UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10390
Berlitz International, Inc.
(Exact name of registrant as specified in its charter)
New York 13-355-0016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Research Park, 293 Wall Street, Princeton, New Jersey 08540
(Address of principal executive offices)
(609) 924-8500
Registrant's telephone number, including area code
No Change
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's common stock,
at the close of business on November 14, 1994, is 10,032,951.
Page 1 of 16
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Form 10-Q
Part I - Item 1.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands, except per share amounts)
Post-Merger
------------------------------------
1994 1993
------------- -------------
Sales of services and products $ 77,694 $ 68,201
------------- -------------
Costs and expenses:
Cost of services and products sold 46,143 42,215
Selling, general and administrative 23,262 21,397
Amortization of publishing rights,
excess of cost over net assets
acquired and other intangibles 3,155 3,103
Interest expense on long-term debt 3,428 2,534
Merger-related restructuring costs - 2,156
Other (income) expense, net (1,247) 173
------------- -------------
Total costs and expenses 74,741 71,578
------------- -------------
Income (loss) before income taxes 2,953 (3,377)
Income tax expense (benefit) 2,234 (16)
------------- -------------
Net income (loss) available to
common shareholders $ 719 $ (3,361)
============= =============
Earnings (loss) per common share $ 0.07 $ (0.34)
============= =============
Average number of common shares (000's) 10,033 10,032
============= =============
See accompanying Notes to the Consolidated Financial Statements.
Page 2 of 16
<PAGE>
<TABLE>
Form 10-Q
Part I - Item 1.
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND THE PERIODS FROM
JANUARY 1, 1993 TO JANUARY 31, 1993 AND
FROM FEBRUARY 1, 1993 TO SEPTEMBER 30, 1993
(Dollars in thousands, except per share amounts)
<CAPTION>
Post-Merger (Unaudited) Pre-Merger
------------------------------------------- ------------------
Nine Period From Period From
Months Ended February 1, 1993 to January 1, 1993 to
September 30, 1994 September 30, 1993 January 31, 1993
<S> <C> <C> <C>
Sales of services and products $ 221,129 $ 191,090 $ 19,608
-------- -------- -------
Costs and expenses:
Cost of services and products sold 132,388 117,338 13,479
Selling, general and administrative 67,395 58,552 6,719
Amortization of publishing rights, excess of cost
over net assets acquired and other intangibles 9,457 8,250 872
Interest expense on long-term debt 8,354 6,589 89
Merger-related restructuring costs - 2,415 -
Other income, net (1,956) (6,905) (552)
-------- -------- -------
Total costs and expenses 215,638 186,239 20,607
-------- -------- -------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 5,491 4,851 (999)
Income tax expense 6,911 6,635 635
Loss before cumulative effect of change -------- -------- -------
in accounting principle (1,420) (1,784) (1,634)
Cumulative effect of change in accounting
principle - - 3,172
Net income (loss) available to -------- -------- -------
common shareholders $ (1,420) $ (1,784) $ 1,538
======== ======== =======
Earnings (loss) per common share:
Loss before cumulative effect of change
in accounting principle $ (0.14) $ (0.18) $ (0.09)
Cumulative effect of change in accounting
principle - - 0.17
-------- -------- -------
Earnings (loss) per common share $ (0.14) $ (0.18) $ 0.08
======== ======== =======
Average number of common shares (000's) 10,033 10,031 19,024
======== ======== =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 3 of 16
<PAGE>
BERLITZ INTERNATIONAL, INC. Form 10-Q
CONSOLIDATED BALANCE SHEETS Part I - Item 1.
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1994 1993
------------- ------------
ASSETS
Current assets:
Cash and temporary investments $ 15,990 $ 11,738
Accounts receivable, less allowance for
doubtful accounts of $2,335 and $2,566 29,866 22,999
Inventories 9,481 10,684
Prepaid expenses and other current assets 8,505 6,054
------- -------
Total current assets 63,842 51,475
Property and equipment, net of accumulated
depreciation of $8,639 and $2,666 25,697 25,791
Publishing rights, net of accumulated amorti-
zation of $1,433 and $788 20,067 20,712
Excess of cost over net assets acquired and
other intangibles, net of accumulated
amortization of $19,576 and $10,763 462,584 458,964
Other assets 13,199 13,530
------- -------
Total assets $ 585,389 $ 570,472
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ - $ 3,000
Current portion of long-term debt 8,803 5,525
Accounts payable 4,743 5,278
Deferred revenues 35,798 33,187
Payrolls and commissions 12,548 9,468
Income taxes payable 5,884 1,971
Accrued Merger-related restructuring costs 1,307 7,978
Accrued expenses and other current liabilities 12,163 11,607
------- -------
Total current liabilities 81,246 78,014
Long-term debt 80,561 105,775
Notes payable to affiliates 30,179 -
Deferred taxes and other liabilities 18,873 15,169
Minority interest 6,688 6,561
------- -------
Total liabilities 217,547 205,519
------- -------
Commitments and Contingencies (Note 7)
Shareholders' equity:
Common stock 1,003 1,003
Additional paid-in capital 368,658 368,658
Accumulated deficit (4,976) (3,556)
Cumulative translation adjustment 3,157 (1,152)
------- -------
Total shareholders' equity 367,842 364,953
------- -------
Total liabilities and shareholders'
equity $ 585,389 $ 570,472
======= =======
See accompanying Notes to the Consolidated Financial Statements.
Page 4 of 16
<PAGE>
<TABLE>
Form 10-Q
Part I - Item 1.
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND
THE PERIODS FROM JANUARY 1, 1993 TO JANUARY 31, 1993 AND FROM
FEBRUARY 1, 1993 TO SEPTEMBER 30, 1993
(Dollars in thousands)
<CAPTION>
Post-Merger (Unaudited) Pre-Merger
------------------------------------------ ------------
Nine Months Period From Period From
Ended February 1, 1993 to January 1, 1993 to
September 30, 1994 September 30, 1993 January 31, 1993
------------------ ------------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,420) $ (1,784) $ 1,538
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Cumulative effect of change in accounting principle - - (3,172)
Gain on sale of interest in subsidiary - (4,924) -
Depreciation and amortization 14,181 12,478 1,396
Foreign exchange (gains) losses, net
and minority interest (948) (2,082) (130)
Equity in losses of joint ventures 85 1,389 -
Merger-related restructuring costs - 2,415 -
Payment of deferred financing costs (196) (6,623) -
Changes in operating assets and liabilities (4,746) (1,727) 10,002
------- ------- ------
Net cash provided by (used in) operating activities 6,956 (858) 9,634
------- ------- ------
Cash flows from investing activities:
Capital expenditures (4,296) (5,774) (560)
Acquisitions of businesses (894) - -
Investment in joint ventures (1,058) (1,471) (37)
-------- ------- ------
Net cash used in investing activities (6,248) (7,245) (597)
-------- ------- ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 115,000 -
Proceeds from issuance of notes payable to affiliates 30,145 - -
Repayment of long-term debt (23,144) (27,775) -
Net repayments 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 activity - - 99
------- --------- ------
Net cash provided by (used in) financing activities 4,001 (7,113) 99
------- --------- ------
Effect of exchange rate changes on cash and
temporary investments (457) (1,424) (204)
------- --------- ------
Net increase (decrease) in cash and temporary investments 4,252 (16,640) 8,932
Cash and temporary investments, beginning of period 11,738 28,113 19,181
------- --------- ------
Cash and temporary investments, end of period $ 15,990 $ 11,473 $ 28,113
======= ========= ======
Supplemental disclosures of cash flow information:
Cash payments for interest $ 5,616 $ 4,701 $ 109
======= ========= ======
Cash payments for income taxes $ 4,521 $ 3,674 $ 192
======= ========= ======
Cash received for income taxes $ 810 $ 917 $ -
======= ========= ======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 5 of 16
<PAGE>
Form 10-Q
Part I - Item 1.
BERLITZ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. General
The Consolidated Financial Statements of Berlitz International,
Inc. (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and are unaudited. The information
reflects all adjustments which are of a normal recurring nature
which are, in the opinion of management, necessary for a fair
presentation of such financial statements. The financial
statements should be read in conjunction with the financial
statements and related notes to the Company's 1993 Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission.
Reclassifications
Certain reclassifications have been made to the prior period
financial statements to conform to the 1994 presentation.
2. Acquisitions
In September 1994, the Company purchased all of the remaining
outstanding ordinary and preference shares of Softrans
International, Ltd., a Dublin-based leading supplier of software
localization-related services in Europe, for an aggregate purchase
price of approximately $1,667. In connection with this purchase,
the Company made cash payments of $659 as of September 30, 1994,
and incurred an installment obligation payable to the sellers with
various maturities through January 1998.
The Company also purchased a consulting firm specializing in cross-
cultural services for an aggregate consideration of $435, including
the issuance of a note payable for $200.
3. Long-Term Debt
Long-term debt consists of the following:
September 30, December 31,
1994 1993
------------- ------------
Term Loan $ 32,156 $ 55,300
Senior Notes 56,000 56,000
Other (Note 2) 1,208 -
------------- ------------
Total debt 89,364 111,300
Less current maturities 8,803 5,525
------------- ------------
Long-term debt $ 80,561 $ 105,775
============= ============
In connection with the Merger in February 1993, the Company
incurred indebtedness through borrowing under a bank term facility
(the "Bank Term Facility") and the issuance of Senior
Page 6 of 16
<PAGE>
Notes (the "Senior Notes")(collectively the "Acquisition Debt
Facilities"). The Bank Term Facility consisted of a senior term loan
facility ("Term Loan") and a senior revolving loan facility (the "Bank
Revolving Facility").
In September 1994, as part of a refinancing of a portion of its
long-term debt, the Company made a $19,000 prepayment against the
Term Loan, applied in inverse order of the scheduled principal
maturities. The Company also repaid $7,000 outstanding under its
Bank Revolving Facility, which was then terminated. In addition,
amendments were made to certain covenants under the Acquisition
Debt Facilities.
4. Financial Instruments
Pursuant to a covenant under the Acquisition Debt Facilities, the
Company is party to currency coupon swap agreements with a
financial institution to hedge the Company's net investments in
certain foreign subsidiaries and to help manage the effect of
foreign currency fluctuations on the Company's ability to repay its
U.S. dollar debt. Credit loss from counterparty nonperformance is
not anticipated. Realized and unrealized gains and losses for
these agreements have been excluded from the Company's Consolidated
Statements of Operations. The fair market value of these swap
agreements at September 30, 1994, representing the amount that
could be settled based on estimates obtained from a dealer, was a
liability of approximately $2,984.
5. Other Income, net
Post-Merger
---------------------------------
Three Months Three Months
Ended Ended
September 30, 1994 September 30, 1993
------------------ ------------------
Interest income on temporary investments $ (203) $ (914)
Equity in (profits) losses of
joint ventures 85 (224)
Foreign exchange (gains) losses, net (1,721) 1,062
Interest expense to affiliates 34 -
Other expense, net 558 249
------- ------
Total other (income) expense, net $ (1,247) $ 173
======= ======
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
---------------------------------- ------------------
Nine Months Period From Period From
Ended February 1, 1993 to January 1, 1993 to
September 30, 1994 September 30, 1993 January 31, 1993
------------------ ------------------- ------------------
<S> <C> <C> <C>
Gain on sale of interest in subsidiary $ - $ (4,924) $ -
Interest income on temporary investments (1,385) (1,882) (143)
Equity in losses of joint ventures 85 1,389 -
Foreign exchange (gains) losses, net (1,208) 1,078 38
Interest (income from) expense to affiliates 34 - (99)
Other (income) expense, net 518 (2,566) (348)
-------- ------- -----
Total other income, net $ (1,956) $ (6,905) $ (552)
======== ======= =====
</TABLE>
Page 7 of 16
<PAGE>
6. Earnings Per Share
Earnings per share of common stock are computed by dividing net
income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the period.
Primary and fully diluted earnings per share of common stock are
the same since common stock equivalents (e.g. stock options,
restricted stock and other stock equivalents) are immaterial in
both calculations. The Company had no such common stock
equivalents outstanding as of September 30, 1994.
7. Contingencies
The Company was included in the consolidated tax returns of the
affiliated group of which Macmillan Inc. ("Macmillan") was the
parent (the "Macmillan Group") prior to the Company's initial
public offering in December 1989 and consequently is severally
liable for any Federal tax liabilities for the Macmillan Group
arising prior to that date. Pursuant to the Disengagement
Agreements, Macmillan agreed to pay all such Federal tax
liabilities pursuant to an amended and restated tax allocation
agreement (the "Tax Allocation Agreement"), and Maxwell
Communication Corporation plc ("MCC") put into escrow $39,500 to
secure Macmillan's obligations.
On November 10, 1993, Macmillan commenced a voluntary Chapter 11
case in the United States Bankruptcy Court for the Southern
District of New York and filed a prepackaged plan of reorganization
(the "Reorganization Plan"). The Reorganization Plan provides that
the Tax Allocation Agreement, along with many other contracts
between Macmillan and other parties, is to be assumed by Macmillan
and assigned to a trust intended to have sufficient assets to
satisfy the obligations being assumed and assigned. The
Reorganization Plan also provides a cash reserve to pay tax claims
that are entitled to priority, which may include tax liabilities
covered by the Tax Allocation Agreement. On February 19, 1994, the
Bankruptcy Court confirmed the Reorganization Plan. Any tax
liability assessed against the Company that would otherwise be
payable by Macmillan under the Tax Allocation Agreement is likely
to be paid either by the trust or from the cash reserve described
above. Management believes that any such liability will not result
in a material effect on the financial condition of the Company.
In September 1994, a $50,000 irrevocable letter of credit,
previously established by Fukutake to be used in the event that
income tax liabilities are imposed on the Company that relate to
the Macmillan Group, was terminated.
8. Related party transactions
In September 1994, the Company borrowed $20,000 from a U.S.
subsidiary of Fukutake, as evidenced by a subordinated promissory
note (the "U.S. Note") bearing interest at a rate of 6.93% per
annum. The Company's Japanese subsidiary, The Berlitz Schools of
Languages (Japan), Inc., also borrowed 1.0 billion yen
(approximately $10,145) from Fukutake as evidenced by an interest-
free subordinated promissory note (the "Japan Note"). A portion of
the proceeds of these notes (collectively the "Fukutake Notes")
were used to settle certain obligations under the Acquisition Debt
Facilities.
Page 8 of 16
<PAGE>
The Fukutake Notes mature on the earlier of June 30, 2003 or twelve
months from the date that all payment obligations under the
Acquisition Debt Facilites have been satisfied. To the extent that
interest payments on the U.S. Note are not permitted while any
amounts remain outstanding under the Acquisition Debt Facilities,
such accrued interest will roll over semiannually into the note
principal.
The Fukutake Notes are subordinate in rights of payment to debt
under the Acquisition Debt Facilities, including the financial
hedging instruments. Payment obligations under the U.S. Note are
guaranteed by the Company and its significant U.S. subsidiaries,
subject to senior guarantees of the Acquisition Debt Facilities.
The Company and its significant U.S. subsidiaries have also
executed a "spring" guarantee of payment obligations under the
Japan Note, effective as of the day following the date upon which
all payment obligations under the Acquistion Debt Facilities are
satisfied.
The Fukutake notes contain certain covenants, including
prohibitions on the incurrence of other debt, liens, loans, mergers
or consolidations and amendments to the Acquisition Debt Facilities
without consent.
Page 9 of 16
<PAGE>
Form 10-Q
Part I - Item 2.
BERLITZ INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
Consolidated Financial Statements and notes thereto and with the
Company's audited Consolidated Financial Statements and notes thereto
for the fiscal year ended December 31, 1993.
Results of Operations - Three Months Ended September 30, 1994 vs.
Three Months Ended September 30, 1993
In connection with the Merger, certain restructuring charges were
accrued in the third and fourth quarters of 1993, including those for
the reorganization of the Translations and certain Language Instruction
divisions and the targeted closing of language centers (of which 12 were
closed in 1993, 6 were closed in the first quarter of 1994, and 2 were
closed in the second quarter of 1994). The following selected financial
data compares the results of language centers and Translations
facilities not affected by these Merger-related restructuring
activities:
Three Months Ended September 30,
--------------------------------
Pro Forma
1994 1993
---- --------
Sales of services and products $ 77,694 $ 68,311
Cost of services and products sold and
selling, general and administrative $ 69,405 $ 64,237
Lessons given (000's) 1,171 1,131
Sales for the quarter ended September 30, 1994 were $77.7 million, 13.9%
above the same period in the prior year, reflecting increases in the
Language Instruction, Translations and Publishing segments. In comparing
the facilities not affected by Merger-related restructuring activities,
sales increased by $9.4 million, or 13.7%, from pro forma 1993 sales.
Language Instruction sales for the quarter ended September 30, 1994 were
$62.2 million, 4.7% above the same period in 1993. However, when
comparing language centers not affected by Merger-related restructuring
activities, Instruction sales increased by $5.0 million, or 8.8%, from
pro forma 1993, primarily reflecting increases in East Asia ($2.5
million, or 14.8%), Europe ($1.8 million, or 9.6%) and Latin America
($0.9 million, or 12.0%). The improvement in East Asian sales from pro
forma 1993 largely resulted from the favorable impact of exchange rate
fluctuations ($1.1 million) and
Page 10 of 16
<PAGE>
improved activity in Japan ($1.1 million). Europe's proforma increase was
favorably impacted by exchange rate fluctuations ($1.2 million) and by
operating activity in the Central/Eastern European countries. The increase
in Latin American revenues was primarily due to increases in Brazil and
Mexico.
During the three-month period ended September 30, 1994, the number of
lessons given was approximately 1.2 million, slightly above the same
period in the prior year and 3.5% above prior year when comparing
language centers not affected by the Merger-related restructuring
activities. Lesson volume in East Asia increased 16.9% from pro forma
1993, favorably impacted by the first full year of operation of certain
centers in Hong Kong and Thailand and by a 12.4% improvement in Japan.
Lesson volume in Latin America increased by 1.9% from prior year,
primarily due to growth in Mexico. Lesson volume in Central/Eastern
Europe increased by 3.8% over pro forma 1993 primarily due to the
results of the new language centers in the Czech Republic and Poland.
Lesson volume in Western Europe decreased slightly from pro forma 1993,
primarily reflecting weakness in England and France.
Translation segment sales were $11.1 million for the three-month period
ended September 30, 1994, an increase of $2.3 million, or 26.6%, from
the same period in 1993 when comparing facilities not affected by the
Merger-related restructuring activities. This increase was primarily
attributable to strong performances in the United States, Canada,
Ireland, Japan and Norway.
Publishing segment sales were $4.4 million for the three months ended
September 30, 1994, 83.0% above pro forma 1993, reflecting improvements
in both the United States and Europe.
Net income to common shareholders for the quarter ended September 30,
1994 was $0.7 million, or $0.07 per common share, compared to a net loss
of $3.4 million, or $0.34 per common share, in the prior year's quarter.
This increase of $4.0 million resulted primarily from increased sales in
1994 and Merger-related restructuring costs in 1993, partially offset by
increases in cost of services and products sold, selling, general and
administrative expenses and income tax expense in 1994.
Cost of services and products sold and selling general and
administrative expenses, totalled $69.4 million, or 89.3% of sales, for
the 1994 third quarter, compared to $63.6 million, or 93.3% of sales, in
the prior year. This improvement as a percentage of sales resulted
primarily from certain cost reduction measures.
Merger-related restructuring costs of $2.2 million were recorded
in the third quarter ended September 30, 1993 primarily for
severance and the cost of closing language centers, including lease
cancellation penalties, writeoffs of leasehold improvements and
operating losses for the closed centers.
The Company recorded an income tax expense of $2.2 million, or an
effective rate of 75.7%, during the current period. This compared to
the recognition of a tax benefit of $0.02 million in the prior year's
quarter.
Page 11 of 16
<PAGE>
Results of Operations - Nine Months Ended September 30, 1994 vs.
Nine Months Ended September 30, 1993
The following selected financial data compares the results of language
centers and Translations facilities not affected by the Merger-related
restructuring activities:
Nine Months Ended September 30,
-------------------------------
Pro Forma
1994 1993
---- --------
Sales of services and products $ 221,129 $ 203,877
Cost of services and products sold and
selling, general and administrative $ 199,783 $ 187,143
Lessons given (000's) 3,569 3,444
Sales for the nine months ended September 30, 1994 were $221.1 million,
5.0% higher than the same period in the prior year, reflecting increases
in the Language Instruction, Translations and Publishing segments. When
comparing the facilities not affected by Merger-related restructuring
activities, sales increased by $17.3 million, or 8.5%, from pro forma
1993 sales, reflecting increases in all three segments.
Language Instruction sales for the nine-month period ended September 30,
1994 were $180.6 million, an increase of $3.8 million, or 2.2%, from the
same period in 1993. However, when comparing language centers not
affected by Merger-related restructuring activities, Instruction sales
increased by $11.6 million, or 6.9%, from pro forma 1993, as a slight
decrease in Western Europe was offset by increases in the other
divisions. This decrease from pro forma 1993 in Western Europe,
amounting to $0.6 million, resulted primarily from unfavorable exchange
rate fluctuations of $0.7 million. The decline was offset by increases
over pro forma 1993 of $3.1 million in the Latin America division,
particularly in Brazil and Mexico. In addition, the East Asian
division's sales improved by $7.1 million, or 15.2%, from pro forma 1993
due to favorable exchange rate fluctuations ($4.0 million), increased
activity in Hong Kong and Thailand ($1.0 million), and volume and price
improvements in Japan ($2.1 million).
During the nine-month period ended September 30, 1994, the number of
lessons given was approximately 3.6 million, flat with the prior year
but 3.6% above the same period in the prior year when comparing language
centers not affected by the Merger-related restructuring activities.
Lesson volume in East Asia increased 11.3% from pro forma 1993,
reflecting increased activity in all countries within this division.
Lesson volume in Latin America increased by 4.7% from prior year,
reflecting increases in all countries except Venezuela, in which lesson
volume declined 15.9% due to a local economic crisis, and Chile, which
was down 2.0%. Lesson volume in Central/Eastern Europe increased by
7.7% over pro forma 1993 as shortfalls in Germany of 2.5% were offset by
results of the new language centers in the Czech Republic, Poland and
Hungary. Lesson volume in Western Europe declined 1.5% from pro forma
1993, primarily as declines in Belgium, France and Spain were partially
offset by increased volume in Israel.
Page 12 of 16
<PAGE>
Translation segment sales were $28.8 million for the nine-month period
ended September 30, 1994, an increase of $3.1 million, or 12.2%, from
1993 when comparing facilities not affected by the Merger-related
restructuring activities. This increase was favorably impacted by
strong performances in Canada, Norway and Ireland, and negatively
affected by shortfalls in the United States. Exchange rate fluctuations
did not have a material effect.
Publishing segment sales were $11.7 million for the nine months ended
September 30, 1994, 27.6% above pro forma prior year, due to
improvements in the United States and in the United Kingdom. The effect
of exchange rate fluctuations were not material.
For the nine months ended September 30, 1994, the Company reported a net
loss to common shareholders of $1.4 million compared to a net loss of
$0.2 million in the prior-year period. This decline of $1.2 million
resulted primarily from non-recurring income items and the cumulative
effect of a change in accounting principle in 1993, and increases in
cost of services and products sold, selling, general and administrative
expenses in 1994, which were partially offset by increased sales in 1994
and Merger-related restructuring costs recorded in 1993.
Cost of services and products sold, and selling, general and
administrative expenses totalled $199.8 million, or 90.3% of sales, for
the first nine months of 1994, compared to $196.1 million, or 93.1% of
sales, in the prior year. This improvement as a percentage of sales
resulted primarily from the closing of unprofitable facilities under the
Merger-related restructuring and from certain cost reduction measures,
which more than offset the impacts in 1993 of the settlement of a lease
negotiation (income of $1.5 million) and certain other Merger-related
adjustments (expense of $0.4 million).
Merger-related restructuring costs of $2.4 million were recorded for
nine months ended September 30, 1993 primarily for severance and
the cost of closing language centers, including lease cancellation
penalties, writeoffs of leasehold improvements and operating losses
for the closed centers.
Other income, net for the nine months ended September 30, 1994 decreased
by $5.5 million from the same prior-year period, primarily due to non-
recurring income items, net, of $6.1 million in 1993 which were
triggered by the terms of the Merger and certain related restructuring
activities.
The Company recorded an income tax expense for the nine months ended
September 30, 1994 of $6.9 million, or an effective rate of 125.9% due
primarily to nondeductible amortization charges. This compared to an
income tax expense in the same prior year period of $7.3 million, or an
effective rate of 188.7% also primarily due to nondeductible
amortization charges.
Financial Condition
The primary source of the Company's liquidity is the cash provided by
operations. The Company's businesses are not capital intensive and,
historically, capital expenditures, working capital requirements
Page 13 of 16
<PAGE>
and acquisitions have been funded from internally generated cash. Although
each geographic area exhibits different patterns of lesson volume over
the course of the year, the Company's sales are generally not seasonal
in the aggregate; as a result, there is no need for significant amounts
of cash at any point in time during the year. Generally, the Company
collects cash from customers in the form of prepayment of fees for
instruction that gives rise to deferred revenues.
Capital expenditures for the opening of eight new language centers and
the refurbishing of existing centers during the nine-month period ended
September 30, 1994 were $4.3 million, a decrease of 32.2% from the prior
year due to cost control measures. Eight language centers, all of which
were targeted for closing as part of the Merger-related restructuring
activities, were closed during the nine-month period.
In September 1994, the Company received approximately $30.1 million from
promissory notes issued to Fukutake and its subsidiary. Approximately
$19.0 million of the proceeds of such notes were used to reduce
obligations under the Term Loan and $7.0 million were used to repay
amounts outstanding under the Bank Revolving Facility, which was then
terminated. Principal and interest repayment on such notes will be
deferred until all obligations under the Acquisition Debt Facilities are
satisfied.
Pursuant to a covenant under the Acquisition Debt Facilities, the
Company is party to six currency coupon swap agreements with a financial
institution. 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 was made in
June 1994. Credit loss from counterparty nonperformance is not
anticipated. The fair market value of these swap agreements at September
30, 1994, representing the amount that could be settled based on estimates
obtained from a dealer, was a liability of approximately $3.0 million.
At September 30, 1994, the Company's liquid assets of $16.0 million
consisted of cash and temporary investments. The Company believes that
the strategic restructuring undertaken in 1993 has strengthened the core
business and positioned the Company for future growth. Thus, the Company
plans to meet its increased debt service requirements and future working
capital needs through funds generated from operations, and through the
increase in available cash as the result of the discontinuation of
dividends resulting from restrictions imposed by the Acquisition Debt
Facilities.
Page 14 of 16
<PAGE>
Form 10-Q
Part II - Item 6
BERLITZ INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K.
A Form 8-K was filed on September 29, 1994 relating to the
Company's receipt of approximately $30.1 million from promissory
notes issued to Fukutake and its subsidaries, and the related
repayment by the Company of a portion of its debt under the Bank
Term Facility and the Revolving Credit Facility.
Page 15 of 16
<PAGE>
BERLITZ INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Exchange Act the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BERLITZ INTERNATIONAL, INC.
(Registrant)
Date: November 14, 1994 By: /s/ Robert Minsky
------------------
Robert Minsky
Executive Vice President and
Chief Financial Officer
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q OF BERLITZ INTERNATIONAL, INC. FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 15,990
<SECURITIES> 0
<RECEIVABLES> 32,201
<ALLOWANCES> (2,335)
<INVENTORY> 9,481
<CURRENT-ASSETS> 63,842
<PP&E> 34,336
<DEPRECIATION> (8,639)
<TOTAL-ASSETS> 585,389
<CURRENT-LIABILITIES> 81,246
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 366,839
<TOTAL-LIABILITY-AND-EQUITY> 585,389
<SALES> 0
<TOTAL-REVENUES> 221,129
<CGS> 0
<TOTAL-COSTS> 132,388
<OTHER-EXPENSES> 9,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,354
<INCOME-PRETAX> 5,491
<INCOME-TAX> 6,911
<INCOME-CONTINUING> (1,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,420)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
