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 quarters ended March 29, 2013 and March 30, 2012 was as follows:



	For the Quarter Ended
	March 29, 2013		March 30, 2012
IT solutions	39.4	%	39.5	%
IT staffing	60.6	%	60.5	%
Total	100.0	%	100.0	%

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 quarters ended March 29, 2013 and March 30, 2012 was as follows:



	For the Quarter Ended
	March 29, 2013		March 30, 2012
Healthcare	31.8	%	31.5	%
Technology service providers	30.4	%	31.8	%
Financial services	6.6	%	6.2	%
Energy	6.0	%	6.2	%
General markets	25.2	%	24.3	%
Total	100.0	%	100.0	%

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 March 29, 2013 and December 31, 2012, the carrying amounts of the Company’s cash of $30.7 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 quarters ended March 29, 2013 or March 30, 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 March 29, 2013 and December 31, 2012, these insurance policies have a gross cash surrender value of $25.1 million and $24.8 million, respectively, loans have been taken totaling $23.4 million and $23.1 million, respectively, and the net cash surrender value balance of $1.7 million for both periods is included on the consolidated balance sheet in “Other Assets” under non-current assets.

At both March 29, 2013 and December 31, 2012, the total death benefit for the remaining policies was approximately $37.1 million. Currently, upon the death of all of the remaining plan participants, the company would expect to receive approximately $13.2 million after the payment of outstanding loans, and record a gain of approximately $12.0 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 March 29, 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 year-over-year.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at March 29, 2013 and December 31, 2012 are summarized as follows:



(amounts in thousands)	March 29, 2013			December 31, 2012
Property, equipment and capitalized software	$	27,416		$	26,905
Accumulated depreciation and amortization	(20,460		)	(19,989		)
Property, equipment and capitalized software, net	$	6,956		$	6,916

The Company recorded less than $0.1 million and $0 of capitalized software costs during the quarters ended March 29, 2013 and March 30, 2012, respectively. As of both of those dates, the Company had capitalized a total of approximately $5.1 million 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 quarters ended March 29, 2013 and March 30, 2012, respectively. Accumulated amortization for these projects totaled $3.5 million and $1.8 million as of March 29, 2013 and March 30, 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 total approximately $2.4 million and $2.5 million at March 29, 2013 and December 31, 2012, respectively, and generally have expiration dates ranging from April 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 either goodwill or other intangible assets. 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.