##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2006
 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
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    52-2056410
(I.R.S. Employer
Identification Number)
 2000 Pennsylvania Avenue, NW 
Suite 6000
Washington, D.C.
(Address of principal executive offices)
    
    20006
(Zip Code)
 (202) 777-5000
 Not applicable.
 þ o
  þ o o
 o þ




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY
INDEX TO FORM 10-Q
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19
 2




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    124,445
    
    
    $
    424,276Marketable securities
    
    
    118,886
    
    
    
    2,264Membership fees receivable, net
    
    
    73,819
    
    
    
    120,242Deferred income taxes, net
    
    
    25,558
    
    
    
    11,880Deferred incentive compensation
    
    
    9,900
    
    
    
    11,489Prepaid expenses and other current assets
    
    
    9,217
    
    
    
    7,671Total current assets
    
    
    361,825
    
    
    
    577,822Deferred income taxes, net
    
    
    2,465
    
    
    
    2,958Marketable securities
    
    
    196,806
    
    
    
    118,096Goodwill and other intangibles
    
    
    7,990
    
    
    
    8,445Other non-current assets
    
    
    8,311
    
    
    
    1,273Property and equipment, net
    
    
    26,267
    
    
    
    18,401Total assets
    
    $
    603,664
    
    
    $
    726,995Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    33,109
    
    
    $
    42,429Accrued incentive compensation
    
    
    20,440
    
    
    
    27,045Deferred revenues
    
    
    223,870
    
    
    
    261,300Total current liabilities
    
    
    277,419
    
    
    
    330,774Other liabilities
    
    
    16,637
    
    
    
    10,807Total liabilities
    
    
    294,056
    
    
    
    341,581Stockholders equity:Common stock, par value $0.01; 100,000,000
shares authorized, 42,792,188 and 41,399,533
shares issued, and 39,038,077 and 39,482,727
shares outstanding at September 30, 2006 and
December 31, 2005, respectively
    
    
    428
    
    
    
    414Additional paid-in capital
    
    
    348,708
    
    
    
    277,028Retained earnings
    
    
    235,206
    
    
    
    214,892Accumulated elements of other comprehensive loss
    
    
    (1,131
    )
    
    
    (124
    )Treasury stock, at cost, 3,754,111 and
1,916,806 shares at September 30, 2006 and
December 31, 2005, respectively
    
    
    (273,603
    )
    
    
    (106,796
    )Total stockholders equity
    
    
    309,608
    
    
    
    385,414Total liabilities and stockholders equity
    
    $
    603,664
    
    
    $
    726,995
  3




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    118,390
    
    
    $
    93,432
    
    
    $
    335,121
    
    
    $
    262,391Cost of services (1)
    
    
    42,757
    
    
    
    31,075
    
    
    
    119,276
    
    
    
    87,557Gross profit
    
    
    75,633
    
    
    
    62,357
    
    
    
    215,845
    
    
    
    174,834Costs and expenses:Member relations and marketing (1)
    
    
    30,455
    
    
    
    23,734
    
    
    
    91,230
    
    
    
    68,825General and administrative (1)
    
    
    14,818
    
    
    
    11,015
    
    
    
    45,343
    
    
    
    29,794Depreciation and amortization
    
    
    2,141
    
    
    
    1,633
    
    
    
    6,563
    
    
    
    5,003Total costs and expenses
    
    
    47,414
    
    
    
    36,382
    
    
    
    143,136
    
    
    
    103,622Income from operations
    
    
    28,219
    
    
    
    25,975
    
    
    
    72,709
    
    
    
    71,212Other income, net
    
    
    6,109
    
    
    
    3,494
    
    
    
    18,337
    
    
    
    9,667Income before provision for income taxes
    
    
    34,328
    
    
    
    29,469
    
    
    
    91,046
    
    
    
    80,879Provision for income taxes
    
    
    13,216
    
    
    
    9,872
    
    
    
    35,052
    
    
    
    27,094Net income
    
    $
    21,112
    
    
    $
    19,597
    
    
    $
    55,994
    
    
    $
    53,785Earnings per share:Basic
    
    $
    0.53
    
    
    $
    0.49
    
    
    $
    1.40
    
    
    $
    1.36Diluted
    
    $
    0.52
    
    
    $
    0.47
    
    
    $
    1.37
    
    
    $
    1.31Dividends per share
    
    $
    0.30
    
    
    $
    0.10
    
    
    $
    0.90
    
    
    $
    0.30Weighted average shares used in the calculation of
earnings per share:Basic
    
    
    39,759
    
    
    
    39,808
    
    
    
    39,937
    
    
    
    39,585Diluted
    
    
    40,481
    
    
    
    41,336
    
    
    
    41,007
    
    
    
    41,049(1)   The following table summarizes the share-based compensation recognized in accordance with
Statement of Financial Accounting   Standards No. 123(R) included in the condensed consolidated
statements of income above:Cost of services
    
    $
    2,812
    
    
    $
    
    
    
    $
    9,140
    
    
    $
    Member relations and marketing
    
    
    1,365
    
    
    
    
    
    
    
    4,298
    
    
    
    General and administrative
    
    
    1,721
    
    
    
    
    
    
    
    5,559
    
    
    
    
  4




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine months endedSeptember 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    55,994
    
    
    $
    53,785Adjustments to reconcile net income to net cash flows provided by operating activities:Depreciation and amortization
    
    
    6,530
    
    
    
    5,171Deferred income taxes
    
    
    34,328
    
    
    
    26,989Share-based compensation
    
    
    18,997
    
    
    
    Excess tax benefits from share-based compensation arrangements
    
    
    (29,031
    )
    
    
    Amortization of marketable securities (discounts) premiums, net
    
    
    (1,658
    )
    
    
    1,571Changes in operating assets and liabilities:Membership fees receivable, net
    
    
    46,423
    
    
    
    42,932Deferred incentive compensation
    
    
    1,589
    
    
    
    888Prepaid expenses and other current assets
    
    
    (1,502
    )
    
    
    1,307Other non-current assets
    
    
    (7,061
    )
    
    
    (895
    )Accounts payable and accrued liabilities
    
    
    (8,891
    )
    
    
    11,170Accrued incentive compensation
    
    
    (6,684
    )
    
    
    2,635Deferred revenues
    
    
    (37,430
    )
    
    
    (28,686
    )Other liabilities
    
    
    5,694
    
    
    
    207Net cash flows provided by operating activities
    
    
    77,298
    
    
    
    117,074Cash flows from investing activities:Purchases of property and equipment, net
    
    
    (13,487
    )
    
    
    (6,378
    )Acquisition of business, net of cash acquired
    
    
    
    
    
    
    (8,136
    )(Purchases) sales and maturities of marketable securities, net
    
    
    (194,537
    )
    
    
    132,357Net cash flows (used in) provided by investing activities
    
    
    (208,024
    )
    
    
    117,843Cash flows from financing activities:Proceeds from the exercise of common stock options
    
    
    2,890
    
    
    
    44,977Proceeds from the issuance of common stock under the employee stock purchase plan
    
    
    1,461
    
    
    
    1,015Excess tax benefits from share-based compensation arrangements
    
    
    29,031
    
    
    
    Purchase of treasury shares
    
    
    (166,807
    )
    
    
    (57,390
    )Payment of dividends
    
    
    (35,680
    )
    
    
    (11,834
    )Reimbursement of common stock offering costs
    
    
    70
    
    
    
    35Payment of common stock offering costs
    
    
    (70
    )
    
    
    (35
    )Net cash flows used in financing activities
    
    
    (169,105
    )
    
    
    (23,232
    )Net (decrease) increase in cash and cash equivalents
    
    
    (299,831
    )
    
    
    211,685Cash and cash equivalents, beginning of period
    
    
    424,276
    
    
    
    113,996Cash and cash equivalents, end of period
    
    $
    124,445
    
    
    $
    325,681
  5




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Description of operations
  Note 2. Condensed consolidated financial statements
   Note 3. Recent accounting pronouncements
  Fair
Value Measurements
 Note 4. Share-based compensation
  6




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##### 



Equity incentive plans
  Valuation assumptions
  7




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##### 



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Risk-free interest rate
    
    
    4.5
    %
    
    
    4.3
    %
    
    
    4.8
    %
    
    
    4.3
    %Dividend yield
    
    
    1.3
    %
    
    
    0.5
    %
    
    
    1.3
    %
    
    
    0.6
    %Expected life of option (in years)
    
    
    4.8
    
    
    
    4.2
    
    
    
    4.5
    
    
    
    4.4Expected volatility
    
    
    27
    %
    
    
    26
    %
    
    
    30
    %
    
    
    30
    %Weighted-average fair value of share-based compensation awards granted
    
    $
    22.86
    
    
    $
    20.48
    
    
    $
    26.14
    
    
    $
    19.52
  Pro-forma information for periods prior to the adoption of FAS 123(R)
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2005
    
    
    September 30, 2005(In thousands, except per share amounts)Net income, as reported
    
    $
    19,597
    
    
    $
    53,785Deduct: Total share-based
compensation expense
determined under fair value
based methods for all
awards, net of related tax
effects
    
    
    4,374
    
    
    
    12,371Pro-forma net income
    
    $
    15,223
    
    
    $
    41,414Earnings per share:Basic  as reported
    
    $
    0.49
    
    
    $
    1.36Basic  pro-forma
    
    $
    0.38
    
    
    $
    1.05Diluted  as reported
    
    $
    0.47
    
    
    $
    1.31Diluted  pro-forma
    
    $
    0.37
    
    
    $
    1.02
 Equity based award activity
  WeightedWeighted
    
    Average
    
    AggregateNumber
    
    Average
    
    Remaining
    
    Intrinsic Valueof Options
    
    Exercise Price
    
    Contractual Term
    
    (in millions)Options outstanding, December 31, 2005
    
    
    5,271,183
    
    
    $
    44.96
    
    
    
    6.14Options granted
    
    
    
    
    
    
    Options cancelled
    
    
    (153,762
    )
    
    
    54.36Options exercised
    
    
    (2,163,789
    )
    
    
    36.59Options outstanding, September 30, 2006
    
    
    2,953,632
    
    
    $
    50.66
    
    
    
    5.38
    
    
    $
    115.9Options vested and expected to vest at September 30, 2006
    
    
    2,860,740
    
    
    $
    50.41
    
    
    
    5.38
    
    
    $
    113.0Options exercisable, September 30, 2006
    
    
    879,883
    
    
    $
    43.92
    
    
    
    5.41
    
    
    $
    40.5
  8




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##### 



Number ofStock
    
    
    Weighted
    
    
    Weighted Average
    
    
    AggregateAppreciation
    
    
    Average
    
    
    Remaining
    
    
    Intrinsic ValueRights
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in millions)Stock appreciation rights outstanding, beginning of year
    
    
    
    
    
    $
    Stock appreciation rights granted
    
    
    628,150
    
    
    
    97.36
    
    
    
    6.45Stock appreciation rights cancelled
    
    
    (14,005
    )
    
    
    97.56Stock appreciation rights exercised
    
    
    
    
    
    
    Stock appreciation rights outstanding, September 30, 2006
    
    
    614,145
    
    
    $
    97.36
    
    
    
    6.45
    
    
    $
    Stock appreciation rights vested and expected to vest at
September 30, 2006
    
    
    579,386
    
    
    $
    97.36
    
    
    
    6.45
    
    
    $
    Stock appreciation rights exercisable, September 30, 2006
    
    
    
    
    
    
    
   Number
    
    Weighted
    
    Weighted Averageof Restricted
    
    Average
    
    RemainingStock Units
    
    Exercise Price
    
    TermRestricted stock units outstanding, beginning of year
    
    
    
    
    
    $
    Restricted stock units granted
    
    
    60,661
    
    
    
    0.00
    
    
    
    3.45Restricted stock units cancelled
    
    
    (538
    )
    
    
    Restricted stock units exercised
    
    
    
    
    
    
    Restricted stock units outstanding, September 30, 2006
    
    
    60,123
    
    
    $
    0.00
    
    
    
    3.45Restricted stock units vested and expected to vest at September 30, 2006
    
    
    55,952
    
    
    $
    0.00
    
    
    
    3.45Restricted stock units exercisable, September 30, 2006
    
    
    
    
    
    
    
   Employee stock purchase plan
  Note 5. Sales of common stock
  9




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##### 



Note 6. Earnings per share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Basic weighted average common shares outstanding
    
    
    39,759
    
    
    
    39,808
    
    
    
    39,937
    
    
    
    39,585Dilutive common shares outstanding
    
    
    722
    
    
    
    1,528
    
    
    
    1,070
    
    
    
    1,464Diluted weighted average common shares outstanding
    
    
    40,481
    
    
    
    41,336
    
    
    
    41,007
    
    
    
    41,049
 Note 7. Comprehensive income (loss)
  Note 8. Supplemental cash flow disclosures
  10




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##### 



Note 9. Stockholders equity
     Note 10. Income taxes
  Note 11. Deferred compensation plan
  Note 12. Commitments and contingencies
  11




---



##### 



Note 13. Subsequent events
  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Business Overview
   12




---



##### 



Critical Accounting Policies
  Share-based compensation .
 13




---



##### 



Results of Operations
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    36.1
    
    
    
    33.3
    
    
    
    35.6
    
    
    
    33.4Gross profit
    
    
    63.9
    
    
    
    66.7
    
    
    
    64.4
    
    
    
    66.6Costs and expenses:Member relations and marketing
    
    
    25.7
    
    
    
    25.4
    
    
    
    27.2
    
    
    
    26.2General and administrative
    
    
    12.5
    
    
    
    11.8
    
    
    
    13.5
    
    
    
    11.4Depreciation and amortization
    
    
    1.8
    
    
    
    1.7
    
    
    
    2.0
    
    
    
    1.9Total costs and expenses
    
    
    40.0
    
    
    
    38.9
    
    
    
    42.7
    
    
    
    39.5Income from operations
    
    
    23.8
    
    
    
    27.8
    
    
    
    21.7
    
    
    
    27.1Other income, net
    
    
    5.2
    
    
    
    3.7
    
    
    
    5.5
    
    
    
    3.7Income before provision for income taxes
    
    
    29.0
    
    
    
    31.5
    
    
    
    27.2
    
    
    
    30.8Provision for income taxes
    
    
    11.2
    
    
    
    10.6
    
    
    
    10.5
    
    
    
    10.3Net income
    
    
    17.8
    %
    
    
    21.0
    %
    
    
    16.7
    %
    
    
    20.5
    %
 Three and Nine Months Ended September 30, 2006 and September 30, 2005
 Revenues.
 Cost of services.
 14




---



##### 



Gross profit.
 Member relations and marketing.
 General and administrative.
 15




---



##### 



Depreciation and amortization.
 Other income, net.
 Provision for income taxes.
 Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities.
 16




---



##### 



Cash flows from financing activities.
   Item 3. Quantitative and Qualitative Disclosures About Market Risk.
   Item 4. Controls and Procedures.
  17




---



##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 1A. Risk Factors.
  Changes in estimates or interpretations under financial accounting standards related to share-based
payments could have a material adverse impact on our reported results of operations.
   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchases of Equity Securities
 Total Number ofShares
    
    
    Approximate $Average
    
    
    Purchased as
    
    
    Value of SharesTotal
    
    
    Price
    
    
    Part of a
    
    
    That May Yet BeNumber of
    
    
    Paid Per
    
    
    Publicly
    
    
    PurchasedShares Purchased
    
    
    Share
    
    
    Announced Plan
    
    
    Under the PlansJuly 1, 2006 to July 31, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    159,859,794August 1, 2006 to August 31, 2006
    
    
    830,746
    
    
    $
    87.96
    
    
    
    830,746
    
    
    $
    86,785,588September 1, 2006 to September 30, 2006
    
    
    408,900
    
    
    $
    86.55
    
    
    
    408,900
    
    
    $
    51,396,143Total
    
    
    1,239,646
    
    
    $
    87.50
    
    
    
    1,239,646
  18




---



##### 



Item 3. Defaults Upon Senior Securities.
  Item 4. Submission of Matters to a Vote of Security Holders.
  Item 5. Other Information.
  Item 6. Exhibits.
  Exhibit No.
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Rule 13a  14(a) of the
Securities Exchange Act of 1934, as amended.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a  14(a) of the
Securities Exchange Act of 1934, as amended.32.1
    
    Certifications pursuant to 18 U.S.C. Section 1350.
 19




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##### 



SIGNATURES
  THE CORPORATE EXECUTIVE BOARD COMPANY(Registrant)Date: November 7, 2006
    
    By:
    
    /s/ Timothy R. YostTimothy R. YostChief Financial Officer(Principal Financial Officer andPrincipal Accounting Officer)
 20




---



##### 



Exhibit Index
 Exhibit No.
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Rule 13a  14(a) of the
Securities Exchange Act of 1934, as amended.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a  14(a) of the
Securities Exchange Act of 1934, as amended.32.1
    
    Certifications pursuant to 18 U.S.C. Section 1350.
 21