Attached files
file | filename |
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EX-32.1 - EX-32.1 - ADVISORY BOARD CO | w81505exv32w1.htm |
EX-31.2 - EX-31.2 - ADVISORY BOARD CO | w81505exv31w2.htm |
EX-31.1 - EX-31.1 - ADVISORY BOARD CO | w81505exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended December 31, 2010
or
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 000-33283
THE ADVISORY BOARD COMPANY
(Exact name of registrant as specified in its charter)
Delaware | 52-1468699 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
2445 M Street, NW, Washington, D.C. | 20037 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (202) 266-5600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of February 1, 2011, the company had outstanding 15,848,858 shares of Common Stock, par
value $0.01 per share.
THE ADVISORY BOARD COMPANY
INDEX TO FORM 10-Q
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PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements. |
THE ADVISORY BOARD COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, | March 31, | |||||||
2010 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 37,273 | $ | 61,238 | ||||
Marketable securities |
| 10,422 | ||||||
Membership fees receivable, net |
195,985 | 143,453 | ||||||
Prepaid expenses and other current assets |
5,458 | 3,326 | ||||||
Deferred income taxes, net |
6,559 | 5,629 | ||||||
Total current assets |
245,275 | 224,068 | ||||||
Property and equipment, net |
25,290 | 22,183 | ||||||
Intangible assets, net |
18,269 | 9,161 | ||||||
Restricted cash |
6,500 | 2,500 | ||||||
Goodwill |
59,063 | 37,255 | ||||||
Deferred incentive compensation and other charges |
47,538 | 37,563 | ||||||
Deferred income taxes, net of current portion |
9,987 | 7,782 | ||||||
Other non-current assets |
5,000 | 5,000 | ||||||
Marketable securities |
70,319 | 41,260 | ||||||
Total assets |
$ | 487,241 | $ | 386,772 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Deferred revenue |
$ | 228,082 | $ | 182,689 | ||||
Accounts payable and accrued liabilities |
53,587 | 45,654 | ||||||
Accrued incentive compensation |
12,550 | 12,152 | ||||||
Total current liabilities |
294,219 | 240,495 | ||||||
Long-term deferred revenue |
46,487 | 25,713 | ||||||
Other long-term liabilities |
8,408 | 8,749 | ||||||
Total liabilities |
349,114 | 274,957 | ||||||
Stockholders equity: |
||||||||
Preferred stock, par value $0.01; 5,000,000 shares authorized, zero shares issued and outstanding |
| | ||||||
Common stock, par value $0.01; 90,000,000 shares authorized, 22,319,891 and 21,836,893 shares
issued as of December 31, 2010 and March 31, 2010, respectively, and 15,835,193 and 15,505,152
shares outstanding as of December 31, 2010 and March 31, 2010, respectively |
223 | 218 | ||||||
Additional paid-in capital |
259,840 | 239,548 | ||||||
Retained earnings |
159,336 | 145,925 | ||||||
Accumulated elements of other comprehensive income |
133 | 1,034 | ||||||
Treasury stock, at cost 6,484,698 and 6,331,741 shares as of December 31, 2010 and March 31,
2010, respectively |
(281,405 | ) | (274,910 | ) | ||||
Total stockholders equity |
138,127 | 111,815 | ||||||
Total liabilities and stockholders equity |
$ | 487,241 | $ | 386,772 | ||||
The accompanying notes are an integral part of these consolidated balance sheets.
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Table of Contents
THE ADVISORY BOARD COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue |
$ | 75,210 | $ | 60,893 | $ | 213,000 | $ | 175,919 | ||||||||
Costs and expenses: |
||||||||||||||||
Cost of services |
41,232 | 32,080 | 113,091 | 93,185 | ||||||||||||
Member relations and marketing |
17,099 | 13,809 | 48,352 | 39,502 | ||||||||||||
General and administrative |
9,742 | 7,662 | 27,622 | 23,264 | ||||||||||||
Depreciation and amortization |
1,479 | 1,387 | 4,289 | 5,008 | ||||||||||||
Write-off of capitalized software |
| | | 7,397 | ||||||||||||
Income from operations |
5,658 | 5,955 | 19,646 | 7,563 | ||||||||||||
Other income, net |
480 | 603 | 1,278 | 2,149 | ||||||||||||
Income before provision for income taxes |
6,138 | 6,558 | 20,924 | 9,712 | ||||||||||||
Provision for income taxes |
(2,204 | ) | (2,249 | ) | (7,512 | ) | (3,331 | ) | ||||||||
Net income |
$ | 3,934 | $ | 4,309 | $ | 13,412 | $ | 6,381 | ||||||||
Earnings per share: |
||||||||||||||||
Net income per share basic |
$ | 0.25 | $ | 0.28 | $ | 0.86 | $ | 0.41 | ||||||||
Net income per share diluted |
$ | 0.24 | $ | 0.27 | $ | 0.82 | $ | 0.41 | ||||||||
Weighted average number of shares outstanding: |
||||||||||||||||
Basic |
15,796 | 15,511 | 15,663 | 15,531 | ||||||||||||
Diluted |
16,600 | 15,701 | 16,303 | 15,657 |
The accompanying notes are an integral part of these consolidated financial statements.
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THE ADVISORY BOARD COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 13,411 | $ | 6,381 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
4,289 | 5,008 | ||||||
Write-off of capitalized software |
| 7,397 | ||||||
Amortization of intangible assets |
3,575 | 890 | ||||||
Deferred income taxes |
(753 | ) | (9,192 | ) | ||||
Excess tax benefits from share-based compensation |
(1,900 | ) | | |||||
Stock-based compensation expense |
6,980 | 10,060 | ||||||
Amortization of marketable securities premiums |
449 | 469 | ||||||
Changes in operating assets and liabilities: |
||||||||
Membership fees receivable |
(49,389 | ) | (28,015 | ) | ||||
Prepaid expenses and other current assets |
(1,932 | ) | 1,409 | |||||
Deferred incentive compensation and other charges |
(9,975 | ) | (10,130 | ) | ||||
Deferred revenues |
65,090 | 30,532 | ||||||
Accounts payable and accrued liabilities |
8,792 | 11,176 | ||||||
Accrued incentive compensation |
(665 | ) | 1,976 | |||||
Other long-term liabilities |
(4,341 | ) | (478 | ) | ||||
Net cash provided by operating activities |
33,631 | 27,483 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(7,396 | ) | (939 | ) | ||||
Capitalized external use software development costs |
(1,433 | ) | (496 | ) | ||||
Cash paid for acquisitions, net of cash acquired |
(35,120 | ) | (13,600 | ) | ||||
Redemptions and sales of marketable securities |
20,080 | 20,350 | ||||||
Purchases of marketable securities |
(40,544 | ) | (9,965 | ) | ||||
Cost basis investment and loan |
| (5,000 | ) | |||||
Net cash used in investing activities |
(64,413 | ) | (9,650 | ) | ||||
Cash flows from financing activities: |
||||||||
Net proceeds from issuance of common stock from share-based compensation |
11,273 | 212 | ||||||
Proceeds from issuance of common stock under employee stock purchase plan |
139 | 109 | ||||||
Excess tax benefits from share-based compensation |
1,900 | | ||||||
Purchases of treasury stock |
(6,495 | ) | (2,999 | ) | ||||
Net cash provided by / (used in) financing activities |
6,817 | (2,678 | ) | |||||
Net (decrease) / increase in cash and cash equivalents |
(23,965 | ) | 15,155 | |||||
Cash and cash equivalents, beginning of period |
61,238 | 23,746 | ||||||
Cash and cash equivalents, end of period |
$ | 37,273 | $ | 38,901 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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THE ADVISORY BOARD COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business description and basis of presentation
The Advisory Board Company and its subsidiaries (collectively, the Company) provide best
practices research and analysis, business intelligence and software tools, and installation support
and management and advisory services to hospitals, health systems, pharmaceutical and biotech
companies, health care insurers, medical device companies, colleges, universities, and other
educational institutions through discrete programs. Members of each program are typically charged a
fixed annual fee and have access to an integrated set of services that may include best practices
research studies, executive education seminars, customized research briefs, web-based access to the
programs content database, and business intelligence and software tools.
The unaudited consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (GAAP) for interim financial information and pursuant to
the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for reporting on
Form 10-Q. Accordingly, certain information and footnote disclosures required for complete
financial statements are not included herein. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and related notes as
reported in the Companys annual report on Form 10-K for the fiscal year ended March 31, 2010 and
the Companys quarterly reports on Form 10-Q for subsequent quarters. The unaudited consolidated
financial statements include the accounts of The Advisory Board Company and its subsidiaries after
elimination of all significant intercompany transactions.
In the opinion of management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the consolidated financial position, results of
operations, and cash flows as of the dates and for the periods presented have been included. The
consolidated balance sheet presented as of March 31, 2010 has been derived from the financial
statements that have been audited by the Companys independent registered public accounting firm.
The consolidated results of operations for the three and nine months ended December 31, 2010 may
not be indicative of the results that may be expected for the Companys fiscal year ending March
31, 2011, or any other period. Certain prior-year balance sheet amounts have been reclassified to
conform to the current-year presentation.
Note 2. Recent accounting pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) amended the accounting
standards for fair value measurement and disclosures. The amended guidance requires disclosures
regarding the amounts of significant transfers in and out of Level 1 and Level 2 fair value
measurements and the reasons for the transfers. It also requires separate presentation of
purchases, sales, issuances, and settlements of Level 3 fair value measurements. The guidance is
effective for interim and annual reporting periods beginning after December 15, 2009, with the
exception of the additional Level 3 disclosures, which are effective for fiscal years beginning
after December 15, 2010. The guidance affecting Level 1 and Level 2 fair value measurements was
adopted on January 1, 2010 and did not impact the Companys financial position or results of
operations. The guidance regarding Level 3 disclosures will be effective for the Company beginning
April 1, 2011. The Company is evaluating the guidance regarding the additional disclosures and does
not expect that this guidance will have a significant impact on the Companys financial position or
results of operations.
In October 2009, the FASB amended the accounting standards for revenue recognition with
multiple elements. The amended guidance allows the use of managements best estimate of selling
price for individual elements of an arrangement when vendor specific objective evidence or third
party evidence is unavailable. Additionally, it eliminates the residual method of revenue
recognition in accounting for multiple element arrangements and expands the disclosure requirements
for revenue recognition. The guidance is effective for fiscal years beginning on or after June 15,
2010, and early adoption is permitted, provided that the revised guidance is retroactively applied
to the beginning of the year of adoption. This guidance will be effective for the Company beginning
April 1, 2011. The Company is currently assessing the future impact of this new accounting update
to its consolidated financial statements.
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Note 3. Marketable securities
The aggregate value, amortized cost, gross unrealized gains, and gross unrealized losses on
available-for-sale marketable securities are as follows (in thousands):
As of December 31, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Fair | Amortized | unrealized | unrealized | |||||||||||||
value | cost | gains | losses | |||||||||||||
U.S. government agency obligations |
$ | 21,893 | $ | 22,046 | $ | | $ | 153 | ||||||||
Tax exempt obligations of other states |
48,426 | 48,058 | 368 | | ||||||||||||
$ | 70,319 | $ | 70,104 | $ | 368 | $ | 153 | |||||||||
As of March 31, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Fair | Amortized | unrealized | unrealized | |||||||||||||
value | cost | gains | losses | |||||||||||||
U.S. government agency obligations |
$ | 11,956 | $ | 11,630 | $ | 326 | $ | | ||||||||
Washington, D.C. tax exempt obligations |
2,521 | 2,506 | 15 | | ||||||||||||
Tax exempt obligations of other states |
37,205 | 35,902 | 1,485 | 182 | ||||||||||||
$ | 51,682 | $ | 50,038 | $ | 1,826 | $ | 182 | |||||||||
The following table summarizes marketable securities maturities (in thousands):
As of December 31, 2010 | ||||||||
Fair market | Amortized | |||||||
value | cost | |||||||
Matures in less than 1 year |
$ | | $ | | ||||
Matures after 1 year through 5 years |
33,615 | 32,305 | ||||||
Matures after 5 years through 15 years |
36,704 | 37,799 | ||||||
$ | 70,319 | $ | 70,104 | |||||
The weighted average maturity on all marketable securities held by the Company as of December
31, 2010 was approximately 5.2 years. Pre-tax net unrealized gains on the Companys investments of
$0.2 million as indicated above were caused by the decrease in market interest rates compared to
the average interest rate of the Companys marketable securities portfolio. None of this amount was
related to investments that mature before December 31, 2011. The Company purchased certain of its
investments at a premium or discount to their relative fair values, and the contractual cash flows
of these investments are guaranteed by an agency of the U.S. government or otherwise fully insured.
The Company has reflected the net unrealized gains and losses, net of tax, in accumulated other
comprehensive income in the consolidated balance sheets. The Company uses the specific
identification method to determine the cost of marketable securities that are sold.
Note 4. Acquisitions
Concuity
On April 1, 2010, the Company acquired for cash the health care division of Trintech Group plc
(Concuity), a leading provider of a contract and payment management solution for hospitals and
physician groups. The Company acquired Concuity to supplement its revenue-cycle portfolio by
incorporating Concuitys web-based ClearContracts software tool into a new program. The total
purchase price consisted of an initial payment of $28.0 million and an additional $6.0 million
placed into escrow, of which $2.0 million was placed with a third party escrow agent. As of
December 31, 2010, $0.8 million of the escrow held with the third party escrow agent had been
released in accordance with terms of the agreement. The remaining $5.2 million in escrow may be
released through December 31, 2011 as certain business performance and indemnity conditions are
satisfied. The Company allocated $11.3 million to intangible assets with a weighted average
amortization period of five years and allocated $21.8 million to goodwill.
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Purchase price allocation
The total purchase price was allocated to Concuitys tangible and separately identifiable
intangible assets acquired and liabilities assumed based on their estimated fair values as of April
1, 2010. The total purchase price was allocated as set forth below (in thousands):
Current assets |
$ | 3,935 | ||
Other non-current assets |
4,000 | |||
Acquired developed technology |
6,250 | |||
Customer related intangible assets |
4,000 | |||
Employee related intangible assets |
500 | |||
Trademarks |
500 | |||
Goodwill |
21,808 | |||
Current liabilities |
(1,339 | ) | ||
Contingent earn-out liability |
(4,000 | ) | ||
Deferred revenue |
(1,670 | ) | ||
Total purchase price, net of cash acquired |
$ | 33,984 | ||
The Companys fair value of identifiable intangible assets was determined by management taking
into account a valuation completed by an independent valuation firm using an income approach from a
market participant perspective, and by estimates and assumptions provided by management. The
acquired developed technology, customer related intangible assets, employee related intangible
assets, and trademarks have estimated lives of 5.0 years, 5.0 years, 5.0 years, and 4.0 years,
respectively, which is consistent with the cash flow estimates used to create the valuation models
of each identifiable asset. The acquired developed technology, customer related intangible assets,
employee related intangible assets, and trademarks are included in intangible assets, net on the
December 31, 2010 consolidated balance sheet. The excess of the purchase price over the net
tangible and identifiable intangible assets has been recorded as goodwill.
The financial results of Concuity are included in the Companys consolidated financial
statements from the date of acquisition. Pro forma financial information for this acquisition has
not been presented because the effects were not material to the Companys historical consolidated
financial statements.
Southwind
On December 31, 2009, the Company acquired substantially all of the assets of Southwind Health
Partners, L.L.C. and Southwind Navigator, LLC (together, Southwind), a leading health care
industry management and advisory firm focused on hospital-physician integration and physician
practice management. The $16.9 million total purchase price consisted of $11.1 million of cash paid
to the Southwind equity holders, net of $0.2 million in cash acquired, and the fair value of
estimated additional contingent payments of $5.6 million, of which a portion is payable in shares
of the Companys common stock and was recorded as a liability as of March 31, 2010. These
additional contingent payments will become due and payable to the former owner of the Southwind
business if certain milestones are met over the evaluation periods beginning at the acquisition
date extending through December 31, 2014. An escrow account containing $2.5 million in restricted
cash was established as part of the acquisition in order to cover a portion of these contingent
payments. A $0.4 million upward adjustment was made to the fair value of these contingent payments
during the three months ended June 30, 2010 and a $1.1 million upward adjustment was made to the
fair value of these contingent payments during the three months ended December 31, 2010. These
adjustments were recorded in cost of services on the accompanying consolidated statements of income
and increased the liability to $7.1 million as of December 31, 2010. See Note 8, Fair value
measurements for further details.
The financial results of Southwind are included in the Companys consolidated financial
statements from the date of acquisition. Pro forma financial information for this acquisition has
not been presented because the effects were not material to the Companys historical consolidated
financial statements.
Note 5. Other non-current assets
In June 2009, the Company invested in the convertible preferred stock of a private company
that provides technology tools and support services to health care providers. In addition, the
Company entered into a licensing agreement with that company. The convertible preferred stock
investment is recorded at cost, and the carrying amount of this investment as of December 31, 2010
and March 31, 2010 is $5.0 million and is included in other non-current assets on the Companys
consolidated balance sheets. The
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convertible preferred stock carries a dividend rate of 8% that is payable if and when declared
by the issuers board of directors. This investment is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of this asset may not be recoverable.
The Company believes that no such impairment indicators existed during the nine months ended
December 31, 2010 or 2009.
Note 6. Property and equipment
Property and equipment consists of leasehold improvements, furniture, fixtures, equipment,
capitalized internal software development costs, and acquired developed technology. Property and
equipment is stated at cost, less accumulated depreciation and amortization. In certain of its
membership programs, the Company provides software tools under hosting arrangements where the
software application resides on the Companys or its service providers hardware. The members do
not take delivery of the software and only receive access to the software tools during the term of
their membership agreement. Software development costs that are incurred in the preliminary project
stage are expensed as incurred. During the development stage, direct consulting costs and
payroll-related costs for employees that are directly associated with each project are capitalized
and amortized over the estimated useful life of the software once placed into operation.
Capitalized software is amortized using the straight-line method over its estimated useful life,
which is generally five years. Replacements and major improvements are capitalized, while
maintenance and repairs are charged to expense as incurred.
The acquired developed technology is classified as software within property and equipment
because the developed software application resides on the Companys or its service providers
hardware. Amortization for acquired developed software is included in depreciation and amortization
on the Companys consolidated statements of income. Acquired developed software is amortized over
its estimated useful life of approximately nine years based on the cash flow estimate used to
determine the value of the asset. The amount of acquired developed software amortization included
in depreciation and amortization for the three and nine months ended December 31, 2010 was
approximately $0.1 million and $0.2 million, respectively. The amount of acquired developed
software amortization included in depreciation and amortization for the three and nine months ended
December 31, 2009 was approximately $0.1 million and $0.2 million, respectively.
Furniture, fixtures, and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets, which range from three to seven years. Leasehold improvements
are depreciated using the straight-line method over the shorter of the estimated useful lives of
the assets or the lease term. There are no capitalized leases included in property and equipment
for the periods presented. Property and equipment consists of the following (in thousands):
As of | ||||||||
December 31, | March 31, | |||||||
2010 | 2010 | |||||||
Leasehold improvements |
$ | 15,652 | $ | 15,270 | ||||
Furniture, fixtures and equipment |
17,421 | 16,242 | ||||||
Software |
25,702 | 19,865 | ||||||
Property and equipment, gross |
58,775 | 51,377 | ||||||
Accumulated depreciation and amortization |
(33,485 | ) | (29,194 | ) | ||||
Property and equipment, net |
$ | 25,290 | $ | 22,183 | ||||
The Company evaluates its long-lived assets for impairment when changes in circumstances exist
that suggests the carrying value of a long-lived asset may not be fully recoverable. If an
indication of impairment exists, and the Companys net book value of the related assets is not
fully recoverable based upon an analysis of its estimated undiscounted future cash flows, the
assets are written down to their estimated fair value. The Company did not recognize any impairment
losses on any of its long-lived assets during the nine months ended December 31, 2010. As of
September 30, 2009, the Company concluded that certain capitalized software development costs were
not fully recoverable. As a result, the Company recognized a pre-tax impairment charge on
capitalized software of $7.4 million during the three months ended September 30, 2009. The Company
did not recognize any additional impairment losses on any of its long-lived assets during the three
months ended December 31, 2009. For further discussion of the impairment and the valuation method
used, see Note 8, Fair value measurements.
Note 7. Goodwill and other intangibles
Included in the Companys goodwill and other intangibles balances are goodwill and acquired
intangibles and internally developed capitalized software for sale. Goodwill is not amortized as it
has an estimated infinite life. Goodwill is reviewed for impairment at least annually as of March
31, or whenever events or changes in circumstances indicate that the carrying amount of an asset
may not
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be recoverable. The Company believes that no such impairment indicators existed during the
nine months ended December 31, 2010 or 2009.
Intangible assets with finite lives are amortized on a straight-line basis over their
estimated useful lives, which range from six months to ten years. As of December 31, 2010, the
weighted average remaining useful life of acquired intangibles was approximately 5.1 years. As of
December 31, 2010, the weighted average remaining useful life of internally developed intangibles
was approximately 4.0 years.
The gross and net carrying balances and accumulated amortization of other intangibles were as
follows (in thousands):
As of December 31, 2010 | As of March 31, 2010 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying | |||||||||||||||||||
amount | amortization | amount | amount | amortization | amount | |||||||||||||||||||
Other Intangibles |
||||||||||||||||||||||||
Internally developed intangible for sale: |
||||||||||||||||||||||||
Capitalized software |
$ | 4,148 | $ | (1,014 | ) | $ | 3,134 | $ | 2,715 | $ | (553 | ) | $ | 2,162 | ||||||||||
Acquired intangibles: |
||||||||||||||||||||||||
Developed software |
6,988 | (1,676 | ) | 5,312 | 738 | (723 | ) | 15 | ||||||||||||||||
Customer relationships |
7,600 | (1,000 | ) | 6,600 | 3,600 | (100 | ) | 3,500 | ||||||||||||||||
Trademarks |
2,000 | (394 | ) | 1,606 | 1,500 | (75 | ) | 1,425 | ||||||||||||||||
Non-compete agreements |
600 | (175 | ) | 425 | 100 | (25 | ) | 75 | ||||||||||||||||
Customer contracts |
3,713 | (2,521 | ) | 1,192 | 3,713 | (1,729 | ) | 1,984 | ||||||||||||||||
Total other intangibles |
$ | 25,049 | $ | (6,780 | ) | $ | 18,269 | $ | 12,366 | $ | (3,205 | ) | $ | 9,161 | ||||||||||
Amortization expense for other intangible assets for the three months ended December 31, 2010
and 2009, recorded in cost of services on the accompanying consolidated statements of income, was
approximately $1.0 million and $0.2 million, respectively. Amortization expense for other
intangible assets for the nine months ended December 31, 2010 and 2009, recorded in cost of
services on the accompanying consolidated statements of income, was approximately $3.1 million and
$0.7 million, respectively. The following approximates the anticipated aggregate amortization
expense to be recorded in cost of services on the consolidated statements of income for the
remaining three months of the fiscal year ending March 31, 2011 and for each of the fiscal years
ending March 31, 2012 through 2015: $1.2 million, $4.0 million, $3.8 million, $3.7 million, and
$3.3 million, respectively, and $2.0 million thereafter.
Note 8. Fair value measurements
Financial assets and liabilities
The estimated fair values of financial instruments are determined based on relevant market
information. These estimates involve uncertainty and cannot be determined with precision. The
Companys financial instruments consist primarily of cash, cash equivalents, and marketable
securities. The following methods and assumptions are used to estimate the fair value of each class
of financial assets or liabilities that are valued on a recurring basis.
Cash and cash equivalents: This includes all cash and liquid investments with an original
maturity of three months or less from the date acquired. The carrying amount approximates fair
value because of the short maturity of these instruments. Cash equivalents consist of money market
funds with original maturity dates of less than three months for which the fair value is based on
quoted market prices. The Companys cash and cash equivalents are held at major commercial banks.
Restricted cash: This includes all cash and liquid investments held in escrow. The carrying
amount approximates fair value because of the short maturity of these instruments. The Companys
restricted cash is held at a major commercial bank.
Marketable securities: The Companys marketable securities, consisting of U.S. government
agency obligations and District of Columbia and other various state tax-exempt notes and bonds, are
classified as available-for-sale and are carried at fair market value based on quoted market
prices.
Contingent earn-out liabilities: This represents the Companys estimated fair value of the
contingent earn-out liabilities related to acquisitions based on probability assessments of certain
performance achievements during the earn-out periods. Contingent earn-out
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liabilities are included in other long-term liabilities on the accompanying consolidated
balance sheets. See Note 4, Acquisitions for further details.
Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the measurement date. The
valuation can be determined using widely accepted valuation techniques, such as the market approach
(comparable market prices), the income approach (present value of future income or cash flow), and
the cost approach (cost to replace the service capacity of an asset or replacement cost). As a
basis for applying a market-based approach in fair value measurements, GAAP establishes a fair
value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
| Level 1 Quoted prices in active markets for identical assets or liabilities. | ||
| Level 2 Observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. | ||
| Level 3 Unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies. |
The Companys population of financial assets and liabilities subject to fair value
measurements on a recurring basis and the necessary disclosures are as follows (in thousands):
Fair value measurement as of December 31, 2010 | ||||||||||||||
Fair value | using fair value hierarchy | |||||||||||||
as of December 31, 2010 | Level 1 | Level 2 | Level 3 | |||||||||||
Financial assets |
||||||||||||||
Cash and cash equivalents (1)
|
$ | 37,273 | $ | 37,273 | | | ||||||||
Restricted cash (1)
|
6,500 | 6,500 | | | ||||||||||
Available-for-sale marketable securities (2)
|
70,319 | 70,319 | | | ||||||||||
Financial liabilities |
||||||||||||||
Contingent earn-out liabilities (3)
|
11,100 | | | 11,100 |
(1) | Fair value is based on quoted market prices. | |
(2) | Fair value is determined using quoted market prices of the assets. For further detail, see Note 3, Marketable securities. | |
(3) | This fair value measurement is based on unobservable inputs that are supported by little or no market activity and reflect the Companys own assumptions in measuring fair value using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and general macro-economic environment and industry trends. |
The Companys fair value estimate of the Southwind earn-out liability was $5.6 million as of
the date of acquisition. The final amount paid will be made in a combination of cash and/or the
Companys common stock. The Companys fair value estimate of the Concuity earn-out liability, which
is payable in cash, was $4.0 million as of the date of acquisition. Changes in the fair value of
the contingent earn-out liabilities subsequent to the acquisition date, including changes arising
from events that occurred after the acquisition date, such as changes in the Companys estimate of
performance achievements and discount rates, are recognized in earnings in the periods when the
estimated fair value changes. The following table represents a reconciliation of the change in the
contingent earn-out liabilities for the three and nine months ended December 31, 2010 and 2009 (in
thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Beginning balance |
$ | 10,000 | $ | | $ | 5,600 | $ | | ||||||||
Fair value change in Southwind contingent earn-out
liability (1) |
1,100 | | 1,500 | | ||||||||||||
Addition of Southwind contingent earn-out liability |
| 5,600 | | 5,600 | ||||||||||||
Addition of Concuity contingent earn-out liability |
| | 4,000 | | ||||||||||||
Ending balance |
$ | 11,100 | $ | 5,600 | $ | 11,100 | $ | 5,600 | ||||||||
(1) | Amounts were recognized in cost of services on the accompanying consolidated statements of income. |
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Non-financial assets and liabilities
Certain assets and liabilities are measured at fair value on a non-recurring basis; that is,
the assets and liabilities are not measured at fair value on an ongoing basis but are subject to
fair value adjustments in certain circumstances (e.g., when there is evidence of impairment).
During the nine months ended December 31, 2010, no fair value adjustments or material fair value
measurements were required for non-financial assets or liabilities.
As of September 30, 2009, the Company concluded that certain capitalized software development
costs were not fully recoverable based on projected cash flows attributable to those assets. As a
result, certain assets held and used with a carrying amount of $8.8 million as of September 30,
2009 were written down to a fair value of $1.4 million, resulting in a pre-tax impairment charge of
$7.4 million. The Company utilized the discounted cash flow method to determine the fair value of
the capitalized software assets as of September 30, 2009. Cash flows were determined based on the
Companys estimates of future operating results and discounted using an internal rate of return
consistent with that used by the Company to evaluate cash flows of other assets of a similar
nature. Due to the significant unobservable inputs inherent in discounted cash flow methodologies,
this method is classified as Level 3 in the fair value hierarchy. For additional information
related to this impairment, see Note 6, Property and equipment.
Note 9. Stock-based compensation
Equity incentive plans
The Company issues awards, including stock options and restricted stock units (RSUs), under
the Companys 2005 Stock Incentive Plan (the 2005 Plan) and the 2009 Stock Incentive Plan (the
2009 Plan). As of December 31, 2010, no options were available for future grants under the
Companys 2006 Stock Incentive Plan (the 2006 Plan).
The aggregate number of shares of the Companys common stock available for issuance under the
2005 Plan may not exceed 1,600,000, plus the shares that remained available for issuance under the
Companys 2001 Stock Incentive Plan (the 2001 Plan) as of November 15, 2005 and shares subject to
outstanding awards under the 2001 Plan that, on or after such date, cease for any reason to be
subject to such awards (other than reason of exercise or settlement of the awards to the extent
they are exercised for or settled in vested and non-forfeitable shares). Stock-based awards granted
under the 2005 Plan have a seven year maximum contractual term. The aggregate number of shares of
the Companys common stock available for issuance under the 2009 Plan may not exceed 1,055,000,
plus the shares that remained available for issuance under the 2006 Plan as of June 26, 2009 and
shares subject to outstanding awards under the 2006 Plan that, on or after such date, cease for any
reason to be subject to such awards (other than reason of exercise or settlement of the awards to
the extent they are exercised for or settled in vested and non-forfeitable shares). Stock-based
awards granted under the 2006 Plan and the 2009 Plan have a five year maximum contractual term. As
of December 31, 2010, there were 626,779 shares available for issuance under the 2005 Plan and
570,533 shares available for issuance under the 2009 Plan.
Stock options. During the three and nine months ended December 31, 2010, the Company granted a
total of 21,000 and 292,500 stock options with weighted average exercise prices of $48.84 and
$34.46, respectively. During the three and nine months ended December 31, 2009, the Company granted
a total of 30,000 and 950,050 stock options with weighted average exercise prices of $26.54 and
$19.05, respectively. The weighted average fair values of the stock option grants are listed in the
stock option valuation section below. During the three and nine months ended December 31, 2010,
participants exercised 130,134 and 426,317 stock options for a total intrinsic value of $2.3
million and $6.6 million, respectively. Intrinsic value is calculated as the number of shares
exercised times the Companys stock price at exercise less the exercise price of the option. During
the three and nine months ended December 31, 2009, participants exercised 11,500 options.
In September 2009, certain members of the Companys senior management and Board of Directors
voluntarily surrendered an aggregate of 830,025 stock options (both vested and unvested) having
exercise prices between $51.56 per share and $60.60 per share. The Company accelerated the
remaining expense on these cancelled awards, which resulted in pre-tax charges of approximately
$0.7 million recorded in cost of services, $0.1 million recorded in member relations and marketing,
and $1.1 million recorded in general and administrative expense during the three months ended
September 30, 2009. This cancellation resulted in the reversal of $4.7 million of deferred tax
assets that would no longer be realized. The reversal of these deferred tax assets resulted in a
decrease to additional paid-in capital as the Company has a sufficient pool of excess tax benefits.
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Stock option valuation. The Company calculates the fair value of all stock option awards, with
the exception of the stock options issued with market-based conditions, on the date of grant using
the Black-Scholes model. The following average key assumptions were used in the valuation of stock
options granted in each respective period:
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 (1) | 2009 | |||||||||||||
Stock option grants: |
||||||||||||||||
Risk-free interest rate |
1.2 | % | 1.4 | % | 2.0 | % | 1.6 | % | ||||||||
Expected lives in years |
4.0 | 3.0 | 3.9 | 4.0 | ||||||||||||
Expected volatility |
38.81 | % | 41.5 | % | 39.12 | % | 37.6 | % | ||||||||
Dividend yield |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Weighted average exercise price of options granted |
$ | 48.84 | $ | 26.54 | $ | 34.46 | $ | 19.05 | ||||||||
Weighted average grant date fair value of options granted |
$ | 15.57 | $ | 7.86 | $ | 11.16 | $ | 6.01 |
(1) | Includes 45,000 stock options that were issued with market-based conditions to an employee. The Company engaged a third party valuation firm to calculate the fair value of these stock option awards. The options were valued on the date of grant at $9.82 per share using a lattice option-pricing model. The significant assumptions used were as follows: risk-free interest rate of 1.71%; expected term of 3.3 years; expected volatility of 38.35%; dividend yield of 0.0%; and a weighted average exercise price of $34.27 per share. |
Restricted stock units. RSUs are equity settled stock-based compensation arrangements of a
number of shares of the Companys common stock. The fair value of each RSU award is determined as
the fair market value of the underlying shares using the closing price on the date of grant.
Compensation expense for RSU awards is recognized over the vesting period on a straight-line basis.
During the three and nine months ended December 31, 2010, the Company granted 7,300 and 265,614
RSUs, respectively. The weighted average grant date fair value of RSUs granted for the three and
nine months ended December 31, 2010 was $48.92 and $33.81, respectively. During the nine months
ended December 31, 2009, the Company granted 76,500 RSUs. The Company did not grant RSUs during the
three months ended December 31, 2009. The weighted average grant date fair value of RSUs granted
for the nine months ended December 31, 2009 was $18.60. No RSUs vested during the three months
ended December 31, 2010 or 2009. During the nine months ended December 31, 2010 and 2009, 63,681
and 5,562 RSUs vested for a total intrinsic value of $2.5 million and $0.1 million, respectively.
There were no shares withheld to satisfy employee tax withholding during the three months ended
December 31, 2010 or 2009. Of the RSUs vested in the nine months ended December 31, 2010 and 2009,
16,290 and 1,978 shares were withheld to satisfy minimum employee tax withholding.
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 15% of their eligible
compensation to purchase shares of the Companys common stock. Under the ESPP, shares of the
Companys common stock may be purchased at the end of each fiscal quarter at 95% of the closing
price of the Companys common stock. The fair value of employee stock purchase rights is equivalent
to a 5% discount of the purchase date closing price. A total of 842,000 shares of the Companys
common stock are authorized under the ESPP. As of December 31, 2010, a total of 756,302 shares were
available for issuance under the ESPP. During the three and nine months ended December 31, 2010,
the Company issued 1,075 and 3,266 shares under the ESPP at an average price of $45.25 and $42.69
per share, respectively. During the three and nine months ended December 31, 2009, the Company
issued 1,307 and 4,259 shares under the ESPP at an average price of $29.12 and $25.68 per share,
respectively.
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Compensation expense
The Company recognized stock-based compensation expense in the following consolidated
statements of income line items for stock options and RSUs and for shares issued under the ESPP for
the three and nine months ended December 31, 2010 and 2009 (in thousands, except per share
amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock-based compensation expense included in: |
||||||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of services |
$ | 761 | $ | 786 | $ | 2,196 | $ | 3,374 | ||||||||
Member relations and marketing |
474 | 492 | 1,369 | 1,650 | ||||||||||||
General and administrative |
954 | 911 | 3,414 | 5,036 | ||||||||||||
Total costs and expenses |
2,189 | 2,189 | 6,979 | 10,060 | ||||||||||||
Income from operations |
(2,189 | ) | (2,189 | ) | (6,979 | ) | (10,060 | ) | ||||||||
Net income |
$ | (1,403 | ) | $ | (1,438 | ) | $ | (4,473 | ) | $ | (6,609 | ) | ||||
Impact on diluted earnings per share |
$ | 0.08 | $ | 0.09 | $ | 0.27 | $ | 0.42 | ||||||||
There are no stock-based compensation costs capitalized as part of the cost of an asset.
Stock-based compensation expense by award type is below (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock-based compensation by award type: |
||||||||||||||||
Stock options |
$ | 927 | $ | 718 | $ | 2,715 | $ | 5,784 | ||||||||
Restricted stock units |
1,262 | 1,469 | 4,264 | 4,270 | ||||||||||||
Employee stock purchase rights |
| 2 | | 6 | ||||||||||||
Total stock-based compensation |
$ | 2,189 | $ | 2,189 | $ | 6,979 | $ | 10,060 | ||||||||
As of December 31, 2010, $16.1 million of total unrecognized compensation cost related to
stock-based compensation is expected to be recognized over a weighted average period of 1.4 years.
Note 10. 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 increased by the dilutive effects of
potential common shares outstanding during the period. The number of potential common shares
outstanding is determined in accordance with the treasury stock method, using the Companys
prevailing tax rates. Certain potential common share equivalents were not included in the
computation because their effect was anti-dilutive. Fully diluted shares outstanding for the three
and nine months ended December 31, 2010 includes 31,493 and 33,870 contingently issuable shares
related to the component of the Southwind earn-out estimated to be settled in stock. For additional
information regarding these shares, see Note 4, Acquisitions.
A reconciliation of basic to diluted weighted average common shares outstanding is as follows
(in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic weighted average common shares outstanding |
15,796 | 15,511 | 15,663 | 15,531 | ||||||||||||
Dilutive impact of stock options |
635 | 103 | 504 | 74 | ||||||||||||
Dilutive impact of restricted stock units |
138 | 87 | 102 | 52 | ||||||||||||
Dilutive impact of earn-out liability |
31 | | 34 | | ||||||||||||
Diluted weighted average common shares outstanding |
16,600 | 15,701 | 16,303 | 15,657 | ||||||||||||
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The following potential common share equivalents were not included in calculating diluted net
income per share because their effect was anti-dilutive (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Anti-dilutive stock options and restricted stock units |
60 | 2,007 | 616 | 2,582 |
Note 11. Comprehensive income
Comprehensive income consists of net income plus the net-of-tax impact of unrealized gains and
losses on certain investments in debt securities. Comprehensive income for the three and nine
months ended December 31, 2010 was $2.7 million and $12.5 million, respectively. Comprehensive
income for the three and nine months ended December 31, 2009 was $4.1 million and $6.4 million,
respectively. The accumulated elements of other comprehensive income, net of tax, included within
stockholders equity on the consolidated balance sheets are composed solely of net unrealized gains
and losses on marketable securities net of applicable income taxes.
Note 12. Income taxes
The Company uses a more-likely-than-not recognition threshold based on the technical merits of
the tax position taken for the financial statement recognition and measurement of a tax position.
If a tax position does not meet the more-likely-than-not initial recognition threshold, no benefit
is recorded in the financial statements. The Company does not currently anticipate that the total
amounts of unrecognized tax benefits will significantly change within the next 12 months. The
Company classifies interest and penalties on any unrecognized tax benefits as a component of the
provision for income taxes. No interest or penalties were recognized in the consolidated statements
of income for either of the three or nine month periods ended December 31, 2010 or 2009. The Company
files income tax returns in U.S. federal and state and foreign jurisdictions. With few exceptions,
the Company is no longer subject to U.S. federal, state, and local tax examinations for filings in
major tax jurisdictions before 2005.
Note 13. Stockholders equity
During the three months ended December 31, 2010 and 2009, the Company repurchased 41,190 and
76,230 shares of its common stock at a total cost of approximately $2.0 million and $2.0 million,
respectively, pursuant to its share repurchase program. For the nine months ended December 31, 2010
and 2009, 152,957 shares and 115,084 shares were repurchased under this program at a total cost of
approximately $6.5 million and $3.0 million, respectively. The total amount of common stock
purchased under the program as of December 31, 2010 was 7,484,698 shares of the Companys common
stock at a total cost of $314.5 million. Of these repurchased shares, 1,000,000 shares have been
retired and resumed the status of authorized and unissued shares. All repurchases to date have been
made in the open market. No minimum number of shares subject to repurchase has been fixed and the
share repurchase authorization has no expiration date. The Company has funded, and expects to
continue to fund, its share repurchases with cash on hand, proceeds from the sale of marketable
securities, and cash generated from operations. As of December 31, 2010, the remaining authorized
repurchase amount was $35.5 million.
Note 14. Subsequent events
On February 1, 2010, the Company acquired substantially all of the assets of Cielo
MedSolutions, LLC (Cielo), a leading provider of population management and patient registry
software in the ambulatory environment. The Company acquired Cielo to enhance its existing suite of
physician performance management solutions through the addition of analytics and workflow tools
that provide visibility across a patient population to enable appropriate clinical decisions. The
total purchase price consists of an initial payment of $7.5 million, of which approximately $1.5
million was placed into escrow, which will be released during a period of up to 18 months from the
date of acquisition if and as certain indemnity conditions are satisfied, and potential earn out
consideration which may be earned across the 18 months following acquisition if and as certain
business performance conditions are satisfied. Pro forma financial information for this acquisition
has not been presented because the effects are not material to the Companys historical
consolidated financial statements.
15
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Unless the context indicates otherwise, references in this report to the Company, the
registrant, we, our, and us mean The Advisory Board Company and its subsidiaries.
This report includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. These statements can sometimes be
identified by our use of forward-looking words such as may, will, believes, anticipates,
plans, expects, seeks, estimates, or intends and similar expressions. These statements
involve known and unknown risks, uncertainties, and other factors that may cause our actual
results, performance, or achievements to be materially different from the results, performance, or
achievements expressed or implied by the forward-looking statements, including the factors
discussed under Item 1A. Risk Factors in our annual report on Form 10-K for the fiscal year ended
March 31, 2010, or the 2010 Form 10-K, and our quarterly reports on Form 10-Q for the subsequent
quarters, filed with the Securities and Exchange Commission. We undertake no obligation to update
any forward-looking statements, whether as a result of circumstances or events that arise after the
date the statements are made, new information, or otherwise.
Executive Overview
We provide best practices research and analysis, business intelligence and software tools, and
installation support and management and advisory services to approximately 2,985 organizations,
including hospitals, health systems, pharmaceutical and biotech companies, health care insurers,
medical device companies, colleges, universities, and other educational institutions through 48 discrete programs. Members of each program typically are charged a fixed fee and have access to an
integrated set of services that may include best practice research studies, executive education
seminars, customized research briefs, web-based access to the programs content database, and
software tools.
Our four key areas of focus for 2011 are to continue to deliver world-class programs that
drive significant returns for our members and ensure member loyalty through outstanding value
delivery; to make select investments to capture the unique opportunities presented by current
healthcare market conditions, through developing and launching new programs and acquiring products,
services, and technologies that improve performance for our members; to integrate our recent
acquisitions into our broader portfolio of services; and to attract, develop, engage, and retain
world class talent across our organization. Success in all of these areas requires very strong
execution across our business, and we have a heavy focus on setting each team up to manage against
and hit high goals in each area of our operations.
As of December 31, 2010, memberships in 38 of our programs are renewable at the end of their
membership contract term, and contract terms generally run one, two, or three years. Our other ten
programs provide installation support and management and advisory services. Memberships in these
ten programs help members accelerate the adoption of best practices profiled in our research
studies and are not individually renewable. In each of our programs, we generally invoice and
collect fees in advance of accrual revenue. Our revenue grew 19.8% in the nine months ended
December 31, 2010 over the prior year period. Our contract value increased 18.3% to $300.2 million
as of December 31, 2010 when compared to December 31, 2009. We define contract value as the
aggregate annualized revenue attributed to all agreements in effect at a given point in time,
without regard to the initial term or remaining duration of any such agreement.
Our operating costs and expenses consist of cost of services, member relations and marketing
expenses, 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. Member relations and marketing expenses include the costs of acquiring new members and
renewing existing members. General and administrative expense encompasses the costs of human
resources and recruiting, finance and accounting, management information systems, facilities
management, new program development, and other administrative functions. Depreciation and
amortization expense includes the cost of depreciation of our property and equipment and
amortization of costs associated with the development of software and tools that are offered as
part of certain of our membership programs. Included in our operating costs for each period
presented are stock-based compensation expenses.
Critical Accounting Policies
Our accounting policies, which are in compliance with U.S. generally accepted accounting
principles, or GAAP, require us to apply methodologies, estimates, and judgments that have a
significant impact on the results we report in our financial statements. In our 2010 Form 10-K, we
have discussed those material policies that we believe are critical and require the use of complex
judgment in their application. There have been no material changes to our policies since our last
fiscal year ended March 31, 2010.
16
Table of Contents
Results of Operations
The following table shows statements of income data expressed as a percentage of revenue for
the periods indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Costs and expenses: |
||||||||||||||||
Cost of services |
54.8 | % | 52.7 | % | 53.1 | % | 53.0 | % | ||||||||
Member relations and marketing |
22.7 | % | 22.7 | % | 22.7 | % | 22.5 | % | ||||||||
General and administrative |
13.0 | % | 12.6 | % | 13.0 | % | 13.2 | % | ||||||||
Depreciation and amortization |
2.0 | % | 2.3 | % | 2.0 | % | 2.8 | % | ||||||||
Write-off of capitalized software |
| | | 4.2 | % | |||||||||||
Income from operations |
7.5 | % | 9.8 | % | 9.2 | % | 4.3 | % | ||||||||
Other income, net |
0.6 | % | 1.0 | % | 0.6 | % | 1.2 | % | ||||||||
Income before provision
for income taxes |
8.1 | % | 10.8 | % | 9.8 | % | 5.5 | % | ||||||||
Provision for income taxes |
(2.9 | )% | (3.7 | )% | (3.5 | )% | (1.9 | )% | ||||||||
Net income |
5.2 | % | 7.1 | % | 6.3 | % | 3.6 | % | ||||||||
Three and nine months ended December 31, 2010 compared to the three and nine months ended December
31, 2009
Overview. Net income decreased to $3.9 million in the three months ended December 31, 2010
from $4.3 million in the three months ended December 31, 2009. The decrease was primarily due to a
$1.1 million upward adjustment made to the fair value of the Southwind acquisition-related
contingent liability, which was offset in part by revenue growth from the introduction and
expansion of new products and cross-selling existing programs to existing members. Net income
increased to $13.4 million in the nine months ended December 31, 2010 from $6.4 million in the nine
months ended December 31, 2009 primarily due to revenue growth. The effects of such revenue growth
were offset in part by two non-cash charges during the three months ended September 30, 2009 which
totaled $6.2 million, net of tax.
Revenue. Total revenue increased 23.5% from $60.9 million in the three months ended December
31, 2009 to $75.2 million in the three months ended December 31, 2010, and contract value increased
18.3% to $300.2 million as of December 31, 2010 from $253.7 million as of December 31, 2009. Total
revenue increased 21.1% from $175.9 million in the nine months ended December 31, 2009 to $213.0
million in the nine months ended December 31, 2010. The increases in revenue and contract value in
the 2010 periods were primarily due to the introduction and expansion of new programs, including
our recent acquisitions, cross-selling existing programs to existing members, and, to a lesser
degree, price increases. We offered 48 membership programs as of December 31, 2010 and 44
membership programs as of December 31, 2009.
Cost of services. Cost of services increased 28.5% from $32.1 million in the three months
ended December 31, 2009 to $41.2 million in the three months ended December 31, 2010. The increase
in cost of services during the three months ended December 31, 2010 was primarily due to increased
costs associated with new programs and acquisitions, including a $0.8 million increase in
amortization related to acquisitions and a $1.1 million fair value adjustment to an
acquisition-related earn-out liability. Cost of services increased 21.4% from $93.2 million in the
nine months ended December 31, 2009 to $113.1 million in the nine months ended December 31, 2010.
The increase in cost of services during the nine months ended December 31, 2010 was primarily due
to increased costs associated with new programs and acquisitions, including a $2.4 million increase
in amortization related to acquisitions and a total of $1.5 million in fair value adjustments to an
acquisition-related earn-out liability recognized during the nine months ended December 31, 2010.
As a percentage of revenue, cost of services was 54.8% for the three months ended December 31, 2010
compared to 52.7% for the three months ended December 31, 2009 and was 53.1% for the nine months
ended December 31, 2010 compared to 53.0% for the nine months ended December 31, 2009.
Member relations and marketing. Member relations and marketing expense increased 23.8% from
$13.8 million in the three months ended December 31, 2009 to $17.1 million in three months ended
December 31, 2010. Member relations and marketing expense increased 22.4% from $39.5 million in the
nine months ended December 31, 2009 to $48.4 million in nine months ended December 31, 2010. The
increases in member relations and marketing expense during the 2010 periods were due to an increase
in sales staff and related travel and other associated costs, as well as an increase in member
relations personnel and related costs required to serve the expanding membership base.
As a percentage of revenue, member relations and marketing expense was 22.7% for both the three months
ended December 31, 2010 and 2009 and was 22.7% for the nine months ended December 31, 2010 compared
to 22.5% for the nine months ended December 31,
17
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2009.
During the three months ended December 31, 2010 and 2009, we had an average of 133 and 112 new business development teams, respectively.
General and administrative. General and administrative expense increased 27.1% from $7.7
million in the three months ended December 31, 2009 to $9.7 million in the three months ended
December 31, 2010. The increase in general and administrative expense during the three months ended
December 31, 2010 was primarily due to an increase in investments in new product development of
$0.8 million, as well as an increase in talent recruitment expenses of $0.4 million. General and
administrative expense increased 18.7% from $23.3 million in the nine months ended December 31,
2009 to $27.6 million in the nine months ended December 31, 2010. The increase in general and
administrative expense during the nine months ended December 31, 2010 was primarily due to an
increase in talent recruitment expenses of $1.5 million, as well as an increase in investments in
new product development of $1.0 million. As a percentage of revenue, general and administrative
expense was 13.0% for the three months ended December 31, 2010 compared to 12.6% for the three
months ended December 31, 2009, and was 13.0% for the nine months ended December 31, 2010 compared
to 13.2% for the nine months ended December 31, 2009.
Depreciation and amortization. Depreciation and amortization expense increased from $1.4
million, or 2.3% of revenue, in the three months ended December 31, 2009, to $1.5 million, or 2.0%
of revenue, in the three months ended December 31, 2010. This increase was primarily due to
increased amortization expense from developed capitalized internal-use software tools. Depreciation
and amortization expense decreased from $5.0 million, or 2.8% of revenue, in the nine months ended
December 31, 2009, to $4.3 million, or 2.0% of revenue, in the nine months ended December 31, 2010.
This decrease was primarily related to decreased amortization expense from developed capitalized
internal-use software tools in the current year due to the write-off in September 2009.
Write-off of capitalized software. During the nine months ended December 31, 2009, we
recognized an impairment charge on capitalized internally developed software assets of $7.4
million, with no comparable expense in fiscal 2010.
Other income, net. Other income, net decreased from $0.6 million in the three months ended
December 31, 2009 to $0.5 million in the three months ended December 31, 2010. Other income, net
decreased from $2.1 million in the nine months ended December 31, 2009 to $1.3 million in the nine
months ended December 31, 2010. Other income, net consists of interest income and foreign exchange
rate gains and losses. Interest income decreased from $0.6 million in the three months ended
December 31, 2009 to $0.5 million in the three months ended December 31, 2010 and decreased from
$1.8 million in the nine months ended December 31, 2009 to $1.2 million in the nine months ended
December 31, 2010 due to lower average invested cash balances during the 2010 periods and a
decrease in the average interest rate of the Companys marketable securities portfolio. We
recognized foreign exchange gains of $11,000 and $0.1 million during the three and nine months
ended December 31, 2010, respectively, due to the effect of fluctuating currency rates on our
receivable balances denominated in foreign currencies. We recognized a foreign exchange loss of
$22,000 in the three months ended December 31, 2009 and a foreign exchange gain of $0.3 million in
the nine months ended December 31, 2009.
Provision for income taxes. Our provision for income taxes was $2.2 million and $2.3 million
for the three months ended December 31, 2010 and 2009, respectively. Our provision for income taxes
was $7.5 million and $3.3 million for the nine months ended December 31, 2010 and 2009,
respectively. Our effective tax rate for the three and nine months ended December 31, 2010 was
35.9%, compared to 34.3% for the three and nine months ended December 31, 2009. The increase in our
tax rate is primarily due to the effect that higher estimated pre-tax income for fiscal year 2011,
when compared to fiscal year 2010, has on our effective rate when compared to the fixed nature of
our Washington, D.C. tax credits that we receive under the New E-conomy Transformation Act of 2000.
Stock-based compensation expense. We recognized the following stock-based compensation expense
in the consolidated statements of income line items for stock options and restricted stock units
issued under our stock incentive plans and for shares issued under our employee stock purchase plan
for the three and nine months ended December 31, 2010 and 2009 (in thousands, except per share
amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock-based compensation expense included in: |
||||||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of services |
$ | 761 | $ | 786 | $ | 2,196 | $ | 3,374 | ||||||||
Member relations and marketing |
474 | 492 | 1,369 | 1,650 | ||||||||||||
General and administrative |
954 | 911 | 3,414 | 5,036 | ||||||||||||
Total costs and expenses |
2,189 | 2,189 | 6,979 | 10,060 | ||||||||||||
Income from operations |
(2,189 | ) | (2,189 | ) | (6,979 | ) | (10,060 | ) | ||||||||
Net income |
$ | (1,403 | ) | $ | (1,438 | ) | $ | (4,473 | ) | $ | (6,609 | ) | ||||
Impact on diluted earnings per share |
$ | 0.08 | $ | 0.09 | $ | 0.27 | $ | 0.42 | ||||||||
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There were no stock-based compensation costs capitalized as part of the cost of an asset.
Certain members of the Companys senior management and Board of Directors voluntarily
surrendered a total of 830,025 options that had exercise prices between $51.56 per share and $60.60
per share during the nine months ended December 31, 2009. This cancellation led to a non-cash
charge of $1.3 million, net of tax.
As of December 31, 2010, $16.1 million of total unrecognized compensation cost related to
stock-based compensation was expected to be recognized over a weighted average period of 1.4 years.
Liquidity and Capital Resources
Cash flows generated from operating activities are our primary source of liquidity and we
believe that existing cash, cash equivalents, and marketable securities balances and operating cash
flows will be sufficient to support operating and capital expenditures, as well as share
repurchases and potential acquisitions, during at least the next 12 months. We had cash, cash
equivalents, and marketable securities balances of $107.6 million and $112.9 million as of December
31, 2010 and March 31, 2010, respectively. We expended $6.5 million and $3.0 million in cash to
purchase shares of our common stock through our share repurchase program during the nine months
ended December 31, 2010 and 2009, respectively. We have no long-term indebtedness.
Cash flows from operating activities. The combination of revenue growth, profitable
operations, and payment for memberships in advance of accrual revenue typically results in
operating activities generating net positive cash flows on an annual basis. Cash flows from
operating activities fluctuate from quarter to quarter based on the timing of new and renewal
contracts as well as certain expenses, and the first and second quarters of our fiscal year
typically provide the lowest quarterly cash flows from operations. Net cash flows provided by
operating activities were $33.6 million in the nine months ended December 31, 2010 and $27.5
million in the nine months ended December 31, 2009. The increase in net cash flows provided by
operating activities during the current period was primarily due to the increase in net income.
Cash flows from investing activities. Our cash management and investment strategy and capital
expenditure programs affect investing cash flows. Net cash flows used in investing activities were
$64.4 million and $9.7 million in the nine months ended December 31, 2010 and 2009, respectively.
Investing activities during the nine months ended December 31, 2010 consisted primarily of $35.0
million used in our acquisition of Concuity and related escrow, the net cash used for the purchases
of marketable securities of $20.5 million, and capital expenditures of $8.8 million. Investing
activities for the nine months ended December 31, 2009 used $9.7 million of cash, primarily
consisting of $13.6 million related to the Southwind acquisition and related escrow and a $5.0
million investment and capital expenditures of $1.4 million, partially offset by the net proceeds
on the redemption and sales of marketable securities of $10.4 million.
Cash flows from financing activities. We generated $6.8 million in cash from financing
activities in the nine months ended December 31, 2010, compared to net cash flows used in financing
activities of $2.7 million in the nine months ended December 31, 2009. Financing activities during
the nine months ended December 31, 2010 primarily consisted of $11.9 million from the issuance of
common stock from the exercise of stock options and $1.9 million of excess tax benefits generated
in connection with these exercises, offset in part by share repurchase activity. We repurchased
152,957 shares of our common stock pursuant to our share repurchase program at a total cost of
approximately $6.5 million in the nine months ended December 31, 2010. Also in the nine months
ended December 31, 2010, we had $0.6 million in shares withheld to satisfy minimum employee tax
withholding for vested restricted stock units. We repurchased 115,084 shares of our common stock at
a total cost of approximately $3.0 million in the nine months ended December 31, 2009 pursuant to
our share repurchase program.
Credit facilities. In November 2006, we entered into a $20 million revolving credit facility
with a commercial bank that can be used for working capital, share repurchases, or other general
corporate purposes. Borrowings on the credit facility, if any, will be collateralized by certain of
our marketable securities and will bear interest at an amount based on the published LIBOR rate. We
are also required to maintain an interest coverage ratio for each fiscal year of not less than
three to one. The credit facility renews automatically each year until 2011, and can be increased
at our request by up to an additional $10 million per year. There have been no borrowings under the
credit facility. The availability of borrowings under the credit facility was $20 million as of
December 31, 2010.
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Contractual Obligations
Our 2010 Form 10-K discloses certain commitments and contractual obligations that existed as
of March 31, 2010. Our December 31, 2009 acquisition of Southwind Health Partners, L.L.C. and
Southwind Navigator, LLC included a contingent obligation to make additional cash and/or common
stock payments if certain milestones were met. As of December 31, 2010, based on current facts and
circumstances, we have estimated the aggregate fair value of this contingent obligation at $7.1
million which will be paid at various intervals, if earned, over the evaluation periods beginning
on the acquisition date extending through December 31, 2014.
In April 2010, we acquired the health care division of Trintech Group plc (Concuity). The
consideration transferred in connection with this acquisition included a contingent obligation to
make additional payments based on the achievement of certain performance targets. As of December
31, 2010, we have estimated the aggregate fair value of this contingent obligation at $4.0 million,
which we anticipate will be paid, if earned, on December 31, 2011. In addition, $2.0 million was
placed into escrow with a third party on April 1, 2010 to be released as indemnity conditions are
satisfied. As of December 31, 2010, $0.8 million of this escrow has been released and $1.2 million
remains in escrow in accordance with terms of the agreement.
On July 29, 2010, we entered into a six-year operating lease for approximately 31,000 square
feet of office space located in Chennai, India. The initial lease term began on December 1, 2010.
Total non-cancellable lease payments over the term will be approximately $3.7 million.
Off-Balance Sheet Arrangements
As of December 31, 2010, 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.
Interest rate 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 include investments in highly liquid U.S. Treasury obligations
with maturities of less than three months. As of December 31, 2010, our marketable securities
consisted of $48.4 million in tax-exempt notes and bonds issued by various states and $21.9 million
in U.S. government agency securities. The weighted average maturity on all our marketable
securities as of December 31, 2010 was approximately 5.2 years. We perform periodic evaluations of
the relative credit ratings related to the cash, cash equivalents, and marketable securities. Our
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.
With respect to recent global economic events, there is an unprecedented uncertainty in the
financial markets, which could subject us to potential liquidity risks. Such risks could include
additional declines in our stock value, less availability and higher costs of additional credit,
potential counterparty defaults, and further commercial bank failures. We do not believe that the
value or liquidity of our cash, cash equivalents, and marketable securities, as described above,
have been significantly impacted by the recent credit crisis. In addition, we constantly monitor
the credit worthiness of our members and we believe that our current group of members are sound and
represent no unusual business risk.
Foreign currency risk. Although they have represented approximately 4% of our total revenue in
fiscal 2010 periods, our international operations subject us to risks related to currency exchange
fluctuations. Prices for our services sold to members located outside the United States are
sometimes denominated in local currencies (primarily British Pound Sterling). As a consequence,
increases in the U.S. dollar against local currencies in countries where we have members would
result in a foreign exchange loss recognized by us. We recorded foreign currency exchange gains of
$11,000 during the three months ended December 31, 2010 and gains of $0.1 million during the nine
months ended December 31, 2010, which are included in other income, net in our consolidated
statements of income. In the three and nine months ended December 31, 2009, we recorded a foreign
currency exchange loss of $22,000 and a foreign currency gain of $0.3 million, respectively. A
hypothetical 10% change in foreign currency exchange rates would not have a material impact on our
financial position as of December 31, 2010.
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Item 4. Controls and Procedures.
Our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, have evaluated
the effectiveness of our disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this
quarterly report as required by Rules 13a-15(b) or 15d-15(b) under the Exchange Act.
Our management, including our 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 systems 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,
our disclosure controls and procedures were effective to provide reasonable assurance that
information required to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms and to provide reasonable assurance that such
information is accumulated and communicated to our management, including our 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 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 2010 Form
10-K. The risks discussed in our 2010 Form 10-K could materially affect our business, financial
condition, and future results. The risks described in our 2010 Form 10-K are not the only risks
facing us. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial also may materially and adversely affect our business, financial condition or
operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In January 2004, our Board of Directors authorized the repurchase by us from time to time of
up to $50 million of our common stock, which authorization was increased in cumulative amount to
$100 million in October 2004, to $150 million in February 2006, to $200 million in January 2007, to
$250 million in July 31, 2007, and to $350 million in April 2008. All repurchases have been made in
the open market pursuant to this publicly announced repurchase program. No minimum number of shares
has been fixed, and the share repurchase authorization has no expiration date.
Total Number of | Approximate | |||||||||||||||
Shares Purchased as | Dollar Value of | |||||||||||||||
Part of Publicly | Shares That May | |||||||||||||||
Total Number of | Average Price | Announced Plans or | Yet Be Purchased | |||||||||||||
Shares Purchased | Paid Per Share | Programs | Under the Plan | |||||||||||||
October 1 to October 31, 2010 |
| $ | | | $ | 37,464,223 | ||||||||||
November 1 to November 30, 2010 |
12,578 | $ | 47.68 | 12,578 | $ | 36,864,447 | ||||||||||
December 1 to December 31, 2010 |
28,612 | $ | 48.75 | 28,612 | $ | 35,469,638 | ||||||||||
Total |
41,190 | $ | 48.42 | 41,190 | ||||||||||||
As of December 31, 2010, we had repurchased a total of 7,484,698 shares under our repurchase
program.
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Table of Contents
Item 6. Exhibits.
(a) Exhibits:
*3.1
|
Certificate of Incorporation of The Advisory Board Company | |
**3.2
|
Certificate of Amendment of the Certificate of Incorporation of The Advisory Board Company | |
***3.3
|
Amended and Restated Bylaws of The Advisory Board Company | |
#3.4
|
Form of Common Stock Certificate | |
+10.1
|
Amended and Restated Employment Agreement, entered into as of November 3, 2010, by and between The Advisory Board Company and Frank J. Williams | |
31.1
|
Certification of the Chief Executive Officer pursuant to Rule13a-14(a) of the Securities Exchange Act of 1934, as amended | |
31.2
|
Certification of the Chief Financial Officer pursuant to Rule13a-14(a) of the Securities Exchange Act of 1934, as amended | |
32.1
|
Certifications pursuant to 18 U.S.C. Section 1350 |
* | Incorporated herein by reference to Exhibit 3.1 to the Companys Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission on August 22, 2001. | |
** | Incorporated herein by reference to Exhibit 3.1 to Amendment No. 3 to the Companys Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission on October 29, 2001. | |
*** | Incorporated herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission on November 14, 2007. | |
# | Incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the Companys Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission on October 29, 2001. | |
+ | Incorporated herein by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission on November 9, 2010. |
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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.
THE ADVISORY BOARD COMPANY |
||||
Date: February 9, 2011 | By: | /s/ Michael T. Kirshbaum | ||
Michael T. Kirshbaum | ||||
Chief Financial Officer and Treasurer |
23
Table of Contents
INDEX TO EXHIBITS
Exhibit | ||
Number | Description of Exhibit | |
*3.1
|
Certificate of Incorporation of The Advisory Board Company | |
**3.2
|
Certificate of Amendment of the Certificate of Incorporation of The Advisory Board Company | |
***3.3
|
Amended and Restated Bylaws of The Advisory Board Company | |
#3.4
|
Form of Common Stock Certificate | |
+10.1
|
Amended and Restated Employment Agreement, entered into as of November 3, 2010, by and between The Advisory Board Company and Frank J. Williams | |
31.1
|
Certification of the Chief Executive Officer pursuant to Rule13a-14(a) of the Securities Exchange Act of 1934, as amended | |
31.2
|
Certification of the Chief Financial Officer pursuant to Rule13a-14(a) of the Securities Exchange Act of 1934, as amended | |
32.1
|
Certifications pursuant to 18 U.S.C. Section 1350 |
* | Incorporated herein by reference to Exhibit 3.1 to the Companys Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission on August 22, 2001. | |
** | Incorporated herein by reference to Exhibit 3.1 to Amendment No. 3 to the Companys Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission on October 29, 2001. | |
*** | Incorporated herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission on November 14, 2007. | |
# | Incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the Companys Registration Statement on Form S-1, filed with the U.S. Securities and Exchange Commission on October 29, 2001. | |
+ | Incorporated herein by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission on November 9, 2010. |
24