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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One)  þ
    Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year ended December 31, 2004. or  o
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Commission File Number: 000-24799 THE CORPORATE EXECUTIVE BOARD COMPANY (Exact name of registrant as specified in its charter)
 Delaware
    
    52-2056410(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)2000 Pennsylvania Avenue, N.W.Suite 6000Washington, D.C.
    
    20006(Address of principal executive offices)
    
    (Zip Code)
 (202) 777-5000 (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act: Not applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of class)
 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 þ No o 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. þ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes þ No o Based upon the closing price of the registrants common stock as of June 30, 2004, the
aggregate market value of the common stock held by non-affiliates of the registrant was
$2,255,158,414*. As
of February 28, 2005, The Corporate Executive Board Company had outstanding 39,999,858
shares of Common Stock, par value $0.01 per share.




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DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents incorporated by reference and the Part of the Form 10-K
into which the document is incorporated: None.   *
    
    Solely for purposes of this calculation, all executive officers and
directors of the registrant and all shareholders reporting beneficial
ownership of more than 5% of the registrants common stock are
considered to be affiliates. A NOTE ABOUT FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, including information incorporated into this document by
reference, contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not
historical facts, including statements about our beliefs or expectations, are forward-looking
statements, and are contained throughout this Annual Report on Form 10-K, including under the
sections entitled Business and Managements Discussion and Analysis of Financial Condition and
Results of Operations. These statements are based on our managements beliefs and assumptions and
on information currently available to our management. Forward-looking statements include the
information concerning our possible or assumed results of operations, business strategies,
financing plans, competitive position and potential growth opportunities. Forward-looking
statements include all statements that are not historical facts and can be identified by the use of
forward-looking terminology such as the words believes, expects, anticipates, intends,
plans or estimates or similar expressions. Forward-looking statements involve risks, uncertainties and assumptions. Actual results may
differ materially from those expressed in these forward-looking statements. You should not put
undue reliance on any forward-looking statements. All forward-looking statements contained in this
Annual Report on Form 10-K are qualified by these cautionary statements and are made only as of the
date this Annual Report on Form 10-K is filed. We undertake no obligation, other than as required
by law, to update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. 
 PART I 
 Item 1. Business. Overview We provide best practices research, decision support tools and executive education
focusing on corporate strategy, operations and general management issues. Best practices research
supports senior executive decision making by identifying and analyzing specific management
initiatives, processes and strategies that have been determined to produce the best results in
solving common business problems or challenges. We are a Delaware corporation formed in October
1997. We maintain our executive offices in Washington, D.C., at 2000 Pennsylvania Avenue, N.W.,
Suite 6000, Washington, D.C. 20006. Our membership-based model, in which all customers (or members) participate in our research
and analysis, is central to our business strategy. This model gives us access to the best business
practices of our members and enables us to provide comprehensive analysis on current business
issues, assessing the collective experiences and knowledge of our members on leading-edge topics.
By participating in The Corporate Executive Board, members can learn about the best practices of
the worlds largest corporations
 at a fraction of the cost of a customized analysis
performed by any of the major consulting firms. We do not believe that in-house research and
analysis departments at individual corporations could obtain, at any price, similar information
from other corporations about their management practices. In addition, we do not know of any other
entity that enables corporations to study a broad range of the best business practices of hundreds
of other business enterprises for fixed annual fees. We provide research and analysis to a membership of

more than

2,300 of the worlds largest and most
prestigious corporations. For a fixed annual fee, members of each research program have access to
an integrated set of services, typically including:  
    best practices research studies,
    executive education seminars,
    customized research briefs,
    web-based access to the programs digital content database and
    decision support tools. For 2004, our client renewal rate (defined as the percentage of member institutions renewed,
adjusted to reflect reductions in member institutions resulting from mergers and acquisitions of
members) equaled  91%, which increased from 90% for each of the previous two years. More than 80% of
the Fortune 500 companies are members of The Corporate Executive Board. 2




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We offer 31 research programs, each focusing on separate business constituencies within the
following practice areas:  
    human resources,
    strategy and research and development,
    information technology,
    sales and marketing,
    finance,
    legal and real estate,
    operations and procurement and
    financial services. We have added nine new research programs during the past two years and anticipate adding four
to five new research programs per year for the next two to three years. Each research program
charges a separate fixed annual fee and is served by a dedicated staff of analysts and researchers.
Memberships generally are renewable on a 12-month basis. The average price per research program at
December 31, 2004 was approximately $35,962. Our revenues and costs have grown at compound annual rates of 29.9% and 29.2%, respectively,
from December 31, 2001 through December 31, 2004. Because each research program provides our
membership with standardized best practices research studies and executive education seminars, new
members immediately add to our revenues while only incrementally increasing our operating costs.
Our growth strategy is to cross-sell additional research programs to existing members, to add new
members and to develop new research programs and decision support tools.
For financial information about our revenues from foreign and
domestic members, please see Note 3 to our audited consolidated
financial statements included in Item 8, Financial Statements
and Supplementary Data of this Annual Report on Form 10-K.
Substantially all of our long-lived assets are located in the United
States. Available Information The Corporate Executive Boards Internet address is http://www.executiveboard.com. We
have made available free of charge through our Internet Web site (follow Investors tab to link to
Shareholder Information and SEC Filings) our Annual Report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act),
as soon as reasonably practicable after such material was electronically filed with, or furnished
to, the Securities and Exchange Commission (SEC). 3




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Industry Background Corporations today are experiencing greater competitive demands and facing increasingly
complex strategic and operational issues. In response to these challenges, companies are exploring
new business strategies as well as reevaluating the performance of individual departments within
their organizations in order to maintain their competitive edge. The pace of change is driving a
greater interest in gaining access to leading management practices and solutions to common business
problems on a cross-industry basis. Participants in the professional information services industry have approached the market for
business-focused information by offering a variety of products and services, including market
research, strategic planning, implementation services and educational programs. Services differ by
the level of engagement, with some offering project-driven or long-term consulting contracts, and
others providing continuous research publishing. Other entities, such as trade associations,
nonprofit think tanks and research and database companies, also offer research, consulting and
education services. We offer a distinctive approach that combines many of the benefits of general management
consulting and training and development firms. Our research and analysis covers the same major
business issues generally addressed by management consulting firms, such as managing growth,
reducing costs, streamlining operations and developing strategy. What makes our approach
distinctive is that we provide the same, standardized product to each member of a research program
at a fraction of the cost of consulting services. Similar to training and development firms, we
offer educational services both on-site at member institutions and in large multicompany settings.
Unlike training and development firms, which typically invest only periodically in new curriculum
development, our curriculum is updated constantly by our best practices research organization and
the research agenda is set by the membership. Another distinguishing characteristic is the
seniority and breadth of our audience. We brief executive and senior management staff drawn from a
broad range of industry sectors, business units and departments. Because of our high-quality
research product, unique approach to the market and global network of leading companies, we believe that
we offer our customers a superior value proposition. Business Strategy Our goal is to research and analyze the most pertinent and timely strategic and operational
issues facing our membership and to distribute the results of this analysis to our membership in
the most efficient, effective and helpful manner. Our membership model allows us to draw upon a
large and growing universe of issues and solutions  relevant to todays leading corporations. We
actively engage our membership to help focus our research on the most urgent challenges in the
current business environment and to maintain and enhance our position as the leading provider of
best practices research and analysis.  
    Maintain Membership-Based Model.We believe that our membership-based
model is key to our success. We continually strive to increase our
ties to our members. We encourage members to view us as their
proprietary off-site research facility. Our fixed-fee economic model
promotes frequent use of our products and services. We believe that
member satisfaction grows as members access more of our services, and
that the growing roster of satisfied members validates our business
model and induces new members to join The Corporate Executive Board.
    Focus on Best Practices Research.The focus of our work is on
researching best demonstrated business and management practices. Many
large corporations believe that there are research economies and other
benefits that can be realized by learning from the experiences of
similar entities facing common business problems. We believe that
there will be a continuing desire on the part of large corporations to access ever-evolving solutions to
these common business problems. We believe that our success to date
has uniquely positioned us as a leading source for identifying,
studying, evaluating and communicating these evolving solutions and
that our library of best practices serves as a formidable barrier to
entry for potential competitors.
    Continue Research and Analysis Excellence.We believe that the quality
of our research and analysis has driven our success. We regularly
interact with senior executives at member institutions to identify the
most important strategic and operational issues for research and
analysis. Program directors are responsible for assuring that our
research methodology is applied to all studies and that research
quality is maintained across all research programs. We are highly
selective in our hiring, recruiting only the top graduates of the
leading universities and graduate schools. We emphasize continual
training of all employees in key areas, including industry analysis,
economics, quantitative modeling, root-cause analysis and presentation
skills. 4




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
    Build Membership Network.As our research programs grow in size and
influence, we constantly are expanding our network of executive
contacts at our member companies. We believe that the growth of this
network benefits members by increasing the number of executives they
can contact for information and by providing them with access to a
broader range of companies. We believe that these positive network
effects further strengthen our membership-based business model.
    Leverage Economic Model.We derive most of our revenues from fixed
annual fees for our research programs. A substantial portion of our
costs of delivering our products and services in each research program
are fixed and do not vary directly with the number of members. The
leverage in our economic model is further evidenced by the increasing
utilization via the Internet of each research programs digital
research library and decision support tools. Each research programs
proprietary database, including digital content and on-line tools,
assists our member executives in solving their own challenges on a
real-time basis. We expect to increase revenues and improve
program-operating margins as we add new members to our research
programs. Growth Strategy We believe that demand for our services will continue to grow as corporations recognize the
need to improve their performance and seek access to other companies solutions to common business
problems. Our growth strategy centers on leveraging the formula that we have developed across the
past decade by cross-selling additional subscriptions to existing members, adding new members and
developing new research programs and decision support tools.  
    Cross-Sell Additional Subscriptions to Existing Members.On average,
individual members currently participate in 3.46 research programs. We
actively cross-sell additional membership subscriptions and believe
that most members are potential participants in up to 18 of the
research programs we currently offer, which are directed at corporate
staff positions maintained by most major companies. We believe that
membership subscription cross-selling opportunities will continue to
increase as we develop new research programs.
    Add New Members.We have targeted approximately 1,800 additional
institutions globally, excluding Asia, as potential new members,
including companies with revenues greater than $750 million and
financial institutions with assets in excess of $1 billion.
    Develop New Research Programs.We currently offer research programs
covering 31 business constituencies. We have added nine new research
programs during the past two years. We also have identified more than
50 additional corporate constituencies that we might target as we
develop new research programs. This list includes opportunities to
serve corporate functions beyond the 31 we serve today. We believe
that each is a unique constituency with the potential to support a
tailored research agenda and a suite of educational and other
services. 5




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The Membership Network Our membership-based model, in which all members participate in our research and analysis, is
central to our business strategy. This model gives us access to the best business practices of our
members and enables us to provide comprehensive analysis on current business issues, assessing the
collective experience and knowledge of our members on leading-edge topics. By participating in The
Corporate Executive Board, members can learn about the best practices and access tools and
frameworks of the worlds largest corporations at a fraction of the cost of a
customized analysis performed by any of the major consulting firms. We do not believe that in-house
research and analysis departments at individual corporations could obtain, at any price, similar
information from other corporations about their business practices. We believe that there is no
other entity that enables corporations to study a broad range of business practices from thousands
of other business enterprises for fixed annual fees. We regularly interact with senior executives at member institutions to identify the most
important strategic and operational issues for research and analysis and continually strive to
increase our ties to our members. Our products and services are
available exclusively to our  members.
Our fixed-fee economic model promotes frequent use of our products and services. We encourage
members to view us as their proprietary off-site research facility. We believe that member
satisfaction grows as members access more of our services, and that the growing roster of satisfied
members validates our business model and induces new members to join The Corporate Executive Board. The following table sets forth information with respect to members, subscriptions and renewals
as of the dates shown: December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004Membership programs
    
    
    15
    
    
    
    18
    
    
    
    22
    
    
    
    26
    
    
    
    31Member institutions
    
    
    1,745
    
    
    
    1,802
    
    
    
    1,930
    
    
    
    2,143
    
    
    
    2,368Total membership
subscriptions
    
    
    3,543
    
    
    
    4,364
    
    
    
    5,257
    
    
    
    6,414
    
    
    
    8,202Average subscriptions
per member institution
    
    
    2.03
    
    
    
    2.42
    
    
    
    2.72
    
    
    
    2.99
    
    
    
    3.46Client renewal rate(1)
    
    
    90
    %
    
    
    90
    %
    
    
    90
    %
    
    
    90
    %
    
    
    91
    %Contract value (in
thousands)(2)
    
    $
    108,542
    
    
    $
    138,474
    
    
    $
    176,533
    
    
    $
    227,913
    
    
    $
    294,949
   (1)
    
    For the year then ended. Client renewal rate is defined as the
percentage of member institutions renewed, adjusted to reflect
reductions in member institutions resulting from mergers and
acquisitions of members.(2)
    
    For the year then ended. Contract value is defined as the aggregate
annualized revenue attributed to all agreements in effect at a given
date without regard to the remaining duration of any such agreement. Products and Services General Our research products and services focus on identifying, analyzing and describing
best demonstrated management practices. In general, our research focuses primarily on identifying
best demonstrated management practices, and secondarily, on critiquing widely followed but less
effective practices. We believe that we add value by enabling member companies to enhance revenues
and reduce costs by objectively identifying best corporate practices that solve urgent corporate
problems and developing tools to help members implement these practices. In addition, we provide
members with support implementing best practices profiled in our research studies within their own
organizations. These implementation support memberships include both management tools and associated on-site sessions and are generally
delivered over a 12-month period. 6




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Our research programs offer a cost-effective, time-efficient opportunity for senior executives
to learn from the practices and experiences of other corporations from around the world. Member
institutions can participate in one of our research programs for a fraction of the cost of
proceeding independently either through an internal research effort or through engaging a
management consulting firm. Our best practice research programs are guided by a rolling 12 to 18-month agenda. These
research programs have a research director who is responsible for applying our research methodology
to produce best practices studies and for maintaining research quality across all program services.
Using Web and fax polls, steering sessions, teleconferences and one-on-one interviews, the research
programs director works closely with the membership of that program to identify agenda topics of
shared interest and to set the programs priorities. Each program is staffed by a dedicated team of
researchers, analysts and instructors who collectively research and write the best practices
studies, complete the customized research briefs and present the findings to the programs
membership through a variety of formats. For a fixed annual fee, members of each research program have access to an integrated set of
services, which typically include best practices research studies, executive education seminars,
customized research briefs and Web-based access to the programs
content database and decision
support tools. A description of each service follows. Best Practices Research Studies Our research programs generally publish several best practices research studies annually, each
addressing a specific corporate issue or problem identified in the research agenda. We design each
best practices study to present the conclusions and supporting best practices in a graphical
format, enabling the intended audience to quickly assimilate the 20 to 200 pages of research
content. We create each report using our structured research methodology: topic selection;
root-cause analysis; secondary research; primary interviewing; analysis of findings; and report
writing. Each program director can call upon the support of the Chief Research Officer to provide
assistance in framing arguments, screening best practices, developing Web-based deliverables and
editing studies and their derivative executive education curriculum content. In the course of researching a best practices study topic, the research team typically will
review thousands of pages of business and academic literature to ground their understanding of the
issues. The teams often will create and analyze primary data about members operations and
performance to understand key economic leverage points and direct the research to areas that offer
the highest return on member investments. They then will initiate the research process to identify
and evaluate specific business processes, strategies and management practices, typically conducting
hundreds of in-depth interviews with corporations, industry experts, management consultants and
academic leaders. During the course of its research, a team generally analyzes and evaluates dozens
of specific management practices in an attempt to isolate the five to fifteen most important practices
worthy of potential implementation by members, separating out demonstrated and proven business
practices and disposing of those concepts, whether popular or conventional, that largely have
failed. Executive Education We provide our executive education curriculum, which is based on our proprietary best
practices research, to member companies worldwide. We deliver executive education services through
two primary channelsgeneral membership meetings and, in some programs, tailored on-site seminars.
Our executive education curriculum provides lively, interactive forums for reinforcing our
published best practices research studies. Research Briefs Members of most research programs may assign short-answer, customized research requests.
Individual briefs may take the form of a literature search, vendor profile, data retrieval or
original primary and secondary research, depending upon the need of the requesting member. Once
initiated, each customized research effort takes from one to twenty business days to complete,
depending on the depth of the information request, the type of research product desired and the
time requirements of the member. Researchers typically begin their inquiry with a review of our
proprietary research archives and then conduct a broad literature search to identify relevant
background material and practices. 7




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Written research briefs generally contain case studies or profiles of interviewed
institutions, highlighting significant trends, successful practices and comparative responses to a
range of questions. After we have completed and delivered the written brief to the requesting
member, we make the best of these briefs accessible to other members through proprietary databases.
Members are able to search, select, view and print these research briefs directly from the research
program Web site at no additional charge. We believe that the short-answer service of our research programs builds our proprietary
databases, serves as an excellent marketing tool for attracting new members and encourages members
to view us as a reliable and effective resource for primary research. Web-Based Proprietary Databases Each research program maintains a proprietary electronic database of best practices and, in
most cases, on-line quantitative benchmarking and survey data accessible only to members of the
research program. We continually update our growing proprietary electronic databases with new
corporate practices, quantitative performance data and related information supplied by other
members and derived by our researchers. We include all information and graphics generated in best
practices research studies and customized research briefs in the databases and make them accessible
to member executives and our staff. Since 1996, we have been offering our members Internet access to research content and other
services through password-protected Web sites. The Internet has become an efficient and effective
means for us to interact with our members and to deliver our products and services to our members
and currently is our largest distribution channel. Through
password-protected Web sites, members of each program may commission customized research briefs, search and access the electronic library of
research studies and graphics, review executive education modules, access our proprietary decision
support tools and meeting schedules and communicate with our staff and other members. Pricing Memberships in The Corporate Executive Board research programs are principally one-year,
renewable agreements. Research memberships are generally payable by members at the beginning of the
contract term. At December 31, 2004, the average price for a program membership was approximately
$35,962. The actual price varies by size of member and by research program, and may be lower for
charter memberships of new research programs. By spreading our costs over a broad membership and
offering a largely standardized research product, we are able to charge fees that are a small
fraction of the typical engagement fees of specialized research or consulting firms.
We have historically had positive working capital as a result of the
combination  of revenue growth and advance receipt of membership
subscription payments. We offer an unconditional service guarantee to our members.
 At any time, a member may terminate a membership and request
a refund of its membership fee for a research program. Refunds are provided on a pro rata basis
relative to the remaining term of the membership. In 2004, members
requested refunds for 25
memberships out of more than 8,202 sold. Sales and Marketing We market an integrated set of services, typically consisting of best practices research
studies, executive education, customized research briefs and Web-based access to our content
database and decision support tools, for a fixed fee per research program. We believe that this
marketing strategy highlights the value to members of our range of services and emphasizes the
membership nature of our business model, actively engaging the membership and reinforcing members
commitment to The Corporate Executive Board. The separation of responsibility for new membership sales and membership renewals reflects the
varying difficulty and cost of the respective functions. New business development representatives
are compensated with a base salary and variable, goal-based incentive bonuses and travel on average
60% of the time, conducting face-to-face meetings with senior executives at prospective member
institutions. Member services representatives assume more of an in-house coordinating role,
bringing the resources of programs to bear on pressing member needs. Competition We currently have few direct competitors, and those that do exist generally compete against us
only in a single practice area. We compete indirectly against other professional information
services providers, including management consulting firms, training and development companies,
nonprofit think tanks and research and database companies. We are not aware of any other entity that enables corporations to
study as broad a range of the best corporate management practices for fixed annual fees. 8




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We believe that the principal competitive factors in our market include quality and timeliness
of research and analysis, breath of proprietary research databases, reliable delivery, depth and quality of the membership network, ability
to meet changing customer needs, superior service and affordably priced products. We believe we
compete favorably with respect to each of these factors. The Advisory Board Company provides products and services to the health-care industry that are
similar to the types of products and services that we generally provide. We have entered into a
noncompetition agreement with The Advisory Board Company and David Bradley, its former sole
stockholder. The noncompetition agreement generally prohibits us from competing with The Advisory
Board Company with respect to health-care clients and issues and prohibits The Advisory Board
Company and Mr. Bradley from competing with us with respect to non-health-care clients and issues,
other than products and services relating to advertising, magazines and newspapers, and government
relations and lobbying activities. The agreement was amended in 2001 to extend through January 1,
2007. Employees At December 31, 2004, we employed 1,448 persons. Of these employees, 1,308 were located in
Washington, D.C., 133 were located at our facilities in London, England
 and 7 were located in Asia.
None of our employees is represented by a collective bargaining arrangement. We believe that our
relations with our employees are favorable. We believe strongly in a culture of meritocracy, rewarding key contributors with opportunities
for rapid professional growth and advancement as well as competitive compensation. Training is a
critical job component for all of our employees, including industry analysis, economics,
quantitative modeling, root-cause analysis and presentation skills. Risk Factors In addition to the other
information contained in this Annual Report on Form 10-K, you should
carefully consider the following risk factors in evaluating us and our business. We depend on renewals of our membership-based services. We derive most of our revenues from annual memberships for our products and services. Our
prospects therefore depend on our ability to achieve and sustain high renewal rates on existing
research programs and to enter into new membership arrangements. Failure to achieve high membership
renewal rate levels would have a material adverse effect on our operating results. Our ability to
secure membership renewals depends upon our ability to deliver consistent, high-quality and timely
research and analysis with respect to issues, developments and trends that members view as
important. We cannot assure you that we will be able to sustain the necessary level of performance
to achieve a high rate of membership renewals. Although we actively market our research programs
throughout the year, historically, more than 40% of all renewals have taken place in the fourth
quarter of the year. See Managements Discussion and Analysis of Financial Condition and Results
of Operations and Business. We cannot know in advance
whether new products will be successful. Our future success will depend on our ability to develop new research programs that address
specific industry and business constituencies and the changing needs of our current and prospective
members for information, analysis and advice. We cannot assure you that our efforts to introduce
new research programs will be successful. The process of internally researching, developing,
launching and gaining client acceptance of new research programs is time consuming, expensive and
inherently risky. Delays or failures during development or implementation, or lack of market
acceptance of new research programs could have a material adverse effect on our business, financial
condition and results of operations. Our business, financial condition and results of operations
would be materially adversely affected if we were unable to develop and introduce successful new
research programs or other new products, or to make enhancements to existing research programs in a
timely manner in response to member requirements. See BusinessProducts and Services. 9




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We may experience difficulties in anticipating market trends. Our future success will also depend upon our ability to anticipate rapidly changing market
trends and to adapt our research and analysis to meet the changing information needs of our
members. We may fail to continue to provide helpful and timely research and analysis of
developments and trends in a manner that meets market needs. Any such failure would have a material
adverse effect on our business, financial condition and results of operations. The industry and
business sectors that we analyze undergo frequent and often dramatic changes, including the
introduction of new products and the obsolescence of old products, shifting strategies and market positions
of major industry participants and changing objectives and expectations of users of members
products and services. This environment of rapid and continuous change presents significant
challenges to our ability to provide our members with current and timely research and analysis on
issues of importance. Meeting these challenges requires the commitment of substantial resources. We must attract and retain a significant number of highly skilled employees. Our future success also will depend upon our ability to hire, train, motivate and retain a
significant number of highly skilled employees, particularly research analysts and sales and
marketing staff. Our inability to do so would have a material adverse effect on our business. We
have experienced, and expect to continue to experience, intense competition for professional
personnel from management consulting firms and other producers of research and analysis products
and services. Many of these firms have substantially greater financial resources than we have to
attract and compensate qualified personnel. We cannot assure you that we will be successful in
attracting a sufficient number of highly skilled employees in the future, or that we will be
successful in training, motivating and retaining the employees we are able to hire. See
BusinessEmployees. We are restricted from selling our products and services to the health-care industry. At the time of our initial public offering, we entered into an agreement with The Advisory
Board Company that restricts us from selling our membership-based products and services to
companies principally engaged in the health-care business, although we may sell such products and
services to non-health-care divisions or subsidiaries of health care
companies. The agreement continues through January 1, 2007. This restriction may limit our future growth opportunities. Continued consolidation in the financial institution industry may adversely impact our business. A number of our research programs are oriented toward companies in the financial services
industry. The financial services industry is continuing to experience substantial consolidation.
This consolidation has resulted, and is expected to continue to result in a reduction in the number
of our financial institution members. We cannot assure you that this consolidation will not
materially and adversely affect our results of operations. At
December 31, 2004, less than 30% of our contract value was attributable to financial institution members, which include commercial
banks, thrifts, credit unions, credit card issuers, mutual fund companies, consumer credit lenders,
brokerage houses, private and trust banks and insurance companies. We may experience fluctuations in operating results. Our operating results may fluctuate significantly due to various factors, including the growth
in and timing of new programs, the timing of the development, introduction and marketing of new
products and services, the timing of executive education seminars, the timing of the hiring of
research analysts and sales and marketing staff, changes in the spending patterns of our members,
our accounts receivable collection experience, changes in market demand for research and analysis,
foreign currency exchange rate fluctuations, competitive conditions in the industry and general
economic conditions. See Managements Discussion and Analysis of Financial Condition and Results
of Operations. We may be unable to protect our intellectual property rights. We rely on copyright laws, as well as nondisclosure and confidentiality arrangements, to
protect our proprietary rights in our products and services. We
cannot assure you that the steps we
have taken to protect our intellectual property rights will be adequate to deter misappropriation
of our rights or that we will be able to detect unauthorized uses and take timely and effective
steps to enforce our rights. If substantial and material unauthorized uses of our proprietary
products and services were to occur, we would be required to engage in costly and time-consuming
litigation to enforce our rights. We cannot assure you that we would prevail in such litigation. If others were able to use our intellectual property, our ability to
charge our fees for our products and services would be adversely affected. 10




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##### 



We may be exposed to litigation related to content. As a publisher and distributor of original research and analysis and a user of third-party
content, we face potential liability for defamation, negligence and copyright and trademark
infringement. Any such litigation, whether or not resulting in a judgment against us, could have a
material adverse effect on our financial condition and results of operations. Third-party content
includes information created or provided by information services organizations and consultants whom
we retain and may be delivered to clients in writing, over the Internet or orally. We may be exposed to loss of revenue resulting from our unconditional service guarantee. We offer an unconditional service guarantee to our members. At any time, a member may request
a refund of its membership fee for a research program. Refunds are provided on a pro rata basis
relative to the remaining term of the membership. Requests for refunds of membership fees by a
significant number of our members could lower revenues and have a material adverse effect on our financial condition
and results of operations. See BusinessPricing. Item 2. Properties. Our headquarters are located in approximately 102,000 square feet of office space in
Washington, D.C., which we lease under an agreement that expires in 2009. We also lease
approximately 291,000 square feet in nearby buildings in Washington, D.C., under agreements with
terms expiring in 2005 through 2009. In August 2004, the Company entered into a new twenty-year
lease agreement for office facilities in Rosslyn, Virginia beginning in early 2008.
Contemporaneously with the signing of the new Virginia office facilities lease, the Companys
previous lease obligations in Washington, D.C. were assigned to, and assumed by, the lessor of the
new Virginia office facilities. We further lease space in London,
England, which expires in 2018, and Gurgaon, India, which expires in
2005. Our facilities accommodate research, marketing and sales, information technology,
administration, graphic and editorial services and operations personnel. We believe that our
existing and planned facilities will be adequate for our current needs and that additional
facilities are available for lease to meet future needs. Item 3. Legal Proceedings. From time to time, we are subject to ordinary routine litigation incidental to our normal
business operations. We are not currently a party to, and our property is not subject to, any
material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. None. 11




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##### 



PART II Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock has been quoted on the Nasdaq National Market under the symbol EXBD since
our initial public offering on February 23, 1999. As of
February 28, 2005, there were 60
stockholders of record of the common stock. The following table sets forth, for the periods
indicated, the high and low sales prices per share of our common stock as reported on the Nasdaq
National Market. High
    
    
    Low2003:First quarter
    
    $
    36.05
    
    
    $
    27.95Second quarter
    
    
    43.41
    
    
    
    34.85Third quarter
    
    
    48.20
    
    
    
    37.60Fourth quarter
    
    
    51.70
    
    
    
    44.292004:First quarter
    
    $
    53.23
    
    
    $
    44.31Second quarter
    
    
    58.27
    
    
    
    46.72Third quarter
    
    
    62.33
    
    
    
    51.65Fourth quarter
    
    
    69.48
    
    
    
    57.26
 Issuer Purchases of Equity Securities TotalNumber ofSharesPurchased as
    
    
    Approximate $Total
    
    
    Average
    
    
    Part of a
    
    
    Value of SharesNumber of
    
    
    Price
    
    
    Publicly
    
    
    That May Yet BeShares
    
    
    Paid per
    
    
    Announced
    
    
    PurchasedPurchased
    
    
    Share
    
    
    Plan
    
    
    Under the PlansOctober 1, 2004 to October 31, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    32,644,107November 1, 2004 to
November 30, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    32,644,107December 1, 2004 to December 31, 2004
    
    
    44,828
    
    
    $
    65.84
    
    
    
    44,828
    
    
    $
    29,692,664Total
    
    
    44,828
    
    
    $
    65.84
    
    
    
    44,828
 In February 2003, we announced that our Board of Directors authorized a share repurchase of up
to $75 million of our common stock. In February 2005, we announced that our Board of Directors
authorized a share repurchase of up to an additional $100 million of our common stock, which when
combined with the remaining balance of the existing share repurchase
authorization, provides us the opportunity to repurchase up to
approximately $130.0 million of our shares. Repurchases will
be made from time to time in open market and privately negotiated transactions subject to market
conditions. No minimum number of shares has been fixed. We have funded, and expect to continue to
fund, our share repurchases with cash on hand and cash generated from operations. As of December
31, 2003 and 2004, we have repurchased 552,007 shares and 1,061,101 shares, respectively, of our
common stock at a total cost of approximately $19.6 million and
$45.3 million, respectively. In February 2005, we announced that our Board of Directors declared a quarterly dividend of
$0.10 per share. The dividend is payable on March 31, 2005 to stockholders of record at the close
of business on March 10, 2005. We will fund our dividend payment with cash on hand and cash generated from
operations. 12




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##### 



Item 6. Selected Financial Data. The following table sets forth selected financial and operating data. The selected financial
data presented below as of December 31, 2000 and 2001, and for
the years then ended, have been
derived from our consolidated financial statements that were audited by Arthur Andersen LLP. The selected
financial data presented below as of December 31, 2002, 2003 and
2004, and for each of the three years in
the period ended December 31, 2004, have been derived from our
consolidated financial statements that
were audited by Ernst & Young LLP. You should read the selected financial data presented below
in conjunction with our consolidated financial statements, the notes to our
consolidated financial statements and
Managements Discussion and Analysis of Financial Condition and Results of Operations appearing
elsewhere in this Annual Report on Form 10-K. Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(In thousands, except per-share amounts)Consolidated Statements of Income Data:Revenues
    
    $
    95,491
    
    
    $
    128,112
    
    
    $
    162,357
    
    
    $
    210,211
    
    
    $
    280,724Costs and expenses:Cost of services
    
    
    36,094
    
    
    
    45,738
    
    
    
    56,147
    
    
    
    70,974
    
    
    
    91,285Member relations and marketing
    
    
    21,236
    
    
    
    30,219
    
    
    
    40,768
    
    
    
    55,301
    
    
    
    75,460General and administrative
    
    
    12,021
    
    
    
    15,877
    
    
    
    17,493
    
    
    
    21,632
    
    
    
    31,130Depreciation
    
    
    2,573
    
    
    
    4,412
    
    
    
    5,456
    
    
    
    5,764
    
    
    
    6,782Non-cash lease restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,210Stock option and related expenses (1) (2)
    
    
    1,371
    
    
    
    1,260
    
    
    
    668
    
    
    
    114
    
    
    
    408Total costs and expenses
    
    
    73,295
    
    
    
    97,506
    
    
    
    120,532
    
    
    
    153,785
    
    
    
    210,275
 Income from operations
    
    
    22,196
    
    
    
    30,606
    
    
    
    41,825
    
    
    
    56,426
    
    
    
    70,449Other income, net
    
    
    2,263
    
    
    
    4,283
    
    
    
    6,346
    
    
    
    7,569
    
    
    
    9,936Income before provision for income taxes
    
    
    24,459
    
    
    
    34,889
    
    
    
    48,171
    
    
    
    63,995
    
    
    
    80,385Provision for income taxes
    
    
    9,539
    
    
    
    13,257
    
    
    
    18,570
    
    
    
    28,307
    
    
    
    26,729Net income
    
    $
    14,920
    
    
    $
    21,632
    
    
    $
    29,601
    
    
    $
    35,688
    
    
    $
    53,656Earnings per sharebasic
    
    $
    0.49
    
    
    $
    0.64
    
    
    $
    0.81
    
    
    $
    0.96
    
    
    $
    1.40Weighted average shares outstandingbasic
    
    
    30,321
    
    
    
    34,003
    
    
    
    36,722
    
    
    
    37,296
    
    
    
    38,344Earnings per sharediluted
    
    $
    0.43
    
    
    $
    0.59
    
    
    $
    0.79
    
    
    $
    0.93
    
    
    $
    1.34Weighted average shares
outstandingdiluted
    
    
    34,638
    
    
    
    36,465
    
    
    
    37,671
    
    
    
    38,577
    
    
    
    39,925Cash dividends declared per common share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.30
 13




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##### 



December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(In thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and
marketable securities
    
    $
    69,373
    
    
    $
    132,469
    
    
    $
    225,941
    
    
    $
    293,919
    
    
    $
    416,977Deferred income taxes
    
    
    31,348
    
    
    
    58,520
    
    
    
    59,726
    
    
    
    37,673
    
    
    
    29,587Total assets
    
    
    152,494
    
    
    
    257,518
    
    
    
    359,581
    
    
    
    423,482
    
    
    
    578,451Deferred revenues
    
    
    71,281
    
    
    
    94,683
    
    
    
    121,415
    
    
    
    154,844
    
    
    
    205,494Total stockholders equity
    
    
    65,561
    
    
    
    143,984
    
    
    
    213,357
    
    
    
    241,993
    
    
    
    327,461
 December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004Other
Operating Data (Unaudited):Membership programs
    
    
    15
    
    
    
    18
    
    
    
    22
    
    
    
    26
    
    
    
    31Member institutions
    
    
    1,745
    
    
    
    1,802
    
    
    
    1,930
    
    
    
    2,143
    
    
    
    2,368Total membership subscriptions
    
    
    3,543
    
    
    
    4,364
    
    
    
    5,257
    
    
    
    6,414
    
    
    
    8,202Average subscriptions per
member institution
    
    
    2.03
    
    
    
    2.42
    
    
    
    2.72
    
    
    
    2.99
    
    
    
    3.46Client renewal rate (3)
    
    
    90
    %
    
    
    90
    %
    
    
    90
    %
    
    
    90
    %
    
    
    91
    %Contract value (in thousands
of dollars) (4)
    
    $
    108,542
    
    
    $
    138,474
    
    
    $
    176,533
    
    
    $
    227,913
    
    
    $
    294,949
   (1)
    
    In connection with our spin-off from The Advisory Board Company in
October 1997, we substituted our stock options for The Advisory Board
Company stock options. The terms of the stock option substitution
resulted in compensation expense being charged for the intrinsic value
of certain stock options. We reflect these charges as stock option
expenses over the vesting period of the options. After calendar year
2001, we recognized no additional compensation expense related to
these substitution agreements.(2)
    
    For the years ended December 31, 2001, 2002, 2003 and 2004, we
recognized $1.1 million, $668,000, $114,000 and $408,000,
respectively, in compensation expense reflecting additional Federal
Insurance Corporation Act (FICA) taxes as a result of the taxable
income that the employees recognized upon the exercise of nonqualified
common stock options, primarily in conjunction with the registered
public offerings in March and April 2001, March 2002 and 2003, and May
2004, respectively. See Managements Discussion and Analysis of
Financial Condition and Results of OperationYears Ended December 31,
2002, 2003 and 2004Stock option and related expenses.(3)
    
    For the year then ended. Client renewal rate is defined as the
percentage of membership institutions renewed, adjusted to reflect
reductions in membership institutions resulting from mergers and
acquisitions of members.(4)
    
    For the year then ended. Contract value is defined as the aggregate
annualized revenue attributed to all agreements in effect at a given
date without regard to the remaining duration of any such agreement. 14




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. Overview We provide best practices research, decision support tools and executive education focusing
on corporate strategy, operations and general management issues. Best practices research supports
senior executive decision making by identifying and analyzing specific management initiatives,
processes and strategies that have been determined to produce the best results in solving common
business problems or challenges. For a fixed annual fee, members of each of our research programs
have access to an integrated set of services, including best practices research studies, executive
education seminars, customized research briefs and Web-based access to the programs content
database and decision support tools. Memberships, which are
 principally annually renewable agreements, are generally payable by
members at the beginning of the contract term. Billings attributable to memberships in our
 research
programs initially are recorded as deferred revenues and then recognized pro rata over the
membership contract term, which is typically twelve months. At any time, a member may request
 a refund
of its membership fee for a research program. Refunds are provided on a pro rata basis relative to
the remaining term of the membership. Our growth strategy is to cross-sell additional research programs to existing members, to add
new members and to develop new research programs and decision support tools. The implementation of
our growth strategy can be seen in our operating results. Over the
past three years, our revenues
have grown at a compound annual growth rate of 29.9% from $128.1 million in 2001 to $280.7 million
in 2004, while costs have grown at a compound annual growth rate of 29.2% from $97.5 million in
2001 to $210.3 million in 2004. In addition, our Contract Value has grown at a compound annual
growth rate of 28.7% over the past three years and was $294.9 million at December 31, 2004. We
calculate Contract Value as the aggregate annualized revenues attributed to all agreements in effect
at a given point in time, without regard to the remaining duration of any such agreement. Our
experience has been that a substantial portion of members renew subscriptions for an equal or
higher level each year. See the table titled Other Operating Data (Unaudited) in Item 6Selected
Financial Data, for additional information with respect to members, subscriptions and renewals. Our operating costs and expenses generally consist of cost of services, member relations and marketing,
general and administrative expenses, depreciation, non-cash lease
restructuring costs  and stock option and related expenses. Cost of
services represents the costs associated with the production and delivery of our products and
services, including compensation of research personnel and in-house faculty, the production of
published materials, the organization of executive education seminars and all associated support
services. Member relations and marketing expenses include the costs of acquiring new members, the
costs of maintaining and renewing existing members, compensation expense (including sales
commissions), travel and all associated support services. General and administrative expenses
include the costs of human resources and recruiting, finance and accounting, management information
systems, facilities management, new product development and other administrative functions.
Depreciation expense includes the cost of depreciation of our property and equipment which consists
of furniture, fixtures and equipment, capitalized software and Web site development costs and
leasehold improvements. Non-cash lease restructuring costs primarily consist of a non-cash charge
related to the assumption of several of the Companys existing lease agreements by a new lessor. Stock
option and related expenses includes additional payroll taxes for compensation expense relating to
the taxable income recognized by employees upon the exercise of
nonqualified common stock options. The statements below do not
include any impact related to the expensing of stock options
according to Statement of Financial Accounting Standards (SFAS) No.
123R, Share-Based Payment. See Note 3: Summary of significant Accounting
Policies in Part II, Item 8 of this Form 10-K. Results of Operations The following table sets forth certain financial data as a percentage of total revenues for
the periods indicated: Year Ended December 31,2002
    
    
    2003
    
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    34.6
    
    
    
    33.8
    
    
    
    32.5Gross profit
    
    
    65.4
    
    
    
    66.2
    
    
    
    67.5
 15




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##### 



Year Ended December 31,2002
    
    
    2003
    
    
    2004Costs and expenses:Member relations and marketing
    
    
    25.1
    
    
    
    26.3
    
    
    
    26.9General and administrative
    
    
    10.8
    
    
    
    10.3
    
    
    
    11.1Depreciation
    
    
    3.4
    
    
    
    2.7
    
    
    
    2.4Non-cash lease restructuring costs
    
    
    
    
    
    
    
    
    
    
    1.9Stock option and related expenses
    
    
    0.4
    
    
    
    0.1
    
    
    
    0.1Total costs and expenses
    
    
    39.7
    
    
    
    39.4
    
    
    
    42.4Income from operations
    
    
    25.8
    
    
    
    26.8
    
    
    
    25.1Other income, net
    
    
    3.9
    
    
    
    3.6
    
    
    
    3.5Income before provision for income taxes
    
    
    29.7
    
    
    
    30.4
    
    
    
    28.6Provision for income taxes
    
    
    11.4
    
    
    
    13.5
    
    
    
    9.5Net income
    
    
    18.2
    %
    
    
    17.0
    %
    
    
    19.1
    %
 Years Ended December 31, 2002, 2003 and 2004 Revenues.Revenues increased 29.5% from $162.4 million for 2002 to $210.2 million for 2003,
and 33.5% to $280.7 million for 2004. The largest driver of the increase in revenues during 2002,
2003 and 2004 was the cross-selling of additional subscriptions to existing members. Other drivers
contributing to the increase in revenues during 2002, 2003 and 2004 included the introduction of
new research programs, price increases and the addition of new members. The average membership
subscription price increased 5.8% in 2002, 5.8% in 2003 and 1.2% in 2004. We introduced four new
research programs during each of 2002 and 2003, and five new research programs during 2004. Cost of services.Cost of services increased 26.4% from $56.1 million for 2002 to $71.0
million for 2003 and 28.6% to $91.3 million for 2004. The increase in cost of services was
principally due to increased compensation costs for new research and executive education staff, an
increase in external consulting expenses to support the growth of our existing programs, an
increase in travel costs due to an increase of executive education seminars and new program
launches. Cost of services as a percentage of revenues decreased from 34.6% for 2002 to 33.8% for
2003 and to 32.5% for 2004. The decrease in cost of services as a percentage of revenues over the
three-year period ended December 31, 2004 is due to the leverage inherent in our membership-based
model. Because each research program provides our membership with standardized best practices
research studies and executive education seminars, new members immediately add to our revenues
while only incrementally increasing our operating costs. Cost of services as a percentage of
revenues may fluctuate due to the timing of the completion and delivery of best practices research
studies, the timing of executive education seminars, the introduction
of new membership programs and the fixed nature of a portion of the
production costs of best practices research studies, as these costs are not significantly affected
by growth in the number of membership subscriptions. Gross profit.Historically, the gross profit as a percentage of revenues, or gross profit
margin, has fluctuated based upon the growth in revenues offset by the costs of delivering best
practices research studies, the timing of executive education seminars, the hiring of personnel and
the introduction of new membership programs. Accordingly, the gross profit margin for the year
ended December 31, 2004, may not be indicative of future results. A number of the factors that
impact gross profit margin are discussed in the discussion of cost of services above. Member relations and marketing.Member relations and marketing costs increased 35.6% from
$40.8 million for 2002 to $55.3 million for 2003, and 36.5% to $75.5 million for 2004. The
year-over-year increases in member relations and marketing costs are principally due to the increase
in member relations and marketing personnel and related costs, the increase in travel expenses
associated with new sales staff, the increase in commission expense associated with increased
revenues and the increase in member relations personnel and related costs to support our expanding
membership base. The increase in member relations and marketing costs as a percentage of revenues
over the three-year period ended December 31, 2004 is due
primarily to the changes in member relations and marketing costs
noted above. 16




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##### 



General and administrative.General and administrative expenses increased 23.7% from $17.5
million for 2002 to $21.6 million for 2003, and 43.9% to $31.1 million for 2004. The year-over-year
increases in general and administrative expenses are principally due to the increase in staff and
related costs across all functional areas to support our growth.

 During 2002, we also experienced a decrease in consulting and training expenses associated
with prior year investments in management information systems software along with a decrease in
costs associated with our reduced use of external personnel search
firms. During 2003, we also experienced an increase in management information system consulting services and other external
consultants to support organizational growth.
During 2004, we also experienced an increase in the use of external
financial, legal, and information technology consultants to support
our organizational growth and assist us in the compliance with
certain regulatory requirements.

In addition, in August 2004, the Company entered into
a new lease agreement for office facilities in Rosslyn, Virginia
beginning in 2008. In association
with the new lease agreement, we incurred $909,000 for additional external financial and legal consulting costs
to restructure existing lease agreements and to expense certain deferred
leasehold improvement costs for office space that we will no longer occupy. See further discussion
of the new lease agreement in the Non-cash lease restructuring costs section below. Although
general and administrative expenses increased during the period from 2002 through 2004, general and
administrative expenses as a percentage of revenues decreased from
2002 to 2003 and increased from 2003 to 2004. The decrease in general and administrative expenses
from 2002 to 2003 was due to the fixed nature of a portion of these
costs, which are not significantly affected by growth in revenue. The increase in general and
administrative expenses from 2003 to 2004
was due to an increase in
the use of external financial, legal, and information technology
consultants to support our organizational growth and assist us in
the compliance with certain regulatory requirements and due to
additional external financial and legal consulting costs associated
with the new lease agreement for office facilities in Rosslyn, Virginia as
described and referenced above. Depreciation.Depreciation expense increased 5.6% from $5.5 million for 2002 to $5.8 million
for 2003, and 17.7% to $6.8 million for 2004. The year-over-year increases in depreciation expense
were principally due to the additional investment in leasehold improvements for additional office
space in the Washington, D.C. and London offices, and the purchase of computer equipment and
management information systems software to support organizational growth. Non-cash
lease restructuring costs.In August 2004, we entered into a new
twenty-year lease agreement for office facilities in Rosslyn,
Virginia beginning in early 2008. Contemporaneously with the signing
of the new Virginia office facilities lease, our previous obligations
for several existing office facility leases were assigned to, and
assumed by, the lessor of the new Virginia office facilities. As
a result, we recorded a $5.2 million, net non-cash



lease
restructuring charge comprised of the items further described below.
We recorded a non-cash



charge of $5.4
million which represents our estimate of the lease incentives
attributable to the assumption of the previous lease agreements by
the new lessor. We will recognize the $5.4 million lease incentive on
a straight-line basis over the term of the new Virginia office
facilities lease. We also recorded a non-cash charge of $125,000
which represents our estimate of certain restoration costs we may be
required to pay for office space which we will no longer occupy. In
addition, we recorded a non-cash benefit of approximately $351,000
for the reversal of a portion of certain deferred rental obligations
that were previously being recognized over the life of the original
lease term, resulting in constant rent expense over the original lease term.
The assumption of the lease agreement resulted in the reduction of the
original lease term and, therefore, the reversal of rent expense
previously recognized for deferred rental obligations that we will no
longer incur. We incurred no charges similar to this in the years
ended December 31, 2002 and 2003. Stock option and related expenses.We recognized $668,000, $114,000 and $408,000 in
compensation expense during the years ended December 31, 2002, 2003 and 2004, respectively,
reflecting additional Federal Insurance Corporation Act (FICA) taxes as a result of the taxable
income that our employees recognized upon the exercise of non-qualified common stock options,
primarily in conjunction with the sale of our common stock in the registered public offerings of
common stock in March 2002 and 2003, and May 2004. Further discussion of the sale of our common
stock in the registered public offerings of common stock appears in the liquidity and capital
resources section below. Other income, net.Other income, net, consists primarily of interest income earned on a
portfolio of cash and cash equivalents and marketable securities and the realized gain on the sale
of marketable securities. Other income, net increased 19.3% from $6.3 million for 2002 to $7.6
million for 2003, and 31.3% to $9.9 million for 2004. The growth in other income, net, was due
primarily to the increase in interest income associated with the increased level of marketable
securities. Marketable securities increased as a result of cash flows from operating activities and cash flows
from financing activities further discussed in the liquidity and capital resources section below. Provision for income taxes.We recorded a provision for income taxes of $18.6 million, $28.3
million and $26.7 million for 2002, 2003 and 2004, respectively.
The increase in the effective income tax rate from 38.6% for 2002 to
44.2% for 2003 is principally due to an $8.2 million non-cash income
tax charge to earnings in 2003 to recognize the impact on our
deferred tax assets of lowering the Washington D.C. Qualified High
Technology Company (QHTC) income tax rate to zero to
reflect our new status as a QHTC in Washington, D.C. The decrease in
the effective income tax rate from 44.2% for 2003 to 33.3% for 2004
is due to the 2003 non-cash charge described above and recognition of
the QHTC income tax rate of zero percent throughout 2004. 17




---



##### 



Liquidity and Capital Resources Cash flows from operating activities.We have financed our operations to date through funds
generated from operating activities. Membership subscriptions, which are principally annually
renewable agreements, are generally payable by members at the beginning of the contract term. The
combination of revenue growth and advance payment of membership subscriptions has historically
resulted in net positive cash flows provided by operating activities. We generated net cash flows
from operating activities of $77.9 million, $89.4 million, and $119.4 million for 2002, 2003 and
2004, respectively. For 2002, 2003 and 2004, operating cash flows were generated during the period
principally by net income, the utilization of tax benefits created by the exercise of common stock
options, and the growth in deferred revenues, offset by the growth in membership fees
receivable. As of December 31, 2003 and 2004, we had cash, cash equivalents and marketable
securities of $293.9 million and $417.0 million, respectively. Cash flows from investing activities.We used net cash flows in investing activities of $68.3
million, $31.6 million and $143.2 million during the years ended December 31, 2002, 2003, and 2004,
respectively. During 2002, 2003 and 2004, investing cash flows were
used within the applicable period
 for purchases, net of sales, of available-for-sale marketable securities of $65.2 million, $25.3 million and $134.2
million, respectively, and to purchase leasehold improvements for additional office space in
Washington, D.C. and London and computer software and equipment of $3.1 million, $6.3 million and
$9.0 million, respectively. Cash flows from financing activities.We generated net cash flows from financing activities of
$13.5 million during the year ended December 31, 2002. We used net cash flows in financing
activities of $10.6 million during the year ended December 31, 2003. We generated net cash flows
from financing activities of $19.2 million during the year ended
December 31, 2004. Cash flows provided by financing activities during each of the three years ended December 31,
2004 were primarily attributed to the receipt of cash from the exercise of stock options in
conjunction with the sale of our common stock by our employees and directors in registered public
offerings. Cash flows used by financing activities during each of the two years ended December 31,
2004 were attributed principally to the repurchase of our common stock. During 2003 we purchased
552,007 shares of common stock at a total cost of approximately $19.6 million and during 2004 we
purchased 509,094 shares of our common stock at a total cost of approximately $25.7 million. In
addition, cash flows used by financing activities during the year ended 2004 included the payment
of dividends which totaled $11.6 million. We have entered into letter of credit agreements of $25.0 million, $2.3 million, $0.7 million
and $0.5 million which expire February 2005,
January 2019, June 2005 and August 2005, respectively,
to provide security deposits for certain office space leases. Under the terms of the new Rosslyn,
Virginia lease agreement, we have committed to providing the landlord security deposits totaling
$50 million to be posted in two installments. To date, we have entered into a letter of credit
agreement for $25.0 million with a commercial bank to provide a security deposit for the Rosslyn,
Virginia lease. We pledged certain assets as collateral under the letter of credit agreements. To
date, no amounts have been drawn on these agreements. We lease office facilities
in the United States, United Kingdom and Asia expiring on various
dates over the next 23 years. Certain lease agreements include provisions for rental escalations
and require us to pay for executory costs such as taxes and insurance. Future minimum rental
payments under noncancelable operating leases, excluding executory costs, are $589.8 million. The following summarizes certain of our operating lease obligations at December 31, 2004: Payments Due by Period (in thousands)Total
    
    
    <1 Year
    
    
    13 Years
    
    
    45 Years
    
    
    >5 YearsOperating leases
    
    $
    589,751
    
    
    $
    10,549
    
    
    $
    30,901
    
    
    $
    56,778
    
    
    $
    491,523
 18




---



##### 



We had no other non-cancelable contractual financial obligations at December 31, 2004. Off-Balance Sheet Arrangements At December 31, 2003 and 2004, we had no off-balance sheet financing or other arrangements
with unconsolidated entities or financial partnerships (such as entities often referred to as
structured finance or special purpose entities) established for purposes of facilitating
off-balance sheet financing or other debt arrangements or for other contractually narrow or limited
purposes. Critical Accounting Policies We have identified the following policies as critical to our business operations and the
understanding of our results of operations. This listing is not a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United States, with no
need for managements judgment in their application. There are also areas in which managements
judgment in selecting any available alternative would not produce a materially different result.
However, certain of our accounting policies are particularly important to the portrayal of our
financial position and results of operations and may require the application of significant
judgment by our management; as a result, they are subject to an inherent degree of uncertainty. In
applying those policies, our management uses its judgment to determine the appropriate assumptions
to be used in the determination of certain estimates. Those estimates are based on our historical
experience, our observance of trends in the industry, information provided by our members and
information available from other outside sources, as appropriate. For a more detailed discussion on
the application of these and other accounting policies, see Note 3  Summary of significant
account policies in our financial statements and related notes. Our critical accounting policies
include: Deferred tax asset We have deferred income tax assets consisting primarily of net operating loss (NOL)
carry forwards for regular federal income tax purposes generated from the exercise of common stock
options and from Federal and Washington, D.C. income tax credits. In estimating future tax
consequences, Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS No. 109), generally considers all expected future events in the determination and valuation
of deferred tax assets and liabilities. We believe that our future taxable income will be
sufficient for the full realization of the deferred income tax assets. However, SFAS No. 109 does not
consider the effect of future changes in existing tax laws or rates in the determination and
evaluation of deferred tax assets and liabilities until such new tax laws or rates are enacted. We
have established our deferred income tax assets and liabilities using
currently enacted tax laws and
rates that are expected to apply to taxable income in the periods in which the deferred tax asset
or liability is expected to be realized or settled. We will recognize as income an adjustment for
the impact of new tax laws or rates or from changes in our tax status on the existing deferred tax
assets and liabilities when new tax laws or rates are enacted or the change in our status occurs. Revenue recognition Revenues from membership subscriptions are recognized over the term of the related
subscription, which generally is twelve months. Membership fees generally are billable, and revenue
recognition begins, when the member agrees to the terms of the membership. Certain membership fees
are billed on an installment basis. Members may request a refund of their membership fees, which is
provided on a pro rata basis relative to the length of the remaining membership term. Our policy is
to record the full amount of membership fees receivable as an asset and related deferred revenue as
a liability when a member agrees to the terms of a membership. Revenues from membership
subscriptions were greater than 95% of total revenues for each of the years ended December 31,
2002, 2003 and 2004. Reserve for uncollectible revenue We record a reserve for uncollectible revenue based upon managements analyses and estimates
as to the collectability of our accounts receivable. As part of our analysis, we examine our
collections history, the age of the receivables in question, any specific customer collection
issues that we have identified, general market conditions, customer concentrations and current
economic trends. 19




---



##### 



Commission expense recognition Commission expenses related to the negotiation of new memberships and the renewal of existing
memberships are deferred and amortized over the term of the related memberships. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to interest rate risk primarily through our portfolio of cash, cash equivalents
and marketable securities, which is designed for safety of principal and liquidity. Cash and cash
equivalents include highly liquid U.S. Treasury obligations with maturities of less than three
months. Marketable securities consist primarily of U.S. Treasury notes and bonds and insured
Washington, D.C. tax exempt notes and bonds. We perform periodic evaluations of the relative credit
ratings related to the cash, cash equivalents and marketable securities. This portfolio is subject
to inherent interest rate risk as investments mature and are reinvested at current market interest
rates. We currently do not use derivative financial instruments to adjust our portfolio risk or
income profile. Item 8. Financial
Statements and Supplementary Data. Report of
Managements Assessment of  Internal  Control Over Financial
Reporting Management is responsible for the preparation and integrity of the consolidated financial statements
appearing in our Annual Report. The consolidated financial statements were prepared in conformity
with accounting principles generally accepted in the United States and include amounts based on
managements estimates and judgments. All other financial information in this report has been
presented on a basis consistent with the information included in the
consolidated financial statements. Management is also responsible for establishing and maintaining adequate internal control over financial
reporting. We maintain a system of internal control that is designed to provide reasonable
assurance as to the reliable preparation and presentation of the consolidated financial
statements in accordance with generally accepted accounting
principles, as well as to safeguard assets from unauthorized use or disposition. Our control environment is the foundation for our
 system of internal control over financial
reporting and is reflected in our Code of Ethics for Directors, Executives and Employees. It sets
the tone of our organization and includes factors such as integrity and ethical values. Our
internal control over financial reporting is supported by formal policies and procedures which
are reviewed, modified and improved as changes occur in business conditions and operations. The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets
periodically with members of management and the independent auditors to review and discuss internal
control over financial reporting and accounting and financial reporting matters. The independent
auditors report to the Audit Committee and accordingly have full and free access to the Audit
Committee at any time. Management  conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2004
based on the framework in Internal Control  Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. This evaluation included review of the
documentation of controls, evaluation of the design effectiveness of controls, testing of the
operating effectiveness of controls and a conclusion on this evaluation.
Based on this evaluation, management has concluded that our internal control over financial
reporting was effective as of December 31, 2004. 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. Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation
report on managements assessment of internal control over financial reporting, which is included
herein. /s/ James J. McGonigle
James J. McGonigle
Chairman of the Board of Directors
and Chief Executive Officer
February 28, 2005 /s/ Timothy R. Yost
Timothy R. Yost
Chief Financial Officer
February 28, 2005 20




---



##### 



Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of
The Corporate Executive Board Company: We have audited managements assessment, included in the accompanying Report of Managements
Assessment of Internal Controls, that The Corporate Executive Board Company maintained effective
internal control over financial reporting as of December 31, 2004, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). The Corporate Executive Board Company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. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of 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, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and 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, managements assessment that The Corporate Executive Board Company maintained
effective internal control over financial reporting as of December 31, 2004, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, The Corporate Executive
Board Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of The Corporate Executive Board Company as
of December 31, 2003 and 2004, and the related consolidated statements of income, changes in
stockholders equity and cash flows for each of the three years in the period ended December
31, 2004. and our report dated February 25, 2005 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP



Baltimore, Maryland
February 25, 2005 21




---



##### 



Report of Independent
Registered Public Accounting Firm The Board of Directors and Stockholders of
The Corporate Executive Board Company: We have audited the accompanying consolidated balance sheets of The Corporate Executive Board
Company as of December 31, 2003 and 2004, and the related consolidated statements of income,
changes in stockholders equity and cash flows for each of the
three years in the period ended
December 31, 2004. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of The Corporate Executive Board Company at December
31, 2003 and 2004, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 2004, in
conformity with  U.S. generally accepted accounting
principles. We
have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness
of The Corporate Executive Board Companys internal control over
financial reporting as of December 31, 2004, based on the criteria
established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and
our report dated February 25, 2005 expressed an unqualified opinion
thereon. /s/ Ernst & Young LLP

Baltimore, Maryland
February 25, 2005 22




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 December 31,2003
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    118,568
    
    
    $
    113,996Marketable securities
    
    
    11,859
    
    
    
    50,292Membership fees receivable, net
    
    
    63,160
    
    
    
    97,106Deferred income taxes, net
    
    
    30,972
    
    
    
    26,121Deferred incentive compensation
    
    
    7,332
    
    
    
    9,277Prepaid expenses and other current assets
    
    
    5,933
    
    
    
    8,107Total current assets
    
    
    237,824
    
    
    
    304,899Deferred income taxes, net
    
    
    6,701
    
    
    
    3,466Marketable securities
    
    
    163,492
    
    
    
    252,689Property and equipment, net
    
    
    15,465
    
    
    
    17,397Total assets
    
    $
    423,482
    
    
    $
    578,451LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    12,480
    
    
    $
    17,450Accrued incentive compensation
    
    
    11,072
    
    
    
    18,213Deferred revenues
    
    
    154,844
    
    
    
    205,494Total current liabilities
    
    
    178,396
    
    
    
    241,157Other liabilities
    
    
    3,093
    
    
    
    9,833Total liabilities
    
    
    181,489
    
    
    
    250,990Commitments
and contingencies (Note 15)Stockholders equity:Common
stock, par value $0.01; 100,000,000 shares authorized and 37,835,075
and 39,991,749 shares
issued as of December 31, 2003 and 2004, respectively, and
37,283,068 and 38,930,648 outstanding as
of December 31, 2003 and 2004, respectively
    
    
    378
    
    
    
    399Additional paid-in-capital
    
    
    143,426
    
    
    
    214,987Retained earnings
    
    
    113,532
    
    
    
    155,619Accumulated elements of other comprehensive income
    
    
    4,277
    
    
    
    1,763Treasury stock, 552,007 and 1,061,101 shares, at cost, at December 31, 2003 and 2004, respectively
    
    
    (19,620
    )
    
    
    (45,307
    )Total stockholders equity
    
    
    241,993
    
    
    
    327,461Total liabilities and stockholders equity
    
    $
    423,482
    
    
    $
    578,451
 See accompanying notes to consolidated financial statements. 23




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per-share amounts)
 Year ended December 31,2002
    
    
    2003
    
    
    2004Revenues
    
    $
    162,357
    
    
    $
    210,211
    
    
    $
    280,724Cost of services
    
    
    56,147
    
    
    
    70,974
    
    
    
    91,285Gross profit
    
    
    106,210
    
    
    
    139,237
    
    
    
    189,439Costs and expenses:Member relations and marketing
    
    
    40,768
    
    
    
    55,301
    
    
    
    75,460General and administrative
    
    
    17,493
    
    
    
    21,632
    
    
    
    31,130Depreciation
    
    
    5,456
    
    
    
    5,764
    
    
    
    6,782Non-cash lease restructuring costs
    
    
    
    
    
    
    
    
    
    
    5,210Stock option and related expenses (1)
    
    
    668
    
    
    
    114
    
    
    
    408Total costs and expenses
    
    
    64,385
    
    
    
    82,811
    
    
    
    118,990Income from operations
    
    
    41,825
    
    
    
    56,426
    
    
    
    70,449Other income, net
    
    
    6,346
    
    
    
    7,569
    
    
    
    9,936Income before provision for income taxes
    
    
    48,171
    
    
    
    63,995
    
    
    
    80,385Provision for income taxes
    
    
    18,570
    
    
    
    28,307
    
    
    
    26,729Net income
    
    $
    29,601
    
    
    $
    35,688
    
    
    $
    53,656Earnings per share:Basic
    
    $
    0.81
    
    
    $
    0.96
    
    
    $
    1.40Diluted
    
    $
    0.79
    
    
    $
    0.93
    
    
    $
    1.34Dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    0.30Weighted average shares used in the calculation of earnings per share:Basic
    
    
    36,722
    
    
    
    37,296
    
    
    
    38,344Diluted
    
    
    37,671
    
    
    
    38,577
    
    
    
    39,925(1) Composition of stock option and related expenses:Cost of services
    
    $
    343
    
    
    $
    75
    
    
    $
    184Member relations and marketing
    
    
    148
    
    
    
    5
    
    
    
    100General and administrative
    
    
    177
    
    
    
    34
    
    
    
    124Total
    
    $
    668
    
    
    $
    114
    
    
    $
    408
 See accompanying notes to consolidated financial statements. 24




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Year ended December 31,2002
    
    
    2003
    
    
    2004Cash flows from operating activities:Net income
    
    $
    29,601
    
    
    $
    35,688
    
    
    $
    53,656Adjustments to reconcile net income to net cash flows provided by operating activities:Depreciation
    
    
    5,456
    
    
    
    5,764
    
    
    
    6,182Loss on disposition of property and equipment
    
    
    
    
    
    
    
    
    
    
    1,162Deferred income taxes and tax benefits resulting from the exercise of common stock options
    
    
    18,349
    
    
    
    27,171
    
    
    
    24,373Non-cash lease restructuring costs
    
    
    
    
    
    
    
    
    
    
    5,210Amortization of marketable securities premiums, net
    
    
    1,506
    
    
    
    2,185
    
    
    
    2,777Changes in operating assets and liabilities:Membership fees receivable, net
    
    
    (8,345
    )
    
    
    (12,804
    )
    
    
    (33,946
    )Deferred incentive compensation
    
    
    (758
    )
    
    
    (2,358
    )
    
    
    (1,945
    )Prepaid expenses and other current assets
    
    
    (626
    )
    
    
    (2,265
    )
    
    
    (1,865
    )Accounts payable and accrued liabilities
    
    
    1,866
    
    
    
    730
    
    
    
    4,896Accrued incentive compensation
    
    
    3,273
    
    
    
    1,412
    
    
    
    7,116Deferred revenues
    
    
    26,732
    
    
    
    33,429
    
    
    
    50,650Other liabilities
    
    
    819
    
    
    
    493
    
    
    
    1,178Net cash flows provided by operating activities
    
    
    77,873
    
    
    
    89,445
    
    
    
    119,444Cash flows from investing activities:Purchases of property and equipment, net
    
    
    (3,112
    )
    
    
    (6,313
    )
    
    
    (9,002
    )Purchases of marketable securities
    
    
    (116,738
    )
    
    
    (71,440
    )
    
    
    (197,049
    )Sales and maturities of marketable securities
    
    
    51,564
    
    
    
    46,104
    
    
    
    62,865Net cash flows used in investing activities
    
    
    (68,286
    )
    
    
    (31,649
    )
    
    
    (143,186
    )Cash flows from financing activities:Proceeds from the exercise of common stock options
    
    
    12,835
    
    
    
    8,292
    
    
    
    55,495Proceeds from issuance of common stock under the employee stock purchase plan
    
    
    653
    
    
    
    754
    
    
    
    931Purchase of treasury shares
    
    
    
    
    
    
    (19,620
    )
    
    
    (25,687
    )Payment of dividends
    
    
    
    
    
    
    
    
    
    
    (11,569
    )Reimbursement of common stock offering costs
    
    
    300
    
    
    
    175
    
    
    
    225Payment of common stock offering costs
    
    
    (300
    )
    
    
    (175
    )
    
    
    (225
    )Net cash flows provided by (used in) financing activities
    
    
    13,488
    
    
    
    (10,574
    )
    
    
    19,170Net increase
(decrease) in cash and cash equivalents
    
    
    23,075
    
    
    
    47,222
    
    
    
    (4,572
    )Cash and cash equivalents, beginning of year
    
    
    48,271
    
    
    
    71,346
    
    
    
    118,568Cash and cash equivalents, end of year
    
    $
    71,346
    
    
    $
    118,568
    
    
    $
    113,996
 See accompanying notes to consolidated financial statements. 25




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 For the years ended December 31, 2002, 2003, and 2004
 (In thousands, except share amounts)
 Accumulatedelements of other
    
    

    
    
    
    
    
    
    


    AnnualCommon stock
    
    
    Additional
    
    Retained
    
    
    comprehensive
    
    
    Treasury
    
    
    
    
    
    
    comprehensiveShares
    
    
    Amount
    
    
    paid-in-capital
    
    earnings
    
    

    income
    
    
    stock
    
    
    Total
    
    
    incomeBalance at December 31, 2001
    
    
    34,898,060
    
    
    $
    349
    
    
    $
    94,221


    
    $
    48,243
    
    
    $
    1,171
    
    
    $
    
    
    
    $
    143,984Issuance of common
stock upon the
exercise of common
stock options
    
    
    2,259,653
    
    
    
    23
    
    
    
    12,812


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,835
    
    
    
    Issuance of common
stock under the
employee stock
purchase plan
    
    
    25,133
    
    
    
    
    
    
    
    653


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    653
    
    
    
    Tax benefits
related to the
exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    22,160


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,160
    
    
    
    Unrealized gains on
available-for-sale
marketable
securities, net of
tax
    
    
    
    
    
    
    
    
    
    
    



    
    
    
    
    
    
    4,124
    
    
    
    
    
    
    
    4,124
    
    
    
    4,124Net income
    
    
    
    
    
    
    
    
    
    
    



    
    
    29,601
    
    
    
    
    
    
    
    
    
    
    
    29,601
    
    
    
    29,601Balance at December 31, 2002
    
    
    37,182,846
    
    
    $
    372
    
    
    $
    129,846

    
    $
    77,844
    
    
    $
    5,295
    
    
    $
    
    
    
    $
    213,357
    
    
    $
    33,725Issuance of common
stock upon the
exercise of common
stock options
    
    
    626,663
    
    
    
    6
    
    
    
    8,286



    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,292
    
    
    
    Issuance of common
stock under the
employee stock
purchase plan
    
    
    25,566
    
    
    
    
    
    
    
    754



    
    
    
    
    
    
    
    
    
    
    
    
    
    
    754
    
    
    
    Tax benefits
related to the
exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    4,540



    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,540
    
    
    
    Purchase of
treasury stock at
cost
    
    
    (552,007
    )
    
    
    
    
    
    
    



    
    
    
    
    
    
    
    
    
    
    (19,620
    )
    
    
    (19,620
    )
    
    
    Unrealized losses
on
available-for-sale
marketable
securities, net of
tax benefit
    
    
    
    
    
    
    
    
    
    
    



    
    
    
    
    
    
    (1,018
    )
    
    
    
    
    
    
    (1,018
    )
    
    
    (1,018
    )Net income
    
    
    
    
    
    
    
    
    
    
    



    
    
    35,688
    
    
    
    
    
    
    
    
    
    
    
    35,688
    
    
    
    35,688Balance at December 31, 2003
    
    
    37,283,068
    
    
    $
    378
    
    
    $
    143,426

    
    $
    113,532
    
    
    $
    4,277
    
    
    $
    (19,620
    )
    
    $
    241,993
    
    
    $
    34,670Issuance of common stock upon the
exercise of common stock options
    
    
    2,134,530
    
    
    
    21
    
    
    
    55,474



    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,495
    
    
    
    Issuance of common stock under the
employee stock purchase plan
    
    
    22,144
    
    
    
    
    
    
    
    931



    
    
    
    
    
    
    
    
    
    
    
    
    
    
    931
    
    
    
    Tax benefits related to the exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    15,156



    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,156
    
    
    
    Purchase of treasury stock at cost
    
    
    (509,094
    )
    
    
    
    
    
    
    



    
    
    
    
    
    
    
    
    
    
    (25,687
    )
    
    
    (25,687
    )
    
    
    Unrealized losses on available-for-sale
marketable securities, net of tax
benefit
    
    
    
    
    
    
    
    
    
    
    



    
    
    
    
    
    
    (2,645
    )
    
    
    
    
    
    
    (2,645
    )
    
    
    (2,645
    )Foreign currency
translation, net of
tax benefit
    
    
    
    
    
    
    
    
    
    
    



    
    
    
    
    
    
    131
    
    
    
    
    
    
    
    131
    
    
    
    131Payment of dividends
    
    
    
    
    
    
    
    
    
    
    



    
    
    (11,569
    )
    
    
    
    
    
    
    
    
    
    
    (11,569
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    



    
    
    53,656
    
    
    
    
    
    
    
    
    
    
    
    53,656
    
    
    
    53,656Balance at December 31, 2004
    
    
    38,930,648
    
    
    $
    399
    
    
    $
    214,987

    
    $
    155,619
    
    
    $
    1,763
    
    
    $
    (45,307
    )
    
    $
    327,461
    
    
    $
    51,142
 See accompanying notes to consolidated financial statements. 26




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Description of operations The Corporate Executive Board Company (the Company) provides best practices research,
decision support tools and executive education focusing on corporate strategy, operations and
general management issues. Best practices research supports senior executive decision making by
identifying and analyzing specific management initiatives, processes and strategies that have been
determined to produce the best results in solving common business problems or challenges. For a
fixed annual fee, members of each research program have access to an integrated set of
services, including best practices research studies, executive education seminars, customized
research briefs and Web-based access to the programs content database and decision support tools. 2. Principles of consolidation The consolidated financial statements include accounts of The Corporate Executive Board
Company, The Corporate Executive Board Company (UK) Ltd. and Corporate Executive Board India
Private Ltd. All significant intercompany transactions and balances have been eliminated in
consolidation. 3. Summary of significant accounting policies Cash equivalents and marketable securities Short-term investments and marketable securities that mature within three months of purchase
are classified as cash equivalents. Short-term investments and marketable securities with
maturities of more than three months are classified as marketable securities. Marketable securities
with maturity dates of less than one year are classified as current assets. As of December 31, 2003
and 2004, the Companys marketable securities consisted primarily of United States Treasury notes
and bonds and Washington, D.C. tax exempt notes and bonds. The Company classifies its marketable
securities as available-for-sale, which are carried at fair value based on quoted market prices.
The net unrealized gains and losses on available-for-sale marketable securities are excluded from
net income and are included within accumulated elements of comprehensive income. The specific
identification method is used to compute the realized gains and losses on the sale of marketable
securities. The Company may elect not to hold these marketable securities to maturity and may elect
to sell these securities at any time. Allowance for doubtful accounts The Company uses estimates to determine the amount of the allowance for doubtful accounts
necessary to reduce membership fees receivable to their expected net realizable value. The Company
estimates the amount of the required allowance by reviewing the status of past-due receivables and
analyzing historical bad debt trends. The Company charges-off receivables deemed to be
uncollectible to the allowance for doubtful accounts. Accounts receivable balances are not
collateralized. Property and equipment Property and equipment consists of furniture, fixtures, equipment, capitalized software and
Web site development costs, and leasehold improvements. Property and equipment are stated at cost,
less accumulated depreciation expense. Furniture, fixtures and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets, which range from three to seven
years. Capitalized software and Web site development costs are depreciated using the straight-line
method over the estimated useful lives of the assets, which range from three to five years.
Leasehold improvements are depreciated using the straight-line method over the shorter of the
estimated useful lives of the assets or the lease term. Replacements and major improvements are
capitalized. Maintenance and repairs are charged to expense as incurred. Recovery of long-lived assets 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 Company recognizes an
impairment loss when the sum of the expected undiscounted future cash flows is less than the
carrying amount of the asset. The Company believes that no such impairment existed as of December 31, 2003 and 2004. 27




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 Revenue recognition Revenues from membership subscriptions are recognized ratably over the term of the related
subscription, which is generally twelve months. Revenues from implementation support memberships are
recognized as services are performed, limited by the Companys pro rata refund policy. Membership
fees are generally billable, and revenue recognition begins, when the member agrees to the terms of
the membership. Certain membership fees are billed on an installment basis. Members may request a
refund of their membership fees, which is provided on a pro rata basis relative to the length of
the remaining membership term. The Companys policy is to record the full amount of membership fees
receivable as an asset and related deferred revenue as a liability when a member agrees to the
terms of a membership. Revenues from membership subscriptions were greater than 95% of total
revenues for each of the years ended December 31, 2002, 2003, and 2004. In addition, as of December
31, 2002, 2003, and 2004 approximately $1.7 million, $2.8 million and $6.4 million, respectively,
of deferred revenues were to be recognized beyond the following twelve months. Commission expense recognition Commission expenses related to the negotiation of new memberships and the renewal of existing
memberships are deferred and amortized over the term of the related memberships. Earnings per share Basic earnings per share is computed by dividing net income by the number of weighted average
common shares outstanding during the period. Diluted earnings per share is computed by dividing net
income by the number of weighted average common shares outstanding
during the period increased by the dilutive effects of potential common shares
outstanding
 during the period. The
number of potential common shares outstanding has been determined in accordance
with the treasury-stock method. Common share equivalents consist of common shares issuable upon the
exercise of outstanding common stock options. A reconciliation of basic to diluted weighted average
common shares outstanding is as follows (in thousands): Year Ended December 31,2002
    
    
    2003
    
    
    2004Basic weighted
average common
shares outstanding
    
    
    36,722
    
    
    
    37,296
    
    
    
    38,344Dilutive
common shares
outstanding
    
    
    949
    
    
    
    1,281
    
    
    
    1,581Diluted weighted
average common
shares outstanding
    
    
    37,671
    
    
    
    38,577
    
    
    
    39,925
 Concentration of credit risk Financial instruments, which potentially expose the Company to concentration of credit risk,
consist primarily of membership fees receivable and cash, cash equivalents and marketable
securities. Concentrations of credit risk with respect to membership fees receivable are limited
due to the large number of members and their dispersion across many different industries and
countries worldwide. However, the Company may be exposed to a declining membership base in periods
of unforeseen market downturns, severe competition or international developments. The Company
performs periodic evaluations of the membership base and related membership fees receivable and
establishes allowances for potential credit losses. The Company generates revenues from members located outside of the United States. For the
years ended December 31, 2002, 2003 and 2004, approximately 27%, 25% and 25% of revenues,
respectively, were generated from members located outside of the United States. Revenues from
customers in European countries were approximately 15%, 14% and 14% for the years ended December
31, 2002, 2003 and 2004, respectively, with no other geographic area representing more than 10% of revenues in any period.
No individual member accounted for more than 2% of revenues for any period presented. 28




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 The Company maintains a portfolio of cash, cash equivalents and marketable securities, which
is designed for safety of principal and liquidity. Cash and cash equivalents consist of highly
liquid U.S. government and U.S. Treasury obligations that mature within three months of purchase.
Marketable securities consist primarily of U.S. Treasury notes and bonds and Washington, D.C. tax
exempt notes and bonds. The Company performs periodic evaluations of the relative credit ratings
related to the cash, cash equivalents and marketable securities. Foreign currency The
functional currency of the Companys wholly owned subsidiaries is the local currency. The
financial statements of the subsidiaries are translated to United States dollars using period-end
exchange rates for assets and liabilities and average exchange rates during the corresponding
period for revenues, expenses and cash flows. Translation gains and losses as a result of this
translation, net of related tax effects, are accumulated as a component of accumulated elements of other comprehensive income. Fair value of financial instruments The fair value of the Companys financial instruments approximates their carrying value due to
their short maturity. Income taxes Deferred income taxes are determined on the asset and liability method. Under this method,
temporary differences arise as a result of the difference between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when,
in managements opinion, it is more likely than not that some or all of the deferred tax asset will
not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax
laws and tax rates on the date of the enactment of the change. The Company believes that its future
taxable income will be sufficient for the full realization of the deferred income tax assets. Research and development costs Costs
related to the research and development of new Company programs are expensed in the
period incurred. Research and development costs were immaterial for the years ended December 31,
2002, 2003 and 2004. Stock-based compensation At
December 31, 2004, the Company had several stock-based employee compensation plans, which
are described more fully in Note 13. These plans provide for the
granting of stock options, stock appreciation rights and
restricted stock to employees and non-employee members of our Board of Directors. The Company
accounts for these plans using the intrinsic value method of expense recognition and measurement
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees,and related
Interpretations (collectively, APB No. 25). Accordingly, no stock-based compensation cost is
reflected in net income, as reported, as all stock options granted under the Companys stock-based
employee compensation plans have an exercise price equal to the market value of the underlying
common stock on the date of grant. The Financial Accounting
 Standards Board (FASB) Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation(SFAS No. 123), as amended by FASB
Statement No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, established
an alternative method of expense recognition for stock-based compensation awards to employees based
on fair values. Pro forma information regarding net income is required by SFAS No. 123, as amended,
and has been determined as if the Company had accounted for its employee stock options under the
fair value method as prescribed by SFAS No. 123, as amended. The following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123, as amended, to stock-based
employee compensation. For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the vesting period. The provisions of SFAS No. 123, as amended, may
not necessarily be indicative of future results. 29




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 Year Ended December 31,2002
    
    
    2003
    
    
    2004Net income, as reported
    
    $
    29,601
    
    
    $
    35,688
    
    
    $
    53,656Deduct: Total stock-based employee compensation
expense
 determined under fair value based methods for
all awards,
 net of related tax effects
    
    
    (16,538
    )
    
    
    (17,659
    )
    
    
    (16,773
    )Pro forma net income
    
    $
    13,063
    
    
    $
    18,029
    
    
    $
    36,883Earnings per share:Basic  as reported
    
    $
    0.81
    
    
    $
    0.96
    
    
    $
    1.40Basic  pro forma
    
    $
    0.36
    
    
    $
    0.48
    
    
    $
    0.96Diluted  as reported
    
    $
    0.79
    
    
    $
    0.93
    
    
    $
    1.34Diluted  pro forma
    
    $
    0.35
    
    
    $
    0.47
    
    
    $
    0.93Assumptions:Dividend yield
    
    
    
    
    
    
    
    
    
    
    0.6
    %Expected life of option (in years)
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    63
    %
    
    
    55
    %
    
    
    40
    %Risk-free interest rate
    
    
    3.1
    %
    
    
    2.9
    %
    
    
    3.05
    %Weighted-average fair value of
options granted
    
    $
    17.88
    
    
    $
    16.49
    
    
    $
    18.19
 Under the SFAS No. 123, as amended, pro forma disclosure provisions, the fair value of options
granted subsequent to December 15, 1994, has been estimated using the Black-Scholes option
valuation model. The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective assumptions, including the
expected stock price characteristics that are significantly different from those of traded options.
Because changes in the subjective input assumptions can materially affect the fair value estimate,
in managements opinion, the existing models do not necessarily provide a reliable single measure
of the fair value of the Companys stock rights. Use of estimates in preparation of financial statements The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and costs and expenses
during the reporting period. Actual results could differ from those estimates. 4. New accounting pronouncements In
December 2004, the FASB issued Statement


No. 123-R, Share Based Payment (SFAS No. 123-R), as a revision to SFAS No. 123.


 SFAS No. 123-R focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment transactions.
SFAS No. 123-R eliminates the alternative to use the intrinsic
value method as described in APB No. 25 and requires entities to
recognize the cost of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards (with limited exceptions).
Under the provisions of SFAS No. 123-R, the amount of tax benefit
relating to stock option compensation included in operating cash
flows for periods prior to the effective date, will be reported in
financing cash flows once the statement becomes effective.
SFAS No. 123-R
must be adopted no later than July 1, 2005, which is the
Companys planned adoption date. SFAS No. 123-R allows for either
prospective or retrospective recognition of compensation expense. The Company
is currently evaluating these transition methods. Accordingly, the Company has
continued to use APB No. 25 for the years ended
December 31, 2002, 2003 and 2004 and will adopt SFAS No. 123-R
effective July 1, 2005. See Note 3 for
the supplemental disclosure of stock based compensation as required by SFAS No. 123, as amended. 30




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 5. Marketable securities The aggregate market value, amortized cost, gross unrealized gains and gross unrealized losses
on available-for-sale marketable securities are as follows (in thousands): As of December 31, 2003Gross
    
    
    GrossMarket
    
    
    Amortized
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Cost
    
    
    Gains
    
    
    LossesU.S. Treasury notes and bonds
    
    $
    108,598
    
    
    $
    106,276
    
    
    $
    2,756
    
    
    $
    434Washington, D.C. tax exempt notes
and bonds
    
    
    66,753
    
    
    
    62,853
    
    
    
    3,900
    
    
    
    $
    175,351
    
    
    $
    169,129
    
    
    $
    6,656
    
    
    $
    434
 As of December 31, 2004Gross
    
    
    GrossMarket
    
    
    Amortized
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Cost
    
    
    Gains
    
    
    LossesU.S. Treasury notes and bonds
    
    $
    254,910
    
    
    $
    254,974
    
    
    $
    1,149
    
    
    $
    1,213Washington, D.C. tax exempt notes
and bonds
    
    
    48,071
    
    
    
    45,562
    
    
    
    2,509
    
    
    
    $
    302,981
    
    
    $
    300,536
    
    
    $
    3,658
    
    
    $
    1,213
 31




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 The following table summarizes marketable securities maturities (in thousands): As of December 31, 2004Fair Market
    
    
    AmortizedValue
    
    
    CostLess than one year
    
    $
    50,292
    
    
    $
    50,451Matures in 1 to 5 years
    
    
    181,698
    
    
    
    181,358Matures in 6 to 10 years
    
    
    68,459
    
    
    
    66,332Matures after 10 years
    
    
    2,532
    
    
    
    2,395$
    302,981
    
    
    $
    300,536
 The Company may elect not to hold these marketable securities to maturity and may elect to
sell these securities at any time. Gross realized investment gains on the sale of marketable
securities were $0, $0.8 million and $0.7 million in 2002, 2003 and 2004, respectively. 6. Membership fees receivable Membership fees receivable consist of the following (in thousands): As of December 31,2003
    
    
    2004Billed membership fees receivable
    
    $
    45,345
    
    
    $
    70,128Unbilled membership fees receivable
    
    
    20,690
    
    
    
    28,94366,035
    
    
    
    99,071Reserve for uncollectible revenue
    
    
    (2,875
    )
    
    
    (1,965
    )Membership fees receivable, net
    
    $
    63,160
    
    
    $
    97,106
 7. Property and equipment Property
and equipment consists of the following (in thousands): As of December 31,2003
    
    
    2004Furniture, fixtures, and equipment
    
    $
    14,358
    
    
    $
    14,263Software and Web site development costs
    
    
    9,546
    
    
    8,994Leasehold improvements
    
    
    10,144
    
    
    8,71034,048
    
    
    31,967Accumulated depreciation
    
    
    (18,583
    )
    
    
    (14,570
    )Property and equipment, net
    
    $
    15,465
    
    
    $
    17,397
 Depreciation expense was $5.5
million, $5.8 million and $6.8 million for the years ended December 31,
2002, 2003 and 2004, respectively. Included in the amount for 2004,
is a charge of $0.6 million for a loss on the disposition of certain
property and equipment. 32




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 8. Non-cash lease restructuring costs In August 2004, the Company entered into a new twenty-year lease agreement for office
facilities in Rosslyn, Virginia beginning in early 2008. Contemporaneously with the signing of the
new Virginia office facilities lease, the Companys previous obligations for several existing
office facility leases were assigned to, and assumed by, the lessor of the new Virginia office
facilities. As a result, the Company recorded a $5.2 million, net non-cash lease restructuring
charge comprised of the items further described below. The Company recorded a non-cash charge of
$5.4 million which represents our estimate of the lease incentives attributable to the assumption
of the previous lease agreements by the new lessor. The Company will amortize the $5.4 million
accrued lease incentive on a straight-line basis over the term of the new Virginia office
facilities lease. The Company also recorded a non-cash charge of $125,000 which represents our
estimate of certain restoration costs the Company may be required to pay for office space which the
Company will no longer occupy. In addition, the Company recorded a non-cash benefit of
approximately $351,000 for the reversal of a portion of certain
deferred rent obligations  that were
previously being recognized over the life of the original lease term, resulting in constant rent
expense over the original lease term. The assumption of the lease agreements resulted in the
reduction of the original lease term and, therefore, the reversal of rent expense previously
recognized for deferred rent obligations that the Company will no longer incur. The total $5.2
million, net non-cash lease restructuring costs described above are included within Non-cash lease
restructuring costs in the consolidated statements of income. The Company also incurred approximately $909,000 for additional external financial and legal
consulting costs to restructure existing lease agreements and for the write-off of certain deferred
leasehold improvement costs for office space that we will no longer occupy. These cash expenses
and costs are included with General and administrative expenses in the consolidated statements of
income. 9. Income taxes The provision for income taxes consists of the following (in thousands): Year Ended December 31,2002
    
    
    2003
    
    
    2004Current tax expense
    
    $
    18,418
    
    
    $
    19,523
    
    
    $
    18,643Deferred tax expense
    
    
    152
    
    
    
    8,784
    
    
    8,086Provision for income taxes
    
    $
    18,570
    
    
    $
    28,307
    
    
    $
    26,729
 The provision for income taxes differs from the amount of income taxes determined by applying
the U.S. Federal income tax statutory rates to income before provision for income taxes as follows: Year Ended December 31,2002
    
    
    2003
    
    
    2004Statutory U.S. Federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net of U.S. Federal income tax
benefit
    
    
    6.5
    
    
    
    
    
    
    
    0.4Foreign
income tax
    
    
    
    
    
    
    
    
    
    
    0.3Write down of deferred tax assets, net, related
to a change in tax status
    
    
    
    
    
    
    12.8
    
    
    Permanent
differences and credits, net
    
    
    (2.9
    )
    
    
    (3.6
    )
    
    
    (2.4
    )Effective tax rate
    
    
    38.6
    %
    
    
    44.2
    %
    
    33.3
    %
 See Washington, D.C. income tax incentivesbelow for a discussion of an $8.2 million non-cash
charge to earnings during the year ended December 31, 2003 for the impact on the Companys deferred
tax assets of lowering the Washington, D.C. income tax rate to 0.0% associated with a change in the
Companys tax status. 33




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities consist of the following (in thousands): As of December 31,2003
    
    
    2004Deferred tax assets:Net operating loss carry forwards
    
    $
    26,615
    
    
    $
    13,323Tax credit carry forwards
    
    
    8,252
    
    
    
    10,380Accrued incentive compensation agreements
    
    
    3,175
    
    
    
    2,710Deferred revenue
    
    
    2,646
    
    
    
    2,226Non-cash lease incentive
    
    
    
    
    
    
    2,164Operating leases
    
    
    1,083
    
    
    
    1,303Financial reporting reserves
    
    
    1,007
    
    
    
    688Depreciation
    
    
    
    
    
    
    169Employee benefits
    
    
    65
    
    
    
    Total deferred tax assets
    
    
    42,843
    
    
    
    32,963Deferred tax liabilities:Deferred incentive compensation
    
    
    2,566
    
    
    
    2,407Unrealized gains on available-for-sale securities, net
    
    
    2,178
    
    
    
    813Employee benefits
    
    
    
    
    
    
    156Depreciation
    
    
    426
    
    
    
    Total deferred tax liabilities
    
    
    5,170
    
    
    
    3,376Deferred tax assets, net
    
    $
    37,673
    
    
    $
    29,587
 The Company has deferred income tax assets, consisting primarily of net operating loss (NOL)
carry forwards for regular Federal income tax purposes generated from the exercise of
common stock options and from Federal and Washington D.C. income tax credits. In estimating future
tax consequences, Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS No. 109) generally considers all expected future events in the determination and valuation
of deferred tax assets and liabilities. The Company believes that its future taxable income will be
sufficient for the full realization of the deferred income tax assets. However, SFAS 109 does not
consider the effect of future changes in existing tax laws or rates in the determination and
valuation of deferred tax assets and liabilities until the new tax laws or rates are enacted. We
have established our deferred income tax assets and liabilities using
currently enacted tax laws and
rates that are expected to apply to taxable income in the periods in which the deferred tax asset
or liability is expected to be realized or settled. The Company will recognize into income an
adjustment for the impact of new tax laws or rates or from changes in our tax status on the
existing deferred tax assets and liabilities when new tax laws or rates are enacted or the change
in status occurs. The Company has net operating losses which resulted in a deferred tax asset of $26.6 million
and $13.3 million at December 31, 2003 and 2004,
respectively. The utilization of these carry forwards as an available
offset to future taxable income may become subject to limitations
under U.S. Federal income tax laws. If the net operating losses are
not utilized, they expire in varying amounts, starting in 2019 and
continuing through 2023. The Company has realized current tax benefits (reductions of taxes
payable) resulting from the use of net operating loss carry forwards of $18.4 million, $19.5
million and $14.9 million in the years ended December 31,
2002, 2003 and 2004, respectively. The Company has tax credit
carry forwards which have resulted in deferred tax assets of $8.3
million and $10.4 million at December 31, 2003 and 2004,
respectively. Included within these tax credit amounts at December 31,
2003 and 2004 are Federal and Washington D.C. income tax credits of
$6.9 million and $8.7 million, respectively, which expire in the years
2010 through 2019 and Federal income tax credits of $1.4 million and
$1.7 million, respectively, that do not expire. Undistributed
earnings of the Companys foreign subsidiaries amounted to approximately $1.4 million at December 31, 2004. Those earnings are considered to be indefinitely reinvested;
accordingly, no provision for U.S. Federal and state income taxes has been provided thereon. Upon
repatriation of those 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. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable due to the complexities associated with its hypothetical
calculation; however, unrecognized foreign tax credit carry forwards would be available to reduce
some portion of the U.S. liability. Withholding taxes of approximately $0.2 million would be
payable upon remittance of all previously unremitted earnings at December 31, 2004. There were no
undistributed earnings of the Companys foreign subsidiaries for the years prior to 2004. Washington, D.C. income tax incentives The Office of Tax and Revenue of the Government of the District of Columbia (the Office of
Tax and Revenue) has adopted regulations in accordance with the New E-Conomy Transformation Act of
2000 (the Act) that modify the income and franchise tax, sales and use tax and personal property
tax regulations, effective April 2001. Specifically, the regulations provide certain credits,
exemptions and other benefits to a Qualified High Technology Company (QHTC). In October 2003, the
Company received notification from the Office of Tax and Revenue that its certification as a QHTC under the Act had
been accepted. As a QHTC, the Companys Washington, D.C. statutory income tax rate will be 0.0%
through 2005 and 6.0% thereafter, versus 9.975% prior to this qualification, and the Company is
also eligible for certain Washington, D.C. income tax credits and other benefits. 34




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 The Company recorded a non-cash income tax charge to earnings of $8.2 million during the year
ended December 31, 2003 for the impact on its deferred tax assets of lowering the Washington, D.C.
income tax rate to 0.0%, partially offset by the recognition of certain Washington, D.C. income tax
credits. 10. Comprehensive income (loss) Comprehensive income (loss) is defined as net income (loss) plus the net-of-tax impact of
foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities. Comprehensive income for the years ended
December 31, 2002, 2003 and 2004, was $33.7 million, $34.7 million and $51.1 million, respectively.
The accumulated elements of other comprehensive income (loss), net of tax, included within stockholders
equity on the consolidated balance sheets are comprised of the net change in unrealized gains
(losses) on available-for-sale marketable securities and foreign
currency translation adjustments.
Unrealized gains
(losses), net of tax, on available-for-sale marketable securities amounted to $4.1 million, $(1.0)
million and $(2.6) million during the years ended December 31, 2002, 2003 and 2004, respectively.
The tax expense (benefit) associated with unrealized gains (losses) on available-for-sale marketable securities included within
comprehensive income (loss) is $2.6 million, ($1.2) million, and ($1.4) million for the years ended December 31, 2002, 2003, and 2004. 11. Employee benefit plans Defined contribution 401(k) Plan The Company sponsors a defined contribution 401(k) Plan (the Plan) in which the Companys
employees participate. Pursuant to the Plan, all employees who have reached the age of twenty-one
are eligible to participate. The employer provides a discretionary contribution equal to 25% of an
employees contribution up to a maximum of 4% of base salary. Contributions to the Plan for the
participants were $0.4 million, $0.5 million and $0.7 million during the years ended December 31,
2002, 2003 and 2004, respectively. Employee Stock Purchase Plan The
Company sponsors an Employee Stock Purchase Plan (the ESPP). Under the ESPP, employees
authorize payroll deductions from 1% to 10% of their eligible compensation to purchase shares of
the Companys common stock. The ESPP is authorized to issue up to 1,050,000 shares of the Companys
common stock. During the years ended December 31, 2002, 2003 and 2004, the Company issued 25,133
shares, 25,566 shares and 22,144 shares of common stock, respectively, under the ESPP. 12. Public offerings of common stock In
March 2002, March 2003, and May 2004, 2.1 million shares, 588,000 shares and 1.9 million
shares, respectively, of the Companys common stock were sold in registered public offerings. The
Company did not directly receive any proceeds from the sale of its common stock. All of the shares
sold in the foregoing offerings were sold by stockholders and option holders. However, the Company
did receive cash from the exercise of common stock options in conjunction with the sale of its
common stock. 13. Stock option plans Stock-Based Incentive Compensation Plan In October 1997, the Company adopted the Stock-Based Incentive Compensation Plan (the 1997
Plan). The 1997 Plan provides for the issuance of options to purchase up to 11,008,000 shares of
common stock. Any shares of common stock which, for any reason, are not issued under the 1997 Plan
are reserved for issuance pursuant to the 1999 Stock Option Plan (the 1999 Plan). As of December
31, 2004, 10,569,400 options, net of cancellations, to purchase common stock had been granted under
the 1997 Plan and 438,600 options, net of cancellations, to purchase common stock had been granted
under the 1999 Plan. The Options granted under the 1997 Plan expired in April 2003. 1999 Stock Option Plan In February 1999, the Company adopted the 1999 Plan, which provides for the issuance of
options to purchase up to 3,784,000 shares of common stock plus any options to purchase shares of
common stock which, for any reason, are not issued under the 1997 Plan. During 2002, the Company
granted 16,000 options to purchase common stock under the 1999 Plan at a weighted average exercise
price of $32.86 per
share. During 2003, the Company granted 225,000 options to purchase common stock under the 1999
Plan at a weighted average exercise price of $31.65 per share. During 2004, the Company granted
97,197 options to purchase common stock under the 1999 Plan at a weighted average exercise price of
$46.88 per share. As of December 31, 2004, 4,190,600 options, net of cancellations and including
438,600 shares of common stock carried over from the 1997 Plan, had been granted under the 1999
Plan. The common stock options granted under the 1999 Plan generally become exercisable 25% per
year beginning one year from the date of grant and expire between February 2009 and February 2014.
As more fully described in the 2004 Stock Incentive Plan (the 2004 Plan) section below, in July
2004, Company stockholders approved the new 2004 Plan. With
stockholder approval of the 2004 Plan,
the 1999 Plan was suspended and no new grants will be made under the 1999 Plan. Stockholder approval
of the 2004 Plan terminated the Companys ability to issue
 28,500 options remaining
under the 1999 Plan. 35




---



##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 2001 Stock Option Plan In June 2001, the Company adopted the 2001 Stock Option Plan (the 2001 Plan), which provides
for the issuance of options to purchase up to 2,700,000 shares of common stock. During 2002, the
Company granted 940,000 options to purchase common stock under the 2001 Plan at a weighted average
exercise price of $32.37 per share. During 2003, the Company granted 525,000 options to purchase
common stock under the 2001 Plan at a weighted average exercise price of $32.30 per share. During
2004, the Company granted 512,803 options to purchase common stock under the 2001 Plan at a
weighted average exercise price of $45.10 per share. As of December 31, 2004, 1,892,803 options,
net of cancellations, had been granted under the 2001 Plan. The common stock options granted under
the 2001 Plan generally become exercisable 25% per year beginning one year from the date of grant
and expire between August 2011 and March 2013. As more fully described in the 2004 Stock Incentive
Plan (the 2004 Plan) section below, in July 2004,
Company stockholders approved the new 2004
Plan. With stockholder approval of the 2004 Plan, the 2001 Plan was
suspended and no new grants will
be made under the 2001 Plan. Stockholder approval of the 2004 Plan terminated the Companys
ability to issue 807,197 options remaining under the 2001 Plan. 2002 Non-Executive Stock Incentive Plan In March 2002, the Company adopted the 2002 Non-Executive Stock Incentive Plan, as amended
(the 2002 Plan), which provides for the issuance up to 7,300,000 shares of common stock under
stock options or restricted stock grants. Any person who is an employee or prospective
employee of the Company is eligible for the grant of awards under the 2002 Plan, unless such person
is an officer or director of the Company. The terms of awards granted under the 2002 Plan,
including vesting, forfeiture and post termination exercisability are set by the plan
administrator, subject to certain restrictions set forth in the 2002 Plan. During 2002, the Company
granted 1,115,000 options to purchase common stock under the 2002 Plan at a weighted average
exercise price of $32.31 per share. During 2003, the Company granted 1,058,000 options to purchase
common stock under the 2002 Plan at a weighted average exercise price of $32.40 per share. During
2004, the Company granted 769,500 options to purchase common stock under the 2002 Plan at a
weighted average exercise price of $45.16 per share. As of December 31, 2004, 2,762,125 options,
net of cancellations, had been granted under the 2002 Plan. The common stock options granted under
the 2002 Plan generally become exercisable 25% per year beginning one year from the date of grant
and expire between March 2011 and February 2014. As more fully described in the 2004 Stock
Incentive Plan (the 2004 Plan) section below, in
July 2004, Company stockholders approved the new
2004 Plan. With stockholder approval of the 2004 Plan, the 2002 Plan
was suspended and no new grants
will be made under the 2002 Plan. Stockholder approval of the 2004 Plan terminated the Companys
ability to issue 4,503,625 options remaining under the 2002 Plan. 2004 Stock Incentive Plan In July 2004,
the stockholders approved and the Company adopted the 2004 Stock Incentive Plan (the 2004 Plan), which
provides for the granting of stock options, stock appreciation rights, restricted stock, restricted
stock units, deferred stock units and incentive bonuses. The 2004
Plan provides for the issuance of up to 4,000,000 shares of
common stock plus any shares subject to outstanding awards under the
1999 Plan, the 2001 Plan, or the 2002 Plan that, on or after
June 11, 2004, cease for any reason to be subject to such awards
(other than by reason of exercise or settlement of the awards to the
extent they are exercised for or settled in vested and nonforfeitable
shares), up to an aggregate maximum of 9,400,000 shares. With
stockholder approval of the
2004 Stock Incentive Plan (the 2004 Plan), the 1999 Plan, the 2001 Plan and the 2002 Plan were
suspended and no new grants will be made under the 1999 Plan, 2001
Plan or 2002 Plan. Stockholder
approval of the 2004 Plan terminated the Companys ability to
issue approximately 5.3 million
options under the 1999 Plan, 2001 Plan and 2002 Plan. During 2004, the Company granted 86,000
options to purchase common stock under the 2004 Plan at a weighted average exercise price of $56.15
per share. As of December 31, 2004, 86,000 options, net of
 cancellations, had been granted under the 2004 Plan. The common stock options granted under the
2004 Stock Incentive Plan generally become exercisable 25% per year beginning one year from the
date of grant and expire between July 2011 and November 2011. 36




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 Directors Stock Option Plan In December 1998, the Company adopted the Directors Stock Plan (the Directors Plan), which
provides for the issuance of options to purchase up to 860,000 shares of common stock. Pursuant to
FASB Interpretation 44, stock incentives granted to non-employee members of our Board of Directors
are accounted for under the provisions of APB No. 25. During 2002, the Company granted 40,000
options to purchase common stock under the Directors Plan at a weighted average exercise price of
$32.41 per share. During 2003, the Company granted 112,240 options to purchase common stock under
the Directors Plan at a weighted average exercise price of $44.05 per share. During 2004, the
Company granted 120,000 options to purchase common stock under the Directors Plan at a weighted
average exercise price of $50.75 per share. As of December 31, 2004, 805,680 options, net of
cancellations, to purchase common stock had been granted under the Directors Plan. The common
stock options granted under the Directors Plan generally become 100% exercisable one year from the
date of grant and expire between December 2008 and October 2014. Transactions The following table summarizes the changes in common stock options for the common stock option
plans described above: WeightedNumber
    
    
    Averageof Options
    
    
    Exercise Price2002Options outstanding, beginning of year
    
    
    5,467,968
    
    
    $
    15.78Options granted
    
    
    2,111,000
    
    
    
    32.34Options cancelled
    
    
    (299,912
    )
    
    
    27.31Options exercised
    
    
    (2,259,653
    )
    
    
    5.76Options outstanding, end of year
    
    
    5,019,403
    
    
    
    26.61Options exercisable, end of year
    
    
    1,003,913
    
    
    
    21.412003Options outstanding, beginning of year
    
    
    5,019,403
    
    
    $
    26.61Options granted
    
    
    1,920,240
    
    
    
    32.97Options cancelled
    
    
    (135,641
    )
    
    
    29.23Options exercised
    
    
    (626,663
    )
    
    
    13.44Options outstanding, end of year
    
    
    6,177,339
    
    
    
    29.89Options exercisable, end of year
    
    
    1,974,974
    
    
    
    26.302004Options outstanding, beginning of year
    
    
    6,177,339
    
    
    $
    29.89Options granted
    
    
    1,585,500
    
    
    
    46.26Options cancelled
    
    
    (216,603
    )
    
    
    31.44Options exercised
    
    
    (2,134,530
    )
    
    
    26.01Options outstanding, end of year
    
    
    5,411,706
    
    
    
    36.20Options exercisable, end of year
    
    
    1,413,331
    
    
    
    31.85
 37




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 Information with respect to the common stock option plans outstanding at December 31, 2004, is
as follows: Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
Average
    
    
    
    
    
    WeightedNumber Outstanding
    
    
    Average
    
    
    Remaining
    
    
    Number Exercisable
    
    
    Averageas of
    
    
    Exercise
    
    
    Contractual
    
    
    as of
    
    
    ExerciseRange
of Exercise Prices
    
    December 31, 2004
    
    
    Price
    
    
    Life-Years
    
    
    December 31, 2004
    
    
    Price$     7.12
   $32.23
    
    
    838,062
    
    
    $
    28.67
    
    
    
    6.31
    
    
    
    451,937
    
    
    $
    27.3132.30
     32.30
    
    
    1,436,682
    
    
    
    32.30
    
    
    
    8.19
    
    
    
    226,182
    
    
    
    32.3032.41
     32.41
    
    
    1,267,222
    
    
    
    32.41
    
    
    
    7.18
    
    
    
    547,472
    
    
    
    32.4132.50
     44.28
    
    
    212,000
    
    
    
    34.80
    
    
    
    7.11
    
    
    
    115,500
    
    
    
    34.4545.10
     45.10
    
    
    1,379,000
    
    
    
    45.10
    
    
    
    6.21
    
    
    
    
    
    
    
    46.45
     67.68
    
    
    278,740
    
    
    
    53.13
    
    
    
    7.91
    
    
    

72,240
    
    
    
    50.55$     7.12
   $67.68
    
    
    5,411,706
    
    
    $
    36.20
    
    
    
    7.10
    
    
    
    1,413,331
    
    
    $
    31.85
 14. Supplemental cash flows disclosures The Company paid no income taxes during the year ended December 31, 2002. During 2003 and
2004, the Company made estimated income tax payments of approximately
$1.0 million and $600,000, respectively, for alternative minimum
tax purposes. For the years ended December 31, 2002, 2003 and 2004,
the Company recognized $22.2 million, $4.5 million and $15.2 million, respectively,
in stockholders equity for tax deductions associated with the exercise of non-qualified stock options. 15. Commitments and contingencies Operating leases The
Company leases office facilities in the United States, United Kingdom and India expiring on
various dates over the next 23 years. Certain lease agreements include provisions for rental
escalations and require the Company to pay for executory costs such
as taxes and insurance. Future
minimum rental payments under noncancelable operating leases, excluding executory costs, are as
follows (in thousands): Year Ending December 31,2005
    
    $
    10,5492006
    
    
    15,2762007
    
    
    15,6252008
    
    
    26,4422009
    
    
    30,336Thereafter
    
    
    491,523Total
    
    $
    589,751
 Rent expense charged to operations during the fiscal years ended December 31, 2002, 2003 and
2004, was $7.9 million, $9.6 million and $9.3 million, respectively. The Company has entered into
letter of credit agreements of $25.0 million, $2.3 million, $0.7 million and $0.5 million which
expire February 2005, January 2019, June 2005 and August 2005, respectively, to provide security
deposits for certain office space leases. Under the terms of the new Rosslyn, Virginia lease
agreement, the Company has committed to providing the landlord security deposits totaling $50 million to be
posted in two installments. To date, the Company has entered into a letter of credit agreement for $25.0
million with a commercial bank to provide a security deposit for the Rosslyn, Virginia lease. The
letter of credit will expire in February 2005, but can be extended until August 2009. The Company has pledged
certain assets as collateral under the letter of credit agreements. To date, no amounts have been
drawn on these agreements. 38




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 From time to time, the Company is subject to ordinary routine litigation incidental to its
normal business operations. The Company is not currently a party to, and the Companys property is
not subject to, any material legal proceedings. 16. Quarterly financial data (unaudited) Unaudited summarized financial data by quarter for the years ended December 31, 2003 and 2004
is as follows (in thousands, except per-share amounts): 2003 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Revenues
    
    $
    47,283
    
    
    $
    50,339
    
    
    $
    53,758
    
    
    $
    58,831Gross profit
    
    
    31,165
    
    
    
    33,302
    
    
    
    35,533
    
    
    
    39,237Income before provision for income taxes
    
    
    13,756
    
    
    
    15,656
    
    
    
    16,447
    
    
    
    18,136Net income
    
    $
    8,336
    
    
    $
    9,487
    
    
    $
    5,513
    
    
    $
    12,352Earnings per share:Basic
    
    $
    0.22
    
    
    $
    0.25
    
    
    $
    0.15
    
    
    $
    0.33Diluted
    
    $
    0.22
    
    
    $
    0.25
    
    
    $
    0.14
    
    
    $
    0.32
 2004 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Revenues
    
    $
    63,979
    
    
    $
    67,198
    
    
    $
    72,424
    
    
    $
    77,123Gross profit
    
    
    42,579
    
    
    
    44,966
    
    
    
    50,572
    
    
    
    51,322Income before provision for income taxes
    
    
    17,880
    
    
    
    19,005
    
    
    
    18,047
    
    
    
    25,453Net income
    
    $
    11,980
    
    
    $
    12,733
    
    
    $
    11,954
    
    
    $
    16,989Earnings per share:Basic
    
    $
    0.32
    
    
    $
    0.33
    
    
    $
    0.31
    
    
    $
    0.44Diluted
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.30
    
    
    $
    0.42
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. None. Item 9A. Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule
13a-15(b) as of December 31, 2004. Management necessarily applied its judgment in assessing the costs
and benefits of such controls and procedures which, by their nature, can provide only reasonable
assurance regarding managements control objectives. It should be noted that the design of any
system of controls is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of
the date of such evaluation, our disclosure controls and procedures are  effective
in ensuring that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified
in the SECs rules and forms, and in timely alerting them to material information relating to the Company required to
be included in our periodic SEC reports. There have been no significant changes in our internal
controls or in other factors that could significantly affect those controls subsequent to the date
of this evaluation. No changes in our internal control over financial reporting occurred during the most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. Please see Item 8,
Financial Statements and Supplementary Data of this
Annual Report on Form 10-K for the Report of Managements
Assessment of Internal Control over Financial Reporting. Item 9B. Other Information. None. 39




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##### 



PART III Item 10. Directors and Executive Officers of the Registrant. The following table sets forth the names, ages and positions with The Corporate Executive
Board Company of the persons who serve as our directors and executive officers as of December 31,
2004: Directors andExecutive Officers
    
    Age
    
    PositionJames J. McGonigle
    
    
    41
    
    
    Chairman of the Board of Directors and Chief Executive OfficerRussell P. Fradin
    
    
    49
    
    
    DirectorRobert C. Hall
    
    
    73
    
    
    DirectorNancy J. Karch
    
    
    57
    
    
    DirectorDavid W. Kenny
    
    
    43
    
    
    DirectorDaniel O. Leemon
    
    
    51
    
    
    DirectorThomas L. Monahan III
    
    
    38
    
    
    General Manager, Corporate Practice and DirectorMichael A. Archer
    
    
    41
    
    
    Chief Marketing OfficerDerek C. M. van Bever
    
    
    47
    
    
    Chief Research OfficerTimothy R. Yost
    
    
    33
    
    
    Chief Financial Officer
 James J. McGoniglehas been our Chairman of the Board since March 2001 and our Chief Executive
Officer and a director since July 1998. As of July 1, 2005, Mr. McGonigle will no longer be Chief
Executive Officer but will remain with the Company as Executive Chairman. From the spin-off until
July 1998, Mr. McGonigle was our General Manager, and from 1995 until the spin-off, he was the
General Manager of the corporate division of The Advisory Board Company with responsibility for
managing the business assumed by us in the spin-off. From 1990 to 1995, Mr. McGonigle was a
consultant in the Financial Institutions Group at McKinsey &
Company, an independent consulting firm. Mr. McGonigle serves as a
Director of FactSet, an on-line investment research service. Mr. McGonigle received a B.A. from the
Woodrow Wilson School at Princeton University and a J.D. from Harvard Law School. Russell
P. Fradinhas been a director since November 2004.
Mr. Fradin has been the President and
Chief Executive Officer of The BISYS Group, Inc., a provider of business process outsourcing
solutions for the financial services sector, since February 2004. Before joining BISYS, Mr. Fradin served as a senior
executive with Automatic Data Processing, Inc., a provider of
technology based outsourcing solutions to employers, from 1996 to
2003. Prior to 1996, Mr. Fradin was a senior partner at McKinsey
& Company. Mr. Fradin earned a B.S. degree in Economics from the University of
Pennsylvania, Wharton School of Business, and an M.B.A. from the
Harvard Business School. Robert C. Hallhas been a director since February 1999. Mr. Hall has been the President and
Chief Executive Officer of Harborside Plus, Inc., a financial services company, since March 2001.
From 1995 until his retirement in January 1999, Mr. Hall served as the Vice President of The
Thomson Corporation, a publicly held information publishing company. From 1990 to 1995, Mr. Hall
was the Chief Executive Officer of Thomson Information and Publishing Group, a division of The
Thomson Corporation involved in professional information and publishing. From 1985 to 1990, Mr.
Hall was the President of Thomson Financial Services Group, another publishing division of The
Thomson Corporation. Mr. Hall received a B.S. from Iowa State University. Nancy J. Karchhas been a director since October 2001. Ms. Karch was a senior partner of
McKinsey & Company from 1988 until her retirement in 2000. She had
served in various executive capacities at McKinsey since 1974.
Ms. Karch is Director Emeritus of McKinsey & Company and serves as a director of Toys R Us, Inc., retail merchants, Liz
Claiborne, Inc., apparel marketers, The Gillette Company, a manufacturer of consumer products and
the Westchester Land Trust, a not-for-profit environmental conservation organization. Ms. Karch
received a B.A. from Cornell University, an M.S. from Northeastern University and an M.B.A. from
Harvard Business School. David W. Kennyhas been a director since February 1999. Mr. Kenny is the Chairman and Chief
Executive Officer of Digitas, Inc., a relationship marketing services firm. Mr. Kenny has been the
Chairman of Digitas since December 1998 and Chief Executive Officer since September 1997. Prior to
Digitas, Mr. Kenny held a number of executive positions with Bain & Company, an independent
consulting firm, from 1988 through 1997. Mr. Kenny received a B.S. from the General Motors
Institute and an M.B.A. from Harvard Business School. 40




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##### 



Daniel
O. Leemonhas been a director since October 2003. Mr. Leemon
is currently retired from full time employment. From September, 1995
through June, 2004, he was Executive Vice President and Chief
Strategy Officer of the Charles Schwab Corporation
(Schwab), as well as a member of the Executive
Committee. Prior to Schwab, Mr. Leemon held numerous executive positions with the Boston
Consulting Group, an independent consulting firm. Prior to the Boston Consulting Group, Mr. Leemon
held senior management positions with several consumer goods and retail start ups. Mr. Leemon
received a B.S. from the Massachusetts Institute of Technology and an M.B.A. from Stanford
University. Thomas L. Monahan IIIhas been a director since June 2001 and our General Manager, Corporate
Practice, since January 2001. Effective July 1, 2005, Mr. Monahan will become Chief Executive
Officer of the Company. From November 1998 until January 2001, Mr. Monahan served as one of our
Executive Directors, Research, and from the spin-off until November 1998, he served as our Managing
Director, Research. Prior to the spin-off, Mr. Monahan served in similar capacities with The
Advisory Board Company, which he joined in January 1996. Prior to January 1996, Mr. Monahan served
as a senior consultant for the Deloitte & Touche Consulting Group, a Director at the Committee for
Economic Development and a staff consultant at Andersen Consulting. Mr. Monahan received a B.A.
from Harvard University and an M.B.A. from New York University. Michael A. Archerhas been our Chief Marketing Officer since November 2002. Mr. Archer joined
the Company in March 2002 as our General Manager, Sales and Marketing. From 1989 through March
2002, Mr. Archer held various positions of increasing responsibility at Dun & Bradstreet, Inc.,
including Senior Vice President  Major Markets. Mr. Archer received a B.A. and an M.B.A. from the University of
California at Los Angeles. Derek C. M. van Beverhas been our Chief Research Officer since the spin-off. From 1995
through the date of the spin-off, he served as the Chief Research Officer of the business assumed
by us in the spin-off. Prior to that, he served in various management capacities with The Advisory
Board Company, which he joined in 1981. Mr. van Bever received a B.A. and an M.A. from the
University of Delaware and an M.B.A. from Harvard Business School. Timothy R. Yosthas been our Chief Financial Officer since September 2002. Mr. Yost joined the
Company in January 1997, and has held a variety of financial positions of increasing
responsibility, including senior director, finance. Prior to 1997, Mr. Yost served as an equity
analyst with Chapin, Davis. Mr. Yost received a B.B.A. from Loyola College and an M.S. from the
George Washington University. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Companys directors,
executive officers, and 10% stockholders to file forms with the SEC to report their ownership of
the Companys stock and any changes in ownership. Anyone required to file forms with the SEC must
also send copies of the forms to the Company. We have reviewed all forms provided to us. Based on
that review and on written information given to us by our executive officers and directors, we
acknowledge that all Section 16(a) filings in 2004 were filed within two business days following
the underlying transaction. Audit Committee Financial Expert The Board of Directors has determined that Mr. Robert C. Hall, Chairman of the Audit
Committee, is an Audit Committee financial expert as defined by Item 401(h) of Regulation S-K under
the Exchange Act and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A under
the Exchange Act. Audit Committee We have a separately designated standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Mr. Hall, Ms. Karch
and Mr. Kenny. Code of Ethics We have adopted a code of ethics that applies to our Board of Directors, executives and
employees known as The Corporate Executive Board Company Code of Ethics for Directors, Officers and
Employees. 41




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##### 



Item 11. Executive Compensation. The following table presents certain information concerning compensation earned for services
rendered for 2002, 2003, and 2004 by the Chief Executive Officer and the four other most highly
paid persons who served as executive officers during 2004 (the Named Officers): Annual
    
    
    Long-TermCompensation
    
    
    Compensation
    
    
    All OtherName and Principal Positions
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Number of Options
    
    
    CompensationJames J. McGonigle
    
    
    2004
    
    
    $
    600,000
    
    
    
    
    (1)
    
    
    150,000
    
    
    
    Chief Executive Officer
    
    
    2003
    
    
    
    591,667
    
    
    $
    400,000
    
    
    
    200,000
    
    
    
    2002
    
    
    
    541,700
    
    
    
    325,000
    
    
    
    350,000
    (2)
    
    
    Michael A. Archer
    
    
    2004
    
    
    $
    395,834
    
    
    $
    385,000
    
    
    
    55,000
    
    
    
    Chief Marketing Officer
    
    
    2003
    
    
    
    375,000
    
    
    
    380,000
    
    
    
    150,000
    
    
    
    2002
    
    
    
    251,300
    
    
    
    450,000
    (3)
    
    
    100,000
    
    
    
    Thomas L. Monahan III
    
    
    2004
    
    
    $
    445,000
    
    
    $
    250,000
    
    
    
    65,000
    
    
    
    General
Manager, Corporate Practice
    
    
    2003
    
    
    
    416,671
    
    
    
    200,000
    
    
    
    50,000
    
    
    
    2002
    
    
    
    400,000
    
    
    
    80,000
    
    
    
    70,000
    
    
    
    Derek C. M. van Bever
    
    
    2004
    
    
    $
    430,000
    
    
    $
    80,000
    
    
    
    25,000
    
    
    
    Chief Research Officer
    
    
    2003
    
    
    
    426,667
    
    
    
    108,000
    
    
    
    50,000
    
    
    
    2002
    
    
    
    410,000
    
    
    
    102,000
    
    
    
    70,000
    
    
    
    Timothy R. Yost
    
    
    2004
    
    
    $
    295,833
    
    
    $
    150,000
    
    
    
    65,000
    
    
    
    Chief Financial Officer
    
    
    2003
    
    
    
    267,500
    
    
    
    120,000
    
    
    
    50,000
    
    
    
    2002
    
    
    
    191,700
    
    
    
    64,000
    (4)
    
    
    65,000
    
    
    
    
  (1)
    Bonus compensation for the year ended December 31, 2004
had not been finalized at the time of the filing of this Annual Report on Form 10-K.(2)
    Includes options to purchase 150,000 shares of our common stock granted to Mr. McGonigle for his election to Chairman of the Board of Directors.(3)
    Includes a signing bonus of $50,000 paid to Mr. Archer upon the commencement of his employment.(4)
    Mr. Yost became our Chief Financial Officer effective September 1, 2002. Option Grants in Fiscal 2004 The following table shows information about stock option grants to the Named Officers during
fiscal 2004. These options are included in the Summary Compensation Table above. All options were
granted at fair market value under the 1999 Stock Option Plan (the 1999 Plan), the 2001 Stock
Option Plan (the 2001 Plan) and the 2004 Directors Stock Option Plan (the Directors Plan).
The options have seven-year terms. The rules of the SEC require us to show hypothetical gains that the
Named Officers would have for these options at the end of their seven-year terms. These gains are
calculated assuming annual compound stock price appreciation of 5% and 10% from the date the option
was originally granted to the end of the option term. The 5% and 10% assumed annual compound rates
of stock price appreciation are required by SEC rules. They are not our estimate or projection of
future stock prices. 42




---



##### 



The following table sets forth certain information concerning grants of stock options to each
of the Named Officers during 2004: Stock Option Grants in 2004 Individual Grants(1)
    
    
    Potential RealizableValue at Assumed% of Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Annual Rates ofNumber of
    
    
    Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock PriceShares
    
    
    Granted to
    
    
    
    
    
    
    Market
    
    
    
    
    
    
    Appreciation forUnderlying
    
    
    Employees
    
    
    Exercise
    
    
    Price on
    
    
    
    
    
    
    Option TermOption
    
    
    in
    
    
    Price
    
    
    Date of
    
    
    ExpirationName
    
    Grants
    
    
    Fiscal Year
    
    
    (per share)
    
    
    Grant
    
    
    Date
    
    
    5%
    
    
    10%James J. McGonigle
    
    
    150,000
    
    
    
    9.46
    %
    
    $
    45.10
    
    
    $
    45.10
    
    
    March 16, 2011
    
    $
    2,754,034
    
    
    $
    6,418,071Michael A. Archer
    
    
    55,000
    
    
    
    3.47
    
    
    
    45.10
    
    
    
    45.10
    
    
    March 16, 2011
    
    
    1,009,813
    
    
    
    2,353,293Thomas L. Monahan III
    
    
    65,000
    
    
    
    4.10
    
    
    
    45.10
    
    
    
    45.10
    
    
    March 16, 2011
    
    
    1,193,415
    
    
    
    2,781,164Derek C. M. van Bever
    
    
    25,000
    
    
    
    1.58
    
    
    
    45.10
    
    
    
    45.10
    
    
    March 16, 2011
    
    
    459,006
    
    
    
    1,069,680Timothy R. Yost
    
    
    65,000
    
    
    
    4.10
    
    
    
    45.10
    
    
    
    45.10
    
    
    March 16, 2011
    
    
    1,193,415
    
    
    
    2,781,164
  (1)
    Options granted under the 1999, 2001 and Directors Plans become exercisable 25% per year beginning one year after the date of grant. Option Exercises in 2004 and Year-End Option Values The following table shows information about the value realized on option exercises for each of
the Named Officers during fiscal 2004, and the value of their unexercised options at the end of
fiscal 2004. Value realized, or gain, is measured as the difference between the exercise price and
market value or the price at which the shares were sold on the date of exercise. Aggregated Option Exercises in 2004
and Year-End Option Values Number of Securities
    
    
    Value of UnexercisedUnderlying Unexercised
    
    
    In-the-Money Options atShares
    
    
    
    
    
    
    Options at Fiscal Year-End
    
    
    Fiscal Year-End (1)Acquired
    
    
    ValueName
    
    On Exercise
    
    
    Realized
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableJames J. McGonigle
    
    
    232,796
    
    
    $
    6,438,546
    
    
    
    300,000
    
    
    
    425,000
    
    
    $
    10,364,500
    
    
    $
    12,823,500Michael A. Archer
    
    
    37,500
    
    
    
    667,875
    
    
    
    50,000
    
    
    
    217,500
    
    
    
    1,654,500
    
    
    
    6,752,700Thomas L. Monahan III
    
    
    37,610
    
    
    
    1,087,681
    
    
    
    103,750
    
    
    
    156,250
    
    
    
    3,663,175
    
    
    
    4,601,025Derek C. M. van Bever
    
    
    49,658
    
    
    
    1,160,070
    
    
    
    47,500
    
    
    
    106,250
    
    
    
    1,641,550
    
    
    
    3,368,025Timothy R. Yost
    
    
    34,500
    
    
    
    805,040
    
    
    
    37,750
    
    
    
    138,750
    
    
    
    1,363,875
    
    
    
    4,065,100
  (1)
    Based on the closing price of our common stock on December 31, 2004 of $66.94 per share. Board of Directors Compensation The Board of Directors or, to the extent authorized by the Board, the Compensation Committee,
sets directors compensation under The Corporate Executive Board Company Directors Stock Plan and
such other arrangements as the Compensation Committee determines to be appropriate. Each director
named in 2004 who is not an employee, upon election as a non-employee director, received a one time
grant of options to purchase 30,000 shares of common stock. Non-employee directors also receive a
grant of options to purchase 10,000 shares of common stock and $20,000 as an annual retainer.
Directors who are employees of the Company did not receive additional cash compensation for their service on the
Board. Compensation paid to Messrs. McGonigle and Monahan for 2004 is described above in Item 11
of this Annual Report on Form 10-K. 43




---



##### 



Employment Contracts, Termination of Employment and Change of Control Arrangements Option Plans The Corporate Executive Board Company 1999 Stock Option Plan, The Corporate Executive Board
Company 2001 Stock Option Plan, The Corporate Executive Board Company 2002 Non-Executive Stock
Incentive Plan and the 2004 Stock Incentive Plan In the event that there is any change in the number or kind of the outstanding shares of our
common stock, whether by reason of merger, consolidation or otherwise, then the plan administrator
of the 1999 Plan, the 2001 Plan, the 2002 Plan and the 2004 Plan (the Plans) shall, in its sole
discretion, determine the appropriate adjustment, if any. In addition, in the event of such a
change, the plan administrator may accelerate the time or times at which any option may be
exercised and may provide for cancellation of accelerated options that are not exercised within a
time prescribed by the plan administrator in its sole discretion. Options granted under the Plans
generally provide that, if an optionee remains employed by us for one year following a change of
control, or if during such time the optionees employment is terminated for any reason other than
for cause or voluntary resignation, all options granted under the Plans become immediately
exercisable. For this purpose, a change of control includes acquisition by any person of more than
50% of our stock, a change in a majority of the Board of Directors to include directors not
nominated by us and stockholder approval of certain mergers, asset sales or plans of liquidation. Employment Arrangements Mr. McGonigle is employed by us pursuant to the terms of an employment agreement, which
continues in effect until Mr. McGonigles termination or separation from the Company. Under the terms of the
employment agreement, Mr. McGonigle received an annual salary of $600,000 in 2004, which is subject
to periodic increases at our sole discretion. The employment agreement requires Mr. McGonigle to
devote his efforts and abilities to us on a full-time basis. The employment also provides that, in addition to salary, Mr. McGonigle is entitled to certain
fringe benefits, including participation in our 401(k) plan, the reimbursement of business-related
expenses, disability insurance coverage and reimbursement of fees and expenses incurred in
connection with participation in community and business related organizations. We may terminate
Mr. McGonigles employment without cause at any time, in which event he will receive an amount equal
to 125% of one years base salary and all the options
granted to him will vest and become exercisable immediately.
We may terminate Mr. McGonigles employment for cause at any time upon three months notice.
Cause is defined as: the commission of a material act of fraud, theft or dishonesty against us;
conviction for any felony; or willful non-performance of material
duties which is not cured within 60 days after receipt of written notice.  Mr. McGonigle also
may voluntarily terminate his employment at any time upon three months written notice. Contemporaneously with the
execution of his employment agreement, Mr. McGonigle executed a
noncompetition agreement with us pursuant to which he, among other things, agreed not to
compete with us for a period of up to three years after his termination of employment, if he
voluntarily resigns or is terminated by us for cause. In addition, if he is terminated by us
without cause, (i) he has agreed not to compete with us for one year and (ii) we may require him
not to compete with us for up to two additional years if we agree to pay him 125% of his annual
base salary at the time of termination for each additional one-year period of noncompetition. Mr.
McGonigle also agreed as part of his noncompetition agreement with us not to disclose any of our
confidential or proprietary information during the course of his employment or upon termination
of his employment for any reason and not to solicit our employees to leave for a period of three
years after the termination of his employment with us for any reason. Mr. Archer is employed by us pursuant to the terms of an employment agreement, which continues
in effect until Mr. Archers termination or separation from the Company. Under the terms of the
employment agreement, Mr. Archer received an annual salary of $400,000 in 2004, which is subject to
periodic increases at our sole discretion. The employment agreement requires Mr. Archer to devote
his efforts and abilities to us on a full-time basis. The employment agreement also provides that
Mr. Archer is eligible for an annual performance
bonus of up to $400,000 with a target bonus of $300,000, the amount of which is to be
determined under a policy adopted by us.  The employment also provides that Mr. Archer, in
addition to salary, is entitled to certain fringe benefits, including participation in
our 401(k) plan, the reimbursement of business-related expenses and disability insurance
coverage. We may terminate Mr. Archer without Cause at any time, or Mr. Archer may terminate
his employment for Good Reason at any time upon three months written notice. In either event,
Mr. Archer will receive an amount equal to 100% of one years base salary plus $100,000, any
unvested portion of the 100,000 stock options granted to him upon
joining us in March
2002 will vest and become exercisable immediately and we pay COBRA health insurance premiums
for one year.  We may terminate Mr. Archer for Cause at any time upon three months notice.
Mr. Archer also may voluntarily terminate his employment not for good reason at any time upon
three months written notice.  Cause is defined as: the commission of an act of fraud or theft
against us; conviction for any felony; conviction for any misdemeanor involving moral turpitude
which might, in our opinion, cause embarrassment to us; significant violation of any material
Company policy; willful non-performance of material duties which is not cured within thirty
days after receipt of written notice; or violation of any material District of Columbia, state
or federal laws, rules or regulations in connection with or during performance of the his work
which, if such violation is curable, is not cured within thirty days after receipt of notice.
Good Reason with respect to Mr. Archer is defined to exist if we:  effect a material adverse
change to his employment responsibilities or authority; (ii) effect a reduction in his base
salary; (iii) effect a material reduction in his annual performance bonus potential, together
with a material decrease in his total compensation potential; (iv) relocate his place of
employment to a location that is more than 35 miles from the location of our headquarters; or
(v) materially breach the employment agreement. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth certain information regarding the beneficial ownership of The
Corporate Executive Board Companys common stock as of February 28, 2005, by (i) each stockholder
owning 5% or more of the common stock, (ii) each Named Officer, (iii) each director and (iv) all
current directors and executive officers as a group. Amountand Natureof BeneficialOwnership(1)
    
    
    Total Equity Stake(2)Name of Beneficial Owner
    
    Number
    
    
    Percent
    
    
    Number
    
    
    PercentJames J. McGonigle(3)
    
    
    511,710
    
    
    
    1.3
    %
    
    
    774,210
    
    
    
    1.9
    %Russell P. Fradin(4)
    
    
    
    
    
    
    *
    
    
    
    30,000
    
    
    
    *Robert C. Hall(5)
    
    
    30,000
    
    
    
    *
    
    
    
    30,000
    
    
    
    *Nancy J. Karch (6)
    
    
    103,240
    
    
    
    *
    
    
    
    103,240
    
    
    
    *David W. Kenny(7)
    
    
    65,240
    
    
    
    *
    
    
    
    65,240
    
    
    
    *Daniel O. Leemon(8)
    
    
    82,240
    
    
    
    *
    
    
    
    82,240
    
    
    
    *Thomas L. Monahan III(9)
    
    
    169,066
    
    
    
    *
    
    
    
    260,316
    
    
    
    *
 44




---



##### 



Amountand Natureof BeneficialOwnership(1)
    
    
    Total Equity Stake(2)Name of Beneficial Owner
    
    Number
    
    
    Percent
    
    
    Number
    
    
    PercentMichael A.
Archer (10)
    
    
    126,250
    
    
    
    *
    
    
    
    267,500
    
    
    
    *Derek C. M.
van Bever(11)
    
    
    104,328
    
    
    
    *
    
    
    
    165,578
    
    
    
    *Timothy R.
Yost(12)
    
    
    74,001
    
    
    
    *
    
    
    
    176,500
    
    
    
    *Massachusetts Financial
Services Company(13)
    
    
    1,676,850
    
    
    
    4.3
    %
    
    
    1,676,850
    
    
    
    4.1
    %Morgan Stanley(14)
    
    
    3,210,716
    
    
    
    8.3
    %
    
    
    3,210,716
    
    
    
    7.9
    %All current directors and
executive officers as a group
(10 people)
    
    
    1,266,075
    
    
    
    3.2
    %
    
    
    1,954,824
    
    
    
    4.8
    %
   *
    
    Indicates ownership of less than 1%.  (1)
    Unless indicated in the notes, each stockholder has sole voting and
investment power for all shares shown, subject to community property
laws that may apply to create shared voting and investment power. We
have included in shares owned by each stockholder all options held by
the stockholder that are currently exercisable or exercisable within
60 days of February 28, 2005 (which would be April 29,
2005).(2)
    The number column indicates the number of shares owned assuming the
exercise of all options, whether vested or unvested, without regard
to whether or not the options are exercisable within 60 days.
Percentages in the percent column are calculated on a diluted basis,
assuming that all shares subject to options are deemed to be
outstanding, whether vested or unvested and without regard to whether
or not the options are exercisable within 60 days.(3)
    Beneficial ownership includes 462,500 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005).(4)
    Beneficial ownership consists of 0 shares issuable upon the exercise
of options held by the stockholder that are currently exercisable or
exercisable within 60 days of February 28, 2005 (which would be April
29, 2005).(5)
    Beneficial ownership consists of 30,000 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005).(6)
    Beneficial ownership includes 102,240 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005).(7)
    Beneficial ownership includes 65,240 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005).(8)
    Beneficial ownership includes 82,240 shares issuable upon the exercise of
options held by the stockholder that are currently exercisable or
exercisable within 60 days of February 28, 2005 (which would be April
29, 2005).(9)
    Beneficial ownership includes 168,750 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005).(10)
    Beneficial ownership includes 126,250 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005). 45




---



##### 



(11)
    Beneficial ownership includes 92,500 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005).(12)
    Beneficial ownership includes 74,001 shares issuable upon the
exercise of options held by the stockholder that are currently
exercisable or exercisable within 60 days of February 28,
2005 (which
would be April 29, 2005).(13)
    As reported in a Schedule 13G filed on February 1,
2005. The address
of Massachusetts Financial Services Company is 500 Boylston Street,
Boston, MA, 02116.(14)
    As reported in a Schedule 13G filed on February 14, 2005. The
address of Morgan Stanley is 1585 Broadway, New York, NY 10036. The following table sets forth information about our compensation plans at December 31, 2004. Equity Compensation Plan Information (A)
    
    
    (B)
    
    
    (C)Number OfNumber Of
    
    
    
    
    
    
    SecuritiesSecurities To Be
    
    
    
    
    
    
    Remaining AvailableIssued Upon
    
    
    
    
    
    
    For Future Issuances
under EquityExercise Of
    
    
    Weighted-Average
    
    
    Compensation PlansOutstanding
    
    
    Exercise Price Of
    
    
    (ExcludingOptions, Warrants
    
    
    Outstanding Options,
    
    
    SecuritiesPlan Category
    
    And Rights
    
    
    Warrants And Rights
    
    
    Reflected In Column (A))Equity compensation
plans approved by
stockholders
    
    
    3,093,052
    
    
    $
    35.87
    
    
    
    3,968,320Equity compensation plans
not approved by

stockholders (1)
    
    
    2,318,654
    
    
    
    36.63
    
    
    
    Total
    
    
    5,411,706
    
    
    $
    36.20
    
    
    
    3,968,320
   (1)
    See Note 13 to our audited financial statements for the year ended December 31, 2004 for a
narrative description of the 2002 Non-Executive Stock Incentive Plan, which was not approved by
our stockholders. Item 13. Certain Relationships and Related Transactions. None. 46




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##### 



Item 14. Principal Accounting Fees and Services. Fees Incurred Fees charged by our independent auditors for each of the past two years are set forth below: Year
Ended December 31,2003
    
    
    2004Ernst & Young LLP
    
    
    Ernst & Young LLPAudit fees
    
    $
    196,940
    
    
    $
    341,906Audit-related fees
    
    
    12,237
    
    
    
    13,000Tax fees
    
    
    122,994
    
    
    
    133,385All other fees
    
    
    
    
    
    
    Total
    
    $
    332,171
    
    
    $
    488,291
 Audit Fees Audit fees were for professional services rendered for the audit of our annual financial
statements for the years ended December 31, 2003 and 2004, the reviews of the financial statements
included in our quarterly reports on Form 10-Q for the years ended December 31, 2003 and 2004 and
services in connection with our statutory and regulatory filings for the years ended December 31,
2003 and 2004. Also included are fees associated with the audit of
managements assessment of and the Companys internal
control over financial reporting, comfort letters and consent
procedures. Audit-Related Fees Audit related fees were for benefit plan audits. Tax Fees Tax fees were for services related to tax compliance, consulting and planning services
rendered during the years ended December 31, 2003 and 2004. In 2003, these services related
principally to the preparation of our QHTC application to the Office of Tax and Revenue. All Other Fees We did not incur fees for any services, other than the fees disclosed above relating to audit,
audit-related and tax services, rendered during the years ended December 31, 2003 and 2004. Audit and Non-Audit Service Pre-Approval Policy The Audit Committee has adopted an Audit and Non-Audit Service Pre-Approval Policy that it
believes will result in an effective and efficient procedure to pre-approve services performed by
the independent auditor. Audit Services.Audit services include the annual financial statement audit (including quarterly
reviews) and other procedures required to be performed by the independent auditor to be able to
form an opinion on our financial statements and the attestation engagement for the independent
auditors report on managements report of internal
control over financial reporting. The Audit
Committee may pre-approve specified annual audit services engagement terms and fees and other
specified audit fees. All other audit services must be specifically pre-approved by the Audit
Committee. The Audit Committee monitors the audit services engagement and may approve, if
necessary, any changes in terms, conditions and fees resulting from changes in audit scope or other
items. Audit-Related Services.Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of our financial statements,
and historically have been provided to us by the independent auditor and are consistent with the SECs
rules on auditor independence. 47




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##### 



The Audit Committee may pre-approve specified audit-related services within pre-approved fee
levels. All other audit-related services must be pre-approved by the Audit Committee. Tax Services.The Audit Committee may pre-approve specified tax services that the Audit Committee
believes would not impair the independence of the auditor and that are consistent with SEC rules
and guidance. All other tax services must be specifically approved by the Audit Committee. All Other Services.Other services are services provided by the independent auditor that do not
fall within the established audit, audit-related and tax services categories. The Audit Committee
may pre-approve specified other services that do not fall within any of the specified prohibited
categories of services. Delegation and Fee Levels.The Audit Committee has authorized the chair of the Audit Committee or
any of its other members to pre-approve audit, permissible non-audit services and tax services that
have not been previously pre-approved, if the services are consistent with the SECs rules on
auditor independence and are not specified prohibited services, up to $50,000 per engagement.
Engagements that exceed $50,000 must be approved by the full Audit Committee. The Audit Committee
chair or other member(s), as applicable, are required to report any pre-approval decisions under
these procedures to the full Audit Committee at its first scheduled meeting following any such
pre-approval. Pre-Approved Fee Levels.The Audit Committee reviews the established pre-approved fee levels
annually and makes adjustments to those levels as it deems necessary or appropriate. Any proposed
service that would exceed the applicable pre-approved fee level after taking into account fees
incurred for services in the same category requires pre-approval by the Audit Committee. Procedures. All requests for services to be provided by the independent auditor, which must include
a detailed description of the services to be rendered and the amount of corresponding fees, are
submitted to the Chief Financial Officer. The Chief Financial Officer authorizes services that have
been pre-approved by the Audit Committee. If there is any question as to whether a proposed service
fits within a pre-approved service, the Audit Committee chair is consulted for a determination. The
Chief Financial Officer submits requests or applications to provide services that have not been
pre-approved by the Audit Committee, which must include an affirmation by the Chief Financial
Officer and the independent auditor that the request or application is consistent with the SECs
rules on auditor independence, to the Audit Committee (or its chair or any of its other members
pursuant to delegated authority) for approval. PART IV Item 15. Exhibits, Financial Statement Schedules. (1)
    
    The following financial statements
of the registrant and reports of Independent Registered Public Accounting Firm are included in Item 8
hereof:Report of Managements Assessment of
Internal Control over Financial Reporting,Reports of Independent Registered
Public Accounting Firm,Consolidated Balance Sheets as of December 31, 2003 and 2004,Consolidated Statements of Income for the years ended December 31, 2002, 2003 and 2004,Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004,Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2002, 2003 and 2004, andNotes to Consolidated Financial Statements.(2)
    
    Except as provided below, all schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission either have been included
in the consolidated financial statements or are not
required under the related instructions, or are not applicable and therefore have been omitted.


 Schedule
IIValuation and Qualifying Accounts.(3)
    
    The exhibits listed below are filed or incorporated by
reference as part of this Form 10-K.
 ExhibitNo.
    
    Description of Exhibit3.1
    
    Second Amended and Restated Certificate of Incorporation.*3.2
    
    Amended and Restated Bylaws.*4.1
    
    Specimen Common Stock Certificate.*
 48




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##### 



ExhibitNo.
    
    Description of Exhibit10.1
    
    Employment Agreement, dated January 21, 1999, between The
Corporate Executive Board Company and James J. McGonigle.*10.2
    
    Stock Option Agreement Pursuant to The Corporate Advisory Board
Company Stock-Based Incentive Compensation Plan, effective as of
October 31, 1997, between The Corporate Executive Board Company
and James J. McGonigle, as amended on January 21, 1999.*10.3
    
    Agreement Concerning Exclusive Services, Confidential
Information, Business Opportunities, Non-Competition,
Non-Solicitation and Work Product, dated January 21, 1999,
between The Corporate Executive Board Company and James J.
McGonigle.*10.4
    
    Form of Agreement Concerning Exclusive Services, Confidential
Information, Business Opportunities, Non-Competition,
Non-Solicitation and Work Product.*10.5
    
    The Corporate Executive Board Company Stock-Based Incentive
Compensation Plan, adopted on October 31, 1997, as amended and
restated in February 1999.*** 10.6
    
    Amended Directors Stock Plan and Standard Terms and Conditions
for Director Non-qualified Stock Options.*** 10.7
    
    1999 Stock Option Plan and Standard Terms and Conditions for 1999
Stock Option Plan Incentive Stock Options.*** 10.8
    
    Employee Stock Purchase Plan dated June 23, 2000.**10.9
    
    2001 Stock Option Plan. ## 10.10
    
    2002 Non-Executive Stock Incentive
Plan.ä 10.11
    
    2004 Stock Incentive Plan. 10.12
    
    Non-Competition Agreement, effective as of January 1, 1999, as
amended effective October 25, 2001, among The Advisory Board
Company, The Corporate Executive Board Company and David G.
Bradley. * #10.13
    
    Agreement of Lease, dated June 25, 1998, between The Corporate
Executive Board Company and The George Washington University.*10.14
    
    License Agreement, effective as of October 31, 1997, between The
Corporate Executive Board Company and The Advisory Board
Company.*10.15
    
    Form of term sheet for director
non-qualified stock options.### 10.16
    
    Employment Agreement, dated March 20, 2002, between The Corporate
Executive Board Company and Michael A. Archer.±14.1
    
    Code of Ethics For Directors,
Executives and Employees.21.1
    
    List of the Subsidiaries of The Corporate Executive Board Company.23.1
    
    Consent of Ernst and Young LLP.31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended.
 49




---



##### 



ExhibitNo.
    
    Description of Exhibit32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 USC Section 1350.
   *
    
    Incorporated by reference to the registrants registration
statement on Form S-1, declared effective by the Securities and
Exchange Commission on February 22, 1999 (Registration No.
333-5983).**
    
    Incorporated by reference to Exhibit 10.1 from the Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2000.***
    
    Incorporated by reference to the registrants registration
statement on Form S-8, filed with the Securities and Exchange
Commission on March 9, 1999 (Registration No. 333-74145).#
    
    Amendments incorporated by reference to Exhibit 10.1 and 10.2 from
the Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 30, 2001.##
    
    Incorporated by reference to Exhibit 10.1 to the registrants
registration statement on Form S-8 filed with the Securities and
Exchange Commission on August 10, 2001 (Registration No.
333-67238).###
    
    Incorporated by reference to Exhibit 10.43 from the Annual Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the year ended December 31, 2001.
    
    Compensation arrangement.±
    
    Incorporated by reference to Exhibit 10.1 from the Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2002.ä
    
    Incorporated by reference to Exhibit 10.21.3 from the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the year ended December 31, 2002. 50




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##### 



Report of Independent
Registered Public Accounting Firm

We have audited the
consolidated financial statements of The Corporate Executive Board
Company as of December 31, 2004, and 2003, and for each of the three
years in the period ended December 31, 2004, and have issued our
report thereon dated February 25, 2005 (included elsewhere in this
Form 10-K). Our audits also included the financial statement schedule
listed in Item 15(2) of this Form 10-K. This schedule is the
responsibility of the Companys management. Our responsibility
is to express an opinion based on our audits.

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

/s/ Ernst & Young LLP






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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY Schedule IIValuation and Qualifying Accounts (In thousands)
 AdditionsBalance at
    
    
    Additions
    
    
    Charged to
    
    
    DeductionsBeginning
    
    
    Charged to
    
    
    Other
    
    
    from
    
    
    Balance atof Year
    
    
    Revenue
    
    
    Accounts
    
    
    Reserve
    
    
    End of YearYear ended December 31, 2002Reserve for uncollectible revenue
    
    $
    1,933
    
    
    $
    3,798
    
    
    $
    
    
    
    $
    2,931
    
    
    $
    2,800$
    1,933
    
    
    $
    3,798
    
    
    $
    
    
    
    $
    2,931
    
    
    $
    2,800Year ended December 31, 2003Reserve for uncollectible revenue
    
    $
    2,800
    
    
    $
    4,957
    
    
    $
    
    
    
    $
    4,882
    
    
    $
    2,875$
    2,800
    
    
    $
    4,957
    
    
    $
    
    
    
    $
    4,882
    
    
    $
    2,875Year ended December 31, 2004Reserve for uncollectible revenue
    
    $
    2,875
    
    
    $
    3,439
    
    
    $
    
    
    
    $
    4,349
    
    
    $
    1,965$
    2,875
    
    
    $
    3,439
    
    
    $
    
    
    
    $
    4,349
    
    
    $
    1,965
 51




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##### 



Signatures Pursuant to the requirements of section 13 or15(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 dated as of February 28, 2005. The Corporate Executive Board CompanyBy: /s/ James J. McGonigleJames J. McGonigleChief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on February 28, 2005 by the following persons on behalf of the registrant and in the
capacity indicated. Signature
    
    Title/s/ James J. McGonigle
James J. McGonigle
    
    Chief Executive Officer and
Director, Chairman of the Board
(Principal Executive Officer)/s/ Timothy R. Yost
Timothy R. Yost
    
    Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)/s/ Russell P. Fradin
Russell P. Fradin
    
    Director/s/ Robert C. Hall
Robert C. Hall
    
    Director/s/ Nancy J. Karch
Nancy J. Karch
    
    Director/s/ David W. Kenny
David W. Kenny
    
    Director/s/ Daniel O. Leemon
Daniel O. Leemon
    
    Director/s/ Thomas L. Monahan III
Thomas L. Monahan III
    
    Director
 52




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##### 



EXHIBIT INDEX ExhibitNo.
    
    Description of Exhibit21.1
    
    List of the Subsidiaries of The Corporate Executive Board Company.23.1
    
    Consent of Ernst and Young LLP.31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended.32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 USC Section 1350.
 53