Sales for the 1997 fourth quarter were unusually high due to a pending legislative issue. To illustrate this point, of Clark/Bardes' 1997 revenues, 55% were generated in the fourth quarter, as compared to 38% in 1998.
Other Expense -- Net. Other expense for the three month period ended December 31, 1998 was $417,017 as compared to $820,096 for the three month period ended December 31, 1997. The amount for the three months ended December 31, 1998 included interest income of $177,443 and interest expense of $599,630 as compared to interest income of $81,194 and interest expense of $903,386 for the three months ended December 31, 1997. Interest income was higher for the three months ended December 31, 1998 due to larger cash balances resulting primarily from Clark/Bardes' initial public offering. Interest expense was lower for the three months ended December 31, 1998 due to a lower outstanding debt balance, as well as lower interest rates resulting from Clark/Bardes' August 1998 debt restructuring.
ended December 31, 1997 reflect contributions of $41.0 million from the core benefits business and $8.5 million from BCS community bank business. The breakout of first-year and renewal revenue is as follows:
Effective August 24, 1998, Clark/Bardes restructured its Senior Secured Notes and Second Priority Senior Secured Notes. The interest rates on the 10.5% Senior Secured Notes and the 11.0% Second Priority Senior Secured Notes were reset to 7.84% and 8.86%, respectively. The restructured notes may be prepaid without penalty and will be secured by a first priority security interest in, among other things, all of Clark/ Bardes' renewal commissions other than the renewal commissions from BCS and Schoenke. Further, Clark/ Bardes is subject to significant operational restrictions and financial covenants, a prohibition against certain payments, a limitation on the payment of dividends, a limitation on the incidence of indebtedness and the maintenance of certain financial ratios.
In its assessment of year 2000 issues, Clark/Bardes is specifically focusing on its software applications and associated software products, hardware, facilities, communications equipment and security systems. Clark/Bardes' proprietary financial modeling and Unix-based administrative systems that support its insurance-financed employee benefit programs were designed to be year 2000 ready. During 1998 Clark/Bardes upgraded its network software to be year 2000 compliant.
Federal tax laws could cause significant surrenders of policies and/or reduce the tax advantage of certain Clark/Bardes products, and therefore the life insurance products underlying the benefit programs marketed by Clark/Bardes are vulnerable to adverse changes in tax legislation. These life insurance products offer certain advantages, including that (i) the cash value of life insurance policies grows on a tax deferred basis until withdrawal and (ii) the death benefits of life insurance policies are received tax-free. In addition, loans can be made from insurance policies (other than modified endowment policies) without the imposition of tax.
CLARK/BARDES IS DEPENDENT ON THE SERVICES OF KEY PERSONNEL SUCH AS W.T. WAMBERG, MELVIN G. TODD AND RICHARD C. CHAPMAN
prevailing amortization periods for goodwill. In its deliberations, the FASB has tentatively determined that amortization for goodwill should be a maximum period of ten to twenty years. Clark/Bardes presently amortizes the present value of inforce revenue over thirty years and goodwill over a period of forty years but intends to fully comply with any new standards with respect to all future acquisitions.
believes that the computer equipment and software used by Clark/Bardes will function properly with respect to dates in the year 2000 and thereafter. However, third parties that have relationships with Clark/Bardes, including insurance companies and clients, may experience significant year 2000 issues. These issues may have a serious adverse effect on the operations of such third parties, including a shut-down of operations for a period of time, which may, in turn, have a material adverse effect on Clark/Bardes' business, financial condition and results of operations. Clark/Bardes has requested information from third parties addressing any potential year 2000 issues with such third parties; however, Clark/Bardes is not able to determine the extent to which such third parties, such as insurance companies and clients, may experience year 2000 issues. Any year 2000 compliance problem of either Clark/Bardes or third parties that have relationships with Clark/Bardes could have a material adverse effect on Clark/Bardes' business, results of operation and financial condition.
CBH and CBI's Chairman, Mr. Wamberg, owns approximately 23.4% of the outstanding Common Stock as of March 17, 1999. As a result, Mr. Wamberg is able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of Clark/Bardes.