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 September 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
      September 30, 2005, the registrant had outstanding 17,569,672 shares of common
      stock.











**TABLE
      OF CONTENTS**








PAGEForward-Looking
                Statements
            3PART
                I - FINANCIAL INFORMATIONItem
                1. Financial Statements (Unaudited)
            4Condensed
                Consolidated Balance Sheetsas of September 30,
                2005and
                December 31, 2004
            4Condensed
                Consolidated Statements of Incomefor the
                ThreeMonths
                and Nine Months Ended September 30, 2005 and 2004
            5Condensed
                Consolidated Statements of Cash Flowsfor
                theNine
                Months Ended September 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
            26Item
                2. Unregistered Sales of Equity Securities and
                Use of Proceeds
            26Item
                3. Defaults Upon Senior
                Securities
            27Item
                4. Submission of Matters to a Vote of Security
                Holders
            27Item
                5. Other Information
            27Item
                6. Exhibits
            27SIGNATURES
            28EXHIBITSIndex
                to Exhibits
            29











**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 September 30, 2005 and December 31, 2004**


**(Unaudited)**


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


**September
                30,**
            
            **December
                31,****2005**
            
            **2004****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            4,475
            
            $
            23,199Restricted
                cash
            
            
            6,024
            
            
            12,020Accounts
                and notes receivable, net
            
            
            30,781
            
            
            44,388Prepaid
                income taxes
            
            
            6,316
            
            
            1,479Deferred
                tax assets
            
            
            729
            
            
            782Other
                current assets
            
            
            2,747
            
            
            2,445**Total
                Current Assets**
            
            
            51,072
            
            
            84,313**Intangible
                Assets, net**Net
                present value of inforce revenue
            
            
            429,257
            
            
            439,644Goodwill
            
            
            140,843
            
            
            138,768Non-compete
                agreements
            
            
            4,688
            
            
            5,834**Total
                Intangible Assets, net**
            
            
            574,788
            
            
            584,246**Equipment
                and Leasehold Improvements, net**
            
            
            12,950
            
            
            12,140**Cash
                Surrender Value of Life Insurance**
            
            
            11,183
            
            
            8,111**Other
                Assets**
            
            
            11,403
            
            
            12,483**Total
                Assets**
            
            $
            661,396
            
            $
            701,293**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            2,880
            
            $
            3,886Accrued
                liabilities
            
            
            34,851
            
            
            54,145Deferred
                revenue
            
            
            3,850
            
            
            2,268Recourse
                debt maturing within one year
            
            
            1,395
            
            
            1,295Non-recourse
                debt maturing within one year
            
            
            343
            
            
            13,632**Total
                Current Liabilities**
            
            
            43,319
            
            
            75,226**Trust
                Preferred Debt**
            
            
            45,000
            
            
            45,000**Long-Term
                Recourse Debt**
            
            
            2,368
            
            
            3,427**Long-Term
                Non-Recourse Debt**
            
            
            256,846
            
            
            261,195**Deferred
                Tax Liabilities**
            
            
            31,233
            
            
            24,752**Deferred
                Compensation**
            
            
            10,907
            
            
            8,215**Other
                Non-Current Liabilities**
            
            
            6,579
            
            
            9,292**Total
                Liabilities**
            
            
            396,252
            
            
            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 -18,862,516
                shares at September 30, 2005 and 18,796,792 shares at December 31,
                2004
            
            
            189
            
            
            188Paid-in
                capital
            
            
            194,926
            
            
            193,849Retained
                earnings
            
            
            88,674
            
            
            87,803Other
                comprehensive income (loss)
            
            
            240
            
            
            (135
            )Deferred
                compensation
            
            
            2,602
            
            
            1,898Treasury
                stock, at cost - 1,292,844 shares at September 30, 2005 and 549,171
                shares
                at
              December
                31, 2004
            
            
            (21,487
            )
            
            (9,417
            )**Total
                Stockholders' Equity**
            
            
            265,144
            
            
            274,186**Total
                Liabilities and Stockholders' Equity**
            
            $
            661,396
            
            $
            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**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Revenue**First
                year commissions and related fees
            
            $
            16,442
            
            $
            19,429
            
            $
            61,013
            
            $
            77,472Renewal
                commissions and related fees
            
            
            30,394
            
            
            35,042
            
            
            97,318
            
            
            106,899Consulting
                fees
            
            
            12,252
            
            
            10,912
            
            
            32,849
            
            
            33,058Reimbursable
                expenses
            
            
            1,818
            
            
            1,309
            
            
            5,120
            
            
            4,515**Total
                Revenue**
            
            
            60,906
            
            
            66,692
            
            
            196,300
            
            
            221,944**Operating
                Expenses**Commissions
                and fees
            
            
            10,806
            
            
            15,080
            
            
            38,942
            
            
            53,108General
                and administrative
            
            
            38,857
            
            
            37,521
            
            
            120,422
            
            
            120,058Reimbursable
                expenses
            
            
            1,818
            
            
            1,309
            
            
            5,120
            
            
            4,515Amortization
            
            
            3,848
            
            
            4,564
            
            
            11,535
            
            
            13,670**Total
                Operating Expenses**
            
            
            55,329
            
            
            58,474
            
            
            176,019
            
            
            191,351**Operating
                Income**
            
            
            5,577
            
            
            8,218
            
            
            20,281
            
            
            30,593**Other
                Income (Expense), net**
            
            
            1
            
            
            17
            
            
            1,616
            
            
            (1,448
            )**Interest,
                net**Income
            
            
            154
            
            
            54
            
            
            425
            
            
            160Expense
            
            
            (5,468
            )
            
            (5,572
            )
            
            (16,464
            )
            
            (16,710
            )**Total
                Interest, net**
            
            
            (5,314
            )
            
            (5,518
            )
            
            (16,039
            )
            
            (16,550
            )Income
                before taxes
            
            
            264
            
            
            2,717
            
            
            5,858
            
            
            12,595Income
                taxes
            
            
            (107
            )
            
            (1,208
            )
            
            (1,727
            )
            
            (5,011
            )**Net
                Income**
            
            $
            157
            
            $
            1,509
            
            $
            4,131
            
            $
            7,584Basic
                Earnings per Common Share
            
            $
            0.01
            
            $
            0.08
            
            $
            0.23
            
            $
            0.41Weighted
                average shares outstanding - Basic
            
            
            18,130,513
            
            
            18,601,725
            
            
            18,267,066
            
            
            18,554,356Diluted
                Earnings per Common Share
            
            $
            0.01
            
            $
            0.08
            
            $
            0.22
            
            $
            0.40Weighted
                average shares outstanding - Diluted
            
            
            18,271,707
            
            
            18,829,566
            
            
            18,412,062
            
            
            18,853,198Cash
                dividends:Paid
            
            $
            0.06
            
            
            -
            
            $
            0.12
            
            
            -Declared
            
            $
            0.06
            
            
            -
            
            $
            0.18
            
            
            -























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)**








**Nine
                Months Ended September 30,****2005**
            
            **2004****Net
                Cash from Operating Activities**
            
            $
            22,911
            
            $
            37,099**Investing
                Activities**Purchases
                of businesses, net of cash acquired
            
            
            (10,409
            )
            
            (9,199
            )Purchases
                of equipment
            
            
            (5,051
            )
            
            (3,610
            )Cash
                used in investing activities
            
            
            (15,460
            )
            
            (12,809
            )**Financing
                Activities**Proceeds
                from borrowings
            
            
            -
            
            
            70,210Repayment
                of borrowings
            
            
            (18,597
            )
            
            (96,563
            )Dividends
                paid
            
            
            (2,172
            )
            
            -Cash
                restricted for the repayment of non-recourse notes
            
            
            5,996
            
            
            8,893Exercise
                of stock options
            
            
            947
            
            
            1,306Repurchase
                of Company stock
            
            
            (12,349
            )
            
            (1,551
            )Cash
                used in financing activities
            
            
            (26,175
            )
            
            (17,705
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (18,724
            )
            
            6,585**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            23,199
            
            
            3,156**Cash
                and Cash Equivalents at End of Period**
            
            $
            4,475
            
            $
            9,741*Supplemental
                Disclosure for Cash Paid during the Period:*Interest
            
            $
            15,981
            
            $
            15,804Income
                taxes, net of refunds
            
            
            251
            
            
            (15
            )*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**


**September
      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 nine
      months ended September 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:





**September
                30,****2005**
            **2004**Dividend
                yield
            1.6%
            NoneVolatility
            57.5%
            58.7%Risk-free
                interest rates
            3.8%
            3.4%Expected
                life (years)
            5
            5








7
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **September
            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**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Net
                Income**As
                reported
            
            $
            157
            
            $
            1,509
            
            $
            4,131
            
            $
            7,584Deduct:
                stock option compensation expense, net of tax
            
            
            (100
            )
            
            (494
            )
            
            (668
            )
            
            (1,832
            )Pro
                forma
            
            $
            57
            
            $
            1,015
            
            $
            3,463
            
            $
            5,752**Basic
                Earnings per Common Share**As
                reported
            
            $
            0.01
            
            $
            0.08
            
            $
            0.23
            
            $
            0.41Pro
                forma
            
            
            -
            
            $
            0.05
            
            $
            0.19
            
            $
            0.31**Diluted
                Earnings per Common Share**As
                reported
            
            $
            0.01
            
            $
            0.08
            
            $
            0.22
            
            $
            0.40Pro
                forma
            
            
            -
            
            $
            0.05
            
            $
            0.19
            
            $
            0.31





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 $2.9 million remains accrued
      on
      the condensed consolidated balance sheet as of September 30, 2005. Effective
      January 1, 2005, the remaining Human Capital Practice was merged into Executive
      Benefits Practice. In the third 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 $58 thousand
      is included in general and administrative expenses in the condensed consolidated
      statement of income for the three months ended September 30, 2005. During the
      nine months ended September 30, 2005, the Company recorded net expense of
      approximately $148 thousand, which is included in general and administrative
      expenses in the condensed consolidated statement of income for the nine months
      ended September 30, 2005.


8
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **September
            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 September
      30, 2005, is as follows:





**Reserve
                Balance**
              
              **January
                1, 2005**
            
            **Cash**
              
              **Payments**
            
            **Adjustments**
            
            **Reserve
                Balance**
              
              **September
                30, 2005**Employee
                termination costs
            
            $
            325
            
            $
            -
            
            $
            -
            
            $
            325Lease
                costs
            
            
            2,946
            
            
            (487
            )
            
            148
            
            
            2,607$
            3,271
            
            $
            (487
            )
            $
            148
            
            $
            2,932





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





Major
      categories of accounts receivable are as follows:





**As
                of**
              **September
                30, 2005**
            
            **As
                of**
              **December
                31, 2004**Accounts
                receivable - trade
            
            $
            32,863
            
            $
            45,855Accounts
                receivable allowance
            
            
            (2,082
            )
            
            (1,467
            )$
            30,781
            
            $
            44,388





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





**Nine
                Months Ended**
              **September
                30, 2005**
            
            **Year
                Ended**
              **December
                31, 2004**Beginning
                balance
            
            $
            (1,467
            )
            $
            (1,296
            )Write
                offs
            
            
            353
            
            
            805Expense
            
            
            (968
            )
            
            (976
            )Ending
                balance
            
            $
            (2,082
            )
            $
            (1,467
            )





As
      of
      September 30, 2005 and December 31, 2004, there were approximately $1.1 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 nine months ended September 30,
      2005,
      by reporting units are as follows:





**Balance**
              **January
                1, 2005**
            
            **Acquired**
              **During
                Period**
            
            **Earnouts**
            
            **Balance**
              **September
                30, 2005**Executive
                Benefits Practice
            
            $
            21,855
            
            $
            53
            
            $
            (120
            )
            $
            21,788Banking
                Practice
            
            
            52,050
            
            
            381
            
            
            1,791
            
            
            54,222Healthcare
                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
            
            $
            434
            
            $
            1,641
            
            $
            140,843





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








Information
      regarding the Company’s other intangible assets follows:





**As
                of September 30, 2005**
            
            **As
                of December 31, 2004****Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
            
            **Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**Inforcerevenue
            
            $
            500,494
            
            $
            (71,237
            )
            $
            429,257
            
            $
            500,521
            
            $
            (60,877
            )
            $
            439,644Non-competeagreements
            
            
            10,699
            
            
            (6,011
            )
            
            4,688
            
            
            10,669
            
            
            (4,835
            )
            
            5,834Total
            
            $
            511,193
            
            $
            (77,248
            )
            $
            433,945
            
            $
            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 September 30, 2005 and 2004, respectively, and $11.5 million
      and $13.7 million for the nine months ended September 30, 2005 and 2004,
      respectively.





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





Year
            
            Amount2005
            
            $
            15,3792006
            
            
            14,7932007
            
            
            14,4052008
            
            
            13,9652009
            
            
            13,114





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





As
      a
      result of the Company’s acquisition program, the Company has approximately $8.2
      million of contingent consideration potentially due to the former owners of
      the
      Company’s acquired entities, including $3.9 million that has been earned and is
      accrued on the condensed consolidated balance sheet as of September 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 September 30, 2005:





**Potential
                Amounts Payable in**
            
            **Cash**2005
            
            $
            2,5002006
            
            
            3,2032007
            
            
            2,500$
            8,203





**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**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                income
            
            $
            157
            
            $
            1,509
            
            $
            4,131
            
            $
            7,584Change
                in fair value of interest rateswap,
                net of tax
            
            
            370
            
            
            (154
            )
            
            375
            
            
            (39
            )Comprehensive
                income
            
            $
            527
            
            $
            1,355
            
            $
            4,506
            
            $
            7,545





10
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **September
            30, 2005**





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





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





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Numerator
                for basic and diluted earnings per
              common
                share
            
            $
            157
            
            $
            1,509
            
            $
            4,131
            
            $
            7,584**Denominator:**Basic
                earnings per common share -weighted
                average shares outstanding
            
            
            18,130,513
            
            
            18,601,725
            
            
            18,267,066
            
            
            18,554,356Effect
                of dilutive securities:Stock
                options
            
            
            141,194
            
            
            159,685
            
            
            136,424
            
            
            229,712Contingent
                shares earned not issued
            
            
            -
            
            
            68,156
            
            
            8,572
            
            
            69,130Diluted
                earnings per share - weighted average
              shares
                plus assumed conversions
            
            
            18,271,707
            
            
            18,829,566
            
            
            18,412,062
            
            
            18,853,198Basic
                earnings per common share
            
            $
            0.01
            
            $
            0.08
            
            $
            0.23
            
            $
            0.41Diluted
                earnings per common share
            
            $
            0.01
            
            $
            0.08
            
            $
            0.22
            
            $
            0.40





For
      the
      three and nine months ended September 30, 2005, there are approximately 806
      thousand and 1.0 million of outstanding stock options, respectively, 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
      nine months ended September 30, 2004, there are approximately 914 thousand
      and
      851 thousand of outstanding stock options, respectively, 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 $15.93 and $25.28 at September 30, 2005,
      and $15.50 and $25.28 at September 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 nine months ended September 30, 2005. The fair value of interest
      rate swap agreements, based upon bank quotes, was an asset of approximately
      $544
      thousand at September 30, 2005 and is included in other assets on the condensed
      consolidated balance sheet. The terms of these interest rate swaps are as
      follows (fair value in thousands):





**Effective
                Date**
            
            **Maturity
                Date**
            
            **Notional
                Amount at September 30, 2005**
            
            **Fixed
                Rate to be Paid**
            
            **Variable
                Rate to be Received**
            
            **Fair
                Value as of**
              **September
                30, 2005**June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            $
            213February
                25, 2005
            
            
            December
                31, 2009
            
            
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            69May
                18, 2004
            
            
            March
                31, 2009
            
            
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            20January
                7, 2003
            
            
            December
                31, 2007
            
            
            12.6
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            242Total
            
            
            
            
            $
            41.6
                million
            
            
            
            
            
            
            
            $
            544





11
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **September
            30, 2005**





**10.
      LIFE INSURANCE PROCEEDS**





For
      the
      nine months ended September 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
      nine months ended September 30, 2005.





**11.**  **DIVIDENDS**





On
      October 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 December 1, 2005, payable on January 1, 2006.





On
      July
      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
      September 1, 2005, which was paid 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 September 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 operating income 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 nine month periods ended September 30, 2005 and
      2004, is as follows:


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





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Revenues
                from External Customers**Executive
                Benefits Practice
            
            $
            11,719
            
            $
            18,696
            
            $
            44,383
            
            $
            62,603Banking
                Practice
            
            
            25,140
            
            
            27,647
            
            
            81,045
            
            
            93,301Healthcare
                Group
            
            
            8,953
            
            
            7,521
            
            
            28,858
            
            
            26,920Pearl
                Meyer & Partners
            
            
            9,905
            
            
            8,216
            
            
            26,434
            
            
            23,989Federal
                Policy Group
            
            
            3,298
            
            
            3,360
            
            
            9,130
            
            
            11,125Total
                segments - reported
            
            
            59,015
            
            
            65,440
            
            
            189,850
            
            
            217,938Corporate/CSI
            
            
            1,891
            
            
            1,252
            
            
            6,450
            
            
            4,006Total
                consolidated - reported
            
            $
            60,906
            
            $
            66,692
            
            $
            196,300
            
            $
            221,944**Operating
                Income (Loss) and Income Before Taxes**Executive
                Benefits Practice
            
            $
            (1,707
            )
            $
            1,099
            
            $
            (1,311
            )
            $
            7,017Banking
                Practice
            
            
            6,069
            
            
            7,894
            
            
            19,509
            
            
            23,244Healthcare
                Group
            
            
            756
            
            
            65
            
            
            4,358
            
            
            3,609Pearl
                Meyer & Partners
            
            
            2,444
            
            
            1,450
            
            
            4,445
            
            
            3,935Federal
                Policy Group
            
            
            964
            
            
            850
            
            
            1,900
            
            
            3,440Total
                segments - reported
            
            
            8,526
            
            
            11,358
            
            
            28,901
            
            
            41,245Corporate/CSI
            
            
            (2,949
            )
            
            (3,140
            )
            
            (8,620
            )
            
            (10,652
            )Other
                income (expense)
            
            
            1
            
            
            17
            
            
            1,616
            
            
            (1,448
            )Interest
                - net
            
            
            (5,314
            )
            
            (5,518
            )
            
            (16,039
            )
            
            (16,550
            )Income
                before taxes
            
            $
            264
            
            $
            2,717
            
            $
            5,858
            
            $
            12,595**Depreciation
                and Amortization**Executive
                Benefits Practice
            
            $
            1,092
            
            $
            1,186
            
            $
            3,321
            
            $
            3,488Banking
                Practice
            
            
            3,022
            
            
            3,520
            
            
            9,065
            
            
            10,480Healthcare
                Group
            
            
            508
            
            
            709
            
            
            1,576
            
            
            2,083Pearl
                Meyer & Partners
            
            
            134
            
            
            160
            
            
            386
            
            
            528Federal
                Policy Group
            
            
            100
            
            
            102
            
            
            301
            
            
            307Total
                segments - reported
            
            
            4,856
            
            
            5,677
            
            
            14,649
            
            
            16,886Corporate/CSI
            
            
            301
            
            
            349
            
            
            980
            
            
            1,085Total
                consolidated - reported
            
            $
            5,157
            
            $
            6,026
            
            $
            15,629
            
            $
            17,971**Capital
                Expenditures**Executive
                Benefits Practice
            
            $
            920
            
            $
            608
            
            $
            2,093
            
            $
            1,134Banking
                Practice
            
            
            367
            
            
            686
            
            
            887
            
            
            1,155Healthcare
                Group
            
            
            128
            
            
            237
            
            
            544
            
            
            550Pearl
                Meyer & Partners
            
            
            697
            
            
            14
            
            
            1,179
            
            
            264Federal
                Policy Group
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                segments - reported
            
            
            2,112
            
            
            1,545
            
            
            4,703
            
            
            3,103Corporate/CSI
            
            
            276
            
            
            186
            
            
            348
            
            
            507Total
                consolidated - reported
            
            $
            2,388
            
            $
            1,731
            
            $
            5,051
            
            $
            3,610September
                30,
            
            
            **December
                31,****Identifiable
                Assets**
            
            
            
            
            
            
            
            
            **2005**
            
            
            **2004**Executive
                Benefits Practice
            
            
            
            
            
            
            
            $
            74,270
            
            $
            80,040Banking
                Practice
            
            
            
            
            
            
            
            
            463,187
            
            
            487,784Healthcare
                Group
            
            
            
            
            
            
            
            
            30,655
            
            
            31,032Pearl
                Meyer & Partners
            
            
            
            
            
            
            
            
            50,784
            
            
            48,355Federal
                Policy Group
            
            
            
            
            
            
            
            
            12,210
            
            
            12,018Total
                segments - reported
            
            
            
            
            
            
            
            
            631,106
            
            
            659,229Deferred
                tax assets
            
            
            
            
            
            
            
            
            729
            
            
            782Corporate/CSI
            
            
            
            
            
            
            
            
            29,561
            
            
            41,282Total
                consolidated - reported
            
            
            
            
            
            
            
            $
            661,396
            
            $
            701,293


13
 Table
          of Contents
 **CLARK,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **Unaudited**
 **September
            30, 2005**





**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 entered into an
      arbitration agreement with the Company, dated May 23, 2005 in order to resolve
      the dispute regarding chargebacks with an arbitration hearing scheduled for
      early 2006. 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***





***Stratford
      Advisory Group Acquisition***





On
      October 4, 2005, we announced the purchase of Stratford Advisory Group, Inc.,
      an
      institutional investment consulting firm located in Chicago, Illinois. The
      consultants and staff of Stratford will become part of the Executive Benefits
      Practice. Stratford advises clients, with more than $24 billion in assets,
      in
      the areas of investment policy and strategy, asset/liability analysis, manager
      search, performance analysis and investment communication. The total purchase
      price is $5.9 million with $4.8 million paid at time of closing and $1.1 million
      to be paid in three years. The acquisition is expected to add $4 to $5 million
      in annual fee revenues and be immediately accretive to earnings.





***Legislative
      Update***





On
      September 29, 2005, the Treasury Department issued guidance, in the form of
      proposed Treasury regulations, regarding changes to nonqualified deferred
      compensation plans necessitated by the American Jobs Creation Act, passed in
      October 2004. The proposed regulations incorporate the guidance contained in
      Notice 2005-1 (December, 2004) and provide substantial additional guidance
      necessary for plan sponsors to bring their arrangements into operational and
      documentary compliance with the requirements of Internal Revenue Code section
      409A. The effective date for the proposed regulations is January 1, 2007;
      however, they can be fully relied upon by plan sponsors until the regulations
      become final. The delay in issuance of guidance has created uncertainty in
      regards to amending existing plans and delayed the implementation of new plans
      for both the Executive Benefits Practice and Banking Practice.





***Pearl
      Meyer & Partners Staff Turnover***





Pearl
      Meyer and Steve Hall, president of Pearl Meyer and Partners, announced their
      resignations in late August.  Effective August 30, 2005, Joe Rich replaced
      Steve Hall as president of Pearl Meyer and Partners. Subsequently, several
      client facing professionals have also resigned. As a result of the voluntary
      resignations, there were seven involuntary terminations of certain Pearl Meyer
      and Partners’ employees in October. The costs associated with these terminations
      are expected to be approximately $200 thousand, which will be recorded in the
      fourth quarter of 2005. Estimated annual cost savings related to the voluntary
      terminations are $3.4 million and $1.4 million for the involuntary terminations.
      These developments will cause a loss of existing clients, and will affect future
      revenue opportunities.


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***Combination
      of Executive Benefits Practice, Banking Practice and Insurance Company
      Practice***





On
      August
      11, 2005, we announced our intention to combine our Executive Benefits Practice,
      Banking Practice and Insurance Company Practice into one unit effective January
      1, 2006. The new practice will be led by Les Brockhurst, current president
      of
      our Executive Benefits Practice. The new practice will be reported as a single
      reporting segment in our financial statements effective January 1,
      2006.





***10b5-1
      Revision***





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. On October 31, 2005, we
      terminated the August 1, 2005 agreement. During the third quarter 2005, we
      purchased approximately 720 thousand of our shares at an average price of $16.11
      per share, or a total of $11.6 million.





***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.





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%





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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 $8.2 million and $8.3 million in revenue
      under such arrangements for the nine months ended September 30, 2005 and 2004,
      respectively.





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).


17
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          of Contents


**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.





***Results
      of Operations***





**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2005**
            
            **2004**
            
            **%
                Change**
            
            **2005**
            
            **2004**
            
            **%
                Change****Total
                Revenue**
            
            $
            60,906
            
            $
            66,692
            
            
            *(8.7*
            *%)*
            $
            196,300
            
            $
            221,944
            
            
            *(11.6*
            *%)***Operating
                Expense**Commissions
                and fees
            
            
            10,806
            
            
            15,080
            
            
            *(28.3*
            *%)*
            
            38,942
            
            
            53,108
            
            
            *(26.7*
            *%)**%
                of revenue*
            
            
            *17.7*
            *%*
            
            *22.6*
            *%*
            
            
            
            
            *19.8*
            *%*
            
            *23.9*
            *%*Other
                operating expenses
            
            
            44,523
            
            
            43,394
            
            
            *2.6*
            *%*
            
            137,077
            
            
            138,243
            
            
            *(0.8*
            *%)**%
                of revenue*
            
            
            *73.1*
            *%*
            
            *65.1*
            *%*
            
            
            
            
            *69.8*
            *%*
            
            *62.3*
            *%***Operating
                Income**
            
            $
            5,577
            
            $
            8,218
            
            
            *(32.1*
            *%)*
            $
            20,281
            
            $
            30,593
            
            
            *(33.7*
            *%)*





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 Table
          of Contents


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





*Revenue.* Total
      revenue for the three months ended September 30, 2005 was $60.9 million, a
      decrease of 8.7% from revenues of $66.7 million in third quarter 2004. First
      year commission revenues for the three months ended September 30, 2005 were
      $16.4 million compared to $19.4 million in the third quarter of 2004. The
      Insurance Company Practice, which was launched in 2005, had approximately $650
      thousand of first year commission revenue for the three months ended September
      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. On September 29, 2005, the Treasury
      Department issued guidance regarding changes to nonqualified deferred
      compensation plans necessitated by the American Jobs Creation Act, passed in
      October 2004. The delay in this guidance has created uncertainty in regards
      to
      amending existing plans and delayed the implementation of new plans for both
      the
      Executive Benefits Practice and Banking Practice. Total revenue for both the
      three months ended September 30, 2005 and 2004, included approximately $2.5
      million related to supplemental compensation arrangements. Renewal revenue
      for
      the three months ended September 30, 2005, was $30.4 million compared to $35.0
      million in the third 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 September 30, 2005 was $12.3 million compared to $10.9
      million in the third quarter of 2004. The consulting revenue increase between
      the three months ended September 30, 2005 and 2004, is due to the timing of
      a
      certain Pearl Meyer & Partners annual revenue stream (approximately $1.6
      million recognized in third quarter 2005). In 2004, this annual revenue stream
      was recognized in the second quarter.





*Commissions
      and fees expense.* Commissions and fees expense for the three months ended September 30, 2005,
      was
      $10.8 million, or 17.7% of total revenue, compared to $15.1 million, or 22.6%
      of
      total revenue, in third quarter 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 of revenues. Renewal revenues generally have lower commissions than first
      year revenues. In addition, supplemental compensation arrangement revenues
      and
      consulting revenues typically have no related commission expense.





*General
      and administrative expense.* General
      and administrative expense for the three months ended September 30, 2005 was
      $38.9 million compared to $37.5 million for the three months ended September
      30,
      2004. The increase in general and administrative expenses was attributable
      to
      higher bonus expense at Healthcare Group due to the financial performance at
      that practice, timing of certain marketing expenses at Banking Practice and
      expenses associated with an annual revenue stream at Pearl Meyer and Partners
      that was recognized in the third quarter of 2005 versus the second quarter
      of
      2004.





*Amortization* .
      Amortization expense decreased approximately $700 thousand to $3.8 million
      for
      the three months ended September 30, 2005, from $4.6 million for the three
      months ended September 30, 2004, based on the timing of scheduled amortization
      of our acquired inforce revenue.





*Interest
      expense.* Interest
      expense for the three months ended September 30, 2005 was $5.5 million compared
      to $5.6 million for the three months ended September 30, 2004. The decrease
      relates to lower borrowing levels in 2005 compared to 2004 partially offset
      by
      higher interest rates.





*Income
      taxes.* Income
      taxes for the three months ended September 30, 2005 were $107 thousand, an
      effective tax rate of 40.5%, compared to $1.2 million, an effective tax rate
      of
      44.5%, for the three months ended September 30, 2004. The effective tax rate
      for
      the three months ended September 30, 2004 reflected a $100 thousand expense
      adjustment as a result of filing the 2003 federal income tax
      return.





*Net
      Income.* Net
      income for the three months ended September 30, 2005 was $157 thousand, or
      $0.01
      per diluted common share, versus net income of $1.5 million, or $0.08 per
      diluted common share, for the same period last year.


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 Table
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*Nine
      months ended September 30, 2005 compared to nine months ended September 30,
      2004.*





*Revenue.* Total
      revenue for the nine months ended September 30, 2005 was $196.3 million, a
      decrease of 11.6% from revenues of $221.9 million for the nine months ended
      September 30, 2004. First year commission revenues for the nine months ended
      September 30, 2005 were $61.0 million compared to $70.9 million in the nine
      months ended September 30, 2004. First year commission revenue for the nine
      months ended September 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 nine months ended September 30, 2005, was impacted by a soft market
      for
      BOLI products and the historically low long-term interest rate environment.
      On
      September 29, 2005, the Treasury Department issued guidance regarding changes
      to
      nonqualified deferred compensation plans necessitated by the American Jobs
      Creation Act, passed in October 2004. The delay in this guidance created
      uncertainty in regards to amending existing plans and delayed the implementation
      of new plans for both the Executive Benefits Practice and Banking Practice.
      2005
      first year revenue also included approximately $1.2 million from commissions
      received in connection with the exchange of policies related to our deferred
      compensation plans. Total revenue for the nine months ended September 30, 2005
      and 2004, included approximately $8.2 million and $8.3 million, respectively,
      related to supplemental compensation arrangements. Renewal revenue for the
      nine
      months ended September 30, 2005, was $97.3 million compared to $106.9 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 nine months ended September 30, 2005 was
      $32.8 million compared to $33.1 million in the nine months ended September
      30,
      2004.





*Commissions
      and fees expense.* Commissions and fees expense for the nine months ended September 30, 2005,
      was
      $38.9 million, or 19.8% of total revenue, compared to $53.1 million or 23.9%
      of
      total revenue in nine months ended September 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 of revenues. Renewal revenues generally have lower
      commissions than first year revenues. In addition, supplemental compensation
      arrangements and consulting revenues typically have no related commission
      expense.





*General
      and administrative expense.* General
      and administrative expense for the nine months ended September 30, 2005 was
      $120.4 million, compared to $120.1 million, for the nine months ended September
      30, 2004. The increase in general and administrative expenses was attributable
      to a $650 thousand lawsuit settlement at the Executive Benefits Practice in
      2005
      partially offset by lower headcounts at the Executive Benefits Practice and
      Banking Practice. The nine months ended September 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 nine months ended September 30, 2004.





*Amortization* .
      Amortization expense decreased approximately $2.1 million to $11.5 million
      for
      the nine months ended September 30, 2005, from $13.7 million for the nine months
      ended September 30, 2004, based on the timing of scheduled amortization of
      our
      acquired inforce revenue.





*Other
      income (expense).* Other
      income for the nine months ended September 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 nine months ended
      September 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 nine months ended September 30, 2005 was $16.5 million compared
      to $16.7 million for the nine months ended September 30, 2004. The decrease
      relates to lower borrowing levels in 2005 compared to 2004 partially offset
      by
      higher interest rates.





*Income
      taxes.* Income
      taxes for the nine months ended September 30, 2005 were $1.7 million, an
      effective tax rate of 29.5%, compared to $5.0 million, an effective tax rate
      of
      39.8%, for the nine months ended September 30, 2004. The lower effective tax
      rate for the nine months ended September 30, 2005 is due to the non-taxable
      life
      insurance proceeds received in the second quarter of 2005.





*Net
      Income.* Net
      income for the nine months ended September 30, 2005 was $4.1 million, or $0.22
      per diluted common share, versus net income of $7.6 million, or $0.40 per
      diluted common share, for the same period last year.


20
 Table
          of Contents


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








***Executive
                Benefits Practice*****Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            11,719
            
            $
            18,696
            
            $
            44,383
            
            $
            62,603**Operating
                Expenses**Commissions
                and fees
            
            
            3,872
            
            
            7,103
            
            
            14,755
            
            
            23,111Other
                operating expenses
            
            
            9,554
            
            
            10,494
            
            
            30,939
            
            
            32,475**Operating
                (Loss) Income**
            
            $
            (1,707
            )
            $
            1,099
            
            $
            (1,311
            )
            $
            7,017*%
                of revenue*
            
            
            *(14.6*
            *%)*
            
            *5.8*
            *%*
            
            *(3.0*
            *%)*
            
            *11.2*
            *%*








First
      year commission revenue for the three months ended September 30, 2005, was
      $3.0
      million compared to $6.4 million for the three months ended September 30, 2004.
      On September 29, 2005, the Treasury Department issued guidance regarding changes
      to nonqualified deferred compensation plans necessitated by the American Jobs
      Creation Act, passed in October 2004. The delay in receiving guidance created
      uncertainty in regards to amending existing plans and delayed the implementation
      of new plans. Consulting revenue (included in first year revenue) decreased
      36.8% due to the significant decline in the number of consultants. Renewal
      revenue for the three months ended September 30, 2005, was $8.6 million compared
      to $12.3 million for the three months ended September 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 Treasury Department guidance
      mentioned above, and changes in contract renewal commission rates that carriers
      pay on certain cases as the policies age. Commission expense as a percentage
      of
      total revenue decreased to 33.0% for the three months ended September 30, 2005,
      from 38.0% for the three months ended September 30, 2004, due to decreased
      revenue resulting in lower tiered payouts to producers. General and
      administrative expense for the three months ended September 30, 2005, was lower
      than the three months ended September 30, 2004, due mainly to lower headcounts
      (243 in 2005 and 311 in 2004).





Trends
      in
      the nine-month results ended September 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 nine months ended September 30, 2004 included $8.6 million
      for one large case. General and administrative expense for the nine months
      ended
      September 30, 2005 included a $650 thousand lawsuit settlement. General and
      administrative expense for the nine months ended September 30, 2004 included
      a
      charge of $1.0 million for legal costs associated with the MacDonald
      settlement.


21
 Table
          of Contents





***Banking
                Practice*****Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            25,140
            
            $
            27,647
            
            $
            81,045
            
            $
            93,301**Operating
                Expenses**Commissions
                and fees
            
            
            5,504
            
            
            6,785
            
            
            19,618
            
            
            27,174Other
                operating expenses
            
            
            13,567
            
            
            12,968
            
            
            41,918
            
            
            42,883**Operating
                Income**
            
            $
            6,069
            
            $
            7,894
            
            $
            19,509
            
            $
            23,244*%
                of revenue*
            
            
            *24.1*
            *%*
            
            *28.6*
            *%*
            
            *24.1*
            *%*
            
            *24.9*
            *%*





First
      year revenue decreased 19.9% to $6.2 million for the three months ended
      September 30, 2005, from $7.7 million for the three months ended September
      30,
      2004. First year revenue for the three months ended September 30, 2005, was
      impacted by a soft market for BOLI products and the historically low long-term
      interest rate environment. On September 29, 2005, the Treasury Department issued
      guidance regarding changes to nonqualified deferred compensation plans
      necessitated by the American Jobs Creation Act, passed in October 2004. The
      delay in receiving guidance created uncertainty in regards to amending existing
      plans and delayed the implementation of new plans. Total revenue for the three
      months ended September 30, 2005 and 2004 included approximately $1.5 million
      and
      $1.4 million, respectively, related to supplemental compensation arrangements.
      Renewal revenue for the three months ended September 30, 2005 and 2004, was
      $19.0 million and $19.9 million, respectively. The decrease in renewal revenue
      is a result of changes in contract renewal commission rates that carriers pay
      on
      certain products as the policies age and the mix of products. Commission expense
      for the three months ended September 30, 2005, was $5.5 million, or 21.9% of
      revenue, compared to $6.8 million, or 24.5% of revenue, for the same period
      in
      2004. The commission expense as a percentage of revenue continues to decrease
      due to lower revenue and significant reduction in independent producer
      commission expense. General and administrative expense for the three months
      ended September 30, 2005, was $10.9 million, compared to $9.9 million for the
      comparable period in 2004. General and administrative expense increased
      primarily as a result of costs associated with the operational bonuses, BancPlan
      acquisition, and the timing of meetings and conferences. Amortization expense
      for the three months ended September 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 nine-month results ended September 30, 2005 as compared to the period in
      2004 were generally the same as those experienced for the quarter. Banking
      Practice revenue for the nine months ended September 30, 2005 and 2004 included
      approximately $4.5 million and $4.8 million, respectively, related to
      supplemental compensation arrangements. We do not pay commission expense on
      the
      revenue associated with the supplemental compensation arrangements.





***Healthcare
                Group*****Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            8,953
            
            $
            7,521
            
            $
            28,858
            
            $
            26,920**Operating
                Expenses**Commissions
                and fees
            
            
            1,163
            
            
            1,192
            
            
            3,717
            
            
            2,823Other
                operating expenses
            
            
            7,034
            
            
            6,264
            
            
            20,783
            
            
            20,488**Operating
                Income**
            
            $
            756
            
            $
            65
            
            $
            4,358
            
            $
            3,609*%
                of revenue*
            
            
            *8.4*
            *%*
            
            *0.9*
            *%*
            
            *15.1*
            *%*
            
            *13.4*
            *%*





Healthcare
      Group revenues were higher (19.0%) for the three months ended September 30,
      2005, compared to the prior year period. First year revenue was $5.9 million
      for
      the three months ended September 30, 2005 compared to $5.4 million for the
      three
      months ended September 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 September 30, 2005 was
      $2.3
      million compared to $2.1 million for the three months ended September 30, 2004.
      Commission expense for both the three months ended September 30, 2005 and 2004
      was $1.2 million. Operating expenses for the three months ended September 30,
      2005 were $7.0 million compared to $6.3 million for the three months ended
      September 30, 2004. Operating expenses increased as a result of additional
      bonus
      expense due to the practice’s financial performance and higher client billable
      expenses, which are billed back to the clients and included in
      revenue.


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Trends
      in
      the nine-month results ended September 30, 2005 as compared to the period in
      2004 were generally the same as those experienced for the quarter. Renewal
      revenue for the nine months ended September 30, 2005 was $8.2 million compared
      to $8.4 million for the nine months ended September 30, 2004. Commission expense
      for the nine months ended September 30, 2005 was $3.7 million compared to $2.8
      million for the nine months ended September 30, 2004. The increase in commission
      expenses is a result of increased marketing bonuses on increased consulting
      revenue. In addition, for the nine months ended September 30, 2005, commission
      expense included approximately $100 thousand associated with a severance
      agreement.





***Pearl
                Meyer & Partners*****Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            9,905
            
            $
            8,216
            
            $
            26,434
            
            $
            23,989**Operating
                Expenses**
            
            
            7,461
            
            
            6,766
            
            
            21,989
            
            
            20,054**Operating
                Income**
            
            $
            2,444
            
            $
            1,450
            
            $
            4,445
            
            $
            3,935*%
                of revenue*
            
            
            *24.7*
            *%*
            
            *17.6*
            *%*
            
            *16.8*
            *%*
            
            *16.4*
            *%*





Consulting
      revenue increased 20.6% to $9.9 million for the three months ended September
      30,
      2005, compared to $8.2 million for the three months ended September 30, 2004.
      The increase is due to the timing of a certain annual revenue stream
      (approximately $1.6 million recognized in third quarter 2005). In 2004, this
      annual revenue stream was recognized in the second quarter. Operating expenses
      for the three months ended September 30, 2005 and 2004 were $7.5 million and
      $6.8 million, respectively. The increase reflects additional expenses from
      higher headcount (94 in 2005 and 90 in 2004) and expenses related to the annual
      revenue stream recognized in third quarter 2005.





Consulting
      revenue increased 10.2% to $26.4 million for the nine months ended September
      30,
      2005, compared to $24.0 million for the nine months ended September 30, 2004.
      The practice has experienced more sales activities generated by higher
      headcounts along with additional engagements as a result of increased scrutiny
      in its areas of expertise - corporate governance and executive compensation.
      Operating expenses for nine months ended September 30, 2005 were $22.0 million,
      compared to $20.1 million for the nine months ended September 30, 2004,
      reflecting additional expenses from higher headcount.





Pearl
      Meyer and Steve Hall, president of Pearl Meyer and Partners, announced their
      resignations in late August.  Effective August 30, 2005, Joe Rich replaced
      Steve Hall as president of Pearl Meyer and Partners. Subsequently, several
      client facing professionals have also resigned. As a result of the voluntary
      resignations, there were seven involuntary terminations of certain Pearl Meyer
      and Partners’ employees in October. The costs associated with these terminations
      are expected to be approximately $200 thousand, which will be recorded in the
      fourth quarter of 2005. Estimated annual cost savings related to the voluntary
      terminations are $3.4 million and $1.4 million for the involuntary terminations.
      These developments will cause a loss of existing clients, and will affect future
      revenue opportunities.





***Federal
                Policy Group*****Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Total
                Revenue**
            
            $
            3,298
            
            $
            3,360
            
            $
            9,130
            
            $
            11,125**Operating
                Expenses**
            
            
            2,334
            
            
            2,510
            
            
            7,230
            
            
            7,685**Operating
                Income**
            
            $
            964
            
            $
            850
            
            $
            1,900
            
            $
            3,440***%
                of revenue*
            
            
            *29.2*
            *%*
            
            *25.3*
            *%*
            
            *20.8*
            *%*
            
            *30.9*
            *%*





Revenue
      for the three months ended September 30, 2005 was $3.3 million compared to
      $3.4
      million for the three months ended September 30, 2004 due to a lower number
      of
      clients in 2005. Several client projects concluded on December 31, 2004.
      Operating expenses for the three months ended September 30, 2005 were $2.3
      million compared to $2.5 million for the three months ended September 30,
      2004.





Revenue
      for the nine months ended September 30, 2005 was $9.1 million compared to $11.1
      million for the nine months ended September 30, 2004 due to a lower number
      of
      clients in 2005. Several client projects concluded on December 31, 2004.
      Operating expenses for the nine months ended September 30, 2004, included $100
      thousand of client expenses, which was billed back to the client and included
      in
      revenue.


23
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**Liquidity
      and Capital Resources**





*Selected
      Measures of Liquidity and Capital Resources*








**September
                30,**
            
            **December
                31,****2005**
            
            **2004**Cash
                and cash equivalents
            $4,475
            
            $23,199Working
                capital (1)
            $7,753
            
            $9,087Current
                ratio - to one
            1.18
            
            1.12Stockholders’
                equity per common share (2)
            $15.09
            
            $15.03Debt
                to total capitalization (3)
            53.6%
            
            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:








**Nine
                Months Ended September 30,****2005**
            
            **2004**Cash
                flows from (used in):Operating
                activities
            
            $
            22,911
            
            $
            37,099Investing
                activities
            
            
            (15,460
            )
            
            (12,809
            )Financing
                activities
            
            
            (26,175
            )
            
            (17,705
            )








*Cash
      Flows from Operating Activities*





Our
      cash
      flows from operating activities were as follows:





**Nine
                Months Ended September 30,****2005**
            
            **2004**Net
                income plus non-cash expenses
            
            $
            20,012
            
            $
            32,690Changes
                in operating assets and liabilities
            
            
            2,899
            
            
            4,409Cash
                flows from operating activities
            
            $
            22,911
            
            $
            37,099





Non-cash
      expenses include primarily depreciation of equipment and leasehold improvements,
      amortization of intangibles, and deferred tax expense. The 2005 increase in
      cash
      relating to changes in operating assets and liabilities relates primarily to
      the
      increased liability balances in our deferred compensation plans ($3.4
      million)





*Cash
      Used in Investing Activities*





For
      the
      nine months ended September 30, 2005, approximately $10.4 million of cash was
      used primarily for contingent consideration payments to prior owners of
      businesses we acquired and approximately $5.1 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.


24
 Table
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*Cash
      Flows from Financing Activities*





For
      the
      nine months ended September 30, 2005, approximately $26.2 million of cash was
      used for financing activities. We used approximately $18.6 million for the
      repayment of borrowings and approximately $2.2 million for payment of dividends.
      In addition, we used $12.3 million to repurchase our stock. As of September
      30,
      2005, we had restricted cash of approximately $6.0 million, a decrease of $6.0
      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.





On
      August
      31, 2005, we added a participant bank to our senior credit facility ($10
      million) and one of the existing participants increased their commitment ($7
      million). As a result, the current amount available under this facility is
      $89
      million. As of September 30, 2005, there were no outstanding borrowings on
      the
      facility. 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
      September 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.





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





At
      September 30, 2005, we had total outstanding indebtedness of $306.0 million.
      Our
      outstanding debt consists of the following:





**Type
                of Debt**
            **Outstanding
                Amount as of**
              **September
                30, 2005**
            **Weighted
                Average Interest Rate****as
                of September 30, 2005**Non-recourse
                bonds
            $257.2
                million
            Fixed
                - 6.6%Note
                to prior owner
            3.8
                million
            Fixed
                - 10.0%Trust
                preferred
            45.0
                million
            Variable
                - 7.7%





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 September 30, 2005**
            
            **Fixed
                Rate to be Paid**
            
            **Variable
                Rate to be Received**
            
            **Fair
                Value as of**
              **September
                30, 2005**June
                3, 2005
            
            
            December
                31, 2009
            
            $
            12.0
                million
            
            
            4.05
            %
            
            LIBOR
            
            $
            213February
                25, 2005
            
            
            December
                31, 2009
            
            
            10.0
                million
            
            
            4.31
            %
            
            LIBOR
            
            
            69May
                18, 2004
            
            
            March
                31, 2009
            
            
            7.0
                million
            
            
            4.44
            %
            
            LIBOR
            
            
            20January
                7, 2003
            
            
            December
                31, 2007
            
            
            12.6
                million
            
            
            2.85
            %
            
            LIBOR
            
            
            242Total
            
            
            
            
            $
            41.6
                million
            
            
            
            
            
            
            
            $
            544





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 September 30, 2005. Interest on the remaining $3.4
      million of unhedged variable debt at September 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 $34 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.


25
 Table
          of Contents


**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.








**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 September 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)**July
                1, 2005through
              July
                31, 2005
            -
            -
            -
            $27.2
                millionAugust
                1, 2005 through
              August
                31, 2005
            519,400
            $16.00
            -
            $18.9
                millionSeptember
                1, 2005 through
              September
                30, 2005
            201,200
            $16.40
            -
            $15.6
                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.  On October 31, 2005, we terminated the August 1, 2005
              agreement.


26
 Table
          of Contents





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





None





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





None







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





None





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





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: November
              1, 2005
            By:
            /s/ 
              Tom WambergChairman
              of the Board and Chief Executive Officer







**CLARK,
              INC.**Date: November
              1, 2005
            By:
            /s/ Jeffrey
              W. LemajeurChief
              Financial Officer















28
 Table
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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).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




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