UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10390
BERLITZ INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-355-0016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 ALEXANDER PARK, PRINCETON, NEW JERSEY 08540-6306
(Address of principal executive offices)
(609) 514-9650
Registrant's telephone number, including area code
N/A
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---------- -----------
The number of shares outstanding of the registrant's common stock,
at the close of business on November 13, 1996, is 9,406,013.
Page 1 of 15
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Sales of services and products $ 93,177 $ 91,410
---------- ----------
Costs and expenses:
Cost of services and products sold 56,077 54,896
Selling, general and administrative 28,873 26,784
Amortization of publishing rights, excess
of cost over net assets acquired,
and other intangibles 3,205 3,330
Interest expense on long-term debt 1,862 2,158
Other expense, net 1,048 1,175
--------- ---------
Total costs and expenses 91,065 88,343
--------- ---------
Income before income taxes 2,112 3,067
Income tax expense 1,673 1,949
--------- ---------
Net income $ 439 $ 1,118
=========== ==========
Income per share $ 0.05 $ 0.11
========== ==========
Average number of shares outstanding (000's) 9,406 10,033
========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Page 3
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Sales of services and products $ 273,775 $ 261,490
---------- ---------
Costs and expenses:
Cost of services and products sold 163,684 158,024
Selling, general and administrative 85,729 79,669
Amortization of publishing rights,
excess of cost over net assets
acquired, and other intangibles 9,554 10,142
Interest expense on long-term debt 5,818 6,580
Other expense, net 2,446 906
---------- --------
Total costs and expenses 267,231 255,321
---------- --------
Income before income taxes 6,544 6,169
Income tax expense 4,895 5,560
---------- --------
Net income $ 1,649 $ 609
========== =========
Income per share $ 0.17 $ 0.06
========== ==========
Average number of shares outstanding (000's) 9,623 10,033
========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Page 4
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 22,799 $ 25,402
Accounts receivable, less allowance for
doubtful accounts of $1,838 and $1,468 37,441 34,825
Unbilled receivables 3,564 2,744
Inventories 8,642 9,343
Prepaid expenses and other current assets 9,732 6,856
------------ ------------
TOTAL CURRENT ASSETS 82,178 79,170
Property and equipment, net of accumulated
depreciation of $14,758 and $13,292 28,466 25,626
Publishing rights, net of accumulated amorti-
zation of $3,184 and $2,524 18,522 19,114
Excess of cost over net assets acquired and
other intangibles, net of accumulated
amortization of $43,335 and $35,114 423,409 439,407
Other assets 12,890 13,613
----------- ------------
TOTAL ASSETS $ 565,465 $576,930
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 13,486 $ 11,371
Accounts payable 5,575 7,481
Deferred revenues 34,707 35,608
Payrolls and commissions 12,340 10,846
Income taxes payable 3,081 2,251
Accrued expenses and other current
liabilities 13,162 11,523
----------- ------------
TOTAL CURRENT LIABILITIES 82,351 79,080
Long-term debt 56,363 67,081
Notes payable to affiliates 38,185 31,534
Deferred taxes and other liabilities 21,656 21,290
Minority interest 8,712 7,529
----------- -----------
TOTAL LIABILITIES 207,267 206,514
----------- -----------
Commitments and Contingencies (Note 6)
SHAREHOLDERS' EQUITY:
Common stock 1,003 1,003
Additional paid-in capital 368,658 368,658
Accumulated earnings (deficit) 1,272 (377)
Cumulative translation adjustment (7,092) 1,132
Treasury stock at cost (5,643) -
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 358,198 370,416
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 565,465 $576,930
============ ============
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Page 5
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,649 $ 609
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,199 15,321
Minority interst, provision for
bad debts, and foreign exchange gains, net 1,775 1,297
Changes in operating assets
and liabilities (2,454) (3,235)
--------- --------
Net cash provided by operating activities 16,169 13,992
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,791) (6,053)
Other - 124
--------- --------
Net cash used in investing activities (9,791) (5,929)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of note payable to affiliate 6,000 -
Payments to acquire treasury stock (5,643) -
Repayment of long-term debt (8,595) (7,019)
Payment of deferred financing costs - (107)
--------- -------
Net cash used in financing activities (8,238) (7,126)
--------- -------
Effect of exchange rate changes on cash and
temporary investments (743) 423
--------- -------
Net increase (decrease) in cash and
temporary investments (2,603) 1,360
Cash and temporary investments, beginning of period 25,402 26,165
--------- -------
Cash and temporary investments, end of period $22,799 $27,525
========= ========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 3,838 $ 4,514
======== ========
Income taxes $ 4,431 $ 3,555
======== ========
Cash refunds of income taxes $ 483 $ 1,152
======== ========
Noncash investing activities:
Accounts payable for capital expenditures
in Japan $ - $ 832
========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Page 6
BERLITZ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. GENERAL
The Consolidated Financial Statements of Berlitz International, Inc.
(the "Company") have been prepared in accordance with the
instructions to Form 10-Q and are unaudited. The information
reflects all adjustments which are of a normal recurring nature
which are, in the opinion of management, necessary for a fair
presentation of such financial statements. The financial statements
should be read in conjunction with the financial statements and
related notes to the Company's 1995 Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period
financial statements to conform to the 1996 presentation.
2. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- --------------
Term Loan $ 13,262 $ 21,550
Senior Notes 56,000 56,000
Other 587 902
------------- --------------
Total 69,849 78,452
Less current maturities 13,486 11,371
------------- --------------
Long-term debt $ 56,363 $ 67,081
============= ==============
In connection with the Merger in February 1993, the Company incurred
indebtedness through borrowing under a bank term facility (the "Term
Loan") and the issuance of Senior Notes (the "Senior
Notes")(collectively the "Acquisition Debt Facilities").
3. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
a) Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at September 30, 1996 and December 31, 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------------- ----------------------
<S> <C> <C> <C> <C>
Assets:
Cash and temporary investments $22,799 $ 22,799 $ 25,402 $ 25,402
Currency coupon swap agreement 50 50 - -
Liabilities:
Long-term debt, including
current maturities 69,849 75,279 78,452 84,419
Notes payable to affiliates 38,185 31,112 31,534 25,292
Currency coupon swap agreements 955 955 2,464 2,464
</TABLE>
<PAGE>
Page 7
For cash and temporary investments, the carrying amount
approximates fair value due to their short maturities. The fair
values of long-term debt and notes payable to affiliates are
estimated based on the interest rates currently available for
borrowings with similar terms and maturities. The fair values of
the coupon swap agreements represent the amounts that could be
settled based on estimates obtained from a dealer. The value of
these swaps will be affected by future interest rates and exchange
rates.
b) Currency coupon swap agreements
On January 23, 1996, the Company exchanged its then existing German
mark floating interest rate coupon swap agreement for a fixed
interest rate coupon-only currency swap of equal fair value, with
the following terms:
<TABLE>
<CAPTION>
INTEREST PAYMENTS TO FINANCIAL INSTITUTION INTEREST RECEIPTS FROM FINANCIAL INSTITUTION
NOTIONAL AMOUNT (000'S) INTEREST RATE NOTIONAL AMOUNT (000'S) INTEREST RATE
<S> <C> <C> <C> <C>
FIXED RATE
AGREEMENT: German Mark 60,165 4.78% $ 35,000 5.31%
</TABLE>
During 1995, the German mark floating rate swap had become
ineffective as a hedge of the Company's net investment in its German
subsidiaries. Consequently, during the first quarter of 1996, the
Company recognized a gain in "Other expense, net" of
approximately $400, representing the change in fair value of the
floating swap from December 31, 1995 to the date of the exchange.
4. OTHER EXPENSE, NET
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPT. 30, 1996 SEPT. 30, 1995
-------------- --------------
Interest income on temporary investments $ (148) $ (353)
Foreign exchange (gains) losses, net (9) 1,487
Interest expense to affiliates 495 369
Joint venture related income - (250)
Minority interest 558 350
Other (income) expense, net 152 (428)
-------------- --------------
Total other expense, net $ 1,048 $ 1,175
============== ==============
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 30, 1996 SEPT. 30, 1995
-------------- --------------
Interest income on temporary investments $ (492) $ (946)
Foreign exchange (gains) losses, net (150) 432
Interest expense to affiliates 1,353 1,069
Joint venture-related income - (1,000)
Loss on disposal of fixed assets 6 588
Minority interest 1,006 631
Other non-operating taxes 186 189
Term loan administration fee 150 150
Other (income) expense, net 387 (207)
-------------- --------------
Total other expense, net $ 2,446 $ 906
============== ==============
5. EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Primary and fully diluted earnings per share are
<PAGE>
Page 8
the same since the Company has no common stock equivalents
(e.g.stock options, restricted stock and other stock equivalents)
outstanding.
6. CONTINGENCIES
In October 1996, the Internal Revenue Service issued a deficiency
notice to the Company relating to its 1989, 1990, 1992 and 1993
Federal tax returns. The Company plans to contest the deficiency notice
and believes that any liability that may ultimately result is adequately
provided for at September 30, 1996.
7. STOCK PURCHASE TRANSACTION
On April 4, 1996, the Company consummated the purchase of 627,000
shares of its common stock from Maxwell Communication Corporation
plc (In Administration) at a price of $9 per share. Such shares
were placed into treasury and are reserved for future use.
8. RELATED PARTY TRANSACTION
In March 1996, the Company received the proceeds of a $6,000
subordinated promissory note payable to a U.S. subsidiary of Benesse
Corporation (the "FHAI Note"). The FHAI Note bears interest at a
rate of the six-month LIBOR plus 1% per annum, adjusted semi-
annually, and matures 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 FHAI Note are not permitted while any
amounts remain outstanding under the Acquisition Debt Facilities,
such accrued interest will roll over semi-annually into the note
principal. The FHAI Note is subordinate in rights of payment to
debt under the Acquisition Debt Facilities, including the currency
coupon swap agreements, and it contains certain covenants, including
prohibitions on the incurrence of other debt, liens, loans, merger
or consolidations and amendments to the Acquisition Debt Facilities
without consent. The FHAI Note ranks PARI PASSU with the Company's
other existing promissory notes to Benesse Corporation and its
subsidiary.
9. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 1996, the Company established a Supplemental
Executive Retirement Plan ("SERP") to provide retirement income /
disability retirement benefits, retiree medical benefits and death
benefits to the Chairman of the Board, certain designated executives
and their designated beneficiaries. Monthly benefits will be
available to any participant who retires at age 60 or above, with at
least 5 years of service with the Company. The Company intends to
fund the SERP through a combination of funds generated from
operations and life insurance policies on the participants. For the
three and nine months ended September 30, 1996, the Company recorded
net periodic pension and postretirement benefit costs of $275 and
$825, respectively, related to the SERP.
10. STOCK OPTION AND INCENTIVE PLANS
In September 1996, the Company adopted the New Long Term Executive
Incentive Compensation Plan (the "New LTIP") and the 1996 Stock
Option Plan (the "Stock Option Plan")
<PAGE>
Page 9
(collectively, the "Plans"). The Plans replace the Company's existing
Long Term Executive Incentive Compensation Plan ("the Old LTIP'), which
was initially adopted in 1994.
The New LTIP provides for potential cash awards in 1999 to key
executive employees and the Chairman of the Board of the Company if
certain financial goals are met for the year ending December 31,
1998. Such awards may not exceed $5.0 million in the aggregate.
The Company is not required to establish any fund or segregate any
assets for payments under the New LTIP. For the three and nine
months ended September 30,1996, the Company recorded expense of
$ 67 related to the New LTIP.
The Stock Option Plan authorizes the issuance of options to
directors and key executive employees of the Company. The total
number of shares for which options may be granted is 300,000. The
Company has agreed to grant all 300,000 options not later than June
30, 1997 at an exercise price equal to the closing price of the
Company's common stock on the New York Stock Exchange on the date of
grant.
<PAGE>
Page 10
BERLITZ INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
Consolidated Financial Statements and notes thereto and with the
Company's audited Consolidated Financial Statements and notes thereto for
the fiscal year ended December 31, 1995.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 VS.
THREE MONTHS ENDED SEPTEMBER 30, 1995
Sales for the quarter ended September 30, 1996 were $93.2 million, 1.9%
above the same period in the prior year, reflecting increases in the
Translations and Instruction segments.
Language Instruction sales for the quarter ended September 30, 1996 were
$69.5 million, 0.9% above the same period in 1995, as decreases in Asia
were more than offset by increases in the other geographic divisions.
The sales decline in Asia ($3.2 million, or 15.4%) primarily was due to
the unfavorable impacts of exchange rate fluctuations ($3.0 million).
North America's sales increase ($1.7 million, or 11.7%) primarily
resulted from volume and average revenue per lesson ("ARPL") increases,
and the performance of the Berlitz On Campus specialty program.
The improvement in Central/Eastern European revenues ($0.5 million, or
3.4%) mainly reflects an increase in ARPL, partially offset by the
unfavorable effect of exchange rate fluctuations ($0.8 million, or 5.7%).
The increase in Latin American revenues ($1.3 million, or 13.1%) was
primarily attributable to volume increases.
During the three-month period ended September 30, 1996, the number of
lessons given was approximately 1.3 million, 4.7% above the same period
in the prior year, reflecting increases in most divisions. Lesson volume
in North America increased 7.4% from the prior year. Lesson volume in
Asia rose 0.9% from 1995, reflecting increases in Hong Kong and Japan and
the startup of operations in Singapore, partially offset by a decline in
Thailand. Lesson volume in Latin America increased by 10.7% from prior
year, primarily reflecting volume improvements in Brazil, Colombia and
Venezuela. Lesson volume in Central/Eastern Europe increased 4.1% over
the prior year, primarily reflecting increases in Poland, Austria and
Italy. Lesson volume in Western Europe declined 1.3% from 1995,
primarily because of shortfalls in England, France and Spain, which were
partially offset by positive results in Belgium and Denmark.
Translation segment sales were $20.1 million for the three-month period
ended September 30, 1996, an increase of $1.8 million, or 9.9%, from the
same period in 1995. This growth was primarily due to increases in
Ireland and France which were partially offset by declines in Canada.
Ireland's revenue increase resulted from continued new client development
and the expansion of software related services to new and existing
clients. Results in France and Canada results were impacted by the
procurement and loss, respectively, of certain contracts.
Publishing segment sales were $3.7 million for the three months ended
September 30, 1996, $0.5 million or 11.4% below 1995, primarily
reflecting a decrease in revenues from licensing activities.
<PAGE>
Page 11
EBITA{1} for the 1996 third quarter was $8.2 million, or 8.8% of sales,
compared to $9.7 million, or 10.6% of sales, in the same prior year
period, reflecting EBITA declines in the Translations and Publishing segments
and an increase in non-segment related corporate expenses.
Instruction segment EBITA for the quarter ended September 30, 1996 was
$10.4 million, or 15.0% of segment sales, compared to $10.2 million, or
14.8% of segment sales, in the comparable prior year period. This
improvement was largely due to percentage reductions in: advertising;
rent and premises upkeep; and teacher costs; partially offset by higher
franchise related costs.
Translation segment EBITA for the three months ended September 30, 1996
was $ 1.3 million, or 6.5% of segment sales, compared to $1.9 million, or
10.5% of segment sales, in the prior year. The 1996 results reflect
costs associated with the expansion in the Asian region, lower margins
resulting from an unfavorable product mix during the quarter, and lower
margins on certain new client contracts.
Publishing segment EBITA for the 1996 third quarter was $0.4 million, compared
to $0.8 million in the prior year. This decrease from the prior year
primarily is a result of loss of licensing revenue.
Non-segment related corporate expenses included in EBITA were $3.9 million for
the three months ended September 30, 1996, compared with $3.2 million in the
same prior year period. This increase was primarily due both to a reallocation
of resources under the new matrix management structure in 1996 and to 1996
expenses associated with the Supplemental Executive Retirement Plan
(the "SERP"), the New Long-Term Executive Incentive Compensation Plan (the
"New LTIP") and corporate training programs.
Other expense, net for the three months ended September 30, 1996 declined $0.1
million, or 10.8%, from the comparable prior period, primarily due to a $1.5
million reduction in foreign exchange losses, which were partially offset by
the absences of non-recurring joint venture related income and certain other
income (both of which reduced expenses in 1995).
The Company recorded an income tax expense of $1.7 million, or an
effective rate of 79.2%, during the current period. This compared to an
income tax expense of $1.9 million or an effective rate of 63.5% in the
prior year's quarter. The effective tax rates in both 1996 and 1995 were
above the U.S. statutory Federal tax rate primarily as a result of
nondeductible amortization charges.
Net income for the quarter ended September 30, 1996 was $0.4 million, or
$0.05 per share, compared to net income of $1.1 million, or $0.11 per
share, in the prior year's quarter. This decline of $0.7 million
resulted primarily from a lower EBITA in 1996.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 VS.
NINE MONTHS ENDED SEPTEMBER 30, 1995
Sales for the nine months ended September 30, 1996 were $273.8 million,
4.7% above the same period in the prior year, primarily reflecting
increases in the Translations segment.
Language Instruction sales for the nine months ended September 30, 1996
were $206.5 million, 0.8% above the same period in 1995, reflecting
increases in all geographic divisions except Asia. North America's sales
increase ($3.9 million, or 9.4%) was primarily due to volume increases
and strong performance from the Berlitz on Campus specialty program. The
increase in Latin American revenues ($3.2 million, or 11.3%) was
primarily attributable to an improved volume. The improvement in
Central/Eastern European revenues ($2.3 million, or 5.2%) mainly reflects
an increase in lesson volume, experienced in most countries in the
division, partially offset by the unfavorable effects of exchange rate
fluctuations ($2.2 million, or 5.1%). Asia's sales decline ($8.2
million, or 13.5%) was due to unfavorable exchange rate fluctuations
($9.0 million). Western Europe's results increased slightly from the
prior year.
- ------------------------------------------------------------------------------
{1} EBITA as used herein is defined as sales less cost of services and products
sold, and selling, general and administrative expenses. It is calculated using
amounts determined in accordance with U.S. generally accepted accounting
principles ("U.S. GAAP"). EBITA is not a defined term under U.S. GAAP and is
not indicative of operating income or cash flows from operations as determined
under U.S. GAAP.
<PAGE>
Page 12
During the nine-month period ended September 30, 1996, the number of
lessons given was approximately 3.9 million, 3.8% above the same period
in the prior year. Lesson volume in North America improved by 3.7% over
the prior year. Lesson volume in Asia rose 0.9% from 1995 primarily due
to increases in Japan and Hong Kong, which were partially offset by
declines in Thailand. Lesson volume in Latin America increased by 5.6%
from prior year, primarily as strong volume improvements in Brazil,
Colombia and Venezuela more than offset a 6.9% drop in Mexico. Central/
Eastern Europe lesson volume increased by 8.1% over 1995. Lesson volume
in Western Europe dropped 0.4% from 1995, primarily impacted by
declines in France and improvements in Denmark and Belgium.
Translation segment sales were $56.1 million for the nine-month period
ended September 30, 1996, an increase of $12.0 million, or 27.2%, from
the same period in 1995. Most of this growth occurred in Ireland and the
United States. The U.S. sales increase was attributed primarily to
increased volume from certain key clients and to the success of new
services. Ireland's revenue increase resulted from the development of
new customers and the expansion of software related services to new and
existing clients.
Publishing segment sales were $11.6 million for the nine months ended
September 30, 1996, $0.9 million or 7.5% below 1995, reflecting a general
slowdown in the travel publishing segment, a reduction in revenues from
licensing activities, and unfavorable exchange rate fluctuations.
EBITA for the nine months was $24.4 million, or 8.9% of sales in 1996,
compared to $23.8 million, or 9.1% of sales, in the same prior year period.
Instruction segment EBITA for the nine months ended September 30, 1996
was $31.2 million, or 15.1% of segment sales, compared to $28.0 million,
or 13.7% of segment sales, in the comparable prior year period. This
improvement was largely due to percentage reductions in teacher costs,
rent and premises upkeep, and advertising, partially offset by higher
franchise related expenses.
Translation segment EBITA for the nine-month period ended September 30,
1996 was $3.5 million, or 6.3% of segment sales, compared to $3.4
million, or 7.7% of segment sales, in the prior year. The 1996 results
were favorably impacted by increased sales volume, but mitigated by costs
associated with the expansion of Asian resources, certain lower margin
contracts and certain non-recurring costs.
Publishing segment EBITA was $0.3 million in the 1996 nine month period,
compared to EBITA of $1.2 million in the prior year. 1996 results were
negatively impacted by costs associated with the relocation of
Publishing's editorial and production functions from the United Kingdom
to the United States. In addition, 1996's EBITA was negatively impacted
by loss of licensing revenues.
Non-segment related corporate expenses included in EBITA were $10.6 million
for the nine months ended September 30, 1996 compared with $8.8 million in
the same prior year period. This increase was primarily attributable to a
reallocation of resources under the new matrix management structure in 1996
and to expenses associated with the SERP and corporate training programs.
Other expense, net for the nine months ended September 30, 1996 increased
by $1.5 million from the same prior year period, primarily due to the
absence of non-recurring joint venture related income, which reduced
expenses in 1995.
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Page 13
The Company recorded an income tax expense of $4.9 million, or an
effective rate of 74.8%, during the current nine-month period. This
compared to an income tax expense of $5.6 million, or an effective
tax rate of 90.1%, in the prior year's period. The effective tax rates
in both 1996 and 1995 were above the U.S. statutory Federal tax rate
primarily as a result of nondeductible amortization charges.
Net income for the nine months ended September 30, 1996 was $1.6 million,
or $0.17 per share, compared to net income of $0.6 million, or $0.06 per
share, in the prior year's period. This improvement of $1.0 million
resulted primarily from a higher EBITA, and reduced amortization,
interest and income tax expenses in 1996, which were partially offset by
higher other expense, net in 1996.
FINANCIAL CONDITION
Historically, the primary source of the Company's liquidity has been the
cash provided by operations, and capital expenditures, working capital
requirements and acquisitions have been funded from internally generated
cash. Although each geographic area exhibits different patterns of
lesson volume over the course of the year, the Company's sales are
generally not seasonal in the aggregate.
Capital expenditures during the nine-month period ended September 30,
1996 were $9.8 million, primarily reflecting costs of refurbishments and
purchases for existing centers and $2.7 million related to the
April 1996 relocation of the Company's corporate headquarters to a new
facility in Princeton, New Jersey.
In March 1996, the Company received the proceeds of a $6.0 million
subordinated promissory note payable to a U.S. subsidiary of Benesse.
Principal and interest payments on such note are deferred until after all
payment obligations on the Acquisition Debt Facilities are satisfied.
Pursuant to a covenant under the Acquisition Debt Facilities, the Company
is party to five currency coupon swap agreements with a financial
institution. These agreements require the Company, in exchange for U.S.
dollar receipts, to periodically make foreign currency payments,
denominated in the Japanese yen, the Swiss franc, the Canadian dollar,
the British pound, and the German mark. Credit loss from counterparty
nonperformance is not anticipated. The fair market value of these swap
agreements at September 30, 1996, representing the amount that could be
settled based on estimates obtained from a dealer, was a net liability of
approximately $0.9 million.
On April 4, 1996, the Company consummated the purchase of 627,000 shares
of its common stock from Maxwell Communication Corporation, plc (In
Administration) at a price of $9 per share. Such shares were placed into
treasury and reserved for future use.
Effective January 1, 1996, the Company established the SERP to provide
retirement income /disability retirement benefits, retiree medical
benefits and death benefits to the Chairman of the Board, certain
designated executives and their designated beneficiaries. The Company
intends to fund the SERP through a combination of funds generated
from operations and life insurance policies on the participants.
In October 1996, the Internal Revenue Service issued a deficiency notice
to the Company relating to its 1989, 1990, 1992 and 1993 Federal tax
returns. Such notice proposed adjustments which could result in
additional tax payments of approximately $9.3 million, plus accrued
interest. The Company plans to contest the deficiency notice, and intends
to fund any deficiency that may ultimately result through cash generated
from operations.
<PAGE>
Page 14
At September 30, 1996, the Company's liquid assets of $22.8 million
consisted of cash and temporary investments. The Company does not
currently have any material commitments for capital expenditures. During
1996 and 1997, the Company anticipates capital expenditures to increase
in connection with the expansion of the Company's Translations segment
and the refurbishment of the Company's language centers. The Company
plans to meet its debt service requirements and future working capital
needs through funds generated from operations.
FORWARD LOOKING STATEMENTS
On October 4, 1996, the Company filed a Protest with the Government
Accounting Office ("GAO") protesting the Department of Justice, Executive
Office for Immigration Review ("EOIR") award of its nationwide on-site
interpreter services contract for the next five years to a competing
lower bidder. The Company has been the contractor for these EOIR
services for the last 10 years and estimates that its 1996 revenues under
the current contract, which has been extended to January 1997, will be
approximately $10.0 million. The Company's profit margin on the EOIR
contract generally has been higher than on other Translations contracts,
substantially because of the long-term efficiencies the Company has been
able to achieve. The Company believes that it has substantial legal
grounds for its GAO Protest. However, there can be no assurance that
the Company's Protest will be successful.
As noted under "Financial Condition", the Company has received a
deficiency notice from the IRS relating to certain tax years. To the
extent that a deficiency ultimately is determined to exist, by settlement
or litigation, the Company's cash resources would be used to pay such
deficiency. The Company believes that it has adequate cash resources to
pay any such deficiency and to pursue its business plans.
The statements under this heading constitute "Forward-Looking Statements"
within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act"). The Company desires to take advantage of
certain "Safe Harbor" provisions of the Reform Act and is including this
special note to enable the Company to do so. Forward-Looking Statements
involve known and unknown risks, uncertainties, and other factors which
could cause the Company's actual results, performance (financial or
operating) or achievements to differ materially from the future results,
performance (financial or operating) or achievements expressed or implied
by such Forward-Looking Statements. Such risks, uncertainties and other
factors include, among others: the results of the Company's Protest to
the GAO and if it is unsuccessful, the Company's ability to successfully
replace the EOIR contract business; the outcome of future negotiations
and/or litigation pertaining to the deficiency assessed by the IRS; as
well as more general factors affecting future cashflows, including
fluctuations in foreign currency exchange rates; demand for the Company's
products and services; the effect of changing economic and political
conditions; the level of success and timing in implementing corporate
strategies and new technologies; changes in governmental and tax laws,
regulations, tax audits and other factors (known or unknown) which may
affect the Company. As a result, no assurance can be given as to future
results, levels of activity and achievements.
<PAGE>
Page 15
BERLITZ INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
All exhibits listed below are filed with this Quarterly Report on Form
10-Q.
EXHIBIT NO.
10.1 New Long-Term Executive Compensation Plan
10.2 1996 Stock Option Plan
27 Financial Data Schedule, for the nine months ended September
30, 1996.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
SIGNATURES
Pursuant to the requirements of the Exchange Act the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BERLITZ INTERNATIONAL, INC.
(Registrant)
Date: November 14, 1996 By: /S/ HENRY D. JAMES
--------------------------
Henry D. James
Executive Vice President
and Chief Financial Officer
--------------------------------------
BERLITZ INTERNATIONAL, INC.
NEW
LONG TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
--------------------------------------
<PAGE>
BERLITZ INTERNATIONAL, INC.
NEW
LONG TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE.
The purpose of this Plan is to promote the interests of the
Company by (a) attracting, motivating and retaining executive personnel
of outstanding ability; (b) focusing the attention of executive
management prospectively on achievement of sustained long term results;
(c) fostering management's attention on overall corporate performance and
thereby promoting cooperation and teamwork among management of the
operating units; and (d) providing executives with a direct economic
interest in the attainment of demanding long term business objectives.
SECTION 2. DEFINITIONS.
As used in this Plan, the following capitalized terms shall
have the following meanings:
(a) "AFFILIATE" shall mean any entity controlling,
controlled by or under common control with, the Company.
(b) "AMORTIZATION" shall mean amortization of goodwill.
(c) "BOARD OF DIRECTORS" shall mean the board of
directors of the Company, as constituted from time to time.
<PAGE>
Page 2
(d) "CAUSE" shall mean (i) serious and repeated willful
misconduct in respect of a Participant's duties which has resulted in
material, economic damages to the Company or any Subsidiary, and, to the
extent such misconduct is susceptible to being cured, such misconduct
continues for thirty days following written notice to the Participant by
the Company detailing such misconduct, (ii) the final, unappealable
conviction in a court of law of any crime or offense (A) for which the
Participant is imprisoned for a term of six months or more or (B) that
involves the commission of fraud or theft against, or embezzlement from,
the Company or any Subsidiary, or (iii) chronic alcoholism or abuse of
controlled substances.
(e) "CODE" shall mean the Internal Revenue Code of 1986,
as amended.
(f) "COMMITTEE" shall mean the Compensation Committee of
the Board of Directors, as constituted from time to time.
(g) "COMPANY" shall mean Berlitz International, Inc., a
New York corporation.
(h) "EARNINGS" shall mean net earnings from continuing
operations of the Company and its Subsidiaries and before the cumulative
effect of accounting charges and extraordinary items.
(i) "EFFECTIVE DATE" shall mean September 16, 1996.
<PAGE>
(j) "EMPLOYEE" shall mean a regular full-time employee of
the Company or any of its Subsidiaries.
(k) "GRADES 1-3" shall mean those employment positions of
the Company or a Subsidiary thereof categorized by "Employment Grades",
as the Committee may determine in its sole discretion.
(l) "MATURITY DATE" shall mean December 31, 1998.
(m) "MAXIMUM AWARD" shall mean the maximum amount of an
award payable to a Participant, as granted by the Committee pursuant to
Section 4(c) of the Plan.
(n) "1998 EBITA" shall mean Earnings Before Interest
Expense or Interest Income and Taxes and Amortization for the year ending
December 31, 1998 (and before any 1998 accrual for any payments under the
Plan).
(o) "1998 SALES" shall mean sales of the Company and its
Subsidiaries for the year ended December 31, 1998 in accordance with the
Company's revenue recognition policies and generally accepted accounting
principles.
(p) "OTHER COMPENSATION" shall mean all "applicable
employee remuneration" (within the meaning of Section 162(m) of the Code)
paid by the Company to a Participant (other than compensation payable
under this Plan).
(q) "PARTICIPANT" shall mean those Employees designated
to participate in the Plan pursuant to Section 3 hereof.
<PAGE>
Page 4
(r) "PARTICIPANT PAYOUT" shall mean an amount determined
by multiplying the Participant's Maximum Award by the Total Performance
Measure as set forth in Section 4(a) hereunder. If applicable, the
Participant Payout for any given Participant shall be pro-rated in the
manner specified in Section 6.
(s) "PLAN" shall mean this New Long Term Executive
Incentive Compensation Plan, as may be amended from time to time.
(t) "SUBSIDIARY" shall mean any entity of which the
Company owns, directly or indirectly, securities or other interests of
such entity possessing 50% or more of the total combined voting power.
(u) "TOTAL PERFORMANCE MEASURE" shall have the meaning
set forth in Section 4(b) hereof.
SECTION 3. ELIGIBILITY.
Participants in the Plan shall consist of those key executive
employees (including officers and the Chairman of the Board of Directors)
designated by the Committee who, in the sole and absolute discretion of
the Committee, have a significant impact on the Company's financial
results. The Committee has designated all Employees on the Effective
Date in Grades 1-3 and the Chairman of the Board of Directors as
Participants in the Plan.
<PAGE>
Page 5
SECTION 4. INCENTIVE AWARDS.
Awards to Participants under the Plan are potential awards that
will be paid if and to the extent that certain financial goals are
achieved.
(a) PARTICIPANT PAYOUT. If the requirements of the Plan
as specified in paragraph (b) of this Section 4 have been attained, each
Participant under the Plan shall receive a Participant Payout determined
by multiplying (i) the Participant's Maximum Award granted pursuant to
Section 4(c) by (ii) the Total Performance Measure, as described in
Section 4(b), at the time and in the manner set forth in Section 5 below.
(b) TOTAL PERFORMANCE MEASURE. Each of an EBITA financial
performance measure and a Sales performance measure at the Maturity Date
shall be the basis for the Total Performance Measure for each Participant
as follows:
(i) If (a) 1998 EBITA is equal to or greater than $55
million AND (b) 1998 Sales is equal to or greater than $500 million, the
Total Performance Measure shall equal 100%;
(ii) If the performance measures set forth in (i)(a)
and/or (i)(b) above are not satisfied, but (a) 1998 EBITA is equal to or
greater than $47.5 million AND (b) 1998 Sales is equal to greater than
$450 million, the Total Performance Measure shall equal 75%; and
(iii) If the performance measures set forth in (ii)(a)
and/or (ii)(b) above are not satisfied, but
<PAGE>
Page 6
(a) 1998 EBITA is equal to or greater than $40 million AND (b) 1998 Sales
is equal to or greater than $400 million, the Total Performance Measure
shall equal 50%.
In the event that either 1998 EBITA is less than $40 million or
1998 Sales is less than $400 million, the Total Performance Measure shall
equal zero.
(c) MAXIMUM AWARD. The Committee shall determine the
Maximum Award to which each Participant under the Plan shall be entitled,
PROVIDED, HOWEVER, that the sum of the Maximum Awards granted to all
Participants in the Plan shall not exceed $5 million. The Maximum Awards
granted to Participants in the Plan on the Effective Date are set forth
on Exhibit A hereto.
SECTION 5. FORM AND TIME OF AWARD PAYMENTS.
(a) PARTICIPANT DEFERRAL ELECTION. Except as otherwise
provided for in this Section 5, a Participant Payout shall be paid to the
Participant not later than 30 days after the date of the opinion of the
Company's independent auditors certifying the Company's financial results
for the 1998 calendar year (the "Payout Date"), unless, prior to
December 31, 1997, such Participant otherwise irrevocably elects to have
all or a portion of his Participant Payout paid at a later date not
earlier than one year after, and not later than five years after, the
Payout Date (the "Deferred Payout Date"). If a Participant elects to
have all or a portion of his Participant Payout deferred
<PAGE>
Page 7
pursuant to the foregoing sentence, the deferred amount of his Participant
Payout shall be credited with interest from the Payout Date until the
Deferred Payout Date at the Prime Rate set by the Federal Reserve Bank of
New York on the Payout Date, adjusted semi-annually as of each June 30 and
December 31.
(b) PARTICIPANT PAYOUT DEFERRAL. If, in any calendar year,
the aggregate of the Participant Payout and the Other Compensation to
which a Participant shall be entitled (the "Total Compensation") exceeds
the limitation under Section 162(m) of the Code, the amount of the
Participant Payout to be distributed to such Participant in such calendar
year shall be reduced by the amount such Total Compensation exceeds such
limitation (the "Deferred Participant Payout"). The distribution of the
Deferred Participant Payout shall be deferred and paid to such
Participant on the anniversary and, if necessary, subsequent
anniversaries, of such Payout Date or Deferred Payout Date, as the case
may be, to the extent the Deferred Participant Payout and the Other
Compensation in such calendar year do not exceed the limitation under
Section 162(m) of the Code, until the Participant Payout is fully
distributed. In the event that the Participant's employment is
terminated prior to completing distribution of the Deferred Participant
Payout, all amounts shall be distributed in a lump sum no later than the
10th day following the Participant's termination of employment for any
reason. All amounts
<PAGE>
Page 8
deferred pursuant to this paragraph (b) shall earn interest at the
Prime Rate set by the Federal Reserve Bank of New York on the
Payout Date or Deferred Payout Date, as the case may be, adjusted
semi-annually as of each June 30 and December 31.
SECTION 6. DEATH, DISABILITY, RETIREMENT, TRANSFER AND
TERMINATION OF EMPLOYMENT.
(a) DEATH, DISABILITY, RETIREMENT, AFFILIATE TRANSFER, OR
TERMINATION WITHOUT CAUSE. If prior to the Maturity Date, a Participant
dies, becomes disabled, retires under a retirement plan of the Company or
a Subsidiary, or if a Participant's employment is terminated by the
Company prior to such date other than for Cause, or if a Participant is
transferred to the employ of an Affiliate (other than a Subsidiary), a
pro rata portion of the award payment to which such Participant would
have become entitled hereunder shall be paid to the Participant in
accordance with the terms of this Plan. Such pro rata portion shall bear
the same ratio to the total award payment as the number of months such
Participant was employed between the Effective Date and the end of the
month in which such termination of employment or transfer occurs bears to
28. In the event the Participant's employment is terminated by the
Company other than for Cause, the Participant shall forfeit his or her
award payment hereunder if, before the award payment is made, such
Participant violates a non-compete provision in any applicable employment
agreement.
<PAGE>
Page 9
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. A
Participant who voluntarily terminates his employment on or prior to the
Maturity Date or a Participant whose employment is terminated for Cause
at any time prior to payment of any award hereunder shall forfeit any
right to receive any award payment. Any Participant who voluntarily
terminates his employment after the Maturity Date, but before the payment
of any award amount to which such Participant is otherwise entitled
hereunder, shall be paid such award amount in accordance with the other
provisions of this Plan. It is expressly understood that none of the
events described in Section 6(a) above shall be deemed a voluntary
termination by such Participant pursuant to this Section 6(b).
SECTION 7. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee
shall have full power and authority to interpret and to construe the
Plan, and all such interpretations as well as all determinations made by
the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interest in the Plan or
in any awards granted hereunder.
<PAGE>
Page 10
SECTION 8. AMENDMENTS.
The Committee may amend or alter the Plan, but no amendment or
alteration shall be made that shall impair the rights of any Participant
hereunder without the Participant's consent.
SECTION 9. MISCELLANEOUS.
(a) NO RIGHT TO AWARDS OR CONTINUED EMPLOYMENT. No
Employee shall have any claim or right to be granted an award under the
Plan. Neither this Plan nor any action taken hereunder shall be
construed as giving any Employee any right to be retained in the employ
of the Company or a Subsidiary thereof.
(b) UNFUNDED PLAN. This Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund
or to make any other segregation of assets to assure the payment of any
award under the Plan.
(c) TAXES. The Company or any Subsidiary shall have the
right to deduct from all awards paid under the Plan any federal, state or
local taxes required by law to be withheld with respect to such payments.
(d) DETERMINATION OF EBITA. In determining EBITA for
purposes of this Plan, (i) the operations of any company or business
acquired during the period on or after January 1, 1998 and on or before
the Maturity Date along with any income or expense relating to such
acquisition,
<PAGE>
Page 11
will be included, and (ii) in the case of any company or
business divested during the period on or after January 1, 1998 and on or
before the Maturity Date, the results of the operations until divestiture
and the gain or loss resulting upon such divestiture shall be included
for the period on or after the Effective Date and on or before the
Maturity Date, along with any income or expense relating to such
divestiture.
(e) NON-TRANSFERABILITY. No award made hereunder may be
assigned, pledged or transferred, except, in the event of death of a
Participant, by will or the laws of descent and distribution, and any
attempt to assign, pledge or transfer such rights shall be void.
(f) RELATIONSHIP TO OTHER BENEFITS. No payment under the
Plan shall be taken into account in determining any benefits under any
pension, profit sharing, group insurance or other benefit plan of the
Company or any of its Subsidiaries.
(g) GOVERNING LAW. This Plan shall be governed by and
construed in accordance with laws of the State of New York applicable to
agreements made and to be performed entirely within such state (without
regard to any conflict of law provisions that might indicate the
applicability of any other laws).
<PAGE>
Page 12
SECTION 10. EFFECTIVE DATE.
This Plan shall become effective on the Effective Date.
<PAGE>
EXHIBIT A - MAXIMUM AWARDS
NAME MAXIMUM AWARD
S. Fukutake $1,224,085.00
H. Yokoi $882,223.00
S. Kojima $310,432.00
R. Minsky $330,834.00
M. Fernandez $330,834.00
H. James $230,481.00
J. Okazaki $174,790.00
A. Tedesco $165,417.00
I. Hisai $156,595.00
R. Hendon $174,790.00
W. Wiedeler $165,417.00
J. Alvarino $165,417.00
A. Gatoff $128,474.00
D. Horn $128,474.00
M. Strumpen-Darrie $128,474.00
F. Garton $156,043.00
B. Kelly $147,220.00
-----------
TOTAL $5,000,000.00
BERLITZ INTERNATIONAL, INC.
STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 GENERAL.........................................1
1.1 Purpose.........................................1
1.2 Definitions of Certain Terms....................1
1.3 Administration..................................3
1.4 Persons Eligible for Awards.....................3
1.5 Types of Awards Under Plan......................4
1.6 Shares Available for Awards.....................4
1.7 Agreements Evidencing Awards....................4
ARTICLE 2 OPTIONS.........................................5
2.1 Grant of Options................................5
2.2 Exercisability of Options.......................5
2.3 Method of Exercise..............................6
2.4 Default Rules Concerning Termination of Service.7
2.5 Term of Options. ..............................7
ARTICLE 3 MISCELLANEOUS...................................8
3.1 Amendment of the Plan; Modification of Awards...8
3.2 Restrictions....................................8
3.3 Nontransferability..............................9
3.4 Withholding Taxes...............................9
3.5 Adjustments Upon Changes in Capitalization......9
3.6 Right of Discharge Reserved....................10
3.7 No Rights as a Stockholder.....................10
3.8 Nature of Payments.............................10
3.9 Non-Uniform Determinations.....................11
3.10 Other Payments or Awards.......................11
3.11 Severability...................................11
3.12 Section Headings...............................11
3.13 Effective Date.................................11
3.14 Expiration Date................................12
3.15 Governing Law..................................12
<PAGE>
BERLITZ INTERNATIONAL, INC.
STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 PURPOSE.
The purpose of this Berlitz International, Inc. Stock Option
Plan (the "Plan") is to provide for certain officers, directors and key
personnel of Berlitz International, Inc. (the "Company") and certain of
its Affiliates an equity-based incentive to maintain and enhance the
performance and profitability of the Company. It is the further purpose
of this Plan to permit the granting of awards that will constitute
qualified performance-based compensation for certain executive officers,
as described in section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
1.2 DEFINITIONS OF CERTAIN TERMS.
(a) "Affiliate" means any person or entity which, at the
time of reference, directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control
with, the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (i) serious and repeated willful
misconduct in respect of a grantee's duties which has resulted in
material, economic damages to the Company or any Affiliate, and, to the
extent such misconduct is susceptible to being cured, such misconduct
continues for thirty days following written notice to the grantee by the
Company detailing such misconduct, (ii) the final, unappealable
conviction in a court of law of any crime or offense (A) for which the
grantee is imprisoned for a term of six months or more or (B) that
involves the commission of fraud or theft against, or embezzlement from,
the Company or any Affiliate, or (iii) chronic alcoholism or abuse of
controlled substances.
(d) "Change of Control" means the happening of any of the
following:
(i) A change of control of a nature that would be
required to be reported in response to any form or report to the
Securities and Exchange Commission or any stock exchange on which any of
the Company's equity
<PAGE>
Page 2
securities are listed that requires the reporting of
a change in control of the Company; or
(ii) A majority of the members of the Board in office
prior to the happening of any event determines in its sole discretion
that as a result of such event there has been a Change of Control;
PROVIDED, HOWEVER, that a Change of Control shall not include a Going
Private Transaction (as defined below).
(e) "Committee" means the Compensation Committee of the
Board, as constituted from time to time or such other committee as may be
designated by the Board from time to time. Notwithstanding the
foregoing, the Board may, in its sole discretion, at any time and from
time to time, resolve to administer the Plan; in such event, the term
Committee as used herein shall be deemed to mean the Board.
(f) "Common Stock" means the shares of common stock of the
Company, par value $.10 per share, and any other shares into which such
common stock shall thereafter be changed by reason of a recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the
like.
(g) "Effective Date" shall have the meaning set forth in
Section 3.13 hereof.
(h) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(i) "Expiration Date" means the date the Plan expires, as
set forth in Section 3.13 hereof.
(j) "Fair Market Value" as of any determination date and
in respect of any share of Common Stock shall be the mean between the
high and low sales prices of a share of Common Stock as reported on the
New York Stock Exchange on such determination date if shares of Common
Stock are then trading on such exchange or if not, then such mean on such
other stock exchange on which shares of Common Stock are principally
trading on such determination date. If no shares of Common Stock are
trading on such determination date, the Fair Market Value shall be
determined by reference to the next preceding date on which such shares
were trading or shall be determined by the Committee in its sole
discretion. In no event shall the fair market value of any share of
Common Stock be less than its par value.
(k) "Going Private Transaction" means when Benesse
Corporation, together with any of its Affiliates, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange Act)
directly or indirectly, of securities of
<PAGE>
Page 4
the Company representing 90 percent or more of the combined voting power
of the Company's then outstanding securities.
(l) "Option" means a right to purchase shares from the
Company that is granted pursuant to Article 2 of the Plan.
(m) "Option Exercise Price" means the amount payable by
the grantee to the Company in connection with the exercise of an Option.
1.3 ADMINISTRATION.
(a) The Plan shall be administered by the Committee. It
is intended that the members of the Committee shall be (i) "non-employee
directors" within the meaning of Rule 16b-3 and (ii) "outside directors"
(within the meaning of Code section 162(m)), to the extent Rule 16b-3 and
Code section 162(m), respectively, are applicable to the Company.
However, the mere fact that a Committee member may fail to qualify as an
outside director or non-employee director will not invalidate any award
that is otherwise validly made under the Plan.
(b) The Committee shall have the authority (i) to exercise
all of the powers granted to it under the Plan, (ii) to construe,
interpret and implement the Plan and any Plan agreements executed
pursuant to the Plan, (iii) to prescribe, amend and rescind rules
relating to the Plan, (iv) to make any determination necessary or
advisable in administering the Plan and (v) to correct any defect, supply
any omission and reconcile any inconsistency in the Plan.
(c) The determination of the Committee on all matters
relating to the Plan or any Plan agreement shall be conclusive.
(d) No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or
any award hereunder.
1.4 PERSONS ELIGIBLE FOR AWARDS.
Awards under the Plan may be made to such directors (whether or
not employees), officers and other key personnel of the Company or an
Affiliate as the Committee shall from time to time in its sole discretion
select.
1.5 TYPES OF AWARDS UNDER PLAN.
Awards under the Plan will be made in the form of Options. All
Options granted pursuant to the Plan shall be "non-qualified" stock
options subject to the provisions of Code section 83, and shall not be
"incentive stock options" within the meaning of Code section 422, all as
more fully set forth in Article 2.
<PAGE>
Page 4
1.6 SHARES AVAILABLE FOR AWARDS.
(a) Subject to Section 3.5 (relating to adjustments upon
changes in capitalization), as of any date the total number of shares of
Common Stock with respect to which Options may be granted under the Plan,
shall be the excess of 300,000 shares, over the sum of (i) the number of
shares of Common Stock subject to outstanding Options and (ii) the number
of shares in respect of which Options have been exercised. In accordance
with (and without limitation upon) the preceding sentence, awards may be
granted in respect of shares covered by previously-granted awards that
have expired, terminated or been canceled for any reason whatsoever
(other than by reason of exercise).
(b) Shares of Common Stock that shall be subject to
issuance pursuant to the Plan shall be authorized and unissued or
treasury shares of Common Stock.
(c) Without limiting the generality of the foregoing, the
Committee may, with the grantee's consent, cancel any Option under the
Plan and issue a new Option in substitution therefor upon such terms as
the Committee may in its sole discretion determine, provided that the
substituted Option shall satisfy all applicable Plan requirements as of
the date such substituted Option is granted. The foregoing is not
intended to prevent or limit the Committee's authority to make equitable
adjustments to Options upon the occurrence of certain events as herein
provided, including without limitation, adjustments pursuant to Section
3.5.
1.7 AGREEMENTS EVIDENCING AWARDS.
(a) Options granted under the Plan shall be evidenced by
written agreements. Any such written agreement shall (i) contain such
provisions not inconsistent with the terms of the Plan as the Committee
may in its sole discretion deem necessary or desirable and (ii) be
referred to herein as "Plan agreements."
(b) Each Plan agreement shall set forth the number of
shares of Common Stock subject to the Option granted thereby and the
Option Exercise Price payable in connection with the Option.
ARTICLE 2
OPTIONS
2.1 GRANT OF OPTIONS.
The Committee may grant Options to purchase shares of Common
Stock in such amounts and subject to such terms and conditions as the
Committee shall from time to time in its sole discretion determine,
subject to the terms of the
<PAGE>
Page 5
Plan. In no event may an employee be granted Options with respect to
more than 75,000 shares of Common Stock in any one calendar year.
2.2 EXERCISABILITY OF OPTIONS.
(a) GENERAL RULE. Subject to the other provisions of the
Plan, each Plan agreement shall set forth the period during which, and
the conditions subject to which, the Option evidenced thereby shall be
exercisable, as determined by the Committee in its sole discretion.
(b) DEFAULT RULE. Unless an applicable Plan agreement
otherwise provides and subject to the other provisions of the Plan:
(i) no Option shall be exercisable prior to (i) for
grants made on the Effective Date, January 1, 1999 and (ii) for all
other grants, the third anniversary of the date of grant;
(ii) each Option shall become fully (100%) exercisable
on (i) for grants made on the Effective Date, January 1, 1999 and
(ii) for all other grants, the third anniversary of the date of
grant; and
(iii) each Option shall remain fully exercisable through
the day prior to the seventh anniversary of the date of the grant,
after which such Option shall terminate and cease to be exercisable.
(c) PARTIAL EXERCISE PERMITTED. Unless an applicable Plan
agreement otherwise provides, an Option granted under the Plan may be
exercised from time to time as to all or part of the full number of
shares as to which such Option shall then be exercisable.
(d) NOTICE OF EXERCISE; EXERCISE DATE.
(i) An Option shall be exercisable by the filing of
a written notice of exercise with the Company, on such form and in
such manner as the Committee shall in its sole discretion prescribe,
and by payment of the Option Exercise Price in accordance with
Section 2.3(b).
(ii) Unless the applicable Plan agreement otherwise
provides or the Committee in its sole discretion otherwise
determines, the date of exercise of an Option shall be the date the
Company receives such written notice of exercise accompanied by
payment of the Option Exercise Price in accordance with Section 2.3.
<PAGE>
Page 6
(e) CHANGE IN CONTROL. Notwithstanding any other
provision of the Plan to the contrary, upon a Change of Control, the
Committee may, in its sole discretion:
(i) provide that any acquiring or successor
corporation will assume the Option, to the extent then outstanding,
or substitute an equivalent Option or other benefit of equivalent
value;
(ii) accelerate the exercisability of all or a
portion of any outstanding Option, in which case the Committee may
also accelerate the termination date of the Option to a date no
earlier than 30 days following the acceleration of exercisability;
and/or
(iii) provide for a cash payment to the grantee equal
to the excess, if any, of the Fair Market Value of the shares
covered by the Option on the date of the Change of Control OVER the
Option Exercise Price. If a cash payment is made to a grantee
pursuant to this Section, the Committee may hold such amounts until
the Expiration Date and such amounts will be credited with interest
each June 30 and December 31 until paid, at the lesser of (i) an
annual rate, compounded daily, for each calendar year equal to the
prime rate set by the Federal Reserve Bank of New York on January 1
of that year, or (ii) ten percent (10%) per annum, compounded daily.
2.3 METHOD OF EXERCISE.
(a) TENDER DUE UPON NOTICE OF EXERCISE. Unless the
applicable Plan agreement otherwise provides or the Committee in its sole
discretion otherwise determines, any written notice of exercise of an
Option shall be accompanied by payment of the Option Exercise Price for
the shares being purchased, and the grantee shall have no right to
receive shares of Common Stock with respect to an Option exercise prior
to such payment.
(b) MANNER OF PAYMENT. Payment of the Option Exercise
Price shall be made in any combination of the following:
(i) by certified or official bank check payable to
the Company (or the equivalent thereof acceptable to the Committee);
or
(ii) with the consent of the Committee in its sole
discretion, by personal check (subject to collection), which may in
the Committee's discretion be deemed conditional; or
(iii) by delivery of shares held by the grantee for at
least six months (or such other period as the Committee may
determine)
<PAGE>
Page 7
having a Fair Market Value (determined as of the date of
such delivery by the grantee) equal to all or a portion of the
Option Exercise Price.
Subject to such rules as may be established by the Committee,
payment may be deemed to be satisfied if the grantee authorizes a broker
or selling agent to pay all or a portion of the Exercise Price to the
Company by delivery to the Company of an assignment of a sufficient
amount of the proceeds from the sale of shares acquired upon exercise by
the grantee.
(c) ISSUANCE OF SHARES. As soon as practicable after
receipt of full payment, the Company shall, subject to the provisions of
Section 3.2, deliver to the grantee one or more certificates for the
shares of Common Stock purchased, which certificates may bear such
legends as the Company may deem appropriate concerning restrictions on
the disposition of the shares in accordance with applicable securities
laws, rules and regulations or otherwise.
2.4 DEFAULT RULES CONCERNING TERMINATION OF SERVICE. Subject
to the other provisions of the Plan, and unless an applicable Plan
agreement otherwise provides:
(a) GENERAL RULE. All Options granted to an employee
which are not exercisable upon termination of service shall immediately
terminate and expire upon such termination of service for any reason,
except as provided in subparagraph (b) below.
(b) TERMINATION DUE TO DEATH, DISABILITY OR TERMINATION
BY THE COMPANY OTHER THAN FOR CAUSE. If a grantee's service terminates
by reason of his death or disability, or if a grantee's service with the
Company is terminated by the Company other than for Cause, the Options
granted to such grantee may be exercised in accordance with Section 2.2
hereof, notwithstanding such termination of employment, until the date on
which such Options terminate or expire in accordance with the terms of
the Plan (other than this Section 2.4) and the Plan agreement.
2.5 TERM OF OPTIONS. Notwithstanding anything to the contrary
herein, no Options shall be exercisable after seven years from the date
of grant.
<PAGE>
Page 8
ARTICLE 3
MISCELLANEOUS
3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS.
(a) PLAN AMENDMENTS AND TERMINATION. The Board may,
without stockholder approval, amend, suspend, discontinue or terminate
the Plan or any portion thereof at any time; provided that no such
amendment, alteration, suspension, discontinuation or termination shall
be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement (including any approval
requirement which is a prerequisite for exemptive relief under Rule
16b-3, to the extent Section 16 of the Exchange Act is applicable to the
Company and any requirement of any securities exchange on which the
Company's shares are listed).
(b) MODIFICATION OF AWARDS. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend,
discontinue, cancel or terminate, any Option theretofore granted,
provided that unless otherwise provided for herein any such action by the
Committee that would impair the rights of any grantee or beneficiary of
any outstanding Option shall not be effective without the consent of the
affected person.
3.2 RESTRICTIONS.
(a) CONSENT REQUIREMENTS. If the Committee shall at any
time determine that any Consent (as hereinafter defined) is necessary or
desirable as a condition of, or in connection with, the granting of any
Option under the Plan, the acquisition, issuance or purchase of shares or
other rights hereunder or the taking of any other action hereunder (each
such action being hereinafter referred to as a "Plan Action"), then such
Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full
satisfaction of the Committee.
(b) CONSENT DEFINED. The term "Consent" as used herein
with respect to any Plan Action means (i) any and all listings,
registrations or qualifications in respect thereof upon any securities
exchange or other self-regulatory organization or under any federal,
state, local or foreign law, rule or regulation, (ii) the expiration,
elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or
the rules of any securities exchange or other self-regulatory
organization, (iii) any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to
any other matter, which the Committee shall deem necessary or desirable
to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any
such listing,
<PAGE>
Page 9
qualification or registration be made and (iv) any and all
consents, clearances and approvals in respect of a Plan Action by any
governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any
Affiliate.
(c) RESTRICTION ON DISPOSITION. Unless an applicable
Plan agreement otherwise provides, a grantee may not sell or otherwise
transfer within any thirty-day period more than one-third of the total
number of shares subject to any Option granted to such grantee, unless
otherwise determined by the Committee.
3.3 NONTRANSFERABILITY.
No Option granted to any grantee under the Plan shall be
assignable or transferable by the grantee other than by will or by the
laws of descent and distribution. During the lifetime of the grantee,
all rights with respect to any Option granted to the grantee under the
Plan shall be exercisable only by him.
3.4 WITHHOLDING TAXES.
(a) Whenever under the Plan shares of Common Stock are to
be delivered pursuant to an Option, the Committee may require as a
condition of delivery that the grantee remit an amount sufficient to
satisfy all federal, state and other governmental withholding tax
requirements related thereto. Whenever amounts are to be paid in cash
under the Plan, the Company may, as a condition of its payment, deduct
therefrom, or from any salary or other payments due to the grantee, an
amount sufficient to satisfy all federal, state and other governmental
withholding tax requirements related thereto or to the delivery of any
shares of Common Stock under the Plan.
(b) Without limiting the generality of the foregoing, (i)
a grantee may elect to satisfy all or part of the foregoing withholding
requirements by delivery of shares of Common Stock owned by the grantee
for at least six months (or such other period as the Committee may
determine) having a Fair Market Value (determined as of the date of such
delivery by the grantee) equal to all or part of the amount to be so
withheld and (ii) the Committee may permit any such delivery to be made
by withholding shares of Common Stock from the shares otherwise issuable
pursuant to the award giving rise to the tax withholding obligation (in
which event the date of delivery shall be deemed the date such award was
exercised).
3.5 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
If and to the extent specified by the Committee, the number of
shares of Common Stock which may be issued pursuant to Options under the
Plan, the number of shares of Common Stock subject to outstanding Options
and the Option Exercise Price of outstanding Options shall be
appropriately adjusted (as the
<PAGE>
Page 10
Committee may determine) for any change in the number of issued shares of
Common Stock resulting from the subdivision or combination of shares of
Common Stock or other capital adjustments, or the payment of a stock
dividend after the effective date of the Plan, or other change in such
shares of Common Stock, in each case effected without receipt of consideration
by the Company; provided that any awards covering fractional shares of Common
Stock resulting from any such adjustment shall be eliminated. Adjustments
under this Section shall be made by the Committee, whose determination as to
what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive.
3.6 RIGHT OF DISCHARGE RESERVED.
Nothing in the Plan or in any Plan agreement shall confer upon
any person the right to continue in the service of the Company or an
Affiliate or affect any right which the Company or an Affiliate may have
to terminate the service of such person.
3.7 NO RIGHTS AS A STOCKHOLDER.
No grantee or other person shall have any of the rights of a
stockholder of the Company with respect to shares subject to an Option
until the issuance of a stock certificate to him for such shares. Except
as otherwise provided in Section 3.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities or other property) for
which the record date is prior to the date such stock certificate is
issued.
3.8 NATURE OF PAYMENTS.
(a) Any and all awards or payments hereunder shall be
granted, issued, delivered or paid, as the case may be, in consideration
of services performed for the Company or for its Affiliates by the
grantee.
(b) All such awards and payments shall be considered
special incentive payments to the grantee and shall not, unless otherwise
determined by the Committee, be taken into account in computing the
grantee's salary or compensation for the purposes of determining any
benefits under (i) any pension, retirement, life insurance or other
benefit plan of the Company or any Affiliate or (ii) any employment or
similar agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee
shall thereby waive any claim to continued exercise of an award or to
damages or severance entitlement related to non-continuation of the award
beyond the period provided herein or in the applicable Plan agreement,
notwithstanding any contrary
<PAGE>
Page
provision in any written employment or similar contract with the grantee,
whether any such contract is executed before or after the grant date of
the award.
3.9 NON-UNIFORM DETERMINATIONS.
The Committee's determinations under the Plan need not be
uniform and may be made by it selectively among persons who receive, or
are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform
and selective Plan agreements, as to (a) the persons to receive awards
under the Plan and (b) the terms and provisions of awards under the Plan.
3.10 OTHER PAYMENTS OR AWARDS.
Nothing contained in the Plan shall be deemed in any way to
limit or restrict the Company, any Affiliate or the Committee from making
any award or payment to any person under any other plan, arrangement or
understanding, whether now existing or hereafter in effect.
3.11 SEVERABILITY.
If any provision of the Plan is or becomes or is deemed to be
invalid, illegal or unenforceable in any jurisdiction or as to any person
or Option, or would disqualify the Plan or any Option under any law
deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform to the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan such provision will
be stricken as to such jurisdiction, person or Option and the remainder
of the Plan shall remain in full force and effect.
3.12 SECTION HEADINGS.
The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of
said sections.
3.13 EFFECTIVE DATE.
The Plan is effective as of September 16, 1996 (the
"Effective Date"), subject to approval by the holders of a majority of
the Company's voting stock and entitled to vote at the first stockholders
meeting thereafter. Prior to such stockholder approval, any Options
granted under the Plan shall not be exercisable.
<PAGE>
Page 12
3.14 EXPIRATION DATE.
The Plan shall expire on September 16, 2003 (the "Expiration
Date") and no Options shall thereafter be granted under the Plan. Any
Options granted before the Expiration Date shall continue to be
exercisable (pursuant to the terms of the Plan) thereafter.
3.15 GOVERNING LAW.
The Plan shall be governed by the laws of the State of New York
applicable to agreements made and to be performed entirely within such
state.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q OF BERLITZ INTERNATIONAL, INC. FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,799
<SECURITIES> 0
<RECEIVABLES> 39,279
<ALLOWANCES> 1,838
<INVENTORY> 8,642
<CURRENT-ASSETS> 82,178
<PP&E> 43,224
<DEPRECIATION> 14,758
<TOTAL-ASSETS> 565,465
<CURRENT-LIABILITIES> 82,351
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 357,195
<TOTAL-LIABILITY-AND-EQUITY> 565,465
<SALES> 0
<TOTAL-REVENUES> 273,775
<CGS> 0
<TOTAL-COSTS> 163,684
<OTHER-EXPENSES> 9,554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,818
<INCOME-PRETAX> 6,544
<INCOME-TAX> 4,895
<INCOME-CONTINUING> 1,649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,649
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
