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 March 31, 1995
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 New Common
stock, at the close of business on May 15, 1995, is 10,033,013.
Page 1 of 10
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
(Dollars in thousands, except per share amounts)
1995 1994
------------ -----------
Sales of services and products $ 80,406 $ 69,021
------------ -----------
Costs and expenses:
Cost of services and products sold 49,223 42,012
Selling, general and administrative 25,128 21,862
Amortization of publishing rights,
excess of cost over net assets
acquired, and other intangibles 3,432 3,151
Interest expense on long-term debt 2,193 2,377
Other income, net (1,396) (126)
------------- -----------
Total costs and expenses 78,580 69,276
------------- -----------
Income (loss) before income taxes 1,826 (255)
Income tax expense 2,413 1,524
------------- -----------
Net loss available to
common shareholders $ (587) $ (1,779)
============= ===========
Loss per common share $ (0.06) $ (0.18)
============= ===========
Average number of common shares (000's) 10,033 10,033
============== ============
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Page 3
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, December 31,
1995 1994
------------ -----------
ASSETS
Current assets:
Cash and temporary investments $ 23,086 $ 26,165
Accounts receivable, less allowance for
doubtful accounts of $2,185 and $1,912 27,682 25,593
Inventories 9,730 8,973
Prepaid expenses and other current assets 10,342 6,906
------------ -----------
Total current assets 70,840 67,637
Property and equipment, net of accumulated
depreciation of $12,447 and $8,711 26,724 25,885
Publishing rights, net of accumulated
amortization of $1,897 and $1,665 19,987 20,048
Excess of cost over net assets acquired
and other intangibles, net of accumulated
amortization of $26,517 and $22,675 461,961 453,712
Other assets 14,958 15,030
------------ -----------
Total assets $ 594,470 $ 582,312
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,988 $ 9,325
Accounts payable 5,786 6,999
Deferred revenues 37,255 36,301
Payrolls and commissions 11,817 10,785
Income taxes payable 2,716 1,356
Accrued expenses and other current
liabilities 11,960 10,219
------------ -----------
Total current liabilities 79,522 74,985
Long-term debt 75,251 78,247
Notes payable to affiliates 31,924 30,424
Deferred taxes and other liabilities 27,897 25,044
Minority interest 5,990 6,377
------------ -----------
Total liabilities 220,584 215,077
------------ -----------
Commitments and Contingencies (Note 6)
Shareholders' equity:
Common stock 1,003 1,003
Additional paid-in capital 368,658 368,658
Accumulated deficit (3,234) (2,647)
Cumulative translation adjustment 7,459 221
------------ -----------
Total shareholders' equity 373,886 367,235
Total liabilities and shareholders'
equity $ 594,470 $ 582,312
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Page 4
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Dollars in thousands)
1995 1994
----------- -----------
Cash flows from operating activities:
Net loss $ (587) $ (1,779)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 5,082 4,672
Foreign exchange (gains) losses, net
and minority interest (1,112) 70
Payment of deferred financing costs (107) -
Changes in operating assets and
liabilities (2,890) (2,309)
Net cash provided by operating ----------- -----------
activities 386 654
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,553) (1,195)
Investment in joint ventures (89) (495)
----------- -----------
Net cash used in investing activities (1,642) (1,690)
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (2,356) (1,381)
----------- -----------
Net cash used in financing activities (2,356) (1,381)
----------- -----------
Effect of exchange rate changes on cash
and temporary investments 533 (238)
----------- -----------
Net decrease in cash and temporary
investments (3,079) (2,655)
Cash and temporary investments, beginning of
period 26,165 11,738
----------- ------------
Cash and temporary investments, end of period $ 23,086 $ 9,083
=========== ============
Supplemental disclosures of cash flow
information:
Cash payments for interest $ 608 $ 838
=========== ============
Cash payments for income taxes $ 1,146 $ 1,179
=========== ============
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Page 5
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 1994 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 1995 presentation.
2. Long-Term Debt
Long-term debt consists of the following:
March 31, December 31,
1995 1994
--------------- ---------------
Term Loan $ 28,469 $ 30,775
Senior Notes 56,000 56,000
Other 770 797
--------------- ---------------
Total debt 85,239 87,572
Less current maturities 9,988 9,325
--------------- ---------------
Long-term debt $ 75,251 $ 78,247
=============== ===============
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 Notes (the
"Senior Notes")(collectively the "Acquisition Debt Facilities").
3. Fair Values of Financial Instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at March 31, 1995 and December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------ -------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and temporary investments $ 23,086 $ 23,086 $ 26,165 $ 26,165
Currency coupon swap agreements 878 878 1,011 1,011
Liabilities:
Long-term debt, including
current maturities 85,239 88,357 87,572 88,488
Notes payable to affiliates 31,924 21,767 30,424 19,538
Currency coupon swap agreements 6,042 6,042 3,226 3,226
<PAGE>
Page 6
For cash and temporary investments, the carrying amount
approximates fair value due to their short maturities. The fair
values of long-term debt and notes payable to affiliates are
estimated based on the interest rates currently available for
borrowings with similar terms and maturities. The fair values of
the coupon swap agreements represent the amounts that could be
settled based on estimates obtained from a dealer. The value of
these swaps will be affected by future interest rates and exchange
rates.
4. Other Income, net
Three months Three months
ended ended
March 31, 1995 March 31, 1994
-------------- --------------
Interest income on temporary investments$ (268) $ (267)
Foreign exchange (gains) losses, net (1,196) 232
Interest expense to affiliates 348 -
Joint venture-related income (750) -
Other (income) expense, net 470 (91)
------------- --------------
Total other income, net $ (1,396) $ (126)
============= ==============
5. Earnings Per Share
Earnings per share of common stock are computed by dividing net
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
the Company has no common stock equivalents (e.g. stock options,
restricted stock and other stock equivalents) outstanding.
6. Contingencies
The Company was formerly included in the consolidated tax returns
of the affiliated group of which Macmillan Inc. ("Macmillan") was
the parent (the "Macmillan Group") and consequently is severally
liable for any Federal tax liabilities for the Macmillan Group
arising prior to December 1989. Pursuant to certain agreements,
Macmillan agreed to pay all such Federal tax liabilities and
Maxwell Communication Corporation plc placed $39,500 into escrow to
secure Macmillan's obligation, including any such tax liability
assessed against the Company. Management believes that such
liability, if any, will not result in a material effect on the
financial condition of the Company.
<PAGE>
Page 7
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, 1994.
Results of Operations - Three Months Ended March 31, 1995 vs.
Three Months Ended March 31, 1994
Sales for the quarter ended March 31, 1995 were $80.4 million, 16.5%
above the same period in the prior year, reflecting increases in the
Language Instruction, Translations and Publishing segments.
Language Instruction sales for the quarter ended March 31, 1995 were
$64.9 million, 13.8% above the same period in 1994. primarily reflecting
increases in East Asia ($1.9 million, or 12.0%), Europe ($4.9 million,
or 23.0%) and Latin America ($0.9 million, or 12.8%). The improvement
in East Asian sales from 1994 largely resulted from the favorable impact
of exchange rate fluctuations ($1.7 million). Europe's increase was
favorably impacted by exchange rate fluctuations ($3.0 million) and by
operating activity in all countries. The improvement in Latin American
revenues was primarily due to volume increases in most countries
which more than offset the unfavorable effect of the devaluation of the
Mexican peso.
During the three-month period ended March 31, 1995, the number of
lessons given was approximately 1.3 million, 6.3% above the same period
in the prior year. Lesson volume in East Asia increased 3.8% from 1994,
favorably impacted by Hong Kong and Thailand. Lesson volume in Latin
America increased by 14.7% from prior year, primarily due to increases
in Mexico and Brazil. Lesson volume in the central/eastern European
countries increased by 11.8% over 1994 primarily due to the results of
the language centers in the Czech and Slovak Republics, Germany, Hungary
and Poland. Lesson volume in western Europe increased 5.5% from 1994,
despite declines in England and Italy.
Translation segment sales were $11.9 million for the three-month period
ended March 31, 1995, an increase of $3.4 million, or 39.7%, from the
same period in 1994. This increase was primarily due to higher volume
and, to a lesser degree, favorable exchange rate fluctuations. Most of
this growth occurred in the United States, Ireland and France as a
result of the continued development of new customers, expansion of
services to existing customers and the success of new services.
Publishing segment sales were $3.6 million for the three months ended
March 31, 1995, $0.1 million or 3.9% above 1994, primarily reflecting
favorable exchange fluctuations.
Cost of services and products sold and selling general and
administrative expenses for the three months
<PAGE>
Page 8
ended March 31, 1995 totalled $74.4 million, an increase of $10.5 million
from the comparable prior year period. This increase was due primarily
to exchange rate fluctuations and volume increases.
Other income, net for the three months ended March 31, 1995 increased by
$1.3 million from the same prior year period, primarily due to foreign
exchange gains.
The Company recorded an income tax expense of $2.4 million, or an
effective rate of 132.1%, during the current period. This compared to
an income tax expense of $1.5 million in the prior year's quarter. The
effective tax rates in both 1995 and 1994 were above the U.S. statutory
Federal tax rate primarily as a result of nondeductible amortization
charges.
Net loss to common shareholders for the quarter ended March 31, 1995 was
$0.6 million, or $0.06 per common share, compared to a net loss of $1.8
million, or $0.18 per common share, in the prior year's quarter. This
improvement of $1.2 million resulted primarily from increased sales and
foreign exchange gains in 1995, partially offset by increases in cost of
services and products sold, selling, general and administrative expenses
and income tax expense in 1995.
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 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. Generally, the Company collects cash from customers
in the form of prepayment of fees for instruction that gives rise to
deferred revenues.
Capital expenditures during the three-month period ended March 31, 1995
were $1.6 million, primarily for the refurbishing of existing centers.
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. Credit loss from counterparty
nonperformance is not anticipated. The fair market value of these swap
agreements at March 31, 1995, representing the amount that could be
settled based on estimates obtained from a dealer, was a net liability
of approximately $5.2 million.
At March 31, 1995, the Company's liquid assets of $23.1 million
consisted of cash and temporary investments. The Company plans to meet
its debt service requirements and future working capital needs through
funds generated from operations.
<PAGE>
Page 9
BERLITZ INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
All exhibits listed below are filed with this Quarterly Report on Form
10-Q.
Exhibit No.
27 Financial Data Schedule, for the three months ended March 31, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1995.
<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: May 15, 1995 By: /s/ Henry D. James
------------------------------
Henry D. James
Vice President and
Chief Financial Officer
</TABLE>
<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 MARCH 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 23,086
<SECURITIES> 0
<RECEIVABLES> 29,867
<ALLOWANCES> (2,185)
<INVENTORY> 9,730
<CURRENT-ASSETS> 70,840
<PP&E> 39,171
<DEPRECIATION> (12,447)
<TOTAL-ASSETS> 594,470
<CURRENT-LIABILITIES> 79,522
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 373,886
<TOTAL-LIABILITY-AND-EQUITY> 594,470
<SALES> 0
<TOTAL-REVENUES> 80,406
<CGS> 0
<TOTAL-COSTS> 49,223
<OTHER-EXPENSES> 3,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,193
<INCOME-PRETAX> 1,826
<INCOME-TAX> 2,413
<INCOME-CONTINUING> (587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (587)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
