##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 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
    
    52-2056410(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)2000 Pennsylvania Avenue, NWSuite 6000Washington, D.C.
    
    20006(Address of Principal Executive Offices)
    
    (Zip Code)
 (202) 777-5000
(Registrants Telephone Number, Including Area Code) Not applicable.
(Former Name, Former Address and Former Fiscal Year, if Changed, Since Last Report.) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes
    
    þ
    
    No
    
    o
 Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. As of April 25, 2005, the Company had outstanding 41,364,476 shares of Common Stock, par value
$0.01 per share.




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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 as of March 31, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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.
    
    
    12Item 4. Controls and Procedures.
    
    
    12PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    13Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    13Item 3. Defaults Upon Senior Securities.
    
    
    13Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    13Item 5. Other Information.
    
    
    13Item 6. Exhibits.
    
    
    13
 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) March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    213,702
    
    
    $
    113,996Marketable securities
    
    
    48,136
    
    
    
    50,292Membership fees receivable, net
    
    
    62,353
    
    
    
    97,106Deferred income taxes, net
    
    
    33,200
    
    
    
    26,121Deferred incentive compensation
    
    
    8,381
    
    
    
    9,277Prepaid expenses and other current assets
    
    
    8,619
    
    
    
    8,107Total current assets
    
    
    374,391
    
    
    
    304,899Deferred income taxes, net
    
    
    4,503
    
    
    
    3,466Marketable securities
    
    
    228,996
    
    
    
    252,689Property and equipment, net
    
    
    17,051
    
    
    
    17,397Total assets
    
    $
    624,941
    
    
    $
    578,451Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    15,027
    
    
    $
    17,450Accrued incentive compensation
    
    
    12,387
    
    
    
    18,213Deferred revenues
    
    
    204,632
    
    
    
    205,494Total current liabilities
    
    
    232,046
    
    
    
    241,157Other liabilities
    
    
    10,339
    
    
    
    9,833Total liabilities
    
    
    242,385
    
    
    
    250,990Stockholders equity:Common stock, par value $0.01; 100,000,000 shares
authorized and 41,368,340 and 39,991,749 shares
issued, and 40,051,291 and 38,930,648 shares
outstanding as of March 31, 2005 and December 31,
2004, respectively
    
    
    413
    
    
    
    399Additional paid-in capital
    
    
    275,497
    
    
    
    214,987Retained earnings
    
    
    168,888
    
    
    
    155,619Accumulated
elements of other comprehensive income (loss)
    
    
    (717
    )
    
    
    1,763Treasury stock, 1,317,049 and 1,061,101 shares, at
cost, at March 31, 2005 and December 31, 2004,
respectively
    
    
    (61,525
    )
    
    
    (45,307
    )Total stockholders equity
    
    
    382,556
    
    
    
    327,461Total liabilities and stockholders equity
    
    $
    624,941
    
    
    $
    578,451
 See accompanying notes to condensed consolidated financial statements. 3




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THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited) Three months endedMarch 31,2005
    
    
    2004Revenues
    
    $
    81,608
    
    
    $
    63,979Cost of services
    
    
    26,057
    
    
    
    21,400Gross profit
    
    
    55,551
    
    
    
    42,579Costs and expenses:Member relations and marketing
    
    
    21,484
    
    
    
    17,881General and administrative
    
    
    9,349
    
    
    
    7,238Depreciation
    
    
    1,449
    
    
    
    1,748Stock option and related expenses(1)
    
    
    511
    
    
    
    Total costs and expenses
    
    
    32,793
    
    
    
    26,867Income from operations
    
    
    22,758
    
    
    
    15,712Other income, net
    
    
    3,019
    
    
    
    2,168Income before provision for income taxes
    
    
    25,777
    
    
    
    17,880Provision for income taxes
    
    
    8,635
    
    
    
    5,900Net income
    
    $
    17,142
    
    
    $
    11,980Earnings per share:Basic
    
    $
    0.44
    
    
    $
    0.32Diluted
    
    $
    0.42
    
    
    $
    0.31Dividends per share
    
    $
    0.10
    
    
    $
    0.075Weighted average shares used in the calculation of earnings per share:Basic
    
    
    39,021
    
    
    
    37,187Diluted
    
    
    40,577
    
    
    
    38,868(1) Composition of stock option and related expenses:Cost of services
    
    $
    337
    
    
    $
    Member relations and marketing
    
    
    129
    
    
    
    General and administrative
    
    
    45
    
    
    
    Total
    
    $
    511
    
    
    $
    
 See accompanying notes to condensed consolidated financial statements. 4




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) Three months endedMarch 31,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    17,142
    
    
    $
    11,980Adjustments to reconcile net income to net cash flows
provided by operating activities:Depreciation
    
    
    1,449
    
    
    
    1,748Deferred income taxes
    
    
    8,635
    
    
    
    5,545Amortization of marketable securities premiums, net
    
    
    635
    
    
    
    727Changes in operating assets and liabilities:Membership fees receivable, net
    
    
    34,753
    
    
    
    20,094Deferred incentive compensation
    
    
    896
    
    
    
    403Prepaid expenses and other current assets
    
    
    (615
    )
    
    
    (2,545
    )Accounts payable and accrued liabilities
    
    
    (2,367
    )
    
    
    (1,057
    )Accrued incentive compensation
    
    
    (5,817
    )
    
    
    (3,498
    )Deferred revenues
    
    
    (862
    )
    
    
    837Other liabilities
    
    
    506
    
    
    
    57Net cash flows provided by operating activities
    
    
    54,355
    
    
    
    34,291Cash flows from investing activities:Purchases of property and equipment, net
    
    
    (1,160
    )
    
    
    (4,979
    )Maturities and sales (purchases) of marketable securities, net
    
    
    21,559
    
    
    
    (41,999
    )Net cash flows provided by (used in) investing activities
    
    
    20,399
    
    
    
    (46,978
    )Cash flows from financing activities:Proceeds
from the exercise of stock options
    
    
    44,676
    
    
    
    Proceeds from the issuance of common stock under the employee
stock purchase plan
    
    
    334
    
    
    
    200Purchase of treasury stock
    
    
    (16,218
    )
    
    
    (18,731
    )Payment of dividends
    
    
    (3,873
    )
    
    
    (2,797
    )Reimbursement of common stock offering costs
    
    
    35
    
    
    
    Payment of common stock offering costs
    
    
    (2
    )
    
    
    Net cash flows provided by (used in) financing activities
    
    
    24,952
    
    
    
    (21,328
    )Net increase (decrease) in cash and cash equivalents
    
    
    99,706
    
    
    
    (34,015
    )Cash and cash equivalents, beginning of period
    
    
    113,996
    
    
    
    118,568Cash and cash equivalents, end of period
    
    $
    213,702
    
    
    $
    84,553
 See accompanying notes to condensed consolidated financial statements. 5




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THE CORPORATE EXECUTIVE BOARD COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 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. Note 2. Condensed consolidated financial statements The accompanying condensed consolidated financial statements included herein have been
prepared by the Company in accordance with U.S. generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (the SEC) for reporting on Form 10-Q. Accordingly, certain information and footnote
disclosures required for complete consolidated financial statements are not included herein. It is
recommended that these condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes as reported on the Companys Form 10-K filed
with the SEC on March 4, 2005. In managements opinion, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the condensed consolidated financial position,
results of operations, and cash flows at the dates and for the periods presented have been
included. The condensed consolidated balance sheet presented as of December 31, 2004 has been
derived from the financial statements that have been audited by the Companys independent auditors.
The results of operations for the three months ended March 31, 2005, may not be indicative of the
results that may be expected for the year ending December 31, 2005, or any other period within
calendar year 2005. Note 3. New accounting pronouncements In March 2005, the SEC issued Staff Accounting Bulleting No. 107 (SAB 107) regarding the
interaction between the Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards No. 123-R, Share-Based Payment(SFAS No. 123-R) and certain SEC
rules and regulations and provided the SEC staffs views regarding the valuation of share-based
payment arrangements for public companies. In particular, SAB 107 provides guidance related to
share-based payment transactions with non-employees, valuation methods (including assumptions such as expected volatility and expected term),
the accounting for certain redeemable financial instruments issued under share-based payment
arrangements, the classification of compensation expense, non-GAAP financial measures, first-time
adoption of SFAS No. 123-R in an interim period, capitalization of compensation cost related to
share-based payment arrangements, the accounting for income tax effects of share-based payment
arrangements upon adoption of SFAS No. 123-R, the modification of employee share options prior to
adoption of SFAS No. 123-R and disclosures in Managements Discussion and Analysis (MD&A)
subsequent to adoption of the SFAS No. 123-R. See Note 9 for the supplemental disclosure of
stock-based compensation as required by Statement No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123), as amended by Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure (SFAS No. 148). In December 2004, the FASB issued SFAS No. 123-R, Share Based Paymentas a revision to SFAS
No. 123, issued in October 1995. 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 of using the intrinsic value method as described in Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations
(collectively, 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) to the extent such awards are not
expected to be forfeited. 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 further allows for either prospective recognition of compensation expense or retrospective
recognition, which may be back to the original issuance of SFAS No. 123 or only to interim periods
in the year of adoption. The Company is currently evaluating these transition methods. Accordingly,
the Company has continued to use APB No. 25 for the three months ended March 31, 2005 and 2004, and
will adopt SFAS No. 123-R effective January 1, 2006. See Note 9 for the supplemental disclosure of
stock-based compensation as required by SFAS No. 123, as amended. 6




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Note 4. Sales of common stock In
March 2005, certain of the Company's shareholders sold 1.3
million shares of the Company's common stock in transactions that
were exempt from registration. The common stock sold consisted primarily of common stock obtained by employees
and directors from the exercise of common stock options. The Company did not directly receive any
proceeds from the sale of its common stock; however, it did receive cash from the exercise of the
common stock options. In addition, the Company recognized approximately $511,000 in compensation
expense reflecting primarily additional Federal Insurance Corporation Act (FICA) taxes as a
result of the taxable income that employees recognized upon the exercise of non-qualified common
stock options in March 2005. The additional FICA taxes are included within Stock option and
related expenses in the condensed consolidated statement of income for the three months ended
March 31, 2005. Note 5. Earnings per share Basic earnings per share was computed by dividing net income by the number of weighted average
common shares outstanding during the period. Diluted earnings per share was 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, also known as common share equivalents,
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): Three monthsended March 31,2005
    
    
    2004Basic weighted average common shares outstanding
    
    
    39,021
    
    
    
    37,187Dilutive common shares outstanding
    
    
    1,556
    
    
    
    1,681Diluted weighted average common shares outstanding
    
    
    40,577
    
    
    
    38,868
 Note 6. 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 three months ended March
31, 2005 and 2004 was $14.7 million and $13.1 million, respectively. The accumulated elements of
other comprehensive income (loss), net of tax, included within stockholders equity on the
condensed 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 $(2.4) million
and $1.2 million during the three months ended March 31, 2005 and 2004, respectively. The tax
expense (benefit) associated with unrealized gains (losses) on available-for sale marketable
securities included within comprehensive income (loss) is $(1.3)
million and $0.6 million for the
three months ended March 31, 2005 and 2004, respectively. Note 7. Supplemental cash flow disclosures For the three months ended March 31, 2005, the Company recognized $15.5 million in
stockholders equity for tax deductions associated with the exercise of non-qualified common stock
options and disqualifying dispositions of incentive stock options. The Company did not recognize
any tax deductions associated with the exercise of non-qualified common stock options and disqualifying
dispositions of incentive stock options for the three months ended March 31, 2004. Estimated
income tax payments for the three months ended March 31, 2005 and 2004 were $0 and
$355,000, respectively. Note 8. Stockholders equity In
February 2005, the Company announced that its Board of Directors authorized a share
repurchase of up to an additional $100 million of the Company's common stock, which when combined with the
remaining balance of the existing share repurchase authorization from February 2003 of $75 million,
provided the Company the opportunity to repurchase up to approximately $130 million of its shares
as of the date of the additional share repurchase authorization. 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. The Company has funded, and expects to continue to fund, its
share repurchases with cash on hand and cash generated from operations. As of March 31, 2005 and
December 31, 2004, the Company has repurchased 1,317,049 shares and 1,061,101 shares, respectively,
of the Companys common stock at a total cost of $61.5 million and $45.3 million, respectively. 7




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In February 2005, the Companys Board of Directors declared a quarterly dividend of $0.10 per
share, which was paid on March 31, 2005 to stockholders of record at the close of business on March
10, 2005. On March 31, 2005, the Company paid dividends to stockholders of record totaling $3.9
million. See Note 10 for information on the declaration of the second quarter dividend. Note 9. Stock-based compensation At March 31, 2005, the Company had several stock-based employee compensation plans. These
plans provide for the granting of stock options, stock appreciation rights and restricted stock to
employees and non-employee members of the Company's Board of Directors. The Company accounts for these plans
using the intrinsic value method of expense recognition and measurement prescribed by 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. SFAS
No. 123, as amended, 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. Three Months EndedMarch 31,2005
    
    
    2004(In thousands, except pershare amounts)Net income, as reported
    
    $
    17,142
    
    
    $
    11,980Deduct: Total stock-based employee compensation
expense determined under fair value based
methods for all awards, net of related tax
effects
    
    
    3,460
    
    
    
    4,906Pro forma net income
    
    $
    13,682
    
    
    $
    7,074Earnings per share:Basic  as reported
    
    $
    0.44
    
    
    $
    0.32Basic  pro forma
    
    $
    0.35
    
    
    $
    0.19Diluted  as reported
    
    $
    0.42
    
    
    $
    0.31Diluted  pro forma
    
    $
    0.34
    
    
    $
    0.18Assumptions:Risk-free interest rate
    
    
    4.3
    %
    
    
    3.0
    %Dividend yield
    
    
    0.6
    %
    
    
    0.6
    %Expected life of option (in years)
    
    
    4.4
    
    
    
    5Expected volatility
    
    
    30
    %
    
    
    39
    %Weighted-average fair value of options granted
    
    $
    19.49
    
    
    $
    17.50
 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. 8




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Note 10. Subsequent events In May 2005, the Board of Directors declared a quarterly dividend of $0.10 per share. The
Company will fund its dividend payments with cash on hand and cash generated from operations. The
dividend is payable on June 30, 2005 to stockholders of record at the close of business on June 15,
2005. Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. This Quarterly Report on Form 10-Q of The Corporate Executive Board Company contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. You are hereby cautioned that these statements may be affected by the important factors,
among others, set forth below and in our filings with the U.S. Securities and Exchange Commission,
and consequently, actual operations and results may differ materially from the results discussed in
the forward-looking statements. Factors that could cause actual results to differ materially from
those indicated by forward-looking statements include, among others, our dependence on renewals of
our membership-based services, our inability to know in advance if new products will be successful,
difficulties the Company may experience in anticipating market trends, our need to attract and
retain a significant number of highly skilled employees, restrictions on selling our products and
services to the health care industry, continued consolidation in the financial institutions
industry, which may limit our business with such companies, fluctuations in operating results, our
potential inability to protect our intellectual property rights, our potential exposure to
litigation related to the content of our products, our potential exposure to loss of revenue
resulting from our unconditional service guarantee, various factors that could affect our estimated
income tax rate or our ability to use our existing deferred tax assets, whether the Washington,
D.C. Office of Tax and Revenue withdraws our QHTC status and possible volatility of our stock
price. These factors are discussed more fully in the Managements Discussion and Analysis of
Financial Condition and Results of Operations and Risk Factors sections of our filings with the
Securities and Exchange Commission, including, but not limited to, our 2004 Annual Report on Form
10-K. Overview 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 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. One measure of our business is our
annualized Contract Value, which the Company calculates as the aggregate annualized revenue
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. Contract Value has increased 29.3% to $316.6
million at March 31, 2005, from $244.8 million at March 31, 2004. Our operating costs and expenses consist of cost of services, member relations and marketing,
general and administrative expenses, depreciation, 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. 9




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##### 



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. Stock option and related expenses include additional payroll taxes for
compensation expense relating to the taxable income recognized by employees upon the exercise of
non-qualified common stock options. The statements in this Form 10-Q do not include any impact
related to the expensing of stock options according to SFAS No. 123-R. The expensing of stock
options would increase operating expenses and would potentially affect the tax rate. Results of Operations The following table sets forth certain financial data as a percentage of revenues for the
periods indicated: Three monthsended March 31,2005
    
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    31.9
    
    
    
    33.4Gross profit
    
    
    68.1
    
    
    
    66.6Costs and expenses:Member relations and marketing
    
    
    26.3
    
    
    
    27.9General and administrative
    
    
    11.5
    
    
    
    11.3Depreciation
    
    
    1.8
    
    
    
    2.7Stock option and related expenses
    
    
    0.6
    
    
    
    Total costs and expenses
    
    
    40.2
    
    
    
    42.0Income from operations
    
    
    27.9
    
    
    
    24.6Other income, net
    
    
    3.7
    
    
    
    3.4Income before provision for income taxes
    
    
    31.6
    
    
    
    27.9Provision for income taxes
    
    
    10.6
    
    
    
    9.2Net income
    
    
    21.0
    %
    
    
    18.7
    %
 Three Months Ended March 31, 2005 and 2004 Revenues.Revenues increased 27.6% to $81.6 million for the three months ended March 31, 2005,
from $64.0 million for the three months ended March 31, 2004. The largest driver of the increase in
revenues during the three months ended March 31, 2005 was the cross-selling of additional
subscriptions to existing members. Other drivers contributing to the increase in revenues for the
three months ended March 31, 2005 included the addition of new members, the introduction of new
research programs and price increases. Cost of services.Cost of services increased 21.8% to $26.1 million for the three months ended
March 31, 2005, from $21.4 million for the three months ended March 31, 2004. The increase in cost
of services was principally due to compensation costs for new research and executive education
staff and an increase in external consulting expenses to support the growth of our existing programs.
Cost of services as a percentage of revenues decreased to 31.9% for the three months ended March
31, 2005, from 33.4% for the three months ended March 31, 2004 due to the leverage inherent in our
membership-based business model, a shift in the timing of our publishing and executive education
seminar schedule relative to the period ending March 31, 2004 and slightly lower headcount than our original plan.
Because each research program provides our membership with standard
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 from quarter to quarter 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. Accordingly, the cost of services as a percentage of revenues for the
three months ended March 31, 2005 may not be indicative of future quarterly or annual results. 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 volume of customized research briefs, the hiring of personnel and the
introduction of new membership programs. Accordingly, the gross profit margin for the three months
ended March 31, 2005, may not be indicative of future results. A number of factors that impact
gross profit margin are discussed in the Cost of services description above. 10




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Member relations and marketing.Member relations and marketing costs increased 20.1% to $21.5
million for the three months ended March 31, 2005 from $17.9 million for the three months ended
March 31, 2004. The year-over-year increase in member relations and marketing costs is principally
due to the increase in marketing personnel and related costs, the increase in member relations
personnel and related costs to support the Companys expanding membership base, and the increase in commission expense associated
with increased revenues. Member relations and marketing costs as a percentage of revenues decreased
to 26.3% for the three months ended March 31, 2005, from 27.9% for the three months ended March 31,
2004, due to marketing and member services productivity gains and the
timing of new hires within the quarter. General and administrative.General and administrative expenses increased 29.2% to $9.3 million for
the three months ended March 31, 2005, from $7.2 million for the three months ended March 31, 2004.
The increase in general and administrative expenses is driven by an increase in staff and related
costs, the use of external consultants to support our organizational growth and an increase in the
use of external personnel search firms. General and administrative expenses as a percentage of
revenues increased to 11.5% for the three months ended March 31, 2005 from 11.3% for the three
months ended March 31, 2004. Depreciation.Depreciation expense decreased 17.1% to $1.4 million for the three months
ended March 31, 2005, from $1.7 million for the three months ended March 31, 2004. The decrease in
depreciation expense was principally due to the write-off of certain assets in the three months ended
March 31, 2004. Stock option and related expenses.The Company recognized approximately $511,000 in
compensation expense for the three months ended March 31, 2005 primarily reflecting additional FICA
taxes as a result of the taxable income that employees recognized upon the exercise of
non-qualified common stock options, primarily in conjunction with the sale of our common stock in
March 2005. The Company recognized no stock compensation and related expense for the three months
ended March 31, 2004. See further discussion of the sale of our
common stock in the Liquidity and
Capital Resources section below. Other income, net.Other income, net increased 39.3% to $3.0 million for the three months
ended March 31, 2005, from $2.2 million for the three months ended March 31, 2004. The growth in
other income, net, was principally from interest income associated with the increased levels of
cash and cash equivalents. Cash and cash equivalents increased as a result of cash flows from
operating activities, cash flows from investing activities and cash flows from financing activities
as further discussed in the Liquidity and Capital Resources section below. Provision for income taxes.The Company recorded a provision for income taxes of $8.6 million
and $5.9 million for the three months ended March 31, 2005 and 2004, respectively. The increase in
the provision for income taxes primarily reflects the increase in net income and the related tax
effect. The increase in the effective income tax rate to 33.5% for the three months ended March 31,
2005 from 33.0% for the three months ended March 31, 2004, reflects a slight decrease in the estimated income tax benefit that
the Company receives from certain Washington D.C. and federal income
tax incentives and the impact on the Companys 2005 effective income
tax rate. Liquidity and Capital Resources Cash flows from operating activities.The Company has 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, profitable operations and advance payment of membership
subscriptions has historically resulted in net positive cash flows provided by operating
activities. The Company generated net cash flows from operating activities of $54.4 million and
$34.3 million for the three months ended March 31, 2005 and 2004, respectively. For the three
months ended March 31, 2005, operating cash flows were generated principally by collection of
membership fees receivable, net income and the utilization of tax benefits created by the
exercise of common stock options, offset by the decrease in accrued incentive compensation and
accounts payable and accrued liabilities. For the three months ended March 31, 2004, operating cash
flows were generated within the period principally by the collection of membership fees receivable,
net income, the utilization of tax benefits created by the exercise of common stock options and the
growth in deferred revenues, offset by the increase in prepaid expenses and other current assets
and accrued incentive compensation. As of March 31, 2005, the Company had cash, cash equivalents
and marketable securities of $490.8 million. The Company expects that our current cash, cash equivalents and
marketable securities balances and anticipated net positive cash flows from operations will satisfy
working capital, financing, and capital expenditure requirements for the next twelve months. 11




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Cash flows from investing activities.The Company generated net cash flows from investing
activities of $20.4 million during the three months ended March 31, 2005 and used net cash flows
from investing activities of $47.0 million during the three months ended March 31, 2004. During the
three months ended March 31, 2005, net cash flows from investing activities were generated by
maturities and sales of available-for-sale marketable securities, net of purchases, of $21.6
million, partially offset by the purchase of property and equipment totaling $1.2 million. During
the three months ended March 31, 2004, net cash flows from investing activities were used to
purchase available-for-sale marketable securities, net of sales and maturities, of $42.0 million,
and leasehold improvements for additional office space in Washington, D.C. and London, England and
computer equipment and software of $5.0 million. Cash flows from financing activities.The Company generated net cash flows from financing
activities of $25.0 million during the three months ended March 31, 2005 and used net cash flows
from financing activities of $21.3 million during the three months ended March 31, 2004. Net cash
provided by financing activities during the three months ended March 31, 2005 was primarily
attributed to the receipt of proceeds of $44.7 million from the exercise of common stock options, partially
offset by the repurchase of our common stock during the period, which totaled $16.2 million, and
the payment of dividends during the period, which totaled $3.9 million. Net cash used in financing
activities during the three months ended March 31, 2004 was primarily attributed to the repurchase
of our common stock during the period, which totaled $18.7 million, and the payment of dividends
during the period, which totaled $2.8 million. The Board of Directors declared a quarterly dividend of $0.10 per share in May 2005 which will
be payable in June 2005. See further discussion of the quarterly dividend in Note 10  Subsequent
events to the condensed consolidated financial statements which can be found in this Form 10-Q
under the heading Item 1. Financial Statements. During
the three months ended March 31, 2005, the Company had no material
changes, outside of the ordinary course of business, in our
non-cancelable contractual financial obligations. At March 31, 2005 and December 31, 2004, the Company 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 Our accounting policies, which are in compliance with U.S. generally accepted accounting
principles, require us to apply methodologies, estimates and judgments that have a significant
impact on the results the Company reports in our financial statements. In our Annual Report on Form
10-K we have discussed those policies that we believe are critical and require the use of complex
judgment in their application. Since the date of that Form 10-K, there have been no material
changes to our critical accounting policies or the methodologies or assumptions applied under them. Item 3. 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 consist of 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 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures: The Companys Chief Executive Officer
(CEO) and Chief Financial Officer (CFO) have evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this quarterly report based on the evaluation of these controls and procedures required
by Rules 13a-15(b) or 15d-15(b) of the Exchange Act. The Companys management, including the CEO
and CFO, does not expect that our disclosure controls and procedures or our internal control over
financial reporting will prevent all errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the control
systems objectives will be met. Based on their evaluation, such officers have concluded that, as
of the end of the period covered by this quarterly report, the Companys disclosure controls and
procedures are effective in alerting them on a timely basis to material information relating to the
Company required to be included in the Companys periodic filings under the Exchange Act. During the period covered by this quarterly report,
there have been no changes to our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting. 12




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##### 



PART II. OTHER INFORMATION Item 1. Legal Proceedings. From time to time, the Company is subject to certain legal proceedings and claims in the
ordinary course of business. The Company is currently not aware of any such legal proceedings or claims
that it believes will have, individually or in the aggregate, a material adverse effect on the Companys
business, financial condition or operating results. 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 PlansJanuary 1, 2005 to January 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    129,692,664February 1, 2005 to February 28, 2005
    
    
    194,570
    
    
    $
    63.15
    
    
    
    194,570
    
    
    $
    117,404,791March 1, 2005 to March 31, 2005
    
    
    61,378
    
    
    $
    64.03
    
    
    
    61,378
    
    
    $
    113,474,802Total
    
    
    255,948
    
    
    $
    63.36
    
    
    
    255,948
 In
February 2005, the Company announced that our Board of Directors authorized a share repurchase of up
to an additional $100 million of the Companys common stock, which when combined with the remaining balance
of the existing share repurchase authorization from
February 2003 of $75 million, provided the Company the
opportunity to repurchase up to approximately $130 million of our shares as of the date of the
additional share repurchase authorization. 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. The Company has funded, and expects to
continue to fund, our share repurchases with
cash on hand and cash generated from operations. As of March 31, 2005 and December 31, 2004,
the Company has repurchased 1,317,049 shares and 1,061,101 shares, respectively,
of the Companys common stock at a
total cost of $61.5 million and $45.3 million, respectively. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits. (a) 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.
 13




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##### 



SIGNATURES Pursuant to the requirements 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. Date: May 10, 2005 The Corporate Executive Board Company By: /s/ Timothy R. Yost
Timothy R. Yost
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer) 14