UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1993
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 issuer as specified in its charter)
New York 13-3550016
(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) (Zip code)
Registrant's telephone number, including area code: (609) 924-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title and class)
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 than 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Based on the average bid and ask price at March 18, 1994, the
aggregate market value of the voting stock held by nonaffiliates of
the registrant was $46,578,106.
The number of shares of the Registrant's common stock
outstanding as of March 18, 1994 was 10,032,903.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Those portions of registrant's Amendment #1 to this Form
10-K which are incorporated into Items 10, 11, 12, and 13.
Page 1 of 71 Pages
Exhibit Index Appears on Page 65.
<PAGE>
PART I
ITEM 1. Business
Introduction
Berlitz International, Inc. (the "Company") is a New York
corporation, organized in 1989. Prior to the organization of the
Company, the Company's business was conducted through
subsidiaries of Macmillan, Inc. ("Macmillan") including: Berlitz
Languages, Inc. (Language Instruction and Translation Services),
Editions Berlitz, S.A. and Berlitz Publications, Inc. (Publishing).
Prior to the Company's initial public offering in December 1989,
Macmillan caused the Company to be incorporated and transferred to
it the capital stock of these predecessor corporations in exchange for
shares of the capital stock of the Company. In February 1993,
Fukutake Publishing Co., Ltd. ("Fukutake") acquired indirectly
through merger (the "Merger") 67% of the outstanding common
stock, par value $.10 per share, of the Company ("New Common")
and the existing public shareholders of the Company hold
approximately 33% of the Company. See Items 5 and 7 for further
discussion.
The Company's operations are conducted through the following
business segments: Language Instruction, Translation Services, and
Publishing. Language Instruction is organized on a geographic basis
into five (changed from four in 1992) operating divisions: North
America (U.S. and Canada), Western Europe (twelve countries),
Central/Eastern Europe (seven countries), East Asia (Japan, Thailand
and Hong Kong) and Latin America (seven countries including Puerto
Rico). Some countries are divided into regions and districts.
Translation Services is organized on a geographic basis into three
operating divisions: the Americas (U.S., Canada and Chile), Europe
(13 countries) and East Asia (Japan). Publishing is organized on a
geographic basis into two operating divisions (the U.S. and the United
Kingdom). The Company's Japanese operations are conducted through its
Japanese subsidiary which is owned 80% by the Company and 20% by
Fukutake. At least 90% of total East Asia sales, operating profits,
assets and employees are attributable to the operations in Japan.
Country and division managers determine pricing, teacher/translator
and administrative salaries, leasing of facilities, advertising and
promotion, and other administrative matters, within guidelines
established at corporate headquarters. The country managers are
evaluated and provided incentives based on profit performance of their
particular areas while division managers are provided incentives based
on profit performance of the Company as a whole. Business segment
and geographic area information is incorporated herein in the Notes
to Consolidated Financial Statements within Item 8, Financial
Statements and Supplementary Data, under Note 15.
2
<PAGE>
Language Instruction
As of December 31, 1993, the Company operated 322 language
centers in 31 countries using the Berlitz (Registered Trademark) Method,
as described herein, and the Company's proprietary instruction material, to
provide instruction in virtually all languages. Approximately 4.6 million
language lessons were given in 1993, the most frequently taught
languages being English, Spanish, French and German. Revenues
from Language Instruction accounted for approximately 82%, 83%
and 85% of total Company revenues in 1993, 1992 and 1991,
respectively.
The following tables set forth, by geographic division, the number of
language centers and the number of lessons given over the last five
years:
Number of Centers at December 31,
________________________________________
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
North America 72 73 68 67 67
Western Europe 61 68 65 65 62
Central/Eastern Europe 75 71 58 53 50
East Asia 57 59 56 53 50
Latin America 57 53 51 46 43
____ ____ ____ ____ ____
Total 322 324 298 284 272
____ ____ ____ ____ ____
____ ____ ____ ____ ____
Number of Lessons (in thousands)
_________________________________________
*1993 1992 1991 1990 1989
_____ _____ _____ _____ _____
North America 1,091 1,123 1,097 1,088 981
Western Europe 892 1,030 1,181 1,297 1,190
Central/Eastern Europe 904 896 841 878 910
East Asia 844 1,003 1,093 1,148 1,076
Latin America 857 818 713 693 791
_____ _____ _____ _____ _____
Total 4,588 4,870 4,925 5,104 4,948
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
* Excludes 137 lessons for language centers closed or to be closed in
connection with the Merger.
A lesson consists of a single 45-minute session given by a teacher
(regardless of the number of students). In 1993, the United States,
Japan, and Germany accounted for 21%, 17% and 13% of lessons
given and 21%, 27% and 15% of Language Instruction sales,
respectively.
3
<PAGE>
All of the Company's language centers are wholly-owned, except for
a joint venture operation in Russia and two franchised language
centers in Egypt. The following table sets forth, by geographic
division, the number of language centers in each of the countries in
which the Company owns and operates centers as of December 31,
1993:
WESTERN EUROPE NORTH AMERICA
Belgium 10 United States 62
Denmark 3 Canada 10
Finland 1 Total 72
France 17
Holland 1
Israel 1 LATIN AMERICA
Italy 7 Argentina 5
Norway 1 Brazil 16
Portugal 1 Chile 4
Spain 13 Colombia 4
Sweden 1 Mexico 15
United Kingdom 5 Puerto Rico 4
Total 61 Venezuela 9
Total 57
CENTRAL/EASTERN EUROPE
Austria 8
Czech Republic 3
Germany 48
Hungary 3 EAST ASIA
Poland 2 Hong Kong 1
Russia 1 Japan 54
Switzerland 10 Thailand 2
Total 75 Total 57
In 1993, 12 language centers were opened and 14 were closed,
bringing the worldwide total to 322. The average capital expenditure
incurred in connection with opening a new language center in 1993
was approximately $176,000.
Language centers traditionally have been wholly-owned operations and
the Company has traditionally financed the cost of expansion with
internally generated funds and does not anticipate that borrowing will
be necessary to finance the Company's planned expansion.
4
<PAGE>
Berlitz (Registered Trademark) Method. At the heart of Berlitz
(Registered Trademark) Instruction is the successful Berlitz (Registered
Trademark) Method, a proven technique that enables students
to acquire a working knowledge of the foreign language in a short
period of time. Through the exclusive use of the target language in
the classroom, students learn to think and speak naturally in the new
language, without translation. With its primary objective to develop
conversational comprehension and speaking skills, the Berlitz (Registered
Trademark) Method combines the use of live instruction with proprietary written
and audio-visual support materials to ensure a fast, effective, and
enjoyable learning experience.
Berlitz (Registered Trademark) instructors teach in their native language
and are required to complete a seven to ten-day training course in the
Berlitz (Registered Trademark) Method. Upon successful completion of this
training course, instructors work either full-time or part-time. The Berlitz
(Registered Trademark) Method does not require that an instructor be proficient
in any language other than the language being taught. This feature of the
Berlitz (Registered Trademark) Method greatly increases the number of potential
instructors and tends to lower instructor costs.
The Company's centralized management and ownership of language
centers permits standardization of instructional method and materials.
This standardization also allows a client to begin a Berlitz (Registered
Trademark) course in one location and complete it anywhere in the worldwide
network of Berlitz (Registered Trademark) language centers. Through
application of uniform standards to instructor training, development of
materials, and classroom instruction, the Company seeks to achieve consistent
and predictable instructional results.
Language Instruction Programs. The Company offers several types
of language instruction programs, which vary in cost, length and
intensity of study. Believing individualized instruction to be the most
effective way to learn a foreign language, the Company emphasizes
one-on-one instruction, including private lessons and Total
Immersion (Registered Trademark) study as described below. The Company
also offers semi-private and group lessons.
Approximately 51% of all tuition revenues in 1993 were from private
lessons (excluding Total Immersion (Registered Trademark)). Private
instruction is typically provided in blocks of three or more 45-minute
lessons, with a short break after each lesson. Total Immersion (Registered
Trademark) courses, an intensive form of private instruction, accounted for
5% of tuition revenues in 1993. Total Immersion (Registered Trademark)
programs last a full day and generally continue for two to six weeks. The
Company also offers semi-private lessons designed for two to four clients, as
well as group instruction, where class sizes are three or more students.
Group classes generally meet over a period of weeks. Semi-private and group
lessons represented 44% of tuition revenues in 1993.
As a substantial majority of its clients are enrolled for business or
professional reasons, the Company's business is influenced by the
level of international trade and economic activity. In addition to
individuals seeking work-related language skills, Berlitz (Registered
Trademark) clients also include travelers and high school and university
students developing course-related language skills.
Included in the Language Instruction business are programs that
combine intensive language instruction with first-hand exposure to the
cultural environment of the country of the target language. The
Company has two programs in this specialty instruction area:
Language Institute For English ("L.I.F.E. (Registered Trademark)"), a
Berlitz (Registered Trademark) branch since 1988, and Berlitz (Registered
Trademark) Study Abroad. A third specialty program, Berlitz (Registered
Trademark) Jr., provides complete language instruction programs to children
in public and private schools throughout the world. Together, these specialty
areas accounted for approximately 4% of the Company's revenues in 1993.
5
<PAGE>
Marketing and Pricing Policy. The Company directs its marketing
efforts toward individuals, businesses and governments. The
Company utilizes newspaper, magazine and yellow page advertising
in addition to direct contacts. Marketing efforts are coordinated on
a country-by-country basis. Center directors, district managers and
regional managers are responsible for sales development with existing
and new clients. In addition, sales forces are maintained in the
Company's major markets to supplement other marketing methods.
Tuition, which is payable in advance by most individual clients and
some corporate clients, includes a registration fee, a charge for
printed and recorded course materials, and a per lesson fee. The per
lesson fee varies depending on the language being taught, type of
lesson and country. Total Immersion (Registered Trademark) courses are
more expensive than standard individualized instruction, while semi-private
and group instruction are the least expensive.
The Company generally negotiates fees with its corporate clients
based on anticipated volume. Concentration on the intensive,
individualized segment of the market has enabled the Company to
maintain a pricing structure consistent with a premium product. The
Company, whose prices are usually higher than those charged by its
competitors, believes that it is able to charge premium prices because
of its reputation and the high and consistent quality of instruction it
provides.
Competition. The language instruction industry is fragmented,
varying significantly among different geographic locations. In
addition to the Company, providers of language instruction generally
include individual tutors, small language schools operated by
individuals and public institutions, and franchises of large language
instruction companies. The smaller operations typically offer large
group instruction and self-teaching materials for home study. Rather
than compete with these small operators, the Company concentrates
on its leading position in the higher-priced, business-oriented segment
of the language instruction market through its offering of intensive
and individualized instruction. No competitors in this market offer
language instruction through wholly-owned operations on a worldwide
basis. However, the Company does have a number of competitors
organized on a franchise basis which, although not as geographically
diverse as the Company, compete with it internationally. The
Company also faces significant competition in a number of local
markets.
Translation Services
Berlitz (Registered Trademark) Translation Services provides high quality
technical translation, interpretation, software localization, electronic
publishing, and other foreign language related services.
Translations represented approximately 13%, 12% and 9% of total Company
revenues in 1993, 1992 and 1991, respectively, and is expected to
contribute an increasingly larger percentage of total corporate
revenues over the next few years as a result of recent restructuring
efforts, an expanded and restructured sales force and a greater focus
on larger customers.
Berlitz (Registered Trademark) Translations sales focus is on industry
segments viewed by management as likely to contribute to the future growth
of the business, such as: information technology, automotive/manufacturing,
medical technology/pharmaceutical, and telecommunications. The Company
has an international network comprised of 27 translation centers in 18
countries, including Baldock (England), Bergen (Norway),
Copenhagen, Dublin, Los Angeles, Montreal, New York, Paris,
Santiago, Sindelfingen (Germany), Toronto, Tokyo and other locations
worldwide. Materials are electronically transferred between locations
to utilize specialized in-country translations and production facilities
in order to produce the highest quality products and reduce costs.
6
<PAGE>
The Company has developed a global network of translators that
provides it with a broad range of technical and linguistic resources.
The Company has also developed a production process that
incorporates several editing phases designed to maximize the accuracy
of its translations. Production staffs at dedicated Translation facilities
generally consist of production managers, editors and translators.
Managers and editors are generally full-time staff members, while the
translator staff is comprised of both full-time employees and freelance
workers. Freelance translators provide the specialized skills that are
necessary for technical translations at a more cost effective rate than
that of full-time employees.
Translation Services has expanded through a number of strategic
alliances and acquisitions. In 1989, the Company acquired Institute
for Fagsprog A/S (Copenhagen, Denmark) and in 1990 acquired Able
Translations, Ltd. (Baldock, England). Kayser Coll. Technische
Ubersetzer (Sindelfingen, Germany) and NorDoc A/S (Norway), were
acquired in 1991. Also in 1991, Berlitz acquired a 51% interest in
Softrans International Limited ("Softrans"), a Dublin-based leading
supplier of software localization related services in Europe. In 1993,
an additional 19% interest in Softrans was acquired.
Competition. In the highly fragmented translation services market,
providers compete on the basis of price, accuracy and job turnaround
time. The Company does not believe that any one company accounts
for a significant portion of the entire commercial translation market.
Publishing
The Company publishes pocket-size travel guides and language phrase
books through its facilities in Europe. In addition, Publishing's list
includes an extensive range of bilingual dictionaries, trade paperback
travel guides and self-teaching language products. It is also involved
with licensing projects that capitalize on the Berlitz (Registered
Trademark) name in the international consumer market. The Publishing
business accounted for approximately 5%, 5% and 6% of total Company revenues
in 1993, 1992 and 1991, respectively. Approximately 52%, 55% and 63% of
Publishing segment sales in 1993, 1992 and 1991, respectively were in
Europe.
Berlitz (Registered Trademark) Books and Guides. Pocket-size, smaller
format travel guides include full-color pictures, maps, brief histories,
points of interest, food and shopping information and a practical A to Z
section. There are a total of 132 titles in this format published in
English, plus approximately 480 titles in more than thirteen other
languages. For these multiple-language titles the Company employs
manufacturing techniques utilizing the same graphics and layouts to
reduce manufacturing costs. Larger format travel guides, which
include more detailed descriptive information, are available primarily
in English in two series: The Berlitz (Registered Trademark) Travellers
Guides and the Discover series. The latter series will incorporate titles
previously published in the Blueprint (Registered Trademark) series.
The Company's phrase books include common expressions, words and
phrases most often used by travelers. These appear in color-coded
sections covering such topics as accommodations, eating, sightseeing,
shopping, transportation and medical reference. There are a total of
117 phrase books published in twelve languages, of which 29 are for
English-speaking travelers. A European Phrase Book and a European
Menu Reader are published in eight languages. Additional travel-
related language products include Cassette Packs and Compact Disc
Packs, which consist of a 90-minute cassette tape or a 75 minute
compact disc ("CD") and phrase book packaged and sold together.
7
<PAGE>
Retail distribution for the books and audio products is through
established national distributors. These distributors sell to
wholesalers, chain stores and individual retail outlets.
Berlitz (Registered Trademark) Self-Teaching. The audio cassette
and CD products produced by the Company are intended for the self-instruction
language market and draw on the experience of the Language Centers.
These products include courses for children and business people.
In the U.S., the audio cassette and CD products are marketed through
in-flight airline magazine space advertising, through credit card
statement inserts for which the credit card company is compensated
based on orders received in response to promotions, and through
another performance-based cooperative joint marketing venture with
a national magazine publisher. In addition to the audio cassette and
CD products, the Company is presently involved in several joint
development and licensing arrangements for products which use
published Berlitz (Registered Trademark) materials as the basis of
alternate media products (such as hand-held electronic reference products
and computer software) for which the Company receives royalties.
The Company's marketing plan includes the relaunching of certain
existing product lines and the creation of new products that will
compete in today's market place.
The Company establishes retail distribution through national
distributors, who are responsible for the retail, wholesale, special
sales, and travel industry sales channels. In addition to retail
distribution, the Company markets the self-teaching language products
through direct mail campaigns. The Company utilizes in-flight airline
magazine advertising, credit card statement inserts and consumer
magazine advertising in its United States marketing. In Europe and
East Asia, the Company handles direct mail through a number of
licensees.
Competition. The market for the Company's publications and self-
teaching language products is sensitive to factors that influence the
level of international travel, tourism and business. There is intense
competition in nearly all markets in which the Company sells its
published products. The Company's market share and Berlitz (Registered
Trademark) brand name recognition levels vary considerably depending on
market and product line.
8
<PAGE>
Employees
As of December 31, 1993, the Company employed 1,899 full-time
employees and 1,986 full-time employee equivalents. Due to the
nature of its businesses, the Company retains a large number of
teachers and translators on a freelance basis. Full-time employee
equivalents are calculated by aggregating all part-time instructor hours
and dividing these by the average number of hours worked by a full-
time employee.
The Company is party to collective bargaining agreements in Canada,
Denmark, France, Austria, Germany, and Italy which do not cover
a significant number of employees. The Company believes it has
satisfactory employee relations in the countries in which it operates.
Certain countries in which the Company operates impose obligations
on the Company with respect to employee benefits. None of these
obligations materially inhibits the Company's ability to operate its
business.
General
The material trademarks used by the Company and its subsidiaries are
BERLITZ (Registered Trademark), TOTAL IMMERSION (Registered Trademark)
(including foreign language variations used in certain foreign markets)
and L.I.F.E. (Registered Trademark). The Company or its subsidiaries
hold registrations for these trademarks, where possible, in all countries
in which (i) material use is made of the trademarks by the Company or its
subsidiaries, and (ii) failure to hold such a registration is reasonably
likely to have a material adverse effect on the Company or its subsidiaries.
The duration of the registrations varies from country to country. However, all
registrations are renewable upon a showing of use. The effect of the
registrations is to enhance the Company's ability to prevent certain
uses of the trademarks by competitors and other third parties. In
certain countries, the registrations create a presumption of exclusive
ownership of the trademarks.
Although the Company is not generally regulated as an educational
institution in the jurisdictions in which it does business, it is subject
to general business regulation and taxation. The Company's foreign
operations are subject to the effects of changes in the economic and
regulatory environments of the countries in which the Company
operates.
9
<PAGE>
ITEM 2. Properties
The Company has its headquarters in Princeton, New Jersey and
maintains facilities throughout the world. Except for eight facilities
in France, Spain, Hungary, Brazil and Chile, all of the Company's
facilities, including its headquarters, are leased. Total annual rental
expense for the twelve months ended December 31, 1993 was
$23,074,000. No one facility is material to the operation of the
Company. A typical Berlitz (Registered Trademark) language center has
private classrooms designed for one-on-one instruction, as well as some
larger rooms suitable for small group instruction.
The following tables set forth, as of December 31, 1993, by
geographic region, the number of facilities maintained in that region,
the use of the Company's facility, whether owned or leased, and the
aggregate square footage:
OWNED FACILITIES
Number of Aggregate
Region Facilities Use Square Footage
______ __________ ___ ______________
Western Europe 3 Center/Leased to Others 4,370
Central/Eastern Europe 2 Center 2,895
Latin America 3 Center 19,267
_____ ________
Total 8 Total 26,532
_____ ________
_____ ________
LEASED FACILITIES
Number of Aggregate
Region Facilities Use Square Footage
______ __________ ___ ______________
North America 80 Center/Offices 221,733
Western Europe 69 Center/Offices 223,852
Central/Eastern Europe 79 Center/Offices 205,823
East Asia 62 Center/Offices 142,631
Latin America 53 Center/Offices 207,662
_____ __________
Total 343 Center/Offices 1,001,701
_____ __________
_____ __________
10
<PAGE>
ITEM 3. Legal Proceedings
In November, 1992, the Company received a complaint entitled "Irving
Kas, on behalf of all others similarly situated v. Berlitz International,
Inc., Joe M. Rodgers and Elio Boccitto" in the U.S. District Court for
New Jersey alleging various securities law violations under the
Securities Exchange Act of 1934 and alleging various omissions and
misrepresentations in connection with the Company's announcements
during 1992 with respect to its financial results. In 1993, plaintiff
filed a supplemental and amended complaint alleging various violations
of the federal securities laws and common-law breaches of fiduciary duties
relating primarily to the transaction contemplated by the Merger Agreement,
and seeking to add another officer of the Company as a defendant in addition
to the two officers named in the initial pleading. On August 4,
1993, the Court granted defendants' motion to dismiss the amended
and supplemental complaint, deemed the original complaint to be
withdrawn and dismissed the lawsuit in its entirety. Plaintiff's time
to appeal has expired.
The Company is party to several other actions arising out of the
ordinary course of its business. Management believes that none of
these actions, individually or in the aggregate, will have a material
adverse effect on the financial condition or results of operations of the
Company.
11
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of security holders during
the fourth quarter of 1993.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and
General Instruction G(3) to Form 10-K, the following information is
included in Part I of this Form 10-K.
Executive Officers and Directors of the Registrant
The following table sets forth certain information concerning the
Executive Officers and Directors of the Company as of March 18,
1994.
Name, Age, Position with Registrant
Business Experience
___________________________________
Soichiro Fukutake, 48
Chairman of the Board;
Director (A)(C)
Mr. Fukutake joined Fukutake in 1973, and since May 1986 has
served as its President and Representative Director. He also serves
on the Board of Directors of a number of companies, private
foundations and associations in Japan. Mr. Fukutake became a
Director of the Company in February 1993. His term will expire in
1995.
Hiromasa Yokoi, 54
Vice Chairman of the Board, Chief Executive Officer and President;
Director
(A)
Mr. Yokoi was elected Vice Chairman of the Board and Chief
Executive Officer of the Company in February 1993 and additionally
was elected President effective on August 31, 1993. Mr. Yokoi has
served as a director of Fukutake since June 1992 and General Manager
of the Overseas Operations Division (formerly the International
Division) of Fukutake since October 1990. Prior to that, he served
as General Manager of the President's Office of Fukutake from July
1990 to September 1990. From June 1987 to July 1990, he was
General Manager of the Corporate International Trade division of
Matsushita Electric Industries Co., Ltd.. Between April 1981 and
June 1987, he served as Managing Director and Chief Executive
Officer of National Panasonic (Australia) PTY Ltd. in Sydney,
Australia. Mr. Yokoi has served as a Director of the Company since
January 1991. His term will expire in 1994.
12
<PAGE>
Susumu Kojima, 51
Executive Vice President,
Corporate Planning;
Director
(A)
Mr. Kojima has served as Executive Vice President, Corporate Planning
since September 1993. Prior thereto, he was Senior Vice President,
Corporate Planning from February 1993 to September 1993. He was elected
Executive Vice President, Corporate Planning in February 1993. Mr.
Kojima has served as Director of Fukutake since March 1993. Prior to
that, he was Joint General Manager of the Business Development Department
of The Industrial Bank of Japan, Limited ("I.B.J.") from June 1991 to
Februar 1993. Between November 1987 and June 1991, he served as Senior
Deputy General Manager, Industrial Research Department of I.B.J. after
having served as Chief Representative of I.B.J.'s Washington
Representative Office from September 1983. Mr. Kojima was elected
as a Director of the Company in February 1993. His term will expire
in 1995.
Robert Minsky, 49
Executive Vice President and Chief Financial Officer;
Director
(A)
Mr. Minsky has served as Executive Vice President, Translations
since October 1, 1993, and as Chief Financial Officer since
November 1990. From November 1990 to October 1993, he also
served as Vice President. From January 1990 to October 1990, Mr.
Minsky was Vice President and Chief Financial Officer of
DRI/McGraw-Hill, Inc. Between January 1986 and June 1989, Mr.
Minsky served as Vice President and Chief Financial Officer of
McCormack & Dodge Corporation, a subsidiary of The Dun &
Bradstreet Corporation. Mr. Minsky has served as a Director of the
Company since April 1991. His term will expire in 1995.
Manuel Fernandez, 57
Executive Vice President
Director (A)
Mr. Fernandez has served as Executive Vice President, Language
Services, since September 1993. Prior thereto, he was Vice
President, European Operations from October 1989 to September
1993. He previously served as Vice President, European Operations
for Berlitz Languages from January 1983 to October 1989. Mr.
Fernandez was first employed by Berlitz Languages in 1963 and
served in various positions until becoming Vice President in 1983.
Mr. Fernandez has served as a Director of the Company since July
1993. His term will expire in 1995.
Owen Bradford Butler, 70
Director
(B)(D)
From 1986 to December 1993, Mr. Butler served as retired Chairman and
consultant to The Procter & Gamble Co. He also serves as Non-Executive
Chairman of the Board of Directors of Northern Telecom, Ltd., and
serves on the Board of Directors of Deere & Company, and Armco,
Inc. Mr. Butler became a Director of the Company in February
1993. His term will expire in 1994.
13
<PAGE>
Saburou Nagai, 63
Director
Mr. Nagai has served as Managing Director of Fukutake since April
1988 and has supervised its general administration and accounting
departments since April 1990. Since joining Fukutake in April 1985,
he served as General Manager of its accounting department until April
1988 and supervised its corporate identity department (July 1991-April
1992) and personnel department (April 1990-July 1991). Mr. Nagai
became a Director of the Company in February 1993. His term will
expire in 1994.
Edward G. Nelson, 62
Director
(B)(C)(D)
Since January 1985, Mr. Nelson has served as Chairman and President
of Nelson Capital Corporation. From 1983 to 1985, he was Chairman and
Chief Executive Officer of Commerce Union Corporation. He also
serves on the Board of Directors of Clintrials, Inc., Osborn
Communications Corporation, and A+ Communications, Inc. and is a nominee
to Advocat. He is a trustee of Vanderbilt University. Mr. Nelson became
a Director of the Company in February 1993. His term will expire in 1994.
Aritoshi Soejima, 67
Director
(B)(C)(D)
Mr. Soejima has served as Senior Counselor of Fukutake since
December 1980. From 1950 to 1981, Mr. Soejima served in various
positions with the Japanese government (including the Ministry of
Finance) and multilateral financial institutions (including the World
Bank and International Monetary Fund). Mr. Soejima also currently
serves as Chairman of Tokyo, Osaka, Tokyo Bay, Nagoya Hilton Company,
Ltd. and Counselor of Nippon Hilton Company, Ltd. and Capital
International Company, Ltd. and as special advisor to the Board of
Directors of the Nippon Fire & Marine Insurance Company, Ltd. In
addition, he serves on the Board of Directors of a number of
companies, private foundations and associations in Japan. Mr.
Soejima became a Director of the Company in February 1993. His
term will expire in 1995.
Henry D. James, 56
Vice President and
Controller
Mr. James has served as Vice President and Controller since
November 1990. For the period from October 1989 through October
1990, he served as Chief Financial Officer in addition to his present
capacity. Prior thereto, he served in the same capacity for Berlitz
Languages from 1981 to October 1989. Mr. James joined Berlitz
Languages in 1977 and served in various positions with that company
prior to 1981.
Robert C. Hendon, Jr., 56
Secretary and General
Counsel
Mr. Hendon has served as Secretary and General Counsel since April
1992. Prior thereto, he was first an associate then a partner at the
law firm of Waller Lansden Dortch & Davis from 1964 until April
1992.
14
<PAGE>
Jose Alvarino, 54
Vice President
Mr. Alvarino has been Vice President, Latin American Operations
since October 1989. Prior thereto, he served in the same capacity
with Berlitz Languages from 1985 until October 1989. Mr. Alvarino
was first employed by Berlitz Languages in 1970 and served in
various positions from that time until being appointed Vice President
in 1985.
Anthony Tedesco, 51
Vice President
Mr. Tedesco has been Vice President, East Asian Operations since
July 1993. Prior thereto, he has served as Vice President, North
American Operations from October 1989 to July 1993. Prior thereto,
he served in the same capacity with Berlitz Languages from his
initial employment in 1983.
Wolfgang Wiedeler, 49
Vice President
Mr. Wiedeler has served as Vice President Language Instruction,
European Operations since September 1993. From May 1992 to
September 1993 he was Vice President, Central/Eastern European
Operations. Prior thereto, he served as Divisional Manager of
German-speaking countries since October 1989. Prior thereto he
served in the same capacity for Berlitz Languages from his initial
employment in 1984.
(A) member of the Executive Committee
(B) member of the Audit Committee
(C) member of the Compensation Committee
(D) Disinterested Director
There is no family relationship between any of the directors or
executive officers of the Company.
From January 1, 1993 until February 8, 1993, the closing of the
Merger, the Board of Directors was comprised of Elio Boccitto, John
Brademas, Robert Minsky, Rudy Perpich, Rozanne L. Ridgway, Joe
M. Rodgers and Hiromasa Yokoi. Mr. Rodgers served as Chairman
of the Board and acting Chief Executive Officer from December 23,
1991 until the closing of the Merger. Upon closing the Merger, the
Board of Directors was comprised of Soichiro Fukutake, Hiromasa
Yokoi, Elio Boccitto, Robert Minsky, Owen Bradford Butler, Saburou
Nagai, Edward G. Nelson, Makato Sato and Aritoshi Soejima. Mr.
Sato resigned effective February 27, 1993 and the Board appointed
Mr. Susumu Kojima to fill the vacancy. Mr. Boccitto resigned as a
Director effective July 27, 1993 and the Board appointed Mr. Manuel
Fernandez to fill the vacancy.
15
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The New Common is traded on the New York Stock Exchange
("NYSE") under the symbol BTZ. Holders of shares of New
Common are entitled to receive such dividends as may from time to
time be declared by the Board of Directors; however, such dividends
are subject to restrictions set forth in the debt facilities incurred in
connection with the Merger Agreement with Fukutake. As a result,
the Company does not expect to pay dividends during the term of
such debt facilities. See Item 7, Management's Discussion and
Analysis, Liquidity and Capital Resources, for further discussion.
Holders of New Common are entitled to one vote per share on all
matters submitted to the vote of such holders, including the election
of directors. There were approximately 108 holders of record of New
Common as of March 18, 1994.
The sales prices per share of the New Common as reported by the
NYSE for each quarter during the period from February 9, 1993 until
December 31, 1993 ranged as follows:
Price per Share
____________________
High Low
______ ________
February 9, 1993 to March 31, 1993 $15 7/8 $14 3/8
Second Quarter 1993 $15 5/8 $12 1/4
Third Quarter 1993 $14 1/8 $12
Fourth Quarter 1993 $14 7/8 $12 5/8
Prior to the Merger, the Company's common stock, par value $.10
per share (40,000,000 shares authorized) ("Old Common"), was
traded on the NYSE under the symbol BTZ.
The sales prices per share of the Old Common as reported by the
NYSE for each quarter during the period from January 1, 1992 until
February 8, 1993 ranged as follows:
Price Per Share
____________________
High Low
______ ________
January 1, 1993 to February 8, 1993 $23 1/2 $22 1/8
Price Per Share
High Low
First quarter 1992 $20 1/4 $18 1/4
Second quarter 1992 $18 1/2 $16 3/4
Third quarter 1992 $24 $17 7/8
Fourth quarter 1992 $23 3/4 $16 3/4
16
<PAGE>
Management believes the price per share for periods subsequent to
February 8, 1993 is not directly comparable to the price per share for
the periods presented prior to February 8, 1993 because the
outstanding number of shares was reduced as a result of the Merger.
Aggregate common stock dividends of $.42 per share of Old Common
were declared in 1992, in quarterly payments. The Company
declared regular cash dividends of $.14 per share of Old Common for
each of the first, second and third quarters of 1992. No fourth
quarter dividend for 1992 nor any dividends for 1993 were declared
or paid.
On February 5, 1992, the Board of Directors declared a dividend
distribution of one Common Share Purchase Right (the "Right") for
each outstanding share of Old Common to shareholders of record on
February 17, 1992, in accordance with the Safeguard Rights
Agreement between Berlitz and U.S. Trust Company of New York
(the "Safeguard Rights Plan"). The Rights were redeemed prior to the
closing of the Merger, so that the holders of Rights had no rights
other than the right to receive the redemption price of $.01 per Right
in cash payable to such shareholders at the time of the closing of the
Merger.
As a result of certain payment defaults on certain notes held by the
Company as discussed in Item 7 and Note 12 to the Consolidated
Financial Statements, no dividends were paid on the Preferred Stock
during 1992 or 1993.
17
<PAGE>
ITEM 6. Selected Financial Data
<TABLE>
BERLITZ INTERNATIONAL, INC.
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<CAPTION>
Post-Merger Pre-Merger
___________ __________________________________________________________
Period from Period from
Pro Forma (1) February 1, January 1,
Year Ended 1993 to 1993 to
December 31, December 31, January 31, Year Ended December 31,
_____________________________________________
1993 1993 1993 1992 1991 1990 1989
__________ ____________ ___________ __________ _________ ___________ _________
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales of services and
products sold (2) $ 271,677 $ 252,069 $ 19,608 $ 281,320 $ 259,771 $ 261,397 $ 216,496
__________ ____________ ___________ __________ _________ ___________ _________
Cost and expenses:
Cost of services and products sold (2) 169,102 155,623 13,479 178,009 156,807 153,457 127,603
Selling, general and administrative (2) 83,500 76,781 6,719 82,837 71,880 71,251 55,083
Amortization of publishing rights and
excess of cost over net assets acquired 12,423 11,551 872 10,463 10,417 10,313 10,263
Merger-related restructuring costs (3) 4,808 4,808 - - - - -
Other (income) expense, net 1,770 2,233 (463) (833) (14,993) (16,852) (4,681)
Non-recurring Maxwell and
Merger related charges (4) - - - 1,356 195,354 - -
__________ ____________ ___________ __________ _________ ___________ _________
Total costs and expenses 271,603 250,996 20,607 271,832 419,465 218,169 188,268
__________ ____________ ___________ __________ _________ ___________ _________
Income (loss) before income taxes
and cumulative effect of change
in accounting principle $ 74 $ 1,073 $ (999) $ 9,488 $(159,694) $ 43,228 $ 28,228
__________ ____________ ___________ __________ _________ ___________ _________
__________ ____________ ___________ __________ _________ ___________ _________
Cumulative effect of change in
accounting principle $ 3,172 $ - $ 3,172 $ - $ - $ - $ -
__________ ____________ ___________ __________ _________ ___________ _________
__________ ____________ ___________ __________ _________ ___________ _________
Net income (loss) $ (2,018) $ (3,556) $ 1,538 $ 4,041 $(171,947) $ 22,622 $ 13,708
Preferred Stock dividends - - - - 9,240 12,019 1,809
__________ ____________ ___________ __________ _________ ___________ _________
Net income (loss) available
to common shareholders $ (2,018) $ (3,556) $ 1,538 $ 4,041 $(181,187) $ 10,603 $ 11,899
__________ ____________ ___________ __________ _________ ___________ _________
__________ ____________ ___________ __________ _________ ___________ _________
Earnings (loss) per common share:
Income (loss) before cumulative effect
of change in accounting principle $ (0.35) $ (0.09) $ 0.21 $ (9.53) $ 0.56 $ 0.63
Cumulative effect of change in
accounting principle - .17 - - - -
____________ ___________ __________ _________ ___________ _________
Earnings (loss) per common share $ (0.35) $ 0.08 $ 0.21 $ (9.53) $ 0.56 $ 0.63
____________ ___________ __________ _________ ___________ _________
____________ ___________ __________ _________ ___________ _________
Cash dividends declared per common share $ - $ - $ 0.42 $ 0.53 $ 0.50 $ -
____________ ___________ __________ _________ ___________ _________
____________ ___________ __________ _________ ___________ _________
Average number of common shares (000) 10,031 19,024 19,022 19,014 19,000 19,000
____________ ___________ __________ _________ ___________ _________
____________ ___________ __________ _________ ___________ _________
Balance sheet data (at year end):
Total assets $ 570,472 $ 456,583 $ 479,096 $ 497,342 $ 455,566
Long-term debt $ 105,775 $ - $ 25,000 $ 50,000 $ 50,000
Shareholders' equity $ 364,953 $ 326,421 $ 331,256 $ 333,046 $ 330,392
Other data:
Language lessons given during year (000) 4,588 4,870 4,925 5,104 4,948
Language centers open at year end 322 324 298 284 272
Growth (decline) in same center sales from
year to year (5) (6.1%) 2.4% (2.8%) 16.3% 13.7%
</TABLE>
18
<PAGE>
(1) Income Statement Data give effect to the combination of the results of
the Company for the periods January 1, 1993 through January 31, 1993 and
February 1, 1993 through December 31, 1993.
(2) Under the purchase method of accounting, the Post-Merger sales and
expenses of facilities closed in connection with the Merger have been
reclassified to "Merger-related restructuring costs" (33%) and "Excess of
cost over net assets acquired" (67%).
(3) Principally represents 33% of severance payments, and language center
closing costs.
(4) Represents the write-off of the Maxwell Note and certain Receivable Notes
and other reserves related to the bankruptcy filing of Maxwell
Communication Corporation plc. See Notes 2 and 11 to Consolidated
Financial Statements.
(5) Indicates year-over-year increase (decrease) in sales by language centers
which were operating during the entirety of both years being compared.
For a description of the Merger, see Note 2 to the Consolidated Financial
Statements.
19
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and Notes thereto
contained elsewhere in this Annual Report on Form 10-K.
In December 1989, the Company sold 8.4 million shares of common stock
to the public in an initial public offering and issued to Macmillan Inc.
("Macmillan") 200,000 shares of the Company's 7% non-cumulative
preferred stock (the "Preferred Stock") (of which 20,000 shares were
subsequently retired and canceled and 180,000 shares remained outstanding)
in exchange for the capital stock of its predecessor companies. See Note 11
to the Consolidated Financial Statements for further discussion. In addition,
in anticipation of the initial public offering, the Company entered into a
series of financial transactions with Macmillan, Maxwell Communication
Corporation plc ("Maxwell Communication") and its affiliates as discussed
in Note 2 to the Consolidated Financial Statements. The holder of the
Preferred Stock was entitled to quarterly dividends at the quarterly rate of
the lesser of the 1.75% of the $180.0 million liquidation preference of such
shares (i.e. $12.6 million annually) or the quarterly rate which resulted in
the aggregate dividends on all shares of the Preferred Stock being equal to the
Company's after-tax income during the preceding quarter from the loan of
$99.6 million to Maxwell Communication ("Maxwell Note") and the 10 year
affiliate promissory notes ("Receivable Notes").
On December 16, 1991, Maxwell Communication filed a petition for
protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code
and subsequently filed for an order of administration in the United Kingdom.
As a result, in 1991 the Company wrote off or provided reserves for the
Maxwell Note, Receivable Notes and other related charges, as described in
Notes 2 and 11 to the Consolidated Financial Statements, totaling $195.4
million. In the fourth quarter of 1991, payment and other defaults arose on
the Maxwell Note and the Receivable Notes. Consequently, as discussed in
Note 12 to the Consolidated Financial Statements, the Company's obligation
to pay dividends on the Preferred Stock was indefinitely suspended. In the
first quarter of 1993, the Company, on behalf of the selling shareholders as
discussed below, recovered $30.8 million from the sale of the Maxwell notes
previously written off.
On December 9, 1992, the Company and Fukutake Publishing Co., Ltd
("Fukutake") entered into an amended and restated merger agreement (the
"Merger Agreement") pursuant to which Fukutake agreed to acquire through
a merger of the Company with an indirect wholly-owned U.S. subsidiary (the
"Merger"), approximately 67% of the outstanding common stock, par value
$.10 per share of the Company ("New Common"). The Merger was
consummated on February 8, 1993. The Company's shareholders received
for each share of common stock outstanding prior to the Merger ("Old Common"),
(i) $19.50 in cash; (ii) 0.165 share of New Common and (iii) $1.48
representing the net proceeds per share from the sale of the Maxwell Note
and the Receivable Notes. In addition, the shareholders at the time of the
closing received $.01 per share upon redemption of each Common Share Purchase
Right (the "Right") under the terms of the Safeguard Rights Agreement between
the Company and U.S. Trust Company of New York, which was redeemed pursuant
to a condition of the Merger. After the Merger, public shareholders of the
Company hold approximately 33% of New Common.
In addition, the Company incurred approximately $115.0 million of long-term
20
<PAGE>
indebtedness in connection with the Merger.
In January 1993, the Company entered into agreements with Maxwell
Communication and Macmillan (the "Disengagement Agreements") with
respect to disengaging certain relationships among such companies. Pursuant
to these agreements, among other things, (i) the Company redeemed from
Macmillan all of the outstanding Preferred Stock of the Company, (ii)
Maxwell Communication waived a) all claims that payments to the Company
should be considered preferential and returned to Maxwell Communication
and b) other claims of Maxwell Communication and its affiliates against the
Company and its subsidiaries which Maxwell Communication may have as
a result of Maxwell Communication's bankruptcy filing on December 16,
1991, and (iii) U.S. and U.K. bankruptcy authorities allowed for all purposes
a portion of the Maxwell Note and certain Receivable Notes and a claim
against Maxwell Communication as subrogee for Midland Bank plc in the
Chapter 11 case (and any superseding Chapter 7 case) and in the Maxwell
Communication administration pending in the High Court of Justice in the
United Kingdom. In addition, the Company and its subsidiaries (a) sold to
Macmillan the Macmillan Note ($64.568 million) and (b) reduced by $58.0
million the amount of their claims against Maxwell Communication in respect
of the Maxwell Note and certain Receivable Notes previously written off.
As a result of the redemption of the Preferred Stock, the Company's
obligation to pay any preferred dividends in the future was eliminated.
The Company was included in the consolidated tax returns of the Macmillan
Group prior to the Company's initial public offering in December 1989 and
consequently is jointly and 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 put into escrow
$39.5 million 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 18, 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
(as described in the preceding paragraph) 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.
In November, 1992, the Company received a complaint entitled "Irving Kas,
on behalf of all others similarly situated v. Berlitz International, Inc.,
Joe M. Rodgers and Elio Boccitto" in the U.S. District Court for New Jersey
alleging various securities law violations under the Securities Exchange Act
of 1934 and alleging various omissions and misrepresentations in connection
with the Company's announcements during 1992 with respect to its financial
results. In 1993, plaintiff filed a supplemental and amended complaint
alleging various violations of the federal securities laws and common-law
breaches of fiduciary duties relating primarily to the transaction
21
<PAGE>
contemplated by the Merger Agreement, and seeking to add another officer
of the Company as a defendant in addition to the two officers named in the
initial pleading. On August 4, 1993, the Court granted defendants' motion
to dismiss the amended and supplemental complaint, deemed the original
complaint to be withdrawn and dismissed the lawsuit in its entirety.
Plaintiff's time to appeal has expired.
22
<PAGE>
Operations Overview
For the period beginning January 1, 1991 and ending December 31, 1993,
the Company's sales grew at a compound annual growth rate of 2.3%.
Under the purchase method of accounting, the sales and expenses in the
period February 1, 1993 to December 31, 1993 of language instruction
centers to be closed in connection with the Merger have been reclassified to
merger-related restructuring costs (33%) and excess of cost over net assets
acquired (67%). Exclusive of these Merger-related reclassifications, sales
would have grown at a compound annual growth rate of 4.0%.
The following table shows the Company's income and expense data as a
percentage of sales:
Year Ended December 31,
_____________________________
Pro Forma
1993 (1) 1992 1991
_______ ______ ______
Sales of Services and Products 100.0% 100.0% 100.0%
_______ ______ ______
Costs of services and products sold (2) 62.2% 63.3% 60.3%
Selling, general and administrative (3) 30.7% 29.4% 27.7%
Amortization of publishing rights and
excess of cost over net assets acquired 4.6% 3.7% 4.0%
Interest expense on long-term debt 3.3% 0.7% 1.3%
Merger-related restructuring costs (4) 1.8% - -
Non-recurring Maxwell and
Merger-related charges - 0.5% 75.2%
Other (income) expense, net (2.6%) (1.0%) (7.0%)
_______ ______ ______
Total costs and expenses 100.0% 96.6% 161.5%
_______ ______ ______
Income (loss) before income taxes
and cumulative effect of change in
accounting principle 0.0% 3.4% (61.5%)
_______ ______ ______
_______ ______ ______
(1) 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 December 31, 1993.
(2) Consists primarily of teachers', translators', and administrative
salaries, as well as cost of materials, rent, maintenance and
other center operating expenses.
(3) Consists of headquarters, corporate services, marketing and
advertising expenses.
(4) Primarily severance payments and language center closing costs,
including lease cancellation penalties, writeoffs of leasehold
improvements, and operating losses for closed centers.
The Company's operations from 1991 to 1993 were negatively impacted by
the economic downturn in Europe and Japan, which more than offset the
growth in Latin America and North America.
Cost of services and products sold as a percentage of sales increased from
60.3% in 1991 to 62.2% in 1993, principally as increases in translator costs
and rent charges more than offset the favorable impact of decreases in teacher
costs and certain administrative costs.
Selling, general and administrative expenses as a percentage of sales
23
<PAGE>
increased from 27.7% in 1991 to 30.7% in 1993, principally as a result of
increased office salaries and a reorganization of the corporate headquarters.
Interest expense on long-term debt as a percentage of sales increased from
1.3% in 1991 to 3.3% in 1993 as a result of the increased indebtedness in
connection with the Merger.
The Company's operations are conducted through the following business
segments: Language Instruction, Translation Services, and Publishing.
Language Instruction sales grew from $220.9 million in 1991 to $223.6
million in 1993, a compound annual growth rate of 0.7%. Exclusive of
Merger-related reclassifications, the annual growth rate would have been
2.5%. The number of lessons provided by the Company's language centers
were 4.9 million, 4.9 million and 4.6 million in 1991, 1992 and 1993,
respectively. Exclusive of Merger-related reclassifications, the number of
lessons in 1993 would have been 4.7 million. The growth in sales is largely
attributable to the increase in average revenue per lesson as a result of
product mix and price increases in excess of inflation.
Over the three-year period, the Company opened 55 new language centers
and closed 17. While the Company has historically experienced strong
growth, the continued weakness in the worldwide economy led to weak sales
growth in 1992 and 1993. The following table shows the year-over-year
increase/(decrease), including the impact of foreign currency rate
fluctuations, in sales by centers which were operating during the entirety of
both years being compared.
Percentage Growth (Decline)
____________________________
1993 (1) 1992 1991
________ ______ ______
Same Center Sales (6.1%) 2.4% (2.8%)
________ ______ ______
________ ______ ______
(1) 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 December 31, 1993.
During the period from 1991 to 1993, the Company's Translations business
expanded principally through internal growth and strategic acquisition of
operations in the United States and Europe. Translations acquired interests
aggregating 70% in Softrans International Limited ("Softrans"), a software
localization service company located in Dublin, Ireland. Translations, sales
grew at a compound annual growth rate of 23.5%, increasing from $23.4
million in 1991 to $35.7 million in 1993. Translations' operating results
improved in 1993 as a result of an increase in large volume accounts and
continued strong sales efforts, particularly in the technical translations and
software localization markets.
Publishing segment sales decreased from $15.5 million in 1991 to $12.4
million in 1993, reflecting the negative impact of exchange rate fluctuations
and product distribution problems, particularly in the United Kingdom.
However, these distribution problems were resolved in 1994.
The Company's participation in numerous licensing agreements and joint
ventures has allowed the Company to expand into new technologies and new
markets such as the production of a new line of language instruction products
on CD-ROM and multimedia courses for the home, school and business
markets.
24
<PAGE>
During the three-year period, the percentage of the Company's annual sales
denominated in currencies other than U.S. dollars ranged from 76.9% in
1991 to 73.8% in 1993. As a result, changes in exchange rates had an
impact on the Company's sales revenues. The following table shows the
impact of foreign currency rate fluctuations on the annual growth rate of sales
during the periods presented:
Percentage Year Ended December 31,
Growth (Decline) 1993 (2) 1992 1991
________________ ________ ________ ________
Sales:
Operations (1) (2.4)% 5.0% (1.2)%
Exchange (1.0) 3.3 0.6
________ ________ ________
Total (3.4)% 8.3% (0.6)%
________ ________ ________
________ ________ ________
(1) Adjusted to eliminate fluctuations in foreign currency from year-to-
year by assuming a constant exchange rate over two years, using as
the base the first year of the periods being compared.
(2) 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 December 31, 1993.
Results of Operations
Year Ended December 31, 1993 vs. Year Ended December 31, 1992
As discussed in Note 2 to the Consolidated Financial Statements, on February
8, 1993, the Company and Fukutake consummated the Merger. 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 December 31, 1993.
Twelve Months Ended December 31,
________________________________
1993 1992
__________ __________
Sales of services and products $ 271,677 $ 281,320
Total costs and expenses 271,603 271,832
---------- ----------
Income before income taxes
and cumulative effect of change
in accounting principle $ 74 $ 9,488
__________ __________
__________ __________
Income (loss) available to
common shareholders $ (2,018) $ 4,041
__________ __________
__________ __________
25
<PAGE>
Under the purchase method of accounting, the post-February 1, 1993 sales
and expenses of centers to be closed in connection with the Merger have been
reclassified to "Merger-related restructuring costs" (33%) and "Excess of cost
over net assets acquired" (67%). The following selected financial data gives
effect to the presentation of 1992 on a pro forma basis, excluding eleven
months of activity for those centers to be closed in connection with the
Merger:
Twelve Months Ended December 31,
________________________________
Pro Forma
1993 1992
_________ _________
Sales of services and products $ 271,677 $ 270,790
Lessons given 4,588 4,691
Sales for the twelve months ended December 31, 1993 were $271.7 million,
a decrease of $9.6 million, or 3.4%, from sales of $281.3 million in the
comparable period in 1992, but an increase of $0.9 million, or 0.3%, from
pro forma 1992 sales.
Language Instruction sales were $223.6 million, a decrease of $9.9 million,
or 4.2%, from sales of $233.4 million in the comparable period in 1992.
However, sales increased $0.4 million over pro forma 1992 sales, as
decreases in Western Europe were offset by increases in the other divisions.
Sales in the Western European division declined $7.6 million from pro forma
1992 as a result of the unfavorable impacts of exchange rate fluctuation of
$4.7 million, combined with the continued economic weakness in this region,
particularly in France, Spain, Belgium and England. This decline was offset
by increases in North America, Latin America and Central/Eastern Europe
of $0.3 million, $4.2 million and $0.2 million, respectively. In addition,
sales of the East Asian division increased by $3.2 million, or 5.5%, over
pro forma 1992. However, excluding the favorable impact of exchange rate
fluctuations, sales of this region decreased $4.4 million, or 7.5% as a result
of the continuing recessionary environment in Japan.
During the twelve-month period ended December 31, 1993, the number of
lessons given was approximately 4.6 million, 5.8% below that of the same
period in the prior year, and 2.2% below the pro forma 1992 period. Lesson
volume in the North American division remained relatively flat at 1.1
million. East Asia and Western Europe experienced lesson volume declines
from pro forma 1992 of 6.4% and 7.6%, respectively, due to the continued
weak economy. Lesson volume in Latin America increased by 4.8% from
prior year in most countries except Argentina, where lesson volume declined
17.2%. Lesson volume in Central/Eastern Europe increased by 2.4% over
pro forma 1992 volume, as activity from the new language centers in the
Czech Republic, Poland and Hungary exceeded negative volume variances in
the other countries.
For the twelve months ended December 31, 1993, average revenue per lesson
("ARPL") was $41.07 as compared to $40.51 in the comparable prior-year
period and $40.16 in pro forma 1992. ARPL (excluding Russia) ranged from
a high of approximately $67.12 in Japan to a low of $13.17 in the Czech
Republic, reflecting effects of foreign exchange rates and differences
in the economic value of the service. The Company opened 12
26
<PAGE>
new language centers during 1993, including six in Central/Eastern Europe,
five in Latin America, and one in Japan.
Translation Services sales were $35.7 million for the twelve-month period
ended December 31, 1993, an increase of $3.3 million, or 10.3%, from sales
of $32.4 million in the comparable period in 1992. Most of this growth
came from the U.S. and Ireland, as a result of an increase in large volume
accounts, and continued strong sales efforts with particular attention focused
on the information technology market segment.
Publishing segment sales were $12.4 million for the twelve months ended
December 31, 1993, a decrease of $3.1 million, or 20.1%, from sales of
$15.5 million in the comparable period in 1992. Excluding the unfavorable
impact of foreign exchange rate fluctuations, Publishing sales declined by
$1.6 million, or 10.5%, largely due to product distribution problems which
were resolved in 1994.
Cost of services and products sold, and selling, general, and administrative
expenses were negatively impacted by increases in certain fixed costs,
primarily office salary and rent, which more than offset the favorable impact
of exchange rate fluctuations and an adjustment for the settlement of a lease
negotiation ($1.5 million). Amortization of publishing rights and excess of
cost over net assets acquired increased by $2.0 million due to the Merger.
Interest expense on long-term debt increased by $7.2 million due to the
increase in borrowing in connection with the Merger. Merger-related
restructuring costs of $4.8 million were recorded, primarily for severance
expense and costs of closing language centers, including lease cancellation
penalties, write-offs of leasehold improvements, and operating losses for
closed centers. Interest income from affiliates decreased $6.7 million as
a result of the sale of a promissory note due from an affiliate.
The Company recognized a portion ($4.9 million) of the gain on the 1990
sale of 20% of the equity of its Japanese subsidiary, as a result of the
elimination of certain contingencies upon consummation of the Merger. Joint
venture losses of $1.4 million were recorded in the twelve-month period,
primarily as a result of liabilities anticipated to be incurred in connection
with the discontinuation of a European Publishing joint venture and an East
Asian joint venture. Other income (expense), net, was also favorably
impacted in the current year (income of $2.9 million) and unfavorably
impacted in the prior year (expense of $1.2 million) by the effect of certain
adjustments to minority interest of the Company's Japanese subsidiary.
For the twelve months ended December 31, 1993, the Company reported a
net loss of $2.0 million as compared to net income of $4.0 million in the
same period in 1992. The Company's effective income tax rates for the 1993
Pre-Merger and Post-Merger periods were higher than for the 1992 twelve
month period. The increase in the 1993 effective tax rate was
due to the Company's inability to utilize net operating losses in certain
countries, and to nondeductible amortization charges. The effect of the
increase in the U.S. statutory Federal rate from 34 % to 35 % was not material.
The Company reported, for the one-month and eleven-month periods ended January
31, 1993 and December 31, 1993, net income of $0.08 per share and net loss of
$0.35 per share, respectively, compared to net income of $0.21 per share for
the twelve months ended December 31, 1992.
Year Ended December 31, 1992 vs. Year Ended December 31, 1991
Sales for the year ended December 31, 1992 were $281.3 million, an
increase of $21.5 million, or 8.3%, from sales of $259.8 million in 1991.
Excluding the positive effects of exchange rate fluctuations, the increase in
total Company sales for 1992 was $13.0 million, or 5.0%. Sales of the
Language Instruction business were $233.4 million, an increase of $12.5
million, or 5.7%, from sales of $220.9 million in 1991. However, excluding
27
<PAGE>
the impact of favorable foreign exchange fluctuations, Language Instruction
sales increased only 2.1%. Exclusive of exchange fluctuations, North
America, Latin America and Central/Eastern Europe reported Language
Instruction sales increases of 9.1%, 21.3% and 11.1%, respectively, partially
offset by decreases in East Asia and Western Europe of 8.2% and 5.6%,
respectively.
During 1992, the number of lessons given was approximately 4.9 million,
slightly lower than the prior year. The flat lesson volume was due
principally to continued weakness in the global economies. Increased lesson
volume in North America, Latin America and Central/Eastern Europe was
offset by decreases in the East Asian and the Western European divisions.
Average revenue per lesson increased from approximately $38.42 per lesson
in 1991 to $40.51 per lesson in 1992. In 1992, average revenue per lesson
(excluding Central/Eastern Europe) ranged from a high of approximately
$57.98 in Sweden to a low of $16.38 in Thailand, reflecting effects of
foreign exchange rates and differences in the economic value of the service.
The Company opened 26 new language centers during 1992, five of which
were in North America, three in East Asia, including one in the recently
established Hong Kong region, two in Latin America, three in Western
Europe and 13 in the expanding Central/Eastern European division.
Language Instruction sales of the North American division were $51.4
million, an increase of $3.9 million, or 8.6%, over sales of $47.5 million in
1991. Lesson volume of the North American division was 1.1 million
lessons, an increase of 2.4% from prior year, as the rapid pace of
globalization has increased the demand for language services in the corporate
market. Continued growth in the group instruction market, primarily non-
corporate clients, also contributed to improved operations. Language
Instruction sales of the Western European division were $47.5 million, a
decrease of $1.1 million, or 2.2% from prior year. However, excluding
favorable exchange rate fluctuations, sales of this division decreased by
5.6%. Lesson volume in this division was 1.0 million lessons, a decrease of
12.8% from prior year. France, Italy and Spain were particularly weakened
by high inflation and unemployment which contributed to reduced lesson
volume and operating profit. Language Instruction sales in the
Central/Eastern European division were $45.5 million, an increase of $6.8
million, or 17.5% from prior year. Exclusive of favorable exchange rate
fluctuations, this increase was 11.1%. Lesson volume in this division was
0.9 million lessons, an increase of 6.4%, due to demand from non-corporate,
Central/Eastern European consumers. In 1992, thirteen new language centers
were opened in this division: Germany (8), Switzerland (1), Hungary (1),
Austria (1), and the Czech Republic (2). These new language center openings
contributed directly to the increase in sales and lesson volume. Language
Instruction sales in the East Asian division decreased 2.2% to $64.7 million.
Excluding the effect of favorable exchange rate fluctuations, sales of this
division decreased by 8.2%. Lesson volume in East Asia for the year was
1.0 million lessons, down 8.2% from 1991. The shortfall in lesson volume
was partially offset by an improved average revenue per lesson. The
reduction in lesson volume, primarily in the individual consumer market, was
a result of the weakened economy in Japan, combined with a slowdown in
consumer spending. In addition, Japan was negatively affected by a shift in
its product mix from private to group lessons. Language Instruction sales in
Latin America were $24.3 million, an increase of $4.3 million, or 21.3%,
from prior year. Lesson volume in the Latin American division increased by
14.7% to 0.8 million lessons, led by Argentina, Colombia and Mexico.
Translation Services sales were $32.4 million, an increase of $9.0 million,
or 38.2%, from sales of $23.4 million in 1991. The gain was achieved as
a result of the pursuit of large accounts by a newly created sales force, with
particular attention focused on the information technology market segment.
28
<PAGE>
Publishing sales were flat at $15.5 million. Increased sales in the U.S. were
offset by a sales decline in Europe as a result of continued poor economic
conditions.
Operating results in 1992 were negatively impacted by the reduction in lesson
volume in East Asia and Western Europe, coupled with higher fixed costs in
these divisions compared to other divisions. Translation Services' results
were also negatively impacted by a competitive pricing policy and the
increased costs of expanding production capacity.
Interest expense on long-term debt decreased by $1.4 million, to $1.9
million, as a result of an installment payment in December 1992 of $15.0
million and a prepayment in June 1991 of $10.0 million of the Company's
long-term borrowing from Societe Generale, and a reduction in the floating
bank rate from 6.4125% to 3.975% in 1992. The Company incurred $1.4
million net additional Maxwell and Merger-related charges during 1992.
Interest on temporary investments remained flat with prior year, at $3.3
million. The Company suffered a foreign exchange loss of $3.8 million in
1992 compared to a gain of $0.2 million in 1991 as a result of the
strengthening of the U.S. dollar against certain currencies, principally in
Brazil. Equity in losses of joint ventures of $2.2 million was recorded in
1992 as such ventures completed their first full year of operations. A
magazine joint venture in Europe significantly impacted joint venture losses
after the bankruptcy of the Company's joint venture partner. Interest income
from affiliates decreased by $10.8 million as a result of the payment defaults
previously discussed. This amount however, is offset by the suspension of
Preferred Stock dividends in 1992. Other income, net increased by $1.4
million, due to a lower charge for minority interest in connection with the
Company's 1990 sale of 20% of the equity of its Japanese subsidiary.
Income available to common shareholders for the year ended December
31, 1992 was $4.0 million compared to a loss of $181.2 million in 1991.
The Company's effective tax rate was 57.4% in 1992 compared to 7.7% in
1991 which was significantly impacted by the establishment of reserves
resulting from the Maxwell Communication bankruptcy. The 1992 effective
tax rate was increased by the Company's inability to use net operating losses
in certain countries, and by non deductible amortization charges. As
mentioned in the previous section, payment and other defaults arose on the
notes from Maxwell Communication and certain of its affiliates in the fourth
quarter of 1991, resulting in the suspension of Preferred Stock dividends.
Earnings per common share for the year ended December 31, 1992 were
$0.21 compared to a net loss per share of $9.53 in 1991.
Accounting for Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). As a result of the adoption of this statement, as of January
1, 1993, the Company recorded a tax credit of $3,172, or $0.17 per share,
which resulted in the reduction of the deferred tax liability as of that date.
This amount has been reflected in the Consolidated Statement of Operations
as the cumulative effect of a change in accounting principle.
Liquidity and Capital Resources
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. The Company's liquidity is
29
<PAGE>
principally generated from the Language Instruction and Translations
segments. Similarly, cash requirements for capital expenditures and
acquisitions are principally due to the Language Instruction and Translations
segments. Net cash needs of Publishing are generally not material.
Although each geographic area exhibits different patterns of lesson volume
over the course of the year, the Company's sales are 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 the
customer in the form of prepayment of fees for instruction that gives rise to
deferred revenues.
Net cash provided by operating activities was $10.8 million, $30.9 million
and $14.6 million for the years ended December 31, 1993, 1992 and 1991,
respectively, reflecting net income (loss) in each of these years adjusted by
non-cash charges, including amortization and certain write-offs and reserves
in 1991. Included in the 1993 and 1992 amounts are tax refunds of
approximately $5.1 million and $12.8 million, respectively, which were
received during the year. In addition, in connection with the Merger, the
Company paid $6.6 million in fees in 1993 to secure the Acquisition Debt
Facilities. Net cash provided by operating activities was favorably impacted
in 1992 by foreign exchange losses of $3.8 million without a similar effect
in 1991, and was negatively impacted in 1991 by the payment of taxes of
$4.2 million on the 1990 sale of 20% of the Japanese subsidiary.
Net cash used in investing activities totalled $11.1 million, $11.9 million and
$8.4 million in 1993, 1992 and 1991, respectively. The Company made
capital expenditures of $8.2 million, $11.2 million, and $6.4 million, in the
years ended December 31, 1993, 1992, and 1991, respectively, primarily for
the opening of new centers and refurbishing of existing centers. The
Company invested $2.9 million and $0.8 million in joint ventures in 1993 and
1992, respectively, primarily for shutdown costs. During 1992, the
Company invested $10.5 million of its excess cash in an asset management
portfolio consisting of marketable securities with varying maturities. All
investments were liquidated in 1992. The Company acquired a translations
operation for $3.6 million in cash in 1991. The Company repatriated certain
Brazilian cash investments totaling $2.4 million in 1991.
Net cash used in financing activities totalled $4.9 million in 1993, compared
with $25.7 and $33.2 million in 1992 and 1991, respectively. The funds
necessary to consummate the Merger on February 8, 1993 and pay related
fees and expenses were derived from the following: equity capital from
Fukutake of $293.1 million, borrowing under a Bank Term Facility of $59.0
million, issuance of Senior Notes of $56.0 million and the Company's
available cash. Such funds were used to pay the cash portion of Merger
consideration, including the redemption of certain rights under the Safeguard
Rights Agreement, (other than the cash paid to shareholders from the
proceeds of the Maxwell Note and certain Receivable Notes) of $374.5
million, to repay the principal amount outstanding under the term loan
pursuant to the Societe Generale agreement of $25.0 million and to pay
related fees and expenses of approximately $14.0 million. The Merger
resulted in a net cash outlay of $11.9 million by the Company. The
Company also received proceeds from the sale of the Maxwell Note and
certain Receivable Notes and distributed $1.48 per share to existing
shareholders as part of the Merger consideration. In addition, subsequent to
the Merger, the Company repaid $3.7 million of the Bank Term Facility.
As of December 31, 1992, the Company had no established line of credit
facility. However, as part of the Acquisition Debt Facilities, the Company
established a $10.0 million revolving credit facility in 1993 against which
$3.0 million is outstanding at December 31, 1993.
30
<PAGE>
In 1992 and 1991, the Company made an installment payment of $15.0
million and a prepayment of $10.0 million, respectively, against its long-term
note. At December 31, 1992, $25.0 million remained outstanding on such
note.
Common stock dividends paid were $10.7 million (including dividends for
the fourth quarter of 1991 and the first three quarters of 1992), and $9.8
million in 1992 and 1991, respectively. Certain financial covenants contained
in the Acquisition Debt Facilities restrict the ability of the Company to pay
dividends. The Company does not expect to pay dividends during the term
of the Acquisition Debt Facilities. Dividends paid on the Preferred Stock
totalled $12.4 million (of which $3.1 million related to the fourth quarter of
1990) in 1991. As a result of the payment and other defaults and the
recording of the write-offs and reserves in the Company's income statement
with respect to the notes in the fourth quarter of 1991, no preferred dividends
were paid in 1992 or 1993.
Pursuant to a covenant under the Acquisition Debt Facilities, in August 1993
the Company entered into currency coupon swap agreements with a financial
institution to hedge the Company's net investements 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.
As of December 31, 1993, the Company did not have any material
commitments for capital expenditures. During 1994, the Company
anticipates capital expenditures to be consistent with historical requirements.
The Company underwent a significant transition during 1993, and 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 the
increase in available cash as the result of the discontinuation of dividends
resulting from restrictions imposed by the Acquisition Debt Facilities.
Inflation
Historically, inflation has not had a material effect on the Company's
business. Management believes this is due to the fact that the Company's
business is a service business which is not capital intensive. The Company
has historically adjusted prices to compensate for inflation.
31
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements, Supplementary Data and
Financial Statement Schedules are filed as part of this Annual Report on
Form 10-K:
Page
____
Report of Independent Auditors 33
Report of Independent Accountants 34
Statement of Management's Responsibility for Consolidated 35
Financial Statements
Consolidated Financial Statements:
Consolidated Statements of Operations, period from 36
February 1, 1993 to December 31, 1993,
period from January 1, 1993 to January 31, 1993,
and years ended December 31, 1992 and 1991
Consolidated Balance Sheets, December 31, 1993 and 1992 37
Consolidated Statements of Shareholders' Equity, period 38
from February 1, 1993 to December 31, 1993,
period from January 1, 1993 to January 31, 1993,
and years ended December 31, 1992 and 1991
Consolidated Statements of Cash Flows, period from February 39
1, 1993 to December 31, 1993, period from January
1, 1993 to January 31, 1993, and years ended
December 31, 1992 and 1991
Notes to Consolidated Financial Statements 40
Financial Statement Schedules:
Schedule VIII. Valuation and Qualifying Accounts 62
Schedule X. Supplementary Income Statement Information 63
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
the Notes thereto.
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of Berlitz International, Inc.
We have audited the accompanying consolidated balance sheet of Berlitz
International, Inc. and its subsidiaries as of December 31, 1993 and the
related consolidated statements of operations, shareholders' equity, and
cash flows for the one-month period ended January 31, 1993 and the
eleven-month period ended December 31, 1993. Our audit also included the
financial statement schedules for the year ended December 31, 1993, listed
in the Index at Item 8. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Berlitz International, Inc. and
its subsidiaries as of December 31, 1993 and the results of their operations
and their cash flows for the one-month period ended January 31, 1993 and the
eleven-month period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules for the year ended December 31, 1993, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note 7 to the financial statements, effective January 1, 1993
the Company changed its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards No. 109.
/s/ Deloitte & Touche
New York, New York
March 4, 1994
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of
Directors of Berlitz International, Inc.:
We have audited the consolidated balance sheet of Berlitz International,
Inc. ("Berlitz") as of December 31, 1992 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1992 and 1991. We have also audited the financial
statement schedules listed in the Index at Item 8 for the years ended
December 31, 1992 and 1991. These financial statements and financial
statement schedules are the responsibility of Berlitz management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Notes 2 and 11 to the consolidated financial statements, in
1991 the Company recorded a $195.4 million charge to earnings,
representing provisions for Maxwell Communication-related matters.
As discussed in Note 2 to the consolidated financial statements, the Company
completed its merger with Fukutake, effective February 8, 1993. Following
the Merger, approximately 67% of the outstanding common stock of the
Company is held directly, or indirectly, by Fukutake. In connection with the
Fukutake merger, the Company entered into Disengagement Agreements with
each of Maxwell Communication and Macmillan which sever certain
relationships with Maxwell Communication and Macmillan. The Company
also completed the sale of certain Maxwell notes in February, 1993.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Berlitz as of December 31, 1992 and the consolidated results of its operations
and its cash flows for the years ended December 31, 1992 and 1991, in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
New York, New York
March 24, 1993
34
<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders of Berlitz International, Inc.:
Management of Berlitz International, Inc. has prepared and is responsible for
the accompanying Consolidated Financial Statements and related information.
These financial statements, which include amounts based on judgments of
management, have been prepared in conformity with generally accepted
accounting principles. Financial data included in other sections of this
Annual Report on Form 10-K are consistent with that in the Consolidated
Financial Statements.
Management believes that the Company's internal control systems are
designed to provide reasonable assurance, at reasonable cost, that the
financial records are reliable for preparing financial statements and
maintaining accountability for assets and that, in all material respects,
assets are safeguarded against loss from unauthorized use or disposition.
These systems are augmented by written policies, an organizational structure
providing division of responsibilities, qualified personnel throughout the
organization, and a program of internal audits.
The independent accountants are engaged to conduct an audit and render an
opinion on the consolidated financial statements in accordance with generally
accepted auditing standards. These standards include an assessment of the
systems of internal controls and tests of the accounting records and other
auditing procedures as they consider necessary to support their opinion.
The Board of Directors, through its Audit Committee consisting of outside
Directors of the Company, is responsible for reviewing and monitoring the
Company's financial reporting and accounting practices. Deloitte & Touche
and the internal auditors each have full and free access to the Audit
Committee, and meet with it regularly, with and without management.
/s/ Robert Minsky
Robert Minsky,
Executive Vice President
and Chief Financial Officer
35
<PAGE>
<TABLE>
<CAPTION>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Post-Merger Pre-Merger
__________ _________________________________________________________
Period from Period from
February 1, January 1,
1993 to 1993 to Year Ended Year Ended
December 31, January 31, December 31, December 31,
1993 1993 1992 1991
____________ ___________ _____________ _________________
<S> <C> <C> <C> <C>
Sales of services and products $ 252,069 $ 19,608 $ 281,320 $ 259,771
____________ ___________ _____________ _________________
Costs and expenses:
Cost of services and products sold 155,623 13,479 178,009 156,807
Selling, general and administrative 76,781 6,719 82,837 71,880
Amortization of publishing rights and
excess of cost over net assets acquired 11,551 872 10,463 10,417
Interest expense on long-term debt 8,965 89 1,902 3,312
Merger-related restructuring costs 4,808 - - -
Non-recurring Maxwell and
Merger-related charges - - 1,356 195,354
Other (income) expense, net (6,732) (552) (2,735) (18,305)
____________ ___________ _____________ _________________
Total costs and expenses 250,996 20,607 271,832 419,465
____________ ___________ _____________ _________________
Income (loss) before income taxes and
cumulative effect of change in accounting
principle 1,073 (999) 9,488 (159,694)
Income tax expense 4,629 635 5,447 12,253
____________ ___________ _____________ _________________
Income (loss) before cumulative effect of
change in accounting principle (3,556) (1,634) 4,041 (171,947)
Cumulative effect of change in
accounting principle - 3,172 - -
____________ ___________ _____________ _________________
Net income (loss) (3,556) 1,538 4,041 (171,947)
Preferred Stock dividends - - - 9,240
____________ ___________ _____________ _________________
Income (loss) available to common
shareholders $ (3,556) $ 1,538 $ 4,041 $ (181,187)
____________ ___________ _____________ _________________
____________ ___________ _____________ _________________
Earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting principle $ (0.35) $ (0.09) $ 0.21 $ (9.53)
Cumulative effect of change in
accounting principle - 0.17 - -
____________ ___________ _____________ _________________
Earnings (loss) per common share $ (0.35) $ 0.08 $ 0.21 $ (9.53)
____________ ___________ _____________ _________________
____________ ___________ _____________ _________________
Average number of common shares (000) 10,031 19,024 19,022 19,014
____________ ___________ _____________ _________________
____________ ___________ _____________ _________________
See accompanying notes to the consolidated financial statements.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31,
____________________________________________________
<S> <C> <C>
Assets 1993 1992
____________________ ____________________
Current assets:
Cash and temporary investments $ 11,738 $ 19,181
Accounts receivable, less allowance for doubtful accounts
of $2,566 and $2,910 22,267 25,545
Inventories 10,684 9,993
Prepaid expenses and other current assets 6,786 9,487
____________________ ____________________
Total current assets 51,475 64,206
Property and equipment, net 25,791 26,100
Publishing rights, net of accumulated
amortization of $788 and $4,598 20,712 23,270
Excess of cost over net assets acquired, net of accumulated
amortization of $10,763 and $38,098 458,964 335,682
Other assets 13,530 7,325
____________________ ____________________
Total assets $ 570,472 $ 456,583
____________________ ____________________
____________________ ____________________
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 3,000 $ -
Current portion of long-term debt 5,525 25,000
Accounts payable 5,278 7,497
Deferred revenues 33,187 34,235
Payrolls and commissions 9,468 9,066
Income taxes payable 1,971 1,393
Accrued Merger-related restructuring costs 7,558 -
Accrued expenses and other current liabilities 12,027 10,871
____________________ ____________________
Total current liabilities 78,014 88,062
Long-term debt 105,775 -
Deferred taxes and other liabilities 15,169 11,998
Deferred gain on sale of interest in subsidiary - 15,021
Minority interest 6,561 15,081
____________________ ____________________
Total liabilities 205,519 130,162
____________________ ____________________
Shareholders' Equity:
Redeemable Preferred Stock (at fair value at date of issuance)
$1 par value - 180,000 shares authorized and outstanding;
7.0% noncumulative; non-voting except in the event of
non-payment of dividends for six consecutive quarters;
liquidation preference of $180,000 - 126,000
Common stock
$.10 par value - 40,000,000 shares authorized;
10,032,903 and 19,075,584 shares outstanding in 1993 and
in 1992, respectively 1,003 1,908
Additional paid - in capital 368,658 384,010
Retained deficit (3,556) (184,834)
Cumulative translation adjustment (1,152) (663)
____________________ ____________________
Total shareholders' equity 364,953 326,421
____________________ ____________________
Total liabilities and shareholders' equity $ 570,472 $ 456,583
____________________ ____________________
____________________ ____________________
See accompanying notes to the consolidated financial statements.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Redeemable Additional Notes From Retained Cumulative Total
Preferred Common Paid-In Affiliates, Earnings Translation Shareholders'
Stock Stock Capital Net (Deficit) Adjustment Equity
__________ _________ __________ ___________ __________ ___________ ____________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991 $ 126,000 $ 1,908 $ 391,464 $ (189,446) $ 2,423 $ 697 $ 333,046
Net loss (171,947) (171,947)
Preferred Stock dividends (9,240) (9,240)
Common Stock dividends
($.53 per share) (10,111) (10,111)
Translation adjustment (1,908) (236) (2,144)
Exercise of stock options 1 65 66
Amortization of unearned
compensation 239 239
Write - off or reserve of notes
from affiliates 191,354 191,354
Other (1) (6) (7)
__________ _________ __________ ___________ __________ ___________ ____________
Balance at December 31, 1991 126,000 1,908 391,762 - (188,875) 461 331,256
Net income 4,041 4,041
Common stock dividends
($.42 per share) (8,012) (8,012)
Translation adjustment (1,124) (1,124)
Amortization of unearned
compensation 260 260
__________ _________ __________ ___________ __________ ___________ ____________
Balance at December 31, 1992 126,000 1,908 384,010 - (184,834) (663) 326,421
Net income for the period from
January 1, 1993 to January 31, 1993 1,538 1,538
Amortization of unearned compensation
and other charges 119 119
Translation adjustment (280) (280)
__________ _________ __________ ___________ __________ ___________ ____________
Balance at January 31, 1993 126,000 1,908 384,129 - (183,296) (943) 327,798
Merger-related transactions:
Equity capital contribution and
transaction-related fees 293,067 293,067
Merger consideration paid to existing
shareholders (374,515) (374,515)
Redemption of Preferred Stock (126,000) 126,000 -
Elimination of unearned compensation 598 (598) -
Elimination of predecessor company
equity accounts (1,503) (182,736) 183,296 943 -
Purchase price allocation adjustment 134,723 134,723
Other Merger financing activity (11,412) (11,412)
__________ _________ __________ ___________ __________ ___________ ____________
Opening balance at February 1, 1993 - 1,003 368,658 - - - 369,661
Net loss for the period from
February 1, 1993 to December 31, 1993 (3,556) (3,556)
Translation adjustment (1,152) (1,152)
__________ _________ __________ ___________ __________ ___________ ____________
Balance at December 31, 1993 $ - $ 1,003 $ 368,658 $ - $ (3,556) $ (1,152) $ 364,953
__________ _________ __________ ___________ __________ ___________ ____________
__________ _________ __________ ___________ __________ ___________ ____________
</TABLE>
See accompanying notes to the consolidated financial statements.
38
<PAGE>
<TABLE>
<CAPTION>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Post-Merger Pre-Merger
________________ ______________________________________________
Period from Period from
February 1, 1993 January 1, 1993 Year Ended Year Ended
to December 31, to January 31, December 31, December 31,
1993 1993 1992 1991
_______________ ________________ _______________ ____________
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,556) $ 1,538 $ 4,041 $ (171,947)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - (3,172) - -
Gain on sale of interest in subsidiary (4,924) - - -
Depreciation 5,504 504 5,772 4,310
Amortization of publishing rights and excess of cost over
net assets acquired 11,551 872 10,463 10,417
Amortization of unearned compensation - 20 260 239
Minority interest in income (loss) of subsidiary (3,692) (168) 1,039 2,480
Equity in losses of joint ventures 1,442 - 2,201 -
Deferred income taxes 1,108 265 (747) 4,385
Provision for bad debts 1,084 32 719 892
Foreign exchange (gains) losses, net 1,278 38 3,843 (152)
Merger-related losses on fixed assets and
depreciation/valuation adjustments 1,994 - - -
Non-recurring Maxwell and Merger-related charges - - 1,095 195,354
Maxwell related (payments) recoveries 312 - 975 (1,960)
Payment of deferred financing costs (6,623) - - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,309) 2,069 (1,737) (4,234)
(Increase) decrease in inventories (1,853) 62 (2,351) (797)
(Increase) decrease in prepaid expenses and other assets 5,816 (504) (6,060) (620)
(Increase) decrease in refundable income taxes - - 12,084 (12,406)
Increase (decrease) in deferred revenues (570) (771) (3,723) 2,634
Increase (decrease) in accounts payable and
other current liabilities (8,416) 8,462 1,242 (6,540)
Increase (decrease) in due to affiliates - - 867 (71)
Increase (decrease) in income taxes payable (675) 585 5 (8,982)
Increase (decrease) in other liabilities 3,650 (198) 919 1,579
_______________ ________________ _______________ ____________
Net cash provided by operating activities 1,121 9,634 30,907 14,581
_______________ ________________ _______________ ____________
Cash flows from investing activities:
Capital expenditures (7,689) (560) (11,154) (6,437)
Acquisitions of businesses - - (86) (4,385)
Investments in joint ventures (2,838) (37) (776) -
(Increase) decrease in Brazilian cash investments - - 82 2,373
Purchase of short-term investments - - (10,510) (25,000)
Sale of short-term investments - - 10,510 25,000
_______________ ________________ _______________ ____________
Net cash used in investing activities (10,527) (597) (11,934) (8,449)
_______________ ________________ _______________ ____________
Cash flows from financing activities:
Common stock dividends paid - - (10,683) (9,825)
Preferred stock dividends paid - - - (12,369)
Proceeds from issuance of long-term debt 115,000 - - -
Repayment of long-term debt (28,700) - (15,000) (10,000)
Net borrowings under revolving credit agreement 3,000 - - -
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 activities - 99 - (1,030)
_______________ ________________ _______________ ____________
Net cash provided by (used in) financing activities (5,038) 99 (25,683) (33,224)
_______________ ________________ _______________ ____________
Effect of exchange rate changes
on cash and temporary investment (1,931) (204) (2,371) (278)
_______________ ________________ _______________ ____________
Net increase (decrease) in cash and
temporary investments (16,375) 8,932 (9,081) (27,370)
Cash and temporary investments at beginning of period 28,113 19,181 28,262 55,632
_______________ ________________ _______________ ____________
Cash and temporary investments at end of period $ 11,738 $ 28,113 $ 19,181 $ 28,262
_______________ ________________ _______________ ____________
_______________ ________________ _______________ ____________
Supplemental disclosures of cash flow information:
Cash payments for interest $ 8,329 $ 109 $ 2,800 $ 3,940
_______________ ________________ _______________ ____________
_______________ ________________ _______________ ____________
Cash payments for income taxes $ 4,576 $ 192 $ 5,925 $ 30,229
_______________ ________________ _______________ ____________
_______________ ________________ _______________ ____________
Cash receipts of income taxes $ 5,136 $ - $ 12,832 $ -
_______________ ________________ _______________ ____________
_______________ ________________ _______________ ____________
See accompanying notes to the consolidated financial statements.
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
a) Principles of Consolidation - The Consolidated Financial
Statements include those of the Company and its
subsidiaries. The effects of all significant intercompany
transactions have been eliminated.
b) Foreign Currency Translation - Generally, balance sheet
amounts have been translated using exchange rates in effect
at the balance sheet dates and the translation adjustment has
been included in the cumulative translation adjustment, a
separate component of shareholders' equity, with the
exception of hyperinflationary countries. Income statement
amounts have been translated using the average exchange
rates in effect for each period. Revaluation gains and losses
on certain intercompany accounts in all countries and
translation gains and losses in hyperinflationary countries
have been included in other income. Revaluation gains and
losses on intercompany balances for which settlement is not
anticipated in the foreseeable future are included in the
cumulative translation adjustment.
c) Inventories - Inventories, which consist primarily of finished
goods, are valued at the lower of average cost or market.
d) Deffered Financing Costs - Direct costs relating to the indebtedness
incurred in connection with the Merger (see Notes 2 and 8) have been
capitalized and are being amortized by the straight-line method
over the terms of the related debt.
e) Property and Equipment - Property and equipment is stated
at cost and depreciated over estimated useful lives, using
principally accelerated methods.
f) Publishing Rights - Publishing rights are being amortized on
a straight-line basis over 25 years.
g) Excess of Cost Over Net Assets Acquired - Excess of cost
over net assets acquired is being amortized on a straight-line
basis over 40 years. It's carrying value is evaluated
periodically to determine if there has been a loss in value,
by reviewing current and estimated future revenues and cashflows.
The excess of cost over net assets acquired will be written off if
and when it has been determined that an impairment in value has
occurred.
h) Deferred Revenues - Deferred revenues arise from the
prepayment of fees for classroom instruction and are
recognized as income over the term of instruction. The
Company recognizes in income deferred revenues for lessons
paid for and not expected to be taken based upon historical
experience by country.
i) Income Taxes - The Company has filed its own Federal
income tax returns since December 1989. The Company
was previously included in the consolidated Federal income
tax returns of the affiliated group of which Macmillan was
the parent (the "Macmillan Group"). See Note 2 for further
discussion.
Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
40
<PAGE>
Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted
tax rates expected to apply to taxable income in the periods in
which the differences are expected to reverse.
j) Cash and Temporary Investments - The Company considers
all highly liquid instruments purchased with an original
maturity of three months or less to be temporary
investments.
k) Investment in Joint Ventures - Investments in joint ventures
are carried on the equity basis of accounting and the
Company's share of the net profits and losses of such
investments is reflected in "Other (income) expense, net" in
the Consolidated Statement of Operations. The Company's
investment in these joint ventures included credit balances of
$2,085 and $1,195, classified as other current liabilities on
the Consolidated Balance Sheets at December 31, 1993 and
1992, respectively, and represents the Company's obligation
in excess of amounts invested with respect to these joint
ventures.
l) Reclassification - Certain reclassifications have been made in
prior years' financial statements to conform with the 1993
presentation.
2. Merger Transaction
Merger Agreement
On December 9, 1992, the Company and Fukutake Publishing
Co., Ltd. ("Fukutake") entered into an amended and restated
merger agreement (the "Merger Agreement") pursuant to which
Fukutake agreed to acquire, 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, par
value $.10 per share ("New Common") of the Company. The
Merger was consummated on February 8, 1993. The
Company's shareholders received, for each of their outstanding
shares of common stock held prior to the Merger ("Old
Common") (i) $19.50 in cash; (ii) 0.165 share of New Common
and (iii) $1.48, representing the net proceeds per share received
from the sale of a certain promissory note from Maxwell
Communication Corporation plc ("Maxwell Communication")
(the "Maxwell Note") and certain 10 year promissory notes due
from affiliates ("Receivable Notes"). Public shareholders of the
Company hold the remaining approximately 33%. In addition,
the Company's shareholders received $.01 per share in
redemption of Rights in accordance with a Safeguard Rights
Agreement between the Company and U.S. Trust Company of
New York.
Accounting Treatment
The Merger has been accounted for by the purchase method of
accounting. The purchase method of accounting contemplates
a step-up in value of the Company's assets based upon the
purchase price paid for the outstanding common stock.
Utilizing such method, the purchase price paid for
approximately 67% of the Company resulted in an increase in
value of the Company's assets based upon the amount paid for
such shares. The remaining (approximately 33%) ownership
will continue to be carried at historical cost. The Fukutake
purchase price (including a portion of long-term debt; See Note
8 for further discussion) has been allocated to the Company's
assets and liabilities. The Post-Merger financial statements
41
<PAGE>
include an allocation of the Fukutake purchase price. The
excess of Fukutake's purchase price over net assets acquired
will be amortized on a straight-line basis over 40 years.
Although the Merger was consummated on February 8, 1993,
the Consolidated Financial Statements present the 1993 results
of operations for the period from January 1, 1993 through
January 31, 1993 ("Pre-Merger" period) and from February 1,
1993 to December 31, 1993 ("Post-Merger" period).
Adjustments to such financial information for the period
February 1, 1993 through February 8, 1993 are not material to
the consolidated results of operations.
A summary of the purchase price allocation follows:
Fukutake purchase price $ 370,117
Net assets acquired:
Historical (based on 67% of $327,798) 219,625
Allocation to net assets 15,769
_______
Total net assets acquired 235,394
_________
Excess of cost over net assets acquired $ 134,723
_________
_________
The allocation to net assets has been revised as of December 31,
1993 to reflect certain adjustments.
The following selected unaudited pro forma information assumes
that the transaction occurred on January 1 of each period presented
for the selected income statement data. The pro forma information
includes an allocation of the Fukutake purchase price and is not
indicative of the results which would actually have occurred had
the transaction taken place on the dates indicated or of the results
which may occur in the future.
Selected Pro Forma Income Statement
Data (Unaudited): Twelve Months Ended December 31,
____________________________________ _______________________________
1993 1992
____ ____
Sales of services and products $ 271,677 $ 281,320
Loss before income taxes and cumulative
effect of change in accounting principle (1,109) (7,091)
Loss before cumulative effect of
change in accounting principle (6,353) (6,774)
Loss per common share before cumulative
effect of change in account principle (0.63) (0.68)
________ ________
Average number of common shares
outstanding (000's) 10,031 10,031
________ ________
________ ________
42
<PAGE>
The primary difference between the unaudited pro forma selected
income statement data and the amounts as reported (for the
combined 1993 Pre-Merger and Post-Merger periods and for the
twelve months ended December 31, 1992) are increases in
amortization of excess of cost over net assets acquired
(approximately $201 and $2,403 for the 1993 and 1992 periods,
respectively), interest expense, including amortization of deferred
financing costs (approximately $883 and $8,035 for the 1993 and
1992 periods, respectively) related to the Acquisition Debt
Facilities as described in Note 8 and the elimination of interest
income on the Macmillan Note.
Disengagement Agreements and other Maxwell Matters
On December 13, 1989, the Company sold 8.4 million shares of
common stock to the public in an initial public offering. In
contemplation of the initial public offering, Macmillan Inc.
("Macmillan") was issued, in exchange for the capital stock of the
Company's predecessors, 10.6 million shares of the Company's
common stock and 200,000 shares of the Company's 7% non-
cumulative preferred stock (the "Preferred Stock"), of which
20,000 shares were subsequently retired and canceled and 180,000
shares remained outstanding. In anticipation of the initial public
offering, the Company entered into a series of financial
transactions including the loan of $99,600 to Maxwell
Communication Corp plc ("Maxwell Communication") evidenced
by a promissory note (the "Maxwell Note"). The Company also
converted $89,243 of receivables due from affiliates into 10 year
promissory notes (the "Receivable Notes").
On December 16, 1991, Maxwell Communication filed a petition
for protection from its creditors under Chapter 11 of the U.S.
Bankruptcy Code and subsequently filed for an order of
administration in the United Kingdom. In the fourth quarter of
1991, payment and other defaults arose on the Maxwell Note and
the Receivable Notes, which, in view of the bankruptcy of
Maxwell Communication, were unlikely to be cured. As a result,
in 1991 the Company wrote off or provided reserves totalling
$195,354 with respect to the Maxwell Note, the Receivable Notes,
and other related charges. Consequently, the Company's
obligation to pay dividends on the Preferred Stock was indefinitely
suspended.
In the first quarter of 1993, the Company recovered, on behalf of
the selling shareholders, $30,833 of such notes previously written
off, the net proceeds of which were distributed to the shareholders
as part of the Merger consideration.
In January 1993, the Company entered into agreements with
Maxwell Communication and Macmillan (the "Disengagement
Agreements") which disengaged certain relationships among such
companies. Pursuant to these agreements, among other things, (i)
the Company redeemed from Macmillan all of the outstanding
Preferred Stock of the Company, (ii) Maxwell Communication
waived (a) all claims that payments to the Company should be
considered preferential and returned to Maxwell Communication
and (b) other claims of Maxwell Communication and its affiliates
against the Company and its subsidiaries which Maxwell
Communication may have as a result of Maxwell Communication's
bankruptcy filing on December 16, 1991, and (iii) U.S. and U.K.
bankruptcy authorities allowed for all purposes a portion of the
Maxwell Note and certain Receivable Notes and a claim by the
Company against Maxwell Communication as subrogee of Midland
Bank plc in the Chapter 11 case (and any superseding Chapter 7
case) and in the Maxwell Communication administration pending
in the High Court of Justice in the United Kingdom. In addition,
43
<PAGE>
the Company and its subsidiaries (a) sold to Macmillan the
Macmillan Note ($64,568) and (b) reduced by $58,000 the amount
of their claims against Maxwell Communication in respect of the
Maxwell Note and certain Receivable Notes previously written off.
The Company was included in the consolidated tax returns of the
affiliated group of which 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 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 18, 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 (as described in the preceding
paragraph) 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 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.
Merger-related restructuring costs
In connection with the Company's new strategic philosophy arising
from the Merger, certain restructuring costs outside the ordinary course
of business have been or are anticipated to be incurred. The
primary costs represent severance payments and the closing of
language centers. 33% of these costs have been recorded in the
consolidated statements of operations, and, in accordance with the
purchase method of accounting, 67% of these costs have been
allocated to the excess of cost over net assets acquired.
3. Earnings (Loss) Per Share
Earnings (loss) per share of common stock is determined by
dividing net income (loss) (after deducting the Preferred Stock
dividend in 1991) by the weighted average number of common
shares outstanding.
44
<PAGE>
Primary and fully diluted earnings (loss) per share of common
stock are the same since common stock equivalents are either anti-
dilutive or immaterial in both calculations. The Company had no
such common stock equivalents outstanding as of December 31,
1993.
4. Sale of Interest in Subsidiary
In November 1990, the Company completed the sale of 20% of the
equity of its Japanese subsidiary, The Berlitz Schools of
Languages, Inc. (Japan), to Fukutake for $27,132 and deferred the
pre-tax gain of $15,021 because, under the terms of the agreement,
Fukutake had an option to sell the shares back to the Company for
the original yen denominated purchase price plus 7% interest. The
option was terminated in February 1993 in connection with the
Merger Agreement. 33% of the deferred gain has been recorded
in the consolidated statement of operations and, in accordance with
the purchase method of accounting, 67% of the deferred gain has
been allocated to the excess of cost over net assets acquired.
Fukutake's equity in the income of the Japanese subsidiary is
reflected in the Company's Consolidated Statements of Operations
within "other (income) expense, net".
5. Property and Equipment, Net
December 31,
________________________
1993 1992
__________ _________
Building and leasehold improvements $ 14,817 $ 20,486
Furniture, fixtures and equipment 13,197 20,001
Land 443 497
__________ _________
28,457 40,984
Less: accumulated depreciation 2,666 14,884
__________ _________
Total $ 25,791 $ 26,100
__________ _________
__________ _________
45
<PAGE>
6. Other (Income) Expense, net
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
______________ _______________________________________________________
Period from Period from
February 1, 1993 January 1, 1993 Year Ended Year Ended
to December 31, to January 31, December 31, December 31,
1993 1993 1992 1991
_______________ _______________ ______________ ______________
<S> <C> <C> <C> <C>
Gain on sale of interest in subsidiary $ (4,924) $ - $ - $ -
Interest income on temporary investments (2,187) (143) (3,339) (3,369)
Foreign exchange (gains) losses, net 1,278 38 3,843 (152)
Equity in losses of joint ventures 1,442 - 2,201 -
Interest income from affiliates - (99) (6,798) (17,565)
Publishing rights valuation adjustment 553 - - -
Other, net (2,894) (348) 1,358 2,781
_______________ _______________ ______________ ______________
Total other (income) expense, net $ (6,732) $ (552) $ (2,735) $ (18,305)
_______________ _______________ ______________ ______________
_______________ _______________ ______________ ______________
</TABLE>
7. Income Taxes
Effective January 1, 1993, the Company adopted the
provisions of SFAS 109. SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included on the
financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates expected to apply
to taxable income in the periods in which the differences are
expected to reverse.
As a result of the adoption of SFAS 109, as of January 1,
1993, the Company recorded a tax credit of $3,172, or $0.17
per share, which resulted in the reduction of the deferred tax
liability as of that date. This amount has been reflected in the
Consolidated Statement of Operations as the cumulative effect
of a change in accounting principle. The principal reason for
the tax credit was the difference betweeen SFAS 109 and SFAS
96 as related to the recognition of benefits for certain loss
carryforwards.
The components of the deferred tax liability as of December
31, 1993 were as follows:
Deferred tax assets:
Inventory $ 511
Joint ventures 86
Deferred revenue 1,781
Accrued expenses 5,368
Net operating losses 22,052
_________
Total deferred tax assets 29,798
---------
46
<PAGE>
Deferred tax liabilities:
Property and equipment depreciation (177)
Publishing rights amortization (8,257)
Other intangibles amortization (1,286)
--------
Total deferred tax liabilities (9,720)
________
Net deferred tax assets 20,078
Less: Valuation allowance (23,602)
--------
Net deferred tax liability $ (3,524)
________
________
The valuation allowance increased by $5,432 from the balance
at January 1, 1993 due to increased net operating losses in
countries where the realization of a benefit for such losses is
uncertain. As a result of the Merger, $16,620 of the valuation
allowance will be allocated to reduce goodwill and other
intangibles in future periods if realization of net operating
losses becomes more likely than not.
The Company's effective tax rates for the 1993 Pre-Merger
and Post-Merger periods were 63.6% and 431.4%,
respectively. As a result of adopting SFAS 109, $2,654 of
deferred tax benefits from operating loss carryforwards were
recognized at January 1, 1993 as part of the cumulative effect
of adopting such Statement. Under prior accounting, a part
of these benefits would have been recognized as a reduction of
tax expense from continuing operations in 1993. Accordingly,
the adoption of SFAS 109 at the beginning of 1993 had the
effect of increasing the effective tax rate applied to continuing
operations for the Pre-Merger and the Post-Merger periods by
17.2% and 231.4% respectively.
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
U.S. U.S. State
Federal Foreign* and Local Total
_______________ ________________ ________________ ________________
<S> <C> <C> <C> <C>
Period from February 1, 1993 to
December 31, 1993
Current $ (505) $ 3,791 $ 235 $ 3,521
Deferred 1,534 (264) (162) 1,108
_______________ ________________ ________________ ________________
Total $ 1,029 $ 3,527 $ 73 $ 4,629
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
Period from January 1, 1993 to
January 31, 1993
Current $ (37) $ 369 $ 38 $ 370
Deferred 319 (39) (15) 265
_______________ ________________ ________________ ________________
Total $ 282 $ 330 $ 23 $ 635
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
Year ended December 31, 1992
Current $ 1,746 $ 3,484 $ 964 $ 6,194
Deferred (533) 0 (214) (747)
_______________ ________________ ________________ ________________
Total $ 1,213 $ 3,484 $ 750 $ 5,447
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
Year ended December 31, 1991
Current $ 1,200 $ 4,638 $ 2,030 $ 7,868
Deferred 4,430 (45) 0 4,385
_______________ ________________ ________________ ________________
Total $ 5,630 $ 4,593 $ 2,030 $ 12,253
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
</TABLE>
* Pre-tax income (loss) from foreign operations of the Company was
$(6,864), $(2,499), and $(13,410) for the twelve months ended December 31,
1993, 1992 and 1991, respectively.
47
<PAGE>
The provision (benefit) for deferred taxes is summarized as follows:
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
____________ ________________________________________________________
Period from Period from
February 1, 1993 January 1, 1993 Year Ended Year Ended
to December 31, to January 31, December 31, December 31,
1993 1993 1992 1991
_______________ ________________ ________________ ________________
<S> <C> <C> <C> <C>
Deferred gain on sale of 20% of Japanese
subsidiary $ (1,384) $ - $ - $ 3,527
Accrued liabilities (1,497) (267) 9 372
Foreign exchange (353) (21) (464) 1,077
Benefit of net operating loss 4,492 408 (231) (1,724)
Amortization of intangibles (164) 143 (47) (95)
Other 14 2 (14) 1,228
_______________ ________________ ________________ ________________
Total $ 1,108 $ 265 $ (747) $ 4,385
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
</TABLE>
48
<PAGE>
The difference between the effective income tax and the U.S. statutory
Federal tax rate is explained as follows:
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
____________ ___________________________________________________
Period from Period from
February 1, 1993 January 1, 1993 Year Ended Year Ended
to December 31, to January 31, December 31, December 31,
1993 1993 1992 1991
___________ _____________ _____________ ____________
<S> <C> <C> <C> <C>
U.S. statutory Federal tax rate 35.0% (35.0%) 34.0% (34.0)%
Foreign income taxes, net of foreign
tax credits (73.9) (8.2) 8.3 2.9
U.S. state and local income taxes,
net of Federal income taxes 4.4 1.5 5.2 1.3
Net domestic and foreign losses 107.6 58.5 (20.0) 31.8
20% sale of Japanese subsidiary (97.1) - 4.3 2.2
Amortization 372.7 30.3 32.6 1.9
Other, net 82.7 16.5 (7.0) 1.6
___________ _____________ _____________ ____________
Total 431.4% 63.6 % 57.4% 7.7%
___________ _____________ _____________ ____________
___________ _____________ _____________ ____________
</TABLE>
The effect of the increase in the US statutory Federal tax rate from 34 % to
35 % was not material.
For financial statement purposes, at December 31, 1993 the Company has no
U.S. Federal income tax losses. For tax return purposes, the Company has
a U.S. Federal net operating loss carry forward of approximately $26,800.
Such loss may be carried forward through the year 2006.
At December 31, 1993, U.S. income and foreign withholding taxes have not
been provided on approximately $27,134 of undistributed earnings of foreign
subsidiaries as such earnings are intended to be permanently reinvested.
However, it is estimated that foreign withholding taxes of approximately
$1,348 may be payable if such earnings were distributed. These taxes, if
ultimately paid, may be recoverable as foreign tax credits in the United
States. The determination of deferred U.S. tax liability for the undistributed
earnings of international subsidiaries is not practicable.
8. Long-Term Debt
Long-Term Debt consists of the following:
December 31,
________________________
1993 1992
__________ _________
Term Loan $ 55,300 $ -
Senior Notes 56,000 -
Note payable to bank - 25,000
__________ _________
Total debt 111,300 25,000
Less current maturities 5,525 25,000
__________ _________
Long-term debt $ 105,775 $ -
__________ _________
__________ _________
Annual maturities of long-term debt outstanding as of December 31, 1993
are as follows: 1994, $5,525; 1995, $9,225; 1996, $11,050; 1997,
$14,750; 1998, $14,750; thereafter, $56,000.
49
<PAGE>
In connection with the Merger, the Company has outstanding indebtedness
through borrowing under a bank term facility (the "Bank Term Facility")
and the issuance of Senior Notes (collectively the "Acquisition Debt
Facilities"). The Bank Term Facility consists of a senior term loan
facility ("Term Loan") originally in an amount equal to $59,000, and a
$10,000 senior revolving loan facility (the "Bank Revolving Facility").
The Company also issued an aggregate principal amount of Senior Notes
of $56,000. The borrowings by the Company under the Acquisition Debt
Facilities are collateralized by (i) certain shares of New Common
indirectly owned by Fukutake, (ii) the capital stock of the Company's
direct and indirect U.S. subsidiaries and a portion of capital stock of
certain foreign subsidiaries, (iii) substantially all other tangible and
intangible U.S. assets of the Company and its direct and indirect U.S.
subsidiaries, other than leases of school premises, and (iv) subject to
certain limitations, trademark rights of the Company and its direct and
indirect U.S. subsidiaries in certain non-U.S. jurisdictions. The Term
Loan amortizes quarterly, beginning March 31, 1993, until final maturity
on December 31, 1998. The Company made four quarterly installments
of $925 each during the year ended December 31, 1993. The Senior
Notes amortize in annual installments of $14,000 on December 31 in each
of the years 1999 through 2001, and have a final maturity on December
31, 2002. The Term Loan and Senior Notes are also subject to mandatory
prepayment to the extent that the Company receives net proceeds from
asset sales or cash flow in excess of certain specified amounts. Under
certain circumstances, mandatory prepayments of the Senior Notes
resulting from asset sales are required. The Company had $3,000
outstanding under the Bank Revolving Facility at December 31, 1993.
Borrowings under the Bank Term Facility bear interest at variable rates
based on, at the option of the Company, (i) Chemical Bank's alternate
base rate plus a spread of 1.0%-1.5% or (ii) the rate offered by certain
reference banks to prime banks in the interbank Eurodollar market, fully
adjusted for reserves plus a spread of 2.0%-2.5%. The spread applicable
to the borrowings under the Bank Term Facility will depend on a specified
debt-to-cash flow ratio of the Company. In addition, a commitment fee
of approximately 0.4% is charged on the average daily balance of
available but unused amounts under the Bank Revolving Facility. The
interest rate on the Term Loan and outstanding Bank Revolving Facility
at December 31, 1993 was approximately 5.6% and 7.5%, respectively.
The Senior Notes bear interest at 9.79%. The rate of interest on the
Senior Notes could increase by 1.0% if the Senior Notes receive a rating
from the National Association of Insurance Commissioners Securities
Valuation Office other than 1 or 2 at any time prior to December 31,
1994.
The Acquisition Debt Facilities contain certain covenants, including (i)
limitations on the ability of the Company and its subsidiaries to incur
indebtedness and guarantee obligations, to prepay indebtedness, to redeem
or repurchase capital stock or subordinated debt, to enter into, grant or
suffer to exist liens or sale-leaseback transactions, to make loans or
investments, to enter into mergers, acquisitions or sales of assets, to
change the nature of the business conducted, to amend material
agreements, to enter into agreements restricting the ability of the Company
and its subsidiaries to grant or to suffer to exist liens, to enter into
transactions with affiliates or to limit the ability of subsidiaries to pay
dividends or make loans to the Company, (ii) limitations on the payment
of dividends by the Company on its capital stock and (iii) a requirement
that the Company obtain, within 180 days of the Merger, foreign currency
hedge agreements to fix the rate of exchange between the U.S. dollar and
such foreign currencies.
50
<PAGE>
The Acquisition Debt Facilities also contain financial covenants requiring
the Company to maintain certain levels of earnings, liquidity and net worth
and imposes limitations on capital expenditures, cash flow and total debt.
As of December 31, 1993, the Company was in compliance with all Acquisition
Debt Facilities covenants.
Based on the interest rates currently available for borrowings with similar
terms and maturities, the fair values of the Term Loan and the Senior Notes
at December 31, 1993 are $55,300 and $58,348, respectively.
Long-term debt outstanding at December 31, 1992 under a loan agreement
with Societe Generale was paid in full on February 8, 1993.
9. Commitments
Lease Commitments
The Company's operations are primarily conducted from leased facilities,
many of which are less than 2,500 square feet, which are under operating
leases that generally expire within five years.
Rent expense, principally for language centers, amounted to $21,225,
$1,849, $21,264, and $17,510 for the period February 1, 1993 to
December 31, 1993, the period January 1, 1993 to January 31, 1993
and the years ended December 31, 1992, and 1991, respectively. Certain
leases are subject to escalation clauses and/or renewal options.
The minimum rental commitments under noncancellable operating leases
with a remaining term of more than one year at December 31, 1993 are
as follows: 1994 - $5,674; 1995 - $5,344; 1996 - $4,436; 1997 - $2,736;
1998 - $2,258, and an aggregate of $5,966 thereafter.
Legal Proceedings
In November 1992, the Company received a complaint entitled "Irving Kas,
on behalf of all others similarly situated v. Berlitz International, Inc.,
Joe M. Rodgers and Elio Boccitto" in the U.S. District Court for New
Jersey alleging various securities law violations under the Securities
Exchange Act of 1934 and alleging various omissions and
misrepresentations in connection with the Company's announcements
during 1992 with respect to its financial results. In 1993, plaintiff
filed a supplemental and amended complaint alleging various
violations of the federal securities laws and common-law breaches of
fiduciary duties relating primarily to the transaction contemplated by the
Merger Agreement, and seeking to add another officer of the Company as
a defendant in addition to the two officers named in the initial pleading.
On August 4, 1993, the Court granted defendants' motion to dismiss the
amended and supplemental complaint, deemed the original complaint to be
withdrawn and dismissed the lawsuit in its entirety. The plaintiff's
time to appeal has expired.
51
<PAGE>
The Company is party to several actions arising out of the ordinary course
of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on
the financial condition or results of operations of the Company.
10. Financial Instruments
Pursuant to a covenant under the Acquisition Debt Facilities, in August
1993 the Company entered into six currency coupon swap agreements with a
financial institution to hedge the Company's net investments in certain
foreign subsidiaries and help manage the effect of foreign currency
fluctuations on the Company's ability to repay its U.S. dollar debt.
These agreements, which utilize fixed and floating interest rates,
require the Company to periodically exchange foreign currency denominated
interest payments for U.S. dollar denominated interest receipts. Under
the fixed rate agreements, effective for the period from December 31, 1993
to December 31, 1998, semiannual interest exchanges begin June 30, 1994.
Under the floating interest rate agreements, effective for the period
from December 31, 1994 to December 31, 1998, quarterly interest exchanges,
begin March 31, 1995. Credit loss from counterparty nonperformance is not
anticipated.
The periodic interest exchanges are based upon annual interest rates applied
to notional amounts as follows:
<TABLE>
<CAPTION>
Interest Payments to Financial Institution Interest Receipts from Financial Institution
_________________________________________ _________________________________________
Notional Amount (000's) Interest Rate Notional Amount (000's) Interest Rate
_______________________ _____________ _______________________ _____________
<S> <C> <C> <C> <C>
Fixed Rate
Agreements:
Japanese Yen 2,335,500 9.71 % $ 22,500 9.79 %
Swiss Franc 11,475 9.89 % $ 7,500 9.79 %
British Pound 5,133 10.43 % $ 7,550 9.79 %
Canadian Dollar 5,596 10.43 % $ 4,300 9.79 %
Floating Rate
Agreements:
German Mark 60,165 DEM-LIBOR-BBA $ 35,000 USD-LIBOR-BBA
+2.8 % +2.5 %
Japanese Yen 1,660,480 JPY-LIBOR-BBA $ 16,000 USD-LIBOR-BBA
+3.535 % +2.5 %
</TABLE>
No gains or losses on these swap agreements have been recorded in the Company's
Consolidated Statement of Operations. The fair market value of these swap
agrements at December 31, 1993, representing the amount that could be settled
based on estimates obtained from a dealer, was approximately $533.
11. Related Party Transactions
a) Transactions with current related party
Berlitz-Japan has a contract (the "Development Agreement") with
Fukutake, originally executed in 1992 and amended in 1993, for the
development of English conversation video taped programs for elementary
and junior high school students in Japan. The programs consist of printed
study materials, video cassettes and audio cassettes, which are used as the
basis of a correspondence course. Under this contract, Fukutake will
reimburse Berlitz Japan for project-related production costs incurred,
including employee salaries and outside production fees, and pay to Berlitz
Japan a one-time development fee of Yen 46,672 (approximately $420)
and a coordination fee of 10% of project-related employee salaries,
estimated at Yen 2.3 million (approximately $21).
Pursuant to the Development Agreement, the Company received
reimbursement for production costs of approximately $1,800 and $296
during 1993 and 1992, respectively. In addition, the Company received
the development fee of approximately $420 in 1993. The Company has
recorded in accounts receivable $213 and $411 at December 31, 1993 and
1992, respectively.
Pursuant to a June 1, 1993 sublease agreement, the Company subleases
space in Fukutake's New York offices at an annual base rent of $79 plus
operating expenses. The sublease expires in 1995.
The Company has entered into certain other joint business arrangements
with Fukutake. It is not anticipated that these arrangements will be
material to the Company's business.
b) Transactions with former related parties
52
<PAGE>
Effective December 13, 1989, the Company, Macmillan and Maxwell
Communication entered into a services agreement under which Macmillan
and Maxwell Communication provided various services to the Company,
including certain financial, administrative, management and other services
and distribution agreements. The Company subleased space for its New
York offices pursuant to a sublease agreement with Macmillan, until
January 1991, when New York office personnel relocated to the Company's
corporate headquarters. In connection with the disengagement of the
relationship between the Company, Maxwell Communication and
Macmillan in January 1993, Macmillan and the Company entered into an
agreement clarifying certain commercial relationships, including formally
terminating the services agreement as of December 31, 1991. The
distribution agreement remains in effect.
53
<PAGE>
Pursuant to the terms of a distribution agreement between the Company
and Maxwell Macmillan Canada, Inc. ("Maxwell Canada"), Macmillan
and Maxwell Canada serve as the exclusive distributors for certain travel
guide books and related publications of the Company in the United States
and Canada, respectively. The Company paid Macmillan an aggregate of
approximately $564 and $437 pursuant to the terms of these distribution
agreements in 1992 and 1991, respectively.
The costs of the services provided under the services and distribution
agreements are included in the accompanying Consolidated Statements of
Operations as selling, general and administrative expenses.
Amounts applicable to transactions with Macmillan and Maxwell
Communication are summarized below:
Year Ended December 31,
___________________________
1992 1991
___________ __________
Balance, beginning of period $ (617) $ 185,879
Charge from Macmillan for corporate
services (26) (292)
Charge for distribution services (564) (437)
Interest income 6,798 17,565
Cash transfers, net (1,934) 3,672
Dividends declared (4,452) (14,858)
Write-off or reserve of affiliate notes - (191,354)
Other activity, net 3,109 (792)
___________ __________
Total balance, end of period $ 2,314 $ (617)
___________ __________
___________ __________
"Dividends" includes the declaration of dividends on shares previously
held by Macmillan.
In October 1989, the Company lent $99,600 to Maxwell Communication
as evidenced by the Maxwell Note at 10.5% per annum. In addition, the
Company also converted $89,243 of receivables due from affiliates into
the Receivable Notes of Maxwell Communication and an affiliate of
Macmillan as follows: a 3 billion (Japanese yen) note of Maxwell
Communication ($24,078 based on the exchange rate at December 31, 1992),
a $3,300 note of MLL Holdings Ltd. (which is a subsidiary of Maxwell
Communication) and a $64,568 note of Macmillan. The Maxwell Note
and the dollar-denominated Receivable Notes bore interest at 10.5% per
annum and the yen-denominated note of Maxwell Communication bore
interest at the discount rate of the Bank of Japan plus .25%. Interest
income on the Maxwell Note and the Receivable Notes was $6,798 and
$15,876 in 1992 and 1991, respectively.
As a result of Maxwell Communication filing for protection under Chapter
11 of the U.S. Bankruptcy Code and administration in the United Kingdom,
as discussed in Note 2, in 1991 the Company wrote off or provided
reserves for the Maxwell Note and the Receivable Notes totalling
$191,354. The charges recorded for the notes written off ($126,786) and
the provisions for reserves ($64,568) were based on management's best
estimates at that time. In addition, in 1991 the Company recorded charges
54
<PAGE>
totalling $4,000 representing the Company's estimated losses from cash
deposits in a United Kingdom bank which such bank seized to offset debts
it was owed by certain Maxwell Communication related companies as part
of a credit facility, and the estimated costs for other Maxwell
Communication related matters. In 1992, the Company received $975
from Midland Bank plc as a partial settlement for such loss and in January
1993, the Company's claim against Maxwell Communication as subrogee
of Midland Bank plc arising from such loss less the partial settlements was
admitted for all purposes by the U.S. and U.K. bankruptcy authorities
pursuant to the Disengagement Agreements. In addition, the Company
incurred $1,356 net additional Maxwell and Merger related costs in 1992.
These amounts are included in the Consolidated Statements of Operations
as "Non-recurring Maxwell and Merger related charges."
During the first quarter of 1991, the Company elected to participate in the
Macmillan Cash Management Investment Program whereby up to a
maximum of 50% of the Company's investable excess cash would be
invested in an unsecured demand note of Macmillan. The Company made
an initial investment of $25,000 and earned interest of $1,689 in 1991.
Interest rates during the year ranged from 7.5% to 16.0%. The balance
of the Company's excess cash was invested in its own cash management
program. All funds were withdrawn from the Program as of December
31, 1991.
In March 1991, the Company and several of its subsidiaries agreed in
principle to license certain trademarks, self-teaching materials, and
copyrighted publications to Maxwell MultiMedia, Limited, a joint venture
between Maxwell Communication and N.V. Philips. Also, several of the
Company's subsidiaries agreed in principle to license certain trademarks,
self-teaching materials and copyrighted publication to Sphere, Inc., an
affiliate of Maxwell Communication, for the development, manufacture and
sale of an educational foreign-language computer game. It is not
anticipated that either of these agreements will be material to the
Company's business.
55
<PAGE>
12. Capital Stock
Preferred Stock
The holders of the Preferred Stock were entitled to quarterly dividends at
the quarterly rate, the lesser of 1.75% of $180,000 liquidation preference
of such shares (i.e. $12,600 annually) or the quarterly rate which resulted
in the aggregate dividends on all shares of the Preferred Stock being equal
to the Company's after-tax income during the preceding quarter from the
Maxwell Note and the Receivable Notes.
As a result of the payment defaults of the Maxwell Note and certain
Receivable Notes and the recording of the write-offs and reserves in the
Company's 1991 Consolidated Statement of Operations with respect to
such Notes, no dividends were paid on the Preferred Stock during 1992
and 1993.
The Preferred Stock was redeemed in 1993 in connection with the Merger.
13. Stock Option and Incentive Plans
During 1989, the Company established the 1989 Stock Option and
Incentive Plan (the "Plan") which authorized the issuance of up to
2,000,000 shares of common stock. The Plan authorized the issuance of
various stock incentives to officers and key employees, including options,
stock appreciation rights, restricted stock, deferred stock and certain
other stock-based incentive awards. The options were to expire ten years
from the date of grant and were exercisable as determined by the committee
established to administer the plan.
A summary of the activity related to the Company's Plan follows:
Shares Price per Share
_______ _______________
Options outstanding at January 1, 1991 552,000 $ 14.50 - $17.125
Granted 195,000 $ 17.875 - $18.625
Exercised (4,000) $ 16.50
Cancelled (36,000) $ 16.50
_______
Options outstanding at December 31, 1991 707,000 $ 14.50 - $18.625
Granted 320,000 $ 17.25 - $18.00
Exercised -
Cancelled (26,500) $ 17.875 - $18.625
________
Options outstanding at December 31, 1992 1,000,500 $ 14.50 - $18.625
Exercised (6,000) $ 16.50
Cancelled (10,000) $ 16.50 - $18.00
Merger-related liquidation (984,500) $ 14.50 - $18.625
_______
Options outstanding at December 31, 1993 - -
_______
_______
Options exercisable at December 31, 1992 336,500 $ 14.50 - $18.625
_______
Options exercisable at December 31, 1991 200,400 $ 14.50 - $18.625
_______
_______
56
<PAGE>
At January 1, 1991, 80,000 restricted shares to key employees were
outstanding. The resale restrictions on these shares lapsed in equal
installments over five years commencing from date of grant. Deferred
compensation in the amount of $1,357, equivalent to the market value of the
common stock at the date of grant times the number of shares granted, was
charged to Shareholders' Equity as unearned compensation, and was being
amortized over the service period. During 1991, 5,000 shares were issued
and 10,000 shares were cancelled. During 1992, 3,000 shares were cancelled
and 3,500 shares sold. During 1993, prior to the Merger, 2,000 shares were
sold.
All outstanding options and restricted shares were liquidated on February 8,
1993, in connection with the Merger. See Note 2.
During 1991, the Company established the Non-Employee Directors Stock
Plan ("Directors' Stock Plan") to provide non-employee Directors of the
Company the opportunity to elect to receive a portion of their annual retainer
fees in the form of common stock of the Company, or to defer receipt of a
portion of such fees and have the deferred amounts treated as if invested in
common stock. The Directors' Stock Plan, in which participation was
elective for non-employee Directors, limited the benefits paid in the form of
stock to 50% of the annual retainer. All deferred amounts outstanding under
the Director's Stock Plan were settled in connection with the Merger.
On December 2, 1993, the Board of Directors of the Company approved the
Long-Term Executive Incentive Compensation Plan and the Short-Term
Executive Incentive Compensation Plan (the "Long-Term Plan" and "Short-
Term Plan", respectively). The Long-Term Plan, having an effective date
of January 1, 1994, provides for potential cash awards in 1999 to key
executive employees if certain financial goals and/or stock price
appreciation are achieved for the five year period ending December 31,
1998. The Short-Term Plan, commencing with the 1993 calendar year, provides
for potential cash awards to officers and other key employees if certain
financial goals and individual discretionary performance measures are met
for the applicable calendar year. The Company is not required to establish
any fund or to segregate any assets for payments under the Long-Term Plan or
the Short-Term Plan.
The Company has severance agreements with six key employees which
generally provide that if the Company were to terminate the employee's
employment other than for cause or if the employee was to terminate his
employment for reasons specified in the agreements, the employee would
receive amounts equal to his annual base salary, (except for one employee
who will receive two times his annual salary and one employee who will
receive two times his annual salary until August 1995, but one time
thereafter), plus a pro-rata share of the Company's bonus plan award. The
agreements also provide for the continuation of certain benefits. Four of
these agreements are in effect for 18 months following a change in control
occurring at any time within two years from the date of these agreements.
The remaining two agreements,not dependent on a change in control,
extend beyond this 18 month period. The maximum contingent liability
under such agreements in approximately $2,000.
The Company also has a consulting agreement with its former Chief
Operating Officer which provides, subject to certain conditions, for payments
totalling $220 over the two-year period ended August 31, 1995.
57
<PAGE>
14. Thrift and Retirement Plans
Through December 31, 1991, the Company was included in the Macmillan
Thrift and Retirement Plan (the "Macmillan Plan"), which covered
substantially all of its domestic employees. The retirement portion of the
Macmillan Plan provided for the Company to make regular contributions
based on salaries of eligible employees. The thrift portion of the
Macmillan Plan, in which employee participation was elective, provided
for Company matching contributions of up to 3% of salary. Payments
upon retirement or termination of employment were based on vested
amounts credited to individual accounts.
Effective December 31, 1991, the Company withdrew from the Macmillan
Plan and established the Berlitz International, Inc. Retirement Plan (the
"Berlitz Plan") which covers substantially all of its domestic employees
and provides substantially the same terms as the Macmillan Plan. The
Company's transfer of the assets from the Macmillan Plan to the Berlitz
Plan occurred subsequent to the March 31, 1992 valuation.
In addition, certain foreign operations have other defined contribution
benefit plans. Total expense with respect to all benefit plans was $1,417,
$121, $1,267, and $1,041, for the period from February 1, 1993 to December
31, 1993, the period from January 1, 1993 to January 31, 1993, and the
years ended December 31, 1992 and 1991, respectively.
The company does not provide health care or insurance coverage or other
post retirement benefits other than pensions to retirees. Therefore,
adoption of SFAS No. 106 "Postretirement Benefits other than Pensions"
has no effect on the Company's consolidated financial statements.
In November 1992, the FASB issued SFAS No. 112 "Employers' Accounting
for Postemployment Benefits". This standard is effective in 1994 and
establishes accounting standards for employers who provide benefits to
former or inactive employees after employment but before retirment. The
Company believes that the adoption of this standard will have no effect
on its consolidated financial statements.
15. Business Segment and Geographic Area Information
The Company's operations are conducted through the following business
segments: Language Instruction, Translation Services, and Publishing.
Prior to 1992, the Translation Services business was not significant to the
Company, and therefore the 1991 presentation of operating profit (loss)
capital expenditures, depreciation and amorization and identifiable assets,
where not practicable, has not been restated. The Company now considers
the Translation Services business to be significant enough to warrant
being identified as a separate operating segment for financial reporting
purposes. Intersegment and intergeographical sales are not significant.
58
<PAGE>
General corporate identifiable assets are principally property and
equipment. Depreciation and amortization relates to property and
equipment, excess of cost over net assets acquired and publishing rights.
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
___________ ___________________________________________________________
Period from Period from
February 1, 1993 January 1, 1993 Year Ended Year Ended
to December 31, to January 31, December 31, December 31,
Business Segments 1993 1993 1992 1991
_______________ ________________ ________________ ________________
<S> <C> <C> <C> <C>
Sales of services and products:
Language Instruction $ 207,692 $ 15,875 $ 233,424 $ 220,882
Translation Services 32,720 2,971 32,358 23,410
_______________ ________________ ________________ ________________
Total Language Services 240,412 18,846 265,782 244,292
Publishing 11,657 762 15,538 15,479
_______________ ________________ ________________ ________________
Total $ 252,069 $ 19,608 $ 281,320 $ 259,771
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
Operating profit (loss):
Language Instruction $ 12,266 $ (814) $ 19,031
Translation Services 932 219 (2,098)
_______________ ________________ ________________
Total Language Services 13,198 (595) 16,933 $ 24,551
Publishing (389) (240) 409 1,197
_______________ ________________ ________________ ________________
Total 12,809 (835) 17,342 25,748
Worldwide corporate expenses (9,503) (627) (7,331) (5,081)
_______________ ________________ ________________ ________________
Total $ 3,306 $ (1462) $ 10,011 $ 20,667
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
Capital expenditures:
Language Instruction $ 4,600 $ 481 $ 7,594
Translation Services 709 26 1,090
_______________ ________________ ________________
Total Language Services 5,309 507 8,684 $ 5,195
Publishing 1,700 48 1,878 952
_______________ ________________ ________________ ________________
Total 7,009 555 10,562 6,147
General corporate 680 5 592 290
_______________ ________________ ________________ ________________
Total $ 7,689 $ 560 $ 11,154 $ 6,437
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
Depreciation and amortization:
Language Instruction $ 13,756 $ 1,127 $ 13,344
Translation Services 1,695 80 1,118
_______________ ________________ ________________
Total Language Services 15,451 1,207 14,462 $ 13,580
Publishing 1,295 146 1,509 959
_______________ ________________ ________________ ________________
Total operating segments 16,746 1,353 15,971 14,539
General corporate 309 23 264 188
_______________ ________________ ________________ ________________
Total $ 17,055 $ 1,376 $ 16,235 $ 14,727
_______________ ________________ ________________ ________________
_______________ ________________ ________________ _______________
</TABLE>
<TABLE>
<CAPTION>
December 31,
__________________________________________________________
1993 1992 1991
_______________ ________________ ________________
<S> <C> <C> <C>
Identifiable assets:
Language Instruction $ 516,726 $ 400,405
Translation Services 21,757 22,722
_______________ ________________
Total Language Services 538,483 423,127 $ 446,365
Publishing 31,197 32,677 32,273
_______________ ________________ ______________
Total operating segments 569,680 455,804 478,638
General corporate 792 779 458
_______________ ________________ _______________
Total $ 570,472 $ 456,583 $ 479,096
_______________ ________________ ________________
_______________ ________________ ________________
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
___________ _____________________________________________________________
Period from Period from
February 1, 1993 January 1, 1993 Year Ended Year Ended
to December 31, to January 31, December 31, December 31,
Geographic Areas 1993 1993 1992 1991
_______________ ________________ ________________ ________________
<S> <C> <C> <C> <C>
Sales of services and products:
North America $ 71,001 $ 5,436 $ 76,006 $ 64,815
Western Europe 50,972 4,654 65,268 63,461
Central/Eastern Europe 44,153 3,757 49,258 43,453
East Asia 58,853 4,167 66,234 67,770
Latin America 27,090 1,594 24,554 20,272
_______________ ________________ ________________ ________________
Total $ 252,069 $ 19,608 $ 281,320 $ 259,771
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
Operating profit (loss):
North America $ 9,860 $ 243 $ 10,068 $ 9,117
Western Europe 38 (231) (1,733) 1,954
Central/Eastern Europe 670 (126) 2,149 2,780
East Asia (1,904) (814) 2,312 7,923
Latin America 4,145 93 4,546 3,974
_______________ ________________ ________________ ________________
Total operating segments 12,809 (835) 17,342 25,748
Corporate expenses - North America (9,503) (627) (7,331) (5,081)
_______________ ________________ ________________ ________________
Total $ 3,306 $ (1,462) $ 10,011 $ 20,667
_______________ ________________ ________________ ________________
_______________ ________________ ________________ ________________
</TABLE>
Amortization of publishing rights and excess of cost over net assets
acquired, included in operating profit (loss) in the period from
February 1, 1993 to December 31, 1993, the period from January 1,
1993 to January 31, 1993, and the years ended December 31, 1992
and 1991, amounted to $3,414, $204, $2,452 and $2,453 for North
America; $1,656, $189, $2,263 and $2,263 for Western Europe;
$1,409, $102, $1,229 and $1,229 for Central/Eastern Europe; $3,382,
$308, $3,697 and $3,697 for East Asia and $1,690, $69, $822 and
$822 for Latin America.
Merger-related restructuring costs, included in operating profit (loss)
in the Post Merger period from February 1, 1993 to December 31,
1993, amounted to $122 for North America; $830 for Western
Europe; $260 for Central/Eastern Europe; $2,826 for East Asia; $50
for Latin America, and $720 for Corporate Expenses-North America.
No Merger-related restructuring costs were incurred in the Pre-
Merger periods.
<TABLE>
<CAPTION>
December 31,
_________________________________________________________
1993 1992 1991
_______________ _______________ _______________
<S> <C> <C> <C>
Identifiable assets:
North America $ 171,039 $ 119,284 $ 116,432
Western Europe 88,951 100,339 125,229
Central/Eastern Europe 70,746 54,359 48,700
East Asia 161,334 146,087 153,094
Latin America 78,402 36,514 35,641
_______________ _______________ _______________
Total $ 570,472 $ 456,583 $ 479,096
_______________ _______________ _______________
_______________ _______________ _______________
</TABLE>
60
<PAGE>
16. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
________________________________________________________________________________
March 31 (1) June 30 Sept 30 (3) Dec 31 (3) Year (1)
____________ ____________ ____________ ___________ ___________
<S> <C> <C> <C> <C> <C>
1993:
Sales of services and products $ 69,012 $ 73,485 $ 68,201 $ 60,979 $ 271,677
Operating profit (loss) 1,473 2,270 (670) (1,229) 1,844
Income (loss) before income taxes
and cumulative effect of change
in accounting principle 7,205 24 (3,377) (3,778) 74
Income (loss) available to
common shareholders 2,584 531 (3,361) (1,772) (2,018)
Earnings (loss) per common share (2) $ 0.26 $ 0.05 $ (0.33) $ (0.18) $ (0.20)
____________ ____________ ____________ ___________ ___________
____________ ____________ ____________ ___________ ___________
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
_________________________________________________________________________________
March 31 June 30 September 30 December 31 Year
____________ ____________ ______________ _______________ ____________
<S> <C> <C> <C> <C> <C>
1992:
Sales of services and products $ 68,309 $ 72,579 $ 69,606 $ 70,826 $ 281,320
Operating profit 4,406 4,208 1,211 186 10,011
Income (loss) before income taxes 6,349 4,274 2,008 (3,143) 9,488
Income (loss) available
to common shareholders 4,405 2,882 678 (3,924) 4,041
Earnings (loss) per common share $ 0.23 $ 0.15 $ 0.04 $ (0.21) $ 0.21
</TABLE>
(1) Gives effect to the combination of the results of the Company for the
Pre-Merger and Post-Merger periods.
(2) Assumes 10,031,000 shares of common stock outstanding.
(3) Reflects effects of Merger-related restructuring adjustments. Refer
to Note 2.
61
<PAGE>
<TABLE>
BERLITZ INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Schedule VIII
<CAPTION>
Balance at Charged to Balance
Beginning Cost and at End of
of Year Expenses Deductions (1) Other (2) of Year
______________ _____________ ______________ ______________ ______________
<S> <C> <C> <C> <C> <C>
Allowances for doubtful accounts:
Year Ended December 31, 1993 (4) $ 2,910 $ 1,116 $ (1,367) $ (93) $ 2,566
______________ _____________ ______________ ______________ ______________
______________ _____________ ______________ ______________ ______________
Year Ended December 31, 1992 $ 3,229 $ 719 $ (769) $ (269) $ 2,910
______________ _____________ ______________ ______________ ______________
______________ _____________ ______________ ______________ ______________
Year Ended December 31, 1991 $ 2,427 $ 892 $ (49) $ (41) $ 3,229
______________ _____________ ______________ ______________ ______________
______________ _____________ ______________ ______________ ______________
</TABLE>
(1) Represents principally net losses incurred in the ordinary course
of business and chargeable against the allowance.
(2) Represents principally foreign currency translation.
(3) See Notes 2 & 11 regarding the Maxwell Note and the Receivable Notes.
(4) Gives effect to the combination of the changes in the allowance for
doubtful accounts of the Company for the Pre-Merger and Post-Merger
periods of the year ended December 31, 1993.
62
<PAGE>
BERLITZ INTERNATIONAL, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Schedule X
Year Ended December 31,
_____________________________________
1993 (1) 1992 1991
________ _________ ________
Advertising Costs $ 12,933 $ 13,233 $ 11,369
________ _________ ________
________ _________ ________
Taxes other than payroll and income taxes, royalties and maintenance, and
repairs are less than 1% of sales of services and products.
(1) Gives effect to the combination of advertising costs incurred for the Pre-
Merger and Post-Merger periods of the year ended December 31, 1993.
63
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not Applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by Item 401 of Regulation S-K with respect to
Directors and Executive Officers of the Company is set forth in Part I of this
Form 10-K. The information required by Item 405 of Regulation S-K with
respect to directors and executive officers of the Company will be set forth
in Amendment #1 to this Form 10-K.
ITEM 11. Executive Compensation
The information required by this item will be set forth in Amendment #1 to
this Form 10-K.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item will be set forth in Amendment #1 to
this Form 10-K.
ITEM 13. Certain Relationships and Related Transactions
The information required by this item will be set forth in Amendment #1 to
this Form 10-K.
64
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports On
Form 8-K
A. Index to Financial Statements and Financial Statement Schedules
1. Financial Statements
2. Financial Statement Schedules
The Financial Statements and the Financial Statement Schedules included in
the Annual Report on Form 10-K are listed in Item 8 on page 32.
3. Exhibits
All Exhibits listed below are filed with this Annual Report on Form
10-K unless specifically stated to be incorporated by reference to
other documents previously filed with the Commission.
Exhibit No.
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
December 9, 1992, among the registrant, Fukutake Publishing Co.,
Ltd. and BAC, Inc. Exhibit 1 to the registrant's Form 8-K, dated
December 9, 1992, is incorporated by reference herein.
3.1 Restated Certificate of Incorporation of the registrant filed with
the State of New York on December 11, 1989. Exhibit 3.4 to
Registration Statement No. 33-31589 is incorporated by reference
herein.
3.2 Certificate of Merger of BAC, Inc. into the registrant (including
amendments to the registrant's Certificate of Incorporation), filed
with the State of New York on February 8, 1993. Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 is incorporated by reference herein.
4.1 Specimen Certificate of Old Common Stock with Legend. Exhibit
4.3 to the Company's Form 10-K for the fiscal year ended
December 31, 1991 is incorporated by reference herein.
4.2 Specimen Certificate of Common Stock. Exhibit 4.1 to Registration
Statement No. 33-56566 is incorporated by reference herein.
4.5 Amended and Restated Safeguard Rights Agreement between the
registrant and United States Trust Company of New York. Exhibit
1 to the Company's Form 8-K, dated March 6, 1992, is incorporated
by reference herein.
10.1 Credit Agreement, dated as of January 29, 1993, among the
65
<PAGE>
registrant, the several lenders from time to time party thereto and
Chemical Bank as Agent. Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992
is incorporated by reference herein.
10.2 Form of Senior Note Agreement, dated as of January 29, 1993,
among the registrant and each institutional lender party thereto.
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 is incorporated by reference
herein.
10.3 Amended and Restated Tax Allocation Agreement among the
registrant, Macmillan, Inc. and Macmillan School of Publishing
Holding Company, Inc., dated as of October 11, 1989. Exhibit 10.3
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 is incorporated by reference herein.
10.4 Agreement among the registrant, Berlitz Financial Corporation, The
Berlitz School of Language (Japan) Inc., The Berlitz Schools of
Languages Limited and Maxwell Communication Corporation plc,
dated January 8, 1993. Exhibit 1 to the Company's Form, 8-K,
dated January 7, 1993, is incorporated by reference herein.
10.5 Agreement among the registrant, Berlitz Financial Corporation,
Macmillan, Inc. and Macmillan School Publishing Holding
Company, Inc., dated January 8,1993. Exhibit 2 to the Company's
Form 8-K, dated January 7, 1993 is incorporated by reference
herein.
10.6 Escrow Agreement among the registrant, Maxwell Communication
Corporation plc, the beneficiaries named therein and IBJ Schroder
Bank & Trust Company, dated as of January 29, 1993. Exhibit 10.6
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 is incorporated by reference herein.
10.7 Settlement Agreement between the registrant and Macmillan, Inc.,
dated January 8, 1993. Exhibit 3 to the Company's Form 8-K,
dated January 7, 1993 is incorporated by reference herein.
10.8 Distribution Agreement between the registrant and Macmillan, Inc.,
dated as of October 11, 1989. Exhibit 10.19 to Registration
Statement No. 33-31589 is incorporated by reference herein.
10.9 Distribution Agreement between the registrant and Collier Macmillan
Canada, Inc., dated as of October 11, 1989. Exhibit 10.4 to
Registration Statement No. 33-31589 is incorporated by reference
herein.
10.10 $99.6 million Term Note pursuant to Term Loan Agreement between
the registrant and Maxwell Communication Corporation plc dated
November 27, 1989. Exhibit 10.4 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989 is
incorporated by reference herein.
66
<PAGE>
10.11 3 billion (Japanese yen) Receivable Note from Maxwell
Communication Corporation plc dated December 4, 1989. Exhibit
10.5 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 is incorporated by reference herein.
10.12 $64,568,000 Receivable Note from Macmillan, Inc. dated October
1, 1989. Exhibit 10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 is incorporated
by reference herein.
10.13 $3.3 millon Receivable Note from MLL Holdings Limited dated
October 1, 1989. Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989 is
incorporated by reference herein.
10.14 Short Term Executive Incentive Compensation Plan. Exhibit 10.12
to Registration Statement No. 33-31589 is incorporated by reference
herein.
10.15 1989 Stock Option and Incentive Plan. Exhibit 10.13 to
Registration Statement No. 33-31589 is incorporated by reference
herein.
10.16 1993 Long-Term Executive Incentive Compensation Plan. Exhibit
1 to the Company's Form 8-K, dated December 2, 1993 is
incorporated by reference herein.
10.17 1993 Short-Term Executive Incentive Compensation Plan. Exhibit
2 to the Company's Form 8-K, dated December 2, 1993 is
incorporated by reference herein.
10.18 Form of Indemnity Agreement between the Registrant and
Macmillan, Inc. dated October 11, 1989. Exhibit 10.16 to
Registration Statement No. 33-31589 is incorporated by reference
herein.
10.19 Letter Agreement, dated October 19, 1990, with Robert Minsky.
Exhibit 10.16 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 is incorporated by
reference herein.
10.20 Employment Agreement, dated April 27, 1992, between the
registrant and Robert Minsky. Exhibit 10.18 to Registration
Statement No. 33-56566 is incorporated by reference herein.
10.21* Employment Agreement, dated October 1, 1993, between the registrant
and Robert Minsky.
10.22 Berlitz International, Inc. Non-Employee Directors' Stock Plan.
Exhibit 10.17 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 is incorporated by
reference herein.
10.23 Shareholders' Agreement among Berlitz Languages, Inc., Fukutake
Publishing Co., Ltd. and the registrant, dated as of November 8,
1990. Exhibit 10.18 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1990 is incorporated by
reference herein.
10.24 Amendment No. 1 to Shareholders' Agreement among Berlitz
Languages, Inc., Fukutake Publishing Co., Ltd. and the registrant,
dated as of November 8, 1990. Exhibit 10.18 to the Company's
67
<PAGE>
Annual Report on Form 10-K for the fiscal year ended December
31, 1990 is incorporated by reference herein. Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 is incorporated by reference herein.
10.25 Stock Purchase Agreement, dated as of November 8, 1990, between
Berlitz Languages, Inc., the registrant and Fukutake Publishing
Co., Ltd. Exhibit 10.19 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990 is incorporated by
reference herein.
10.26 Form of Indemnification Agreement between the registrant and each
of Robert Maxwell, Kevin Maxwell, Martin E. Maleska and David
H. Shaffer. Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990 is
incorporated by reference herein.
10.27 Form of Amended and Restated Indemnification Agreement between
the registrant and each of Elio Boccitto, John Brademas, Rozanne L.
Ridgway, Joe M. Rodgers, Robert Minsky and Rudy G. Perpich.
Exhibit 10.24 to Registration Statement No. 33-56566 is
incorporated by reference herein.
10.28 Amended and Restated Indemnification Agreement between the
registrant and Hiromasa Yokoi. Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992 is incorporated by reference herein.
10.29 Form of Indemnification Agreement between the registrant and each
of Soichiro Fukutake, Owen Bradford Butler, Susumu Kojima,
Saburou Nagai, Edward G. Nelson, Makoto Sato and Aritoshi
Soejima. Exhibit 10.26 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 is incorporated
by reference herein.
10.30 Form of Indemnification Agreement between the registrant and each
of Jose Alvarino, Manuel Fernandez, Paul Gendler, Robert C.
Hendon, Jr., Henry James, Jacques Meon, Michael Mulligan, Kim
Sonne, Anthony Tedesco and Wolfgang Wiedeler. Exhibit 10.24 to
Registration Statement No. 33-56566 is incorporated by reference
herein.
10.31 Letter Agreement, dated July 18, 1990, with Michael J. Mulligan.
Exhibit 10.21 to the Company's Report on Form 10-K for the fiscal
year ended December 31, 1990 is incorporated by reference herein.
10.32 Employment Agreement, dated as of December 23, 1991, between
the registrant and Joe M. Rodgers with acknowledgement letter
attached. Exhibit 10.24 to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 is incorporated
by reference herein.
10.33 Employment Agreement dated December 4, 1992 between the
registrant and Lyle Beasley. Exhibit 10.29 to Registration
Statement No. 33-56566 is incorporated by reference herein.
10.34 Employment Agreement dated December 4, 1992 between the
registrant and Robert C. Hendon, Jr. Exhibit 10.30 to Registration
Statement No. 33-56566 is incorporated by reference herein.
68
<PAGE>
10.35 Berlitz International, Inc., Retirement Savings Plan, effective as
of January 1, 1992. Exhibit 10.31 to Registration Statement No.
33-56566 is incorporated by reference herein.
10.36* Letter Agreement, dated July 14, 1993, between the registrant
and Elio Boccitto.
10.37* Employment Agreement, dated June 15, 1993, between the registrant
and Anthony Tedesco.
10.38* Employment Agreement, dated February 6, 1992, between the
registrant and Manual Fernandez
11 Statement regarding computation of per share earnings. Exhibit 11
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 is incorporated by reference herein.
21 List of principal subsidiaries of the registrant. Exhibit 22 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 is incorporated by reference herein.
23 Consent of Coopers & Lybrand. Exhibit 24 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992 is incorporated by reference herein.
* Filed herewith.
69
<PAGE>
B. Reports on Form 8-K:
A Form 8-K was filed on December 2, 1993, relating to the Company's Long-
Term and Short-Term Executive Incentive Compensation Plans.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
As of the date of the filing of this Annual Report on Form 10-K no
proxy materials have been furnished to security holders. Copies of
all proxy materials will be sent to the Commission in compliance
with its rules.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Berlitz International, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
BERLITZ INTERNATIONAL, INC.
By:/s/ HIROMASA YOKOI
Hiromasa Yokoi
Vice Chairman of the Board,
Chief Executive Officer and President
Dated: March 31, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ SOICHIRO FUKUTAKE Chairman of the Board March 31, 1994
Soichiro Fukutake
/s/ HIROMASA YOKOI Vice Chairman of the Board, March 31, 1994
Hiromasa Yokoi Chief Executive Officer,
and President
(Principal Executive Officer)
/s/ SUSUMU KOJIMA Executive Vice President, March 31, 1994
Susumu Kojima Corporate Planning and Director
/s/ ROBERT MINSKY Executive Vice President, March 31, 1994
Robert Minsky Chief Financial Officer and Director
(Principal Financial Officer)
/s/ MANUEL FERNANDEZ Executive Vice President and March 31, 1994
Manuel Fernandez Director
/s/ HENRY D. JAMES Vice President and Controller March 31, 1994
Henry D.James (Principal Accounting Officer)
Director March 31, 1994
Owen B. Butler
/s/ SABUROU NAGAI Director March 31, 1994
Saburou Nagai
/s/ EDWARD G. NELSON Director March 31, 1994
Edward G. Nelson
/s/ ARITOSHI SOEJIMA Director March 31, 1994
Aritoshi Soejima
71
AGREEMENT
AGREEMENT, made and entered into as of October 1,
1993 by and between Robert Minsky, a resident of New Jersey
("Minsky") and Berlitz International, Inc., a New York Corporation
("BII", or with its subsidiaries, the "Company"), under the following
circumstances:
A. Prior to this Agreement, Minsky has been Executive
Vice President, Chief Financial Officer ("CFO") and a member of the
Board of Directors and Executive Committee of BII.
B. This Agreement sets forth the terms pursuant to
which Minsky will continue to hold such offices and become
Executive Vice President, Translations, and CFO and continue to
serve as a member of the Board of Directors and Executive
Committee of BII.
NOW, THEREFORE, for good and valuable
consideration as specified in this Agreement, the parties agree as
follows:
1. Effective as of October 1, 1993, (the "Effective
Date") Minsky shall become Executive Vice President, Translations,
and CFO of BII. As of the Effective Date, Minsky shall continue to
serve as a member of the Board of Directors and Executive
Committee of BII.
2. Minsky's primary duties shall be to serve as Executive
Vice President, Translations, of BII and in such capacity to have the
primary responsibility for the strategic and operational plans of
Berlitz Translation Services, a division of BII (the "Division").
Minsky shall continue to serve as CFO of BII through the fiscal year
ending on December 31, 1994. His responsibilities as CFO shall
continue through the filing of BII's Form 10-K for such fiscal year
and the annual meeting of shareholders to be held in May 1995.
Minsky's duties as Executive Vice President, Translations, and CFO
are more fully detailed in his Job Description attached hereto and
incorporated into this Agreement.
3. As of the Effective Date, Minsky's salary shall be
increased to $185,000 per year payable biweekly.
<PAGE>
4. Minsky shall be reimbursed for his out-of-pocket travel
expenses (not to exceed $400 per month) for trips to New York and
reimbursed for his other expenses in accordance with BII's existing
policies for such reimbursements.
5. As of the Effective Date, Minsky's severance letter of
April 27, 1992 is hereby terminated and replaced with the
severance provisions set forth in Section 6 below.
6. (a) If Minsky is terminated, without Cause, at any
time prior to August 8, 1995, he shall be paid the severance
benefits set forth in Section 6(c) of this Agreement.
(b) If Minsky is terminated, without Cause, at any
time after August 8, 1995, he shall be paid the severance benefits
set forth in Section 6(d) of this Agreement.
(c) The severance benefits payable to Minsky
under Section 6(a), if applicable, are as follows: (i) BII agrees to pay
Minsky in monthly installments for a period of two years from the
date of termination a severance amount equal to his base salary at
the time of such termination, (ii) to the extent such continued
participation is permissible under the Company's plans and
programs, Minsky may continue to participate in all health
insurance, life insurance, pension, 401(k), and disability plans or
programs of the Company, for the earlier of two years from the date
of his termination or the date on which he obtains new employment,
and he is eligible to participate in the medical benefit plan of the
new position, and his vesting privileges under the 401(k) Plan will
continue for the balance of the severance period, (iii) all stock
awards, if any, including, without limitation, restricted stock and
stock options awarded to Minsky by the Company pursuant to the
1989 Stock Option and Incentive Plan, shall to the extent not
already vested become fully vested, and to the extent permissible
under applicable law, shall be exercisable for one year following
termination, (iv) Minsky will be entitled at such time as the amount
becomes determinable to receive a pro-rated amount of the financial
performance portion (60%) of his Short Term Executive Incentive
Compensation Plan bonus for both years, and (vi) Minsky shall also
be entitled to select executive outplacement services as is
customary for senior executives, the reasonable cost of such
services to be paid by the Company. For purposes of computing
any bonus amount under clause (iv), Minsky's individual
performance for each of the applicable years shall be deemed
"standard" within the meaning of the Short Term Executive
Compensation Plan. The Company specifically acknowledges that
the severance benefits payable to Minsky hereunder shall not be
reduced by virtue of any obligation to seek other employment.
<PAGE>
(d) The severance benefits payable to Minsky
under Section 6(b), if applicable, are the same as the severance
benefits payable to Minsky under Section 6(c), except that the time
periods specified in Section 6(c)(i) and (ii) are changed from two
years to one year.
(e) In the event that there is a material change in
either Minsky's duties or compensation at any time prior to August
8, 1995, Minsky may resign from employment on sixty days written
notice to the Company and receive the above-described severance
benefits as specified in Section 6(c).
In the event that there is a material change in
either Minsky's duties or compensation at any time after August 8,
1995, Minsky may resign from employment on sixty days written
notice to the Company and receive the above-described severance
benefits as specified in Section 6(c), except that the time periods
specified in Section 6(c)(i) and (ii) are dropped from two years to
one year.
(f) As used in this Agreement, "Cause" shall mean
(i) serious and repeated willful misconduct in respect of Minsky's
duties which has resulted in material, economic damages to the
Company, and, to the extent such misconduct is susceptible to
being cured, such misconduct continues for thirty days following
written notice to Minsky by the Company detailing such
misconduct, (ii) the final, unappealable conviction in a court of law
of any crime or offense (A) for which Minsky is imprisoned for a
term of six months or more or (B) that involves the commission of
fraud or theft against, or embezzlement from, the Company, or (iii)
chronic alcoholism or abuse of controlled substances.
(g) As a condition to Minsky's receipt of any
severance benefits hereunder, Minsky shall execute a
comprehensive release containing the same provisions as
customarily required by the Company in paying severance or
retirement benefits to other senior executives of the Company.
Following termination of employment, Minsky shall keep secret and
retain in strictest confidence, and shall not use for the benefit of
himself or others except in connection with the business and affairs
of the Company, all confidential matters of the Company.
(h) The Company agrees to pay Minsky's
reasonable legal fees and expenses incurred in enforcing or
defending any of his rights under this Agreement; provided Minsky
prevails in such enforcement or defense.
7. Minsky's letter Agreement dated October 19, 1990
is hereby terminated. Minsky's Amended and Restated
Indemnification Agreement dated as of April 1, 1992 shall
<PAGE>
remain in full force and effect.
8. Minsky shall be entitled to four weeks vacation each year.
9. This Agreement shall be governed by the laws of New York.
10. Any notice to Minsky hereunder shall be sent by first
class mail to Robert Minsky, 233 Santa Rosa Court, Holmdel, NJ
07733, or delivered in person. Any notice to the Company shall be
sent by first class mail to Robert C. Hendon, Jr., General Counsel,
Berlitz International, Inc., 293 Wall Street, Princeton, NJ 08505, or
delivered in person.
IN WITNESS WHEREOF, the parties have signed this
Agreement as of October 1, 1993.
BERLITZ INTERNATIONAL, INC.
By: /s/ HIROMASA YOKOI
Hiromasa Yokoi
President and Chief Executive Officer
/s/ ROBERT MINSKY
Robert Minsky
July 14, 1993
Mr. Elio Boccitto
Berlitz International, Inc.
293 Wall Street
Princeton, New Jersey 08540
Dear Elio,
This letter shall confirm our understanding regarding the terms and
conditions relating to your retirement as an officer and director of
Berlitz International, Inc. ("BII") and its subsidiaries. BII and its
subsidiaries are referred to herein as the "Company".
1. Upon execution of this Agreement, you shall deliver (i)
your resignation as a member of the Board of Directors and Executive
Committee of the Board of Directors of BII effective as of July 27,
1993, 9:00 a.m., Eastern Daylight Time, and (ii) your resignation as
President, Chief Operating Officer and member of the Management
Executive Committee of BII effective as of August 31, 1993, 5:00
p.m., Eastern Daylight Time (the "Resignation Date"). As of the
Resignation Date, you shall cease to act as a director or officer of
each of BII's direct or indirect subsidiaries. On or prior to the
Resignation Date you shall deliver your formal resignations as a
director and officer of each of BII's direct or indirect subsidiaries, in
each instance effective as of the Resignation Date or such other date
as may be determined by the Company.
2. The Company agrees to pay you a lump sum severance
amount of $220,000 payable upon your Resignation Date, which shall
be subject to applicable federal and state withholding taxes.
3. You agree to act as an independent consultant to the
Company on as needed basis for a two year period commencing on
September 1, 1993 and ending on August 31, 1995 (the "Consulting
Period"). As full consideration for your services under this paragraph
3, you shall be paid the sum of $9,166.67 per month on the last day
of each month commencing on September 30, 1993 and ending on
August 31, 1995. The Company's obligation to pay you the above
monthly consulting fees shall immediately terminate upon (i) your
death, (ii) your long-term disability as determined under the
Company's existing Long Term Disability Plan with UNUM, (iii)
your refusal to provide consulting services as specified in this
agreement in a manner reasonably satisfactory to
<PAGE>
the Company, (iv) your obtaining employment at any time during the
Consulting Period which pays you a gross salary at the rate of at least
$6,250 per month ($75,000 per year), or a series of consulting or
similar jobs under which you will receive $100,000 in the aggregate
in any year, or (v) your breach of the non-competition provisions set
forth in the next sentence. You agree that during the Consulting
Period, you will not compete with the Company in any of the
businesses currently being conducted by the Company within the
United States or in any foreign country in which the Company is
doing business on the Resignation Date; your agreement not to
compete includes your agreement not to provide consulting or similar
services to any person or business entity which is engaged in any
business which competes with the Company in the manner set forth
above. As a part of your consulting agreement, you agree to
cooperate fully with the Company in connection with all pending or
future litigation, administrative proceedings or investigations,
including all pending or future tax audits. Your agreement set forth
in the preceding sentence shall continue after the expiration of the
Consulting Period. You shall be reimbursed for your reasonable out-
of-pocket expenses incurred in connection with rendering consulting
services hereunder. In providing the consulting services hereunder,
you shall be an independent contractor and not an employee of the
Company. You shall perform your consulting services at a location
in the New York City or Princeton, New Jersey area other than the
premises of the Company as mutually agreed upon.
4. Your account balances which are vested under the
terms of the Company's Retirement Plan will be distributed to you.
In order to receive such distribution, you must complete the necessary
Plan Termination Forms required under the Company's Retirement
Plan. Such forms will be provided to you separately.
5. It is acknowledged and agreed that you have not
qualified for a 1993 bonus under the Company's Short-Term
Executive Incentive Compensation Plan.
6. Following the Resignation Date, you shall keep secret
and retain in strictest confidence, and shall not use for the benefit of
yourself or others except in connection with the business and affairs
of the Company, all confidential matters of the Company. Such
information includes, but is not limited to, any trade or business plan,
pricing and price policies, sales forecasts, research and development
projects, proposed acquisitions, joint ventures and joint development
agreements or other trade secrets and industrial practices of the
Company (collectively "Business Information").
Such Business Information cannot be disclosed by you
to any person other than an authorized representative of the Company
without the prior written consent of the Company. Upon the
Resignation Date, you must return to the Company all written or
copies of written materials, lists, and other records of confidential
information that came into your possession while employed.
7. In accordance with normal ethical and professional
standards, you must
<PAGE>
refrain from taking action or making statements, written or oral,
which disparage or defame the goodwill or reputation of the
Company, its directors, officers, and employees or which could
adversely affect the morale of other employees.
8. In consideration of our fulfillment of all of our
obligations hereunder, and our agreement to pay you a lump sum
severance amount pursuant to paragraph 2, you agree to release the
Company and its controlling shareholder, directors, officers,
employees and trustees and administrators under all Company
employee benefit plans, from all claims, actions, or causes of action
you have or could have arising out of or which are in any way related
to your employment or the termination of your employment including,
but not limited to, all claims of discrimination in employment
including, but not limited to, those arising under the Age
Discrimination in Employment Act, as amended, Title VII of the Civil
Rights Act of 1964, as amended, the Employee Retirement Income
Security Act of 1974, as amended, the Fair Labor Standards Act, as
amended, and all other federal, state and local equal employment, fair
employment, civil or human rights laws, codes and ordinances, and
any and all claims for compensation or amounts in excess of those
specified in this letter agreement, excluding any claim to enforce your
rights under this letter agreement. Your above release includes your
release of any and all rights you might otherwise claim to have under
any employment or severance agreement you may have with the
Company, including, but not limited to, your severance agreement
letter dated April 27, 1992, which shall be deemed terminated and of
no further force or effect upon the execution of this agreement.
9. The Company agrees to pay your reasonable legal fees
and expenses incurred in enforcing or defending any of your rights
under this letter provided you prevail in such enforcement or defense.
10. To the extent permitted or required by the laws of the
State of New York, the Bylaws and your Indemnification Agreement
with BII, BII shall indemnify and provide reasonable advances for
expenses to you, in accordance with the terms of such laws and such
Indemnification Agreement, if you are made a party, or threatened to
be a party, to any threatened, pending or completed action, suit or
proceedings, whether civil, criminal, administrative or investigative,
by reason of the fact that you are, or were, an officer or director of
BII or any subsidiary or affiliate of BII, serving at BII's request and
in furtherance of BII's best interests, against expenses (including
reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by you in connection with
such action, suit or proceeding.
11. In the event that you violate any of your obligations
under this letter agreement or make any claims in violation of the
release contained in paragraph 8, all benefits provided to you under
paragraph 3 this letter agreement will immediately cease and the
Company may recover from you any consulting fee payments already
paid under this letter agreement.
<PAGE>
By signing and returning this letter, you acknowledge that you:
(a) have had sufficient time to review and consider its terms;
(b) have carefully read and fully understand the terms of
this letter agreement;
(c) are entering into this letter agreement voluntarily and
knowing that you are releasing claims that you have or
may have against the Company;
(d) have had a reasonable opportunity to seek advice from
an attorney of your choosing prior to signing this letter
agreement; and
(e) release all claims in accordance with paragraph 8
hereof in return for the consideration specified herein.
This letter agreement sets forth the entire agreement between
the Company and you regarding your separation from the Company.
No representative of the Company has the authority to verbally
excuse, amend, or modify any portion of this letter agreement. If any
provision of this letter agreement or the release contained in
paragraph 8 shall be determined to be invalid or unenforceable, the
remainder of the letter agreement or such release, other than such
provision, shall not be affected or shall remain in full force and
effect.
Please review this letter agreement carefully. If you have any
questions about any of the information contained in this letter
agreement, please call Rob Hendon.
<PAGE>
This letter may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute
one and the same instrument.
Sincerely,
BERLITZ INTERNATIONAL, INC.
By: /s/ HIROMASA YOKOI
Hiromasa Yokoi
ACCEPTED AND AGREED:
/s/ ELIO BOCCITTO ____________
Elio Boccitto Date
June 15, 1993
Mr. Anthony Tedesco
293 Wall Street
Princeton, NJ 08540
Dear Tony:
This letter agreement (the "Agreement") will constitute the
agreement relating to your employment as Vice President, Far East
of Berlitz International, Inc. ("BII"). As used herein the term
"Company" shall include BII and its subsidiaries. Any amounts
payable and the manner of payment shall be determined by agreement
between you and the Company.
1. Employment. Your employment under this Agreement
shall commence July 1, 1, 1993 and be for a term of between one and
one-half years to a maximum of two years. You will relocate to
Tokyo, Japan and the Company will pay your moving expenses in
accordance with BII's moving expense policy for executives. Upon
completion of your service as BII Vice President, Far East, you will
continue as an executive officer of BII, in a position no lower than
Regional Vice President of BII and be relocated and paid your moving
expenses in accordance with BII's above moving expense policy.
Among your other duties as Vice President, Far East of BII,
we expect that you will concentrate your efforts on the following
major goals (i) increase sales by more actively pursuing group lessons
in Japan, (ii) increase EBIT by appropriate means with special
emphasis upon reducing teachers salaries as a percentage of sales, and
(iii) employ with the approval of the Executive Committee your
successor and train your successor as BII Vice President, Far East, so
that your successor can assume his position no later than July 1,
1995.
2. Compensation. During the period you serve as Vice
President, Far East of BII,
<PAGE>
you will receive a gross salary of $75,000 payable $6,250 per month
commencing on July 17, 1993, and you will be eligible to participate
in BII's Short-Term Executive Incentive Compensation Plan (the
"Plan"), as the same may be modified from time to time. Upon your
return from Japan, your salary will be adjusted to the amount which
would have been applicable had you continuously served as BII Vice
President/North America. You shall also participate in all of BII's
employee benefit plans, policies and programs provided to its
executives including, but not limited to, health and life insurance
policies, disability programs, pension plans, 401K plans, BII's
vacation program and the BII 1989 Stock Option and Incentive Plan
("Option and Incentive Plan"), in each instance as the same may be
modified by BII from time to time. In lieu of participating in BII's
health and retirement plans, you may elect to participate in the health
and retirement plans of The Berlitz Schools of Languages of (Japan),
Inc. Your salary shall be prorated for any period of less than one
month.
3. Termination.
(a) Death. In the event of your death, your
employment and the obligations of the Company under this
Agreement shall cease and terminate, but the amount of any
compensation accrued and due and payable hereunder calculated
through to the last day of the month in which your death occurs shall
be paid to your heirs and legal representatives.
(b) Disability. In the event you become
substantially unable to perform your duties hereunder as a result of
illness or other disability which renders you unfit or incapable of
performing such duties, and such disability or incapacity continues for
120 consecutive days or a period of 180 days in any twelve month
period, the Company shall have the right to terminate your
employment. In such event, the obligations of the Company under
this Agreement shall cease, provided that the Company gives you not
less than thirty days prior written notice specifying the termination
date. Upon such termination, you shall be paid the amount of any
compensation accrued and due and payable to you hereunder through
the date of such termination.
(c) Without Cause.
In the event you are involuntarily terminated
without Cause at any time while you are Vice President, Far East of
BII, or within two years from the date on which you
<PAGE>
cease to be Vice President, Far East of BII, the Company agrees to
pay you upon termination a lump sum severance amount equal to the
sum of two years salary payable to you under this Agreement, plus
your salary as a management employee of The Berlitz Schools of
Languages (Japan), Inc. ("Berlitz Japan"), payable in cash. If your
involuntary termination occurs while you are Vice President, Far East
of BII and a management employee of Berlitz Japan, your lump sum
severance amount shall be based upon the sum of the salaries you
were receiving as Vice President, Far East of BII and a management
employee of Berlitz Japan at the time of such involuntary termination.
If your involuntary termination occurs after you have ceased to be
Vice President, Far East of BII, your lump sum severance amount
shall be based upon the salary you were receiving after you ceased to
be Vice President, Far East of BII at the time of such involuntary
termination. You agree to deliver to the Company a release of all
claims consistent with the Company's past practice.
In addition, if you are involuntarily terminated
without Cause, to the extent such continued participation is
permissible under the general terms and conditions of such plans or
programs, you shall also have the right to continue to participate in
all health insurance, life insurance, pension, 401K, and disability
plans or programs of BII, for the earlier of the period ending two
years from the date of your termination, or the date on which you
obtain new employment in a comparable position.
In the event you are involuntarily terminated
without Cause, all stock awards, including, without limitation,
restricted stock and stock options which may have been awarded to
you by BII pursuant to the Option and Incentive Plan, shall to the
extent not already vested become fully vested. Any such stock
options shall be exercisable for 90 days after your termination.
In the event you are involuntarily terminated
without Cause, you shall also be entitled to select executive
outplacement services as is customary for senior executives, the
reasonable cost of such services to be paid by the Company; provided
however, that your severance compensation payable to you hereunder
shall not be reduced by virtue of any obligation to seek other
employment.
(d) With Cause. In the event you are terminated with
Cause (as hereinafter defined) at any time, all obligations of the
Company under this Agreement shall cease and terminate on
<PAGE>
the last day of the month in which your termination with Cause
occurs.
4. Definitions. As used throughout this Agreement,
"Cause" shall mean (i) serious and repeated willful misconduct in
respect of your duties under this Agreement which has resulted in
material, economic damages to the Company, and, to the extent such
misconduct is susceptible to being cured, such misconduct continues
for thirty days following written notice to you detailing such
misconduct, all as determined by the Executive Committee or Board
of Directors of BII, (ii) the final, unappealable conviction in a court
of law of any crime or offense (A) for which you are imprisoned for
a term of six months or more or (B) that involves the commission of
fraud or theft against, or embezzlement from, the Company, or (iii)
chronic alcoholism or abuse of controlled substances.
5. Real Estate Matters. The Company agrees to
reimburse you for all documented costs and expenses incurred by you
in connection with your utilizing professional real estate managers to
rent and manage your personal and investment real estate owned by
you on the date of this Agreement. You agree to provide BII with a
list of all such real estate, indicating the addresses of all such real
estate.
6. Indemnification. To the extent permitted or required
by the laws of the State of New York or the By-Laws of BII, BII
shall indemnify and provide reasonable advances for expenses to you,
in accordance with the terms of such laws, if you are made a party,
or threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that you are, or
were, an officer or director of BII or any subsidiary or affiliate of
BII, in which capacity you are, or were, serving at BII's best interest,
against expenses (including reasonable attorneys' fees), judgments,
fines and amounts in settlement actually and reasonably incurred by
you in connection with such action, suit or proceeding.
7. Enforcement. The Company agrees to pay reasonable
legal fees and expenses incurred by you in enforcing or defending any
of your rights under this Agreement, provided that you prevail in such
enforcement or defense.
<PAGE>
8. Confidentiality. You shall keep secret and retain in
strictest confidence, and shall not use for the benefit of yourself or
others, except in connection with the business and affairs of the
Company, all confidential matters of the Company, including, without
limitation, "know-how", trade secrets, consultant contracts, customer
lists, subscription lists, pricing policies, operational methods, market
plans or strategies, language development techniques or plans,
business acquisition plans, new personnel acquisition plans, designs
and design projects, research projects and other business affairs of the
Company learned by you heretofore or hereafter, and shall not
disclose them to anyone outside the Company, except as required in
the course of performing duties hereunder or with the Company's
express written consent. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by you or
made available to you concerning the business of the Company shall
remain the Company's property and shall be delivered to the
Company promptly upon your termination.
9. Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State
of New York applicable to agreements made and to be performed
entirely in New York, except that any matters pertaining to the Berlitz
Japan health and retirement plans shall be governed by the laws of
Japan.
10. Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject
matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, relating to the subject matter hereof.
No representation, promise of inducement has been made by either
party that is not embodied in this Agreement, and neither party shall
be bound by, or liable for, any alleged representation, promise or
inducement not so set forth.
11. Assignment. This Agreement, and your rights and
obligations hereunder, may not be assigned by you.
<PAGE>
12. Amendments. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms
or covenants hereof may be waived, only by a written instrument
executed by both of the parties hereto.
13. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Sincerely,
BERLITZ INTERNATIONAL, INC.
By:/s/ HIROMASA YOKOI
Name: Hiromasa Yokoi
Title: Vice Chairman and Chief Executive Officer
Berlitz International, Inc.
Accepted and Agreed to:
By:/s/ ANTHONY TEDESCO
Anthony Tedesco
February 6, 1992
Mr. Manuel Fernandez
Executive Vice President, Europe
BERLITZ LANGUAGE CENTERS
Gran Via 80-4
28013 Madrid, SPAIN
Dear Mr. Fernandez:
In view of the unique circumstances facing Berlitz International, Inc.,
a New York corporation (the "Company"), the Company is writing
to set forth certain terms of your employment in the event of an
acquisition of the Company. The Company recognizes and
appreciates your prior service and believes that the provisions
regarding a change in control set forth herein will better enable you
to focus on the needs and direction of the company at this critical
time.
Accordingly, in the event that (i) a Change of Control (as defined
below) occurs at any time within two years from the date hereof, and
(ii) you are involuntarily terminated without Cause (as defined below)
at any time within 18 months after such Change of Control, the
Company agrees to pay you the severance benefits described below.
First, the Company agrees to pay you in monthly installments over a
period of one year a severance amount equal to your then base salary.
Second, to the extent such continued participation is permissible under
the Company's plans and programs, you may continue to participate
in all health insurance, life insurance, pension, 401(k), and disability
plans or programs of the Company, for the earlier of one year from
the date of your termination or the date on which you obtain new
employment. Third, all stock awards, including, without limitation,
restricted stock and stock options awarded to you by the Company
pursuant to the 1989 Stock Option and Incentive Plan, shall to the
extent not already vested become fully vested. If permissible under
applicable law, your stock options shall be exercisable for one year
following your termination. Fourth, you will be entitled at such time
as the amount becomes determinable to receive a pro-rated amount of
the financial performance portion (60%) of your Short-Term
Executive Incentive Compensation Plan bonus. Finally, you shall also
be entitled to select executive outplacement services as is customary
for senior executives, the reasonable cost of such services to be paid
by the Company. The Company specifically acknowledges that the
severance benefits payable to you hereunder shall not be reduced by
virtue of any obligation to seek other employment.
<PAGE>
MR. MANUEL FERNANDEZ
February 6, 1992
Page Two
In the event that there is a material change in either your duties or
compensation at any time within the 18 month period following a
Change of Control, you may resign from employment on sixty days
written notice to the Company and receive the above-described
severance benefits. In such case, your severance compensation shall
be based on your base salary at its pre-adjusted rate.
As used in this letter, "Cause" shall mean (i) serious and repeated
willful misconduct in respect of your duties which has resulted in
material, economic damages to the Company, and, to the extent such
misconduct is susceptible to being cured, such misconduct continues
for thirty days following written notice to you by the Company
detailing such misconduct, (ii) the final, unappealable conviction in a
court of law of any crime or offense (A) for which you are
imprisoned for a term of six months or more of (B) that involves the
commission of fraud or theft against, or embezzlement from, the
Company, or (iii) chronic alcoholism or abuse of controlled
substances.
A "Change of Control" shall mean from the date hereof, (i) when any
person or group of persons files a Form 13D or Form 13G with the
Securities Exchange Commission asserting beneficial ownership to at
least 35% of the Company's outstanding shares of Common Stock,
par value $.10 per share (the "Common Stock"), or (ii) when any
person or group of persons has the ability to elect a majority of the
Board. For purposes of the definition of "Change of Control", the
term "person" shall include Macmillan Inc. or any successor or
transferee of Macmillan Inc.
Following termination of employment, you shall keep secret and
retain in strictest confidence, and shall not use for the benefit of
yourself or other except in connection with the business and affairs of
the Company, all confidential matters of the Company.
The Company agrees to pay your reasonable legal fees and expenses
incurred in enforcing or defending any of your rights under this letter;
provided you prevail in such enforcement or defense.
The agreement in this letter shall be governed by and construed and
enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely
<PAGE>
MR. MANUEL FERNANDEZ
February 6, 1992
Page Three
in New York. This letter may be executed in counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
Sincerely,
BERLITZ INTERNATIONAL, INC.
By: /s/ ELIO BOCCITTO
Name: Elio Boccitto
Title: President
Accepted and Agreed to:
By: /s/ MANUEL FERNANDEZ
