2.	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 and the performance under government contracts in the Company's European operations. All inter-company accounts 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 allowance for deferred tax assets, actuarial assumptions including discount rates and expected rates of return on assets, as applicable, for the Company's defined 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, comprehensive income (loss), 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 in North American and Western Europe. At the highest level, CTG delivers services that are considered either IT solutions or IT and other 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 and other staffing revenue as a percentage of total revenue for the quarters and two quarters ended June 29, 2018 and June 30, 2017 was as follows:

	For the Quarter Ended						For the Two Quarters Ended
	June 29, 2018			June 30, 2017			June 29, 2018			June 30, 2017
IT solutions		31.6	%		29.9	%		31.0	%		30.0	%
IT and other staffing		68.4	%		70.1	%		69.0	%		70.0	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The Company promotes a significant portion of its services through five vertical market focus areas: technology service providers, manufacturing, healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), financial services, and energy. The Company focuses on these five 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 as a percentage of total revenue for the quarters and two quarters ended June 29, 2018 and June 30, 2017 was as follows:

	For the Quarter Ended						For the Two Quarters Ended
	June 29, 2018			June 30, 2017			June 29, 2018			June 30, 2017
Technology service providers		32.5	%		32.6	%		32.7	%		33.1	%
Manufacturing		18.4	%		26.0	%		18.9	%		25.8	%
Healthcare		16.0	%		17.4	%		15.6	%		17.1	%
Financial services		15.7	%		8.1	%		15.1	%		8.0	%
Energy		5.0	%		4.7	%		4.9	%		4.9	%
General markets		12.4	%		11.2	%		12.8	%		11.1	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Revenue Recognition

The Company recognizes revenue when control of the promised good or service is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with progress billing schedules, primarily monthly, revenue is recognized as services are rendered to the customer. Revenue for fixed-price contracts is recognized over time using an input-based approach. Over time revenue recognition best portrays the Company’s performance in transferring control of the goods or services to the customer. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the customer to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the customer controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the 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 that 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 experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.

The Company’s revenue from contracts accounted for under time-and-material, progress billing and percentage-of-completion methods as a percentage of consolidated revenue for the quarters and two quarters ended June 29, 2018 and June 30, 2017 was as follows:

	For the Quarter Ended						For the Two Quarters Ended
	June 29, 2018			June 30, 2017			June 29, 2018			June 30, 2017
Time-and-material		87.7	%		85.6	%		87.1	%		85.6	%
Progress billing		9.8	%		11.1	%		9.9	%		11.2	%
Percentage-of-completion		2.5	%		3.3	%		3.0	%		3.2	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The Company recorded revenue for the quarters and two quarters ended June 29, 2018 and June 30, 2017 as follows:

For the Quarter Ended:	June 29, 2018					June 30, 2017					Year-over-Year Change
	(amounts in thousands)
North America		65.3	%	$	60,522		74.9	%	$	56,587		7.0	%
Europe		34.7	%		32,145		25.1	%		18,934		69.8	%
Total		100.0	%	$	92,667		100.0	%	$	75,521		22.7	%

For the Two Quarters Ended:	June 29, 2018					June 30, 2017					Year-over-Year Change
	(amounts in thousands)
North America		65.1	%	$	114,214		75.1	%	$	114,480		(0.2	)%
Europe		34.9	%		61,166		24.9	%		38,047		60.8	%
Total		100.0	%	$	175,380		100.0	%	$	152,527		15.0	%

Significant Judgments

With the exception of cost estimates on certain fixed-price projects, there are no other significant judgments used to determine the timing of satisfaction of performance obligations or determining transaction price and amounts allocated to performance obligations. The Company allocates the transaction price based on standalone selling prices for contracts with customers that include more than one performance obligation. Standalone selling prices are based on the expected cost of the good or service plus margin approach. Certain customers may qualify for discounts and rebates, which we account for as variable consideration. The Company estimates variable consideration and reduce revenue recognized based on the amount it expects to provide to customers.

Contract Balances

For time-and-material and progress billing contracts, the timing of the Company’s satisfaction of its performance obligations is consistent with the timing of payment. For these contracts, the Company has the right to payment in the amount that corresponds directly with the value of the Company’s performance to date. The Company uses the right to invoice practical expedient that allows the Company to recognize revenue in the amount for which it has the right to invoice for time-and-material and progress billing contracts. Bill schedules for fixed-price contracts are generally consistent with the Company’s performance in transferring control of the goods or services to the customer. There are no significant financing components in our contracts with customers. Advanced billings represent contract liabilities for cash payments received in advance of our performance. Unbilled receivables are reported within “accounts receivable” on the condensed consolidated balance sheet. Accounts receivable and contract liability balances fluctuate based on the timing of the customer’s billing schedule and the Company’s month-end date. There are no significant costs to obtain or fulfill contracts with customers.

Transaction Price Allocated to Remaining Performance Obligations

As of June 29, 2018, the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price and all progress billing contracts was approximately $6.2 million and $34.4 million, respectively. Approximately $16.4 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2018. Approximately $24.2 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2019 and beyond. The Company uses the right to invoice practical expedient. Therefore, no disclosure is required for unsatisfied performance obligations for contracts in which we recognize revenue at the amount to which we have the right to invoice for services performed.

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 presented on a gross basis in the condensed consolidated financial statements as such taxes are recorded in the Company's accounts on a net basis.

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 29, 2018 and December 31, 2017, the carrying amounts of the Company’s cash of $9.7 million and $11.2 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 accounting standard for any specific contracts during the quarters ended June 29, 2018 or June 30, 2017.

As described in Note 3 of the condensed consolidated financial statements, the Company acquired 100% of the equity of Soft Company in the 2018 first quarter. Level 3 inputs were used to estimate the estimated fair values allocated to the assets acquired and liabilities assumed. The valuation techniques used to assign fair values to intangible assets included the relief-from-royalty method and excess earnings method. In addition, the Company has a contingent consideration liability related to the earn-out provision which a portion will be payable in each period subject to the achievement by Soft Company of certain revenue and EBIT targets for fiscal 2017, 2018, and 2019. There is no payout if the achievement on either target is below a certain target threshold. The fair value of this contingent consideration is determined using level 3 inputs. The fair value assigned to the contingent consideration liability is determined using real options method, which requires inputs such as revenue forecasts, EBIT forecasts, discount rate, and other market variables to assess the probability of Soft Company achieving the revenue and EBIT targets. The fair value as of the February 15, 2018 acquisition date was determined to be $2.0 million. In the 2018 second quarter, the Company paid approximately $0.9 million relating to the earn-out based on the achievement by Soft Company of certain revenue and EBIT targets for fiscal 2017. The fair value of the remaining contingent consideration liability was approximately $0.9 million and is recorded in “Other long-term liabilities” on the June 29, 2018, condensed consolidated balance sheet.

Life Insurance Policies

The Company has purchased life insurance on the lives of a number of former employees who are plan participants in the non-qualified defined benefit Executive Supplemental Benefit Plan. In total, there are policies on 19 individuals, whose average age is 75 years old. Those policies have generated cash surrender value. The Company borrowed $6.1 million and $22.7 million against the cash surrender value of these life insurance policies during the 2018 first and second quarters, respectively. At June 29, 2018, these insurance policies had gross cash surrender values of $31.3 million outstanding loans and interest totaling $28.7 million, and a net cash surrender value of $2.6 million. At December 31, 2017, these insurance policies, with no outstanding loans, had a cash surrender value of $31.5 million. The net cash surrender values are included on the condensed consolidated balance sheet in “Cash surrender value of life insurance” under non-current assets.

At June 29, 2018 and December 31, 2017, the total death benefit for the remaining policies was approximately $42.0 million and $42.2 million, respectively. Currently, upon the death of all of the remaining plan participants, the Company would expect to receive approximately $12.6 million after the payment of obligations, and, under current tax regulations, record a non-taxable gain of approximately $10.1 million.

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. 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," line item as presented on the condensed consolidated statements of cash flows represents the increase or decrease in outstanding checks in a given period.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at June 29, 2018 and December 31, 2017 are summarized as follows:

(amounts in thousands)	June 29, 2018			December 31, 2017
Property, equipment and capitalized software	$	17,966		$	23,009
Accumulated depreciation and amortization		(12,246	)		(16,013	)
Property, equipment and capitalized software, net	$	5,720		$	6,996

The Company recorded less than $0.1 million of capitalized software costs during the quarter and two quarters ended June 29, 2018, and $0.2 million and $0.8 million of capitalized software costs during the quarter and two quarters ended June 30, 2017, respectively. The decrease in the 2018 periods as compared with 2017 is due to adjustments for currency fluctuations as well as the completed rollout of software licenses, which the Company implemented in the first half of 2017. As of those dates, the Company had capitalized a total of $2.0 million and $1.8 million, respectively, for software projects developed for commercial use. Amortization periods range from two to five years, and are evaluated periodically for propriety. Amortization expense totaled approximately $0.1 million and $0.3 million in the quarter and two quarters ended June 29, 2018, and approximately $0.1 million in both the quarter and two quarters ended June 30, 2017. Accumulated amortization for these projects totaled $0.8 million and $0.4 million as of June 29, 2018 and June 30, 2017, respectively.

The Company sold its corporate administrative building in February 2018 for $1.8 million, and as the book value was $1.6 million, recorded a gain on the sale of less than $0.1 million after applicable fees. The gain was recorded in interest and other income in the condensed consolidated statement of income.

Guarantees

The Company has a number of guarantees in place in its European operations that support office leases and performance under government contracts. At June 29, 2018 and December 31, 2017, these guarantees totaled approximately $0.9 million and $1.1 million, respectively, and generally have expiration dates ranging from July 2018 through December 2019.

Goodwill

The goodwill recorded on the Company's condensed consolidated balance sheet at June 29, 2018 relates to the acquisition of Soft Company in the 2018 first quarter. In accordance with current accounting guidance for “Intangibles - Goodwill and Other,” the Company performs goodwill impairment testing at least annually (in the Company’s fourth quarter), unless indicators of impairment exist in interim periods.

Acquired Intangible Assets

Acquired intangible assets at June 29, 2018 consist of the following:

(amounts in thousands)	Estimated Economic Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks	2 years	$	699	$	131	$	568
Customer relationships	13 years		6,057		175		5,882
Total		$	6,756	$	306	$	6,450

Estimated amortization expense for the remainder of fiscal 2018 and the five succeeding fiscal years and thereafter is as follows (amounts in thousands):

Year	Annual Amortization
2018	$	408
2019		815
2020		509
2021		466
2022		466
2023		466
Thereafter		3,320
Total	$	6,450

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). On January 1, 2018, the Company adopted Topic 606 using the cumulative effect method and applied the requirements of the new standard to only projects that were open as of January 1, 2018. Results for the reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

The Company recorded a net positive adjustment to beginning retained earnings of less than $0.1 million and a corresponding amount to unbilled receivables as of January 1, 2018 due to the cumulative impact of adopting Topic 606, primarily related to a change in the identification of performance obligations on certain projects. In addition, the Company evaluated its principal and agent conclusions when more than one party is involved in providing goods or service to a customer. The Company recorded approximately $1.3 million, or 1.4% of our 2018 second quarter consolidated revenue and approximately $2.9 million, or 1.6% of our 2018 year-to-date revenue on a gross basis, which would have been recorded on a net basis under our historic accounting under Topic 605. The Company reported $92.7 million and $175.4 million of revenue in the 2018 second quarter and 2018 year-to-date period, respectively, under Topic 606 and the Company would have reported approximately $91.4 million and $172.5 million of revenue under Topic 605.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Topic 842 supersedes the previous leases standard, ASC 840, Leases. This guidance is effective for reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact that ASU 2016-02 will have on its condensed consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715),” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments in this Update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. The Company has adopted this standard and has applied it retrospectively in the 2018 first quarter. Upon adoption, the Company reduced selling, general, and administrative expenses by approximately $0.1 million and $0.2 million and increased interest and other expense by a corresponding amount for the 2017 second quarter and 2017 year-to-date period, respectively.