters to have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

12. Enterprise-Wide Disclosures

The Company operates in one industry segment, providing information technology (IT) services to its clients. The services provided include strategic and flexible staffing and the planning, design, implementation, and maintenance of comprehensive IT solutions. All of the Company’s revenue is generated from these services. CTG’s reportable information is based on geographical areas. The accounting policies of the individual geographical areas are the same as those described in note 1, “Summary of Significant Accounting Policies.”

Financial Information About Geographic Areas	2009		2008		2007
(amounts in thousands)
Revenue from External Customers
United States	$	211,265	$	272,242	$	250,097
Belgium(1)		42,326		53,773		46,499
Other European countries		20,418		24,437		25,598
Other countries		1,551		2,761		3,091
Total revenue	$	275,560	$	353,213	$	325,285
Long-lived Assets
United States	$	7,362	$	5,710	$	4,513
Belgium		562		826		921
Other European countries		222		231		307
Total long-lived assets	$	8,146	$	6,767	$	5,741
Deferred Tax Assets, Net of Valuation Allowance
United States	$	6,962	$	6,205	$	6,297
Europe		—		—		146
Other countries		—		—		98
Total deferred tax assets, net	$	6,962	$	6,205	$	6,541

⁽¹⁾ Revenues for Belgium have been disclosed separately as they exceeded 10% of our consolidated revenues for the years presented.

56

13. Quarterly Financial Data (Unaudited)

	Quarters
	First			Second			Third			Fourth			Total
(amounts in thousands, except per-share data)
2009
Revenue	$	74,556		$	66,580		$	66,771		$	67,653		$	275,560
Direct costs		57,836			51,628			51,570			52,667			213,701
Gross profit		16,720			14,952			15,201			14,986			61,859
Selling, general, and administrative expenses		14,313			12,528			12,713			12,416			51,970
Operating income		2,407			2,424			2,488			2,570			9,889
Interest and other income (expense), net		(151	)		(29	)		(29	)		(4	)		(213	)
Income before income taxes		2,256			2,395			2,459			2,566			9,676
Provision for income taxes		954			1,000			853			936			3,743
Net income	$	1,302		$	1,395		$	1,606		$	1,630		$	5,933
Basic net income per share	$	0.09		$	0.09		$	0.11		$	0.11		$	0.40
Diluted net income per share	$	0.09		$	0.09		$	0.10		$	0.10		$	0.38
	Quarters
	First			Second			Third			Fourth			Total
(amounts in thousands, except per-share data)
2008
Revenue	$	86,683		$	94,071		$	89,131		$	83,328		$	353,213
Direct costs		67,941			72,425			69,488			64,679			274,533
Gross profit		18,742			21,646			19,643			18,649			78,680
Selling, general, and administrative expenses		16,360			17,658			16,167			15,413			65,598
Operating income		2,382			3,988			3,476			3,236			13,082
Interest and other income (expense), net		(48	)		(69	)		(55	)		428	**		256
Income before income taxes		2,334			3,919			3,421			3,664			13,338
Provision for income taxes		930			1,869			1,340			1,362			5,501
Net income	$	1,404		$	2,050		$	2,081		$	2,302		$	7,837
Basic net income per share	$	0.09		$	0.13		$	0.14		$	0.15		$	0.51
Diluted net income per share	$	0.09		$	0.13		$	0.13		$	0.15		$	0.49

** During the 2008 fourth quarter, the Company recorded a net foreign currency exchange gain on intercompany balances totaling approximately $0.5 million on balances settled during the quarter and those balances outstanding between its subsidiaries at December 31, 2008.

57

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management has evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act, as amended) as of the end of the period covered by this annual report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.

(a) Management’s Annual Report on Internal Control Over Financial Reporting

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

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may deteriorate.

Management of the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s management did not identify any control deficiencies it considered to be material weaknesses under the rules specified by the Public Company Accounting Oversight Board’s Auditing Standard No. 5, and therefore concluded that its internal control over financial reporting was effective as of December 31, 2008.

Our independent registered public accounting firm has issued an attestation report on the Company’s effectiveness of internal control over financial reporting. Their report appears in Item 9A (b), Attestation Report of the Registered Public Accounting Firm.

58

(b) Attestation Report of the Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Computer Task Group, Incorporated:

We have audited Computer Task Group, Incorporated’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Computer Task Group, Incorporated’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting (Item 9A(a)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, Computer Task Group, Incorporated maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Computer Task Group, Incorporated as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated February 25, 2010 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Buffalo, New York

February 25, 2010

59

(c) Changes in Internal Control Over Financial Reporting

The Company continues to review, revise and improve the effectiveness of the Company’s internal controls on a continuous basis. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of the end of the period covered by this annual report. There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this annual report, which ended on December 31, 2009, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None

60

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required in response to this item is incorporated herein by reference to the information set forth under “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “The Board of Directors and Committees” in relation to the “Audit Committee” subsection, and “Corporate Governance and Website Information” in the Company’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 12, 2010 (Proxy Statement) to be filed with the SEC not later than 120 days after the end of the year ended December 31, 2009, except insofar as information with respect to executive officers is presented in Part I, Item 1 of this report pursuant to General Instruction G(3) of Form 10-K.

Item 11. Executive Compensation

The information required in response to this item is incorporated herein by reference to the information under the caption “The Board of Directors and Committees” and “Compensation Discussion and Analysis” presented in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except as set forth below, the information required in response to this item is incorporated herein by reference to the information under the caption “Security Ownership of the Company’s Common Shares by Certain Beneficial Owners and by Management” presented in the Proxy Statement.

The following table sets forth, as of December 31, 2009, certain information related to the Company’s compensation plans under which shares of its common stock are authorized for issuance:

Equity Compensation Plan Information as of December 31, 2009

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders
2000 Equity Award Plan	3,698,817	$	4.14	365,818
1991 Employee Stock Option Plan	265,039	$	9.04	—
1991 Restricted Stock Plan	—		—	615,750
Equity compensation plans not approved by security holders
None	—		—	—
Total	3,963,856	$	4.47	981,568

At December 31, 2009, the Company did not have any outstanding rights or warrants. All outstanding awards are either stock options or restricted stock.

61

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required in response to this item is incorporated herein by reference to the information under the caption “Certain Relationships and Related Person Transactions, and Director Independence” presented in the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required in response to this item is incorporated herein by reference to the information under the caption “Appointment of Auditors for Fiscal 2009 and Fees” presented in the Proxy Statement.

62

PART IV

Item 15. Exhibits and Financial Statement Schedule

(A) Index to Consolidated Financial Statements and Financial Statement Schedule

(1)	Financial Statements:
	Report of Independent Registered Public Accounting Firm	29
	Consolidated Statements of Income	30
	Consolidated Balance Sheets	31
	Consolidated Statements of Cash Flows	32
	Consolidated Statements of Changes in Shareholders’ Equity	33
	Notes to Consolidated Financial Statements	35
(2)	Index to Consolidated Financial Statement Schedule
	Report of Independent Registered Public Accounting Firm on Financial Statement Schedule	64
	Financial statement schedule:
	Schedule II—Valuation and Qualifying Accounts	65

(B) Exhibits

The Exhibits to this annual report on Form 10-K are listed on the attached Exhibit Index appearing on pages 67 to 69.

63

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Computer Task Group, Incorporated:

Under date of February 25, 2010, we reported on the consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009, which are included in the Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Buffalo, New York

February 25, 2010

64

COMPUTER TASK GROUP, INCORPORATED

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(amounts in thousands)

Description	Balance at January 1		Additions			Deductions			Balance at December 31
2009
Accounts deducted from accounts receivable
Allowance for doubtful accounts	$	1,005	$	99	(A)	$	(140	)(A)	$	964
Accounts deducted from deferred tax assets
Deferred tax asset valuation allowance	$	2,454	$	324	(B)	$	(129	)(B)	$	2,649
Accounts deducted from other assets
Reserves	$	575	$	—		$	—		$	575
2008
Accounts deducted from accounts receivable
Allowance for doubtful accounts	$	955	$	503	(A)	$	(453	)(A)	$	1,005
Accounts deducted from deferred tax assets
Deferred tax asset valuation allowance	$	2,492	$	308	(B)	$	(346	)(B)	$	2,454
Accounts deducted from other assets
Reserves	$	575	$	—		$	—		$	575
2007
Accounts deducted from accounts receivable
Allowance for doubtful accounts	$	866	$	303	(A)	$	(214	)(A)	$	955
Accounts deducted from deferred tax assets
Deferred tax asset valuation allowance	$	2,768	$	619	(B)	$	(895	)(B)	$	2,492
Accounts deducted from other assets
Reserves	$	575	$	—		$	—		$	575

^(A) Reflects additions charged principally to costs and expenses, less deductions for accounts written off or collected, and foreign currency translation

^(B) Reflects additions and deductions for foreign currency translation, and deductions credited to expense

65

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COMPUTER TASK GROUP, INCORPORATED
By	/s/    James R. Boldt
	James R. Boldt,
	Chairman and Chief Executive Officer

Dated: February 25, 2010

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

	Signature	Title	Date
(i)	Principal Executive Officer	Chairman and Chief Executive Officer	February 25, 2010
	/s/    James R. Boldt         James R. Boldt
(ii)	Principal Accounting and Principal Financial Officer	Chief Financial Officer	February 25, 2010
	/s/    Brendan M. Harrington         Brendan M. Harrington
(iii)	Directors
	/s/    Thomas E. Baker         Thomas E. Baker	Director	February 25, 2010
	/s/    James R. Boldt         James R. Boldt	Director	February 25, 2010
	/s/    Randall L. Clark          Randall L. Clark	Director	February 25, 2010
	/s/    Randolph A. Marks         Randolph A. Marks	Director	February 25, 2010
	/s/    William D. McGuire         William D. McGuire	Director	February 25, 2010
	/s/    John M. Palms         John M. Palms	Director	February 25, 2010
	/s/    Daniel J. Sullivan          Daniel J. Sullivan	Director	February 25, 2010

66

EXHIBIT INDEX

Exhibit		Description	Page Number or (Reference)
3.	(a)	Restated Certificate of Incorporation of Registrant	(1)
	(b)	Restated By-laws of Registrant	(2)
4.	(a)	Restated Certificate of Incorporation of Registrant	(1)
	(b)	Restated By-laws of Registrant	(2)
	(c)	Specimen Common Stock Certificate
10.	(a)	Non-Compete Agreement, dated as of March 1, 1984, between Registrant and Randolph A. Marks	(2) +
	(b)	Stock Employee Compensation Trust Agreement, dated May 3, 1994, between Registrant and Thomas R. Beecher, Jr., as trustee	(2) +
	(c)	Demand Grid Note, dated October 29, 1997, between Registrant and Computer Task Group, Incorporated Stock Employee Compensation Trust	(2) +
	(d)	Pledge Agreement, between the Registrant and Thomas R. Beecher, Jr., as Trustee of the Computer Task Group, Incorporated Stock Employee Compensation Trust	(2) +
	(e)	Stock Purchase Agreement, dated as of February 25, 1981, between Registrant and Randolph A. Marks	(3) +
	+	Management contract or compensatory plan or arrangement
	(1)	Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference
	(2)	Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference
	(3)	Filed as an Exhibit to the Registrant’s Registration Statement No. 2 - 71086 on Form S-7 filed on February 27, 1981, and incorporated herein by reference

67

Exhibit		Description	Page Number or (Reference)
10.	(f)	2009 Key Employee Compensation Plans	(4) +
	(g)	Computer Task Group, Incorporated Non-Qualified Key Employee Deferred Compensation Plan	(2) +
	(h)	1991 Restricted Stock Plan	(1) +
	(i)	Computer Task Group, Incorporated 2000 Equity Award Plan	(5) +
	(j)	Executive Supplemental Benefit Plan 1997 Restatement	(1) +
	(k)	First Amendment to the Computer Task Group, Incorporated Executive Supplemental Benefit Plan 1997 Restatement	(1) +
	(l)	Compensation Arrangements for the Named Executive Officers	# +
	(m)	Change in Control Agreement, dated January 1, 2009, between the Registrant and James R. Boldt, as amended and restated	(6) +
	(n)	Employment Agreement, dated January 1, 2009, between the Registrant and James R. Boldt, as amended and restated	(6) +
	(o)	Officer Change in Control Agreement	(6) +
	(p)	First Employee Stock Purchase Plan (Eighth Amendment and Restatement)	(1) +
	(q)	Loan Agreement By and Among Manufacturers and Traders Trust Company and Computer Task Group, Incorporated	(7)
	#	Filed herewith
	(4)	Included in the Registrant’s definitive Proxy Statement dated April 2009 under the caption entitled “Annual Cash Incentive Compensation,” and incorporated herein by reference
	(5)	Filed as an Exhibit to the Registrants Form 8-K on November 18, 2008, and incorporated herein by reference
	(6)	Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, and incorporated herein by reference
	(7)	Filed as an Exhibit to the Registrants Form 8-K on April 21, 2005, and incorporated herein by reference

68

Exhibit		Description	Page Number or (Reference)
10.	(r)	Third Amendment to the Loan Agreement, dated February 4, 2008, among Computer Task Group, Incorporated, Manufacturers and Traders Trust Company and Key Bank National Association	(8)
	(s)	1991 Employee Stock Option Plan	(9)
	(t)	2010 Equity Award Plan	# +
	(u)	Non-Employee Director Deferred Compensation Plan	# +
14.		Code of Ethics	(10)
21.		Subsidiaries of the Registrant	#
23.		Consent of experts and counsel	#
31.	(a)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	#
	(b)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	#
32.		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	#
	(8)	Filed as an Exhibit to the Registrants Form 8-K on February 8, 2008, and incorporated herein by reference
	(9)	Filed as an Exhibit to the Registrants Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference
	(10)	Included at the internet address specified in the Registrant’s definitive Proxy Statement dated April 2010 under the caption entitled “Corporate Governance and Website Information,” and incorporated herein by reference

69

EX-10.(L)

EXHIBIT 10 (l)

COMPUTER TASK GROUP, INCORPORATED

COMPENSATION ARRANGEMENTS FOR THE NAMED EXECUTIVE OFFICERS

Set forth below is a summary of the annual and incentive compensation paid by Computer Task Group, Incorporated (the Company) to its named executives (defined in Regulation S-K Item 402(a)(3)) in their current positions as of the date of the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. All of the Company’s executive officers are at-will employees whose compensation and employment status may be changed at any time at the discretion of the Company’s Board of Directors, subject only to the terms of employment agreements, as applicable, between the Company and these executive officers.

Effective January 1, 2010, the named executive officers are scheduled to receive the following annual base salaries in their current positions:

	Current Annual Salary
James R. Boldt Chairman, President and Chief Executive Officer	$	450,000
Brendan M. Harrington Senior Vice President, Chief Financial Officer	$	237,000
Michael J. Colson Senior Vice President, Solutions	$	246,000
Filip J.L. Gyde (1) Senior Vice President, General Manager, CTG Europe	$	304,993
Arthur W. Crumlish Senior Vice President and General Manager, Strategic Staffing Solutions	$	239,000

Executive officers are also eligible to receive incentive compensation each year primarily based upon the achievement of certain targets. These targets may include specific levels of revenue growth, gross profit, operating income or earnings per share. Bonuses were awarded to the named executives for 2009 as follows:

	2009 Bonus
James R. Boldt	$	0
Brendan M. Harrington	$	0
Michael J. Colson	$	71,112
Filip J.L. Gyde	$	0
Arthur W. Crumlish	$	0

(1) Mr. Gyde is paid in Euros. This amount represents his base pay of 212,257 Euros translated into U.S. dollars at the January 1, 2010 exchange rate.

70

EX-10.(T)

EXHIBIT 10 (t)

COMPUTER TASK GROUP, INCORPORATED

2010 EQUITY AWARD PLAN

Section 1. Purpose. The purpose of The Computer Task Group, Incorporated 2010 Equity Award Plan (the “Plan”) is to promote the success of The Computer Task Group, Incorporated (the “Company”) and the interests of its stockholders by attracting, motivating, retaining and rewarding employees, directors and officers of, and key advisers and consultants to, the Company and its Subsidiaries.

Section 2. Definitions. For purposes of this Plan, the following terms used herein shall have the following meanings, unless a different meaning is clearly required by the context.

2.1 “Board” means the Board of Directors of the Company.

2.2 “Change in Control” means any one of the following occurrences:

(a) Approval by the stockholders of the Company of the dissolution or liquidation of the Company;

(b) Approval by the stockholders of the Company of an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities that are not wholly-owned Subsidiaries, as a result of which less than two-thirds of the outstanding voting securities of the surviving or resulting entity immediately after the reorganization are, or will be, beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly through one or more holding companies or other entities, by stockholders of the Company immediately before such reorganization (for purposes of such determination, it shall be deemed (i) that no change in the beneficial ownership of the Company’s securities will have occurred from the record date for such approval until the consummation of such reorganization and (ii) that such beneficial owners (other than affiliates of the Company, which shall be included in such determination) hold no securities of the other parties to such reorganization);

(c) Approval by the stockholders of the Company of the sale of substantially all of the Company’s business and/or assets to a person or entity that is not a Subsidiary;

(d) Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any person described in and satisfying the conditions of Rule 13d-1(b)(1) thereunder), other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any of its Subsidiaries or any Person holding common shares of the Company for or pursuant to the terms of any such employee benefit plan, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly through one or more holding companies or other entities, of securities of the Company representing more than [33.3]% of the combined voting power of the Company’s then outstanding securities entitled to then vote generally in the election of directors of the Company; or

(e) During any period not longer than two consecutive years, individuals who at the beginning of such period constituted the Board cease to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s stockholders, of each new Board member was approved by a vote of at least three-quarters of the Board members then still in office who were Board members at the beginning of such period (including for these purposes, new members whose election or nomination was so approved).

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2.3 “Code” means the Internal Revenue Code of 1986, as amended.

2.4 “Committee” shall have the meaning provided in Section 3 of the Plan.

2.5 “Common Stock” means the common stock, $.01 par value, of the Company or such class of equity securities of any Successor having the power to vote generally for directors and to participate in the profits of such Successor by way of dividend after all holders of preferred securities have received such dividends to which they may be entitled.

2.6 “Company” shall have the meaning set forth in Section 1 of the Plan and shall include, where applicable, any Successor as defined in Section 2.2(c) of the Plan.

2.7 “Continuous Service” means that the Participant’s service with the Company or any Subsidiary, whether as an employee, officer, director, adviser, or consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or any Subsidiary as an employee, officer, director, adviser or consultant, or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service. For example, a change in status from an employee of the Company to a consultant of a Subsidiary or a director will not constitute an interruption of Continuous Service. The Committee, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by the Committee, including sick leave, military leave or any other personal leave.

2.8 “Disability” means (a) as it relates to the exercise of an Incentive Stock Option after termination of employment, a disability within the meaning of Section 22(e)(3) of the Code, and (b) for all other purposes, shall have the meaning given that term by the group disability insurance, if any, maintained by the Company for its employees or otherwise shall mean the complete inability of the Participant, with or without a reasonable accommodation, to perform his or her duties with the Company or any Subsidiary on a full-time basis as a result of physical or mental illness or personal injury he or she has incurred for more than 12 weeks in any 52 week period, whether consecutive or not, as determined by an independent physician selected with the approval of the Company or any Subsidiary and the Participant.

2.9 “Effective Date” shall have the meaning provided in Section 24 of the Plan.

2.10 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

2.11 “Fair Market Value” means, if the Common Stock of the Company is listed on a national securities exchange, the last reported sale price on the principal national securities exchange on which the Common Stock is listed or admitted to trading on the trading day for which the determination is being made (or, if the date of determination is not a trading day, the immediately preceding trading day) or, if the Common Stock is not listed or admitted to trading on a national securities exchange, then the average of the closing bid and asked prices on the day for which the determination is being made in the over-the-counter market as reported by the Nasdaq Stock Market, Inc. (“NASDAQ”) (or, if the date of determination is not a trading day, the immediately preceding trading day) or, if bid and asked prices for the Common Stock on such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board or a committee thereof, or, if none of the foregoing is applicable, then the fair market value of the Common Stock as determined in good faith by the Committee in its sole discretion.

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2.12 “Immediate Family” shall have the meaning provided in Section 18 of the Plan.

2.13 “Incentive Stock Option” means a stock option granted under the Plan which is intended to be designated as an “incentive stock option” within the meaning of Section 422 of the Code.

2.14 “Non-Qualified Stock Option” means a stock option granted under the Plan which is not intended to be an Incentive Stock Option, including any stock option that provides (as of the time such option is granted) that it will not be treated as an Incentive Stock Option nor as an option described in Section 423(b) of the Code.

2.15 “Other Stock-Based Award” means awards (other than Stock Options, Stock Appreciation Rights, Restricted Stock Awards and Performance Awards) denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock and granted pursuant to Section 10.

2.16 “Outside Director” means a member of the Board who is not employed by the Company or any Subsidiary.

2.17 “Participant” shall mean any employee, director or officer of, or key adviser or consultant to, the Company or any Subsidiary to whom an award is granted under the Plan.

2.18 “Performance Award” means an award made pursuant to Section 9, including awards of performance units, performance shares and performance cash.

2.19 “Performance Criteria” means the performance criteria described in Section 9.1 which are the basis for Performance Goals.

2.20 “Performance Goal” means the performance goal or goals applicable to a Performance Award pursuant to Section 9.1 as determined by the Committee.

2.21 “Performance Period” means a period of time, as may be determined in the discretion of the Committee, over which performance is measured for the purpose of determining a Participant’s right to and the payment value of an award.

2.22 “Plan Year” means the twelve-month period beginning on January 1 and ending on December 31; provided, however, the first Plan Year shall be the short Plan Year beginning on the Effective Date and ending on December 31, 2010.

2.23 “Restricted Stock Award” means an award of shares of Common Stock pursuant to Section 8.

2.24 “Retirement” means the voluntary termination of employment by a Participant not resident in the European Union who: (i) has attained age 55 and has ten or more years of service with the Company and/or any Subsidiary or (ii) has attained age 65.

2.25 “Stock Appreciation Right” means an award made pursuant to Section 7.

2.26 “Stock Option” means any option to purchase Common Stock granted pursuant to Section 6.

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2.27 “Subsidiary” means: (i) as it relates to Incentive Stock Options, any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Stock Option, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain; and (ii) for all other purposes, an entity, domestic or foreign, of which not less than 50% of the total voting power is held by the Company or by a Subsidiary, whether or not such entity now exists or is hereafter organized or acquired by the Company or by a Subsidiary.

2.28 “Term of the Plan” means the period beginning on the Effective Date and ending on the earlier to occur of (i) the date the Plan is terminated by the Board in accordance with Section 21 and (ii) the day before the tenth anniversary of the Effective Date.

Section 3. Administration. The Plan shall be administered by the Compensation Committee of the Board or such other committee or subcommittee as may be appointed by the Board from time to time for the purpose of administering this Plan; provided, however, that such committee shall consist of two or more members of the Board, each of whom shall qualify as a “Non-employee Director” within the meaning of Rule 16b-3 of the Exchange Act and as an “independent director” under applicable stock exchange or NASDAQ rules, and also qualify as an “outside director” within the meaning of Section l62(m) of the Code and regulations pursuant thereto. For purposes of the Plan, the Board acting in this capacity or the Committee described in the preceding sentence shall be referred to as the “Committee”. The Committee shall have the power and authority to grant to eligible persons pursuant to the terms of the Plan: (1) Stock Options, (2) Stock Appreciation Rights, (3) Restricted Stock Awards, (4) Performance Awards, (5) Other Stock-Based Awards, or (6) any combination of the foregoing.

The Committee shall have authority in its discretion to interpret the provisions of the Plan and all awards granted thereunder and to decide all questions of fact arising in its application. Except as otherwise expressly provided in the Plan, the Committee shall have authority to select the persons to whom awards shall be made under the Plan; to determine whether and to what extent awards shall be made under the Plan; to determine the types of award to be made and the amount, size, terms and conditions of each such award; to determine the time when the awards shall be granted; to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an award under the Plan shall be deferred either automatically or at the election of the Participant; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and to make all other determinations necessary or advisable for the administration of the Plan. Notwithstanding anything in the Plan to the contrary, in the event that the Committee determines that it is advisable to grant awards which shall not qualify for the exception for performance-based compensation from the tax deductibility limitations of Section 162(m) of the Code, the Committee may make such grants or awards, or may amend the Plan to provide for such grants or awards, without satisfying the requirements of Section 162(m) of the Code.

The Committee also shall have authority in its discretion to vary the terms of the Plan to the extent necessary to comply with foreign, federal, state or local law. Notwithstanding anything in the Plan to the contrary, with respect to any Participant or eligible person who is resident outside of the United States, the Committee may, in its sole discretion, amend the terms of the Plan in order to conform such terms with the requirements of local law or to meet the objectives of the Plan. The Committee may, where appropriate, establish one or more sub-plans for this purpose.

All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons who participate in the Plan.

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All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons in connection with the administration of the Plan. The Company, and its officers and directors, shall be entitled to rely upon the advice, opinions or valuations of any such persons. The Committee may delegate to any designated officers or other employees of the Company any of its duties under the Plan pursuant to such conditions or limitations as the Committee may establish from time to time. Notwithstanding the foregoing, in no event may the Committee delegate authority to any person to take any action which would contravene the requirements of Rule 16b-3 of the Exchange Act or the requirements of Section 162(m) of the Code.

Section 4. Common Stock Subject to the Plan.

4.1 Share Reserve. Subject to the following provisions of this Section 4 and to such adjustment as may be made pursuant to Section 20, the maximum number of shares available for issuance under the Plan shall be equal to 900,000 shares of Common Stock. During the terms of the awards under the Plan, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such awards.

4.2 Source of Shares. Such shares may consist in whole or in part of authorized and unissued shares or treasury shares or any combination thereof as the Committee may determine. Any shares subject to an option or right granted or awarded under the Plan which for any reason expires or is terminated unexercised, becomes unexercisable, or is forfeited or otherwise terminated, surrendered or cancelled as to any shares, or if any shares are not delivered because an award under the Plan is settled in cash, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Common Stock available for issuance under the Plan. No awards may be granted following the end of the Term of the Plan.

4.3 Code Section 162(m) Limitation. The total number of shares of Common Stock for which Stock Options and Stock Appreciation Rights may be granted to any employee during any 12 month period shall not exceed 250,000 shares in the aggregate, subject to adjustment pursuant to Section 20. The total number of shares of Common Stock for which Restricted Stock Awards, Performance Awards and Other Stock-Based Awards that are subject to the attainment of performance criteria in order to protect against the loss of deductibility under Section 162(m) of the Code may be granted to any employee during any 12 month period shall not exceed 250,000 shares in the aggregate, subject to adjustment pursuant to Section 20. With respect to awards denominated in cash (including Performance Awards) the maximum aggregate payout to any employee during any 12 month period shall not exceed $2,125,000.

Section 5. Eligibility to Receive Awards. An award may be granted to any employee, director, or officer of, or adviser or consultant to, the Company or any Subsidiary, who is responsible for or contributes to the management, growth or success of the Company or any Subsidiary, provided that bona fide services shall be rendered by consultants or advisers to the Company or its Subsidiaries and such services must not be in connection with the offer and sale of securities in a capital-raising transaction and must not directly or indirectly promote or maintain a market for the Company’s securities. Subject to the preceding sentence and Section 6.8, the Committee shall have the sole authority to select the persons to whom an award is to be granted hereunder and to determine what type of award is to be granted to each such person. No person shall have any right to participate in the Plan. Any person selected by the Committee for participation during any one period will not by virtue of such participation have the right to be selected as a Participant for any other period.

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Section 6. Stock Options. A Stock Option may be an Incentive Stock Option or a Non-Qualified Stock Option. Only employees of the Company or any Subsidiary of the Company are eligible to receive Incentive Stock Options. To the extent that any Stock Option is not designated as or does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option. Stock Options may be granted alone or in addition to other awards granted under the Plan. The terms and conditions of each Stock Option granted under the Plan shall be specified by the Committee, in its sole discretion, and shall be set forth in a written Stock Option agreement between the Company and the Participant or notice from the Company to the Participant in such form as the Committee shall approve from time to time or as may be reasonably required in view of the terms and conditions approved by the Committee from time to time. No person shall have any rights under any Stock Option granted under the Plan unless and until the Company and the person to whom such Stock Option shall have been granted shall have executed and delivered an agreement expressly granting the Stock Option to such person and containing provisions setting forth the terms and conditions of the Stock Option. The terms and conditions of each Incentive Stock Option shall be such that each Incentive Stock Option issued hereunder shall constitute and shall be treated as an “incentive stock option” as defined in Section 422 of the Code. The terms and conditions of each Non-Qualified Stock Option will be such that each Non-Qualified Stock Option issued hereunder shall not constitute nor be treated as an “incentive stock option” as defined in Section 422 of the Code or an option described in Section 423(b) of the Code and will be a “non-qualified stock option” for federal income tax purposes. The terms and conditions of any Stock Option granted hereunder need not be identical to those of any other Stock Option granted hereunder. The Stock Option agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.

6.1 Type of Option. Each Stock Option agreement shall identify the Stock Option represented thereby as an Incentive Stock Option or a Non-Qualified Stock Option, as the case may be.

6.2 Option Price. The Stock Option exercise price shall be fixed by the Committee and specified in each Stock Option agreement; provided, however, that the exercise price shall not be less than 100% (or 110% in the case of an Incentive Stock Option granted to an employee referred to in Section 6.7(ii) below) of the Fair Market Value of the shares of Common Stock subject to the Stock Option on the date the Stock Option is granted.

6.3 Vesting and Exercise Term. Each Stock Option agreement shall state the period or periods of time within which the Stock Option may be exercised, in whole or in part, which shall be such period or periods of time as may be determined by the Committee, provided that no Incentive Stock Option shall be exercisable after ten years from the date of grant thereof (or, in the case of an Incentive Stock Option granted to an employee referred to in Section 6.7(ii) below, such term shall in no event exceed five years from the date on which such Incentive Stock Option is granted). Each Stock Option agreement shall also state any conditions which must be satisfied before all or a portion of the Stock Option may be exercised. In so doing, the Committee may specify that a Stock Option may not be exercised until the completion of a service period or until Performance Goals are satisfied.

6.4 Payment for Shares. Subject to any vesting period specified in the Stock Option agreement, a Stock Option shall be deemed to be exercised when written notice of such exercise, in a form determined by the Committee, has been given to the Company in accordance with the terms of the Stock Option agreement by the Participant entitled to exercise the Stock Option and full payment for the shares of Common Stock with respect to which the Stock Option is exercised has been received by the Company. The Committee, in its sole discretion, may permit all or part of the payment of the exercise price (and taxes required to be withheld as provided in Section 16) to be made, to the extent permitted by applicable statutes and regulations, either: (i) in cash, by check or wire transfer, (ii) by tendering previously acquired shares of Common Stock having an aggregate Fair Market Value at the time of exercise equal to the total exercise price and such taxes, (iii) by withholding shares of Common Stock which otherwise would be acquired on exercise having an aggregate Fair Market Value at the time of

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exercise equal to the total exercise price and such taxes, (iv) delivery (including by facsimile or by electronic mail) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price and any tax withholding obligations that may arise in connection with such exercise (otherwise known as a “broker-assisted cashless exercise”) (v) by a combination of (i), (ii), (iii) and (iv) above, or (vi) in any other form of legal consideration as provided for under the terms of the Stock Option. No shares of Common Stock shall be issued to any Participant upon exercise of a Stock Option until the Company receives full payment therefor as described above. Upon the receipt of notice of exercise and full payment for the shares of Common Stock, the shares of Common Stock shall be deemed to have been issued and the Participant shall be entitled to receive such shares of Common Stock and shall be a stockholder with respect to such shares, and the shares of Common Stock shall be considered fully paid and nonassessable. No adjustment will be made for a dividend or other right for which the record date is prior to the date on which the Common Stock is issued, except as provided in Section 20 of the Plan. Each exercise of a Stock Option shall reduce, by an equal number, the total number of shares of Common Stock that may thereafter be purchased under such Stock Option.

6.5 Rights upon Termination of Continuous Service. In the event that a Participant’s Continuous Service terminates for any reason, other than death, Disability or Retirement or for cause, any rights of the Participant under any Stock Option shall immediately terminate; provided, however, that the Participant (or any successor or legal representative) shall have the right to exercise the Stock Option to the extent that the Stock Option was exercisable at the time of termination, until the earlier of (i) the date that is three months after the effective date of such termination of Continuous Service, or such other date as determined by the Committee in its sole discretion, or (ii) the expiration of the term of the Stock Option.

Notwithstanding the foregoing, the Participant (or any successor or legal representative) shall not have any rights under any Stock Option, to the extent that such Stock Option has not previously been exercised, and the Company shall not be obligated to sell or deliver shares of Common Stock (or have any other obligation or liability) under such Stock Option if the Committee shall determine in its sole discretion that the Participant’s Continuous Service shall have been terminated for “Cause” (as such term is defined in the Participant’s Stock Option agreement), which determination shall be made in good faith. In the event of such determination, the Participant (or any successor or legal representative) shall have no right under any Stock Option, to the extent that such Stock Option has not previously been exercised, to purchase any shares of Common Stock. Any Stock Option may be terminated entirely by the Committee at the time or at any time subsequent to a determination by the Committee under this Section 6.5 which has the effect of eliminating the Company’s obligation to sell or deliver shares of Common Stock under such Stock Option.

Unless otherwise determined by the Committee, in the event that a Participant’s Continuous Service terminates as a result of Retirement prior to the expiration of the Stock Option and without the Participant having fully exercised the Stock Option, the Participant or his or her successor or legal representative shall have the right to exercise the Stock Option, to the extent such Stock Option was exercisable at the time of Retirement, within the next 12 months following Retirement, or such other period as determined by the Committee in its sole discretion, but not later than the expiration of the term of the Stock Option.

Unless otherwise determined by the Committee, in the event that a Participant’s Continuous Service terminates because such Participant dies or suffers a Disability prior to the expiration of the Stock Option and without the Participant having fully exercised the Stock Option, the Participant or his or her successor or legal representative shall have the right to exercise the Stock Option, to the extent such Stock Option was exercisable at the time of such event, within the next 12 months following such event, or such other period as determined by the Committee in its sole discretion, but not later than the expiration of the term of the Stock Option.

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6.6 No Repricing. Subject to Section 20, the exercise price for a Stock Option may never be less than 100% of the Fair Market Value of the shares of Common Stock subject to the Stock Option on the date the Stock Option is granted. Notwithstanding anything in the Plan to the contrary, the repricing of a Stock Option is prohibited without prior approval of the Company’s stockholders by a majority of votes cast in favor of such proposal. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (A) changing the terms of a Stock Option to lower its exercise price; (B) any other action that is treated as a “repricing” under generally accepted accounting principles; and (C) repurchasing for cash or canceling a Stock Option at a time when its exercise price is greater than the Fair Market Value of the underlying shares of Common Stock in exchange for another award, unless the cancellation and exchange occurs in connection with a change in capitalization or other similar change permitted under Section 20. Such cancellation and exchange would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

6.7 Special Incentive Stock Option Rules. Notwithstanding the foregoing, in the case of an Incentive Stock Option, each Stock Option agreement shall contain such other terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify such Stock Option as an Incentive Stock Option under the Code including, without limitation, the following:

(i) To the extent that the aggregate Fair Market Value (determined as of the time the Stock Option is granted) of the Common Stock, with respect to which Incentive Stock Options granted under this Plan (and all other plans of the Company and its Subsidiaries) become exercisable for the first time by any person in any calendar year, exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock Options.

(ii) No Incentive Stock Option shall be granted to any employee if, at the time the Incentive Stock Option is granted, the employee (by reason of the attribution rules applicable under Section 424(d) of the Code) owns more than 10% of the combined voting power of all classes of stock of the Company or any Subsidiary unless at the time such Incentive Stock Option is granted the Stock Option exercise price is at least 110% of the Fair Market Value (determined as of the time the Incentive Stock Option is granted) of the shares of Common Stock subject to the Incentive Stock Option and such Incentive Stock Option by its terms is not exercisable after the expiration of five years from the date of grant.

If an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option shall thereafter be treated as a Non-Qualified Stock Option.

6.8 Conversion of Director Fees. The Board may, at its sole discretion, permit an Outside Director to receive all or a portion of his or her annual retainer fee, any fees for attending meetings of the Board or committees thereof, committee chairmanship fees or any other fees payable to an Outside Director in the form of a Stock Option. The terms and conditions of such Stock Option, including (without limitation) the method for converting the annual retainer fee or any other fee payable to an Outside Director into a Stock Option, the date of grant, the vesting schedule, if any, and the time period for an Outside Director to elect such a Stock Option shall be determined solely by the Board. The Board’s decision shall be final, binding and conclusive.

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Section 7. Stock Appreciation Rights. Stock Appreciation Rights entitle Participants to increases in the Fair Market Value of shares of Common Stock. The terms and conditions of each Stock Appreciation Right granted under the Plan shall be specified by the Committee, in its sole discretion, and shall be set forth in a written agreement between the Company and the Participant or notice from the Company to the Participant in such form as the Committee shall approve from time to time or as may be reasonably required in view of the terms and conditions approved by the Committee from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.

7.1 Award. Stock Appreciation Rights shall entitle the Participant, subject to such terms and conditions determined by the Committee, to receive upon exercise thereof an award equal to all or a portion of the excess of: (i) the Fair Market Value of a specified number of shares of Common Stock at the time of exercise, over (ii) a specified price which shall not be less than 100% of the Fair Market Value of the Common Stock at the time the right is granted or, if connected with a previously issued Stock Option, not less than 100% of the Fair Market Value of the Common Stock at the time such Stock Option was granted. Such amount may be paid by the Company in cash, Common Stock (valued at its then Fair Market Value) or any combination thereof, as the Committee may determine. Stock Appreciation Rights may be, but are not required to be, granted in connection with a previously or contemporaneously granted Stock Option, provided that such Stock Appreciation Rights shall be subject to the same terms and conditions as apply to the underlying Stock Option to which they relate. Stock Options surrendered in the exercise of Stock Appreciation Rights shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.

7.2 Term. Each agreement shall state the period or periods of time within which the Stock Appreciation Right may be exercised, in whole or in part, subject to such terms and conditions prescribed for such purpose by the Committee. The Committee shall have the power to permit an acceleration of previously established exercise terms upon such circumstances and subject to such terms and conditions as the Committee deems appropriate. Stock Appreciation Rights granted in connection with a previously or contemporaneously granted Stock Option may be exercised at the time the Stock Option vests but not later than the expiration date of such Stock Option.

7.3 Rights upon Termination of Continuous Service. In the event that a Participant’s Continuous Service terminates for any reason, other than death, Disability or Retirement, any rights of the Participant under any Stock Appreciation Right shall immediately terminate; provided, however, the Participant (or any successor or legal representative) shall have the right to exercise the Stock Appreciation Right to the extent that the Stock Appreciation Right was exercisable at the time of termination, until the earlier of (i) the date that is three months after the effective date of such termination of Continuous Service, or such other date as determined by the Committee in its sole discretion, or (ii) the expiration of the term of the Stock Appreciation Right.

Notwithstanding the foregoing, the Participant (or any successor or legal representative) shall not have any rights under any Stock Appreciation Right, to the extent that such Stock Appreciation Right has not previously been exercised, and the Company shall not be obligated to pay or deliver any cash, Common Stock or any combination thereof (or have any other obligation or liability) under such Stock Appreciation Right if the Committee shall determine in its sole discretion that the Participant’s Continuous Service shall have been terminated for “Cause” (as such term is defined in the Participant’s Stock Appreciation Right agreement), which determination shall be made in good faith. In the event of such determination, the Participant (or any successor or legal representative) shall have no right under such Stock Appreciation Right, to the extent that such Stock Appreciation Right has not previously been exercised. Any Stock Appreciation Right may be terminated entirely by the Committee at the time of or at any time subsequent to the determination by the Committee under this Section 7.3 which has the effect of eliminating the Company’s obligations under such Stock Appreciation Right.

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Unless otherwise determined by the Committee, in the event that a Participant’s Continuous Service terminates as a result of Retirement prior to the expiration of his or her Stock Appreciation Right and without having fully exercised his or her Stock Appreciation Right, the Participant or his or her successor or legal representative shall have the right to exercise any Stock Appreciation Right, to the extent such Stock Appreciation Right was exercisable at the time of Retirement, within the next 12 months following Retirement, or such other period as determined by the Committee in its sole discretion, but not later than the expiration of the Stock Appreciation Right.

Unless otherwise determined by the Committee, in the event that a Participant’s Continuous Service terminates because such Participant dies or suffers a Disability prior to the expiration of his or her Stock Appreciation Right and without having fully exercised his or her Stock Appreciation Right, the Participant or his or her successor or legal representative shall have the right to exercise any Stock Appreciation Right, whether or not the Stock Appreciation Right was exercisable at the time of such event, within the next 12 months following such event, or such other period as determined by the Committee in its sole discretion, but not later than the expiration of the Stock Appreciation Right.

7.4 No Repricing. Notwithstanding anything in the Plan to the contrary, the repricing of a Stock Appreciation Right is prohibited without any prior approval of the Company’s stockholders. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of a Stock Appreciation Right to lower its base price: (ii) any other action that is treated as a “repricing” under generally accepted accounting principles; and (iii) repurchasing for cash or canceling a Stock Appreciation Right at a time when its base price is greater than the Fair Market Value of the underlying shares of Common Stock in exchange for another award, unless the cancellation and exchange occurs in connection with a change in capitalization or other similar change permitted under Section 20. Such cancellation and exchange would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

Section 8. Restricted Stock Awards. Restricted Stock Awards shall consist of shares of Common Stock restricted against transfer (“Restricted Stock”) and subject to a substantial risk of forfeiture. The terms and conditions of each Restricted Stock Award granted under the Plan shall be specified by the Committee, in its sole discretion, and shall be set forth in a written agreement between the Company and the Participant or notice from the Company to the Participant in such form as the Committee shall approve from time to time or as may be reasonably required in view of the terms and conditions approved by the Committee from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.

8.1 Vesting Period. Restricted Stock Awards shall be subject to the restrictions described in the preceding paragraph over such vesting period as the Committee determines. To the extent the Committee deems necessary or appropriate to protect against loss of deductibility pursuant to Section 162(m) of the Code, Restricted Stock Awards to any Participant may also be conditioned upon the achievement of Performance Goals in the same manner as provided in Section 9 with respect to Performance Awards. The Committee may, in its sole discretion, provide for the lapse of restrictions in installments or otherwise and may waive or accelerate the restriction lapse at its discretion. Except as otherwise provided in a Restricted Stock Award agreement, the Participant shall have all the rights of a stockholder during the vesting period.

8.2 Restriction upon Transfer. Shares awarded may not be sold, assigned, transferred, exchanged, pledged, hypothecated or otherwise encumbered, except as herein provided or as provided in any agreement entered into between the Company and a Participant in connection with the Plan, during the vesting period applicable to such shares.

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8.3 Restricted Stock Units. Restricted Stock Awards may be granted in the form of restricted stock units that are not issued until the vesting conditions are satisfied. Until the shares of Common Stock are issued, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the units to acquire shares of Common Stock except that the Committee may in its discretion provide for the payment of dividend equivalents on outstanding restricted stock units. Restricted stock units may be settled in shares of Common Stock or cash.

8.4 Termination of Continuous Service. Except as otherwise provided in the written agreement relating to the Participant’s Restricted Stock Award, in the event that a Participant’s Continuous Service terminates for any reason other than death or Disability, any rights of the Participant or his or her successors or legal representatives under any Restricted Stock Award that remains subject to restrictions shall immediately terminate and any Restricted Stock Award with unlapsed restrictions shall be forfeited to the Company without payment of any consideration. Unless otherwise determined by the Committee, in the event that a Participant’s Continuous Service terminates due to death or Disability, all unvested Restricted Stock Awards under the Plan shall immediately vest and shall no longer be subject to any restrictions.

8.5 Conversion of Director Fees. The Board may, at its sole discretion, permit an Outside Director to receive all or a portion of his or her annual retainer fee, any fees for attending meetings of the Board or committees thereof, committee chairmanship fees or any other fees payable to an Outside Director in the form of a Restricted Stock Award. The terms and conditions of such Restricted Stock Award, including (without limitation) the method for converting the annual retainer fee or any other fee payable to an Outside Director into a Restricted Stock Award, the date of grant, the vesting schedule, if any, and the time period for an Outside Director to elect such a Restricted Stock Award shall be determined solely by the Board. The Board’s decision shall be final, binding and conclusive.

Section 9. Performance Awards. Performance Awards may be made by reference to performance units, performance shares or performance cash and may, at the discretion of the Committee, be awarded upon the satisfaction of Performance Goals. The vesting or settlement of Performance Awards may also, in the discretion of the Committee, be conditioned upon the achievement of Performance Goals. The terms and conditions of each Performance Award granted under the Plan shall be specified by the Committee, in its sole discretion, and shall be set forth in a written agreement between the Company and the Participant or notice from the Company to the Participant in such form as the Committee shall approve from time to time or as may be reasonably required in view of the terms and conditions approved by the Committee from time to time. When the Committee desires a Performance Award to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee shall establish the Performance Goals for the respective Performance Award prior to or within 90 days of the beginning of the Performance Period relating to such Performance Goal, or at such other date as may be permitted or required for the Performance Award to qualify as “performance-based compensation” under Section 162(m) of the Code, and not later than after 25 percent of such Performance Period has elapsed, and such Performance Goals shall otherwise comply with the requirements of Section 162(m) of the Code. For all other Performance Awards, the Performance Goals must be established before the end of the respective Performance Period. The Committee may make grants of Performance Awards in such a manner that more than one Performance Period is in progress concurrently. For each Performance Period, the Committee shall establish the number of Performance Awards and their contingent values which may vary depending on the degree to which Performance Criteria established by the Committee are met. The Committee shall have the power to impose such other restrictions on Performance Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code as it may deem necessary or appropriate to ensure that such Performance Awards satisfy all such requirements.

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9.1 Performance Criteria. The Committee may establish Performance Goals applicable to Performance Awards based upon the Performance Criteria and other factors set forth below based upon performance of the Company as a whole or upon the performance of a Subsidiary, segment or division and either as an absolute measure or as a measure of comparative performance relative to a peer group of companies, an index, budget, prior period, or other standard selected by the Committee. Performance Criteria for the Company shall relate to the achievement of predetermined financial and operating objectives for the Company and its Subsidiaries on a consolidated basis. Performance Criteria for a Subsidiary, segment or division shall relate to the achievement of financial and operating objectives of such business unit for which the Participant is accountable. “Performance Criteria” means one or more of the following measures: revenue (or any component thereof), net income as a percentage of revenue, operating income, earnings per share, share price, operating margin as a percentage of revenue, strategic team goals, net operating profit after taxes, net operating profit after taxes per share, return on invested capital, return on assets or net assets, return on net assets employed before interest and taxes, total stockholder return, relative total stockholder return (as compared with a peer group of the Company established by the Committee prior to issuance of the Performance Award), earnings before or after income taxes, interest charges, depreciation, amortization and/or rental expense, net income, cash flow (or any component thereof), cash flow (or any component thereof) per share, free cash flow, free cash flow per share, revenue growth, cost containment or reduction, billings growth, customer satisfaction or any combination thereof, or such similar objectively determinable financial or other measures as may be adopted by the Committee. The Performance Goals may differ among Participants, including among similarly situated Participants. Performance Criteria shall be calculated in accordance with the Company’s financial statements or generally accepted accounting principles, on an operating basis, or under a methodology established by the Committee prior to the issuance of a Performance Award that is consistently applied and identified and may include adjustments for such matters as the Committee may determine prior to the issuance of the Performance Award. The Committee shall have the authority, to the extent consistent with the requirements for “performance-based compensation” under Section 162(m) of the Code, to make equitable adjustments to the Performance Goals in recognition of unusual or nonrecurring events affecting the Company or any Subsidiary or the financial statements of the Company or any Subsidiary in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles.

9.2 Modification. If the Committee determines, in its discretion exercised in good faith, that the established Performance Goals are no longer suitable to the Company’s objectives because of a change in the Company’s business, operations, corporate structure, capital structure, or other conditions the Committee deems to be appropriate, the Committee may modify the Performance Goals to the extent it considers such modification to be necessary; provided, however, if the Committee still intends that such Performance Award continues to qualify as “performance-based compensation” under Section 162(m) of the Code, no such modification shall be made with respect to such Performance Award unless (i) such modification is made no later than the deadline established under Section 162(m) of the Code, and (ii) no Performance Award is paid under the modified Performance Goal until after the material terms of the modified Performance Goal are disclosed to and approved by the Company’s stockholders to the extent required by Section 162(m) of the Code.

9.3 Payment. The basis for the grant, vesting or payment, as applicable, of Performance Awards for a given Performance Period shall be the achievement of those Performance Goals determined by the Committee as specified in the Performance Award agreement. At any time prior to the payment of a Performance Award, unless otherwise provided by the Committee or prohibited by the Plan, the Committee shall have the authority to reduce or eliminate the amount payable with respect to the Performance Award, or to cancel any part or all of the Performance Award but, with respect to Performance Awards the Committee still intends to qualify as “performance-based compensation” under Section 162(m) of the Code, shall not have the authority in its discretion to increase the amount payable

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with respect to the Performance Award except as permitted under Section 20. The Committee’s determination with respect to a Performance Period of whether and to what extent a Performance Goal has been achieved, and, if so, of the amount of the Performance Award earned for the Performance Period shall be final and binding on the Company and all Participants, and, with respect to Performance Awards that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code, these determinations shall be certified in writing before such Performance Awards are paid. Except as otherwise provided in the Performance Award agreement, all performance cash and performance unit awards shall be paid to the Participant in cash.

9.4 Termination of Continuous Service. Except as otherwise provided in the written agreement relating to the Participant’s Performance Award, in the event that a Participant’s Continuous Service terminates for any reason other than death or Disability, any rights of the Participant or his or her successors or legal representatives under any outstanding Performance Awards shall immediately terminate and any outstanding Performance Awards shall be forfeited.

Section 10. Other Stock-Based Awards. Other Stock-Based Awards may be awarded, subject to limitations under applicable law, that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including, without limitation, purchase rights, convertible or exchangeable debentures, or other rights convertible into shares of Common Stock and awards valued by reference to the value of securities of or the performance of specified Subsidiaries. Other Stock-Based Awards may be awarded either alone or in addition to or in tandem with any other awards under the Plan or any other plan of the Company. The terms and conditions of each Other Stock-Based Award granted under the Plan shall be specified by the Committee, in its sole discretion, and shall be set forth in a written agreement between the Company and the Participant or notice from the Company to the Participant in such form as the Committee shall approve from time to time or as may be reasonably required in view of the terms and conditions approved by the Committee from time to time.

To the extent the Committee deems necessary or appropriate to protect against loss of deductibility pursuant to Section 162(m) of the Code, Other Stock-Based Awards to any Participant may also be conditioned upon the achievement of Performance Goals in the same manner as provided in Section 9 with respect to Performance Awards.

Section 11. Securities Law Requirements. No shares of Common Stock shall be issued upon the exercise or payment of any award unless and until:

(i) The shares of Common Stock underlying the award have been registered under the Securities Act of 1933, as amended (the “Act”), or the Company has determined that an exemption from the registration requirements under the Act is available or the registration requirements of the Act do not apply to such exercise or payment;

(ii) The Company has determined that all applicable listing requirements of any stock exchange or quotation system on which the shares of Common Stock are listed have been satisfied; and

(iii) The Company has determined that any other applicable provision of state or federal law, including without limitation applicable state securities laws, has been satisfied.

Section 12. Restrictions on Transfer; Representations of Participant; Legends. Regardless of whether the offering and sale of shares of Common Stock has been registered under the Act or has been registered or qualified under the securities laws of any state, the Company may impose restrictions upon the sale, pledge, or other transfer of such shares, including the placement of appropriate

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legends on stock certificates, if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state, or any other law. As a condition to the Participant’s receipt of shares, the Company may require the Participant to represent that such shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Act, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel.

The Company may, but shall not be obligated to, register or qualify the sale of shares under the Act or any other applicable law. In the event of any public offering of Common Stock or other securities of the Company, it may be necessary for the Company to restrict for a period of time (during or following the offering process) the transfer of shares of Common Stock issued to a Participant under the Plan (including any securities issued with respect to such shares in accordance with Section 20 of the Plan). As a condition of the Participant’s receipt of shares, the Committee may require the Participant to agree not to effect any sale, transfer, pledge or other disposal of the Participant’s shares during such time and agrees to execute any “lock-up letter” or similar agreement requested by the Company or its underwriters.

Section 13. Single or Multiple Agreements. Multiple forms of awards or combinations thereof may be evidenced by a single agreement or notices or multiple agreements or notices, as determined by the Committee.

Section 14. Rights of a Stockholder. The recipient of any award under the Plan, unless otherwise provided by the Plan, shall have no rights as a stockholder with respect thereto unless and until shares of Common Stock are issued to him.

Section 15. No Right to Continue Employment or Service. Nothing in the Plan or any instrument executed or award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or any Subsidiary in the capacity in effect at the time the award was granted or shall affect the right of the Company or any Subsidiary to terminate (i) the employment of an employee with or without notice and with or without cause, (ii) the service of a consultant or adviser pursuant to the terms of such consultant’s or adviser’s agreement with the Company or any Subsidiary or (iii) the service of a director pursuant to the Bylaws of the Company or any Subsidiary and any applicable provisions of the corporate law of the state in which the Company or any Subsidiary is incorporated, as the case may be.

Section 16. Withholding. The Company’s obligations hereunder in connection with any award shall be subject to applicable foreign, federal, state and local withholding tax requirements. Foreign, federal, state and local withholding tax due under the terms of the Plan may be paid in cash or shares of Common Stock (either through the surrender of already-owned shares of Common Stock, the withholding of shares of Common Stock otherwise issuable upon the exercise or payment of such award or by broker-assisted cashless exercise) having a Fair Market Value equal to the required withholding and upon such other terms and conditions as the Committee shall determine; provided, however, the Committee, in its sole discretion, may require that such taxes be paid in cash.

Section 17. Indemnification. No member of the Board or the Committee, nor any officer or employee of the Company or a Subsidiary acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company or any Subsidiary acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

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Section 18. Non-Assignability. No right or benefit hereunder shall in any manner be subject to the debts, contracts, liabilities or torts of the person entitled to such right or benefit. No award under the Plan shall be assignable or transferable by the Participant except by will, by the laws of descent and distribution and by such other means as the Committee may approve from time to time, and all awards shall be exercisable, during the Participant’s lifetime, only by the Participant.

However, the Participant, with the approval of the Committee, may transfer a Non-Qualified Stock Option for no consideration to or for the benefit of the Participant’s Immediate Family (including, without limitation, to a trust for the benefit of the Participant’s Immediate Family or to a partnership or limited liability company for one or more members of the Participant’s Immediate Family), subject to such limits as the Committee may establish, and the transferee shall remain subject to all the terms and conditions applicable to the Non-Qualified Stock Option prior to such transfer. The foregoing right to transfer a Non-Qualified Stock Option shall apply to the right to consent to amendments to the Stock Option agreement and, in the discretion of the Committee, shall also apply to the right to transfer ancillary rights associated with the Non-Qualified Stock Option. The term “Immediate Family” shall mean the Participant’s spouse, parents, children, stepchildren, adoptive relationships, sisters, brothers and grandchildren (and, for this purpose, shall also include the Participant).

At the request of the Participant and subject to the approval of the Committee, Common Stock purchased upon exercise of a Non-Qualified Stock Option may be issued or transferred into the name of the Participant and his or her spouse jointly with rights of survivorship.

Except as set forth above or in a Stock Option agreement, any attempted assignment, sale, transfer, pledge, mortgage, encumbrance, hypothecation, or other disposition of an award under the Plan contrary to the provisions hereof, or the levy of any execution, attachment, or similar process upon an award under the Plan shall be null and void and without effect.

Section 19. Nonuniform Determinations. The Committee’s determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same, and the establishment of values and performance targets) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated.

Section 20. Adjustments. In the event of any change in the outstanding shares of Common Stock, without the receipt of consideration by the Company, by reason of a stock dividend, stock split, reverse stock split or distribution, recapitalization, merger, reorganization, reclassification, consolidation, split-up, spin-off, combination of shares, exchange of shares, partial or complete liquidation of the Company, or other change in corporate structure affecting the Common Stock and not involving the receipt of consideration by the Company, the Committee or the Board shall make appropriate adjustments in (a) the aggregate number of shares of Common Stock (i) available for issuance under the Plan, (ii) for which grants or awards may be made to any Participant or to any group of Participants (e.g., Outside Directors), (iii) which are available for issuance under Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Awards and Other Stock-Based Awards, (iv) covered by outstanding unexercised awards and grants denominated in shares or units of Common Stock, and (v) underlying Stock Options granted pursuant to Section 6.8 or Restricted Stock Awards granted pursuant to Section 8.5, (b) the exercise or other applicable price related to outstanding awards or grants and (c) the appropriate Fair Market Value and other price determinations relevant to outstanding awards or grants and shall make such other adjustments as may be appropriate under the circumstances; provided, that the number of shares subject to any award or grant always shall be a whole number.

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Section 21. Termination and Amendment. The Board may terminate or amend the Plan or any portion thereof at any time and the Committee may amend the Plan to the extent provided in Section 3, without approval of the stockholders of the Company, unless stockholder approval is required by Rule 16b-3 of the Exchange Act, applicable stock exchange or NASDAQ or other quotation system rules, applicable Code provisions, or other applicable laws or regulations. No amendment, termination or modification of the Plan shall affect any award theretofore granted in any material adverse way without the consent of the recipient.

Section 22. Severability. If any of the terms or provisions of this Plan, or awards made under this Plan, conflict with the requirements of Section 162(m) or Section 422 of the Code with respect to awards subject to or governed by Section 162(m) or Section 422 of the Code, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Section 162(m) or Section 422 of the Code. With respect to an Incentive Stock Option, if this Plan does not contain any provision required to be included herein under Section 422 of the Code (as the same shall be amended from time to time), such provision shall be deemed to be incorporated herein with the same force and effect as if such provision had been set out herein.

Section 23. Effect on Other Plans. Participation in this Plan shall not affect an employee’s eligibility to participate in any other benefit or incentive plan of the Company or any Subsidiary and any awards made pursuant to this Plan shall not be used in determining the benefits provided under any other plan of the Company or any Subsidiary unless specifically provided.

Section 24. Effective Date of the Plan. The Plan shall become effective on May 12, 2010 (the “Effective Date”), subject to approval of the stockholders of the Company to the extent required by applicable Code provisions or other applicable law.

Section 25. Governing Law. This Plan and all agreements executed in connection with the Plan, and all disputes and controversies related thereto, shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of law doctrine that would apply any other law.

Section 26. Gender and Number. Words denoting the masculine gender shall include the feminine gender, and words denoting the feminine gender shall include the masculine gender. Words in the plural shall include the singular, and the singular shall include the plural.

Section 27. Acceleration of Exercisability and Vesting. The Committee shall have the power to accelerate the time at which an award may first be exercised or the time during which an award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the award stating the time at which it may first be exercised or the time during which it will vest, unless such award is subject to the provisions of Section 409A of the Code.

Section 28. Modification of Awards. Within the limitations of the Plan and subject to Sections 20 and 34, the Committee may modify outstanding awards or accept the cancellation of outstanding awards for the granting of new awards in substitution therefor. Notwithstanding the preceding sentence, except for any adjustment described in Section 20 or 34, no modification of an award shall, without the consent of the Participant, alter or impair any rights or obligations under any award previously granted under the Plan in any material adverse way without the affected Participant’s consent. For purposes of the preceding sentence, any modification to any of the following terms or conditions of an outstanding unexercised award or grant shall be deemed to be a material modification: (i) the number of shares of Common Stock covered by such award or grant, (ii) the exercise or other applicable price or Fair Market Value determination related to such award or grant, (iii) the period of time within which the award or grant vests and is exercisable and the terms and conditions of such vesting and exercise, (iv) the type of award or Stock Option, and (v) the restrictions on transferability of the award or grant and of any shares of Common Stock issued in connection with such award or grant.

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Section 29. No Strict Construction. No rule of strict construction shall be applied against the Company, the Committee, or any other person in the interpretation of any of the terms of the Plan, any agreement executed in connection with the Plan, any award granted under the Plan, or any rule, regulation or procedure established by the Committee.

Section 30. Successors. This Plan is binding on and will inure to the benefit of any successor to the Company, whether by way of merger, consolidation, purchase, or otherwise.

Section 31. Plan Provisions Control. The terms of the Plan govern all awards granted under the Plan, and in no event will the Committee have the power to grant any award under the Plan which is contrary to any of the provisions of the Plan. In the event any provision of any award granted under the Plan shall conflict with any term in the Plan, the term in the Plan shall control.

Section 32. Headings. The headings used in the Plan are for convenience only, do not constitute a part of the Plan, and shall not be deemed to limit, characterize, or affect in any way any provisions of the Plan, and all provisions of the Plan shall be construed as if no captions had been used in the Plan.

Section 33. Code Section 409A. It is intended that the Stock Options awarded pursuant to Section 6, Stock Appreciation Rights awarded pursuant to Section 7, and Restricted Stock Awards awarded pursuant to Section 8 not constitute a “deferral of compensation” within the meaning of Section 409A of the Code. It is further intended that the Performance Awards and Other Stock Awards granted pursuant to Sections 9 and 10 not constitute a “deferral of compensation” within the meaning of Section 409A of the Code or otherwise shall comply with the requirements of Section 409A of the Code and the Treasury regulations and other interpretive guidance issued thereunder in all material respects. The Plan shall be interpreted for all purposes and operated to the extent necessary in order to comply with the intent expressed in this Section 33. Notwithstanding the foregoing, the Company shall not be required to assume any increased economic burden in connection therewith. Although the Company intends to administer the Plan so that it will comply with the requirements of Section 409A of the Code, the Company does not represent or warrant that the Plan will comply with Section 409A of the Code or any other provision of federal, state, local, or non-United States law. Neither the Company nor any of its Subsidiaries, nor its or their respective directors, officers, employees, or advisers, shall be liable to any Participant (or any other individual claiming a benefit through the Participant) for any tax, interest, or penalties the Participant might owe as a result of participation in the Plan.

Section 34. Change in Control. Except as otherwise provided in the applicable award agreement, or in any other agreement between the Company or a Subsidiary and the Participant, or as determined by the Board in its sole discretion, in the event of a Change in Control, (i) the vesting of all Stock Options shall be accelerated in full (provided such awards have not already terminated or expired), (ii) the restrictions applicable to all outstanding Restricted Stock Awards shall lapse and such awards shall be settled in full within 45 days of the Change in Control, and (iii) all Performance Awards will become vested at the target performance level (as specified by the Committee) and will be settled within 45 days of the Change in Control unless such Performance Awards are subject to the provisions of Code Section 409A.

Except as otherwise provided in the applicable award agreement, or in any other agreement between the Company or a Subsidiary and the Participant, or as determined by the Board in its sole discretion, if any Stock Option or other right to acquire Common Stock under the Plan has been fully accelerated but is not exercised prior to the consummation of a Change in Control approved by the Board

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(other than a Change in Control described in Section 2.2(e)), such Stock Option or right will terminate, subject to any provision that has been expressly made by the Committee for the survival, substitution, exchange or other settlement of such Stock Option or right.

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EX-10.(U)

EXHIBIT 10 (u)

COMPUTER TASK GROUP, INCORPORATED

NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN

ARTICLE 1 -

DEFINITIONS, BACKGROUND, PURPOSE AND EFFECTIVE DATE

Section 1.1 - Definitions. For purposes of the Plan, the following terms have the definitions stated below unless the context clearly indicates otherwise:

a. “Affiliate” means a person that directly, or indirectly through one or intermediaries, controls or is controlled by, or is under common control with, a specified person.

b. “Beneficiary” means the person, persons, trust or trusts designated by a Participant or, in the absence of a designation, entitled by will or the laws of descent and distribution, to receive the death benefits specified under this Plan if the Participant dies, and means the Participant’s executor or administrator if the Committee determines no other Beneficiary is designated and able to act under the circumstances.

c. “Board” means the Board of Directors of Computer Task Group, Incorporated.

d. “CEO” means the Chief Executive Officer of the Corporation.

e. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

f. “Committee” means the Compensation Committee of the Board.

g. “Compensation” means the fees to which the Outside Director may become entitled to receive for serving as an Outside Director of the Corporation, including (a) annual retainer fees paid to all Outside Directors, (b) meeting fees including payments for attendance at Board and Board committee meetings and related per diem payments for days on which meetings are held, and (c) long term compensation payments including payments in lieu of allocations of Corporation stock or other deferral for long term compensation purposes (each of (a), (b), and (c) being a “Designated Source of Compensation”).

h. “Corporation” means Computer Task Group, Incorporated, a New York corporation, and its successors.

i. “Corporation Stock” means shares of common stock, $.01 par value, issued by the Corporation, or any successor securities thereto.

j. “Deferred Compensation Account” means the account maintained for each Participant to which are credited all amounts allocated to that account in accordance with this Plan, and adjusted for earnings and losses on that account.

k. “Designated Source of Compensation” has the meaning provided in subsection 1(g) above.

l. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

m. “Fair Market Value” means, for any particular date, (i) for any period during which the Corporation Stock is listed for trading on a national securities exchange or the National Association of Securities Dealers Automated Quotation System (“NASDQ”), the closing price per share of Corporation Stock on such exchange or the NASDQ official close price as of such trading day, or (ii) the market price per share of Corporation Stock as determined in good faith by the Committee in the event (i) above is not applicable. If the Fair Market Value is to be determined as of a day when the securities markets are not open, the Fair Market Value on that day will be the Fair Market Value on the next preceding day when the markets were open.

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n. “Outside Director” means a member of the Board who is not an employee of the Corporation or an Affiliate.

o. “Participant” means each member of the Board who is not a full-time employee of the Corporation.

p. “Plan” means this Computer Task Group, Incorporated Non-Employee Director Deferred Compensation Plan, and as amended from time to time.

q. “Plan Administrator” means the Committee.

r. “Plan Year” means the calendar year, unless otherwise determined by the Committee. The first Plan Year the period commencing on May 12, 2010 and ending on December 31, 2010.

s. “Rabbi Trust” means a trust agreement, if established, entered into by and between the Corporation and any trustee, to provide certain benefits under this Plan.

t. “SEC” means the Securities and Exchange Commission.

u. “Separation from Service” with respect to any Participant means: a termination of his or her service to the Corporation on account of his or her retirement, death, Total Disability, or other voluntary or involuntary separation from service. An event will be deemed to constitute a Separation from Service only if it represents a “separation from service” within the meaning of guidance issued by the Secretary of the Treasury under Section 409A of the Code.

v. “Specified Employee” means a Participant who qualifies as a “specified employee” within the meaning of guidance issued by the Secretary of the Treasury under Section 409A of the Code. A Participant who is a Specified Employee at any time during the 12 month period ending on December 31 will be deemed to be a Specified Employee for the 12 month period commencing the following April 1.

w. “Total Disability” means a disability where Participant is unable to effectively engage in the material activities required for Participant’s position with the Corporation by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a period of 90 consecutive days or for shorter periods aggregating 180 days in any consecutive 12 month period.

x. “Unforeseeable Emergency” is a severe financial hardship resulting from extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant. The need to send the Participant’s child to college or the desire to purchase a residence will not be considered Unforeseeable Emergencies. Withdrawals or acceleration will not be permitted to the extent the emergency is or may be relieved (1) through reimbursement or compensation by insurance or otherwise, or (2) by liquidation of the Participant’s assets, to the extent the liquidation of those assets would not itself cause severe financial hardship. An event will be deemed to constitute an “Unforeseeable Emergency” only if it represents the “occurrence of an unforeseeable emergency” within the meaning of guidance issued by the Secretary of the Treasury under Section 409A of the Code.

Section 1.2 - Background and Purpose of the Plan. The purpose of the Plan is to promote the retention of the Corporation’s non-employee directors by providing them an elective opportunity to defer a portion of their compensation on terms established by the Committee.

Section 1.3 - Effective Date. The effective date of the Plan is May 12, 2010.

ARTICLE 2 - PARTICIPATION

Section 2.1 - Eligibility for Participation. Each Outside Director is eligible to participate in this Plan. The effective date for participation in the Plan will be the later of (i) the Effective Date of the Plan or (ii) the date of commencement of Board service as an outside director.

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Section 2.2 - Cessation of Eligibility. With respect to any Plan Year, a Participant will continue to be eligible to elect to defer Compensation pursuant to Section 3.1, so long as the Participant’s eligibility has not been terminated. A Participant’s eligibility to participate in the Plan will be terminated on the Participant’s Separation from Service.

ARTICLE 3 - CONTRIBUTIONS

Section 3.1 - Employee Contributions.

a. Initial Director Deferrals. During the initial 30-day period following the effective date of the Plan or on first becoming a Participant in the Plan, the Participant may irrevocably elect to defer all or any part of his or her Compensation, not yet earned during that Plan Year, in a certain dollar amount, by designation of all or a portion of a Designated Source of Compensation, or by a percentage not to exceed 100% of his or her total Compensation.

b. Subsequent Director Deferrals. With respect to any subsequent Plan Year, a Participant may irrevocably elect prior to January 1 of that Plan Year to defer all or any part of his or her Compensation, not yet earned during that Plan Year, in a certain dollar amount, by designation of all or a portion of a Designated Source of Compensation, or by a percentage not to exceed 100% of his or her total Compensation. The election will be irrevocable with respect to the calendar year to which it applies and will remain in effect for future calendar years unless a new election is made by the Participant effective with respect to a calendar year and delivered to the Corporation prior to the January 1 of the Plan Year to which it applies, provided, however, that to the extent necessary for the election or new election to qualify for the exemption specified by Rule 16b-3 under the Securities Exchange Act of 1934 as then in effect (“Rule 16b-3”), no such election or new election may be made less than six months (or such other period as Rule 16b-3 may specify) prior to the first date on which the deferred Compensation would have been paid if no deferral were made, and such election or new election shall otherwise comply with any applicable requirements for exemption under Rule 16b-3.

c. Effect of Elections. Elections made pursuant to this Article will remain in effect until they are amended by the Participant in accordance with the Plan. All amounts deferred under subsections 3.1(a) and 3.1(b) constitute “Contributions” under the Plan. The Committee will credit the Participant’s Deferred Compensation Account with an amount equal to those Contributions at the times and in amounts as would otherwise have been paid or made available to that Participant. The elections described in subsections 3.1(a) and 3.1(b) will be made by the time and using the forms the Plan Administrator provides.

ARTICLE 4 - ACCOUNTS AND INVESTMENTS

Section 4.1 - The Deferred Compensation Account. The Committee will maintain for each Participant a Deferred Compensation Account to which it will credit all amounts allocated by the Participant in accordance with Sections 3.1 and 3.2. The Committee will credit the Deferred Compensation Account with contributions at the time the contributions are received in accordance with Sections 3.1 and 3.2. Each Participant’s Deferred Compensation Account will be adjusted no less often than annually to reflect the credits made to the Deferred Compensation Account and any interest, earnings, gains and losses thereon pursuant to Section 4.2. These adjustments will be made as long as any amount remains credited to the Deferred Compensation Account. The amounts allocated and the adjustments made comprise the Deferred Compensation Account at any time.

Section 4.2 - Interest, Earnings, Gains and Losses.

(a) Investment vehicles. Amounts represented by each Participant’s Deferred Compensation Account will be separately credited with interest or invested in one or more investment vehicles, subject to the sole discretion of the Committee. The amounts contributed to a Participant’s Deferred Compensation Account may be invested in the manner directed by the Participant, subject to final approval and authorization by the Committee in accordance with Sections 6.2 and 6.3, as applicable.

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(b) Limitations on investments. In making investment decisions, Participants will select from among the investment options, including investments in the Corporation’s common stock, made available by the Plan Administrator. Subject to Section 4.3, an investment that is made in the Corporation’s common stock may not be sold, withdrawn, or transferred to any other investment for any Participant except in connection with payment of benefits in the manner provided in Sections 4.6 (a) or (c). Subject to the preceding sentence and to Section 4.3, the Plan Administrator will prescribe rules regarding the manner and frequency of changes of investment selections by Participants.

(c) Separate accounting. Each Deferred Compensation Account will be separately credited with the interest or the earnings, gains and losses of those individual investment vehicles for the period for which the account is so invested no less often than annually.

Section 4.3 - The Rabbi Trust. The Committee may, but is not required to, determine that the Corporation establish a Rabbi Trust to which the Corporation must contribute all amounts credited to the Deferred Compensation Accounts in accordance with Articles 3 and 4.

Section 4.4 - Rights as General Creditor. Unless the Corporation establishes the Rabbi Trust, a Deferred Compensation Account does not constitute a trust fund or escrow. A Participant’s interest in the Deferred Compensation Account and in the Rabbi Trust, if established, is limited to the right to receive payments as provided under the Plan and the Rabbi Trust, if any, and the Participant’s position is that of a general unsecured creditor of the Corporation with respect to the entire Deferred Compensation Account, i.e., the Contributions, and interest, earnings, gains and losses on them.

Section 4.5 - Vesting in Deferred Contribution Account. A Participant at all times has a 100% nonforfeitable right to the value of his or her Deferred Compensation Account.

Section 4.6 - Payment of Benefits.

a. Normal Form. Except as otherwise provided in this Section, if a Participant does not make an election in the time and manner specified in subsection (b), payment of the vested value of that Participant’s Deferred Compensation Account will be paid in a lump sum cash payment on the 10^th business day after the Participant is Separated from Service. If on the date of the Participant’s Separation from Service he or she is a Specified Employee, no benefits will be paid prior to the date that is six months after the date of Separation from Service.

b. Alternative Form.

1. Initial Election. Subject to the requirements of Section 4.2(b), during the initial 30-day period following a Participant’s eligibility for participation in the Plan under Article 2, a Participant may elect: (i) to have the payment of the value of the Participant’s Deferred Compensation Account commence upon the earlier of a specified date or on the 10^th business day after Separation from Service; and/or (ii) to have payments distributed on an installment basis, the duration of which cannot last longer than 15 years. If the Participant elects to receive his or her benefits under this Plan on an installment basis and the Participant is a Specified Employee on the date the Participant is Separated from Service, no benefits will be paid prior to the date that is six months after the date of the Participant’s Separation from Service. Payments to which a Participant would otherwise be entitled during the first six months following the date of Separation from Service will be accumulated and paid on the day that is six months after the date of Separation from Service.

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2. Subsequent Election. Subject to the requirements of Section 4.2(b), after the initial 30-day period following a Participant’s eligibility for participation in the Plan under Article 2, a Participant may make a subsequent election to change the date on which and the form in which all Plan benefits, if any, will be paid. This subsequent election (i) must be in writing, (ii) must be made 12 months before payments would otherwise commence, (iii) will not be effective until 12 months after the date on which the election is made, and (iv) in the case of an election related to a payment other than a payment on account of death, the first payment with respect to which such election is made must be deferred for a period of not less than five years from the date the payment would otherwise have been made. Elections made under this section must be filed in compliance with the rules and procedures prescribed by the Committee.

c. Unforeseeable Emergency. In the case of an Unforeseeable Emergency, a Participant may submit a written request to the Committee for (1) a distribution of all or a part of his or her Deferred Compensation Account prior to the date benefits otherwise would be payable, or (2) an acceleration of the payment of installment payments that already have begun, which subject to the discretion of the Committee and compliance with of Rule 16b-3, may be permitted. Withdrawals or acceleration because of an Unforeseeable Emergency are permitted only to the extent reasonably necessary to satisfy the emergency and to the extent they are permitted under Section 409A of the Code.

Section 4.7 - Death Benefits. If a Participant dies before payments to the Participant have been completed under Section 4.6, the balance of the Participant’s benefit will be paid to his or her Beneficiary in the form of a single lump sum cash payment on the 10^th business day after the death of the Participant. Each Participant may designate the Beneficiary for the benefits provided on his or her death under the Plan. That designation may be changed from time to time. All designations must be made on forms provided by and filed with the Plan Administrator. In the absence of an effective designation, the balance of the Participant’s benefit will be paid to the Participant’s surviving spouse or, if none, to the Participant’s estate.

ARTICLE 5 - AMENDMENT, SUSPENSION, OR TERMINATION

Section 5.1 - Amendment, Suspension, or Termination. The Committee may amend, suspend or terminate the Plan, in whole or in part, at any time and from time to time by resolution adopted at a regular or special meeting of the Committee.

Section 5.2 - No Reduction. No amendment, suspension or termination may operate to adversely affect the benefit otherwise available to a Participant under the Plan determined as if the Participant had ceased being a Participant on or before the effective date of that amendment, suspension, or termination. The value of a Participant’s Deferred Compensation Account, if any, determined as of the effective date of that amendment, suspension or termination will continue to be adjusted for investment results as provided in Sections 4.1 and 4.2 until paid. Any benefit determined as of that date will continue to be payable as provided in Sections 4.5 and 4.6.

ARTICLE 6 - ADMINISTRATION OF THE PLAN

Section 6.1 - Administration by Committee. The general administration of this Plan, as well as its construction and interpretation, is the responsibility of the Committee, the number and members of which are designated and appointed from time to time by, and serve at the pleasure of the Board. The Corporation will pay any and all expenses incurred in the administration of the Plan.

Section 6.2 - Delegation. The Board may designate one of the members of the Committee as chairman and may appoint a Secretary who need not be a member of the Committee and may be a Participant in the Plan. The Secretary will keep minutes of the Committee’s proceedings and all data, records and documents relating to the Committee’s administration of the Plan. The Committee may appoint from its

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number subcommittees with such powers as the Committee determines and may authorize one or more members of the Committee or any agent to execute or deliver any instrument or make any payment on behalf of the Committee. The Committee may delegate to one or more members of the Committee or officers of the Corporation the authority to approve and authorize investment decisions made by Participants.

Section 6.3 - Majority Vote. All resolutions or other actions taken by the Committee must be by vote of a majority of those present at a meeting at which a majority of the members are present, or in writing by all the members at the time in office if they act without a meeting.

Section 6.4 - Exclusive Right to Interpret Plan. The Committee, from time to time, will establish rules, forms and procedures for the administration of the Plan. The Committee has the exclusive right to interpret the Plan and to decide any and all matters arising under it or in connection with the administration of it. The decisions, actions and records of the Committee are conclusive and binding on the Corporation and all persons having or claiming to have any right or interest in or under the Plan.

Section 6.5 - Reliance. The members of the Committee and the officers and directors of the Corporation are entitled to rely on all certificates and reports made by any duly appointed accountants, and on all opinions given by any duly appointed legal counsel, which legal counsel may be counsel for the Corporation.

Section 6.6 - Indemnification. No member of the Committee is liable for any act or omission of any other member of the Committee, nor for any act or omission on his or her own part. The Corporation must indemnify and save harmless each member of the Committee against any and all expenses and liabilities arising out of his or her membership on the Committee. Expenses against which a member of the Committee will be indemnified hereunder include, without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement of one of those. This right of indemnification is in addition to any other rights to which any member on the Committee may be entitled as a matter of law.

Section 6.7 - Additional Powers. The Committee has the power to compute and certify under the Plan the amount and kind of benefits from time to time payable to Participants and their beneficiaries and to authorize all disbursements for those purposes.

ARTICLE 7 - SECURITIES MATTERS

Section 7.1 - Registration. The Corporation is under no obligation to effect the registration pursuant to the Securities Act of 1933 of any interests in the Plan or to effect similar compliance under any state laws.

Section 7.2 - Interpretation. It is intended that the Plan be interpreted and administered to the maximum extent possible so as to make the exemption under SEC Rule 16b-3 available for the transactions under the Plan. If any provision of the Plan would cause the exemption under SEC Rule 16b-3 to be unavailable if applied as written, such provision will not have effect as written and will be given effect so as to make the exemption under SEC Rule 16b-3 available, as determined by the Committee. The Committee is authorized to amend the Plan and to make any such modifications to Stock Units to make available the exemption under SEC Rule 16b-3, as it may be amended from time to time, and to make any other such amendments or modifications deemed necessary or appropriate to better accomplish the purposes of the Plan in light of any amendments made to SEC Rule 16b-3.

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ARTICLE 8 - GENERAL PROVISIONS

Section 8.1 - Funding. The Plan and the Rabbi Trust, if established, constitute an unfunded arrangement and have the status as an unfunded plan maintained for the purpose of providing deferred compensation for Participants. The plan is not intended to be subject to the provisions of ERISA.

Section 8.2 - Nonassignability. The interests of any person under the Plan (other than the Corporation) must not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, attachment or encumbrance, or to the claims of creditors of that person, and any attempt to effectuate any such actions shall be void.

Section 8.3 - Interest of Participant. Except as provided in the Rabbi Trust, if any, a Participant and the Participant’s Beneficiaries, in respect of the Participant’s Deferred Compensation Account, and any benefit to be paid under the Plan, are and remain simply creditors of the Corporation in the same manner as any other creditor having a general claim, if and when the Participant’s or Beneficiaries’ rights to receive payments mature and become payable. Except as provided in the Rabbi Trust, if any, at no time may the Participant be deemed to have any right, title or interest, legal or equitable, in any asset of the Corporation, including, but not limited to any investments held.

Section 8.4 - Withholding. The Corporation has the right to deduct or withhold from the benefits paid under the Plan (or from other amounts payable to the Participant, if necessary) all taxes that are required to be deducted or withheld under any provision of law (including, but not limited to, Social Security payments, income tax withholding and any other deduction or withholding required by law) now in effect or that may become effective any time during the term of the Plan.

Section 8.5 - Exclusivity of Plan. The Plan is intended solely for the purpose of providing deferred compensation to the Participants to the mutual advantage of the parties. Nothing contained in the Plan may affect or interfere in any way with the right of a Participant to participate in any other benefit plan in which he or she may be entitled to participate.

Section 8.6 - No Right to Continued Service. Neither the Plan nor any agreements signed in relationship to the Plan, either singly or collectively, may obligate the Corporation in any way to continue the service of a Participant as a Director of the Corporation or to require the Corporation to nominate or cause the nomination of a Participant for a future term as a Director. Nor does this Plan or the Plan Participation Agreement prohibit or restrict the right of a Participant to terminate service as a Director of the Corporation. Termination of a Participant’s service to the Corporation, whether by action of the Corporation or by the Participant, immediately terminates the Participant’s future participation in the Plan. All further obligations of either party will be determined under the provisions of this Plan.

Section 8.7 - Notice. Each notice and other communication must be in writing and deemed given only when (a) delivered by hand, (b) transmitted by telex or telecopier (provided a copy is sent at approximately the same time by registered or certified mail, return receipt requested), (c) received by the addressee, if sent by registered or certified mail, return receipt requested, or by Express Mail, Federal Express or other overnight delivery service, to the Corporation at its principal office and to a Participant at the last known address of the Participant (or to such other address or telecopier number as a party may specify by notice given to the other party pursuant to this Section).

Section 8.8 - Claims Procedures. If a Participant or the Participant’s designated Beneficiary does not receive benefits to which he or she believes he or she is entitled, such person may file a claim in writing with the Committee. The Committee may establish claims procedures to be followed.

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Section 8.9 - New York Law Controlling. The Plan must be construed in accordance with the laws of the State of New York. All controversies arising must be adjudicated in a court of competent jurisdiction located in the State of New York, and the Participant hereby consents to jurisdiction in the State of New York for purposes of that legal action.

Section 8.10 - Severability. Every provision of the Plan is intended to be severable. If any provision of the Plan is illegal or invalid for any reason, the illegality or invalidity of that provision will not affect the validity or legality of the remainder of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had never been made part of the Plan.

Section 8.11 - Binding on Successors. The Plan is binding on the Participants and the Corporation, their heirs, successors, legal representatives and assigns.

Section 8.12 - Titles. Titles to the Articles and Sections of this Plan are included for convenience only and do not control the meaning or interpretation of any provision of this Plan.

Section 8.13 - 409A Liability Limitation. Benefits under the Plan are intended to comply with the rules of Section 409A of the Code and will be construed accordingly. However, the Corporation will not be liable to any Participant or Beneficiary with respect to any benefit related adverse tax consequences arising under Section 409A or other provision of the Code.

	COMPUTER TASK GROUP, INC.
Date:	By:
	Title:

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SCHEDULE A

COMPUTER TASK GROUP, INCORPORATED

NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN

Designation of Beneficiary

Primary Beneficiary:

	Name	Relationship	Percent of Benefit
1.
2.
3.
4.
Secondary Beneficiary:
In place of Benefit to be paid to Number:
		Name	Relationship
1.
2.
3.
4.

Date Participant

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EX-21

EXHIBIT 21

COMPUTER TASK GROUP, INCORPORATED

SUBSIDIARIES OF COMPUTER TASK GROUP, INCORPORATED

The following is a list of all of the subsidiaries of the Registrant as of December 31, 2009. All financial statements of such subsidiaries are included in the consolidated financial statements of the Registrant, and all of the voting securities of each subsidiary are wholly-owned by the Registrant:

Subsidiary	State/Country or Jurisdiction of Incorporation
—Computer Task Group of Delaware, Inc.	Delaware
—CTG of Buffalo, Inc.	New York
—Computer Task Group (Holdings) Ltd.	United Kingdom
—Computer Task Group of Kansas, Inc. (a subsidiary of Computer Task Group (Holdings) Ltd.)	Missouri
—Computer Task Group of Canada, Inc.	Canada
—Computer Task Group International, Inc.	Delaware
—Computer Task Group Europe B.V. (a subsidiary of Computer Task Group International, Inc.)	The Netherlands
—Computer Task Group (U.K.) Ltd. (a subsidiary of Computer Task Group Europe B.V.)	United Kingdom
—Computer Task Group Belgium N.V. (a subsidiary of Computer Task Group Europe B.V.)	Belgium
—CTG ITS S.A. (a subsidiary of Computer Task Group IT Solutions, S.A.)	Belgium
—Rendeck Macro-4 Software B.V. (a subsidiary of Computer Task Group Europe B.V.)	The Netherlands
—Computer Task Group of Luxembourg PSF (a subsidiary of Computer Task Group, Incorporated)	Luxembourg
—Computer Task Group IT Solutions, S.A. (a subsidiary of Computer Task Group Luxembourg PSF.)	Luxembourg
—CTG Deutschland GmbH	Germany

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EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Computer Task Group, Incorporated:

We consent to the incorporation by reference in the Registration Statements No. 333-12237, 333-39936, 333-51162, 333-66766, 333-91148, 333-118314, 333-143080 and 333-152827 on Form S-8 and Registration Statement No. 333-43263 on Form S-3 of Computer Task Group, Incorporated of our reports dated February 25, 2010, with respect to the consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009, the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2009, which reports appear in the December 31, 2009 annual report on Form 10-K of Computer Task Group, Incorporated.

/s/ KPMG LLP

Buffalo, New York

February 25, 2010

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EX-31.(A)

EXHIBIT 31(a)

CERTIFICATION

I, James R. Boldt, certify that:

1. I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2010	/s/    JAMES R. BOLDT
	James R. Boldt Chairman and Chief Executive Officer

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EX-31.(B)

EXHIBIT 31(b)

CERTIFICATION

I, Brendan M. Harrington, certify that:

1. I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2010	/s/    BRENDAN M. HARRINGTON
	Brendan M. Harrington Chief Financial Officer

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EX-32

EXHIBIT 32

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Computer Task Group, Incorporated, a New York corporation (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission (the “Form 10-K”) that:

(1) the Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Computer Task Group, Incorporated and will be retained by Computer Task Group, Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.

Date: February 25, 2010	/s/    JAMES R. BOLDT
	James R. Boldt Chairman and Chief Executive Officer
Date: February 25, 2010	/s/    BRENDAN M. HARRINGTON
	Brendan M. Harrington Chief Financial Officer

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