SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**








**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**


**For
      the quarterly period ended June 30, 2005**


**Commission
      File No. 001-31256**





**CLARK,
      INC.**


(Exact
      name of Registrant as specified in its charter)





**Delaware**
            **52-2103926**(State
                of Incorporation)
            (I.R.S.
                Employer Identification No.)





**102
                South Wynstone Park Drive****North
                Barrington, Illinois**
            **60010**(Address
                of principal executive offices)
            (Zip
                code)





Registrant’s
      telephone number: **(847)
      304-5800**













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 x No  ̈





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). Yes x No  ̈





As
      of
      June 30, 2005, the registrant had outstanding 18,303,150 shares of common
      stock.



















**TABLE
      OF CONTENTS**








PAGEForward-Looking
                Statements
            3PART
                I - FINANCIAL INFORMATIONItem
                1. Financial Statements (Unaudited)
            4Condensed
                Consolidated Balance Sheetsas of June 30,
                2005and
                December 31, 2004
            4Condensed
                Consolidated Statements of Incomefor the
                ThreeMonths
                and Six Months Ended June 30, 2005 and 2004
            5Condensed
                Consolidated Statements of Cash Flows for
                theSix
                Months Ended June 30, 2005 and 2004
            6Notes
                to Condensed Consolidated Financial
                Statements
            7Item
                2. Management’s Discussion and Analysis of
                FinancialCondition
                and Results of Operations
            15Item
                3. Quantitative and Qualitative Disclosures About
                Market Risk
            25Item
                4. Controls and Procedures
            25PART
                II. OTHER INFORMATIONItem
                1. Legal Proceedings
            25Item
                2. Unregistered Sales of Equity Securities and
                Use of Proceeds
            26Item
                3. Defaults Upon Senior
                Securities
            26Item
                4. Submission of Matters to a Vote of Security
                Holders
            26Item
                5. Other Information
            27Item
                6.Exhibits
            27SIGNATURES
            28EXHIBITSIndex
                to Exhibits
            29








2
 
 Table
          of Contents








**FORWARD-LOOKING
      STATEMENTS**





This
      Form
      10-Q may contain forward-looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933, and Section 21E of the Securities Exchange
      Act
      of 1934, as amended. Such statements are identified by words such as
      "anticipate," "believe," "estimate," "expect," "intend," "predict," "project,"
      and similar expressions. When we make forward-looking statements, we are basing
      them on management's beliefs and assumptions, using information currently
      available to us. These forward-looking statements are subject to risks,
      uncertainties, and assumptions, including but not limited to, risks,
      uncertainties, and assumptions related to the following:





Ÿ
            changes
                in tax legislation;





Ÿ
            other
                federal and state laws and
                regulations;





Ÿ
            general
                economic conditions;





Ÿ
            competitive
                factors and pricing pressures;





Ÿ
            our
                dependence on key producers, consultants, and services of key
                personnel;





Ÿ
            our
                dependence on persistency of existing
                business;





Ÿ
            our
                ability to achieve our earnings
                projections;





Ÿ
            risks
                associated with acquisitions;





Ÿ
            significant
                intangible assets;





Ÿ
            our
                dependence on a select group of insurance
                companies;





Ÿ
            supplemental
                compensation arrangements with certain insurance companies;
                and





Ÿ
            our
                dependence on information processing systems and risk of errors or
                omissions.








If
      one or
      more of these or other risks or uncertainties materialize, or if our underlying
      assumptions prove to be incorrect, actual results may vary materially from
      those
      anticipated. Any forward-looking statements you read in this Form 10-Q reflect
      our current views with respect to future events and are subject to these and
      other risks, uncertainties, and assumptions relating to our operations, results
      of operations, growth strategy, and liquidity. You should specifically consider
      the factors identified in our Form 10-K for the year ended December 31, 2004,
      included under the caption “Risk Factors,” or in the documents incorporated by
      reference in our Form 10-K, which could cause actual results to differ
      materially from those indicated by the forward-looking statements. In light
      of
      the foregoing risks and uncertainties, you should not unduly rely on such
      forward-looking statements when deciding whether to buy, sell, or hold any
      of
      our securities. We disclaim any intent or obligation to update or alter any
      of
      the forward-looking statements whether in response to new information,
      unforeseen events, changed circumstances, or otherwise.


3
 
 Table
          of Contents


**PART
      1. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**CLARK,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**As
      of June 30, 2005 and December 31, 2004**


**(Unaudited)**


**(Dollars
      in thousands except share and per share data)**


**June
                30,**
            
            **December
                31,****2005**
            
            **2004****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            17,121
            
            $
            23,199Restricted
                cash
            
            
            8,061
            
            
            12,020Accounts
                and notes receivable, net
            
            
            32,183
            
            
            44,388Prepaid
                income taxes
            
            
            3,874
            
            
            1,479Deferred
                tax assets
            
            
            729
            
            
            782Other
                current assets
            
            
            2,396
            
            
            2,445**Total
                Current Assets**
            
            
            64,364
            
            
            84,313**Intangible
                Assets, net**Net
                present value of inforce revenue
            
            
            432,711
            
            
            439,644Goodwill
            
            
            140,047
            
            
            138,768Non-compete
                agreements
            
            
            5,053
            
            
            5,834**Total
                Intangible Assets, net**
            
            
            577,811
            
            
            584,246**Equipment
                and Leasehold Improvements, net**
            
            
            11,872
            
            
            12,140**Cash
                Surrender Value of Life Insurance**
            
            
            8,908
            
            
            8,111**Other
                Assets**
            
            
            11,165
            
            
            12,483**Total
                Assets**
            
            $
            674,120
            
            $
            701,293**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            3,911
            
            $
            3,886Accrued
                liabilities
            
            
            33,864
            
            
            54,145Deferred
                revenue
            
            
            4,368
            
            
            2,268Recourse
                debt maturing within one year
            
            
            1,361
            
            
            1,295Non-recourse
                debt maturing within one year
            
            
            3,287
            
            
            13,632**Total
                Current Liabilities**
            
            
            46,791
            
            
            75,226**Trust
                Preferred Debt**
            
            
            45,000
            
            
            45,000**Long-Term
                Recourse Debt**
            
            
            2,730
            
            
            3,427**Long-Term
                Non-Recourse Debt**
            
            
            257,445
            
            
            261,195**Deferred
                Tax Liabilities**
            
            
            28,481
            
            
            24,752**Deferred
                Compensation**
            
            
            10,115
            
            
            8,215**Other
                Non-Current Liabilities**
            
            
            6,797
            
            
            9,292**Total
                Liabilities**
            
            
            397,359
            
            
            427,107**Stockholders'
                Equity**Preferred
                stockAuthorized
                - 1,000,000 shares; $.01 par value, none issued
            
            
            -
            
            
            -Common
                stockAuthorized
                - 40,000,000 shares; $.01 par value issued -18,842,316
                shares at June 30, 2005 and 18,796,792 shares at December 31,
                2004
            
            
            189
            
            
            188Paid-in
                capital
            
            
            194,661
            
            
            193,849Retained
                earnings
            
            
            89,587
            
            
            87,803Other
                comprehensive income (loss)
            
            
            (130
            )
            
            (135
            )Deferred
                compensation
            
            
            2,477
            
            
            1,898Treasury
                stock, at cost - 539,166 shares at June 30, 2005 and 549,171 shares
                at
              December
                31, 2004
            
            
            (10,023
            )
            
            (9,417
            )**Total
                Stockholders' Equity**
            
            
            276,761
            
            
            274,186**Total
                Liabilities and Stockholders' Equity**
            
            $
            674,120
            
            $
            701,293


See
      accompanying notes to these condensed consolidated financial
      statements.


4
 
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**(Unaudited)**


**(Dollars
      in thousands except share and per share data)**








**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Revenue**First
                year commissions and related fees
            
            $
            25,594
            
            $
            22,719
            
            $
            44,571
            
            $
            58,044Renewal
                commissions and related fees
            
            
            30,819
            
            
            33,403
            
            
            66,924
            
            
            71,857Consulting
                fees
            
            
            10,353
            
            
            12,760
            
            
            20,596
            
            
            22,145Reimbursable
                expenses
            
            
            1,680
            
            
            1,667
            
            
            3,303
            
            
            3,206**Total
                Revenue**
            
            
            68,446
            
            
            70,549
            
            
            135,394
            
            
            155,252**Operating
                Expenses**Commissions
                and fees
            
            
            14,240
            
            
            14,809
            
            
            28,042
            
            
            38,028General
                and administrative
            
            
            41,192
            
            
            41,473
            
            
            81,658
            
            
            82,537Reimbursable
                expenses
            
            
            1,680
            
            
            1,667
            
            
            3,303
            
            
            3,206Amortization
            
            
            3,843
            
            
            4,564
            
            
            7,687
            
            
            9,106**Total
                Operating Expenses**
            
            
            60,955
            
            
            62,513
            
            
            120,690
            
            
            132,877**Operating
                Income**
            
            
            7,491
            
            
            8,036
            
            
            14,704
            
            
            22,375**Other
                Income (Expense), net**
            
            
            1,615
            
            
            3
            
            
            1,615
            
            
            (1,465
            )**Interest,
                net**Income
            
            
            107
            
            
            49
            
            
            271
            
            
            106Expense
            
            
            (5,444
            )
            
            (5,537
            )
            
            (10,996
            )
            
            (11,138
            )**Total
                Interest, net**
            
            
            (5,337
            )
            
            (5,488
            )
            
            (10,725
            )
            
            (11,032
            )Income
                before taxes
            
            
            3,769
            
            
            2,551
            
            
            5,594
            
            
            9,878Income
                taxes
            
            
            (897
            )
            
            (890
            )
            
            (1,620
            )
            
            (3,803
            )**Net
                Income**
            
            $
            2,872
            
            $
            1,661
            
            $
            3,974
            
            $
            6,075Basic
                Earnings per Common Share
            
            $
            0.16
            
            $
            0.09
            
            $
            0.22
            
            $
            0.33Weighted
                average shares outstanding - Basic
            
            
            18,357,568
            
            
            18,569,701
            
            
            18,336,473
            
            
            18,530,412Diluted
                Earnings per Common Share
            
            $
            0.16
            
            $
            0.09
            
            $
            0.22
            
            $
            0.32Weighted
                average shares outstanding - Diluted
            
            
            18,476,680
            
            
            18,880,476
            
            
            18,479,750
            
            
            18,877,991Cash
                dividends:Paid
            
            $
            0.06
            
            $
            -
            
            $
            0.06
            
            $
            -Declared
            
            $
            0.06
            
            $
            -
            
            $
            0.12
            
            $
            -
































See
      accompanying notes to these condensed consolidated financial
      statements.


5
 
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(Unaudited)**


**(Dollars
      in thousands)**








**Six
                Months Ended June 30,****2005**
            
            **2004****Net
                Cash from Operating Activities**
            
            $
            17,764
            
            $
            27,130**Investing
                Activities**Purchases
                of businesses, net of cash acquired
            
            
            (9,253
            )
            
            (6,994
            )Purchases
                of equipment
            
            
            (2,663
            )
            
            (1,879
            )Cash
                used in investing activities
            
            
            (11,916
            )
            
            (8,873
            )**Financing
                Activities**Proceeds
                from borrowings
            
            
            -
            
            
            67,060Repayment
                of borrowings
            
            
            (14,726
            )
            
            (90,039
            )Dividends
                paid
            
            
            (1,093
            )
            
            -Cash
                restricted for the repayment of non-recourse notes
            
            
            3,959
            
            
            6,341Exercise
                of stock options
            
            
            673
            
            
            738Repurchase
                of Company stock
            
            
            (739
            )
            
            -Cash
                used in financing activities
            
            
            (11,926
            )
            
            (15,900
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (6,078
            )
            
            2,357**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            23,199
            
            
            3,156**Cash
                and Cash Equivalents at End of Period**
            
            $
            17,121
            
            $
            5,513*Supplemental
                Disclosure for Cash Paid during the Period:*Interest
            
            $
            10,660
            
            $
            10,480Income
                taxes, net of refunds
            
            
            223
            
            
            94*Supplemental
                Non-Cash Information:*Fair
                value of common stock issued in connection with acquisition contingent
                payouts
            
            $
            539
            
            $
            1,005






































See
      accompanying notes to these condensed consolidated financial
      statements.


6
 
 Table
          of Contents


**CLARK,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**Unaudited**


**June
      30, 2005**





*(Tables
      shown in thousands of dollars, except share and per share
      amounts)*









**1.**  **NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





*Basis
      of Presentation -* The
      condensed consolidated financial statements include the accounts of Clark,
      Inc.
      (“the Company”) and its wholly-owned subsidiaries. Through
      the Company’s five operating segments, Executive Benefits Practice, Banking
      Practice, Healthcare Group, Pearl Meyer & Partners, and Federal Policy
      Group, the Company designs, markets, and administers compensation and benefit
      programs for companies supplementing and securing employee benefits and provides
      executive compensation and related consulting services to U.S. corporations,
      banks, and healthcare organizations. The Company assists its clients in using
      customized life insurance products to finance their long-term benefit
      liabilities. In addition, the Company owns Clark Securities, Inc. (“CSI”), a
      registered broker/dealer through which it sells all its securities products
      and
      receives related commissions. All
      significant intercompany amounts and transactions have been eliminated in the
      accompanying condensed consolidated financial statements.





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America (“GAAP”) for interim financial information in
      accordance with the instructions to Form 10-Q and Article 10 of Regulation
      S-X.
      Accordingly, they do not include all of the information and footnotes required
      by GAAP for complete financial statements. In the Company’s opinion, all
      adjustments, including normally recurring accruals, considered necessary for
      a
      fair presentation have been included. Operating results for the three and six
      months ended June 30, 2005, are not necessarily indicative of the results that
      may be expected for the year ending December 31, 2005, or any other
      period.





The
      balance sheet at December 31, 2004 has been derived from the audited financial
      statements at that date but does not include all of the information and
      footnotes required by GAAP for complete financial statements.





For
      further information, including a summary of significant accounting policies,
      refer to the consolidated financial statements and footnotes thereto included
      in
      the Company’s Annual Report on Form 10-K for the year ended December 31,
      2004.





*Stock-Based
      Compensation -* Statement
      of Financial Accounting Standard ** (“SFAS”)
      No. 123, *Accounting
      for Stock-Based Compensation,* established accounting and disclosure requirements using a fair value based
      method of accounting for stock-based employee compensation plans. The Company
      has elected to remain on the method of accounting as described in Accounting
      Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees,* for
      employees and directors. However, the Company accounts for stock options granted
      to non-employees under the provisions of SFAS No. 123.





The
      pro
      forma information regarding net income and earnings per share required by SFAS
      No. 123 has been determined as if the Company accounted for its stock-based
      compensation plans under the fair value method. The fair value of each option
      grant was estimated at the date of grant using the Black-Scholes option pricing
      model with the following weighted average assumptions used for grants in 2005
      and 2004, respectively:




**June
                  30,****2005**
              
              **2004**Dividend
                  yield
              
              
              1.6
              %
              
              NoneVolatility
              
              
              57.5
              %
              
              61.3
              %Risk-free
                  interest rates
              
              
              3.8
              %
              
              5.2
              %Expected
                  life (years)
              
              
              5
              
              
              5








7
 
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **June
            30, 2005**








Had
      compensation cost for the Company’s stock-based compensation plans been
      determined in accordance with SFAS No. 123, as amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure - An Amendment of
      FASB
      Statement No. 123* ,
      the
      Company’s net income and earnings per share would have been reduced to the pro
      forma amounts indicated below:


**Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****Net
                  Income**As
                  reported
              
              $
              2,872
              
              $
              1,661
              
              $
              3,974
              
              $
              6,075Deduct:
                  stock option compensation expense, net of tax
              
              
              (121
              )
              
              (588
              )
              
              (569
              )
              
              (1,338
              )Pro
                  forma
              
              $
              2,751
              
              $
              1,073
              
              $
              3,405
              
              $
              4,737**Basic
                  Earnings per Common Share**As
                  reported
              
              $
              0.16
              
              $
              0.09
              
              $
              0.22
              
              $
              0.33Pro
                  forma
              
              $
              0.15
              
              $
              0.06
              
              $
              0.19
              
              $
              0.26**Diluted
                  Earnings per Common Share**As
                  reported
              
              $
              0.16
              
              $
              0.09
              
              $
              0.22
              
              $
              0.32Pro
                  forma
              
              $
              0.15
              
              $
              0.06
              
              $
              0.18
              
              $
              0.25


Certain
      2004 amounts have been reclassified to conform to 2005 presentation due to
      the
      merger of Human Capital Practice into Executive Benefits Practice, which was
      effective January 1, 2005.





**2.**  **RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123(R), *Share-Based
      Payment,* which
      supersedes Accounting Principle Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees,* and
      its
      related implementation guidance. SFAS No. 123(R) requires companies to recognize
      in the income statement the grant-date fair value of stock options and other
      equity-based compensation issued to employees. The requirements of SFAS 123(R)
      are effective as of the beginning of the first fiscal year beginning after
      June
      15, 2005. The Company will be required to adopt the provisions of SFAS 123(R)
      as
      of January 1, 2006. The Company is currently evaluating the impact to the
      financial statements of adoption of this pronouncement.





**3.**  **HUMAN
      CAPITAL PRACTICE**





In
      the
      fourth quarter of 2003, the Company reorganized its executive compensation
      consulting practices and recorded a charge of $7.5 million in the fourth quarter
      of 2003 relating to the reorganization, of which $3.1 million remains accrued
      on
      the condensed consolidated balance sheet as of June 30, 2005. Effective January
      1, 2005, the remaining Human Capital Practice was merged into Executive Benefits
      Practice. In the second quarter of 2005, the Company adjusted its estimate
      of
      net future lease costs based upon sublease arrangements on terms less favorable
      than its previous expectations. The net expense of $150 thousand is included
      in
      general and administrative expenses in the condensed consolidated statement
      of
      income for the three months ended June 30, 2005. During the six months ended
      June 30, 2005, the Company recorded net expense of approximately $90 thousand,
      which is included in general and administrative expenses in the condensed
      consolidated statement of income for the six months ended June 30,
      2005.


8
 
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **June
            30, 2005**





The
      Company will continue to evaluate the remaining restructuring reserve as plans
      are being executed. As a result, there may be adjustments to the reserve in
      future periods. A summary of the activity in the reserve account as of June
      30,
      2005, is as follows:





**Reserve
                Balance**
              
              **January
                1, 2005**
            
            **Cash**
              **Payments**
            
            **Adjustments**
            
            **Reserve
                Balance**
              **June
                30, 2005**Employee
                termination costs
            
            $
            325
            
            $
            -
            
            $
            -
            
            $
            325Lease
                costs
            
            
            2,946
            
            
            (303
            )
            
            90
            
            
            2,733Total
            
            $
            3,271
            
            $
            (303
            )
            $
            90
            
            $
            3,058





**4.**  **ACCOUNTS
      RECEIVABLE**





Major
      categories of accounts receivable are as follows:





**As
                of**
              **June
                30, 2005**
            
            **As
                of**
              **December
                31, 2004**Accounts
                receivable - trade
            
            $
            33,833
            
            $
            45,855Accounts
                receivable allowance
            
            
            (1,650
            )
            
            (1,467
            )$
            32,183
            
            $
            44,388





A
      summary
      of the activity in the allowance for uncollectible accounts receivables is
      as
      follows:





**Six
                Months Ended**
              **June
                30, 2005**
            
            **Year
                Ended**
              **December
                31, 2004**Beginning
                balance
            
            $
            (1,467
            )
            $
            (1,296
            )Write
                offs
            
            
            301
            
            
            805Expense
            
            
            (484
            )
            
            (976
            )Ending
                balance
            
            $
            (1,650
            )
            $
            (1,467
            )





As
      of
      June 30, 2005 and December 31, 2004, there were approximately $1.8 million
      and
      $2.6 million, respectively, of unbilled receivables included in accounts
      receivable on the condensed consolidated balance sheets. These unbilled amounts,
      the majority of which relate to in-process consulting projects, are typically
      billed during the quarter immediately following the reporting
      period.





**5.**  **GOODWILL
      AND OTHER INTANGIBLE ASSETS**





Changes
      in the carrying amount of goodwill for the six months ended June 30, 2005,
      by
      reporting units are as follows:





**Balance**
              **January
                1, 2005**
            
            **Acquired**
              **During
                Period**
            
            **Earnouts**
            
            **Balance**
              **June
                30, 2005**Executive
                Benefits Practice
            
            $
            21,855
            
            $
            -
            
            $
            (120
            )
            $
            21,735Banking
                Practice
            
            
            52,050
            
            
            410
            
            
            1,019
            
            
            53,479Healthcare
                Group
            
            
            14,076
            
            
            -
            
            
            -
            
            
            14,076Management
                Science Associates
            
            
            5,010
            
            
            -
            
            
            -
            
            
            5,010Pearl
                Meyer & Partners
            
            
            36,981
            
            
            -
            
            
            -
            
            
            36,981Federal
                Policy Group
            
            
            8,766
            
            
            -
            
            
            -
            
            
            8,766Corporate
            
            
            30
            
            
            -
            
            
            (30
            )
            
            -TOTAL
            
            $
            138,768
            
            $
            410
            
            $
            869
            
            $
            140,047





9
 
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **June
            30, 2005**








Information
      regarding the Company’s other intangible assets follows:





**As
                of June 30, 2005**
            
            **As
                of December 31, 2004****Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
            
            **Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**Inforcerevenue
            
            $
            500,494
            
            $
            (67,783
            )
            $
            432,711
            
            $
            500,521
            
            $
            (60,877
            )
            $
            439,644Non-competeagreements
            
            
            10,669
            
            
            (5,616
            )
            
            5,053
            
            
            10,669
            
            
            (4,835
            )
            
            5,834Total
            
            $
            511,163
            
            $
            (73,399
            )
            $
            437,764
            
            $
            511,190
            
            $
            (65,712
            )
            $
            445,478





Amortization
      expense of other intangible assets was $3.8 million and $4.6 million for the
      three months ended June 30, 2005 and June 30, 2004, respectively, and $7.7
      million and $9.1 million for the six months ended June 30, 2005 and June 30,
      2004, respectively.





The
      Company estimates that its amortization for 2005 through 2009 for intangible
      assets related to all acquisitions consummated through June 30, 2005 will be
      approximately as follows:





Year
            
            Amount2005
            
            $
            15,3732006
            
            
            14,7832007
            
            
            14,3952008
            
            
            13,9622009
            
            
            13,114





**6.**  **CONTINGENT
      CONSIDERATION**





As
      a
      result of the Company’s acquisition program, the Company has approximately $9.3
      million of contingent consideration potentially due to the former owners of
      the
      Company’s acquired entities, including $4.2 million that has been earned and is
      accrued on the condensed consolidated balance sheet as of June 30, 2005. If
      and
      when the acquired entities meet certain criteria negotiated at the time of
      the
      purchase, these amounts are payable as additional consideration. A summary
      of
      the amounts payable if the criteria are met is as follows for acquisitions
      that
      were completed as of June 30, 2005:





**Potential
                Amounts Payable in**
            
            **Cash**2005
            
            $
            3,6032006
            
            
            2,1002007
            
            
            3,602$
            9,305





**7.**  **STATEMENT
      OF COMPREHENSIVE INCOME**





Under
      SFAS No. 130, *Comprehensive
      Income* ,
      the
      comprehensive income for the Company consists of net income and changes in
      fair
      value of interest rate swaps, net of tax. Shown below is the Company’s
      comprehensive income:





**Three
                Months Ended June 30,**
            
            **Six
                Months Ended****June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                income
            
            $
            2,872
            
            $
            1,661
            
            $
            3,974
            
            $
            6,075Change
                in fair value of interest rateswap,
                net of tax
            
            
            (230
            )
            
            205
            
            
            5
            
            
            115Comprehensive
                income
            
            $
            2,642
            
            $
            1,866
            
            $
            3,979
            
            $
            6,190





Table
          of Contents





**8.**  **EARNINGS
      PER SHARE**





The
      following table sets forth the computation of basic and diluted earnings per
      common share:





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Numerator
                for basic and diluted earnings per
              common
                share
            
            $
            2,872
            
            $
            1,661
            
            $
            3,974
            
            $
            6,075**Denominator:**Basic
                earnings per common share -weighted
                average shares outstanding
            
            
            18,357,568
            
            
            18,569,701
            
            
            18,336,473
            
            
            18,530,412Effect
                of dilutive securities:Stock
                options
            
            
            119,112
            
            
            265,525
            
            
            130,348
            
            
            277,910Contingent
                shares earned not issued
            
            
            -
            
            
            45,250
            
            
            12,929
            
            
            69,669Diluted
                earnings per share - weighted average
              shares
                plus assumed conversions
            
            
            18,476,680
            
            
            18,880,476
            
            
            18,479,750
            
            
            18,877,991Basic
                earnings per common share
            
            $
            0.16
            
            $
            0.09
            
            $
            0.22
            
            $
            0.33Diluted
                earnings per common share
            
            $
            0.16
            
            $
            0.09
            
            $
            0.22
            
            $
            0.32





For
      both
      the three and six months ended June 30, 2005, there are approximately 950
      thousand of outstanding stock options which are not included in the computation
      of diluted earnings per share because the exercise prices of the options were
      greater than the average market prices of the Company’s common shares during the
      respective periods. For the three and six months ended June 30, 2004, there
      are
      approximately 737 thousand of outstanding stock options which are not included
      in the computation of diluted earnings per share because the exercise prices
      of
      the options were greater than the average market prices of the Company’s common
      shares during the respective periods. The range of exercise prices for these
      antidilutive stock options was between $15.51 and $25.28 at June 30, 2005,
      and
      $17.79 and $30.30 at June 30, 2004.





**9.**  **INTEREST
      RATE SWAPS**





The
      Company has limited transactions that fall under the accounting rules of SFAS
      No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      as
      amended by SFAS No. 137 and SFAS No. 138. From time to time, the Company uses
      financial instruments, including interest rate swap agreements, to manage
      exposure to movements in interest rates. On June 3, 2005 and February 25, 2005,
      the Company entered into interest rate swaps with non-amortizing notional values
      of $12 million and $10 million, respectively, to hedge outstanding
      LIBOR-based debt. These swaps and interest rate swaps entered into in 2004
      and
      2003 have been designated as cash flow hedges. As such, the changes in the
      fair
      value of the interest rate swaps are recorded in other comprehensive income
      (“OCI”) for the effective portion of the hedge, while the ineffective portion is
      recorded immediately in earnings.  Amounts are reclassified from OCI
      to
      earnings as the interest rate swaps effect earnings.  There
      have been no charges to earnings for ineffectiveness of interest rate hedges
      for
      the three or six months ended June 30, 2005. The fair value of interest rate
      swap agreements, based upon bank quotes, was a liability of approximately $62
      thousand at June 30, 2005. The terms of these interest rate swaps are as follows
      (fair value in thousands):





**Effective
                Date**
            
            **Maturity
                Date**
            
            **Notional
                Amount at June 30, 2005**
            
            **Fixed
                Rate to be Paid**
            
            **Variable
                Rate to be Received**
            
            **Fair
                Value as of**
              **June
                30, 2005**June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            $
            (9
            )February
                25, 2005
            
            
            December
                31, 2009
            
            
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            (142
            )May
                18, 2004
            
            
            March
                31, 2009
            
            
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            (105
            )January
                7, 2003
            
            
            December
                31, 2007
            
            
            14.0
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            194Total
            
            
            
            
            $
            43.0
                million
            
            
            
            
            
            
            
            $
            (62
            )




Table
          of Contents





10.
      LIFE INSURANCE
      PROCEEDS




For
      the
      three months ended June 30, 2005, the Company received $1.6 million of net
      life
      insurance proceeds following the death of an executive in the Healthcare Group.
      This amount is not subject to taxation. This amount is included in other income
      (expense), net, in the condensed consolidated statement of income for the three
      and six months ended June 30, 2005.





**11.**  **DIVIDENDS**





On
      July
      25, 2005, the Board of Directors authorized the Company to pay a dividend of
      $0.06 per share to all stockholders of record as of September 1, 2005, payable
      on October 1, 2005.





On
      April
      26, 2005, the Board of Directors authorized the Company to pay a dividend of
      $0.06 per share (approximately $1.1 million) to all stockholders of record
      as of
      June 1, 2005, which was paid on July 1, 2005.





On
      January 25, 2005, the Board of Directors authorized the Company to pay a
      dividend of $0.06 per share (approximately $1.1 million) to all stockholders
      of
      record as of March 1, 2005, which was paid on April 1, 2005.





**12.**  **SEGMENTS
      AND RELATED INFORMATION**





The
      Company has five reportable segments:





·
            Executive
                Benefits Practice - markets, designs, implements, administers, and
                finances non-qualified benefit plans for companies of all sizes including
                Fortune 1000 companies and provides compensation, benefit, and human
                resource consulting services.





·
            Banking
                Practice - offers compensation consulting, executive and director
                benefit
                programs, and bank-owned life insurance to the bank
                market.





·
            Healthcare
                Group - provides specialized compensation and benefit services for
                large
                and medium sized not-for-profit healthcare
                organizations.





·
            Pearl
                Meyer & Partners - specializes in executive compensation and retention
                programs.





·
            Federal
                Policy Group - provides a variety of legislative and regulatory strategic
                services.





The
      segment information as of, and for the periods ended June 30, 2005 and 2004,
      for
      the Executive Benefits Practice segment reflects the results of, and information
      related to, the Human Capital Practice, which was merged into the Executive
      Benefits Practice effective January 1, 2005.





The
      five
      reportable segments operate as independent and autonomous business units with
      a
      central corporate staff in North Barrington, Illinois responsible for finance,
      strategic planning, human resources and company-wide policies. Each segment
      has
      its own client base as well as its own marketing, administration, and
      management.





The
      Company has disclosed income from operations as the primary measure of segment
      earnings (loss). This is the measure of profitability used by the Company’s
      chief operating decision-maker and the most consistent with the presentation
      of
      profitability reported within the condensed consolidated financial statements.
      The accounting policies of the business segment reports are the same as those
      described in Note 1 “ *Nature
      of Operations and Summary of Significant Accounting Policies* ”
      in the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2004.





The
      Company evaluates performance and allocates resources based on operating income
      before income taxes, interest, and corporate administrative expenses. There
      are
      no inter-segment revenues or expenses.





Segment
      information for the three and six month periods ended June 30, 2005 and 2004,
      is
      as follows:


12
 
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **June
            30, 2005**





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Revenues
                from External Customers**Executive
                Benefits Practice
            
            $
            14,561
            
            $
            14,963
            
            $
            32,664
            
            $
            43,907Banking
                Practice
            
            
            29,506
            
            
            31,870
            
            
            55,904
            
            
            65,654Healthcare
                Group
            
            
            9,725
            
            
            9,406
            
            
            19,906
            
            
            19,399Pearl
                Meyer & Partners
            
            
            8,274
            
            
            9,183
            
            
            16,528
            
            
            15,773Federal
                Policy Group
            
            
            2,932
            
            
            4,311
            
            
            5,832
            
            
            7,766Total
                segments - reported
            
            
            64,998
            
            
            69,733
            
            
            130,834
            
            
            152,499Corporate/CSI
            
            
            3,448
            
            
            816
            
            
            4,560
            
            
            2,753Total
                consolidated - reported
            
            $
            68,446
            
            $
            70,549
            
            $
            135,394
            
            $
            155,252**Operating
                Income (Loss) and Income Before Taxes**Executive
                Benefits Practice
            
            $
            (1,170
            )
            $
            (1,467
            )
            $
            395
            
            $
            5,917Banking
                Practice
            
            
            7,833
            
            
            8,760
            
            
            13,437
            
            
            15,349Healthcare
                Group
            
            
            1,416
            
            
            1,235
            
            
            3,602
            
            
            3,544Pearl
                Meyer & Partners
            
            
            1,063
            
            
            1,954
            
            
            2,000
            
            
            2,485Federal
                Policy Group
            
            
            655
            
            
            1,925
            
            
            936
            
            
            2,591Total
                segments - reported
            
            
            9,797
            
            
            12,407
            
            
            20,370
            
            
            29,886Corporate/CSI
            
            
            (2,306
            )
            
            (4,371
            )
            
            (5,666
            )
            
            (7,511
            )Other
                income (expense)
            
            
            1,615
            
            
            3
            
            
            1,615
            
            
            (1,465
            )Interest
                - net
            
            
            (5,337
            )
            
            (5,488
            )
            
            (10,725
            )
            
            (11,032
            )Income
                before taxes
            
            $
            3,769
            
            $
            2,551
            
            $
            5,594
            
            $
            9,878**Depreciation
                and Amortization**Executive
                Benefits Practice
            
            $
            1,111
            
            $
            1,184
            
            $
            2,229
            
            $
            2,303Banking
                Practice
            
            
            3,021
            
            
            3,473
            
            
            6,043
            
            
            6,961Healthcare
                Group
            
            
            534
            
            
            687
            
            
            1,068
            
            
            1,374Pearl
                Meyer & Partners
            
            
            126
            
            
            178
            
            
            252
            
            
            367Federal
                Policy Group
            
            
            100
            
            
            102
            
            
            201
            
            
            205Total
                segments - reported
            
            
            4,892
            
            
            5,624
            
            
            9,793
            
            
            11,210Corporate/CSI
            
            
            342
            
            
            387
            
            
            679
            
            
            735Total
                consolidated - reported
            
            $
            5,234
            
            $
            6,011
            
            $
            10,472
            
            $
            11,945**Capital
                Expenditures**Executive
                Benefits Practice
            
            $
            678
            
            $
            437
            
            $
            1,173
            
            $
            526Banking
                Practice
            
            
            285
            
            
            233
            
            
            520
            
            
            469Healthcare
                Group
            
            
            64
            
            
            171
            
            
            416
            
            
            313Pearl
                Meyer & Partners
            
            
            390
            
            
            144
            
            
            482
            
            
            250Federal
                Policy Group
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                segments - reported
            
            
            1,417
            
            
            985
            
            
            2,591
            
            
            1,558Corporate/CSI
            
            
            143
            
            
            199
            
            
            72
            
            
            321Total
                consolidated - reported
            
            $
            1,560
            
            $
            1,184
            
            $
            2,663
            
            $
            1,879**June
                30,**
            
            
            **December
                31,****Identifiable
                Assets**
            
            
            
            
            
            
            
            
            **2005**
            
            
            **2004**Executive
                Benefits Practice
            
            
            
            
            
            
            
            $
            75,253
            
            $
            80,040Banking
                Practice
            
            
            
            
            
            
            
            
            468,974
            
            
            487,784Healthcare
                Group
            
            
            
            
            
            
            
            
            31,318
            
            
            31,032Pearl
                Meyer & Partners
            
            
            
            
            
            
            
            
            48,192
            
            
            48,355Federal
                Policy Group
            
            
            
            
            
            
            
            
            11,114
            
            
            12,018Total
                segments - reported
            
            
            
            
            
            
            
            
            634,851
            
            
            659,229Deferred
                tax assets
            
            
            
            
            
            
            
            
            729
            
            
            782Corporate/CSI
            
            
            
            
            
            
            
            
            38,540
            
            
            41,282Total
                consolidated - reported
            
            
            
            
            
            
            
            $
            674,120
            
            $
            701,293











Table
          of Contents








**13.
      LITIGATION AND CONTINGENCIES**





From
      time
      to time, the Company is involved in various claims and lawsuits incidental
      to
      its business ,
      including claims and lawsuits alleging breaches of contractual obligations
      under
      agreements with its employee consultants and independent producers. The
      following is a summary of the current material legal proceedings pending against
      the Company.





**Independent
      Sales Producers’ Disputes**





In
      March
      2004, two of the Company’s independent sales producers exercised their
      termination rights under their agreement(s) with the Company. Included in the
      Company’s condensed consolidated balance sheets is a receivable of approximately
      $1.4 million from these two producers and a related salesperson with respect
      to
      certain chargeback commissions to be repaid to the Company from the surrender
      of
      policies in 2003. Upon termination, the producers have disputed the chargeback
      and asserted other miscellaneous claims. The producers have entered into an
      arbitration agreement with the Company, dated May 23, 2005 in order to resolve
      the dispute regarding chargebacks. While it is not possible to predict with
      certainty the outcome of the disputes, the Company does not believe resolution
      will have a material adverse effect on its financial position or results of
      operations.














14
 
 Table
          of Contents





**ITEM
      2.****MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**


*(Tables
      shown in thousands of dollars, except share and per share
      amounts.)*





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our condensed consolidated
      financial statements, the notes thereto, and other information appearing
      elsewhere in this Form 10-Q.





***Overview***





We
      design, market, and administer compensation and benefit programs for companies
      supplementing and securing employee benefits and provide executive compensation
      and related consulting services to U.S. corporations, banks, and healthcare
      organizations. We generally compete with regional firms while we market our
      products and services nationwide. A majority of our revenues result from
      commissions paid by insurance companies that underwrite the insurance policies
      used to finance our clients’ benefit programs. Most of our clients’ benefit
      programs are financed by business-owned life insurance and other financial
      products. We pay commissions to employee and independent producers based upon
      a
      percentage of our commission revenue. We work closely with clients to design
      customized products that meet the specific organizational needs of the client
      and with insurance companies to develop unique policy features and competitive
      pricing.





A
      significant portion of our growth in the last ten years has been acquisition
      related. Business-owned life insurance programs have tax advantages associated
      with products that are attractive to our clients. Portions of our product
      offerings are interest rate sensitive. Changes in tax and legislative laws
      can
      have an affect on our business, as seen over the last several years with our
      Executive Benefits Practice. We have been expanding our compensation consulting
      practices to diversify our product offerings. The largest component of our
      general and administrative expense is salary and other benefit related
      costs.





***Recent
      Events***





***Stock
      Repurchase Plan***





On
      May
      27, 2005, our Board of Directors authorized management to repurchase up to
      $35
      million of our common stock, an increase of $20 million from the previously
      authorized level of $15 million. On August 1, 2005 we executed an agreement
      with
      a broker-dealer to repurchase shares of our stock in the market pursuant to
      SEC
      rule 10b5-1.





***Critical
      Accounting Policies***





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires us to make estimates
      and assumptions that affect the reported amounts of assets and liabilities,
      the
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. The Securities and Exchange Commission (“SEC”) has defined a
      company’s most critical accounting policies as those that are most important to
      the portrayal of its financial condition and the results of operations, and
      which require us to make difficult and subjective judgments, often as a result
      of the need to make estimates of matters that are inherently uncertain. Although
      we believe that our estimates and assumptions are reasonable, they are based
      upon information available when they are made. Actual results may differ
      significantly from these estimates under different assumptions and
      conditions.




**Revenue
      Sources and Recognition**





Our
      operating segments derive their revenue primarily from:





·
            commissions
                paid by the insurance companies issuing the policies underlying our
                client’s benefit programs;





·
            program
                design and administrative service fees paid by our
                clients;





·
            executive
                compensation and benefit related consulting fees;
                and





·
            fees
                for legislative liaison and related advisory
                services.


15
 
 Table
          of Contents


Our
      commission revenue is normally recurring, is typically paid annually, and
      usually extends for a period of twenty years or more after the sale. Commissions
      are paid by insurance companies and vary by policy and by program and typically
      represent a percentage of the premium or the cash surrender value of the
      insurance policies underlying the program.





*First
      Year Commission Revenue and Related Fees* .
      First
      year commission revenue and related fees are derived from two principal sources;
      (a) the commission we earn when the client first purchases the policies, which
      revenue is recognized at the time the application is substantially completed,
      the client is contractually committed to purchase the insurance policies and
      the
      premiums are paid (which is the effective date of the insurance policy), by
      the
      client, to the insurance company or, in certain instances, when cash is
      received; and (b) fees for the services related to the enrollment and initial
      administration of the benefit programs and underlying policies.





Our
      first
      year commission revenue is frequently subject to chargeback, which means that
      insurance companies retain the right to recover commissions in the event
      policies prematurely terminate. The chargeback schedules differ by product
      and
      usually apply to first year commission only.





A
      typical
      chargeback schedule, based on a percent of first year commission, is as
      follows:





Year
                1
            100%Year
                2 and 3
            50%Year
                4
            25%Year
                5 and beyond
            0%





Given
      the
      homogenous nature of such cases and historical information about chargebacks,
      we
      believe we are able to accurately estimate the revenue earned. We currently
      maintain a chargeback allowance, which is monitored on a quarterly basis for
      adequacy. The chargeback allowance is calculated based on the average percentage
      rate of the last two years of chargebacks multiplied by first year revenue
      for
      the trailing twelve months.





*Renewal
      Commission Revenue and Related Fees* .
      Renewal
      revenue is recognized on the date that the renewal premium is due or paid by
      the
      client to the insurance company depending on whether a policy is considered
      fixed or variable. Fixed renewal policies have predictable set premium amounts.
      Revenue on these policies is recognized on the premium due date. Variable
      renewal policy premiums can be based upon such items as value of underlying
      investments in the policy, cash surrender value of the policy, or mutual fund
      values. In some cases, we are able to obtain information directly from the
      carriers allowing us to reasonably and reliably estimate the expected renewal
      premiums. Revenue is recognized based upon these estimates at a policy’s renewal
      date. For those policies where we are unable to obtain information to reasonably
      estimate the expected renewal premiums, revenue is not recognized until the
      confirmation has been received from the insurance carrier that the client’s
      premium payment has been received. We are notified in advance if a client plans
      to surrender, so adjustments in subsequent periods due to cancellations are
      infrequent and minor. Revenue associated with policies to be surrendered is
      not
      recognized.





*Consulting
      Fee Revenue* .
      Consulting fee revenue consists of fees charged by Pearl Meyer & Partners
      and Federal Policy Group for the services we perform in advising our clients
      on
      their executive compensation programs and related consulting services,
      retirement, benefit, people strategy, compensation surveys, and fees from
      legislative and regulatory policy matters. These fees are generally based on
      a
      rate per hour arrangement or a fixed monthly fee and are earned when the service
      is rendered. Consulting revenue generated by the Executive Benefits Practice,
      Banking Practice, and Healthcare Group are included in the first year
      commissions and related fees line on our condensed consolidated statements
      of
      income.




*Administrative
      Service Fee Revenue* .
      Administrative service fee revenue consists of fees we charge our clients for
      the administration of their benefit programs and are earned when services are
      rendered. These revenues are mainly included in our renewal commissions and
      related fees line in our condensed consolidated statements of
      income.





*Supplemental
      Compensation Agreements.* A
      portion
      of our revenue is derived from certain supplemental compensation arrangements
      with insurance carriers. These arrangements generate additional revenue with
      respect to primarily existing and, to a lesser extent, new blocks of business.
      Payments under such arrangements are typically based on the cash value (or
      fair
      value) of our existing in-force business with these carriers at specified dates
      of measurement and, to a much lesser extent, based on the value of new business
      generated. We realized approximately $5.7 million and $5.9 million in revenue
      under such arrangements for the six months ended June 30, 2005 and 2004,
      respectively.





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We
      record
      revenue on a gross basis when we:





·  act
      as
      the principal in the transaction by helping clients select the right product
      or
      service;





·  take
      responsibility for the acceptability of the products and services;





·  provide
      services through employees and exclusive independent producers;





·  have
      latitude in establishing the price the customer will pay;





·  have
      discretion in carrier selection with multiple carriers;





·  have
      chargeback and credit risk; and/or





·  are
      viewed by the client as the administrator of the program once the product is
      sold.





We
      record
      revenue on a net basis when we provide a lead on a case (in the capacity of
      a
      finder) and another company has control of the case and bears the credit risk
      (i.e., working directly with a client to determine the product and design of
      the
      plan).





**Intangible
      Assets**





Our
      intangible assets include the excess of the costs of acquired businesses over
      the fair values of the tangible net assets associated with an acquisition.
      Our
      intangible assets consist of the net present value of future cash flows from
      policies inforce at the acquisition date, non-compete agreements with the former
      owners, other identifiable intangibles, and goodwill. Non-compete agreements
      are
      amortized over the period of the agreements and other identifiable intangibles
      are amortized over their useful lives.





The
      net
      present value of inforce revenue is typically amortized between 20 and 30 years
      (the expected average policy duration). The determination of the amortization
      schedule involves making certain assumptions related to persistency, expenses,
      and discount rates that are used in the calculation of the carrying value of
      inforce revenue. If any of these assumptions change or actual experience differs
      materially from the assumptions used, it could affect the carrying value of
      the
      inforce revenue.





We
      are
      required to assess potential impairments of long-lived assets in accordance
      with
      Statement of Financial Accounting Standards (“SFAS”) No. 144, *Accounting
      for the Impairment of Long-Lived Assets* ,
      if
      events or changes in circumstances indicate that the carrying amount of a
      long-lived asset may not be recoverable. In assessing the recoverability of
      goodwill in accordance with SFAS No. 142, *Goodwill
      and Other Intangible Assets,* and
      the
      net present value of future cash flows from policies inforce, we must make
      assumptions regarding estimated future cash flows, mortality, lapse, and other
      factors to determine the fair value of the respective assets. If these estimates
      and related assumptions change in the future, we may be required to record
      impairment charges.





**Income
      Taxes**





Significant
      judgement is required in determining the provision for income taxes and related
      accruals, deferred tax assets and liabilities, and any valuation allowance
      recorded against the deferred tax assets. In the ordinary course of business,
      there are transactions and calculations where the ultimate tax outcome is
      uncertain. Additionally, our tax returns are subject to audit by federal and
      various state authorities. Although we believe our estimates are reasonable,
      no
      assurance can be given that the final tax outcome will not be materially
      different from that which is reflected in our historical income tax provisions
      and accruals. In assessing the realizability of deferred tax assets, we consider
      the likelihood that some portion or all of the deferred tax assets may not
      be
      realized. The ultimate realization of deferred tax assets is dependent upon
      the
      generation of future taxable income during the periods in which the temporary
      differences become deductible. We consider the scheduled reversal of deferred
      tax liabilities, projected future taxable income, and tax planning strategies
      in
      making this assessment.





**Restructuring
      Costs**





We
      make
      provisions for restructuring costs in accordance with SFAS No.146, *Accounting
      for Costs Associated with Exit or Disposal Activities* .
      To
      determine the amounts expensed in any period, we estimate the amounts we will
      receive in the future for subleasing office space that is no longer required
      for
      our existing operations. Should these estimates not reflect actual results
      in
      future periods, we adjust the provision through the income
      statement.


17
 
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          of Contents


***Results
      of Operations***





**Three
                Months Ended June 30,**
            
            **Six
                Months Ended June 30,****2005**
            
            **2004**
            
            **%
                Change**
            
            **2005**
            
            **2004**
            
            **%
                Change****Total
                Revenue**
            
            $
            68,446
            
            $
            70,549
            
            
            *(3.0*
            *)%*
            $
            135,394
            
            $
            155,252
            
            
            *(12.8*
            *)%***Operating
                Expense**Commissions
                and fees
            
            
            14,240
            
            
            14,809
            
            
            *(3.8*
            *)%*
            
            28,042
            
            
            38,028
            
            
            *(26.3*
            *)%**%
                of revenue*
            
            
            *20.8*
            *%*
            
            *21.0*
            *%*
            
            
            
            
            *20.7*
            *%*
            
            *24.5*
            *%*Other
                operating expenses
            
            
            46,715
            
            
            47,704
            
            
            *(2.1*
            *)%*
            
            92,648
            
            
            94,849
            
            
            *(2.3*
            *)%**%
                of revenue*
            
            
            *68.3*
            *%*
            
            *67.6*
            *%*
            
            
            
            
            *68.4*
            *%*
            
            *61.1*
            *%***Operating
                Income**
            
            $
            7,491
            
            $
            8,036
            
            
            *(6.8*
            *)%*
            $
            14,704
            
            $
            22,375
            
            
            *(34.3*
            *)%*





*Quarter
      ended June 30, 2005 compared to quarter ended June 30, 2004.*





*Revenue.* Total
      revenue for the three months ended June 30, 2005 was $68.4 million, a decrease
      of 3.0% from revenues of $70.5 million in second quarter 2004. First year
      commission revenues for the three months ended June 30, 2005 were $25.6 million
      compared to $22.7 million in the second quarter of 2004. The new Insurance
      Company Practice, which was launched in 2005, had approximately $1.5 million
      of
      first year commission revenue for the three months ended June 30, 2005. Banking
      Practice’s first year commission revenues continue to be negatively impacted by
      a soft market for BOLI products and the historically low long-term interest
      rate
      environment. Also, the Treasury Department has not provided final guidance
      regarding changes to nonqualified deferred compensation plans necessitated
      by
      the American Jobs Creation Act, passed in October 2004. The delay in this final
      guidance has created uncertainty in regards to amending existing plans, which
      has delayed the implementation of new plans for both the Executive Benefits
      Practice and Banking Practice. First year revenue also included approximately
      $900 thousand from commissions received in connection with the exchange of
      policies related to our deferred compensation plan. Total revenue for the three
      months ended June 30, 2005 and 2004, included approximately $2.5 million and
      $2.8 million, respectively, related to supplemental compensation arrangements.
      Renewal revenue for the three months ended June 30, 2005, was $30.8 million
      compared to $33.4 million in the second quarter of 2004. The decrease in renewal
      revenue was expected and is primarily a result of changes in contract renewal
      commission rates that carriers pay on certain products as the policies age
      at
      both the Executive Benefits Practice and Banking Practice. Consulting revenue
      for the three months ended June 30, 2005 was $10.4 million compared to $12.8
      million in the second quarter of 2004. Second quarter 2004 consulting revenue
      for Federal Policy Group included a $1 million success fee. In addition, the
      consulting revenue decrease between the three months ended June 30, 2005 and
      2004, is due to the timing of a certain Pearl Meyer & Partners annual
      revenue stream (approximately $1.3 million recognized in second quarter 2004).
      This annual revenue stream is expected to be recognized in third quarter
      2005.





*Commissions
      and fees expense.* Commissions and fees expense for the three months ended June 30, 2005, was
      $14.2
      million, or 20.8% of total revenue, compared to $14.8 million, or 21.0% of
      total
      revenue, in second quarter 2004. The percentage paid in commission expense
      declined slightly primarily due to an increasing percentage of sales by employee
      consultants who have a lower commission rate than independent producers. In
      addition, supplemental compensation arrangement revenues and consulting revenues
      have no related commission expense.





*General
      and administrative expense.* General
      and administrative expense for the three months ended June 30, 2005 was $41.2
      million compared to $41.5 million for the three months ended June 30, 2004.
      The
      decrease in general and administrative expenses was attributable to lower
      headcounts at the Executive Benefits Practice and Banking Practice. The three
      months ended June 30, 2004 included approximately $1.0 million of legal fees
      associated with the MacDonald litigation. This litigation was settled, with
      no
      cash being exchanged, during the three months ended June 30, 2004.





*Amortization* .
      Amortization expense decreased approximately $800 thousand to $3.8 million
      for
      the three months ended June 30, 2005, from $4.6 million for the three months
      ended June 30, 2004, based on the timing of scheduled amortization of our
      acquired inforce revenue.





*Other
      income.* Other
      income for the three months ended June 30, 2005 includes $1.6 million of net
      life insurance proceeds following the death of an executive in our Healthcare
      Practice. This amount is not subject to taxation.




*Interest
      expense.* Interest
      expense for the three months ended June 30, 2005 was $5.4 million compared
      to
      $5.5 million for the three months ended June 30, 2004. The decrease relates
      to
      lower borrowing levels in 2005 compared to 2004 partially offset by higher
      interest rates.


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          of Contents





*Income
      taxes.* Income
      taxes for the three months ended June 30, 2005 were $897 thousand, an effective
      tax rate of 23.8%, compared to $890 thousand, an effective tax rate of 34.9%,
      for the three months ended June 30, 2004. The lower effective tax rate for
      the
      three months ended June 30, 2005 is due to the non-taxable life insurance
      proceeds in the quarter.





*Net
      Income.* Net
      income for the three months ended June 30, 2005 was $2.9 million, or $0.16
      per
      diluted common share, versus net income of $1.7 million, or $0.09 per diluted
      common share, for the same period last year.







*Six
      months ended June 30, 2005 compared to six months ended June 30,
      2004.*




*Revenue.* Total
      revenue for the six months ended June 30, 2005 was $135.4 million, a decrease
      of
      12.8% from revenues of $155.3 million for the six months ended June 30, 2004.
      First year commission revenues for the six months ended June 30, 2005 were
      $44.6
      million compared to $58.0 million in the six months ended June 30, 2004. First
      year commission revenue for the six months ended June 30, 2004 included $9.3
      million for a single large case that closed during the period. Banking
      Practice’s first year commission revenue for the six months ended June 30, 2005,
      was impacted by a soft market for BOLI products and the historically low
      long-term interest rate environment. Also, the Treasury Department has not
      provided final guidance regarding changes to nonqualified deferred compensation
      plans necessitated by the American Jobs Creation Act, passed in October 2004.
      The delay in this final guidance has created uncertainty in regards to amending
      existing plans, which has delayed the implementation of new plans for both
      the
      Executive Benefits Practice and Banking Practice. First year revenue also
      included approximately $1 million from commissions received in connection with
      the exchange of policies related to our deferred compensation plan. Total
      revenue for the six months ended June 30, 2005 and 2004, included approximately
      $5.7 million and $5.9 million, respectively, related to supplemental
      compensation arrangements. Renewal revenue for the six months ended June 30,
      2005, was $66.9 million compared to $71.9 million in 2004. The decrease in
      renewal revenue was expected and is primarily a result of changes in contract
      renewal commission rates that carriers pay on certain products as the policies
      age at both the Executive Benefits Practice and Banking Practice. Consulting
      revenue for the six months ended June 30, 2005 was $20.6 million compared to
      $22.1 million in the six months ended June 30, 2004. Consulting revenue for
      the
      six months ended June 30, 2004 for Federal Policy Group included a $1 million
      success fee. The additional consulting revenue decrease is due to the timing
      of
      a certain Pearl Meyer & Partners annual revenue stream (approximately $1.3
      million recognized in second quarter 2004). This annual revenue stream is
      expected to be recognized in third quarter 2005.







*Commissions
      and fees expense.* Commissions and fees expense for the six months ended June 30, 2005, was $28.0
      million, or 20.7% of total revenue, compared to $38.0 million or 24.5% of total
      revenue in six months ended June 30, 2004. The percentage paid in commission
      expense declined primarily due to an increasing percentage of sales by employee
      consultants who have a lower commission rate than independent producers and
      the
      mix between first year and renewal revenues. Renewal revenues generally have
      lower commissions than first year revenues. In addition, supplemental
      compensation arrangements and consulting revenues have no related commission
      expense.





*General
      and administrative expense.* General
      and administrative expense for the six months ended June 30, 2005 was $81.7
      million, compared to $82.5 million, for the six months ended June 30, 2004.
      The
      decrease in general and administrative expenses was attributable to lower
      headcounts at the Executive Benefits Practice and Banking Practice offset by
      $650 thousand lawsuit settlement at the Executive Benefits Practice in 2005.
      The
      six months ended June 30, 2004 included approximately $1.0 million of legal
      fees
      associated with the MacDonald litigation. This litigation was settled, with
      no
      cash being exchanged, during the six months ended June 30, 2004.





*Amortization* .
      Amortization expense decreased approximately $1.4 million to $7.7 million for
      the six months ended June 30, 2005, from $9.1 million for the six months ended
      June 30, 2004, based on the timing of scheduled amortization of our acquired
      inforce revenue.





*Other
      income (expense).* Other
      income for the six months ended June 30, 2005 included $1.6 million of net
      life
      insurance proceeds following the death of an executive in our Healthcare
      Practice. This amount is not subject to taxation. The six months ended June
      30,
      2004 results included a $1.5 million write-off of costs associated with a
      prospective securitization financing we are no longer pursuing.





*Interest
      expense.* Interest
      expense for the six months ended June 30, 2005 was $11.0 million compared to
      $11.1 million for the six months ended June 30, 2004. The decrease relates
      to
      lower borrowing levels in 2005 compared to 2004 partially offset by higher
      interest rates.


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          of Contents





*Income
      taxes.* Income
      taxes for the six months ended June 30, 2005 were $1.6 million, an effective
      tax
      rate of 29.0%, compared to $3.8 million, an effective tax rate of 38.5%, for
      the
      six months ended June 30, 2004. The lower effective tax rate for the six months
      ended June 30, 2005 is due to the non-taxable life insurance proceeds in the
      second quarter.





*Net
      Income.* Net
      income for the six months ended June 30, 2005 was $4.0 million, or $0.22 per
      diluted common share, versus net income of $6.1 million, or $0.32 per diluted
      common share, for the same period last year.




The
      tables that follow present the operating results of our five segments for the
      three and six months ended June 30, 2005 and 2004.





***Executive
                Benefits Practice*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            14,561
            
            $
            14,963
            
            $
            32,664
            
            $
            43,907**Operating
                Expenses**Commissions
                and fees
            
            
            5,107
            
            
            5,070
            
            
            10,883
            
            
            16,008Other
                operating expenses
            
            
            10,624
            
            
            11,360
            
            
            21,386
            
            
            21,982**Operating
                (Loss) Income**
            
            $
            (1,170
            )
            $
            (1,467
            )
            $
            395
            
            $
            5,917*%
                of revenue*
            
            
            *(8.0*
            *)%*
            
            *(9.8*
            *)%*
            
            *1.2*
            *%*
            
            *13.5*
            *%*





First
      year commission revenue for the three months ended June 30, 2005, was $7.2
      million compared to $6.8 million for the three months ended June 30, 2004.
      The
      increase in first year commission revenue is primarily the result of a $1.7
      million case. The Treasury Department has not provided final guidance regarding
      changes to nonqualified deferred compensation plans necessitated by the American
      Jobs Creation Act, passed in October 2004. The delay in this final guidance
      has
      created uncertainty in regards to amending existing plans, which has delayed
      the
      implementation of new plans for the Executive Benefits Practice. Renewal revenue
      for the three months ended June 30, 2005, was $7.4 million compared to $8.2
      million for the three months ended June 30, 2004. The decrease in renewal
      revenue is primarily the result of the timing of premium payments from certain
      clients some of which were delayed pending final Treasury Department guidance
      mentioned above and changes in contract renewal commission rates that carriers
      pay on certain projects as the policies age. Commission expense as a percentage
      of total revenue increased to 35.1% for the three months ended June 30, 2005,
      from 33.9% for the three months ended June 30, 2004, due to lower consulting
      revenue. General and administrative expense for the three months ended June
      30,
      2005, was lower than the three months ended June 30, 2004, due mainly to lower
      legal expenses as a result of the MacDonald settlement reached in June
      2004.





Trends
      in
      the six-month results ended June 30, 2005 as compared to the period in 2004
      were
      generally the same as those experienced for the quarter. First year 2004 revenue
      for the six months ended June 30, 2004 included $8.6 million for one large
      case.
      Commission expense as a percentage of total revenue decreased to 33.3% for
      the
      six months ended June 30, 2005, from 36.5% for the six months ended June 30,
      2004, due to the mix of sales by employee consultants who are paid a lower
      commission, partially offset by the mix between first year versus renewal
      revenue. General and administrative expense for the six months ended June 30,
      2005 included a $650 thousand lawsuit settlement. General and administrative
      expense for the six months ended June 30, 2004 included a charge of $1.0 million
      for legal costs associated with the MacDonald settlement.


20
 
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***Banking
                Practice*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            29,506
            
            $
            31,870
            
            $
            55,904
            
            $
            65,654**Operating
                Expenses**Commissions
                and fees
            
            
            7,318
            
            
            8,814
            
            
            14,114
            
            
            20,389Other
                operating expenses
            
            
            14,355
            
            
            14,296
            
            
            28,353
            
            
            29,916**Operating
                Income**
            
            $
            7,833
            
            $
            8,760
            
            $
            13,437
            
            $
            15,349*%
                of revenue*
            
            
            *26.5*
            *%*
            
            *27.5*
            *%*
            
            *24.0*
            *%*
            
            *23.4*
            *%*








First
      year revenue decreased 8.4% to $8.8 million for the three months ended June
      30,
      2005, from $9.6 million for the three months ended June 30, 2004. First year
      revenue for the three months ended June 30, 2005, was impacted by a soft market
      for BOLI products and the historically low long-term interest rate environment.
      Also, the Treasury Department has not provided final guidance regarding changes
      to nonqualified deferred compensation plans necessitated by the American Jobs
      Creation Act, passed in October 2004. The delay in this final guidance has
      created uncertainty in regards to amending existing plans, which has delayed
      the
      implementation of new plans for the Banking Practice. In addition, total revenue
      for the three months ended June 30, 2005 and June 30, 2004 included
      approximately $1.5 million and $1.8 million, respectively, related to
      supplemental compensation arrangements. Renewal revenue for the three months
      ended June 30, 2005 and June 30, 2004, was $20.7 million and $22.3 million,
      respectively. The decrease in renewal revenue is primarily a result of changes
      in contract renewal commission rates that carriers pay on certain products
      as
      the policies age. Commission expense for the three months ended June 30, 2005,
      was $7.3 million, or 24.8% of revenue, compared to $8.8 million, or 27.6% of
      revenue, for the same period in 2004. The commission expense as a percentage
      of
      revenue continues to decrease as a result of a higher percentage of first year
      revenue produced by employee consultants versus independent producers. General
      and administrative expense for the three months ended June 30, 2005, was $11.7
      million, compared to $11.2 million for the comparable period in 2004. General
      and administrative expense increased primarily as a result of a timing shift
      in
      2005 to smaller regional marketing meetings (April 2005) instead of an annual
      national marketing meeting (February 2004.) Amortization expense for the three
      months ended June 30, 2005 and 2004, was $2.6 million and $3.1 million,
      respectively. The decrease is based on the timing of scheduled amortization
      of
      our acquired inforce revenue.





Trends
      in
      the six-month results ended June 30, 2005 as compared to the period in 2004
      were
      generally the same as those experienced for the quarter. Banking Practice
      revenue for the six months ended June 30, 2005 and 2004 included approximately
      $3.0 million and $3.4 million, respectively, related to supplemental
      compensation arrangements. We do not pay commission expense on the revenue
      associated with the supplemental compensation arrangements. General and
      administrative expense decreased due to lower headcount and a shift in 2005
      to
      smaller regional marketing meetings instead of an annual national marketing
      meeting.





21
 
 Table
          of Contents





***Healthcare
                Group*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            9,725
            
            $
            9,406
            
            $
            19,906
            
            $
            19,399**Operating
                Expenses**Commissions
                and fees
            
            
            1,231
            
            
            925
            
            
            2,461
            
            
            1,631Other
                operating expenses
            
            
            7,078
            
            
            7,246
            
            
            13,843
            
            
            14,224**Operating
                Income**
            
            $
            1,416
            
            $
            1,235
            
            $
            3,602
            
            $
            3,544*%
                of revenue*
            
            
            *14.6*
            *%*
            
            *13.1*
            *%*
            
            *18.1*
            *%*
            
            *18.3*
            *%*








Healthcare
      Group revenues were higher (3.4%) for the three months ended June 30, 2005,
      compared to the prior year. First year revenue was $7.5 million for the three
      months ended June 30, 2005 compared to $6.8 million for the three months ended
      June 30, 2004. Consulting revenue (included in first year revenue) increased
      significantly over prior year due to growth in several services. Renewal revenue
      for the three months ended June 30, 2005 was $2.2 million compared to $2.6
      million for the three months ended June 30, 2004 as a result of a few lost
      clients. Commission expense for the three months ended June 30, 2005 was $1.2
      million compared to $925 thousand for the three months ended June 30, 2004.
      The
      increase in commission expense was primarily due to the mix of revenues.
      Operating expenses for the three months ended June 30, 2005 were $7.1 million
      compared to $7.2 million for the three months ended June 30, 2004.





Trends
      in
      the six-month results ended June 30, 2005 as compared to the period in 2004
      were
      generally the same as those experienced for the quarter. However, for the six
      months ended June 30, 2005, commission expense included approximately $100
      thousand associated with a severance agreement.








***Pearl
                Meyer & Partners*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            8,274
            
            $
            9,183
            
            $
            16,528
            
            $
            15,773**Operating
                Expenses**
            
            
            7,211
            
            
            7,229
            
            
            14,528
            
            
            13,288**Operating
                Income**
            
            $
            1,063
            
            $
            1,954
            
            $
            2,000
            
            $
            2,485*%
                of revenue*
            
            
            *12.8*
            *%*
            
            *21.3*
            *%*
            
            *12.1*
            *%*
            
            *15.8*
            *%*








Consulting
      revenue decreased 9.9% to $8.3 million for the three months ended June 30,
      2005,
      compared to $9.2 million for the three months ended June 30, 2004. The decrease
      is due to the timing of a certain annual revenue stream (approximately $1.3
      million recognized in second quarter 2004). This annual revenue stream is
      expected to be recognized in third quarter 2005. Operating expenses for the
      three months ended June 30, 2005 and June 30, 2004 were $7.2
      million.





Consulting
      revenue increased 4.8% to $16.5 million for the six months ended June 30, 2005,
      compared to $15.8 million for the six months ended June 30, 2004. The practice
      continues to experience more sales activities generated by higher headcounts
      (100 in 2005 and 91 in 2004) along with additional engagements in its area
      of
      expertise of corporate governance and executive compensation. The increase
      in
      revenue was partially offset by the timing of a certain annual revenue stream
      (approximately $1.3 million recognized in second quarter 2004), which is
      expected to be recognized in third quarter 2005. Operating expenses for six
      months ended June 30, 2005 were $14.5 million, compared to $13.3 million for
      the
      six months ended June 30, 2004, reflecting additional expenses from higher
      headcount.


22
 
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***Federal
                Policy Group*****Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            2,932
            
            $
            4,311
            
            $
            5,832
            
            $
            7,766**Operating
                Expenses**
            
            
            2,277
            
            
            2,386
            
            
            4,896
            
            
            5,175**Operating
                Income**
            
            $
            655
            
            $
            1,925
            
            $
            936
            
            $
            2,591***%
                of revenue*
            
            
            *22.3*
            *%*
            
            *44.7*
            *%*
            
            *16.0*
            *%*
            
            *33.4*
            *%*





Revenue
      for the three months ended June 30, 2005 was $2.9 million compared to $4.3
      million for the three months ended June 30, 2004 due to a lower number of
      clients in 2005. Several client projects concluded on December 31, 2004. Also,
      revenue for the three months ended June 30, 2004 benefited from a success fee
      of
      $1.0 million, which was earned during the quarter. Operating expenses for the
      three months ended June 30, 2005 were $2.3 million compared to $2.4 million
      for
      the three months ended June 30, 2004.





Trends
      in
      the six-month results ended June 30, 2005 as compared to the period in 2004
      were
      generally the same as those experienced for the quarter. Operating expenses
      for
      the six months ended June 30, 2004, included $100 thousand of client expenses,
      which was billed back to the client and included in revenue.





**Liquidity
      and Capital Resources**





*Selected
      Measures of Liquidity and Capital Resources*





**June
                30,**
            
            **December
                31,****2005**
            
            **2004**Cash
                and cash equivalents
            
            $
            17,121
            
            $
            23,199Working
                capital (1)
            
            $
            17,573
            
            $
            9,087Current
                ratio - to one
            
            
            1.38
            
            
            1.12Shareholders’
                equity per common share (2)
            
            $
            15.12
            
            $
            15.03Debt
                to total capitalization (3)
            
            
            52.8
            %
            
            54.2
            %





(1)
      Includes restricted cash and current portion of debt associated with
      asset-backed non-recourse notes


(2)
      Total
      stockholders’ equity divided by actual shares outstanding


(3)
      Current debt plus long term debt divided by current debt plus long term debt
      plus stockholders’ equity





As
      a
      company with historically strong operating cash flow, we believe we have little
      need to maintain substantial cash balances. To the extent we have net cash
      from
      operating activities, we use it to fund capital expenditures and service
      existing debt. We expect large cash outlays such as future acquisitions will
      be
      financed primarily through externally available funds. However, we can offer
      no
      assurance such funds will be available and, if so, on terms acceptable to
      us.





Below
      is
      a table summarizing our cash flow:





**Six
                Months Ended June 30,****2005**
            
            **2004**Cash
                flows from (used in):Operating
                activities
            
            $
            17,764
            
            $
            27,130Investing
                activities
            
            
            (11,916
            )
            
            (8,873
            )Financing
                activities
            
            
            (11,926
            )
            
            (15,900
            )





23
 
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*Cash
      Flows from Operating Activities*





Our
      cash
      flows from operating activities were as follows:





**Six
                Months Ended June 30,****2005**
            
            **2004**Net
                income plus non-cash expenses
            
            $
            18,439
            
            $
            23,383Changes
                in operating assets and liabilities
            
            
            (675
            )
            
            3,747Cash
                flows from operating activities
            
            $
            17,764
            
            $
            27,130





Non-cash
      expenses include primarily depreciation of equipment and leasehold improvements,
      amortization of intangibles, and deferred tax expense. The 2005 decrease in
      cash
      relating to changes in operating assets and liabilities relates primarily to
      the
      payment of accrued liabilities ($15.8 million) in the first six months of 2005
      for bonuses and earnout payments offset by collection of accounts receivables
      ($12.2 million).




*Cash
      Used in Investing Activities*




For
      the
      six months ended June 30, 2005, approximately $9.3 million of cash was used
      primarily for contingent consideration payments to prior owners of businesses
      we
      acquired and approximately $2.7 million of our cash was used for the purchase
      of
      fixed assets.





A
      substantial portion of the purchase price used to fund acquisitions has
      historically been paid in cash. This is primarily due to our desire to avoid
      diluting our existing stockholders. We expect acquisitions to continue to be
      financed primarily from available credit lines and possible additional equity.
      However, we can offer no assurances such will be the case.





*Cash
      Flows from Financing Activities*





For
      the
      six months ended June 30, 2005, approximately $11.9 million of cash was used
      for
      financing activities. We used approximately $14.7 million for the repayment
      of
      borrowings and approximately $1.1 million for payment of dividends. As of June
      30, 2005, we had restricted cash of approximately $8.1 million, a decrease
      of
      $4.0 million from December 31, 2004, which will be used to pay down the
      asset-backed notes issued to finance the acquisition of LongMiller. This cash
      is
      not available for general corporate purposes, but is solely to service
      securitization indebtedness incurred to finance the acquisition of
      LongMiller.





In
      November 2003, we amended and restated our December 28, 1999 Credit Agreement
      revising the amount available under the credit facility to $80.0 million for
      a
      three year period ending December 31, 2006. In December 2003, a new participant
      bank was added to the facility increasing the facility amount to $90 million.
      The credit facility amount was reduced dollar for dollar by $18 million of
      repayments in 2003 and 2004 on the term portion of the facility. We had $72
      million available under our credit line at June 30, 2005. Our assets are pledged
      to the bank group as part of the credit facility except for cash flows from
      commissions to be received upon the renewals of specified inforce policies
      acquired in connection with the acquisition of LongMiller. In September 2004,
      we
      amended our credit agreement to allow for potential stock repurchases and
      dividend payments. The remaining provisions of the agreement remained
      substantively the same.




The
      restrictive covenants under the credit agreement provide for the maintenance
      of
      a minimum ratio of fixed charges, a maximum allowable leverage ratio, a minimum
      amount of net worth (stockholders’ equity), and a maximum ratio of debt to
      capitalization. We were in compliance with all our restrictive covenants as
      of
      June 30, 2005.





We
      believe that our cash flow from operating activities will continue to provide
      sufficient funds to service our debt obligations. However, as our business
      grows, our working capital and capital expenditure requirements will also
      continue to increase. There can be no assurance that the net cash flow from
      operations will be sufficient to meet our anticipated cash flow requirements
      or
      that we will not require additional debt or equity financing in the future.
      We
      may issue stock to finance future acquisitions.





24
 
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**ITEM
      3.****QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





At
      June
      30, 2005, we had total outstanding indebtedness of $309.8 million. Our
      outstanding debt consists of the following:





**Type
                of Debt**
            
            **Outstanding
                Amount as of**
              **June
                30, 2005**
            
            **Weighted
                Average Interest Rate****as
                of June 30, 2005**Non-recourse
                bonds
            
            $
            260.7
                million
            
            
            Fixed
                - 6.5
            %Note
                to prior owner
            
            
            4.1
                million
            
            
            Fixed
                - 10.0
            %Trust
                preferred
            
            
            45.0
                million
            
            
            Variable
                - 7.2
            %





On
      June
      3, 2005 and February 25, 2005, we entered into interest rate swaps with
      non-amortizing notional values of $12 million and $10 million, respectively,
      to
      hedge our LIBOR-based debt. The notional amount of the interest rate swap
      entered into in January 2003 amortizes at the rate of $1.4 million per quarter.
      The terms of the interest rate swaps are as follows:





**Effective
                Date**
            
            **Maturity
                Date**
            
            **Notional
                Amount at June 30, 2005**
            
            **Fixed
                Rate to be Paid**
            
            **Variable
                Rate to be Received**
            
            **Fair
                Value as of June 30, 2005**June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            $
            (9
            )February
                25, 2005
            
            
            December
                31, 2009
            
            
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            (142
            )May
                18, 2004
            
            
            March
                31, 2009
            
            
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            (105
            )January
                7, 2003
            
            
            December
                31, 2007
            
            
            14.0
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            194Total
            
            
            
            
            $
            43.0
                million
            
            
            
            
            
            
            
            $
            (62
            )





We
      have
      exposure to changing interest rates and will engage in hedging activities,
      from
      time to time, to mitigate this risk. The interest rate swaps we have entered
      into are used to hedge our interest rate exposure on the LIBOR based variable
      rate debt outstanding at June 30, 2005. Interest on the remaining $2 million
      of
      unhedged variable debt at June 30, 2005, bears interest at three-month LIBOR
      plus a weighted average of 400 basis points. At our current borrowing level,
      a
      1% change in the interest rate will have an effect of approximately $20 thousand
      on interest expense on an annual basis.





**ITEM
      4.****CONTROLS
      AND PROCEDURES**





Under
      the
      supervision and with the participation of our management, including our chief
      executive officer and chief financial officer, we conducted an evaluation of
      our
      disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
      promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
      Act). Based on this evaluation, our chief executive officer and our chief
      financial officer concluded that our disclosure controls and procedures were
      effective as of the end of the period covered by this quarterly
      report.








**PART
      II OTHER INFORMATION**





**ITEM
      1.****LEGAL
      PROCEEDINGS**





From
      time
      to time, we are involved in various claims and lawsuits incidental to our
      business ,
      including claims and lawsuits alleging breaches of contractual obligations
      under
      agreements with our employee consultants and independent producers.





25
 
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          of Contents





**ITEM
      2.****UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





**Issuer
      Purchases of Equity Securities**





The
      following table sets forth information in connection with purchases made by,
      or
      on behalf of, us or any affiliated purchaser of ours, of shares of our common
      stock during the quarterly period ended June 30, 2005.




**Period**
            **(a)**
              **Total
                Number of Shares****Purchased****(1)(2)**
            **(b)**
              **Average
                Price paid per****Share**
            **(c)**
              **Total
                Number of Shares Purchased as Part of Publicly Announced**
              **Plans
                or Programs**
            **(d)**
              **Maximum
                Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased**
              **Under
                the Plans or Programs****(2)(3)**April
                1, 2005 through
              June
                30, 2005
            -
            -
            -
            $27.2
                million





(1)
            In
                January 2003, our Board of Directors authorized the purchase of up
                to 400
                thousand shares of our common stock to, among other things, fulfill
                our
                obligations under our Employee Stock Purchase Plan. The Employee
                Stock
                Purchase Plan consists of four semi-annual offerings of common stock
                beginning on each January 1 and July 1 in each of the years 2003
                and 2004
                and terminating on June 30 and December 31 of each such year. For
                each of
                the years 2005 and 2006, the Employee Stock Purchase Plan will consist
                of
                four quarterly offerings of common stock beginning on the first day
                of
                January, April, July and October and terminating on March 31, June
                30,
                September 30, and December 31 of each such year. The maximum number
                of
                shares issued in any of the semi-annual and quarterly offerings is
                50
                thousand and 25 thousand,
                respectively.





(2)
            On
                November 23, 2004, our Board of Directors authorized us to repurchase
                up
                to $10 million of our outstanding common stock on the open market,
                an
                increase of $5 million from the original authorized level of $5 million.
                On January 25, 2005, our Board of Directors authorized us to expand
                our
                existing stock repurchase program to a total of $15 million of our
                outstanding common stock, from the previously authorized level of
                $10
                million. On May 27, 2005, our Board of Directors authorized us to
                repurchase up to $35 million of our common stock, an increase of
                $20
                million from the previously authorized level of $15
                million.





(3)
            On
                August 1, 2005, we executed an agreement with a broker-dealer to
                repurchase shares of our stock in the market pursuant to SEC rule
                10b5-1.








**ITEM
      3.****DEFAULTS
      UPON SENIOR SECURITIES**





None





**ITEM
      4.****SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





(a)  The
      Company’s Annual Meeting of Stockholders was held on April 26,
      2005.




(b)  At
      the
      Annual Meeting, three uncontested nominees to the Board of Directors of the
      Company were elected Class I directors for three-year terms expiring at the
      2008
      Annual Meeting. The votes for the director nominees were as
      follows:




Director
                Nominee
            For
            WithheldGeorge
                D. Dalton
            12,545,948
            4,771,024Kenneth
                A. Guenther
            15,071,086
            2,245,886Richard
                C. Lappin
            12,783,489
            4,533,483





In
      addition, Tom Wamberg, Randolph A. Pohlman, L. William Seidman, and Thomas
      M.
      Pyra continue to serve as directors of the Company after the Annual
      Meeting.




26
 
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(c)  The
      results of stockholder voting on Proposal 2 were as follows:




Proposal
      2 - A vote to approve the Clark, Inc. Incentive Compensation Plan.




For
            Against
            Abstain8,811,757
            6,843,156
            22,457





**ITEM
      5.****OTHER
      INFORMATION**





None





**ITEM
      6.****EXHIBITS**





See
      accompanying Exhibit Index included after the signature page of this report
      for
      a list of the exhibits filed, furnished, or incorporated by reference in this
      report.


27
 
 Table
          of Contents





**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.








CLARK,
      INC.











Date  August
      4, 2005        /s/
      Tom Wamberg


Tom
      Wamberg


Chairman
      of the Board and Chief Executive Officer








Date  August
      4, 2005       /s/
      Jeffrey W. Lemajeur


Jeffrey
      W. Lemajeur


Chief
      Financial Officer





28
 
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          of Contents


EXHIBIT
      INDEX





3.1
              Certificate
                  of Incorporation of Clark/Bardes, Inc. (Incorporated herein by
                  reference
                  to Exhibit 3.1 of our Registration Statement on Form S-1, File
                  No.
                  333-56799, filed with the SEC on July 15, 1998).3.2
              Certificate
                  of Amendment of Certificate of Incorporation of Clark/Bardes, Inc.
                  (Incorporated herein by reference to Exhibit 3.3 to Amendment No.1
                  to our
                  Registration Statement on Form S-1, File No. 333-56799, filed with
                  the SEC
                  on July 27, 1998).3.3
              Certificate
                  of Amendment of Certificate of Incorporation of Clark/Bardes, Inc.
                  (Incorporated herein by reference to Exhibit 5 of our Registration
                  Statement on Form 8-A, filed with the SEC on February 28,
                  2002).3.4
              Certification
                  of Amendment of Certification of Incorporation (Incorporated herein
                  by
                  reference to Exhibit 3.6 of our Quarterly Report on Form 10-Q,
                  File No.
                  001-31256, filed with the SEC on August 14, 2002).3.5
              Certificate
                  of Amendment of Certificate of Incorporation (Incorporated herein
                  by
                  reference to Exhibit 4.5 of our Registration Statement on Form
                  S-8, File
                  No. 333-106538, filed with the SEC on June 26, 2003).3.6
              Bylaws
                  of Clark, Inc. (Incorporated herein by reference to Exhibit 4.6
                  of our
                  Registration Statement on Form S-8, File No. 333-106538, filed
                  with the
                  SEC on June 26, 2003).3.7
              Certificate
                  of Designation of Series A Junior Participating Preferred Stock
                  (Incorporated herein by reference to Exhibit 3.4 to Amendment No.
                  2 to our
                  Registration Statement on Form S-1, File No. 333-56799 filed with
                  the SEC
                  on August 11, 1998).4.1
              Specimen
                  Certificate for shares of Common Stock, par value $.01 per share,
                  of Clark
                  Holdings, Inc. (Incorporated herein by reference to Exhibit 4.1
                  to
                  Amendment No. 1 to our Registration Statement on Form S-1, File
                  No.
                  333-56799, filed with the SEC on July 27, 1998).4.2
              Rights
                  Agreement, dated as of July 10, 1998, by and between Clark Holdings,
                  Inc.
                  and The Bank of New York (Incorporated herein by reference to Exhibit
                  4.4
                  of our Quarterly Report on Form 10-Q, File No. 000-24769, filed
                  with the
                  SEC on November 16, 1998).10.1
              Clark,
                  Inc. Incentive Compensation Plan (Incorporated herein by reference
                  to
                  Appendix A of our Proxy Statement on Form DEF 14A, File No. 001-31256,
                  filed with the SEC on March 21, 2005).31.1
              Certification
                  of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley
                  Act
                  of 2002.*31.2
              Certification
                  of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley
                  Act
                  of 2002.*32.1
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to Section
                  906 of Sarbanes-Oxley Act of 2002.*




*filed
      herewith