CEB 10Q 2006 Q3 Quarterly report

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, 2006


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)

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. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.:

Large accelerated filerþ Accelerated filero Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso 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 October 23, 2006, the Company had outstanding 39,038,077 shares of common stock, par value $0.01 per share.

THE CORPORATE EXECUTIVE BOARD COMPANY
INDEX TO FORM 10-Q


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005			3

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2006 and 2005			4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005			5

Notes to Condensed Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12

Item 3. Quantitative and Qualitative Disclosures about Market Risk			17

Item 4. Controls and Procedures			17

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			18

Item 1A. Risk Factors			18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			18

Item 3. Defaults Upon Senior Securities			19

Item 4. Submission of Matters to a Vote of Security Holders			19

Item 5. Other Information			19

Item 6. Exhibits			19

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)


	September 30,			December 31,
	2006			2005
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	124,445		$	424,276
Marketable securities		118,886			2,264
Membership fees receivable, net		73,819			120,242
Deferred income taxes, net		25,558			11,880
Deferred incentive compensation		9,900			11,489
Prepaid expenses and other current assets		9,217			7,671


Total current assets		361,825			577,822


Deferred income taxes, net		2,465			2,958
Marketable securities		196,806			118,096
Goodwill and other intangibles		7,990			8,445
Other non-current assets		8,311			1,273
Property and equipment, net		26,267			18,401


Total assets	$	603,664		$	726,995


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	33,109		$	42,429
Accrued incentive compensation		20,440			27,045
Deferred revenues		223,870			261,300


Total current liabilities		277,419			330,774


Other liabilities		16,637			10,807


Total liabilities		294,056			341,581


Stockholders’ equity:
Common stock, par value $0.01; 100,000,000 shares authorized, 42,792,188 and 41,399,533 shares issued, and 39,038,077 and 39,482,727 shares outstanding at September 30, 2006 and December 31, 2005, respectively		428			414
Additional paid-in capital		348,708			277,028
Retained earnings		235,206			214,892
Accumulated elements of other comprehensive loss		(1,131	)		(124	)
Treasury stock, at cost, 3,754,111 and 1,916,806 shares at September 30, 2006 and December 31, 2005, respectively		(273,603	)		(106,796	)


Total stockholders’ equity		309,608			385,414


Total liabilities and stockholders’ equity	$	603,664		$	726,995

See accompanying notes to condensed consolidated financial statements.

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,
	2006		2005		2006		2005
Revenues	$	118,390	$	93,432	$	335,121	$	262,391
Cost of services (1)		42,757		31,075		119,276		87,557


Gross profit		75,633		62,357		215,845		174,834


Costs and expenses:
Member relations and marketing (1)		30,455		23,734		91,230		68,825
General and administrative (1)		14,818		11,015		45,343		29,794
Depreciation and amortization		2,141		1,633		6,563		5,003


Total costs and expenses		47,414		36,382		143,136		103,622


Income from operations		28,219		25,975		72,709		71,212
Other income, net		6,109		3,494		18,337		9,667


Income before provision for income taxes		34,328		29,469		91,046		80,879
Provision for income taxes		13,216		9,872		35,052		27,094


Net income	$	21,112	$	19,597	$	55,994	$	53,785


Earnings per share:
Basic	$	0.53	$	0.49	$	1.40	$	1.36
Diluted	$	0.52	$	0.47	$	1.37	$	1.31

Dividends per share	$	0.30	$	0.10	$	0.90	$	0.30

Weighted average shares used in the calculation of earnings per share:
Basic		39,759		39,808		39,937		39,585
Diluted		40,481		41,336		41,007		41,049

(1) The following table summarizes the share-based compensation recognized in accordance with Statement of Financial Accounting Standards No. 123(R) included in the condensed consolidated statements of income above:

Cost of services	$	2,812	$	—	$	9,140	$	—
Member relations and marketing		1,365		—		4,298		—
General and administrative		1,721		—		5,559		—

See accompanying notes to condensed consolidated financial statements.

THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


	Nine months ended
	September 30,
	2006			2005
Cash flows from operating activities:
Net income	$	55,994		$	53,785
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		6,530			5,171
Deferred income taxes		34,328			26,989
Share-based compensation		18,997			—
Excess tax benefits from share-based compensation arrangements		(29,031	)		—
Amortization of marketable securities (discounts) premiums, net		(1,658	)		1,571
Changes in operating assets and liabilities:
Membership fees receivable, net		46,423			42,932
Deferred incentive compensation		1,589			888
Prepaid expenses and other current assets		(1,502	)		1,307
Other non-current assets		(7,061	)		(895	)
Accounts payable and accrued liabilities		(8,891	)		11,170
Accrued incentive compensation		(6,684	)		2,635
Deferred revenues		(37,430	)		(28,686	)
Other liabilities		5,694			207


Net cash flows provided by operating activities		77,298			117,074


Cash flows from investing activities:
Purchases of property and equipment, net		(13,487	)		(6,378	)
Acquisition of business, net of cash acquired		—			(8,136	)
(Purchases) sales and maturities of marketable securities, net		(194,537	)		132,357


Net cash flows (used in) provided by investing activities		(208,024	)		117,843


Cash flows from financing activities:
Proceeds from the exercise of common stock options		2,890			44,977
Proceeds from the issuance of common stock under the employee stock purchase plan		1,461			1,015
Excess tax benefits from share-based compensation arrangements		29,031			—
Purchase of treasury shares		(166,807	)		(57,390	)
Payment of dividends		(35,680	)		(11,834	)
Reimbursement of common stock offering costs		70			35
Payment of common stock offering costs		(70	)		(35	)


Net cash flows used in financing activities		(169,105	)		(23,232	)


Net (decrease) increase in cash and cash equivalents		(299,831	)		211,685
Cash and cash equivalents, beginning of period		424,276			113,996


Cash and cash equivalents, end of period	$	124,445		$	325,681

See accompanying notes to condensed consolidated financial statements.

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 in the Company’s Form 10-K for the year ended December 31, 2005 filed with the SEC on March 10, 2006.

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 at December 31, 2005 has been derived from the financial statements that have been audited by the Company’s independent registered public accounting firm. Certain amounts included on the condensed consolidated balance sheet at December 31, 2005 have been reclassified to conform to the current period presentation. The results of operations for the three and nine months ended September 30, 2006 may not be indicative of the results that may be expected for the year ended December 31, 2006, or any other period within calendar year 2006.

Note 3. Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the recognition threshold and measurement of a tax position taken on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 also requires expanded disclosure with respect to the uncertainty in income taxes. The Company is currently evaluating the requirements of FIN 48 and the impact this interpretation may have on the Company’s financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”(“FAS 157”). This Statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures of fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements of FAS 157 and the impact this interpretation may have on the Company’s consolidated financial statements.

Note 4. Share-based compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)”), using the modified prospective transition method, and therefore, has not restated results for prior periods. Under this transition method, share-based compensation expense for the three and nine months ended September 30, 2006 includes compensation expense for all share-based compensation awards granted prior to, but not vested at January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“FAS 123”). Share-based compensation expense for all share-based compensation awards granted on or after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of FAS 123(R). The Company previously recorded share-based compensation expense in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”), which allowed the Company to record share-based compensation expense based on the intrinsic value of the share-based award at the date of grant.

Under the principal share-based compensation plans, the Company may grant certain employees, directors and consultants options to purchase common stock, stock appreciation rights and restricted stock units. Options are rights to purchase common stock of the Company at the fair market value on the date of grant. Stock appreciation rights are equity settled share-based compensation arrangements whereby the number of shares that will ultimately be issued is based upon the appreciation of the Company’s common stock and the number of awards granted to an individual. Restricted stock units are equity settled share-based compensation arrangements of a number of shares of the Company’s common stock. Holders of options and stock appreciation rights do not participate in dividends until after the exercise of the award. Restricted stock unit holders do not participate in dividends nor do they have voting rights until the restrictions lapse.

The total compensation expense related to share-based compensation awards for the three and nine months ended September 30, 2006 was $5.9 million and $19.0 million, respectively. The Company’s net income for the three and nine months ended September 30, 2006 was $3.6 million and $11.7 million lower, including tax benefits of $2.3 million and $7.3 million, respectively, than if the Company had continued to account for share-based compensation under APB No. 25. Basic and diluted earnings per share for the three months ended September 30, 2006 were $0.09 lower than if the Company had not adopted FAS 123(R). Basic and diluted earnings per share for the nine months ended September 30, 2006 were $0.29 and $0.28 lower, respectively, than if the Company had not adopted FAS 123(R).

FAS 123(R) requires forfeitures to be estimated at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate is based on historical experience. Share-based compensation expense is recognized on a straight line basis, net of an estimated forfeiture rate for only those shares expected to vest, over the requisite service period of the award, which is generally the option vesting term of four years. In the pro-forma information required under FAS 123, as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“FAS 148”) for the periods prior to 2006, the Company accounted for forfeitures as they occurred. When estimating forfeitures, the Company considers voluntary termination behaviors as well as trends of actual forfeitures.

Prior to the adoption of FAS 123(R), the Company presented the excess tax benefit of stock option exercises as operating cash flows. Upon the adoption of FAS 123(R), excess tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options are classified as financing cash flows. During the nine months ended September 30, 2006, the Company included $29.0 million of excess tax benefits in the financing section of the condensed consolidated cash flow statement, representing the amount of excess tax benefit used to reduce the Company’s tax liability incurred during the first nine months of 2006.

Equity incentive plans

The Company issues awards under the 2004 Stock Incentive Plan, adopted in 2004 (the “2004 Plan”) and the Directors’ Stock Option Plan, adopted in 1998 (the “Directors’ Plan”) (together “the Plans”). All regular employees, directors and consultants are eligible to receive equity awards. The 2004 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units and incentive bonuses. Grants may consist of treasury shares or newly issued shares. Options are typically granted as non-qualified stock options but the Plans permit some options granted to qualify as “incentive stock options” under the U.S. Internal Revenue Code. The exercise price of a stock option or other equity-based award is equal to the fair market value of the Company’s common stock on the grant date. Grants for all types of awards generally vest 25% per year beginning one year after the grant date. The contractual term of equity awards ranges from 7 to 10 years. At September 30, 2006, the Company had approximately 2.0 million shares available for issuance under the Plans.

Valuation assumptions

In the first quarter of 2006, the Company changed the valuation model used for estimating the fair value of share-based compensation awards from a Black-Scholes valuation model to a lattice valuation model. This change was made because of the Company’s belief that the lattice valuation model provides a better estimate of fair value of shared-based compensation awards granted. The lattice model can incorporate a range of possible outcomes over an award’s term and can be adjusted for changes in certain assumptions over time. The Black-Scholes model assumptions are more constant over time, which is not always consistent with an employee’s exercise behavior.

The following assumptions were used to value grants of share-based awards for each respective period:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Risk-free interest rate		4.5	%		4.3	%		4.8	%		4.3	%
Dividend yield		1.3	%		0.5	%		1.3	%		0.6	%
Expected life of option (in years)		4.8			4.2			4.5			4.4
Expected volatility		27	%		26	%		30	%		30	%
Weighted-average fair value of share-based compensation awards granted	$	22.86		$	20.48		$	26.14		$	19.52

The Black-Scholes model would have produced values that were approximately 11% and 12% higher for the three and nine months ended September 30, 2006, respectively. The valuation of restricted stock units is determined using the fair market value on the date of grant, discounted by the present value of dividends expected to be declared and paid over the vesting period.

Pro-forma information for periods prior to the adoption of FAS 123(R)

Prior to the adoption of FAS 123(R), the Company provided the disclosures required under FAS 123 as if the fair value method defined by FAS 123 had been applied to share-based compensation. Pro-forma information for the three and nine months ended September 30, 2005 was as follows:


	Three Months		Nine Months
	Ended		Ended
	September 30, 2005		September 30, 2005
	(In thousands, except per share amounts)
Net income, as reported	$	19,597	$	53,785
Deduct: Total share-based compensation expense determined under fair value based methods for all awards, net of related tax effects		4,374		12,371

Pro-forma net income	$	15,223	$	41,414

Earnings per share:
Basic — as reported	$	0.49	$	1.36
Basic — pro-forma	$	0.38	$	1.05
Diluted — as reported	$	0.47	$	1.31
Diluted — pro-forma	$	0.37	$	1.02

Equity based award activity

The following table summarizes the changes in common stock options for the nine months ended September 30, 2006:


						Weighted
				Weighted		Average		Aggregate
	Number			Average		Remaining		Intrinsic Value
	of Options			Exercise Price		Contractual Term		(in millions)
Options outstanding, December 31, 2005		5,271,183		$	44.96		6.14
Options granted		—			—
Options cancelled		(153,762	)		54.36
Options exercised		(2,163,789	)		36.59

Options outstanding, September 30, 2006		2,953,632		$	50.66		5.38	$	115.9

Options vested and expected to vest at September 30, 2006		2,860,740		$	50.41		5.38	$	113.0

Options exercisable, September 30, 2006		879,883		$	43.92		5.41	$	40.5

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of 2006 of $89.91 and the exercise price, multiplied by the number of share-based awards) that would have been received by the option holders had all option holders exercised their options on September 30, 2006. This amount changes over time based on changes in the fair market value of the Company’s stock. A total of 1,485,758 options vested during the nine months ended September 30, 2006 with a total fair value of $25.5 million.

The following table summarizes the changes in stock appreciation rights for the nine months ended September 30, 2006:


	Number of
	Stock			Weighted		Weighted Average		Aggregate
	Appreciation			Average		Remaining		Intrinsic Value
	Rights			Exercise Price		Contractual Term		(in millions)
Stock appreciation rights outstanding, beginning of year		—		$	—
Stock appreciation rights granted		628,150			97.36		6.45
Stock appreciation rights cancelled		(14,005	)		97.56
Stock appreciation rights exercised		—			—

Stock appreciation rights outstanding, September 30, 2006		614,145		$	97.36		6.45	$	—

Stock appreciation rights vested and expected to vest at September 30, 2006		579,386		$	97.36		6.45	$	—

Stock appreciation rights exercisable, September 30, 2006		—			—

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of 2006 of $89.91 and the exercise price, multiplied by the number of share-based awards) that would have been received by the option holders had all option holders exercised their stock appreciation rights on September 30, 2006. This amount changes over time based on changes in the fair market value of the Company’s stock.

The following table summarizes the changes in restricted stock units for the nine months ended September 30, 2006:


	Number			Weighted		Weighted Average
	of Restricted			Average		Remaining
	Stock Units			Exercise Price		Term
Restricted stock units outstanding, beginning of year		—		$	—
Restricted stock units granted		60,661			0.00		3.45
Restricted stock units cancelled		(538	)		—
Restricted stock units exercised		—			—

Restricted stock units outstanding, September 30, 2006		60,123		$	0.00		3.45

Restricted stock units vested and expected to vest at September 30, 2006		55,952		$	0.00		3.45

Restricted stock units exercisable, September 30, 2006		—			—

A total of 60,661 restricted stock units were granted in the nine months ended September 30, 2006 at a weighted average fair value of $94.78 per share.

At September 30, 2006, $49.1 million of total unrecognized compensation cost related to share-based compensation is expected to be recognized over a weighted-average period of approximately 2 years.

Employee stock purchase plan

The Company sponsors an employee stock purchase plan (“ESPP”) for all eligible employees. Under the ESPP, employees authorize payroll deductions from 1% to 10% of their eligible compensation to purchase shares of the Company’s common stock. The total shares of the Company’s common stock authorized under the ESPP is 1,050,000. Under the plan, shares of the Company’s common stock may be purchased over an offering period, typically three months, at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last day of the three month purchase period. During the three months ended September 30, 2006, the Company issued 6,671 shares under the ESPP at an average price of $85.17 per share. Total cash received for ESPP issuances for the three months ended September 30, 2006 was approximately $0.6 million. During the nine months ended September 30, 2006, the Company issued 19,497 shares under the ESPP at an average price of $74.90 per share. Total cash received for ESPP issuances for the nine months ended September 30, 2006 was approximately $1.5 million. At September 30, 2006, approximately 0.9 million shares were available for issuance. The ESPP continues to be valued using the Black-Scholes model as employee exercise patterns are not relevant to this plan.

Note 5. Sales of common stock

In March 2006 and 2005, certain of the Company’s shareholders sold 0.9 million and 1.3 million shares, respectively, of the Company’s common stock in transactions that were exempt from registration. The common stock sold in March 2006 and 2005 consisted primarily of common stock obtained by employees and directors from the exercise of Company 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 March 2005.

As a part of the 2006 sale of common stock, employees and directors exercised approximately 2.0 million non-qualified and incentive stock options. The employees and directors elected to pay for the stock option exercise price in shares of common stock which, when using the fair market value on the date of exercise, amounted to approximately 768,000 shares of common stock. In addition, the employees and directors used common stock received from the exercise of the stock options to satisfy the statutory minimum federal income tax withholding obligations generated from the exercise of Company stock options. In effect, the Company repurchased, at fair market value, a portion of the common stock received by the employees and directors upon exercise of the Company common stock options. The Company remitted the proceeds for the common stock repurchase directly to the respective tax authority, instead of the employee or director, to satisfy the statutory minimum federal income tax withholding obligations generated from the exercise of the Company stock options. The total cost of the common stock repurchase, to satisfy employee and director statutory minimum federal income tax withholding obligations, was approximately $37.7 million, representing approximately 391,000 shares. The amount of the repurchase in March 2006 counted against the existing authorized share repurchase amount.

In addition, the Company recognized approximately $1.9 million and $0.5 million 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 and incentive common stock options in conjunction with the sales in March 2006 and 2005, respectively. Of the $1.9 million and $0.5 million total compensation expense recognized in March 2006 and 2005, respectively, approximately $0.8 million and $0.3 million is included within “Cost of services,” approximately $0.3 million and $0.1 million is included within “Member relations and marketing” and approximately $0.8 million and $0.1 million is included within “General and administrative” expenses in the condensed consolidated statements of income for the nine months ended September 30, 2006 and 2005, respectively.

Note 6. Earnings per share

Basic earnings per share is computed by dividing net income by the number of weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the number of weighted average common shares outstanding during the period increased by the dilutive effect of potential common shares outstanding during the period. The number of potential common shares outstanding has been determined in accordance with the treasury-stock method. Common share equivalents consist of common shares issuable upon the exercise of outstanding share-based compensation awards. A reconciliation of basic to diluted weighted average common shares outstanding is as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Basic weighted average common shares outstanding		39,759		39,808		39,937		39,585
Dilutive common shares outstanding		722		1,528		1,070		1,464

Diluted weighted average common shares outstanding		40,481		41,336		41,007		41,049

Note 7. Comprehensive income (loss)

Comprehensive income (loss) is defined as net income (loss) plus the net-of-tax impact of foreign currency items and unrealized gains and losses on marketable securities. Comprehensive income for the three months ended September 30, 2006 and 2005 was $22.2 million and $18.5 million, respectively. Comprehensive income for the nine months ended September 30, 2006 and 2005 was $55.0 million and $51.7 million, respectively. The accumulated elements of other comprehensive loss, net of tax, included within stockholders’ equity on the condensed consolidated balance sheets is comprised primarily of unrealized losses on available-for-sale marketable securities and foreign currency translation adjustments. Unrealized losses, net of tax, on available-for-sale marketable securities amounted to $(0.5) million and $(1.4) million during the nine months ended September 30, 2006 and 2005, respectively. The tax benefit associated with unrealized losses on available-for-sale marketable securities included within comprehensive income (loss) was $(0.3) million and $(0.8) million for the nine months ended September 30, 2006 and 2005, respectively.

Note 8. Supplemental cash flow disclosures

For the nine months ended September 30, 2006 and 2005, the Company recognized $48.2 million and $15.5 million in stockholders’ equity for excess tax deductions associated with share-based payment arrangements related to the exercise of non-qualified common stock options and disqualifying dispositions of incentive stock options. At September 30, 2006, the Company has $10.2 million of excess deductions remaining that are expected to be recognized in the financing section of the cash flow statement during 2006. Estimated income tax payments for the nine months ended September 30, 2006 and 2005 were $8.8 million and $552,000, respectively.

Note 9. Stockholders’ equity

In February 2006, the Company announced that its Board of Directors authorized a share repurchase of up to an additional $150 million of the Company’s common stock, which when combined with the remaining balance of the existing share repurchase authorizations from February 2003 of $75 million and February 2005 of an additional $100 million, provided the Company the opportunity to repurchase up to approximately $218.2 million of its shares as of the date of the additional share repurchase authorization in February 2006. 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, 2006 and December 31, 2005, the Company had repurchased 3,754,111 and 1,916,806 shares of the Company’s common stock, respectively, at a total cost of $273.6 million and $106.8 million, respectively. Refer to “Note 5. Sales of common stock” for additional information regarding the repurchase of common stock during the nine months ended September 30, 2006.

During the nine months ended September 30, 2006, the Company’s Board of Directors declared quarterly cash dividends of $0.30 per share, which were paid on March 31, 2006, June 30, 2006 and September 29, 2006 to stockholders of record at the close of business on March 10, 2006, June 15, 2006 and September 15, 2006, respectively. For the nine months ended September 30, 2006, the dividends paid by the Company to stockholders of record totaled $35.7 million. The Company has funded its dividend payments with cash on hand and cash generated from operations.

At September 30, 2006 and December 31, 2005, the Company had 5,000,000 shares of preferred stock authorized with a par value of $0.01 per share. No shares were issued and outstanding at September 30, 2006 and December 31, 2005.

Note 10. Income taxes

The Office of Tax and Revenue of the Government of the District of Columbia (the “Office of Tax and Revenue”) has adopted regulations in accordance with the New E-Conomy Transformation Act of 2000 (the “Act”) that modify the income and franchise tax, sales and use tax and personal property tax regulations, effective April 2001. Specifically, the regulations provide certain credits, exemptions and other benefits to a Qualified High Technology Company (“QHTC”). In October 2003, the Company received notification from the Office of Tax and Revenue that its certification as a QHTC under the Act had been accepted. As a QHTC, the Company’s Washington, D.C. statutory income tax rate was 0.0% through 2005 and increased to 6.0% effective January 1, 2006 and thereafter, versus 9.975% prior to this qualification, and the Company is also eligible for certain Washington, D.C. income tax credits and other benefits.

Note 11. Deferred compensation plan

Effective July 1, 2005, the Company implemented the Deferred Compensation Plan (the “Plan”) for certain staff and members of the Board of Directors to provide an opportunity to defer compensation on a pre-tax basis. The Plan provides for deferred amounts to be credited with investment returns based upon investment options selected by participants from alternatives designated from time to time by the plan administrative committee. The Plan also allows the Company to make discretionary contributions at any time based on individual or overall company performance, which may be subject to a different vesting schedule than elective deferrals, and provides that the Company will make up any 401(k) plan match that is not credited to the participant’s 401(k) account due to his or her participation in the Plan. The Company has established a trust to hold assets utilized by the Company to pay benefits under the Plan. The Company did not make any contributions to the Plan for the nine months ended September 30, 2006 or for the year ended 2005.

Note 12. Commitments and contingencies

The Company leases office facilities in the United States and the United Kingdom expiring on various dates through 2027. In the second quarter of 2006, the Company entered into a new lease agreement for additional office space in the United Kingdom. In the third quarter of 2006, the Company entered into new lease agreements for additional office space in Washington, D.C. The expiration of these leases will coincide with the Company’s move to the new Rosslyn, Virginia headquarters in early 2008. Certain lease agreements include provisions

for rental escalations and require the Company to pay for executory costs such as taxes and insurance. The Company’s future minimum rental payments under non-cancelable operating leases, excluding executory costs, total $591.5 million at September 30, 2006 and are scheduled to be paid out as follows: $4.0 million for the three months ended December 31, 2006, $20.8 million for the year ended December 31, 2007, $26.5 million for the year ended December 31, 2008, $30.6 million for the year ended December 31, 2009, $30.5 million for the year ended December 31, 2010 and $479.1 million thereafter. The increase in the future commitments is primarily due to the lease payments for the new United Kingdom lease for additional office space mentioned above for which payments will begin in 2007 for a term of twelve years. Pursuant to the terms of the Rosslyn, Virginia lease, the Company has the option to accelerate the date at which it obtains control of a portion of the leased property which would increase the rental payments discussed above.

The Company continues to evaluate certain potential tax exposures relating to sales and use, payroll, income and property tax laws and regulations for various states in which the Company sells or supports its goods and services. At September 30, 2006, the Company has accrued a liability of approximately $4.0 million for such exposures. Management believes the accrual adequately provides for any ultimate amounts that are likely to result from this evaluation. Final assessments, if any, could be different than the amounts recorded in the financial statements.

Note 13. Subsequent events

In November 2006, the Board of Directors declared a quarterly cash dividend of $0.30 per share. The dividend is payable on December 28, 2006 to stockholders of record at the close of business on December 15, 2006. The Company will fund its dividend payment with cash on hand and cash generated from operations.

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, changes in estimates or assumptions relating to share-based compensation expense under FAS 123(R), the potential effects of foreign currency fluctuations, 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 2005 Annual Report on Form 10-K.

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 28.4% to $450.3 million at September 30, 2006 from $350.7 million at September 30, 2005.

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 in the “Critical Accounting Policies” section 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 Board 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, and depreciation and amortization expenses. Cost of services represents the costs associated with the production and delivery of our products and services, which are comprised of compensation, including share-based compensation, of research personnel and in-house faculty, the production of published materials, the organization of executive education seminars and all associated support services. Cost of services is exclusive of depreciation and amortization, which is shown separately on the condensed consolidated statements of income. 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 and share-based compensation), travel and all associated support services. General and administrative expenses consist of compensation, including share-based compensation, and other costs associated with human resources and recruiting, finance and accounting, management information systems, facilities management, new product development and other administrative functions. Depreciation and amortization 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, and the amortization of our intangible assets.

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 we report in our financial statements. In our Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 10, 2006, we have discussed those policies that we believe are critical and require the use of complex judgment in their application. In addition to the critical accounting policies discussed in our Form 10-K, we have adopted the fair value recognition provisions of FAS 123(R) to account for our share-based compensation as discussed in “Note 4. Share-based compensation” and have accordingly added share-based compensation to our critical accounting policies.

Share-based compensation- We account for share-based compensation in accordance with FAS 123(R) using the modified prospective transition method. Under the fair value recognition provisions of FAS 123(R), share-based compensation cost is measured at the grant date of the share-based awards based on their fair values, and is recognized on a straight line basis as expense in the consolidated statement of income over the vesting periods of the awards, net of an estimated forfeiture rate. In accordance with the modified prospective transition method, compensation cost recognized by us beginning January 1, 2006 includes: (a) compensation cost for all share-based payments granted on or after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of FAS 123(R), and (b) compensation cost for all share-based payments granted prior to, but that were unvested at, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FAS 123.Results for prior periods have not been restated. The Company previously recorded share-based compensation expense in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”), which allowed the Company to record share-based compensation expense based on the intrinsic value of the share-based award at the date of grant.

Under the provisions of FAS 123(R), we calculate the grant date fair value of share-based awards using a lattice valuation model for grants subsequent to the adoption of FAS 123(R). For grants prior to the adoption of FAS 123(R), we used the Black-Scholes valuation model. Determining the fair value of share-based awards is judgmental in nature and involves the use of significant estimates and assumptions, including the term of the share-based awards, risk-free interest rates over the vesting period, expected dividend rates, the price volatility of the Company’s shares and forfeiture rates of the awards. Prior to adopting FAS 123(R), we recognized forfeitures only as they occurred. We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain. Actual future results may differ from those estimates.

As mandated by FAS 123(R), beginning in the first quarter of 2006, we also report the benefits of tax deductions in excess of recognized compensation expense as a financing cash inflow in the condensed consolidated statement of cash flows. Prior to the adoption of FAS 123(R), we reported these tax benefits as an operating cash flow. Results for prior periods have not been restated.

Results of Operations

The following table sets forth certain financial data as a percentage of revenues for the periods indicated:


	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of services		36.1			33.3			35.6			33.4


Gross profit		63.9			66.7			64.4			66.6


Costs and expenses:
Member relations and marketing		25.7			25.4			27.2			26.2
General and administrative		12.5			11.8			13.5			11.4
Depreciation and amortization		1.8			1.7			2.0			1.9


Total costs and expenses		40.0			38.9			42.7			39.5


Income from operations		23.8			27.8			21.7			27.1
Other income, net		5.2			3.7			5.5			3.7


Income before provision for income taxes		29.0			31.5			27.2			30.8
Provision for income taxes		11.2			10.6			10.5			10.3


Net income		17.8	%		21.0	%		16.7	%		20.5	%

Three and Nine Months Ended September 30, 2006 and September 30, 2005

Revenues.Revenues increased 26.7% to $118.4 million for the three months ended September 30, 2006, from $93.4 million for the three months ended September 30, 2005. Revenues increased 27.7% to $335.1 million for the nine months ended September 30, 2006, from $262.4 million for the nine months ended September 30, 2005. The largest driver of the increase in revenues during the three and nine months ended September 30, 2006 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, 2006 included the addition of new members and the introduction of new research programs.

Cost of services.Cost of services increased 37.6% to $42.8 million for the three months ended September 30, 2006, from $31.1 million for the three months ended September 30, 2005. Cost of services increased 36.2% to $119.3 million for the nine months ended September 30, 2006, from $87.6 million for the nine months ended September 30, 2005. The year-over-year increase in Cost of services was principally due to compensation costs for new and existing research and executive education staff, including share-based compensation expense, an increase in external consulting expenses to support the growth of our existing programs, new program launches, publishing and executive education seminar costs and an increase in travel related expenses. The increase for the nine months ended September 30, 2006 was offset by a true-up of incentive expense recorded in the prior year which, based upon a review and analysis of the prior year incentive estimate, is not expected to be paid in 2006. Beginning January 1, 2006, we adopted FAS 123(R) which addresses the accounting for share-based compensation. Included within Cost of services for the three and nine months ended September 30, 2006 is approximately $2.8 million and $9.1 million, respectively, of share-based compensation expense calculated in accordance with FAS 123(R).

We did not recognize share-based compensation expense in accordance with FAS 123 within the financial statements prior to January 1, 2006. Cost of services as a percentage of revenues increased to 36.1% for the three months ended September 30, 2006, from 33.3% for the three months ended September 30, 2005. Cost of services as a percentage of revenues increased to 35.6% for the nine months ended September 30, 2006, from 33.4% for the nine months ended September 30, 2005. The year-over-year increase is primarily due to the recognition of share-based compensation in accordance with FAS 123(R) beginning January 1, 2006, an increase in external consulting expenses to support the growth of our existing programs, a shift in the timing of our publishing and executive education seminar schedule relative to the period ended September 30, 2005, and an increase in the number of research and executive education staff, offset by a true-up of incentive expense recorded in the prior year which, based upon a review and analysis of the prior year incentive estimate, is not expected to be paid in 2006. 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, 2006 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 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 28.3% to $30.5 million for the three months ended September 30, 2006 from $23.7 million for the three months ended September 30, 2005. Member relations and marketing costs increased 32.6% to $91.2 million for the nine months ended September 30, 2006 from $68.8 million for the nine months ended September 30, 2005. The year-over-year increase in Member relations and marketing costs is principally due to the increase in marketing personnel and related costs, including share-based compensation expense, the increase in member relations personnel and related costs to support our expanding membership base, the increase in commission expense associated with the growth in our revenues, the increase in travel expenses associated with new sales staff, and compensation cost increases. As noted above, beginning January 1, 2006, we adopted FAS 123(R) that addresses the accounting for share-based compensation. Included within Member relations and marketing expense during the three and nine months ended September 30, 2006 is approximately $1.4 million and $4.3 million, respectively, of share-based compensation expense calculated in accordance with FAS 123(R). Member relations and marketing expense as a percentage of revenues increased to 25.7% for the three months ended September 30, 2006 from 25.4% for the three months ended September 30, 2005. Member relations and marketing expense as a percentage of revenues increased to 27.2% for the nine months ended September 30, 2006 from 26.2% for the nine months ended September 30, 2005. The year-over-year increase is primarily due to the recognition of share-based compensation in accordance with FAS 123(R), accounting for 1.2% and 1.3% of the Member relations and marketing expense, as a percentage of revenue, for the three and nine months ended September 30, 2006, respectively. The remaining changes are due to decreases in travel expenses associated with new sales staff and salaries and incentives for Member relations and marketing personnel, offset by an increase in external consulting expenses.

General and administrative.General and administrative expenses increased 34.5% to $14.8 million for the three months ended September 30, 2006, from $11.0 million for the three months ended September 30, 2005. General and administrative expenses increased 52.2% to $45.3 million for the nine months ended September 30, 2006, from $29.8 million for the nine months ended September 30, 2005. The year-over-year increase in General and administrative expenses is driven by an increase in staff and staff related compensation costs, including share-based compensation expense, the use of external consultants to support our organizational growth, including expenses associated with the development of our new Rosslyn, Virginia office building and the recognition, in the second quarter of 2006, of prior period sales tax for certain states in which some of our non-Washington, D.C. based domestic staff were located to support our growing domestic membership base. Refer to “Note 12. Commitments and contingencies” for further discussion. We currently collect state sales tax from the member, where applicable, and remit the sales tax to the respective state sales tax agency. As noted above, beginning January 1, 2006, we adopted FAS 123(R) that addresses the accounting for share-based compensation. Included within General and administrative expense during the three and nine months ended September 30, 2006 is approximately $1.7 million and $5.6 million, respectively, of share-based compensation expense calculated in accordance with FAS 123(R). General and administrative expenses as a percentage of revenues increased to 12.5% and 13.5% for the three and nine months ended September 30, 2006, respectively, from 11.8% and 11.4% for the three and nine months ended September 30, 2005. The year-over-year increase is primarily due to the recognition of share-based compensation in accordance with FAS 123(R), accounting for 1.5% and 1.7% of the General and administrative expense, as a percentage of revenue, for the three and nine months ended September 30, 2006, respectively. The remaining changes are due to percentage decreases in the items noted above.

Depreciation and amortization.Depreciation and amortization expense increased 31.1% to $2.1 million for the three months ended September 30, 2006, from $1.6 million for the three months ended September 30, 2005. Depreciation and amortization expense increased 31.2% to $6.6 million for the nine months ended September 30, 2006, from $5.0 million for the nine months ended September 30, 2005. The increase in depreciation and amortization expense was principally due to the additional investment in leasehold improvements for additional office space in the Washington, D.C. and London offices, the purchase of computer equipment and management information systems software to support organizational growth and the amortization of intangible assets that have been capitalized as part of our acquisition in the third quarter of 2005.

Other income, net.Other income, net increased 74.9% to $6.1 million for the three months ended September 30, 2006 from $3.5 million for the three months ended September 30, 2005. Other income, net increased 89.7% to $18.3 million for the nine months ended September 30, 2006, from $9.7 million for the nine months ended September 30, 2005. The growth in Other income, net was associated with the increased levels of marketable securities and increased investment returns in a higher interest rate environment. See further discussion in the Liquidity and Capital Resources section below.

Provision for income taxes.We recorded a Provision for income taxes of $13.2 million and $9.9 million for the three months ended September 30, 2006 and 2005, respectively. We recorded a Provision for income taxes of $35.1 million and $27.1 million for the nine months ended September 30, 2006 and 2005, respectively. The increase in the Provision for income taxes primarily reflects the increase in our net income, and the related income tax effect, and the increase in the Washington, D.C. Qualified High Technology Company (“QHTC”) statutory income tax rate to 6.0% in 2006 from 0.0% in 2005. See further discussion of the Washington, D.C. QHTC statutory income tax rate in “Note 10. Income taxes.” The increase in the effective income tax rate to 38.5% for the three and nine months ended September 30, 2006, from 33.5% for the three and nine months ended September 30, 2005, also reflects a decrease in the estimated benefit that we receive from certain Washington, D.C. income tax incentives, as these incentives may not be realized, and the elimination of certain federal income tax incentives.

Liquidity and Capital Resources

Effective January 1, 2006, we adopted FAS 123(R) using the modified prospective transition method. Under FAS 123(R), we have reported the benefits of tax deductions in excess of recognized book compensation expense as a financing cash inflow in the condensed consolidated statement of cash flows for the nine months ended September 30, 2006. Prior to the adoption of FAS 123(R), we reported these tax benefits as an operating cash flow. Prior period results have not been restated.

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 $77.3 million and $117.1 million for the nine months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006, operating cash flows were generated primarily by net income, the collection of membership fees receivable and the utilization of tax benefits resulting from share-based compensation arrangements, offset by the decrease in deferred revenues, reclassification of excess tax benefits resulting from share-based compensation arrangements, a decrease in accounts payable and accrued liabilities, an increase in other non-current assets and a decrease in accrued incentive compensation. For the nine months ended September 30, 2005, operating cash flows were generated principally by net income, the collection of membership fees receivable, the utilization of tax benefits resulting from share-based compensation arrangements, and the increase in accounts payable and accrued liabilities, offset by the decrease in deferred revenues. At September 30, 2006, we had cash, cash equivalents and marketable securities of $440.1 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.

Cash flows from investing activities.We used net cash flows in investing activities of $208.0 million during the nine months ended September 30, 2006 and generated net cash flows from investing activities of $117.8 million during the nine months ended September 30, 2005. During the nine months ended September 30, 2006, net cash flows from investing activities were used to purchase available-for-sale marketable securities, net of maturities, of $194.5 million, and property and equipment, consisting of leasehold improvements for additional office space in Washington, D.C. and London, England, Web site development costs and computer equipment and software, of $13.5 million. 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.

Cash flows from financing activities.We used net cash flows in financing activities of $169.1 million and $23.2 million during the nine months ended September 30, 2006 and 2005, respectively. During the nine months ended September 30, 2006, net cash flows from financing activities were used primarily for the repurchase of our common stock, which totaled $166.8 million, and the payment of dividends, which totaled $35.7 million, partially offset by the recognition of excess tax benefits of $29.0 million resulting from share-based compensation arrangements, proceeds of $2.9 million from the exercise of common stock options, and proceeds of $1.5 million from the issuance of common stock under the employee stock purchase plan. 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, 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 from the issuance of common stock under the employee stock purchase plan, which totaled $1.0 million.

The Board of Directors declared a quarterly cash dividend of $0.30 per share in November 2006 which will be payable in December 2006. 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.”

At September 30, 2006 and December 31, 2005, 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. Refer to “Note 12. Commitments and contingencies” for a discussion of material changes to our contractual obligations during the nine months ended September 30, 2006, which consisted of entering into leases for additional office space.

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.

Our international operations subject us to risks related to currency exchange fluctuations. Prices for our products are denominated predominately in U.S. dollars, even when sold to customers that are located outside the United States. Many of the costs associated with our operations located outside the United States are denominated in local currencies. As a consequence, the increased strength of local currencies against the U.S. dollar in countries where we have foreign operations would result in higher effective operating costs and, potentially, reduced earnings.

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 were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 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.

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 1A. Risk Factors.

In addition to the other information contained in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for fiscal year ended December 31, 2005, and the following risk factors in evaluating us and our business.

Changes in estimates or interpretations under financial accounting standards related to share-based payments could have a material adverse impact on our reported results of operations.

In December 2004, the Financial Accounting Standards Board issued FAS 123(R), a complex accounting standard that requires companies to expense the fair value of employee stock options and similar awards and was effective as of January 1, 2006. The application of FAS 123(R) requires significant judgment and the use of estimates, particularly surrounding stock price volatility, option forfeiture rates and expected option lives, to build a model for appropriately valuing share-based compensation. There is little experience or guidance with respect to developing these assumptions and models. There is also uncertainty as to how FAS 123(R) will be interpreted and applied as companies and their advisors gain more experience with the standard.

There is a risk that, as we and others gain experience with FAS 123(R) or as a result of subsequent accounting guidelines, we could determine that the assumptions or model we used require modification. Any such modification could result in significantly different charges in future periods and, potentially, could require us to record an adjustment to or correct the charges taken in prior periods. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Any such adjustments or corrections of charges could negatively affect our results of operations, stock price and our stock price volatility and/or could adversely impact our ability to obtain results on a GAAP basis that are consistent with previously provided financial guidance concerning our expected results of operations.

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, 2006 to July 31, 2006		—	$	—		—	$	159,859,794
August 1, 2006 to August 31, 2006		830,746	$	87.96		830,746	$	86,785,588
September 1, 2006 to September 30, 2006		408,900	$	86.55		408,900	$	51,396,143

Total		1,239,646	$	87.50		1,239,646

In February 2006, we announced that our Board of Directors authorized a share repurchase of up to an additional $150 million of our common stock, which when combined with the remaining balance of the existing share repurchase authorizations from February 2003 of $75 million and February 2005 of an additional $100 million, provided us the opportunity to repurchase up to approximately $218.2 million of our shares as of the date of the additional share repurchase authorization in February 2006. 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, 2006 and December 31, 2005, we had repurchased 3,754,111 and 1,916,806 shares of our common stock, respectively, at a total cost of approximately $273.6 million and $106.8 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.		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		Certifications pursuant to 18 U.S.C. Section 1350.

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.


	THE CORPORATE EXECUTIVE BOARD COMPANY
	(Registrant)

Date: November 7, 2006	By:	/s/ Timothy R. Yost
		Timothy R. Yost
		Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

Exhibit Index


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		Certifications pursuant to 18 U.S.C. Section 1350.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

CEB (CEB) Inactive 10-Q2006 Q3 Quarterly report

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