Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations. There are no unconsolidated entities, or off-balance sheet arrangements other than certain guarantees supporting office leases or the performance under government contracts in the Company's European operations. All inter-company accounts and transactions have been eliminated.

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 condensed consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, the valuation of goodwill and other intangible assets, valuation allowances for deferred tax assets, actuarial assumptions including discount rates and expected rates of return on assets, 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 progress toward completion and direct profit or loss on contracts. Management believes that the information and disclosures provided herein are adequate to present fairly the condensed consolidated financial position, results of operations and comprehensive income, and cash flows of the Company. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10‑K filed with the SEC.

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.

IT solutions and IT staffing revenue as a percentage of total revenue for the quarter and two quarters ended June 28, 2013 and June 29, 2012 was as follows:



	For the Quarter Ended				For the Two Quarters Ended
	June 28, 2013		June 29, 2012		June 28, 2013		June 29, 2012
IT solutions	40	%	41	%	39	%	40	%
IT staffing	60	%	59	%	61	%	60	%
Total	100	%	100	%	100	%	100	%

The Company promotes a significant portion of its services through four vertical market focus areas: Healthcare (which includes services provided to healthcare providers, health insurers, and life sciences companies), Technology Service Providers, Financial Services, and Energy. 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 quarter and two quarters ended June 28, 2013 and June 29, 2012 was as follows:



	For the Quarter Ended				For the Two Quarters Ended
	June 28, 2013		June 29, 2012		June 28, 2013		June 29, 2012
Healthcare	32	%	33	%	32	%	32	%
Technology service providers	31	%	31	%	30	%	31	%
Financial services	6	%	6	%	6	%	6	%
Energy	6	%	6	%	6	%	6	%
General markets	25	%	24	%	26	%	25	%
Total	100	%	100	%	100	%	100	%

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 June 28, 2013 and December 31, 2012, the carrying amounts of the Company’s cash of $34.0 million and $40.6 million, respectively, approximated fair value.

The Company is 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 quarter or year-to-date periods ended June 28, 2013 or June 29, 2012.

Life Insurance Policies

The Company has purchased life insurance on the lives of certain plan participants who are former employees in the non-qualified defined benefit Executive Supplemental Benefit Plan. Those policies have generated cash surrender value, and the Company has taken loans against the policies. At June 28, 2013 and December 31, 2012, these insurance policies have a gross cash surrender value of $25.4 million and $24.8 million, respectively, loans have been taken totaling $24.3 million and $23.1 million, respectively, and the net cash surrender value balance of $1.1 million and $1.7 million, respectively, is included on the consolidated balance sheet in “Other Assets” under non-current assets.

During the 2012 second quarter, one of the plan participants passed away. The company received non-taxable net proceeds and recorded a gain from the participant’s life insurance in the 2012 second quarter totaling approximately $0.4 million.

At June 28, 2013, the total death benefit for the remaining policies was approximately $37.2 million. Currently, upon the death of all of the remaining plan participants, the company would expect to receive approximately $12.9 million after the payment of outstanding loans, and record a gain of approximately $11.8 million.

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 and expenses are not grossed up as such taxes are recorded and presented on a net basis.

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. The Company had no cash equivalents at June 28, 2013 or December 31, 2012. 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," as presented on the condensed consolidated statement of cash flows represents the increase or decrease in outstanding checks period-over-period.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at June 28, 2013 and December 31, 2012 are summarized as follows:



(amounts in thousands)	June 28, 2013			Dec. 31, 2012
Property, equipment and capitalized software	$	28,342		$	26,905
Accumulated depreciation and amortization	(20,805		)	(19,989		)
Property, equipment and capitalized software, net	$	7,537		$	6,916

The Company recorded $0.6 million and $0.7 million of capitalized software costs during the quarter and two quarters ended June 28, 2013, respectively, and recorded no capitalized software costs during the corresponding 2012 periods. As of June 28, 2013 and June 29, 2012, the Company had capitalized totals of approximately $5.8 million and $5.1 million, respectively, for software projects developed for internal use. Amortization periods range from two to five years, and are evaluated annually for propriety. Amortization expense totaled $0.3 million and $0.4 million in the quarter, and $0.6 million and $0.7 million in the two quarters ended June 28, 2013 and June 29, 2012, respectively. Accumulated amortization for these projects totaled $3.8 million and $2.2 million as of June 28, 2013 and June 29, 2012, respectively.

Guarantees

The Company has several guarantees in place in our European operations which support office leases and performance under government projects. These guarantees totaled approximately $2.5 million at both June 28, 2013 and December 31, 2012, and generally have expiration dates ranging from July 2013 through June 2019.

Acquisition

In January 2013, the Company acquired etrinity, a provider of IT services to the healthcare market in Belgium and the Netherlands. The purchase price was approximately $2.8 million, of which $2.2 million is estimated to be recorded as goodwill. Founded in 2000, etrinity's 2012 revenue approximated U.S. $3 million. The firm's IT services are targeted to the healthcare provider market and include clinical systems integration and implementation, application management, technology support for medical imaging, training, and technical resources.