##### 



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, 2005 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)
 
 
  þ o
  þ o
  o þ




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THE CORPORATE EXECUTIVE BOARD COMPANY
INDEX TO FORM 10-Q
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements.Condensed Consolidated Balance Sheets at September 30, 2005 and December 31, 2004.
    
    
    3Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2005 and 2004.
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004.
    
    
    5Notes to Condensed Consolidated Financial Statements.
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    14Item 4. Controls and Procedures.
    
    
    14PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    15Item 3. Defaults Upon Senior Securities.
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    15Item 5. Other Information.
    
    
    16Item 6. Exhibits.
    
    
    16
 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, 2005
    
    
    December 31, 2004(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    325,681
    
    
    $
    113,996Marketable securities
    
    
    10,027
    
    
    
    50,292Membership fees receivable, net
    
    
    54,297
    
    
    
    97,106Deferred income taxes, net
    
    
    17,106
    
    
    
    26,121Deferred incentive compensation
    
    
    8,389
    
    
    
    9,277Prepaid expenses and other current assets
    
    
    7,383
    
    
    
    8,107Total current assets
    
    
    422,883
    
    
    
    304,899Deferred income taxes, net
    
    
    2,164
    
    
    
    3,466Marketable securities
    
    
    156,869
    
    
    
    252,689Goodwill and other intangibles
    
    
    8,592
    
    
    
    Property and equipment, net
    
    
    18,225
    
    
    
    17,397Total assets
    
    $
    608,733
    
    
    $
    578,451Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    29,629
    
    
    $
    17,450Accrued incentive compensation
    
    
    20,803
    
    
    
    18,213Deferred revenues
    
    
    177,387
    
    
    
    205,494Total current liabilities
    
    
    227,819
    
    
    
    241,157Other liabilities
    
    
    9,494
    
    
    
    9,833Total liabilities
    
    
    237,313
    
    
    
    250,990Stockholders equity:Common stock, par value $0.01; 100,000,000 shares
authorized,41,393,617 and 39,991,749 shares issued and
39,522,346 and 38,930,648 shares outstanding as of
September 30, 2005 and December 31, 2004, respectively
    
    
    414
    
    
    
    399Additional paid-in capital
    
    
    276,464
    
    
    
    214,987Retained earnings
    
    
    197,570
    
    
    
    155,619Accumulated elements of other comprehensive income (loss)
    
    
    (331
    )
    
    
    1,763Treasury stock, 1,871,271 and 1,061,101 shares, at cost,
at September 30, 2005 and December 31, 2004,
respectively
    
    
    (102,697
    )
    
    
    (45,307
    )Total stockholders equity
    
    
    371,420
    
    
    
    327,461Total liabilities and stockholders equity
    
    $
    608,733
    
    
    $
    578,451
  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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    93,432
    
    
    $
    72,424
    
    
    $
    262,391
    
    
    $
    203,601Cost of services
    
    
    31,075
    
    
    
    21,852
    
    
    
    87,220
    
    
    
    65,484Gross profit
    
    
    62,357
    
    
    
    50,572
    
    
    
    175,171
    
    
    
    138,117Costs and expenses:Member relations and marketing
    
    
    23,734
    
    
    
    18,657
    
    
    
    68,696
    
    
    
    55,101General and administrative
    
    
    11,015
    
    
    
    9,320
    
    
    
    29,749
    
    
    
    24,297Depreciation
    
    
    1,633
    
    
    
    1,965
    
    
    
    5,003
    
    
    
    5,305Non-cash lease restructuring costs
    
    
    
    
    
    
    5,210
    
    
    
    
    
    
    
    5,210Stock option and related expenses (1)
    
    
    
    
    
    
    
    
    
    
    511
    
    
    
    408Total costs and expenses
    
    
    36,382
    
    
    
    35,152
    
    
    
    103,959
    
    
    
    90,321Income from operations
    
    
    25,975
    
    
    
    15,420
    
    
    
    71,212
    
    
    
    47,796Other income, net
    
    
    3,494
    
    
    
    2,627
    
    
    
    9,667
    
    
    
    7,136Income before provision for income taxes
    
    
    29,469
    
    
    
    18,047
    
    
    
    80,879
    
    
    
    54,932Provision for income taxes
    
    
    9,872
    
    
    
    6,093
    
    
    
    27,094
    
    
    
    18,265Net income
    
    $
    19,597
    
    
    $
    11,954
    
    
    $
    53,785
    
    
    $
    36,667Earnings per share:Basic
    
    $
    0.49
    
    
    $
    0.31
    
    
    $
    1.36
    
    
    $
    0.96Diluted
    
    $
    0.47
    
    
    $
    0.30
    
    
    $
    1.31
    
    
    $
    0.92Dividends per share
    
    $
    0.10
    
    
    $
    0.075
    
    
    $
    0.30
    
    
    $
    0.225Weighted average shares used in the calculation of
earnings per share:Basic
    
    
    39,808
    
    
    
    38,990
    
    
    
    39,585
    
    
    
    38,131Diluted
    
    
    41,336
    
    
    
    40,379
    
    
    
    41,049
    
    
    
    39,674(1) Composition of Stock option and related expenses:Cost of services
    
    $
    
    
    
    $
    
    
    
    $
    337
    
    
    $
    184Member relations and marketing
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    100General and administrative
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    124Total
    
    $
    
    
    
    $
    
    
    
    $
    511
    
    
    $
    408
  4




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THE CORPORATE EXECUTIVE BOARD COMPANY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine months ended September 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    53,785
    
    
    $
    36,667Adjustments to reconcile net income to net cash flows provided by operating activities:Depreciation
    
    
    5,171
    
    
    
    5,305Deferred income taxes
    
    
    26,989
    
    
    
    17,472Non-cash lease restructuring costs
    
    
    
    
    
    
    5,210Amortization of marketable securities premiums, net
    
    
    1,571
    
    
    
    2,071Changes in operating assets and liabilities:Membership fees receivable, net
    
    
    42,932
    
    
    
    19,097Deferred incentive compensation
    
    
    888
    
    
    
    1,971Prepaid expenses and other current assets
    
    
    4,369
    
    
    
    (1,857
    )Accounts payable and accrued liabilities
    
    
    7,904
    
    
    
    3,356Accrued incentive compensation
    
    
    2,635
    
    
    
    (277
    )Deferred revenues
    
    
    (28,686
    )
    
    
    (12,937
    )Other liabilities
    
    
    (484
    )
    
    
    549Net cash flows provided by operating activities
    
    
    117,074
    
    
    
    76,627Cash flows from investing activities:Purchases of property and equipment, net
    
    
    (6,378
    )
    
    
    (6,609
    )Acquisition, net of cash acquired
    
    
    (8,136
    )
    
    
    Maturities and sales (purchases) of marketable securities, net
    
    
    132,357
    
    
    
    (160,796
    )Net cash flows provided by (used in) investing activities
    
    
    117,843
    
    
    
    (167,405
    )Cash flows from financing activities:Proceeds from the exercise of common stock options
    
    
    44,977
    
    
    
    55,322Proceeds from the issuance of common stock under the employee stock purchase plan
    
    
    1,015
    
    
    
    662Purchase of treasury shares
    
    
    (57,390
    )
    
    
    (22,736
    )Payment of dividends
    
    
    (11,834
    )
    
    
    (8,647
    )Reimbursement of common stock offering costs
    
    
    35
    
    
    
    225Payment of common stock offering costs
    
    
    (35
    )
    
    
    (121
    )Net cash flows (used in) provided by financing activities
    
    
    (23,232
    )
    
    
    24,705Net increase (decrease) in cash and cash equivalents
    
    
    211,685
    
    
    
    (66,073
    )Cash and cash equivalents, beginning of period
    
    
    113,996
    
    
    
    118,568Cash and cash equivalents, end of period
    
    $
    325,681
    
    
    $
    52,495
  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. New accounting pronouncements
 -Based Payment Accounting for Stock based
Compensation Accounting for Stock
Issued to Employees Statement of Cash Flows
  
    
    Modified prospective method: Compensation cost is recognized
beginning with the effective date of adoption (a) based on the
requirements of SFAS No. 123-R for all share-based payments granted
after the effective date of adoption and (b) based on the
requirements of SFAS 123-R for all awards granted to employees
prior to the effective date of adoption that remain unvested on the
date of adoption.
    
    Modified retrospective method: Includes the requirements of the
modified prospective method described above, but also permits
restatement using amounts previously disclosed under the pro forma
provisions of SFAS No. 123 either for (a) all prior periods
presented or (b) prior interim periods of the year of adoption.
    6




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Accounting for Stock-Based Compensation Transition and Disclosure
 Note 4. Acquisitions
  Note 5. Sales and public offerings of common stock
  Note 6. Earnings per share
  Three months
    
    
    Nine monthsended September 30,
    
    
    ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic weighted average common shares outstanding
    
    
    39,808
    
    
    
    38,990
    
    
    
    39,585
    
    
    
    38,131Dilutive common shares outstanding
    
    
    1,528
    
    
    
    1,389
    
    
    
    1,464
    
    
    
    1,543Diluted weighted average common shares outstanding
    
    
    41,336
    
    
    
    40,379
    
    
    
    41,049
    
    
    
    39,674
 Note 7. Comprehensive income (loss)
  7




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##### 



Note 8. Supplemental cash flows disclosures
  Note 9. Stockholders equity
   Note 10. Stock-based compensation
    Three months
    
    
    Nine monthsended September 30,
    
    
    ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Net income, as reported
    
    $
    19,597
    
    
    $
    11,954
    
    
    $
    53,785
    
    
    $
    36,667Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    4,374
    
    
    
    4,334
    
    
    
    12,371
    
    
    
    12,027Pro forma net income
    
    $
    15,223
    
    
    $
    7,620
    
    
    $
    41,414
    
    
    $
    24,640Earnings per share:Basic  as reported
    
    $
    0.49
    
    
    $
    0.31
    
    
    $
    1.36
    
    
    $
    0.96Basic  pro forma
    
    $
    0.38
    
    
    $
    0.20
    
    
    $
    1.05
    
    
    $
    0.65Diluted  as reported
    
    $
    0.47
    
    
    $
    0.30
    
    
    $
    1.31
    
    
    $
    0.92Diluted  pro forma
    
    $
    0.37
    
    
    $
    0.19
    
    
    $
    1.02
    
    
    $
    0.63Assumptions:
 8




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Three months
    
    
    Nine monthsended September 30,
    
    
    ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Risk-free interest rate
    
    
    4.3
    %
    
    
    3.6
    %
    
    
    4.3
    %
    
    
    3.7
    %Dividend yield
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.6
    %
    
    
    0.6
    %Expected life of option (in years)
    
    
    4.2
    
    
    
    5
    
    
    
    4.4
    
    
    
    5Expected volatility
    
    
    26
    %
    
    
    32
    %
    
    
    30
    %
    
    
    38
    %Weighted-average fair value of options granted
    
    $
    20.48
    
    
    $
    19.24
    
    
    $
    19.52
    
    
    $
    17.58
  Note 11. Lease restructuring costs
   Note 12. Commitments and contingencies
  Note 13. Subsequent events
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  9




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Business Overview
       10




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##### 



Critical
Accounting Policies
  Goodwill Goodwill
and Other Intangible Assets
 Results of Operations
  Three months
    
    Nine monthsended September 30,
    
    ended September 30,2005
    
    2004
    
    2005
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    33.3
    
    
    
    30.2
    
    
    
    33.2
    
    
    
    32.2Gross profit
    
    
    66.7
    
    
    
    69.8
    
    
    
    66.8
    
    
    
    67.8Costs and expenses:Member relations and marketing
    
    
    25.4
    
    
    
    25.8
    
    
    
    26.2
    
    
    
    27.1General and administrative
    
    
    11.8
    
    
    
    12.9
    
    
    
    11.3
    
    
    
    11.9Depreciation
    
    
    1.7
    
    
    
    2.7
    
    
    
    1.9
    
    
    
    2.6Non-cash lease restructuring costs
    
    
    
    
    
    
    7.2
    
    
    
    
    
    
    
    2.6Stock option and related expenses
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2Total costs and expenses
    
    
    38.9
    
    
    
    48.5
    
    
    
    39.6
    
    
    
    44.4Income from operations
    
    
    27.8
    
    
    
    21.3
    
    
    
    27.1
    
    
    
    23.5Other income, net
    
    
    3.7
    
    
    
    3.6
    
    
    
    3.7
    
    
    
    3.5Income before provision for income taxes
    
    
    31.5
    
    
    
    24.9
    
    
    
    30.8
    
    
    
    27.0Provision for income taxes
    
    
    10.6
    
    
    
    8.4
    
    
    
    10.3
    
    
    
    9.0Net income
    
    
    21.0
    %
    
    
    16.5
    %
    
    
    20.5
    %
    
    
    18.0
    %
 11




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Three and Nine Months Ended September 30, 2005 and September 30, 2004
 Revenues.
 Cost of services.
 Gross profit.
 Member relations and marketing.
 General and administrative.
 12




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##### 



Depreciation.
 Non-cash
lease restructuring costs.
 Stock
option and related expenses.
 Other income, net.
 Provision for income taxes.
 Impact
of Acquisition
 Liquidity and Capital Resources
 Cash flows from operating activities.
 13




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##### 



Cash flows from investing activities.
 Cash flows from financing activities.
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  14




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##### 



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 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, 2005 to July 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    102,159,112August 1, 2005 to August 31, 2005
    
    
    152,710
    
    
    $
    79.22
    
    
    
    152,710
    
    
    $
    90,060,868September 1, 2005 to September 30, 2005
    
    
    228,896
    
    
    $
    77.58
    
    
    
    228,896
    
    
    $
    72,302,882Total
    
    
    381,606
    
    
    $
    78.24
    
    
    
    381,606
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Proposal Number 1  Election of directors.
 SHARES
    
    SHARESVOTED FOR
    
    WITHHELDJames J. McGonigle
    
    
    36,343,688
    
    
    
    913,154Thomas L. Monahan III
    
    
    36,875,736
    
    
    
    381,106Russell P. Fradin
    
    
    35,779,043
    
    
    
    1,477,799Robert C. Hall
    
    
    36,556,347
    
    
    
    700,495Nancy J. Karch
    
    
    36,484,036
    
    
    
    772,806David W. Kenny
    
    
    35,772,882
    
    
    
    1,483,960Daniel O. Leemon
    
    
    35,772,975
    
    
    
    1,483,867
 15




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##### 



Proposal Number 2  Adoption of Amendments to the 2004 Stock Incentive Plan.
  SHARES VOTED FOR
    
    
    25,097,377SHARES VOTED AGAINST
    
    
    9,823,532SHARES VOTED TO ABSTAIN
    
    
    16,516
 Proposal Number 3  Ratification of the appointment of Ernst & Young LLP as independent
registered accountant for the year ending December 31, 2005.
  SHARES VOTED FOR
    
    
    36,004,601SHARES VOTED AGAINST
    
    
    1,243,953SHARES VOTED TO ABSTAIN
    
    
    8,288
 
 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
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section
1350.
 16




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##### 



SIGNATURES
    By: /s/ Timothy R. YostTimothy R. YostChief Financial Officer(Principal Financial Officer andPrincipal Accounting Officer)
 17