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 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
(Exact name of registrant as specified in its charter)
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
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year, if changed, since last report.)
(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 Noo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ Noo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o Noþ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 4, 2005, we had outstanding 39,522,346 shares of Common Stock, par value $0.01 per share.
THE CORPORATE EXECUTIVE BOARD COMPANY
INDEX TO FORM 10-Q
INDEX TO FORM 10-Q
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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) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 325,681 | $ | 113,996 | ||||
Marketable securities | 10,027 | 50,292 | ||||||
Membership fees receivable, net | 54,297 | 97,106 | ||||||
Deferred income taxes, net | 17,106 | 26,121 | ||||||
Deferred incentive compensation | 8,389 | 9,277 | ||||||
Prepaid expenses and other current assets | 7,383 | 8,107 | ||||||
Total current assets | 422,883 | 304,899 | ||||||
Deferred income taxes, net | 2,164 | 3,466 | ||||||
Marketable securities | 156,869 | 252,689 | ||||||
Goodwill and other intangibles | 8,592 | — | ||||||
Property and equipment, net | 18,225 | 17,397 | ||||||
Total assets | $ | 608,733 | $ | 578,451 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 29,629 | $ | 17,450 | ||||
Accrued incentive compensation | 20,803 | 18,213 | ||||||
Deferred revenues | 177,387 | 205,494 | ||||||
Total current liabilities | 227,819 | 241,157 | ||||||
Other liabilities | 9,494 | 9,833 | ||||||
Total liabilities | 237,313 | 250,990 | ||||||
Stockholders’ 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 | 399 | ||||||
Additional paid-in capital | 276,464 | 214,987 | ||||||
Retained earnings | 197,570 | 155,619 | ||||||
Accumulated elements of other comprehensive income (loss) | (331 | ) | 1,763 | |||||
Treasury 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 | 327,461 | ||||||
Total liabilities and stockholders’ equity | $ | 608,733 | $ | 578,451 | ||||
See accompanying notes to condensed consolidated financial statements.
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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 ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues | $ | 93,432 | $ | 72,424 | $ | 262,391 | $ | 203,601 | ||||||||
Cost of services | 31,075 | 21,852 | 87,220 | 65,484 | ||||||||||||
Gross profit | 62,357 | 50,572 | 175,171 | 138,117 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Member relations and marketing | 23,734 | 18,657 | 68,696 | 55,101 | ||||||||||||
General and administrative | 11,015 | 9,320 | 29,749 | 24,297 | ||||||||||||
Depreciation | 1,633 | 1,965 | 5,003 | 5,305 | ||||||||||||
Non-cash lease restructuring costs | — | 5,210 | — | 5,210 | ||||||||||||
Stock option and related expenses(1) | — | — | 511 | 408 | ||||||||||||
Total costs and expenses | 36,382 | 35,152 | 103,959 | 90,321 | ||||||||||||
Income from operations | 25,975 | 15,420 | 71,212 | 47,796 | ||||||||||||
Other income, net | 3,494 | 2,627 | 9,667 | 7,136 | ||||||||||||
Income before provision for income taxes | 29,469 | 18,047 | 80,879 | 54,932 | ||||||||||||
Provision for income taxes | 9,872 | 6,093 | 27,094 | 18,265 | ||||||||||||
Net income | $ | 19,597 | $ | 11,954 | $ | 53,785 | $ | 36,667 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.49 | $ | 0.31 | $ | 1.36 | $ | 0.96 | ||||||||
Diluted | $ | 0.47 | $ | 0.30 | $ | 1.31 | $ | 0.92 | ||||||||
Dividends per share | $ | 0.10 | $ | 0.075 | $ | 0.30 | $ | 0.225 | ||||||||
Weighted average shares used in the calculation of earnings per share: | ||||||||||||||||
Basic | 39,808 | 38,990 | 39,585 | 38,131 | ||||||||||||
Diluted | 41,336 | 40,379 | 41,049 | 39,674 | ||||||||||||
(1) Composition of Stock option and related expenses: | ||||||||||||||||
Cost of services | $ | — | $ | — | $ | 337 | $ | 184 | ||||||||
Member relations and marketing | — | — | 129 | 100 | ||||||||||||
General and administrative | — | — | 45 | 124 | ||||||||||||
Total | $ | — | $ | — | $ | 511 | $ | 408 | ||||||||
See accompanying notes to condensed consolidated financial statements.
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THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended September 30, | ||||||||
2005 | 2004 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 53,785 | $ | 36,667 | ||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | ||||||||
Depreciation | 5,171 | 5,305 | ||||||
Deferred income taxes | 26,989 | 17,472 | ||||||
Non-cash lease restructuring costs | — | 5,210 | ||||||
Amortization of marketable securities premiums, net | 1,571 | 2,071 | ||||||
Changes in operating assets and liabilities: | ||||||||
Membership fees receivable, net | 42,932 | 19,097 | ||||||
Deferred incentive compensation | 888 | 1,971 | ||||||
Prepaid expenses and other current assets | 4,369 | (1,857 | ) | |||||
Accounts payable and accrued liabilities | 7,904 | 3,356 | ||||||
Accrued incentive compensation | 2,635 | (277 | ) | |||||
Deferred revenues | (28,686 | ) | (12,937 | ) | ||||
Other liabilities | (484 | ) | 549 | |||||
Net cash flows provided by operating activities | 117,074 | 76,627 | ||||||
Cash 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 | 55,322 | ||||||
Proceeds from the issuance of common stock under the employee stock purchase plan | 1,015 | 662 | ||||||
Purchase of treasury shares | (57,390 | ) | (22,736 | ) | ||||
Payment of dividends | (11,834 | ) | (8,647 | ) | ||||
Reimbursement of common stock offering costs | 35 | 225 | ||||||
Payment of common stock offering costs | (35 | ) | (121 | ) | ||||
Net cash flows (used in) provided by financing activities | (23,232 | ) | 24,705 | |||||
Net increase (decrease) in cash and cash equivalents | 211,685 | (66,073 | ) | |||||
Cash and cash equivalents, beginning of period | 113,996 | 118,568 | ||||||
Cash and cash equivalents, end of period | $ | 325,681 | $ | 52,495 | ||||
See accompanying notes to condensed consolidated financial statements.
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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 registered public accounting firm. The results of operations for the three and nine months ended September 30, 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
On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123-R”), which is a revision of Statement No. 123,Accounting for Stock based Compensation(“SFAS No. 123”). SFAS No. 123-R supersedes APB Opinion No. 25,Accounting for Stock Issued to Employeesand related interpretations (collectively, “APB No. 25”), and amends FASB Statement No. 95,Statement of Cash Flows. Generally, the approach in SFAS No. 123-R is similar to the approach described in SFAS No. 123. However, SFAS 123-R requires share-based payments to employees, including grants of employee stock options and purchases under employee stock purchase plans, to be recognized in the statement of operations based on their fair values. Pro forma disclosure of fair value recognition will no longer be an alternative.
SFAS No. 123-R permits public companies to adopt its requirements using one of two methods:
• | 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. |
On April 14, 2005, the Securities and Exchange Commission announced that the SFAS No. 123-R effective transition date will be extended to annual periods beginning after June 15, 2005. The Company is required to adopt this new standard on January 1, 2006, with early-adoption permitted. The Company currently intends to apply the modified prospective method and implement the provisions of SFAS No. 123-R beginning in the first quarter of 2006.
SFAS No. 123-R also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow as permitted under current accounting rules. This requirement may therefore reduce amounts reported from operating and financing activities in periods after adoption.
As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB No. 25’s intrinsic value method. As a consequence, the Company has recognized no compensation cost for employee stock options and purchases under our Employee Stock Purchase Plan. The actual effects of adopting SFAS No. 123-R on the Company’s financial statements will depend on numerous factors including the amounts of share-based payments granted in the future, the valuation model the Company uses to value future share-based payments to employees and estimated forfeiture rates.
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The Company is currently evaluating the transition methods of adopting SFAS No. 123-R and the impacts of SAB 107 and SFAS No. 123-R. See “Note 10. Stock-based compensation” for the supplemental disclosure of stock-based compensation as required by SFAS No. 123, as amended by Statement of Financial Accounting Standard No. 148,Accounting for Stock-Based Compensation Transition and Disclosure (“SFAS No. 148”).
Note 4. Acquisitions
During the quarter ended September 30, 2005, the Company acquired substantially all of the assets and technology of the Executive Performance Group (“EPG”) to support the launch of the Shared Services Roundtable membership program. Under the terms of the EPG acquisition agreement, the initial purchase price of $8.2 million will be increased if certain future business operating conditions are achieved on or before December 31, 2008. Any additional payments would be recorded as a purchase price adjustment. We have included the results of operations of this transaction prospectively from the respective date of the acquisition. Pro forma financial information for this acquisition has not been presented, as the effects were not material to our historical consolidated financial statements.
Note 5. Sales and public offerings 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. In May 2004, certain of the Company’s shareholders sold 1.9 million shares of its common stock in a registered public offering. The common stock sold in March 2005 and May 2004 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 and $408,000 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 non-qualified common stock options in conjunction with the sale in March 2005 and May 2004, respectively. The additional FICA taxes are included within “Stock option and related expenses” in the condensed consolidated statements of income for the nine months ended September 30, 2005 and 2004.
Note 6. Earnings per share
Basic earnings per share was computed by dividing net income by the number of basic 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 months | Nine months | |||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Basic weighted average common shares outstanding | 39,808 | 38,990 | 39,585 | 38,131 | ||||||||||||
Dilutive common shares outstanding | 1,528 | 1,389 | 1,464 | 1,543 | ||||||||||||
Diluted weighted average common shares outstanding | 41,336 | 40,379 | 41,049 | 39,674 | ||||||||||||
Note 7. 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 September 30, 2005 and 2004 was $18.5 million and $14.4 million, respectively. Comprehensive income for the nine months ended September 30, 2005 and 2004 was $51.7 million and $35.8 million, respectively. The accumulated elements of other comprehensive income (loss), net of tax, included within stockholders’ equity in the condensed consolidated balance sheets are comprised primarily of 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 $(1.4) million and $(0.7) million during the nine months ended September 30, 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 $(0.8) million and $(0.3) million for the nine months ended September 30, 2005 and 2004, respectively.
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Note 8. Supplemental cash flows disclosures
For the nine months ended September 30, 2005 and 2004, the Company recognized $15.5 million and $15.2 million, respectively, in stockholders’ equity for tax deductions associated with the exercise of non-qualified common stock options and disqualifying dispositions of incentive stock options. Estimated income tax payments for the nine months ended September 30, 2005 and 2004 were $552,000 and $793,000, respectively.
Note 9. 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 September 30, 2005 and December 31, 2004, the Company had repurchased 1,871,271 shares and 1,061,101 shares, respectively, of the Company’s common stock at a total cost of $102.7 million and $45.3 million, respectively.
In the nine months ended September 30, 2005, the Board of Directors declared quarterly dividends of $0.10 per share, which were paid on March 31, 2005, June 30, 2005 and September 30, 2005 to stockholders of record at the close of business on March 10, 2005, June 15, 2005 and September 15, 2005, respectively. For the nine months ended September 30, 2005, the Company paid dividends to stockholders of record totaling $11.8 million. See Note 13 for information on the declaration of the fourth quarter dividend.
Note 10. Stock-based compensation
At September 30, 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 Opinion 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 | Nine months | |||||||||||||||
ended 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 | $ | 36,667 | ||||||||
Deduct: 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 | 12,027 | ||||||||||||
Pro forma net income | $ | 15,223 | $ | 7,620 | $ | 41,414 | $ | 24,640 | ||||||||
Earnings per share: | ||||||||||||||||
Basic — as reported | $ | 0.49 | $ | 0.31 | $ | 1.36 | $ | 0.96 | ||||||||
Basic — pro forma | $ | 0.38 | $ | 0.20 | $ | 1.05 | $ | 0.65 | ||||||||
Diluted — as reported | $ | 0.47 | $ | 0.30 | $ | 1.31 | $ | 0.92 | ||||||||
Diluted — pro forma | $ | 0.37 | $ | 0.19 | $ | 1.02 | $ | 0.63 | ||||||||
Assumptions: |
8
Three months | Nine months | |||||||||||||||
ended 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 | 5 | ||||||||||||
Expected volatility | 26 | % | 32 | % | 30 | % | 38 | % | ||||||||
Weighted-average fair value of options granted | $ | 20.48 | $ | 19.24 | $ | 19.52 | $ | 17.58 |
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.
Note 11. 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 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 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 condensed consolidated statements of income for the three and nine months ended September 30, 2004.
In August 2004, 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 the Company will no longer occupy. These cash expenses and costs are included within “General and administrative expenses” in the condensed consolidated statements of income for the three and nine months ended September 30, 2004.
Note 12. Commitments and contingencies
Under the terms of the new Rosslyn, Virginia lease agreement, the Company has committed to providing the landlord security deposits totaling $50.0 million. The Company has pledged $50.0 million of long-term marketable securities to the landlord as collateral for this obligation.
Note 13. Subsequent events
In November 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 December 30, 2005 to stockholders of record at the close of business on December 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 we 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 U.S. Securities and Exchange Commission, including, but not limited to, our 2004 Annual Report on Form 10-K.
9
Business 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.
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 we calculate 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 29.7% to $350.7 million at September 30, 2005, from $270.5 million at September 30, 2004.
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are discussed below.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with our Finance and Audit Committee.
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 are generally recognized on a pro rata basis 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 operating costs and expenses 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 consists of a non-cash charge related to the assumption of several of the Company’s prior 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 non-qualified common stock options. The statements in this MD&A section of 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, under SFAS No. 123-R would increase operating expenses, decrease the number of shares calculated on a fully diluted basis and may potentially affect the tax rate.
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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. In addition to the disclosure in our Form 10-K, we have completed and accounted for an asset purchase as discussed in “Note 4. Acquisitions” and have accordingly added the review of goodwill to our critical accounting policies.
Goodwill – We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). The provisions of SFAS No. 142 require that a two-step impairment test be performed on goodwill. In the first step, a comparison of the fair value of the reporting unit to its carrying value should be performed. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. Determining the fair value of the reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Results of Operations
The following table sets forth certain financial data as a percentage of revenues for the periods indicated:
Three months | Nine months | |||||||||||||||
ended September 30, | ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of services | 33.3 | 30.2 | 33.2 | 32.2 | ||||||||||||
Gross profit | 66.7 | 69.8 | 66.8 | 67.8 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Member relations and marketing | 25.4 | 25.8 | 26.2 | 27.1 | ||||||||||||
General and administrative | 11.8 | 12.9 | 11.3 | 11.9 | ||||||||||||
Depreciation | 1.7 | 2.7 | 1.9 | 2.6 | ||||||||||||
Non-cash lease restructuring costs | — | 7.2 | — | 2.6 | ||||||||||||
Stock option and related expenses | — | — | 0.2 | 0.2 | ||||||||||||
Total costs and expenses | 38.9 | 48.5 | 39.6 | 44.4 | ||||||||||||
Income from operations | 27.8 | 21.3 | 27.1 | 23.5 | ||||||||||||
Other income, net | 3.7 | 3.6 | 3.7 | 3.5 | ||||||||||||
Income before provision for income taxes | 31.5 | 24.9 | 30.8 | 27.0 | ||||||||||||
Provision for income taxes | 10.6 | 8.4 | 10.3 | 9.0 | ||||||||||||
Net income | 21.0 | % | 16.5 | % | 20.5 | % | 18.0 | % | ||||||||
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Three and Nine Months Ended September 30, 2005 and September 30, 2004
Revenues.Revenues increased 29.0% to $93.4 million for the three months ended September 30, 2005, from $72.4 million for the three months ended September 30, 2004. Revenues increased 28.9% to $262.4 million for the nine months ended September 30, 2005, from $203.6 million for the nine months ended September 30, 2004. The largest driver of the increase in revenues during the three and nine months ended September 30, 2005 was the cross-selling of additional subscriptions to existing members. Other drivers contributing to the increase in revenues for the three and nine months ended September 30, 2005 included the introduction of new research programs, the addition of new members and, to a lesser extent, price increases.
Cost of services.Cost of services increased 42.2% to $31.1 million for the three months ended September 30, 2005, from $21.9 million for the three months ended September 30, 2004. Cost of services increased 33.2% to $87.2 million for the nine months ended September 30, 2005, from $65.5 million for the nine months ended September 30, 2004. The increase in cost of services was principally due to compensation costs for new research and executive education staff, an increase in external consulting expenses to support existing programs, and an increase in costs for additional executive education seminars and travel related expenses. Cost of services as a percentage of revenues increased to 33.3% for the three months ended September 30, 2005, from 30.2% for the three months ended September 30, 2004. Cost of services as a percentage of revenues increased to 33.2% for the nine months ended September 30, 2005, from 32.2% for the nine months ended September 30, 2004. The year-over-year increase in the cost of services as a percentage of revenue are due to the relative increase in compensation costs for new and existing research and executive education staff, the timing of our executive education seminar schedule, relative to the period ended September 30, 2004, an increase in published studies, and the launch of new programs later during 2005, as compared to 2004. 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 and nine months ended September 30, 2005 may vary over future quarterly or annual periods.
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 and nine months ended September 30, 2005, may vary over future quarterly or annual periods. A number of factors that impact gross profit margin are discussed in the “Cost of services” description above.
Member relations and marketing.Member relations and marketing costs increased 27.2% to $23.7 million for the three months ended September 30, 2005 from $18.7 million for the three months ended September 30, 2004. Member relations and marketing costs increased 24.7% to $68.7 million for the nine months ended September 30, 2005 from $55.1 million for the nine months ended September 30, 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 25.4% for the three months ended September 30, 2005, from 25.8% for the three months ended September 30, 2004, reflecting marketing and member services productivity gains and due to the timing of new hires within the quarter. Member relations and marketing costs as a percentage of revenues decreased to 26.2% for the nine months ended September 30, 2005, from 27.1% for the nine months ended September 30, 2004, due primarily to the marketing and member services productivity gains and timing of new hires noted above and due to a larger increase in revenue growth for the nine months ended September 30, 2005, as compared to 2004.
General and administrative.General and administrative expenses increased 18.2% to $11.0 million for the three months ended September 30, 2005, from $9.3 million for the three months ended September 30, 2004. General and administrative expenses increased 22.4% to $29.7 million for the nine months ended September 30, 2005, from $24.3 million for the nine months ended September 30, 2004. The year-over-year increase in general and administrative expenses is driven by an increase in staff and related costs, an increase in the use of external personnel search firms, and the recognition of certain lease termination costs, further discussed below, offset by the reduction of external financial, legal and information technology consultants to support our compliance with certain regulatory requirements. In September 2005, the Company entered into an agreement whereby the existing lease for the Company’s corporate headquarters in Washington, D.C. was modified to terminate in early 2008, with certain space terminating on July 31, 2006. As a result, the Company incurred a $775,000 one time charge relating to a lease termination penalty as well as other immaterial amounts relating to an accrual of certain operating costs for the space that we will no longer occupy. In August 2004, the Company entered into a new lease agreement for office facilities in Rosslyn, Virginia beginning 2008. In association with the new lease agreement, we incurred additional external financial and legal consulting costs to restructure existing lease agreements and we recorded $909,000 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. General and administrative expenses as a percentage of revenues decreased to 11.8% for the three months ended September 30, 2005, from 12.9% for the three months ended September 30, 2004. General and administrative costs as a percentage of revenues decreased to 11.3% for the nine months ended September 30, 2005, from 11.9% for the nine months ended September 30, 2004. The year-over-year decrease of the three and
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nine months ended September 30, 2005 is due to the changes in the general and administrative costs noted above and due to a larger increase in revenue growth for the nine months ended September 30, 2005, as compared to 2004.
Depreciation.Depreciation expense decreased 16.9% to $1.6 million for the three months ended September 30, 2005, from $2.0 million for the three months ended September 30, 2004. Depreciation expense decreased 5.7% to $5.0 million for the nine months ended September 30, 2005, from $5.3 million for the nine months ended September 30, 2004. The decrease in depreciation expense was principally due to the write off of certain assets in prior years that would have had depreciation expense in 2005.
Non-cash lease restructuring costs.We recognized zero non-cash lease restructuring costs for the three and nine months ended September 30, 2005. Refer to the General and administrative section above for discussion of the lease termination penalty recorded in the quarter ended September 30, 2005. 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 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.
Stock option and related expenses.We recognized zero stock option and related expenses for the three months ended September 30, 2005 and 2004, respectively. We recognized $511,000 and $408,000 in compensation expense for the nine months ended September 30, 2005 and 2004, respectively, 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 and May 2004, respectively. 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 33.0% to $3.5 million for the three months ended September 30, 2005, from $2.6 million for the three months ended September 30, 2004. Other income, net increased 35.5% to $9.7 million for the nine months ended September 30, 2005, from $7.1 million for the nine months ended September 30, 2004. The year-over-year growth in other income, net, was principally from interest income associated with the increased levels of cash, cash equivalents and marketable securities. Cash, cash equivalents and marketable securities increased as a result of cash flows from operating activities and cash flows from investing activities as further discussed in the “Liquidity and Capital Resources” section below.
Provision for income taxes.We recorded a provision for income taxes of $9.9 million and $6.1 million for the three months ended September 30, 2005 and 2004, respectively. We recorded a provision for income taxes of $27.1 million and $18.3 million for the nine months ended September 30, 2005 and 2004, respectively. The increase in the provision for income taxes for the three and nine months ended September 30, 2005, as compared to 2004, is principally due to the increase in net income and the related tax effect. The decrease in the effective income tax rate to 33.5% for the three months ended September 30, 2005 from 33.75% for the three months ended September 30, 2004 is principally due to the prior year increase, during the third quarter, of the full year estimated income tax rate. The increase in the effective income tax rate to 33.5% for the nine months ended September 30, 2005 from 33.25% for the nine months ended September 30, 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.
Impact of Acquisition. Pro forma financial information for the acquisition of EPG has not been presented, as the effects were not material to our historical consolidated financial statements.
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, profitable operations 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 $117.1 million and $76.6 million for the nine months ended September 30, 2005 and 2004, respectively. For the nine months ended September 30, 2005, operating cash flows were generated within the period principally by net income, the collection of membership fees receivable, the utilization of tax benefits created by the exercise of common stock options, and the increase in accounts payable and accrued liabilities, offset by the decrease in deferred revenues. For the nine months ended September 30, 2004, operating cash flows were generated within the period principally by net income, the collection of membership fees receivable, and the utilization of tax benefits created by the exercise of common stock options, offset by a decrease in deferred revenues. As of September 30, 2005, we had cash, cash equivalents and marketable securities of $492.6 million. We expect 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.
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Cash flows from investing activities.We generated net cash flows from investing activities of $117.8 million during the nine months ended September 30, 2005, and used net cash flows in investing activities of $167.4 million during the nine months ended September 30, 2004. During the nine months ended September 30, 2005, net cash flows from investing activities were generated by maturities and sales of available-for-sale marketable securities of $132.4 million, partially offset by asset acquisition costs, net of cash acquired, of $8.1 million and the purchase of property and equipment totaling $6.4 million. During the nine months ended September 30, 2004 we purchased available-for-sale marketable securities, net of sales and maturities, of $160.8 million and purchased leasehold improvements for additional office space in London, England and computer equipment and software totaling $6.6 million.
Cash flows from financing activities.We used net cash flows in financing activities of $23.2 million and generated net cash flows from financing activities of $24.7 million during the nine months ended September 30, 2005 and 2004, respectively. Net cash used in financing activities during the nine months ended September 30, 2005 was principally attributed to the repurchase of our common stock during the period, which totaled $57.4 million, and the payment of dividends during the period, which totaled $11.8 million, partially offset by the receipt of proceeds of $45.0 million from the exercise of common stock options, primarily in conjunction with the sale of 1.3 million shares of our common stock in March 2005, and proceeds form the issuance of common stock under the employee stock purchase plan, which totaled $1.0 million. Net cash generated from financing activities during the nine months ended September 30, 2004 was primarily attributed to the receipt of $55.3 million in cash from the exercise of common stock options, primarily in conjunction with the sale of 1.9 million shares of our common stock in a registered public offering in May 2004, which was offset by the repurchase of our common stock during the period, which totaled $22.7 million, and the payment of dividends during the period, which totaled $8.6 million.
In November 2005, the Board of Directors declared a quarterly dividend of $0.10 per share which will be payable in December 2005. See further discussion of the quarterly dividend in “Note 13 — Subsequent events” to the condensed consolidated financial statements which can be found in this Form 10-Q under the heading “Item 1. Financial Statements.”
Under the terms of the new Rosslyn, Virginia lease agreement, we have committed to providing the landlord security deposits totaling $50 million. We have pledged $50.0 million of long-term marketable securities as collateral for this obligation.
At September 30, 2005 and December 31, 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.
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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
Total Number of | ||||||||||||||||
Shares | Approximate $ | |||||||||||||||
Average | Purchased as | Value of Shares | ||||||||||||||
Total | Price | Part of a | That May Yet Be | |||||||||||||
Number of | Paid Per | Publicly | Purchased | |||||||||||||
Shares Purchased | Share | Announced Plan | Under the Plans | |||||||||||||
July 1, 2005 to July 31, 2005 | — | $ | — | — | $ | 102,159,112 | ||||||||||
August 1, 2005 to August 31, 2005 | 152,710 | $ | 79.22 | 152,710 | $ | 90,060,868 | ||||||||||
September 1, 2005 to September 30, 2005 | 228,896 | $ | 77.58 | 228,896 | $ | 72,302,882 | ||||||||||
Total | 381,606 | $ | 78.24 | 381,606 | ||||||||||||
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, provided us 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. We have funded, and expect to continue to fund, our share repurchases with cash on hand and cash generated from operations. As of September 30, 2005 and December 31, 2004, we had repurchased 1,871,271 shares and 1,061,101 shares, respectively, of our common stock at a total cost of $102.7 million and $45.3 million, respectively.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of The Corporate Executive Board Company was held on August 18, 2005. The following is a tabulation of the voting on the proposals presented at the Annual Meeting of Stockholders:
Proposal Number 1 – Election of directors.The following nominees were elected as directors, each to serve until the next Annual Meeting of Stockholders or until a successor is named and qualified:
SHARES | SHARES | |||||||
VOTED FOR | WITHHELD | |||||||
James J. McGonigle | 36,343,688 | 913,154 | ||||||
Thomas L. Monahan III | 36,875,736 | 381,106 | ||||||
Russell P. Fradin | 35,779,043 | 1,477,799 | ||||||
Robert C. Hall | 36,556,347 | 700,495 | ||||||
Nancy J. Karch | 36,484,036 | 772,806 | ||||||
David W. Kenny | 35,772,882 | 1,483,960 | ||||||
Daniel O. Leemon | 35,772,975 | 1,483,867 |
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Proposal Number 2 – Adoption of Amendments to the 2004 Stock Incentive Plan.
The adoption of Amendments to the 2004 Stock Incentive Plan was ratified.
SHARES VOTED FOR | 25,097,377 | |||
SHARES VOTED AGAINST | 9,823,532 | |||
SHARES 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.
The appointment of Ernst & Young LLP was ratified.
SHARES VOTED FOR | 36,004,601 | |||
SHARES VOTED AGAINST | 1,243,953 | |||
SHARES VOTED TO ABSTAIN | 8,288 |
Item 5. Other Information.
None.
Item 6. Exhibits.
(a) Exhibits.
Exhibit No. | Description | |
31.1 | 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. |
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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: November 9, 2005
The Corporate Executive Board Company
By: /s/ Timothy R. Yost | ||
Chief Financial Officer | ||
(Principal Financial Officer and | ||
Principal Accounting Officer) |
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