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, 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 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 1, 1995, the aggregate
market value of the voting stock held by nonaffiliates of the registrant
was $42,456,561.
The number of shares of the Registrant's common stock outstanding as of
March 1, 1995 was 10,032,935.
DOCUMENTS INCORPORATED BY REFERENCE : None
Page 1 of 83 Pages
Exhibit Index Appears on Page 76
<PAGE>
Page 2
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. (Publishing) 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") indirectly acquired, through a merger of the Company with
a wholly-owned U.S. subsidiary (the "Merger"), 67% of the outstanding
common stock, par value $.10 per share, of the Company ("New Common").
Subsequent to the Merger, public shareholders of the Company hold
approximately 33% of the Company's New Common. 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 four
operating divisions: North America (the U.S. and Canada), Europe (20
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 (the
U.S., Canada and Chile), Europe (10 countries) and East Asia (Japan and
Thailand). 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, local advertising and sales promotions, and other
administrative matters, within guidelines established at the Company's
corporate headquarters. The country managers are evaluated and provided
incentives based on profit performance of their particular areas while,
for 1994, division managers were 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 17.
<PAGE>
Page 3
Language Instruction
As of December 31, 1994, the Company owned and operated 320 language
centers in 32 countries using the Berlitz (Registered Trademark) Method,
as described herein, and the Company's proprietary instruction material,
to provide instruction in virtually all spoken languages. Approximately
4.8 million language lessons were given in 1994, the most frequently taught
languages being English, Spanish, German and French. Revenues from
Language Instruction accounted for approximately 82%, 82% and 83% of
total Company revenues in 1994, 1993 and 1992, 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,
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
North America 72 72 73 68 67
Europe 137 136 139 123 118
East Asia 53 57 59 56 53
Latin America 58 57 53 51 46
--- --- --- --- ---
Total 320 322 324 298 284
==== ==== ==== ==== ====
Number of Lessons (in thousands)
-----------------------------------------------------
*1994 *1993 1992 1991 1990
----- ----- ----- ----- -----
North America 1,064 1,091 1,123 1,097 1,088
Europe 1,852 1,796 1,926 2,022 2,175
East Asia 946 844 1,003 1,093 1,148
Latin America 911 857 818 713 693
----- ----- ----- ----- -----
Total 4,773 4,588 4,870 4,925 5,104
===== ===== ===== ===== =====
* 1994 and 1993 excludes 25 and 137 lessons, respectively, for
centers 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 1994, the United States,
Japan, and Germany accounted for 20%, 18% and 13% of lessons given and
20%, 29% and 14% of Language Instruction sales, respectively.
<PAGE>
Page 4
All of the Company's language centers are wholly-owned, except for a
joint venture operation in Russia. The following table sets forth, by
geographic division, the number of language centers in each of the
countries in which the Company owned and operated centers as of December
31, 1994:
EUROPE NORTH AMERICA
------ -------------
Western Europe:
Belgium 10 United States 62
Denmark 2 Canada 10
Finland 1 --
France 17 Total 72
Holland 1 ==
Israel 2 LATIN AMERICA
Italy 5 -------------
Norway 1 Argentina 5
Portugal 1 Brazil 16
Spain 12 Chile 4
Sweden 1 Colombia 4
United Kingdom 5 Mexico 16
Puerto Rico 4
Central/Eastern Europe: Venezuela 9
Austria 7 --
Czech Republic 4 Total 58
Germany 50 ==
Hungary 3 EAST ASIA
Poland 3 ---------
Russia 1 Hong Kong 1
Slovak Republic 1 Japan 50
Switzerland 10 Thailand 2
--- --
Total 137 Total 53
=== ==
In 1994, eight language centers were opened and ten were closed,
bringing the worldwide total to 320. The average capital expenditure
incurred in connection with opening a new language center in 1994 was
approximately $113,500.
Language centers traditionally have been wholly-owned operations and the
Company has traditionally financed the cost of expansion with internally
generated funds. The Company does not anticipate that borrowing will be
necessary to finance its planned expansion.
Berlitz (Registered Trademark) Method. At the heart of Language
Instruction is the Berlitz (Registered Trademark) Method, a proven
technique that enables students to acquire a working knowledge of a
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, audio-visual, and beginning in
1995, CD-ROM support materials to ensure a fast, effective, and
enjoyable learning experience.
<PAGE>
Page 5
Berlitz 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 course in one
location and complete it anywhere in the worldwide network of Berlitz
language centers. Through application of uniform standards to
instructor training, development and usage of materials, and classroom
instruction, the Company seeks to achieve consistent and predictable
performance 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 1994 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 1994. 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 three clients, as
well as group instruction, where classes include four or more students. Group
classes generally meet over a period of weeks. Semi-private and group lessons
together represented 44% of tuition revenues in 1994.
As a 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 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 where the target language is spoken. The
Company has two programs in this specialty instruction area: Language
Institute For English (Registered Trademark) ("L.I.F.E.(Registered
Trademark"), a Berlitz branch since 1988, and Berlitz Study Abroad.(TM)
A third specialty program, Berlitz Jr.(TM), provides complete language
instruction programs to children in public and private schools throughout
the world. Cross-cultural training programs, another specialty area, offer
in-depth explorations of the culture, traditions and values of a target
country. Together, these specialty areas accounted for approximately 4.4%
of the Company's revenues in 1994.
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. Local marketing efforts are coordinated on a
divisional and 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.
<PAGE>
Page 6
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 and quantity of lessons,
and country. Total Immersion (Registered Trademark) courses are more
expensive than standard individual instruction, while semi-private and group
instruction are less 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 service. 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 the instruction it provides.
Franchising. While its language centers have traditionally been
wholly-owned, the Company is currently considering the utilization of
franchising in certain countries to expand the reach of its language
center business.
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
smaller 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 Translations provides high quality technical translation,
interpretation, software localization, electronic publishing, and other
foreign language-related services. Translations represented
approximately 13%, 13% and 12% of total Company revenues in 1994, 1993
and 1992, respectively, and is expected to contribute an increasingly
larger percentage of total corporate revenues over the next few years as
a result of restructuring efforts initiated in 1993, an expanded and
reorganized sales force and a greater focus on larger customer accounts.
Berlitz 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 37 translation centers in 15
countries, including Baldock (England), Bangkok (Thailand), Bergen
(Norway), Copenhagen, Dublin, Los Angeles, Montreal, New York, Paris,
Santiago, Sindelfingen (Germany), Toronto, Tokyo, Washington, D.C., 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.
The Company has developed a global network of translators that provides
it with a broad range of
<PAGE>
Page 7
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
Translations facilities generally consist of production managers, editors,
translators and desktop publishing ("DTP") specialists. Managers and editors
are generally full-time staff members, while the translator and DTP staffs
are 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.
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, some of which are
produced in the U.S.. It is also involved with licensing projects that
capitalize on the Berlitz name in the international consumer market.
The Publishing business accounted for approximately 5% of total Company
revenues in each of 1994, 1993 and 1992. Approximately 50%, 52% and 55%
of Publishing segment sales in 1994, 1993 and 1992, respectively, were
in Europe.
Berlitz 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 144 titles in this format published in English, plus
approximately 519 titles in more than 10 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 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 129 phrase
books published in 17 languages, of which 27 are for English-speaking
travelers. A European Phrase Book, East European Phrase Book and a
European Menu Reader are also published in English. 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. Retail distribution
for the books and audio products is generally handled by an exclusive
distribution agreement with an established distributor for each major
country in which the products are sold (e.g., the U.K., France, Germany,
U.S. and Canada).
Berlitz 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
a product for children and courses for business people.
In the U.S., the audio cassette and CD products are marketed through in-
flight airline magazine space
<PAGE>
Page 8
advertising, as well as through credit card statement inserts for which the
credit card company is compensated based on orders received in response to
promotions. In addition to the audio cassette and CD products, the Company
is presently involved in several licensing arrangements for products which
use published Berlitz 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 Publishing segment plan includes the relaunching of
certain existing product lines and the creation of new products that
will compete in today's market place.
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.
Employees
As of December 31, 1994, the Company employed 1,962 full-time employees
and 2,045 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 inhibit 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.
<PAGE>
Page 9
ITEM 2. Properties
The Company has its headquarters in Princeton, New Jersey and maintains
facilities throughout the world. The Company plans to relocate its
headquarters prior to the expiration of its current lease in 1995 and is
considering properties in the Princeton area for its new home office,
which will be leased. 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, 1994 was $24,816,000. No one facility
is material to the operation of the Company. A typical Berlitz 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, 1994, 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
------ ---------- --- --------------
Europe 5 Center/Leased to Others 7,319
Latin America 3 Center 19,480
-- ------
Total 8 Total 26,799
== ======
LEASED FACILITIES
Number of Aggregate
Region Facilities Use Square Footage
------ ---------- --- --------------
North America 81 Center/Offices 222,738
Europe 168 Center/Offices 440,534
East Asia 57 Center/Offices 140,291
Latin America 60 Center/Offices 217,765
--- ---------
Total 366 Center/Offices 1,021,328
=== =========
ITEM 3. Legal Proceedings
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.
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 1994.
<PAGE>
Page 10
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 1, 1995.
Name, Age, Position
with Registrant Business Experience
-------------------- -------------------
Soichiro Fukutake, Mr. Fukutake has served as Chairman of the
49 Board of the Company since February 1993.
Chairman of the Mr. Fukutake joined Fukutake in 1973, and
Board; since May 1986 has served as its President
Director (A)(C) 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, 55 Mr. Yokoi was elected Vice Chairman of the
Vice Chairman of the Board and Chief Executive Officer of the
Board, Chief Company in February 1993 and additionally
Executive Officer was elected President effective on August
and President; 31, 1993. Mr. Yokoi has served as a
Director (A) director of Fukutake since June 1992 and
Director for Berlitz and North American
Sector since April 1994. Prior to that, he
served as General Manager of the Overseas
Operations Division (formerly the
International Division) of Fukutake from
October 1990 to March 1994 and 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 1996.
Susumu Kojima, 52 Mr. Kojima has served as Executive Vice
Executive Vice President, Corporate Planning of the Company
President, since September 1993. Prior thereto, he was
Corporate Planning; Senior Vice President, Corporate Planning of
Director (A) the Company from February 1993 to September
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,
<PAGE>
Page 11
Limited ("I.B.J.") from June
1991 to February 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 also serves on the Board of
Directors and Compensation Committee of La
Petite Academy. Mr. Kojima was elected as
a Director of the Company in February 1993.
His term will expire in 1995.
Robert Minsky, 50 Mr. Minsky has served as Executive Vice
Executive Vice President and Chief Operating Officer-
President Translations and Publishing of the Company
and Chief Operating since January 1, 1995. Prior thereto, he
Officer- served as Executive Vice President-
Translations and Translations of the Company from October 1,
Publishing; 1993 to January 1995, and as Chief Financial
Director (A) Officer of the Company from November 1990 to
January 1995. 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, 58 Mr. Fernandez has served as Executive Vice
Executive Vice President and Chief Operating Officer-
President and Worldwide Language Instruction of the
Chief Operating Company since January 1, 1995. Prior
Officer, thereto, he was Executive Vice President-
Worldwide Language Language Services of the Company from
Instruction; September 1993 to January 1995 and Vice
Director (A) President-European Operations of the Company
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.
Saburo Nagai, 64 Mr. Nagai has served as Senior Managing
Director Director of Fukutake since June 1994 and as
Managing Director of Fukutake from April
1988 to June 1994. He has also supervised
its general administration and accounting
departments since April 1988 and its Capital
Strategic Planning Office since April 1993.
Since joining Fukutake in April 1985, he
served as General Manager and Head of its
<PAGE>
Page 12
accounting department until April 1988 and
supervised, concurrently with his other
duties, 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
1996.
Edward G. Nelson, 63 Since January 1985, Mr. Nelson has served as
Director Chairman and President of Nelson Capital
(B)(C)(D) 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, A+
Communications, Inc. and Advocate, Inc. He
is a trustee of Vanderbilt University. Mr.
Nelson became a Director of the Company in
February 1993. His term will expire in
1996.
Robert L. Purdum, 59 Mr. Purdum served as Chairman of the Board
Director (B)(D) of Armco, Inc. from December 1993 to April
1994 and currently is an independent
consultant. He served in various positions
since first joining Armco in 1962, including
Chairman and Chief Executive Officer (April
1990 to November 1990), President (October
1986 to April 1990), Chief Operating Officer
(February 1985 to October 1986) and Chief
Executive Officer-Steel Group (November 1982
to February 1985). Mr. Purdum also serves
on the Board of Directors of Holophane
Corporation since 1994. In addition, he is
a member of the Board of Trustees of GMI
Engineering and Management Institute since
1991 and serves on their International
Committee and Capital Campaign Committee.
He is also a member of the Corporate Affairs
Committee of the Japan Society and served as
a trustee for the Committee for Economic
Development. Mr. Purdum has served as a
Director of the Company since August 1994.
His term will expire in 1996.
Aritoshi Soejima, 68 Mr. Soejima has served as Senior Counselor
Director of Fukutake from December 1980 until his
(B)(C)(D) appointment as a member of the Disinterested
Directors and Compensation Committees of the
Company. 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 Osaka,
Tokyo Bay, Nagoya Hilton Company, Ltd.,
Counselor of Nippon Hilton Company, Ltd. and
Director and Counselor of 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
<PAGE>
Page 13
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, 57 Mr. James has served as Chief Financial
Vice President and Officer of the Company since January 1, 1995
Chief Financial and as Vice President and Controller of the
Officer Company since November 1990. For the period
from October 1989 through October 1990, he
served in his present capacity for the
Company and 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, Mr. Hendon has served as Vice President-
Jr., 57 Legal Department of the Company since
Vice President, January 1, 1995 and as Secretary and General
General Counsel and Counsel of the Company since April 1992.
Secretary Prior thereto, he was first an associate
then a partner at the law firm of Waller
Lansden Dortch & Davis from 1964 until April
1992.
Jose Alvarino, 55 Mr. Alvarino has been Vice President-Latin
Vice President American Division of the Company 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.
Yoshikazu Okazaki, Mr. Okazaki has served as Vice President-
51 East Asia Division of the Company since May
Vice President 1, 1994 and as President & Representative
Director of Berlitz-Japan since September
15, 1994. From January 1984 to March 1994,
he served in a number of executive positions
with Uniden Corporation, both in Japan and
in the United States. Prior thereto, he
held the position of Senior Vice President
with the advertising agency Dentsu, Young &
Rubicam, Los Angeles.
Anthony Tedesco, 52 Mr. Tedesco has served as Vice-President-
Vice President North American Division of the Company since
October 1994. From July 1993 to October
1994, he served as Vice President-East Asian
Division of the Company. Prior thereto, Mr.
Tedesco was Vice President-North American
Division of the Company from October 1989 to
July 1993 and he previously served in the
same capacity with Berlitz Languages from
his initial employment in 1983.
<PAGE>
Page 14
Wolfgang Wiedeler, Mr. Wiedeler has served as Vice President-
50 Language Instruction, European Division of
Vice President the Company since September 1993. From May
1992 to September 1993 he was Vice
President, Central/Eastern European
Division. 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 of the Board of Directors
(B) member of the Audit Committee
(C) member of the Compensation Committee
(D) member of the Disinterested Directors Committee
There is no family relationship between any of the Directors or
Executive Officers of the Company.
Owen Bradford Butler served as a Director, and as a member of the Audit
and Disinterested Directors Committees until August 1994, when he
retired.
<PAGE>
Page 15
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 101 holders of record
of New Common as of December 31, 1994 and March 1, 1995.
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,
1994 ranged as follows:
Price per Share
------------------------------
High Low
------------ ----------
First Quarter 1994 $14 5/8 $12 3/4
Second Quarter 1994 $14 1/8 $12 7/8
Third Quarter 1994 $14 $13
Fourth Quarter 1994 $13 5/8 $12 1/2
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.
The sales prices per share of the Old Common as reported by the NYSE for
each quarter during the period from January 1, 1993 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
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.
No common stock dividends for 1993 or 1994 were declared or paid.
<PAGE>
Page 16
ITEM 6. Selected Financial Data
<TABLE>
<CAPTION>
BERLITZ INTERNATIONAL, INC.
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
Post-Merger Post-Merger Pre-Merger
----------- ----------- ----------------------------------------------------
Period from Period from
February 1, January 1,
Year Ended Year Ended 1993 to 1993 to Year Ended December 31,
December 31, December 31, December 31, January 31, --------------------------------------
1994 1993 (1) 1993 1993 1992 1991 1990
----------- ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales of services and
products sold (2) $ 300,234 $ 271,677 $ 252,069 $ 19,608 $ 281,320 $ 259,771 $ 261,397
------- ------- ------- ------- ------- ------- -------
Cost and expenses:
Cost of services and products
sold (2) 179,869 169,102 155,623 13,479 178,009 156,807 153,457
Selling, general and
administrative (2) 91,703 83,500 76,781 6,719 82,837 71,880 71,251
Amortization of publishing
rights, excess of cost over
net assets acquired and
other intangibles 12,750 12,423 11,551 872 10,463 10,417 10,313
Merger-related restructuring
costs (3) - 4,808 4,808 - - - -
Other (income) expense, net 8,808 1,770 2,233 (463) (833) (14,993) (16,852)
Non-recurring Maxwell and
Merger related charges (4) - - - - 1,356 195,354 -
------- ------- ------- ------- -------- ------- -------
Total costs and expenses 293,130 271,603 250,996 20,607 271,832 419,465 218,169
Income (loss) before income -------- ------- ------- ------- -------- ------- -------
taxes and cumulative effect
of change in accounting
principle $ 7,104 $ 74 $ 1,073 $ (999) $ 9,488 $ (159,694) $ 43,228
Cumulative effect of change in ======== ======== ======= ======== ======== ========= =======
accounting principle $ - $ 3,172 $ - $ 3,172 $ - $ - $ -
======== ======== ======= ======== ======== ========= =======
Net income (loss) $ 909 $ (2,018) $ (3,556) $ 1,538 $ 4,041 $ (171,947) $ 22,622
Preferred Stock dividends - - - - - 9,240 12,019
--------- --------- ------- ------- ------- ------- -------
Net income (loss) available
to common shareholders $ 909 $ (2,018) $ (3,556) $ 1,538 $ 4,041 $ (181,187) $ 10,603
======== ======== ======== ======= ======= ======== =======
Earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.09 $ (0.35) $ (0.09) $ 0.21 $ (9.53) $ 0.56
Cumulative effect of change in
accounting principle - - .17 - - -
-------- -------- ------- ------- -------- -------
Earnings (loss) per common share $ 0.09 $ (0.35) $ 0.08 $ 0.21 $ (9.53) $ 0.56
Cash dividends declared per common ======== ======== ======= ======= ======== =======
share $ - $ - $ - $ 0.42 $ 0.53 $ 0.50
======== ======== ======= ======= ======== =======
Average number of common shares
(000) 10,033 10,031 19,024 19,022 19,014 19,000
======== ======== ======= ======= ======== =======
Balance sheet data (at year end):
Total assets $ 582,312 $ 570,472 $ 456,583 $ 479,096 $ 497,342
Long-term debt $ 78,247 $ 105,775 $ - $ 25,000 $ 50,000
Shareholders' equity $ 367,235 $ 364,953 $ 326,421 $ 331,256 $ 333,046
Other data:
Language lessons given during
year (000) 4,773 4,588 4,870 4,925 5,104
Language centers open at year
end 320 322 324 298 284
Growth (decline) in same center
sales from year to year (5) 9.4% (6.1)% 2.4% (2.8)% 16.3%
</TABLE>
<PAGE>
Page 17
(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) In 1993, under the purchase method of accounting, the Post-Merger
sales and expenses of facilities closed in connection with the
Merger were reclassified to "Merger-related restructuring costs"
(33%) and "Excess of cost over net assets acquired" (67%).
(3) Principally represents 33% of severance payments, language center
closing costs, and costs of reorganizing the Translations and
certain Language Instruction divisions.
(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.
(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.
<PAGE>
Page 18
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
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 connection with its initial public offering in 1989, the Company
entered into a series of transactions with Maxwell Communication
Corporation, plc ("Maxwell Communication") and certain of its
subsidiaries. As a result, Macmillan held 10.6 million shares of Old
Common and 180,000 shares of the Company's 7% non-cumulative preferred
stock (the "Preferred Stock"). In addition, the Company held promissory
notes from Maxwell Communication and certain of its subsidiaries
(collectively, the "Maxwell Note and the Receivable Notes"), including
a note from Macmillan for $64.6 million (the "Macmillan Note"). The
Preferred Stock provided for quarterly dividends at the lesser of $3.15
million (i.e., $12.6 million annually) or the amount equal to the
Company's after-tax income during the preceding quarter from the Maxwell
Note and the Receivable Notes.
In the fourth quarter of 1991, as a result of bankruptcy filings by
Maxwell Communication in the U.S. and the United Kingdom, the Company
wrote off the Maxwell and certain Receivable Notes and provided reserves
for the Macmillan Note and other related charges, totaling $195.4
million. In addition, the Company's obligation to pay dividends on the
Preferred Stock was indefinitely suspended due to payment and other
defaults which arose on the Maxwell Note and the Receivable Notes. In
the first quarter of 1993, the Company recovered $30.8 million from the
sale of the Maxwell and Receivable Notes previously written off.
On December 9, 1992, the Company and Fukutake entered into an amended
and restated merger agreement (the "Merger Agreement") pursuant to which
Fukutake agreed to acquire, indirectly through merger, approximately 67%
of the New Common. The Merger was consummated on February 8, 1993. The
Company's shareholders received, for each share of 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 certain Receivable Notes. In addition, the shareholders at the
time of the closing received $.01 per share upon redemption of each
Common Share Purchase 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.
The Company incurred approximately $115.0 million of long-term
indebtedness in connection with the Merger. (See Note 9 to the
Consolidated Financial Statements.)
In January 1993, the Company entered into agreements with Maxwell
Communication and Macmillan (the "Disengagement Agreements") to
disengage certain relationships. 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 filings and (iii) U.S. and
<PAGE>
Page 19
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 and (b) reduced by $58.0 million the amount
of their claims against Maxwell Communication for 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
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 jointly and 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 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.
<PAGE>
Page 20
Operations Overview
For the period beginning January 1, 1992 and ending December 31, 1994,
the Company's sales grew at a compound annual growth rate of 3.3%.
The following table shows the Company's income and expense data as a
percentage of sales:
Year Ended December 31,
----------------------------------------
1994 1993 (1) 1992
-------- --------- -------
Sales of Services and Products 100.0% 100.0% 100.0%
------ ------ ------
Costs of services and products
sold (2) 59.9 62.2 63.3
Selling, general and
administrative (3) 30.5 30.7 29.4
Amortization of publishing
rights, excess of cost
over net assets acquired,
and other intangibles 4.2 4.6 3.7
Interest expense on long-term debt 3.5 3.3 0.7
Merger-related restructuring
costs (4) - 1.8 -
Non-recurring Maxwell and
Merger-related charges - - 0.5
Other income, net (0.5) (2.6) (1.0)
----- ----- -----
Total costs and expenses 97.6 100.0 96.6
----- ----- -----
Income before income taxes
and cumulative effect of change
in accounting principle 2.4% 0.0% 3.4%
===== ====== =====
(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.
Despite continued economic weakness in certain European countries, the
Company's restructuring efforts, as well as a stabilization of economic
conditions in Japan, have reversed the downward trend in Company's
operations through 1993, positioning the Company for future growth.
<PAGE>
Page 21
Cost of services and products sold as a percentage of sales decreased
from 63.3% in 1992 to 59.9% in 1994, principally due to decreases in
teacher costs and certain administrative expenses, as well as the
closing of unprofitable facilities under the Merger-related
restructuring and from certain cost reduction measures.
Selling, general and administrative expenses as a percentage of sales
increased from 29.4% in 1992 to 30.5% in 1994, principally as a result
of increased office salaries and advertising expenditures, and a
reorganization of the corporate headquarters.
Interest expense on long-term debt as a percentage of sales increased
from 0.7% in 1992 to 3.5% in 1994 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 $233.4 million in 1992 to $244.5
million in 1994, a compound annual growth rate of 2.3%. The number of
lessons provided by the Company's language centers were 4.9 million, 4.6
million and 4.8 million in 1992, 1993 and 1994, respectively. The
growth in sales is largely attributable to the increase in average
revenue per lesson as a result of price increases in excess of
inflation and favorable foreign exchange fluctuations.
Over the three year period, the Company opened 46 new language centers
and closed 24. While the weakness in the worldwide economy led to weak
sales growth in 1992 and 1993, economic recoveries in certain regions in
1994 led to overall improved growth in 1994. 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)
--------------------------------------------
1994 1993 (1) 1992
------- --------- -------
Same Center Sales 9.4% (6.1%) 2.4%
======= ========= =======
(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 1992 to 1994, the Company's Translations segment
expanded principally through internal growth. Translations' sales grew
at a compound annual growth rate of 11.2%, increasing from $32.4 million
in 1992 to $40.0 million in 1994. Translations' operating results have
benefitted from a comprehensive reorganization plan, started in 1993 and
carrying over into 1994, which affects production, sales and marketing
activities.
Publishing segment sales increased from $15.5 million in 1992 to $15.7
million in 1994, primarily as the 1993 product distribution problems
were resolved and successful marketing and sales programs were
introduced.
The Company's participation in numerous licensing agreements and joint
ventures has allowed it to offer new high-tech products, including a
line of language instruction products on CD-ROM and multimedia courses
for the home, school and business markets.
<PAGE>
Page 22
During the three-year period, the percentage of the Company's annual
sales denominated in currencies other than U.S. dollars ranged from
74.9% in 1992 to 75.2% in 1994. 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:
Year Ended December 31,
Percentage --------------------------------------------
Growth (Decline) 1994 1993 (2) 1992
------------------ --------- ---------- ----------
Sales:
Operations (1) 2.6% (2.4)% 5.0%
Exchange 7.9 (1.0) 3.3
--------- ---------- ----------
Total 10.5% (3.4)% 8.3%
========= ========== ==========
(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, 1994 vs. Year Ended December 31, 1993
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,
--------------------------------------
1994 1993
----------------- ----------------
Sales of services and products $ 300,234 $ 271,677
Total costs and expenses 293,130 271,603
---------- ----------
Income before income taxes
and cumulative effect of change
in accounting principle $ 7,104 $ 74
========== ==========
Income (loss) available to
common shareholders $ 909 $ (2,018)
========== ==========
Sales for the twelve months ended December 31, 1994 were $300.2 million,
10.5% above the same
<PAGE>
Page 23
period in the prior year, reflecting increases in the Language
Instruction, Translations and Publishing segments.
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 and 10 were closed in 1994). In comparing the facilities
not affected by Merger-related restructuring activities, sales increased
by $32.3 million, or 12.1%, from the twelve months ended December 31,
1993.
Language Instruction sales were $244.5 million, an increase of $20.9
million, or 9.4%, from sales of $223.6 million in the same period in
1993, primarily reflecting increases in East Asia ($10.9 million, or
17.6%), Europe ($4.6 million, or 5.6%) and Latin America ($4.8 million,
or 16.7%). The improvement in East Asian sales from 1993 largely
resulted from the favorable impact of exchange rate fluctuations ($5.7
million) and improved operating activity in Japan ($3.9 million).
Europe's increase was impacted by favorable exchange rate fluctuations
($1.1 million) and by increased operating activity in the
central/eastern European countries ($3.6 million). Furthermore, when
comparing language centers not affected by Merger-related restructuring
activities, the western European countries' sales increased $1.0
million, or 2.9%. The increase in Latin America revenues was primarily
due to increases in Brazil and Mexico.
During the twelve-month period ended December 31, 1994, the number of
lessons given was approximately 4.8 million, 4.0% above the same period
in the prior year. Lesson volume in East Asia increased 12.0% from
1993, favorably impacted by the first full year of operations of certain
centers in Hong Kong and Thailand and by an 7.1% improvement in Japan.
Lesson volume in Latin America increased by 6.3% from the prior year,
primarily due to growth in Mexico. Lesson volume in the central/eastern
European countries increased by 9.6% over 1993 primarily due to the
results of the new language centers in the Czech and Slovak Republics,
Hungary and Poland. Lesson volume in western Europe remained flat,
particularly reflecting weaknesses in Belgium, France and Spain.
For the twelve months ended December 31, 1994, average revenue per
lesson ("ARPL") was $43.27 as compared to $41.07 in the comparable
prior-year period. ARPL (excluding Russia and the Slovak Republic)
ranged from a high of approximately $73.16 in Japan to a low of $15.19
in the Czech Republic, reflecting effects of foreign exchange rates and
differences in the economic value of the service. The Company opened
eight new language centers during 1994, including two in Germany and
one each in the Czech and Slovak Republics, Israel, Japan, Mexico and
Poland.
Translation segment sales were $40.0 million for the twelve-month period
ended December 31, 1994, an increase of $4.3 million, or 12.1%, from the
same period in 1993. This increase was primarily attributable to strong
performances in Canada, Ireland, Norway and Japan and was benefited by
the segment's reorganization of its sales force to serve key regions and
sharpen the focus on targeted industries and customers. When comparing
facilities not affected by Merger-related restructuring activities,
Translation sales increased $6.4 million, or 19.1%, from the prior year.
Publishing segment sales were $15.7 million for the twelve months ended
December 31, 1994, $3.3 million, or 26.7%, above the same period in
1993, primarily as product distribution problems were resolved and
successful marketing and sales programs were introduced. The effects of
exchange rate
<PAGE>
Page 24
fluctuations were not material.
Net income to common shareholders for the twelve months ended December
31, 1994 was $0.9 million, or $0.09 per common share, compared to a net
loss of $2.0 million, or net income of $0.08 per common share and net
loss of $0.35 per share for the one-month and eleven-month periods ended
January 31, 1993 and December 31, 1993, respectively, in the same period
in 1993. This increase of $2.9 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 and by non-recurring income items and the cumulative effect of a
change in accounting principle in 1993.
Cost of services and products sold and selling, general and
administrative expenses, totalled $271.6 million, or 90.5% of sales, for
1994, compared to $252.6 million, or 93.0% of sales, in the prior year.
This improvement in expenses as a percentage of sales resulted primarily
from certain cost reduction measures, particularly teacher costs, office
salaries and rent, which more than offset increases in advertising, and
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).
Interest expense on long-term debt increased by $1.5 million due
primarily to an increase in amortization of deferred financing costs.
Merger-related restructuring costs of $4.8 million were recorded for the
twelve months ended December 31, 1993, primarily for severance, the
reorganization of the Translations and certain Language Instruction
divisions and the costs of closing language centers, including lease
cancellation penalties, write-offs of leasehold improvements, and
operating losses for such centers.
Other income, net for the twelve months ended December 31,1994 decreased
by $5.5 million from the same prior-year period, primarily due to non-
recurring income items, net, of $6.5 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 twelve months ended
December 31, 1994 of $6.2 million, or an effective rate of 87.2% which
was raised primarily by nondeductible amortization charges. This
compared to an income tax expense in the same prior year period of $5.3
million, for which the effective rate was also raised primarily by
nondeductible amortization charges.
<PAGE>
Page 25
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
========== ==========
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 aggregate decreases in western European countries were offset
by increases in the other regions. Sales in the western European
countries 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 the
central/eastern European countries of $0.3 million, $4.2 million and
$0.2 million, respectively. In addition, sales of the East
<PAGE>
Page 26
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, 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
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.
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. This decrease, totalling $6.0 million
resulted primarily from i) Merger-related restructuring costs, ii)
increases in cost of services and products sold, selling, general and
administrative expenses, amortization expense and interest expense, and
iii) decreases in interest income from affiliates, all partially offset
by non-recurring income items and the cumulative effect of a change in
accounting principle. 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.
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).
<PAGE>
Page 27
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
increased borrowing in connection with the Merger.
Merger-related restructuring costs of $4.8 million were recorded,
primarily for severance, the reorganization of Translations and certain
Language Instruction divisions and the 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, in connection with the Merger, of a promissory note due from
an affiliate.
In connection with the Merger, the Company recognized certain non-
recurring income items. 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.
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
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 US statutory Federal rate from 34% to 35%
was not material.
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". As a result of the adoption of this statement, as of
January 1, 1993, the Company recorded a tax credit of $3.2 million, 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 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,
<PAGE>
Page 28
the Company's sales are not seasonal in the aggregate. 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 $20.8 million, $10.8
million and $30.9 million for the years ended December 31, 1994, 1993
and 1992, respectively. These cash flows were affected by tax refunds
of approximately $5.6 million, $5.1 million and $12.8 million which were
received in 1994, 1993 and 1992, respectively. In addition, 1993 was
adversely affected by the payment, in connection with the Merger, of
$6.6 million in fees to secure the Acquisition Debt Facilities,
hereinafter defined. The 1994 improvement from 1993 in net cash
provided is partly reflective of the restructuring efforts initiated in
1993.
Net cash used in investing activities, which totalled $8.0 million,
$11.1 million and $11.9 million in 1994, 1993 and 1992, respectively,
was affected largely by capital expenditures and investments in joint
ventures. The Company made capital expenditures of $5.9 million, $8.2
million, and $11.2 million in the years ended December 31, 1994, 1993,
and 1992, respectively, primarily for the opening of new centers and
refurbishing of existing centers. The decreasing trend in capital
expenditures and new school openings is the result of cost control
measures. The closing of ten language centers in 1994 completed the
targeted closure of centers as part of the Merger-related restructuring
activities. The Company invested $1.3 million, $2.9 million and $0.8
million in joint ventures in 1994, 1993 and 1992, respectively. The 1993
and 1992 investments were primarily for shutdown-related costs.
Net cash provided by financing activities totalled $2.2 million in 1994,
compared with net cash used of $4.9 and $25.7 million in 1993 and 1992,
respectively. In 1993, in connection with the Merger, the Company
borrowed $59.0 million under a Bank Term Loan, issued $56.0 million of
Senior Notes and established a $10.0 million Bank Revolving Facility
(collectively, the "Acquisition Debt Facilities"). 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, in reverse
order of maturities, under the Bank 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.
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.
Pursuant to a covenant under the Acquisition Debt Facilities, the
Company is party to six currency coupon swap agreements with a financial
institution to hedge the Company's net investments in certain foreign
subsidiaries and to help manage the effect of foreign currency
fluctuations on the Company's ability to repay its U.S. dollar debt.
These agreements require the Company, in exchange for U.S. dollar
receipts, to periodically make foreign currency payments, denominated in
the Japanese yen, the Swiss franc, the Canadian dollar, the British
pound, and the German mark. Credit loss from counterparty nonperformance
is not anticipated. The fair value of these agreements at December 31,
1994, representing the amount that could be settled based on estimates
obtained from a dealer, was a net liability of approximately $2.2
million.
As of December 31, 1994, the Company did not have any material
commitments for capital
<PAGE>
Page 29
expenditures. During 1995, the Company anticipates capital expenditures to
be consistent with historical requirements. The Company believes that the
strategic restructuring undertaken in 1993 has strengthened the core businesses
and positioned the Company for future growth. Thus, the Company plans to meet
its 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.
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.
<PAGE>
Page 30
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
----
Reports of Independent Auditors 31, 32
Statement of Management's
Responsibility for Consolidated
Financial Statements 33
Consolidated Financial Statements:
Consolidated Statements of Operations, year ended
December 31, 1994, period from February 1, 1993
to December 31, 1993, period from January 1, 1993
to January 31, 1993, and the year ended
December 31, 1992 34
Consolidated Balance Sheets, December 31, 1994 and 1993 35
Consolidated Statements of Shareholders' Equity, year ended
December 31, 1994, period from February 1, 1993
to December 31, 1993, period from January 1, 1993
to January 31, 1993, and the year ended
December 31, 1992 36
Consolidated Statements of Cash Flows, year ended
December 31, 1994, period from February 1, 1993
to December 31, 1993, period from January 1, 1993
to January 31, 1993, and the year ended
December 31, 1992 37
Notes to Consolidated Financial Statements 38
Financial Statement Schedules:
Schedule II. Valuation and Qualifying Accounts 59
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.
<PAGE>
Page 31
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of Berlitz International, Inc.:
We have audited the accompanying consolidated balance sheets of Berlitz
International, Inc. and its subsidiaries as of December 31, 1994 and
1993 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year ended December 31,
1994, the eleven-month period ended December 31, 1993 and the one-month
period ended January 31, 1993. Our audits also included the financial
statement schedule listed in the Index at Item 8 for the years ended
December 31, 1994 and 1993. These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule 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 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.
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, 1994 and
1993 and the results of their operations and their cash flows for the
year ended December 31, 1994, the eleven-month period ended December 31,
1993 and the one-month period ended January 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the
financial statement schedule for the years ended December 31, 1994 and
1993, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 8 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 3, 1995
<PAGE>
Page 32
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of
Directors of Berlitz International, Inc.:
We have audited the consolidated statements of operations, shareholders'
equity and cash flows of Berlitz International, Inc. ("Berlitz") for the
year ended December 31, 1992. We have also audited the financial
statement schedule listed in the index at Item 8 for the year ended
December 31, 1992. These financial statements and the financial
statement schedule are the responsibility of Berlitz management. Our
responsibility is to express an opinion on these financial statements
and the financial statement schedule 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 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 audit provides a reasonable basis for our opinion.
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 results of
Berlitz's operations and its cash flows for the year ended December 31,
1992, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ COOPERS & LYBRAND LLP
New York, New York
March 24, 1993
<PAGE>
Page 33
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 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 LLP and the Company's internal auditors each have full
and free access to the Audit Committee, and meet with it regularly, with
and without management.
/s/ HENRY D. JAMES
Henry D. James,
Vice President and Chief Financial Officer
<PAGE>
Page 34
<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,
Year Ended 1993 to 1993 to Year Ended
December 31, December 31, January 31, December 31,
1994 1993 1993 1992
---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sales of services and products $ 300,234 $ 252,069 $ 19,608 $ 281,320
--------------- ----------------- --------------- ----------------
Costs and expenses:
Cost of services and products sold 179,869 155,623 13,479 178,009
Selling, general and administrative 91,703 76,781 6,719 82,837
Amortization of publishing rights, excess
of cost over net assets acquired, and
other intangibles 12,750 11,551 872 10,463
Interest expense on long-term debt 10,559 8,965 89 1,902
Merger-related restructuring costs - 4,808 - -
Non-recurring Maxwell and
Merger-related charges - - - 1,356
Other income, net (1,751) (6,732) (552) (2,735)
-------- -------- ------- --------
Total costs and expenses 293,130 250,996 20,607 271,832
-------- -------- ------- --------
Income (loss) before income taxes and
cumulative effect of change in accounting
principle 7,104 1,073 (999) 9,488
Income tax expense 6,195 4,629 635 5,447
------- ------- ------ --------
Income (loss) before cumulative effect of
change in accounting principle 909 (3,556) (1,634) 4,041
Cumulative effect of change in
accounting principle - - 3,172 -
------- -------- ------- --------
Income (loss) available to common
shareholders $ 909 $ (3,556) $ 1,538 $ 4,041
======= ======= ====== ========
Earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting principle $ 0.09 $ (0.35) $ (0.09) $ 0.21
Cumulative effect of change in
accounting principle - - 0.17 -
------- ------- ------ --------
Earnings (loss) per common share $ 0.09 $ (0.35) $ 0.08 $ 0.21
======= ======= ====== ========
Average number of common shares (000) 10,033 10,031 19,024 19,022
======= ======= ====== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 35
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31,
------------------------------
1994 1993
------------- ---------------
Assets
Current assets:
Cash and temporary investments $ 26,165 $ 11,738
Accounts receivable, less allowance
for doubtful accounts
of $1,912 and $2,566 25,593 22,999
Inventories 8,973 10,684
Prepaid expenses and other current assets 6,906 6,054
------- ------
Total current assets 67,637 51,475
Property and equipment, net 25,885 26,858
Publishing rights, net of accumulated
amortization of $1,665 and $788 20,048 20,712
Excess of cost over net assets acquired
and other intangibles, net of accumulated
amortization of $22,675 and $10,763 453,712 457,897
Other assets 15,030 13,530
------- -------
Total assets $ 582,312 $ 570,472
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ - $ 3,000
Current portion of long-term debt 9,325 5,525
Accounts payable 6,999 5,278
Deferred revenues 36,301 33,187
Payrolls and commissions 10,785 9,468
Income taxes payable 1,356 1,971
Accrued Merger-related restructuring
costs 263 7,978
Accrued expenses and other current
liabilities 9,956 11,607
------- -------
Total current liabilities 74,985 78,014
Long-term debt 78,247 105,775
Notes payable to affiliates 30,424 -
Deferred taxes and other liabilities 25,044 15,169
Minority interest 6,377 6,561
------- -------
Total liabilities 215,077 205,519
------- -------
Shareholders' Equity:
Common stock
$.10 par value - 40,000,000 shares
authorized; 10,032,935 and
10,032,903 shares outstanding in
1994 and in 1993, respectively 1,003 1,003
Additional paid - in capital 368,658 368,658
Retained deficit (2,647) (3,556)
Cumulative translation adjustment 221 (1,152)
------- -------
Total shareholders' equity 367,235 364,953
------- -------
Total liabilities and shareholders'
equity $ 582,312 $ 570,472
======= =======
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 36
<TABLE>
<CAPTION>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Redeemable Additional Retained Cumulative Total
Preferred Common Paid-In Earnings Translation Shareholders'
Stock Stock Capital (Deficit) Adjustment Equity
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $ 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
Net income 909 909
Translation adjustment 1,373 1,373
--------- ------- ------- ------- ------- -------
Balance at December 31, 1994 $ - $ 1,003 $ 368,658 $ (2,647) $ 221 $ 367,235
========= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 37
<TABLE>
<CAPTION>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Post-Merger Pre-Merger
------------------------------- --------------------------------
Period from Period from
Year ended February 1, 1993 January 1, 1993 Year Ended
December 31, to December 31, to January 31 December 31,
1994 1993 1993 1992
------------ ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 909 $ (3,556) $ 1,538 $ 4,041
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 6,423 5,504 504 5,772
Amortization of publishing rights, excess of cost over
net assets acquired, and other intangibles 12,750 11,551 872 10,463
Amortization of unearned compensation - - 20 260
Minority interest in income (loss) of subsidiary 738 (3,692) (168) 1,039
Equity in losses of joint ventures 15 1,442 - 2,201
Deferred income taxes 1,737 1,108 265 (747)
Provision for bad debts 442 1,084 32 719
Foreign exchange (gains) losses, net (1,707) 1,278 38 3,843
Merger-related valuation adjustments - 553 - -
Non-recurring Maxwell and Merger related charges - - - 1,095
Maxwell related recoveries - 312 - 975
Payment of deferred financing costs (232) (6,623) - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,550) (2,309) 2,069 (1,737)
(Increase) decrease in inventories 2,321 (1,853) 62 (2,351)
(Increase) decrease in prepaid expenses and other
assets (5,206) 5,816 (504) (6,060)
Decrease in refundable income taxes - - - 12,084
Increase (decrease) in deferred revenues 726 (570) (771) (3,723)
Increase (decrease) in accounts payable and
other current liabilities (4,002) (6,975) 8,462 1,242
Increase in due to affiliates 384 - - 867
Increase (decrease) in income taxes payable (868) (675) 585 5
Increase (decrease) in other liabilities 8,913 3,650 (198) 919
------ ------ ------ ------
Net cash provided by operating activities 20,793 1,121 9,634 30,907
------ ------ ------ ------
Cash flows from investing activities:
Capital expenditures (5,892) (7,689) (560) (11,154)
Acquisitions of businesses (894) - - (86)
Investments in joint ventures (1,259) (2,838) (37) (776)
Decrease in Brazilian cash investments - - - 82
Purchase of short-term investments - - - (10,510)
Sale of short-term investments - - - 10,510
------ ------ ----- ------
Net cash used in investing activities (8,045) (10,527) (597) (11,934)
------ ------ ----- ------
Cash flows from financing activities:
Common stock dividends paid - - - (10,683)
Proceeds from issuance of long-term debt - 115,000 - -
Proceeds of notes payable to affiliates 30,145 - - -
Repayment of long-term debt (24,935) (28,700) - (15,000)
Net borrowings (repayments) under revolving credit
agreement (3,000) 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 -
Net cash provided by (used in) financing ------- ------- ----- ------
activities 2,210 (5,038) 99 (25,683)
------- ------- ----- ------
Effect of exchange rate changes
on cash and temporary investments (531) (1,931) (204) (2,371)
------- ------- ----- ------
Net increase (decrease) in cash and
temporary investments 14,427 (16,375) 8,932 (9,081)
Cash and temporary investments at beginning of period 11,738 28,113 19,181 28,262
-------- ------- ------ ------
Cash and temporary investments at end of period $ 26,165 $ 11,738 $ 28,113 $ 19,181
======== ======= ====== ======
Supplemental disclosures of cash flow information:
Cash payments for interest $ 8,988 $ 8,329 $ 109 $ 2,800
======== ======= ====== ======
Cash payments for income taxes $ 6,070 $ 4,576 $ 192 $ 5,925
======== ======= ====== ======
Cash refunds of income taxes $ 5,584 $ 5,136 $ - $ 12,832
======== ======= ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and 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, net". 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) Deferred Financing Costs - Direct costs relating to the
indebtedness incurred in connection with the Merger and the
Fukutake borrowings (see Notes 9 and 12) have been capitalized
and are being amortized by the interest 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 and Other Intangibles
- Excess of cost over net assets acquired is being amortized
on a straight-line basis over 40 years, while other
intangibles are being amortized primarily on a straight-line
basis over 40 years. Their carrying values are evaluated
periodically to determine if there has been a loss in value,
by reviewing current and estimated future revenues and cash
flows, and the interrelated impact on the values of the
Company's trademark and franchise rights. The excess of cost
over net assets acquired and other intangibles will be written
off if and when it has been determined that an impairment in
value has occurred.
h) Deferred Revenues - Deferred revenues generally 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
<PAGE>
Page 39
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. 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, net" in
the Consolidated Statement of Operations. The Company's
investment in these joint ventures included credit balances of
$896 and $2,085, classified as other current liabilities on
the Consolidated Balance Sheets at December 31, 1994 and 1993,
respectively, and represents the Company's obligation in
excess of amounts invested with respect to these joint
ventures.
l) Financial Instruments - In 1993, the Company adopted Statement
of Financial Accounting Standard No. 107, "Disclosures about
Fair Value of Financial Instruments", which requires
disclosure of fair value information about financial
instruments, whether or not recognized on the balance sheet.
The fair values of the Company's 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 Company's currency
coupon swap agreements represent the amounts that could be
settled based on estimates obtained from a dealer.
The carrying amounts reported in the balance sheets for cash
and temporary investments, trade receivables and payables,
accrued liabilities, accrued income taxes and short-term
borrowings approximate fair value due to the short-term nature
of these instruments.
m) Reclassifications - Certain reclassifications have been made
in prior years' financial statements and notes to conform with
the 1994 presentation.
<PAGE>
Page 40
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"). 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.
Public shareholders of the Company hold the remaining approximately
33% of New Common.
Accounting Treatment
The Merger was 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 9
for further discussion) was allocated to the Company's assets and
liabilities. The Post-Merger financial statements 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
-------
Purchase price allocation adjustment $ 134,723
=======
<PAGE>
Page 41
Disengagement Agreements and other Maxwell Matters
In 1989, in anticipation of its initial public offering, the
Company entered into a series of financial transactions with
Macmillan, Inc. ("Macmillan"), Maxwell Communication Corporation,
plc ("Maxwell Communication") and its affiliate. As a result,
Macmillan held 180,000 shares of the Company's 7% non-cumulative
preferred stock (the "Preferred Stock") and the Company held the
Maxwell Note of $99,600 and the Receivable Notes comprised of the
following: a Yen 3 billion note of Maxwell Communication, a $3,300
note of MLL Holdings Ltd. (which is a subsidiary of Maxwell
Communication) and a $64,568 note of Macmillan (the "Macmillan
Note").
In the fourth quarter of 1991, payment and other defaults arose on
the Maxwell Note and the Receivable Notes, which, in view of the
December 1991 bankruptcy of Maxwell Communication, were unlikely
to be cured. Consequently, the Company wrote off or provided
reserves for the Maxwell Note and the Receivable Notes in 1991,
and the Company's obligation to pay dividends on the Preferred
Stock was indefinitely suspended.
In the first quarter of 1993, the Company recovered $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") to
disengage 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, the Company and its subsidiaries (a) sold to Macmillan
the Macmillan Note 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
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 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
<PAGE>
Page 42
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 was obligated to pay fees 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 was drawn upon. This letter of credit was
terminated in 1994.
Merger-related restructuring costs
In connection with the Company's strategic philosophy arising from
the Merger, certain restructuring costs outside the ordinary course
of business were incurred. The primary costs represented severance
payments and the closing of language centers. In 1993, 33% of these
costs were recorded in the consolidated statements of operations,
and, in accordance with the purchase method of accounting, 67% of
these costs were 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) by the weighted average number of common shares
outstanding.
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, 1994.
4. 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. Between October 1994 and
December 1994, $411 was paid against the installment obligation.
The Company also purchased a consulting firm specializing in cross-
cultural services for an
<PAGE>
Page 43
aggregate consideration of $435, including the issuance of a note
payable for $200 with various maturities through 1996.
5. 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. In 1993, 33% of the deferred gain was recorded
in the Consolidated Statement of Operations and, in accordance with
the purchase method of accounting, 67% of the deferred gain was
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, net".
6. Property and Equipment, net
December 31,
------------------------------
1994 1993
-------- --------
Building and leasehold improvements $ 16,705 $ 15,010
Furniture, fixtures and equipment 16,541 13,197
Land 1,350 1,317
------ ------
34,596 29,524
Less: accumulated depreciation 8,711 2,666
------ ------
Total $ 25,885 $ 26,858
====== ======
7. Other Income, net
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
----------------------------------- ------------------------------
Period from Period from
Year Ended February 1, 1993 January 1, 1993 Year Ended
December 31, to December 31, to January 31, December 31,
1994 1993 1993 1992
----------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Gain on sale of interest in subsidiary $ - $ (4,924) $ - $ -
Interest income on temporary investments (1,692) (2,187) (143) (3,339)
Foreign exchange (gains) losses, net (1,707) 1,278 38 3,843
Equity in losses of joint ventures 15 1,442 - 2,201
Interest (income) expense from affiliates 384 - (99) (6,798)
Publishing rights valuation adjustment - 553 - -
Other, net 1,249 (2,894) (348) 1,358
------ ------ ----- -----
Total other income, net $ (1,751) $ (6,732) $ (552) $ (2,735)
====== ====== ===== =====
</TABLE>
<PAGE>
Page 44
8. 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 between SFAS 109 and SFAS 96 as related to the
recognition of benefits for certain loss carryforwards.
The components of the deferred tax liability at December 31, 1994
and 1993 were as follows:
1994 1993
--------- ----------
Deferred tax assets:
Inventory $ 212 $ 511
Joint ventures 103 86
Deferred revenue 871 1,781
Unrealized hedging losses 1,129 -
Accrued expenses 3,848 5,368
Net operating losses 23,681 22,052
------ ------
Total deferred tax assets 29,844 29,798
------ ------
Deferred tax liabilities:
Property and equipment depreciation (101) (177)
Unrealized hedging gains (354) -
Publishing rights amortization (7,979) (8,257)
Other intangibles amortization (3,313) (1,286)
------- -------
Total deferred tax liabilities (11,747) (9,720)
------- -------
Net deferred tax assets 18,097 20,078
Valuation allowance (22,585) (23,602)
------- -------
Net deferred tax liability $ (4,488) $ (3,524)
======= =======
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.
<PAGE>
Page 45
The Company's effective tax rate for 1994 was 87.2%, compared to
63.6% and 431.4% for the 1993 Pre-Merger and Post-Merger periods,
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>
Year ended December 31, 1994:
Current $ 202 $ 3,887 $ 369 $ 4,458
Deferred 1,286 166 285 1,737
----- ----- --- -----
Total $ 1,488 $ 4,053 $ 654 $ 6,195
===== ===== === =====
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
===== ===== ==== =====
</TABLE>
* Pre-tax income (loss) from foreign operations of the Company was $13,541,
$6,864, and $(2,499) for the twelve months ended December 31, 1994,
1993 and 1992, respectively.
<PAGE>
Page 46
The provision (benefit) for deferred taxes is summarized as follows:
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
------------------------------------ ---------------------------------------
Period from Period from
Year Ended February 1, 1993 January 1, 1993 Year Ended
December 31, to December 31, to January 31, December 31,
1994 1993 1993 1992
------------ ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Deferred gain on sale of 20% of Japanese
subsidiary $ - $ (1,384) $ - $ -
Accrued liabilities 2,430 (1,497) (267) 9
Foreign exchange - (353) (21) (464)
Benefit of net operating loss (2,646) 4,492 408 (231)
Amortization of intangibles 2,027 (164) 143 (47)
Other, net (74) 14 2 (14)
------ ----- ---- ------
Total $ 1,737 $ 1,108 $ 265 $ (747)
====== ===== ==== ======
</TABLE>
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
Year Ended February 1, 1993 January 1, 1993 Year Ended
December 31, to December 31, to January 31, December 31,
1994 1993 1993 1992
------------ ---------------- --------------- ------------
<S> <C> <C> <C> <C>
U.S. statutory Federal tax rate 35.0% 35.0% (35.0)% 34.0%
Foreign income taxes, net of Federal
income tax benefits (28.0) (73.9) (8.2) 8.3
U.S. state and local income taxes,
net of Federal income taxes 6.0 4.4 1.5 5.2
Net domestic and foreign losses 14.1 107.6 58.5 (20.0)
20% sale of Japanese subsidiary - (97.1) - 4.3
Amortization 58.6 372.7 30.3 32.6
Other, net 1.5 82.7 16.5 (7.0)
---- ----- ---- -----
Total 87.2% 431.4% 63.6% 57.4%
==== ===== ==== =====
</TABLE>
For tax return purposes, at December 31, 1994 the Company has a
U.S. Federal net operating loss carryforward of approximately
$31,500. Such loss may be carried forward through the year 2006.
In addition to the Federal net operating loss carryforward, the
Company has net operating loss carryforwards that relate to a
number of foreign and state jurisdictions that will expire on
various dates.
At December 31, 1994, U.S. income and foreign withholding taxes
have not been provided on approximately $45,995 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 $2,391 may be payable if such
earnings were distributed. These taxes, if ultimately paid, may be
recoverable as foreign tax credits in the U.S.. The determination
of deferred U.S. tax liability for the undistributed earnings of
international subsidiaries is not practicable.
<PAGE>
Page 47
9. Long-Term Debt
Long-Term Debt consists of the following:
December 31,
------------------------------------------
1994 1993
----------------- -----------------
Term Loan $ 30,775 $ 55,300
Senior Notes 56,000 56,000
Other (See Note 4) 797 -
----------------- -----------------
Total debt 87,572 111,300
Less current maturities 9,325 5,525
----------------- -----------------
Long-term debt $ 78,247 $ 105,775
================= =================
Annual maturities of long-term debt outstanding as of December 31,
1994 are as follows: 1995, $9,325; 1996, $11,349; 1997, $10,699;
1998, $199; 1999, $14,000; thereafter, $42,000.
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 (the "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 originally
included 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 September 30, 1997. The Company
made four scheduled quarterly installment payments of $1,381 each
during the year ended December 31, 1994. 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.
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% was charged on the average daily balance of available but
unused amounts under the Bank Revolving Facility. The interest
rate on the Term Loan at December 31, 1994 was approximately 7.8%.
The Senior Notes bear interest at 9.79%.
<PAGE>
Page 48
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. 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, 1994, the Company was in compliance with all Acquisition Debt
Facilities covenants.
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.
Long-term debt outstanding at December 31, 1992 under a loan
agreement with Societe Generale was paid in full on February 8,
1993.
10.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
$24,816, $21,225, $1,849 and $21,264, for the year ended December
31, 1994, the period February 1, 1993 to December 31, 1993, the
period January 1, 1993 to January 31, 1993 and the year ended
December 31, 1992, 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,
1994 are as follows: 1995 - $7,233; 1996 - $5,821; 1997 - $4,698;
1998 - $3,081; 1999 - $2,139, and an aggregate of $5,391
thereafter.
<PAGE>
Page 49
Legal Proceedings
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.
11. Financial Instruments and Related Disclosures
a) Currency coupon swap agreements
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 to 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 began 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> <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>
The Company marks coupon swaps to market. When these agreements are
effective as hedges, realized and unrealized gains and losses have
been excluded from the Company's Consolidated Statements of Operations,
and included, net of deferred taxes, in the cumulative translation
adjustment of shareholders' equity.
<PAGE>
Page 50
b) Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and
temporary investments and trade accounts receivable.
The Company maintains cash and temporary investments with various
high credit qualified financial institutions. The majority of
these financial institutions are located outside of the U.S. and
the Company's policy is designed to limit exposure to any one of
these foreign institutions. The Company maintains U.S.
concentration accounts, consisting of overnight investments, with
two major U.S. banks. During 1994 and 1993, balances in these
accounts averaged 26% and 25% of worldwide cash. As part of its
cash management process, the Company performs periodic evaluations
of the relative credit standing of all financial institutions in
which it maintains cash and temporary investments.
Credit risk with respect to Language Instruction and Translation
Services trade accounts receivable is generally diversified due to
the large number of entities comprising the Company's customer base
and their dispersion across many different industries and
countries. The Publishing segment also sells to a substantial
client base, although several of its larger receivables are from
its distributors. Such receivables from Publishing's distributors
comprised approximately 10% of the Company's total accounts
receivable balance before allowances at December 31, 1994.
c) Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash and temporary investments $ 26,165 $ 26,165 $ 11,738 $ 11,738
Currency coupon swap agreements 1,011 1,011 - 923
Liabilities:
Short-term borrowings - - 3,000 3,000
Long-term debt, including
current maturities 87,572 88,488 111,300 113,648
Notes payable to affiliates 30,424 19,538 - -
Currency coupon swap agreements 3,226 3,226 - 389
</TABLE>
For cash and temporary investments and short-term borrowings, 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
<PAGE>
Page 51
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.
12. Related Party Transactions
a) Transactions with current related party
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. ("Berlitz-Japan), also borrowed Yen 1.0
billion (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.
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 Facilities 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 guarantee of payment obligations under the Japan Note,
effective as of the day following the date upon which all payment
obligations under the Acquisition 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.
Berlitz-Japan had a contract (the "Development Agreement") with
Fukutake, originally executed in 1992 and amended in 1993, for the
development of English conversation video 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 was to 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 and a coordination fee of 10% of project-related
employee salaries. Development activities under the Development
Agreement were completed during 1994.
Pursuant to the Development Agreement, the Company received
reimbursement for production costs of approximately $2,300, $1,800
and $296 during 1994, 1993 and 1992, respectively. In addition,
the Company received the coordination fee and other project-related
reimbursements
<PAGE>
Page 52
of approximately $250 in 1994, and the development fee of
approximately $420 in 1993. The Company had recorded in
accounts receivable $0 and $213 at December 31, 1994 and 1993,
respectively, related to the Development Agreement.
The Company and Fukutake maintain a joint Directors and Officers
("D&O") insurance policy covering acts by directors and officers of
both Fukutake and the Company. Consequently, the premium on the
D&O policy is allocated 60% to Fukutake and 40% to the Company.
Commencing in February 1995, the Company will maintain a stand-
alone Employment Practices Liability ("EPL") insurance policy
covering the Company, its officers and directors (including the
Fukutake directors who are also directors of the Company).
Consequently, the premium on the EPL policy will be allocated 30%
to Fukutake and 70% to the Company.
The Company and Fukutake participated in certain other joint
business arrangements in the ordinary course of business, as
follows: i) Pursuant to a June 1, 1993 sublease agreement, the
Company subleased space during 1994 in Fukutake's New York offices
at an annual base rent of $79 plus operating expenses. The
sublease expired in January 1995. ii) During 1994, Berlitz-Japan
provided lessons to Fukutake under an extended industrial block
contract, entered into in 1993 for a prepayment of Yen 10 million,
whereby Berlitz-Japan waived a one-time registration charge and
provided Fukutake with an industrial lesson rate which is
approximately 20% below the individual rate. iii) In 1994, the
Company and Fukutake entered into a services agreement whereby
Fukutake would offer its customers language and homestay programs
arranged and operated by the Company's specialty instruction
program, Berlitz Study Abroad (Trademark). During 1994, Fukutake
also periodically offered its customers language study and homestay
programs arranged and operated by L.I.F.E. (Registered Trademark),
another of the Company's specialty instruction programs.
Management believes that the Company has entered into all such
agreements on terms no less favorable than it would have received
in a arms-length transaction with independent third parties. Each
of the transactions with Fukutake entered into after the Merger was
approved by the Disinterested Directors Committee.
b) Transactions with former related parties
Amounts applicable to transactions with Macmillan and Maxwell
Communication are summarized below:
Year Ended
December 31,
1992
------------
Balance payable, beginning of period $ (617)
Charge from Macmillan for corporate
services (26)
Charge for distribution services (564)
Interest income 6,798
Cash transfers, net (1,934)
Common stock dividends declared (4,452)
Other activity, net 3,109
----------
Balance receivable, end of period $ 2,314
==========
<PAGE>
Page 53
Pursuant to the terms of a distribution agreement between the
Company and Maxwell Macmillan Canada, Inc. ("Maxwell Canada"),
Macmillan and Maxwell Canada served, until 1994, 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 pursuant to the terms of these distribution
agreements in 1992. The costs of the services provided under the
distribution agreement are included in the accompanying
consolidated Statements of Operations as selling, general and
administrative expenses.
"Interest income" represents interest on the Macmillan Note at
10.5% per annum.
13. Redeemable Preferred Stock
The holders of the Redeemable Preferred Stock were entitled to
quarterly dividends at the lesser of the quarterly rate 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 declared or paid on the
preferred Stock during 1992 and 1993.
The Preferred Stock was redeemed in 1993 in connection with the
Merger.
14. 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 stock options under the
Company's Plan follows:
Shares Price per Share
--------- -----------------------
Options outstanding at January 1, 1992 707,000 $ 14.50 - $18.625
Granted 320,000 $ 17.25 - $18.00
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
=========
<PAGE>
Page 54
There were no stock option grants, exercises or cancellations
during 1994, and no options are outstanding at December 31, 1994.
At January 1, 1992, 75,000 restricted shares to key employees were
outstanding under the Plan. The resale restrictions on these
shares, granted prior to 1992, lapsed in equal installments over
five years commencing from date of grant. Deferred compensation,
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 in the year of grant
and was being amortized over the service period. During 1992,
3,000 shares were cancelled and 3,500 shares were sold. During
1993, prior to the Merger, 2,000 shares were sold.
All outstanding options and restricted shares as of February 8,
1993 were liquidated in connection with the Merger. (See Note 2).
There were no grants of restricted stock subsequent to the Merger
and there are no restricted shares outstanding at December 31,
1994.
At December 31, 1994, there were no shares outstanding pursuant to
any other stock-based awards under the Plan.
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 as of February 8, 1993
were settled in connection with the Merger. There were no
deferrals subsequent to the Merger and there are no deferred
amounts outstanding at December 31, 1994.
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 stock price results 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. Approximately $1,300 was paid for 1994
pursuant to the Short-Term Plan.
The Company has severance agreements with three key employees which
generally provide for termination payments of between one and two
times annual base salary, plus shares of the Company's bonus plan
awards. The agreements also provide for the continuation of
certain benefits. One of these agreements is in effect for 36
months following a change in control. The maximum contingent
liability under such agreements is approximately $1,500.
The Company also has a consulting agreement with its former Chief
Operating Officer which
<PAGE>
Page 55
provides, subject to certain conditions, for payments totalling $220
over the two-year period ending August 31, 1995.
15. Thrift and Retirement Plans
The Berlitz International, Inc. Retirement Savings Plan (the
"Berlitz Plan") covers substantially all of the Company's full-time
domestic employees. The retirement portion of the Berlitz Plan
provides for the Company to make regular contributions based on
salaries of eligible employees. The thrift portion of the Berlitz
Plan, in which employee participation is elective, provides for
Company matching contributions of up to 3% of salary. Payments
upon retirement or termination of employment are based on vested
amounts credited to individual accounts.
In addition, certain foreign operations have other defined
contribution benefit plans. Total expense with respect to all
benefit plans was $1,445, $1,417, $121, and $1,267, for the year
ended December 31, 1994, the period from February 1, 1993 to
December 31, 1993, the period from January 1, 1993 to January 31,
1993, and the year ended December 31, 1992.
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, "Post-retirement 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 retirement. The Company believes that
the adoption of this standard will have no effect on its
consolidated financial statements.
16. Business Segment and Geographic Area Information
The Company's operations are conducted through the following
business segments: Language Instruction, Translation Services, and
Publishing. Intersegment and intergeographical sales are not
significant.
General corporate identifiable assets for 1994 include $1,011 of
currency coupon swap agreements, with the balance principally
consisting of property and equipment. For 1993 and 1992, general
corporate identifiable assets are principally property and
equipment. Depreciation and amortization relates to property and
equipment, excess of cost over net assets acquired, other
intangibles and publishing rights.
<PAGE>
Page 56
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
---------------------------------------- ---------------------------------------
Period from Period from
Year Ended February 1, 1993 January 1, 1993 Year Ended
December 31, to December 31, to January 31, December 31,
Business Segments 1994 1993 1993 1992
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Sales of services and products:
Language Instruction $ 244,502 $ 207,692 $ 15,875 $ 233,424
Translation Services 39,997 32,720 2,971 32,358
Publishing 15,735 11,657 762 15,538
------- -------- ------ --------
Total $ 300,234 $ 252,069 $ 19,608 $ 281,320
======= ======== ====== ========
Operating profit (loss):
Language Instruction $ 20,434 $ 11,471 $ (893) $ 18,094
Translation Services 1,731 726 219 (2,098)
Publishing 524 (255) (240) 409
------- ------ ------- ------
Total operating segments 22,689 11,942 (914) 16,405
General corporate expenses (6,777) (8,636) (548) (6,394)
------ ------ ------ ------
Total $ 15,912 $ 3,306 $ (1,462) $ 10,011
====== ====== ===== ======
Capital expenditures:
Language Instruction $ 3,508 $ 4,600 $ 481 $ 7,594
Translation Services 648 709 26 1,090
Publishing 1,349 1,700 48 1,878
------ ----- ---- ------
Total operating segments 5,505 7,009 555 10,562
General corporate 387 680 5 592
------ ----- ---- ------
Total $ 5,892 $ 7,689 $ 560 $ 11,154
====== ===== ==== ======
Depreciation and amortization:
Language Instruction $ 15,339 $ 13,684 $ 1,127 $ 13,344
Translation Services 2,180 1,901 80 1,118
Publishing 1,371 1,161 146 1,509
------ ------ ----- ------
Total operating segments 18,890 16,746 1,353 15,971
General corporate 283 309 23 264
------ ------ ----- ------
Total $ 19,173 $ 17,055 $ 1,376 $ 16,235
====== ====== ===== ======
</TABLE>
December 31,
-------------------------------------
1994 1993 1992
--------- ---------- -----------
Identifiable assets:
Language Instruction $ 486,437 $ 478,829 $ 400,405
Translation Services 66,232 59,654 22,722
Publishing 28,062 31,197 32,677
--------- ---------- -----------
Total operating segments 580,731 569,680 455,804
General corporate 1,581 792 779
--------- ---------- -----------
Total $ 582,312 $ 570,472 $ 456,583
========= ========== ===========
<PAGE>
Page 57
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
--------------------------------------- ---------------------------------------
Period from Period from
Year Ended February 1, 1993 January 1, 1993 Year Ended
December 31, to December 31, to January 31, December 31,
Geographic Areas 1994 1993 1993 1992
---------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Sales of services and products:
North America $ 79,984 $ 71,001 $ 5,436 $ 76,006
Europe 111,791 95,125 8,411 114,526
East Asia 74,915 58,853 4,167 66,234
Latin America 33,544 27,090 1,594 24,554
--------------- ---------------- --------------- ----------------
Total $ 300,234 $ 252,069 $ 19,608 $ 281,320
=============== ================ =============== ================
Operating profit (loss):
North America $ 11,349 $ 10,389 $ 243 $ 10,068
Europe 2,950 (87) (357) 416
East Asia 4,627 (1,864) (814) 2,312
Latin America 6,170 4,371 93 4,546
Business segment corporate expenses (2,407) (867) (79) (937)
--------------- ---------------- --------------- ----------------
Total operating segments 22,689 11,942 (914) 16,405
General corporate expenses (6,777) (8,636) (548) (6,394)
---------------- ---------------- --------------- ----------------
Total $ 15,912 $ 3,306 $ (1,462) $ 10,011
=============== ================ =============== ================
</TABLE>
Amortization of publishing rights, excess of cost over net assets
acquired and other intangibles, included in operating profit (loss) in
the year ended December 31, 1994, the period from February 1, 1993 to
December 31, 1993, the period from January 1, 1993 to January 31, 1993,
and the year ended December 31, 1992 amounted to $9,216, $8,449, $204
and $2,452 for North America; $1,405, $1,191, $291 and $3,492 for
Europe; $1,575, $1,336, $308 and $3,697 for East Asia and $554, $575,
$69 and $822 for Latin America.
Profit (expense), resulting from an intersegment allocation to
compensate North America for use of its intangibles, and included in
operating profit (loss) in the year ended December 31, 1994 and the
period from February 1, 1993 to December 31, 1993, amounted to $6,072
and $5,564 for North America; $(2,913) and $(2,669) for Europe; $(2,189)
and $(2,006) for East Asia and $(970) and $(889) 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; $1,090 for Europe; $2,826 for East
Asia; $50 for Latin America, and $720 for General corporate expenses.
No Merger-related restructuring costs were incurred in 1994 or in the
Pre-Merger periods.
December 31,
-------------------------------------------------
1994 1993 1992
---------- ----------- --------------
Identifiable assets:
North America $ 382,203 $ 383,444 $ 119,284
Europe 89,682 80,120 154,698
East Asia 83,353 75,984 146,087
Latin America 27,074 30,924 36,514
----------- ----------- --------------
Total $ 582,312 $ 570,472 $ 456,583
=========== =========== ==============
<PAGE>
Page 58
17. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
March 31 June 30 Sept 30 Dec 31 Year
--------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1994:
Sales of services and products $ 69,021 $ 74,414 $ 77,694 $ 79,105 $ 300,234
Operating profit 1,996 4,759 5,134 4,023 15,912
Income (loss) before income taxes
and cumulative effect of change
in accounting principle (255) 2,793 2,953 1,613 7,104
Income (loss) available to
common shareholders (1,779) (360) 719 2,329 909
Earnings (loss) per common share $ (0.18) $ (0.03) $ 0.07 $ 0.23 $ 0.09
============== ============= ============= ============= =============
</TABLE>
<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>
(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.
<PAGE>
Page 59
BERLITZ INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Schedule II
<TABLE>
<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, 1994 $ 2,566 $ 442 $ (1,176) $ 80 $ 1,912
=========== ========== ============= ============= ==============
Year Ended December 31, 1993 (3) $ 2,910 $ 1,116 $ (1,367) $ (93) $ 2,566
=========== ========== ============== ============= ==============
Year Ended December 31, 1992 $ 3,229 $ 719 $ (769) $ (269) $ 2,910
=========== ========== ============== ============= ==============
</TABLE>
(1) Principally represents net losses incurred in the ordinary course of
business and chargeable against the allowance.
(2) Principally represents foreign currency translation.
(3) 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.
See Note 2 regarding the Maxwell Note and the Receivable Notes.
<PAGE>
Page 60
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 is
set forth in Item 12 to this Form 10-K.
ITEM 11. Executive Compensation
Summary of Cash and Certain Other Compensation
The following Summary Compensation Table sets forth the compensation
awarded to, earned by or paid to each of the Chief Executive Officer
("CEO") and certain executive officers (collectively, the "Named
Executive Officers") during the fiscal years ended December 31, 1994,
1993 and 1992 for services rendered in all capacities to the Company and
its subsidiaries.
The compensation disclosed below under "All Other Compensation"
incorporates amounts received by the Named Executive Officers in 1993 as
a result of the Merger.
<PAGE>
Page 61
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation (8)
Annual Compensation -----------------
-------------------------------------------------- Awards of
Name and Other Annual Options/ All Other
Principal Position Year Salary Bonus Compensation (7) SARs (9) Compensation
($) (6) ($) ($) (#) ($) (10)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hiromasa Yokoi (1) 1994 404,320 161,700 39,000 None 19,205
Vice Chairman of the Board, 1993 271,058 None 10,000 None None
CEO and President 1992 -- -- -- -- --
Susumu Kojima (2) 1994 200,000 45,000 42,000 None 9,500
Executive Vice President, 1993 143,962 None 14,000 None None
Corporate Planning 1992 -- -- -- -- --
Manuel Fernandez (3) 1994 207,200 72,500 20,978 None 13,386
Executive Vice President and 1993 157,400 30,000 10,494 None 404,681
Chief Operating Officer - 1992 141,800 None None 8,000 6,517
Worldwide Language
Instruction
Robert Minsky (4) 1994 207,200 46,600 None None 13,468
Executive Vice President and 1993 177,723 30,000 None None 287,902
Chief Operating Officer - 1992 172,425 None 16,024 8,000 11,215
Translations and Publishing
Henry D. James (5) 1994 168,000 78,800 None None 10,920
Vice President and 1993 157,755 25,000 None None 373,292
Chief Financial Officer 1992 155,625 None None 4,000 10,116
</TABLE>
(1) Mr. Yokoi joined the Company as an officer in 1993 and his base salary
of $355,000 became effective April 1, 1993. Therefore, amounts shown
for him for 1993 reflect less than a full year of compensation. Mr.
Yokoi's salary increased to $361,000 effective August 30, 1993, to
$404,320 effective January 1, 1994 and to $444,800 effective January 1,
1995. During 1992, Mr. Yokoi was not employed by the Company but served
as a Director; however, there was no compensation paid to or earned by
him in respect of such year.
(2) Mr. Kojima joined the Company as an officer in 1993 and his base salary
of $190,000 became effective on April 1, 1993. Therefore, amounts shown
for him for 1993 reflect less than a full year of compensation. Mr.
Kojima's salary increased to $200,000 effective January 1, 1994 and to
$210,000 effective January 1, 1995. During 1992, Mr. Kojima was not
employed by the Company and, accordingly, there is no compensation
information to report for him in respect of such year.
(3) Mr. Fernandez's base salary increased from a base salary of $143,418
effective April 1, 1992, to $185,000 effective August 30, 1993, to
$207,200 effective January 1, 1994 and to $224,800 effective January 1,
1995. Mr. Fernandez's 1993 percentage increase in base salary was based
on the additional responsibilities he assumed as a result of his
promotion to Executive Vice President - Language Services from Vice
President - European Operations.
<PAGE>
Page 62
(4) Mr. Minsky's salary increased from a base salary of $174,900 effective
April 1, 1992, to $178,000 effective August 30, 1993, to $185,000
effective October 4, 1993, to $207,200 effective January 1, 1994 and to
$227,900 effective January 1, 1995.
(5) Mr. James' salary increased from a base salary of $157,755 effective
April 1, 1992, to $168,000 effective January 1, 1994 and to $182,300
effective January 1, 1995.
(6) Amounts shown represent base salary earned in the respective years.
(7) Other Annual Compensation for Mr. Yokoi and Mr. Kojima represents
monthly housing allowances commencing September 1, 1993. For Mr.
Fernandez, this column includes relocation expense reimbursements of
$19,795 and $10,494 in 1994 and 1993, respectively. For Mr. Minsky,
this column represents relocation expense reimbursement.
(8) The column designated by the SEC to report Long-Term Incentive Plan
Payouts has been excluded because the Company had no performance-based
long-term compensation plans for employees effective during any portion
of fiscal years 1993 or 1992. The Compensation Committee of the
Company's Board of Directors approved a long-term incentive plan,
effective January 1, 1994, as discussed in the Compensation Committee
report under "Long-Term Executive Incentive Compensation Plan". No
payouts have been made under such plan in 1994.
The column designated by the SEC to report Restricted Stock Awards has
been excluded because the Company made no awards of restricted stock to
the Named Executive Officers during any portion of fiscal years 1994,
1993 or 1992. Prior to the Merger, all restricted stock awards had
vested in twenty percent increments over a five year period commencing
on the first anniversary of the date of grant. Shareholders of
restricted stock received dividends at the same rate and at the same
time as shareholders of common stock of the Company.
Pursuant to the terms of the Merger Agreement and the 1989 Stock Option
and Incentive Plan (the "Stock Option Plan"), on February 8, 1993 all
restrictions on restricted stock lapsed and the holders of such shares
received (i) $19.50, (ii) 0.165 share of New Common and (iii) $1.48,
representing the net proceeds from the disposition of the Company's
claims arising from three promissory notes issued by Maxwell
Communication and an affiliate in favor of the Company or a subsidiary
of the Company (the "Maxwell Notes"). In addition, holders of restricted
stock received $.01 per share at such time in consideration for the
redemption of the Common Share Purchase Rights (each, a "Right") granted
pursuant to the terms of the Amended and Restated Safeguard Rights
Agreement, dated as of February 5, 1992, between the Company and United
States Trust Company of New York (the "Rights Agreement").
Consequently, there are no New Common restricted shares outstanding at
December 31, 1994.
(9) The awards set forth in this column are of grants of stock options only.
The Company has not granted SARs to any of the Named Executive Officers
during fiscal years 1994, 1993 or 1992. There have been no exercises of
options or SARs for the fiscal year 1994.
Pursuant to the Merger Agreement and the Stock Option Plan, on February
8, 1993, each outstanding option became fully vested and was converted
into the right to receive (i) 0.165 share of New Common, (ii) $19.50
minus the exercise price of such option and (iii) $1.48, representing
the net proceeds from
<PAGE>
Page 63
the disposition of the Company's claims arising from the Maxwell Notes.
At December 31, 1994, there were no options or SARs outstanding.
(10)The amounts reported in this column for the fiscal year 1994 include
contributions made by the Company for the accounts of the Named
Executive Officers pursuant to the thrift portion (the "401(k) Plan") of
the Berlitz Retirement Savings Plan (the "Retirement Savings Plan"), as
follows: Mr. Yokoi, $8,864, Mr. Fernandez, $6,134; Mr. Minsky, $6,216;
Mr. Kojima, $4,385, and Mr. James, $5,040. The amounts reported also
include contributions made by the Company for the accounts of the Named
Executive Officers pursuant to the retirement portion (the "Pension
Plan") of the Retirement Savings Plan, as follows: Mr. Yokoi, $10,341;
Mr. Fernandez, $7,252; Mr. Minsky, $7,252; Mr. Kojima, $5,115; and Mr.
James, $5,880.
Long-term Incentive Plans - Awards Effective in Fiscal Year 1994
The following awards were made pursuant to the 1993 Long-Term Executive
Incentive Compensation Plan (the "Long-Term Incentive Plan"). See the
Compensation Committee Report for a further description.
<TABLE>
<CAPTION>
Estimated Future Payouts, Estimated Future Payout
Exclusive of the Effect of Changes in Assuming Stock Price
Stock Price (2) Appreciation
______________________________________ _______________________
Performance
Name Number of period Threshold Target Maximum Maximum (3)
units(#) until payout ($)(1) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Hiromasa Yokoi 120,333 12/31/98 43,397 120,333 120,333 1,680,960
Susumu Kojima 47,500 12/31/98 17,130 47,500 47,500 750,340
Manuel Fernandez 46,250 12/31/98 16,680 46,250 46,250 803,221
Robert Minsky 46,250 12/31/98 16,680 46,250 46,250 814,298
Henry D. James 26,293 12/31/98 9,482 26,293 26,293 651,367
</TABLE>
(1) Assumes that minimum revenues and earnings goals are met. Should such
goals not be met, no payments will be made.
(2) The threshold, target and maximum dollar amounts listed below will
change based on a multiplier related to the change in stock price,
if any.
(3) Pursuant to the Long-Term Incentive Plan, maximum payouts are capped at
three times the participant's annual salary at December 31, 1998.
<PAGE>
Page 64
Directors Committees and Compensation of Directors
In 1994, the Board of Directors had standing Executive, Audit,
Disinterested Directors, and Compensation Committees. The Company does
not have a standing Nominating Committee.
The Executive Committee, during the intervals between meetings of the
Board of Directors, may, with certain exceptions, exercise the powers of
the Board of Directors. The Executive Committee did not meet during
1994.
The Audit Committee recommends to the Board of Directors the engagement
of the independent auditors of the Company and reviews with the
independent auditors the scope and results of the Company's audits. The
Audit Committee reviews the terms of all agreements between the Company
and its affiliates. The Audit Committee meets with management and with
the Company's internal auditors and independent auditors to review
matters relating to the quality of financial reporting and internal
accounting control, including the nature, extent and results of their
audits, and otherwise maintains communications between the Company's
independent auditors and the Board of Directors. The Audit Committee
met three times during 1994.
Initially, the Disinterested Directors Committee was established for the
purpose of protecting the long-term interests of the Company and its
minority shareholders by independently reviewing and monitoring all
matters affecting the relationship between the Company and Maxwell
Communication and its affiliates. As a result of the Merger, the
Disinterested Directors Committee's role was retained and reconstituted
to review and monitor all matters affecting the relationship between the
Company and Fukutake and its affiliates. During 1994, the Disinterested
Directors Committee met in person one time and took action by unanimous
consent three times.
The Compensation Committee reviews performance of corporate officers,
establishes overall employee compensation policies and recommends to the
Board of Directors major compensation programs. The Compensation
Committee also reviews and approves salary arrangements and other
remuneration for executive officers of the Company and is responsible
for review of certain employee benefit plans. The Compensation
Committee oversees and approves grants of stock options and other stock-
based awards pursuant to the Stock Option Plan and the Company's Non-
Employee Directors Stock Plan (the "Directors' Stock Plan"). The
Committee also administers the 1993 Short-Term Executive Incentive
Compensation Plan (the "Short-Term Incentive Plan") and the Long-Term
Incentive Plan and approves awards and discretionary bonuses under these
plans. No member of the Compensation Committee is eligible to participate
in the Stock Option Plan or the Short-Term Incentive Plan. During 1994,
the Compensation Committee met three times.
The Company's standard retainer payable to each director who is not an
employee of the Company or its affiliates is $30,000 per annum plus
expenses, with an additional $2,000 for each Committee meeting attended
in person and $1,000 for each meeting participated in by telephone. No
fees are paid for actions taken by unanimous written consent. Only
those directors who are also full-time employees of the Company or its
affiliates are eligible to participate in the health benefit plan
maintained by the Company. Directors employed by the Company or its
affiliates receive no compensation in consideration of their duties as
directors. The outside directors earned an aggregate of approximately
$128,000 as cash compensation for their services during 1994.
<PAGE>
Page 65
The Company has entered into indemnification agreements with each
director pursuant to which the Company agreed to pay any amount such
director becomes obligated to pay as a result of any claims made against
such director because of any alleged act or omission or neglect or
breach of duty which he commits while acting in his capacity as a
director and solely because of his being a director, subject to
limitations imposed by the New York Business Corporation Law ("NYBCL").
Employment Contracts and Termination of Employment and Change of Control
Arrangements
During 1993, the Company entered into a severance agreement with Robert
Minsky, replacing all previous agreements entered into between Mr.
Minsky and the Company, which provides that if Mr. Minsky is terminated
other than for cause (1) at any time prior to August 8, 1995, he is to
be paid two years' severance at his then current annual base salary plus
a prorated amount of the award under the Company's Short-Term Incentive
Plan to which he would have been entitled for both years and the
continuation of certain other benefits, or (2) at any time after August
8, 1995, such benefits would be payable for one year.
The Company also had severance agreements with Manuel Fernandez and
Henry D. James, dated February 6, 1992, which provided that if, within
18 months following a change of control occurring at any time before
February 6, 1994, the Company terminated such executive officer's
employment other than for cause, such executive officer would receive
amounts equal to his annual base salary for one year plus a prorated
share of the award under the Company's short-term bonus plan to which he
would have been entitled and the continuation of certain other benefits.
These agreements lapsed in August 1994.
The Company is a party to indemnification agreements with each director
and executive officer pursuant to which the Company agrees to pay,
subject to limitations imposed by the NYBCL, any amount such director or
executive officer becomes obligated to pay as a result of any claims
made against such director or executive officer because of any alleged
act or omission or neglect or breach of duty which he commits while
acting in his capacity as a director or executive officer, as the case
may be.
<PAGE>
Page 66
COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1994
The Compensation Committee of the Board of Directors reviews and
determines the compensation of the Company's executive officers. It
also reviews and approves any employment, severance or similar
agreements for executive officers. The Committee determines the amount,
if any, of the Company's contributions pursuant to the Retirement
Savings Plan, and oversees and approves grants of stock options and
other stock-based awards pursuant to the Stock Option Plan and the
Directors' Stock Plan. The Committee also administers the Short-Term
Incentive Plan and the Long-Term Incentive Plan and approves awards and
discretionary bonuses under each of such plans.
The Company seeks to compensate executive officers at levels competitive
with other companies with similar annual revenues and to provide
incentives for superior individual and corporate performance. Salaries
are set to correspond to the mid-range of salaries paid by competitive
companies. In setting compensation, the Company compares itself with
companies with similar annual revenues rather than with industry peers
because the Company is the only publicly-held language instruction
company.
The key components of executive officer compensation are base salary,
cash bonuses, and awards pursuant to incentive-based plans. The
Committee attempts to combine these components in such a way to attract,
motivate and retain key executives critical to the long-term success of
the Company. A discussion of the various components of executive
compensation for the fiscal year 1994 follows.
Base Salary
Each executive officer receives a base salary, with the potential for
annual salary increases based largely on merit from prior annual
performance.
The proposed annual compensation of Company employees was discussed at
two of the three Compensation Committee meetings held in 1994. Base
salary recommendations were made by management of the Company for the
Committee to approve. After review and consideration by the Committee
of management's recommendations, the Committee approved base salary
adjustments for executive officers considering individual and Company
performance. Such adjustments ranged from 1.9% to 12% for 1994, and
from 4.7% to 10% for 1995. The criteria used to evaluate Company
performance were sales and earnings figures, and return on equity. The
Committee believes that all such criteria were accorded equal weight.
Bonuses
In 1993, the Committee approved the Short-Term Incentive Plan,
commencing with the 1993 calendar year, pursuant to which each executive
officer is eligible for an annual bonus based upon the officer's present
employment position, individual performance, and, through 1994, the
total Company's performance compared to earnings goals. The Committee
believes that individual performance and Company performance are given
approximately equal weight. The Short-Term Incentive Plan also permits
the Committee to award discretionary cash awards to employees, who may
or may not be participants under the Short-Term Incentive Plan, subject
to those terms and conditions as the Committee shall determine in its
sole discretion.
In 1995, the Committee amended the Short-Term Incentive Plan so that
Division Vice Presidents would
<PAGE>
Page 67
receive 1995 and subsequent awards based on 60% of divisional performance
and 40% of total Company performance.
At its March 1995 meeting, the Committee approved, after discussion,
1994 bonuses for executive officers under the Short-Term Incentive Plan.
Such bonuses that accrued for 1994 ranged from 22.5% to 40% of each executive
officer's base salary. The Committee also approved a discretionary
special bonus proposal for certain executive officers, recommended by
management based upon exceptional individual performance. Such special
bonuses that accrued for 1994 for such executive officers ranged from
6.2% to 19.4% of their total salary.
Stock Options and Restricted Stock
The Stock Option Plan provides for the award of stock options,
restricted stock and other stock-based awards to senior management of
the Company. Grants under this plan are intended to provide executives
with the promise of longer-term rewards which appreciate in value with
favorable future performance of the Company. In determining grants of
stock options and restricted stock, the Compensation Committee reviews
individual performance and Company performance. The criteria used to
evaluate Company performance include sales and earnings figures and
return on equity. The Committee believes that all such criteria are
accorded equal weight. The Committee did not approve, and the Company
did not make, any grants of stock options, restricted stock, or any
other stock-based award under the Stock Option Plan in 1994.
Long-Term Executive Incentive Compensation Plan
In 1993, the Committee approved the Long-Term Incentive Plan, effective
January 1, 1994, pursuant to which officers and certain key employees
are eligible to receive, for each performance unit granted to the
individual by the Committee, cash awards based on Company performance
and common stock price results over a five year period ending on
December 31, 1998. The plan was instituted to, among other things,
provide executives with a direct economic interest in meeting long-term
business objectives. Performance units are granted by the Committee to
each executive officer in its discretion. Criteria used to evaluate
Company performance are earnings and sales figures. The weight assigned
to the earnings component of Company performance is 60% and the weight
assigned to the sales component of Company performance is 40%. For each
performance unit granted by the Committee, each executive officer will
receive a cash award based on Company performance and the Company's
common stock price results from January 1, 1994 through December 31,
1998. The Long-Term Incentive Plan also contains provisions governing
such awards in the event of a change of control of the Company or a
"going private" transaction with Fukutake or its affiliates.
Other Compensation
The executive officers also are eligible to participate in the Pension
Plan. The Pension Plan provides for the Company to make regular
contributions based on salaries of eligible employees. During 1994, the
Compensation Committee determined that the Company would contribute 3.5%
of eligible employees' respective base salary to the Pension Plan.
During 1994, the Compensation Committee also determined that matching
contributions by the Company would be provided under the 401(k) Plan to
all domestic employees up to a maximum of 3% of the employee's salary.
<PAGE>
Page 68
Chief Executive Officer Compensation
Mr. Hiromasa Yokoi's salary increased to $444,800 effective January 1,
1995 from $404,320 effective January 1, 1994. Mr. Yokoi also earned a
bonus of $161,700 for 1994 under the Short-Term Incentive Plan.
The Compensation Committee approved and ratified the compensation paid
to Mr. Yokoi for fiscal year 1994 based on Mr. Yokoi's business
experience and familiarity with the Company, and his responsibilities to
guide, among other things, the Company's daily affairs and the Company's
long-term strategic plan in a global marketplace. The Company's 1994
performance was taken into consideration in determining Mr. Yokoi's 1994
compensation package. The Committee believes that Mr. Yokoi's 1994
compensation package was in line with compensation packages of chief
executive officers of other companies with similar annual revenues.
Tax Legislation
During 1993, the U.S. Internal Revenue Code was amended to limit
deductions for certain compensation in excess of $1 million annually
paid to executive officers of public companies. The legislation
imposing this change is unclear on a number of critical issues, and the
ultimate effect of the change on the Company and other public companies
will depend to a significant extent on the implementing regulations.
Proposed regulations have been issued, but these regulations are not
final and also are subject to a number of interpretations. The
Committee intends to continue to evaluate this change during 1995. At
this time, however, the Committee and the Board of Directors have not
taken action in respect of the Company's compensation policy as result
of the change.
Compensation Committee Membership
During 1994, the Compensation Committee consisted of Soichiro Fukutake,
Edward G. Nelson, and Aritoshi Soejima. All of the views expressed by
the Compensation Committee in 1994 may not have been the views of each
member of the Compensation Committee individually. However, all
decisions affecting compensation were approved by all of the members of
the Compensation Committee.
Compensation Committee for Fiscal Year 1994
Soichiro Fukutake
Edward G. Nelson
Aritoshi Soejima
<PAGE>
Page 69
Compensation Committee Interlocks and Insider Participation
As discussed above, during 1994 and at March 31, 1995, the Compensation
Committee consisted of Soichiro Fukutake, Edward G. Nelson, and Aritoshi
Soejima. None of these committee members was an officer of the Company
or any of its subsidiaries during 1994.
Mr. Fukutake serves as the Chairman of the Board of the Company. In
addition to his role in presiding over board meetings, Mr. Fukutake is
actively involved in creating and monitoring strategies for the
Company's global growth. As a result, upon recommendation of management
and after discussion, the Compensation Committee in 1993, with Mr.
Fukutake absent, approved the inclusion of Mr. Fukutake as a participant
in the Long-Term Incentive Plan, based upon the considerable time and
effort spent by Mr. Fukutake in monitoring long-term strategies for the
Company, apart from his duties as Chairman of the Board.
Aritoshi Soejima previously served as an advisor to Fukutake. He
resigned such position prior to his appointment as a Disinterested
Director and a member of the Compensation Committee.
Performance Graph
The following graphs set forth the Company's total shareholder return as
compared to the S&P 400 Industrial Index and two peer groups (described
below) over a five-year period, beginning December 31, 1989, and ending
December 31, 1994. In December 1989, the Company completed an initial
public offering of approximately 8.4 million shares of common stock.
See "Certain Relationships and Related Transactions" for further
discussion. The total shareholder return assumes $100 invested at the
beginning of the period in the Company's common stock, the S&P 400
Industrial Index and the peer group indices. It also assumes
reinvestment of all dividends.
As the Company is the only publicly-held language instruction company,
there are no directly comparable companies. The two closest industry
groups to the Company are education companies and educational
publishers. Therefore, the Company has created an index of selected
publicly held companies in each of these two industries. These indices
have been plotted against the Company's total shareholder return and the
S&P 400 Industrial Index. The companies included in the education
companies index are Flightsafety International, which sells primarily
flight training materials, and National Education Corporation, which
sells primarily technical and vocational training materials. The
companies included in the educational publishing index are Houghton
Mifflin, John Wiley & Sons and McGraw-Hill, Inc. While none of these
companies are directly comparable to the Company, the Company believes
they come under either the same broad rubric of education-related
activities as the Company, in the case of the education companies index,
or educational publishers, in the case of the educational publishing
index.
<PAGE>
Page 70
Comparison of Stock Prices
Berlitz International, Inc., the S&P 400 Industrial Index
and Selected Education Companies
1989 1990 1991 1992 1993 1994
Berlitz $ 100 $ 81 $ 119 $ 132 $ 83(1) $ 78
S & P 400 Index $ 100 $ 96 $ 122 $ 126 $ 134 $ 135
Education
Companies $ 100 $ 81 $ 116 $ 94 $ 81 $ 72
Comparison of Stock Prices
Berlitz International, Inc., the S & P 400 Industrial Index,
and Selected Educational Publishing Companies
1989 1990 1991 1992 1993 1994
Berlitz $ 100 $ 81 $ 119 $ 132 $ 83 (1) $ 78
S & P 400 Index $ 100 $ 96 $ 122 $ 126 $ 134 $ 135
Educational
Publishing
Companies $ 100 $ 76 $ 85 $ 111 $ 137 $144
(1) As a result of the Merger, each share of the Company's common stock
outstanding prior to the Merger ("Old Common") was converted into the
right to receive i) $19.50, ii) 0.165 share of New Common, iii) $1.48,
representing the net proceeds from the disposition of the Company's
claims on the Maxwell Notes, and iv) $.01, representing consideration
paid for the redemption of each Right under the Rights Agreement. As of
March 1, 1995, 10,032,935 shares of New Common were outstanding. Prior
to the Merger, 19,075,584 shares of Old Common were outstanding.
<PAGE>
Page 71
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Management Security Ownership
The following table sets forth the number and percentage of outstanding
shares of New Common beneficially owned by each director, nominee, all
individuals serving as the Company's chief executive officer during the
fiscal year ended December 31, 1994, the four most highly compensated
executive officers of the Company at December 31, 1994 and all officers
and directors serving at December 31, 1994 as a group, as of March 1,
1995. If not mentioned, the individual does not beneficially own any
shares of New Common as of December 31, 1994. No security set forth in
the third column of the following table reflects an amount as to which
the beneficial owner has joint voting or investment power.
Amount and
Nature of
Beneficial Percent
Title of Class Name Ownership of Class
New Common Manuel Fernandez 8,745 *
New Common Robert Minsky 2,857 *
New Common Edward G. Nelson 1,500 *
New Common Henry D. James 7,672 *
All Officers and
Directors as a Group
New Common (15 in number) 40,408 *
* Less than 1%
To the best of registrant's knowledge, there are no events of delinquent
filing requiring disclosure under Item 405 of Regulation S-K.
Other Security Ownership
The following table sets forth the ownership by each person or group who
owned of record, or was known by the Company to own beneficially more
than 5% of New Common on March 1, 1995.
Percent
Title of Class Beneficial Owner Ownership of Class
-------------- -------------------------------- ---------- --------
New Common Fukutake Publishing Co., Ltd.(1) 6,735,338 67%
3-17-17 Minamigata
Okayama-shi 700, Japan
New Common Macmillan, Inc. 627,000 6%
55 Railroad Ave.
Greenwich, CT 06830
(1) 6,722,138 shares of New Common are held by a wholly owned
subsidiary of Fukutake and 13,200 shares of New Common are held
directly by Fukutake.
<PAGE>
Page 72
ITEM 13. Certain Relationships and Related Transactions
Prior to the Company's initial public offering in December 1989, the
Company was a wholly owned subsidiary of Macmillan. On December 13,
1989, the Company sold 8.4 million shares of common stock to the public
in an initial public offering and issued to 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 cancelled and
180,000 shares remained outstanding) in exchange for the capital stock
of its predecessor companies.
Mr. Yokoi was elected to the Board of Directors in January 1991 pursuant
to Fukutake's acquisition of a 20% interest in The Berlitz Schools of
Languages (Japan), Inc. ("Berlitz-Japan"), a subsidiary of the Company,
for an aggregated consideration of $27.1 million. Pursuant to an
agreement with Fukutake entered into in connection with such
acquisition, Fukutake was entitled to nominate one director of the
Company and had an option, under certain circumstances, to sell back
such interest to the Company, including in the event that the Company
should decide not to apply for public registration of its subsidiary in
Japan. Pursuant to the Merger, Fukutake relinquished the above-
mentioned option. Mr. Saburo Nagai currently serves as the Fukutake
nominee on the Board of Directors of the Company pursuant to the
acquisition by Fukutake in January 1991 of a 20% interest in Berlitz-
Japan.
On December 9, 1992, the Company and Fukutake entered into 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, approximately 67% of the New Common. The Company's
shareholders received for each of their shares of common stock held
prior to the Merger: (i) $19.50 cash, (ii) 0.165 share of New Common and
(iii) $1.48, representing the net proceeds from the disposition of the
Company's claims arising from the Maxwell Notes. In addition, at the
time of the closing, the shareholders of record on February 17, 1992
received $.01 per share in consideration for the redemption of each
Right granted pursuant to the terms of the Rights Agreement. Public
shareholders of the Company hold the remaining approximately 33% of New
Common.
The Merger Agreement and the transactions contemplated thereby were
approved by the required holders of at least two-thirds of the Company's
outstanding shares and were consummated on February 8, 1993.
In January 1993, the Company entered into agreements with Maxwell
Communication and Macmillan (the "Disengagement Agreements") to
disengage certain relationships. 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 all claims that payments to the Company should be considered
preferential and other claims of Maxwell Communication and its
affiliates against the Company and its subsidiaries the 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 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, the Company
and its subsidiaries (a) sold to Macmillan a promissory note of
Macmillan with a principal amount of $64.6 million and (b) reduced by
$58 million the amount of their claims against Maxwell Communication in
respect of the Maxwell
<PAGE>
Page 73
Notes.
The Company also entered into an agreement with Macmillan clarifying
certain commercial relationships, including formally terminating the
services agreement with Maxwell Communication and Macmillan as of
December 31, 1991. Certain distribution agreements with Macmillan and
its affiliates were terminated in 1994.
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 income tax
liabilities of the Macmillan Group arising prior to that date. Pursuant
to the Disengagement Agreement, Macmillan agreed to pay all such
Federal income 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
obligation under the Tax Allocation Agreement.
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 $50.0 million 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
was 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. This letter of credit was terminated in 1994.
In September 1994, the Company borrowed $20.0 million 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.
Berlitz-Japan also borrowed Yen 1.0 billion (approximately $10.1 million)
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.
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 Facilities 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,
<PAGE>
Page 74
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 guarantee of payment
obligations under the Japan Note, effective as of the day following the
date upon which all payment obligations under the Acquisition 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.
Berlitz-Japan had 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 was to 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 and a coordination
fee of 10% of project-related employee salaries. Development activities
under the Development Agreement were completed during 1994.
Pursuant to the Development Agreement, the Company received
reimbursement for production costs of approximately $2.3 million, $1.8
million and $296,000 during 1994, 1993 and 1992, respectively. In
addition, the Company received the coordination fee and other project-
related reimbursements of approximately $250,000 in 1994, and the
development fee of approximately $420,000 in 1993. The Company had no
receivables from Fukutake pursuant to the Development Agreement at
December 31, 1994.
Fukutake and Berlitz-Japan also entered into an agreement, dated as of
October 1, 1993, pursuant to which Berlitz-Japan would assist Fukutake
in the development of an English correspondence course and related audio
visual materials. Development was completed in March 1994, at which
time Berlitz-Japan received a minimum guaranty usage fee of Yen 6,990,336
(approximately $68,000 based on the Yen/Dollar exchange rate at the
close of business on March 30, 1994). Under the terms of the agreement,
Fukutake will also pay Berlitz-Japan an additional royalty for all
courses sold beyond the first 1,200 units.
The Company and Fukutake maintain a joint Directors and Officers ("D&O")
insurance policy covering acts by directors and officers of both
Fukutake and the Company. Consequently, the premium on the D&O policy
is allocated 60% to Fukutake and 40% to the Company. Commencing in
February 1995, the Company will maintain a stand-alone Employment
Practices Liability ("EPL") insurance policy covering the Company, its
officers and directors (including the Fukutake directors who are also
directors of the Company). Consequently, the premium on the EPL policy
will be allocated 30% to Fukutake and 70% to the Company.
The Company and Fukutake participated in certain other joint business
arrangement in the ordinary course of business, as follows: i) Pursuant
to a June 1, 1993 sublease agreement, the Company subleased space during
1994 in Fukutake's New York offices at an annual base rent of $79,000
plus operating expenses. The sublease expired in January 1995. ii)
During 1994, Berlitz-Japan provided lessons to Fukutake under an
extended industrial block contract, entered into in 1993 for a prepayment
<PAGE>
Page 75
of Yen 10.0 million, whereby Berlitz-Japan waived a one-time
registration charge and provided Fukutake with an industrial lesson rate
which is approximately 20% below the rate charged for individual
instruction. iii) In 1994, the Company and Fukutake entered into a
services agreement whereby Fukutake would offer its customers language
and homestay programs arranged and operated by the Company's specialty
instruction program, Berlitz Study Abroad (Trademark). During 1994, Fukutake
also periodically offered its customers language study and homestay programs
arranged and operated by L.I.F.E. (Registered Trademark), another of the
Company's specialty instruction programs.
Management believes that the Company has entered into all such
agreements on terms no less favorable than it would have received in a
arms-length transaction with independent third parties. Each of the
transactions with Fukutake entered into after the Merger was approved
by the Disinterested Directors Committee.
Fukutake has advised the Company that it plans to change Fukutake's name
to "Benesse Corporation" on April 1, 1995, upon approval of Fukutake's
shareholders. Subject to receipt of all required Japanese approvals and
prevailing market conditions, Fukutake plans to make an initial public
offering of Fukutake securities no earlier than the later part of 1995.
There is no assurance that such a public offering will be made, the
timing of any such public offering, nor can the Company predict its
possible impact on Berlitz.
<PAGE>
Page 76
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 30.
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.
<PAGE>
Page 77
10.1 Credit Agreement, dated as of January 29, 1993, among the
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 First Amendment, dated as of September 21, 1994, to the Credit
Agreement, dated as of January 29, 1993, among the registrant,
the several lenders from time to time parties thereto and
Chemical Bank as Agent. Exhibit 99.6 to the Company's Form 8-K,
dated September 21, 1994, is incorporated by reference herein.
10.3 Second Amendment and Consent, dated as of September 21, 1994, to
the Credit Agreement, dated as of January 29, 1993, among the
registrant, the lenders from time to time parties thereto and
Chemical Bank. Exhibit 99.7 to the Company's Form 8-K, dated
September 21, 1994, is incorporated by reference herein.
10.4 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.
10.5 Second Amendment, dated as of September 21, 1994, to the Senior
Note Agreements, dated as of January 29, 1993, among the
registrant and each institutional lender party thereto. Exhibit
99.10 to the Company's Form 8-K, dated September 21, 1994, is
incorporated by reference herein.
10.6 Third Amendment, dated as of September 21, 1994, to the Senior
Note Agreements, dated as of January 29, 1993 among the
registrant and each institutional lender party thereto. Exhibit
99.11 to the Company's Form 8-K, dated September 21, 1994, is
incorporated by reference herein.
10.7 Yen 1 billion (Japanese yen) Subordinated Non-Negotiable Promissory
Note, dated as of September 21, 1994, between the Berlitz Schools
of Languages (Japan), Inc. (as Borrower) and Fukutake Publishing
Co., Ltd. (as Lender). Exhibit 99.2 to the Company's Form 8-K,
dated September 21, 1994, is incorporated by reference herein.
10.8 US$20,000,000 Subordinated Non-Negotiable Promissory Note, dated
as of September 21, 1994, among the registrant (as Borrower) and
Fukutake Holdings (America) (as Lender). Exhibit 99.3 to the
Company's Form 8-K, dated September 21, 1994, is incorporated by
reference herein.
10.9 Spring Guaranty Letter, dated as of September 21, 1994, from the
registrant to Fukutake Publishing Co., Ltd. Exhibit 99.4 to the
Company's Form 8-K, dated September 21, 1994, is incorporated by
reference herein.
10.10 Subsidiaries Guaranty, dated as of September 21, 1994, by Berlitz
Financial Corporation, Berlitz Investment Corporation, Berlitz
Languages, Inc. and Berlitz Publishing Company, Inc. in favor of
Fukutake Holdings (America), Inc. Exhibit 99.5 to the Company's
Form 8-K, dated September 21, 1994, is incorporated by reference
herein.
<PAGE>
Page 78
10.11 Subordination Agreement, dated as of September 21, 1994, among
Fukutake Publishing Co., Ltd., The Berlitz Schools of Languages
(Japan), Inc. and Chemical Bank. Exhibit 99.8 to the Company's
Form 8-K, dated September 21, 1994, is incorporated by reference
herein.
10.12 First Amendment, dated as of September 21, 1994, to the
Subordination Agreement, dated as of January 29, 1993, among
Fukutake Publishing Co., Ltd, Fukutake Holdings (America), Inc.,
the registrant and Chemical Bank pursuant to the Master
Collateral and Intercreditor Agreement, dated as of January 29,
1993. Exhibit 99.9 to the Company's Form 8-K, dated September
21, 1994, is incorporated by reference herein.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 $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.
10.19 Yen 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.
10.20 $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.
10.21 $3.3 million Receivable Note from MLL Holdings Limited dated
October 1, 1989. Exhibit
<PAGE>
Page 79
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.
10.22 1989 Stock Option and Incentive Plan. Exhibit 10.13 to
Registration Statement No. 33-31589 is incorporated by reference
herein.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 Employment Agreement, dated October 1, 1993, between the
registrant and Robert Minsky.
10.29 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.
10.30 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.
10.31 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 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.
10.32 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.
10.33 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
<PAGE>
Page 80
Annual Report on Form 10-K for the fiscal year ended December 31,
1990 is incorporated by reference herein.
10.34 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.
10.35 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.
10.36 Form of Indemnification Agreement between the registrant and each
of Soichiro Fukutake, Owen Bradford Butler, Susumu Kojima,
Saburo 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.
10.37 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.
10.38 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.
10.39 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.
10.40 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.
10.41 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.
10.42 Letter Agreement, dated July 14, 1993, between the registrant and
Elio Boccitto. Exhibit 10.36 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 is
incorporated by reference herein.
10.43 Employment Agreement, dated June 15, 1993, between the registrant
and Anthony Tedesco. Exhibit 10.37 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993
is incorporated by reference herein.
10.44 Employment Agreement, dated February 6, 1992, between the
registrant & Manuel Fernandez. Exhibit 10.38 to the Company's
Annual Report on Form 10-K for the fiscal year
<PAGE>
Page 81
ended December 31, 1993 is incorporated by reference herein.
10.45* Employment Agreement, dated February 6, 1992, between the
registrant & Henry D. James.
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.
27* Financial Data Schedule.
*Filed herewith.
<PAGE>
Page 82
B. Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter ended
December 31, 1994.
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.
<PAGE>
Page 83
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, 1995
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, 1995
Soichiro Fukutake
/s/ HIROMASA YOKOI Vice Chairman of the Board, March 31, 1995
Hiromasa Yokoi Chief Executive Officer,
and President
(Principal Executive Officer)
/s/ SUSUMU KOJIMA Executive Vice President, March 31, 1995
Susumu Kojima Corporate Planning and Director
/s/ ROBERT MINSKY Executive Vice President, Chief March 31, 1995
Robert Minsky Operating Officer-Translations and
Publishing, and Director
/s/ MANUEL FERNANDEZ Executive Vice President, Chief March 31, 1995
Manuel Fernandez Operating Officer-Worldwide Language
Instruction, and Director
/s/ HENRY D. JAMES Vice President and March 31, 1995
Henry D.James Chief Financial Officer
(Principal Financial Officer)
/s/ SABURO NAGAI Director March 31, 1995
Saburo Nagai
/s/ EDWARD G. NELSON Director March 31, 1995
Edward G. Nelson
/s/ ROBERT L. PURDUM Director March 31, 1995
Robert L. Purdum
/s/ ARITOSHI SOEJIMA Director March 31, 1995
Aritoshi Soejima
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-K OF BERLITZ INTERNATIONAL, INC.
FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 26,165
<SECURITIES> 0
<RECEIVABLES> 27,505
<ALLOWANCES> (1,912)
<INVENTORY> 8,973
<CURRENT-ASSETS> 67,637
<PP&E> 34,596
<DEPRECIATION> (8,711)
<TOTAL-ASSETS> 582,312
<CURRENT-LIABILITIES> 74,985
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 366,232
<TOTAL-LIABILITY-AND-EQUITY> 582,312
<SALES> 0
<TOTAL-REVENUES> 300,234
<CGS> 0
<TOTAL-COSTS> 179,869
<OTHER-EXPENSES> 12,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,559
<INCOME-PRETAX> 7,104
<INCOME-TAX> 6,195
<INCOME-CONTINUING> 909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 909
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
February 6, 1992
Mr. Henry D. James
Vice President and Controller
Berlitz International, Inc.
Research Park, 293 Wall Street
Princeton, New Jersey 08540
Dear Mr. James:
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 your
hereunder shall not be reduced by virtue of any obligation to seek other
employment.
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 sic 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.
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 and 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 others 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 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
President
Accepted and Agreed to:
By: /s/ H.D. James
