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 June 30, 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 common stock, at the
close of business on August 9, 1995, was 10,033,013.
Page 1 of 13
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
1995 1994
------- -------
Sales of services and products $89,674 $74,414
------- -------
Costs and expenses:
Cost of services and products sold 53,905 44,233
Selling, general and administrative 27,757 22,271
Amortization of publishing rights,
excess of cost over net assets
acquired, and other intangibles 3,380 3,151
Interest expense on long-term debt 2,229 2,549
Other (income) expense, net 1,127 (583)
------ ------
Total costs and expenses 88,398 71,621
------ ------
Income before income taxes 1,276 2,793
Income tax expense 1,198 3,153
------ ------
Net income (loss) available to
common shareholders $ 78 $(360)
====== ======
Income (loss) per common share $0.01 $(0.04)
====== ======
Average number of common shares
outstanding (000's) 10,033 10,033
====== ======
See accompanying Notes to the Consolidated Financial Statements.
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BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
1995 1994
-------- --------
Sales of services and products $170,080 $143,435
-------- --------
Costs and expenses:
Cost of services and products sold 103,128 86,245
Selling, general and administrative 52,885 44,133
Amortization of publishing rights,
excess of cost over net assets
acquired, and other intangibles 6,812 6,302
Interest expense on long-term debt 4,422 4,926
Other income, net (269) (709)
------- -------
Total costs and expenses 166,978 140,897
------- -------
Income before income taxes 3,102 2,538
Income tax expense 3,611 4,677
------- -------
Net loss available to
common shareholders $(509) $(2,139)
======= =======
Loss per common share $(0.05) $(0.21)
======= =======
Average number of common shares
outstanding (000's) 10,033 10,033
======= =======
See accompanying Notes to the Consolidated Financial Statements.
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BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30, December 31,
1995 1994
--------- -----------
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 25,656 $ 26,165
Accounts receivable, less allowance for
doubtful accounts of $1,870 and $1,912 29,837 25,593
Inventories 10,073 8,973
Prepaid expenses and other current assets 10,432 6,906
-------- -------
TOTAL CURRENT ASSETS 75,998 67,637
Property and equipment, net of accumulated
depreciation of $14,354 and $8,711 28,225 25,885
Publishing rights, net of accumulated amor-
tization of $2,114 and $1,665 19,750 20,048
Excess of cost over net assets acquired and
other intangibles, net of accumulated
amortization of $29,996 and $22,675 464,300 453,712
Other assets 14,960 15,030
--------- --------
TOTAL ASSETS $ 603,233 $582,312
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,449 $ 9,325
Accounts payable 8,016 6,999
Deferred revenues 40,566 36,301
Payrolls and commissions 12,791 10,785
Income taxes payable 2,545 1,356
Accrued expenses and other current
liabilities 10,964 10,219
--------- ---------
TOTAL CURRENT LIABILITIES 85,331 74,985
Long-term debt 72,500 78,247
Notes payable to affiliates 32,841 30,424
Deferred taxes and other liabilities 27,886 25,044
Minority interest 5,919 6,377
--------- ---------
TOTAL LIABILITIES 224,477 215,077
--------- ---------
Commitments and Contingencies (Note 6)
SHAREHOLDERS' EQUITY:
Common stock 1,003 1,003
Additional paid-in capital 368,658 368,658
Accumulated deficit (3,156) (2,647)
Cumulative translation adjustment 12,251 221
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 378,756 367,235
TOTAL LIABILITIES AND SHAREHOLDERS' --------- ---------
EQUITY $ 603,233 $582,312
========= =========
See accompanying Notes to the Consolidated Financial Statements.
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BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Dollars in thousands)
1995 1994
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(509) $(2,139)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 10,210 9,387
Foreign exchange (gains) losses, net
and minority interest (774) 335
Payment of deferred financing costs (107) -
Changes in operating assets and liabilities (2,330) (1,156)
------- ------
Net cash provided by operating activities 6,490 6,427
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,391) (2,992)
Investment in joint ventures (128) (1,032)
------ ------
Net cash used in investing activities (3,519) (4,024)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (4,663) (2,762)
Net borrowings under revolving credit agreement - 4,000
Net cash (used in) provided by financing ------- -------
activities (4,663) 1,238
------- -------
Effect of exchange rate changes on cash and
temporary investments 1,183 (586)
------- -------
Net (decrease) increase in cash and temporary
investments (509) 3,055
Cash and temporary investments, beginning of
period 26,165 11,738
------- -------
Cash and temporary investments, end of period $ 25,656 $ 14,793
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 3,958 $ 4,592
======== ========
Income taxes $ 2,607 $ 3,170
======== ========
Noncash investing activities:
Accounts payable for capital expenditures
in Japan $ 1,400 $ -
======== ========
See accompanying Notes to the Consolidated Financial Statements.
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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 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.
2. LONG-TERM DEBT
Long-term debt consists of the following:
June 30, December 31,
1995 1994
-------- ------------
Term Loan $ 26,162 $ 30,775
Senior Notes 56,000 56,000
Other 787 797
-------- ------------
Total debt 82,949 87,572
Less current maturities 10,449 9,325
-------- ------------
Long-term debt $ 72,500 $ 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. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
a) Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's financial
instruments at June 30, 1995 and December 31, 1994 were as follows:
1995 1994
------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------- --------------------
Assets:
Cash and temporary investments $25,656 $ 25,656 $ 26,165 $ 26,165
Currency coupon swap agreements 652 652 1,011 1,011
Liabilities:
Long-term debt, including
current maturities 82,949 87,895 87,572 88,488
Notes payable to affiliates 32,841 24,279 30,424 19,538
Currency coupon swap agreements 5,923 5,923 3,226 3,226
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
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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.
b) Currency coupon swap agreements - subsequent event
In July 1995, the Company settled in full the Japanese yen floating rate
currency coupon swap agreement which it had with a financial institution.
Net cash proceeds on settlement were $695.
4. OTHER (INCOME) EXPENSE, NET
Three Months Three Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
Interest income on temporary investments $(325) $(915)
Foreign exchange losses, net 141 281
Interest expense to affiliate 352 -
Loss on disposal of fixed assets 581 -
Other expense, net 378 51
------ -----
Total other (income) expense, net $1,127 $(583)
====== =====
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
Interest income on temporary investments $(593) $(1,182)
Foreign exchange (gains) losses, net (1,055) 513
Interest expense to affiliate 700 -
Joint venture-related income (750) -
Loss on disposal of fixed assets 581 -
Other (income) expense, net 848 (40)
----- -----
Total other income, net $(269) $(709)
===== =====
5. 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 the Company has no
common stock equivalents (e.g. stock options, restricted stock and other
stock equivalents) outstanding.
6. COMMITMENTS AND CONTINGENCIES
a) 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 ("Maxwell
Communication") placed and agreed to maintain cash and other assets
(currently including 627,000 shares of the Company's common stock owned by
Maxwell Communication (the "Berlitz Shares")), valued at $39,500, in
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.
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b) Commitments
As of May 31, 1995, the Company entered into a Stock Purchase Agreement
with Maxwell Communication whereby the Company agreed to purchase from
Maxwell Communication, and Maxwell Communication agreed to sell to the
Company, at a purchase price of $9 per share, the Berlitz Shares on the
earlier of September 16, 1996 or ten days after the Company notifies
Maxwell Communication of its intention to purchase all or a portion of the
Berlitz Shares. The Company's obligation to buy the Berlitz Shares is
subject to the satisfaction of certain conditions.
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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 JUNE 30, 1995 VS.
THREE MONTHS ENDED JUNE 30, 1994
Sales for the quarter ended June 30, 1995 were $89.7 million, 20.5% 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 June 30, 1995 were $71.0
million, $9.6 million or 15.7% above the same period in 1994, primarily
reflecting increases in East Asia ($3.7 million, or 20.5%), Europe ($4.3
million, or 20.3%) and Latin America ($1.0 million, or 11.2%). The improvement
in East Asian sales from 1994 resulted from the favorable impact of exchange
rate fluctuations ($3.7 million). Europe's increase was favorably impacted by
exchange rate fluctuations ($3.3 million), and by strong volume and operating
activity in Italy ($0.6 million). 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 June 30, 1995, the number of lessons given
was approximately 1.3 million, 4.3% above the same period in the prior year.
Lesson volume in East Asia increased 3.3% from 1994, due to results in Hong
Kong and Japan. Lesson volume in Latin America increased by 7.1% from prior
year, primarily due to increases in Brazil. Lesson volume in Europe increased
by 6.7% over 1994, with more than half of such increase due to results in
Italy.
Translations sales were $13.9 million for the three-month period ended June 30,
1995, an increase of $4.7 million, or 51.0%, 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 the Scandinavian countries 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 $4.8 million for the three months ended June 30,
1995, $1.0 million or 25.2% above 1994, primarily reflecting higher volume and
prices in the United States.
Cost of services and products sold and selling general and administrative
expenses for the three months ended June 30, 1995 totalled $81.7 million, an
increase of $15.2 million from the comparable prior year period. This increase
was due primarily to exchange rate fluctuations and volume increases. As a
percentage of sales, such aggregate expenses were higher compared to the prior
year's quarter, due in large part to faster growth in the Translations segment
than in the higher margin Language Instruction segment. In addition, included
in 1995 were expenses of $0.5 million, which primarily related to the Company's
worldwide corporate image campaign; these types of expenses were not incurred
in prior years' periods.
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Other expense, net for the three months ended June 30, 1995 increased by $1.7
million from the same prior year period, primarily due to a) lower interest
income on temporary investments in Brazil, b) losses from the disposal of fixed
assets in 1995 in connection with the consolidation and relocation of certain
Japanese centers for the purpose of reducing overhead costs, and c) interest
expense in 1995 on notes payable to an affiliate.
The Company recorded an income tax expense of $1.2 million, or an effective
rate of 93.9%, during the current period. This compared to an income tax
expense of $3.2 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 charges related to the amortization of goodwill.
Net income available to common shareholders for the quarter ended June 30, 1995
was $0.1 million, or $0.01 per common share, compared to a net loss of $0.4
million, or $0.04 per common share, in the prior year's quarter. This
improvement of $0.5 million resulted primarily from increased sales and lower
tax expense in 1995, partially offset by increases in cost of services and
products sold, selling, general and administrative expenses, and other expense,
net in 1995.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 VS.
SIX MONTHS ENDED JUNE 30, 1994
Sales for the six months ended June 30, 1995 were $170.1 million, 18.6% above
the same period in the prior year, reflecting increases in the Language
Instruction, Translations and Publishing segments.
Language Instruction sales for the six months ended June 30, 1995 were $135.9
million, $17.5 million or 14.8% above the same period in 1994, primarily
reflecting increases in East Asia ($5.7 million, or 16.5%), Europe ($9.1
million, or 21.7%) and Latin America ($1.9 million, or 11.9%). The improvement
in East Asian sales from 1994 resulted primarily from the favorable impact of
exchange rate fluctuations ($5.4 million). Europe's increase was favorably
impacted by exchange rate fluctuations ($6.3 million) and by operating activity
in almost 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 six-month period ended June 30, 1995, the number of lessons given
was approximately 2.5 million, 5.3% above the same period in the prior year.
Lesson volume in East Asia increased 3.5% from 1994, favorably impacted by all
countries within the division. Lesson volume in Latin America increased by
10.5% from prior year, primarily due to increases in Brazil and Mexico. Lesson
volume in Europe increased by 7.7% over 1994 primarily due to results in the
Czech and Slovak Republics, Poland, Italy, Hungary, France and Israel.
Translations sales were $25.8 million for the six-month period ended June 30,
1995, an increase of $8.1 million, or 45.6%, 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, Denmark and France.
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Publishing segment sales were $8.4 million for the six months ended June 30,
1995, $1.1 million or 15.1% above 1994, reflecting both favorable exchange rate
fluctuations and a strong second quarter in the United States.
Cost of services and products sold and selling, general and administrative
expenses for the six months ended June 30, 1995 totalled $156.0 million, an
increase of $25.6 million from the comparable prior year period. This increase
was due primarily to exchange rate fluctuations and volume increases. As a
percentage of sales, such aggregate expenses were higher compared to the prior
year's period, due in large part to faster growth in the Translations segment
than in the higher margin Language Instruction segment. In addition, included
in 1995 were expenses of $1.1 million, which primarily related to the Company's
worldwide corporate image campaign; these types of expenses were not incurred
in prior years' periods.
Other income, net for the six months ended June 30, 1995 decreased by $0.4
million from the same prior year period, as foreign exchange gains and joint
venture-related income were more than offset by lower interest income from
Brazil, interest expense to an affiliate, losses from the disposal of fixed
assets, and increases in other expenses.
The Company recorded an income tax expense of $3.6 million, or an effective
rate of 116.4%, during the current period. This compared to an income tax
expense of $4.7 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 charges related to the amortization of goodwill.
Net loss to common shareholders for the year-to-date period ended June 30, 1995
was $0.5 million, or $0.05 per common share, compared to a net loss of $2.1
million, or $0.21 per common share, in the prior year's period. This
improvement of $1.6 million resulted primarily from increased sales and a lower
tax expense in 1995, partially offset by increases in cost of services and
products sold, and selling, general and administrative expenses in 1995.
FINANCIAL CONDITION
The primary source of the Company's liquidity is the cash provided by
operations. The Company's businesses are generally 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.
Cash and non-cash capital expenditures during the six-month period ended June
30, 1995 were $4.8 million, primarily for the refurbishing of existing centers,
the opening of new centers, and the consolidation and relocation of certain
centers in Japan. Of this amount, $1.4 million for the Japanese centers were
included in accounts payable at June 30, 1995, payable substantially in
installments over the next 10 months. During the first half of 1995, four
centers were opened and two were closed, bringing the worldwide total to 322.
Pursuant to a covenant under the Acquisition Debt Facilities, the Company was
party to six currency coupon swap agreements with a financial institution at
June 30, 1995. 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 June 30, 1995,
representing the amount that could be settled based on estimates obtained from
a dealer, was a net liability of approximately $5.3 million.
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Page 12
Subsequent to June 30, 1995, the Company settled in full the Japanese yen
floating rate currency coupon swap agreement. Net cash proceeds on settlement
were $695.
At June 30, 1995, the Company's liquid assets of $25.7 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.
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 six months ended June 30, 1995.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1995.
<PAGE>
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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: August 11, 1995 By: /S/ HENRY D. JAMES
----------------------
Henry D. James
Vice President and
Chief Financial Officer
<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
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 25,656
<SECURITIES> 0
<RECEIVABLES> 31,707
<ALLOWANCES> 1,870
<INVENTORY> 10,073
<CURRENT-ASSETS> 75,998
<PP&E> 42,579
<DEPRECIATION> 14,354
<TOTAL-ASSETS> 603,233
<CURRENT-LIABILITIES> 85,331
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 377,753
<TOTAL-LIABILITY-AND-EQUITY> 603,233
<SALES> 0
<TOTAL-REVENUES> 170,080
<CGS> 0
<TOTAL-COSTS> 103,128
<OTHER-EXPENSES> 6,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,422
<INCOME-PRETAX> 3,102
<INCOME-TAX> 3,611
<INCOME-CONTINUING> (509)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (509)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
