Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE
901(d) OF REGULATION S-T.
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10390
Berlitz International, Inc.
(Exact name of registrant as specified in its charter)
New York 13-355-0016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Research Park, 293 Wall Street, Princeton, New Jersey 08540
(Address of principal executive offices)
(609) 924-8500
Registrant's telephone number, including area code
No Change
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's common stock, at
the close of business on May 13, 1994, is 10,032,903.
PAGE 1 OF 11
<PAGE>
Page 2
Form 10-Q
Part I - Item 1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND THE PERIODS FROM
JANUARY 1, 1993 TO JANUARY 31, 1993 AND
FROM FEBRUARY 1, 1993 TO MARCH 31, 1993
(Dollars in thousands, except per share amounts)
<CAPTION>
Post-Merger Pre-Merger
------------------------------------ -------------------
Three Period From Period From
Months Ended February 1, 1993 to January 1, 1993 to
March 31, 1994 March 31, 1993 January 31, 1993
<S> <C> <C> <C>
Sales of services and products $ 69,021 $ 49,404 $ 19,608
----------------------------------- -------------------
Costs and expenses:
Cost of services and products sold 42,012 29,273 13,479
Selling, general and administrative 21,862 15,138 6,719
Amortization of publishing rights and
excess of cost over net assets acquired 3,151 2,058 872
Interest expense on long-term debt 2,377 1,471 89
Other income, net (126) (6,740) (552)
---------------------------------- -------------------
Total costs and expenses 69,276 41,200 20,607
---------------------------------- -------------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (255) 8,204 (999)
Income tax expense 1,524 7,158 635
Income (loss) before cumulative effect of --------------------------------- -------------------
change in accounting principle (1,779) 1,046 (1,634)
Cumulative effect of change in accounting
principle - - 3,172
Net income (loss) available to --------------------------------- -------------------
common shareholders $ (1,779) $ 1,046 $ 1,538
--------------------------------- -------------------
--------------------------------- -------------------
Earnings (loss) per common share:
Income (loss) before cumulative effect of change
in accounting principle $ (0.18) $ 0.10 $ (0.09)
Cumulative effect of change in accounting
principle - - 0.17
--------------------------------- -------------------
Earnings (loss) per common share $ (0.18) $ 0.10 $ 0.08
--------------------------------- -------------------
--------------------------------- -------------------
Average number of common shares (000's) 10,033 10,030 19,024
--------------------------------- -------------------
--------------------------------- -------------------
See accompanying notes to the consolidated financial statement.
</TABLE>
<PAGE>
Page 3
Form 10-Q
Part I - Item 1
<TABLE>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
(Unaudited)
March 31, December 31,
1994 1993
--------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and temporary investments $ 9,083 $ 11,738
Accounts receivable, less allowance for
doubtful accounts of $2,555 and $2,566 25,655 22,999
Inventories 10,263 10,684
Prepaid expenses and other current assets 7,978 6,054
--------------------------------
Total current assets 52,979 51,475
Property and equipment, net of accumulated
depreciation of $4,929 and $2,666 26,309 25,791
Publishing rights, net of accumulated amorti-
zation of $1,003 and $788 20,497 20,712
Excess of cost over net assets acquired, net of
accumulated amortization of $13,699 and $10,763 456,028 458,964
Other assets 14,059 13,530
--------------------------------
Total assets $ 569,872 $ 570,472
--------------------------------
--------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,000 $ 3,000
Current portion of long-term debt 6,450 5,525
Accounts payable 5,489 5,278
Deferred revenues 34,492 33,187
Payrolls and commissions 10,224 9,468
Income taxes payable 2,785 1,971
Accrued Merger-related restructuring costs 7,417 7,978
Accrued expenses and other current liabilities 12,892 11,607
-------------------------------
Total current liabilities 82,749 78,014
Long-term debt 103,469 105,775
Deferred taxes and other liabilities 15,170 15,169
Minority interest 6,398 6,561
-------------------------------
Total liabilities 207,786 205,519
-------------------------------
Commitments and Contingencies (Note 6)
Shareholders' equity:
Common stock 1,003 1,003
Additional paid-in capital 368,658 368,658
Accumulated deficit (5,335) (3,556)
Cumulative translation adjustment (2,240) (1,152)
-------------------------------
Total shareholders' equity 362,086 364,953
-------------------------------
Total liabilities and shareholders'
equity $ 569,872 $ 570,472
-------------------------------
-------------------------------
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
Page 4
<TABLE>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND
THE PERIODS FROM JANUARY 1, 1993 TO JANUARY 31, 1993 AND FROM
FEBRUARY 1, 1993 TO MARCH 31, 1993
(Dollars in thousands)
<CAPTION>
Post-Merger Pre-Merger
----------------------------------- ---------------------
Three Months Period From Period From
Ended February 1, 1993 to January 1, 1993 to
March 31, 1994 March 31, 1993 January 31, 1993
----------------------------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,779) $ 1,046 $ 1,538
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Cumulative effect of change in accounting principle - - (3,172)
Gain on sale of interest in subsidiary - (4,924) -
Depreciation and amortization 4,672 3,052 1,396
Foreign exchange (gains) losses, net
and minority interest 70 (2,832) (130)
Equity in losses of joint ventures - 1,531 -
Payment of deferred financing costs - (6,623) -
Changes in operating assets and liabilities (2,309) (3,797) 10,002
--------------------------------- ----------------------
Net cash provided by (used in) operating activities 654 (12,547) 9,634
--------------------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (1,195) (1,234) (560)
Investment in joint ventures (495) (608) (37)
--------------------------------- ----------------------
Net cash used in investing activities (1,690) (1,842) (597)
Cash flows from financing activities: --------------------------------- ----------------------
Proceeds from issuance of long-term debt - 115,000 -
Repayment of long-term debt (1,381) (25,925) -
Net borrowings under revolving credit agreement - 4,000 -
Payment of Merger-related expenses - (13,996) -
Proceeds from equity capital contribution - 293,067 -
Payment of cash portion of Merger consideration
to shareholders - (374,541) -
Proceeds from sale of Notes - 30,833 -
Distribution of Notes proceeds to shareholders - (29,701) -
Other net financing activity - - 99
-------------------------------- ----------------------
Net cash provided by (used in) financing activities (1,381) (1,263) 99
-------------------------------- ----------------------
Effect of exchange rate changes on cash and
temporary investments (238) (213) (204)
-------------------------------- ----------------------
Net increase (decrease) in cash and temporary investments (2,655) (15,865) 8,932
Cash and temporary investments, beginning of period 11,738 28,113 19,181
-------------------------------- ----------------------
Cash and temporary investments, end of period $ 9,083 $ 12,248 $ 28,113
-------------------------------- ----------------------
-------------------------------- ----------------------
Supplemental disclosures of cash flow information:
Cash payments for interest $ 838 $ 528 $ 109
-------------------------------- ----------------------
-------------------------------- ----------------------
Cash payments for income taxes $ 1,179 $ 1,540 $ 192
-------------------------------- ----------------------
-------------------------------- ----------------------
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
Page 5
Form 10-Q
Part I - Item 1
BERLITZ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. General
The Consolidated Financial Statements of Berlitz International, Inc.
(the "Company") have been prepared in accordance with the instructions
to Form 10-Q and are unaudited. The information reflects all adjustments
which are of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of such financial
statements. The financial statements should be read in conjunction with
the financial statements and related notes to the Company's 1993 Annual
Report on Form 10-K, as filed with the Securities and Exchange
Commission.
Reclassification
Certain reclassifications have been made to the prior period's financial
statements to conform to the 1994 presentation.
2. Long-Term Debt
The Company has outstanding indebtedness through borrowing under a bank
term facility (the "Bank Term Facility") and the issuance of Senior
Notes (the "Senior Notes") (collectively the "Acquisition Debt
Facilities"), as follows:
March 31, December 31,
1994 1993
-----------------------------------
Term Loan $ 53,919 $ 55,300
Senior Notes 56,000 56,000
-----------------------------------
Total debt 109,919 111,300
Less current maturities 6,450 5,525
-----------------------------------
Long-term debt $ 103,469 $ 105,775
-----------------------------------
-----------------------------------
3. Financial Instruments
Pursuant to a covenant under the Acquisition Debt Facilities, the
Company is party to currency coupon swap agreements with a financial
institution to hedge the Company's net investments in certain foreign
subsidiaries and to help manage the effect of foreign currency
fluctuations on the Company's ability to repay its U.S. dollar debt.
No gains or losses have been reflected in the Company's Consolidated
Statements of Operations for these agreements.
<PAGE>
Page 6
<TABLE>
4. Other Income, net
<CAPTION>
Post-Merger Pre-Merger
------------------------------------- ------------------
Three Months Period From Period From
Ended February 1, 1993 to January 1, 1993 to
March 31, 1994 March 31, 1993 January 31, 1993
------------------------------------- ------------------
<S> <C> <C> <C>
Gain on sale of interest in subsidiary - $ (4,924) $ -
Interest income on temporary investments (267) (426) (143)
Equity in losses of joint ventures - 1,531 -
Foreign exchange (gains) losses, net 232 (75) 38
Interest income from affiliates - - (99)
Other income, net (91) (2,846) (348)
------------------------------------ ------------------
Total other income, net $ (126) $ (6,740) $ (552)
------------------------------------ ------------------
------------------------------------ ------------------
</TABLE>
5. Earnings Per Share
Earnings per share of common stock are computed by dividing net
income by the weighted average number of common shares outstanding
during the period. Primary and fully diluted earnings per share of
common stock are the same since common stock equivalents (e.g. stock
options, restricted stock and other stock equivalents) are immaterial
in both calculations. The Company had no such common stock
equivalents outstanding as of March 31, 1994.
6. Contingencies
The Company was included in the consolidated tax returns of the
affiliated group of which Macmillan Inc. ("Macmillan") was the parent
(the "Macmillan Group") prior to the Company's initial public offering
in December 1989 and consequently is severally liable for any Federal
tax liabilities for the Macmillan Group arising prior to that date.
Pursuant to the Disengagement Agreements, Macmillan and a new obligor
which owns 100% of Macmillan School Publishing, Inc. agreed to pay all
such Federal tax liabilities pursuant to an amended and restated tax
allocation agreement (the "Tax Allocation Agreement"), and Maxwell
Communication Corporation plc ("MCC") put into escrow $39,500 to secure
Macmillan's obligations.
On November 10, 1993, Macmillan commenced a voluntary Chapter 11 case in
the United States Bankruptcy Court for the Southern District of New York
and filed a prepackaged plan of reorganization (the "Reorganization
Plan"). The Reorganization Plan provides that the Tax Allocation
Agreement, along with many other contracts between Macmillan and other
parties, is to be assumed by Macmillan and assigned to a trust intended
to have sufficient assets to satisfy the obligations being assumed and
assigned. The Reorganization Plan also provides a cash reserve to pay
tax claims that are entitled to priority, which may include tax
liabilities covered by the Tax Allocation Agreement. On February 19,
1994, the Bankruptcy Court confirmed the Reorganization Plan. Any tax
liability assessed against the Company that would otherwise be payable
by Macmillan under the Tax Allocation Agreement is likely to be paid
either by the trust or from the cash reserve described above.
Management believes that any such liability will not result in a
material effect on the financial condition of the Company.
As part of the Merger, Fukutake Publishing Company, Ltd. ("Fukutake")
established a $50,000 irrevocable letter of credit to be used in the
event that income tax liabilities are imposed on the Company that relate
to the Macmillan Group. The Company is obligated to pay fees as may be
charged in connection with such letter of credit and to reimburse
Fukutake for amounts paid by Fukutake to the issuer of the letter of
credit to the extent that it is drawn upon.
<PAGE>
Page 7
Form 10-Q
Part I - Item 2
BERLITZ INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
Consolidated Financial Statements and notes thereto and with the Company's
audited Consolidated Financial Statements and notes thereto for the fiscal
year ended December 31, 1993.
Results of Operations - Three Months Ended March 31, 1994 vs.
Three Months Ended March 31, 1993
On February 8, 1993, Fukutake Publishing Co. Ltd ("Fukutake") acquired, through
a merger of the Company with an indirect wholly-owned U.S. subsidiary of
Fukutake (the "Merger"), approximately 67% of the new common stock of the
Company. The following selected financial data gives effect to the
combination of the results of the Company for the combined periods January
1, 1993 through January 31, 1993 and February 1, 1993 through March 31, 1993.
Three Months Ended March 31,
----------------------------
1994 1993
--------- ---------
Sales of services and products $ 69,021 $ 69,012
--------- --------
Cost of services and products sold
and selling, general and administrative 63,874 64,609
Amortization and interest expense 5,528 4,490
Other income, net (126) (7,292)
--------- --------
Total costs and expenses 69,276 61,807
--------- --------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle $ (255) $ 7,205
--------- --------
--------- --------
Loss before cumulative
effect of change in
accounting principle $ (1,779) $ (588)
--------- --------
--------- --------
In connection with the Merger, certain restructuring charges were accrued
in the third and fourth quarters of 1993, including those for the
reorganization of the Translations division and the targeted closing of 19
language centers (of which 12 were closed in 1993, 6 were closed in the
first quarter of 1994, and 1 remains to be closed). The following selected
financial data give effect to the comparison of language centers and
Translations facilities not affected by these Merger-related restructuring
activities:
<PAGE>
Page 8
Three Months Ended March 31,
----------------------------
Pro Forma
1994 1993
--------- ---------
Sales of services and products $ 69,021 $ 67,198
Cost of services and products sold and
selling, general and administrative $ 63,874 $ 62,367
Lessons given (000's) 1,179 1,162
Sales for the quarter ended March 31, 1994 were $69.0 million, flat with the
comparable period in the prior year, as growth in the Language Instruction
segment offset declines in Translations and Publishing. However, comparing the
facilities not affected by Merger-related restructuring activities, sales
increased by $1.8 million, or 2.7%, from pro forma 1993 sales.
Language Instruction sales were $57.0 million, an increase of $0.7 million, or
1.2%, from the comparable period in 1993. When comparing language centers not
affected by Merger-related restructuring activities, Instruction sales
increased by $2.4 million, or 4.5%, from pro forma 1993, as a decrease in
Western Europe was offset by increases in the other divisions. This decrease
in Western Europe, amounting to $1.2 million, resulted from the unfavorable
impacts of exchange rate fluctuation ($0.8 million) combined with the continued
economic weakness in the region, particularly in Belgium, France and Spain.
The decline was offset by increases over pro forma 1993 in North America,
Latin America and Central/Eastern Europe of $0.2 million, $0.9 million and
$0.2 million, respectively. East Asian sales improved by $2.5 million, or
18.2%, from pro forma 1993, primarily reflecting the favorable impact of
exchange rate fluctuations ($1.7 million, or 12.6%) and increased activity
in Hong Kong and Thailand ($0.4 million).
During the three-month period ended March 31, 1994, the number of lessons
given was approximately 1.2 million, slightly below the comparable prior-year
period but slightly above the same period in the prior year when comparing
language centers not affected by the Merger-related restructuring activities.
Lesson volume in East Asia increased 5.6% from pro forma 1993, reflecting
increased activity in Hong Kong and Thailand, while Japan remained flat.
Lesson volume in Latin America increased by 5.6% from prior year, reflecting
increases in all countries except Venezuela, in which lesson volume declined
15.1%. Lesson volume in Central/Eastern Europe increased by 6.5% over pro
forma 1993 as shortfalls in Germany of 5.9% were offset by results of the
new language centers in the Czech Republic, Poland and Hungary. Lesson
volume in Western Europe declined 5.9% from pro forma 1993, due to the
continuing weak economy, particularly in Belgium, France and Spain. For the
three months ended March 31, 1994, average revenue per lesson was $41.32 as
compared to $40.57 in the comparable prior-year period.
<PAGE>
Page 9
Translations sales were $8.5 million for the three-month period ended March
31, 1994, a decrease of $0.6 million, or 6.5%, from the comparable period in
1993 when comparing facilities not affected by the Merger-related
restructuring activities. This decrease was primarily affected by the timing
of contracts in North America and unfavorable exchange rate fluctuations.
Publishing segment sales were $3.5 million for the three months ended March
31, 1994, flat with prior year.
Total costs and expenses were $69.3 million for the quarter ended March 31,
1994, an increase of $7.5 million from the comparable prior year period.
Cost of services and products sold, and selling general and administrative
expenses totalled $63.9 million, or 92.5% of sales, for the 1994 first quarter,
compared to $64.6 million, or 93.6% of sales, in the prior year. The
improvement in the percentage of sales resulted primarily from 1994 reductions
in teacher costs and certain other variable expenses, which more than offset
the impact in 1993 of the settlement of a lease negotiation (income of $1.5
million) and certain other Merger-related adjustments (expense of $0.5
million). Interest expense on long-term debt increased by $0.8 million due
to the increase in borrowing in connection with the Merger. Other income,
net decreased by $7.2 million, primarily due to income items of $6.0 million
in 1993 triggered by the terms of the Merger and related restructuring
activities.
For the quarter ended March 31, 1994, the Company reported a net loss to
common shareholders of $1.8 million, compared to net income of $2.6 million
in the prior-year quarter. The Company's effective income tax rate for the
first quarter of 1994 was higher than those for the first quarter of 1993
Pre-Merger and Post-Merger periods, due to the Company's inability to utilize
net operating losses in certain countries, and to nondeductible amortization
charges. Loss per common share was $0.18 for the three months ended March 31,
1994, compared to earnings of $0.08 and $0.10 per share, respectively, for the
one-month and two-month periods ended January 31, 1993 and March 31, 1993.
Financial Condition
The primary source of the Company's liquidity is the cash provided by
operations. The Company's business is not capital intensive and,
historically, capital expenditures, working capital requirements and
acquisitions have been funded from internally generated cash. Although each
geographic area exhibits different patterns of lesson volume over the course
of the year, the Company's sales are generally not seasonal in the aggregate;
as a result, there is no need for significant amounts of cash at any point in
time during the year. Generally, the Company collects cash from customers in
the form of prepayment of fees for instruction that gives rise to deferred
revenues.
Net cash provided by operations was $0.7 million for the quarter ended March
31, 1994, reflecting net income in the period adjusted by non-cash charges
and credits, including depreciation and amortization, and changes in operating
assets and liabilities.
Capital expenditures for the three-month period ended March 31, 1994 were $1.2
million, reflecting the opening of five new language centers and the
refurbishing of existing centers. Six language centers, all of which were
targeted during 1993 for closing as part of the Merger-related restructuring
activities, were closed during the three-month period.
For the quarter ended March 31, 1994, net cash used in financing activities
was $1.4 million, reflecting the repayment of a portion of the Bank Term
Facility.
Pursuant to a covenant under the Acquisition Debt Facilities, the Company is
party to six currency coupon swap agreements with a financial institution to
hedge the Company's net investments in certain foreign subsidiaries and to
help manage the effect of foreign currency fluctuations on the Company's
ability to repay its U.S. dollar debt. These agreements require the Company,
in exchange for U.S. dollar receipts, to periodically make foreign currency
payments, denominated in the Japanese yen, the Swiss franc, the Canadian
dollar, the British pound, and the German mark. The first exchange is
scheduled for June 1994. Credit loss from counterparty nonperformance is
not anticipated. No gains or losses on these agreements have been recorded
in the Company's Consolidated Statements of Operations.
At March 31, 1994, the Company's liquid assets of $9.1 million consisted of
cash and temporary investments. During 1994, the Company anticipates capital
expenditures to be consistent with historical requirements. The Company
believes that the strategic restructuring undertaken in 1993 will strengthen
the core business and position the Company for future growth. Thus, the Company
plans to meet its increased debt service requirements and future working
capital needs through funds generated from operations, and through the
increase in available cash as the result of the discontinuation of dividends
resulting from restrictions imposed by the Acquisition Debt Facilities.
<PAGE>
Page 10
Form 10-Q
Part II - Item 6
BERLITZ INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter ended
March 31, 1994.
<PAGE>
Page 11
BERLITZ INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Exchange Act the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BERLITZ INTERNATIONAL, INC.
(Registrant)
Date: May 13, 1994 By: /s/ Robert Minsky
-----------------
Robert Minsky
Executive Vice President and
Chief Financial Officer
