UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 13, 1996, is 9,406,013.
Page 1 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
1996 1995
-------- -------
Sales of services and products $91,332 $89,674
-------- -------
Costs and expenses:
Cost of services and products sold 53,482 53,905
Selling, general and administrative 28,859 27,757
Amortization of publishing rights, excess of cost
over net assets acquired, and other intangibles 3,115 3,380
Interest expense on long-term debt 1,940 2,229
Other expense, net 1,003 1,127
------ ------
Total costs and expenses 88,399 88,398
------ ------
Income before income taxes 2,933 1,276
Income tax expense 1,927 1,198
------ ------
Net income $1,006 $78
======= =======
Income per share $0.11 $0.01
====== ======
Average number of shares (000's) 9,434 10,033
====== ======
See accompanying Notes to the Consolidated Financial Statements.
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BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
1996 1995
-------- -------
Sales of services and products $180,598 $170,080
-------- -------
Costs and expenses:
Cost of services and products sold 107,607 103,128
Selling, general and administrative 56,856 52,885
Amortization of publishing rights, excess of cost
over net assets acquired, and other intangibles 6,349 6,812
Interest expense on long-term debt 3,956 4,422
Other (income) expense, net 1,398 (269)
-------- -------
Total costs and expenses 176,166 166,978
-------- -------
Income before income taxes 4,432 3,102
Income tax expense 3,222 3,611
-------- -------
Net income (loss) $1,210 $(509)
======== ========
Income (loss) per share $0.12 $(0.05)
======== ========
Average number of shares (000's) 9,733 10,033
======== ========
See accompanying Notes to the Consolidated Financial Statements.
3
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BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
1996 1995
-------- --------
ASSETS
CURRENT ASSETS:
Cash and temporary investments $18,280 $25,402
Accounts receivable, less allowance for
doubtful accounts of $1,599 and $1,468 35,522 34,825
Unbilled receivables 4,679 2,744
Inventories 8,684 9,343
Prepaid expenses and other current assets 9,943 6,856
-------- --------
TOTAL CURRENT ASSETS 77,108 79,170
Property and equipment, net of accumulated
depreciation of $13,726 and $13,292 28,130 25,626
Publishing rights, net of accumulated amorti-
zation of $2,958 and $2,524 18,686 19,114
Excess of cost over net assets acquired and other
intangibles, net of accumulated amortization
of $40,431 and $35,114 427,175 439,407
Other assets 13,275 13,613
-------- --------
TOTAL ASSETS $564,374 $576,930
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $13,173 $11,371
Accounts payable 6,407 7,481
Deferred revenues 33,829 35,608
Payrolls and commissions 11,680 10,846
Income taxes payable 2,883 2,251
Accrued expenses and other current liabilities 11,047 11,523
-------- --------
TOTAL CURRENT LIABILITIES 79,019 79,080
Long-term debt 59,490 67,081
Notes payable to affiliates 37,824 31,534
Deferred taxes and other liabilities 21,688 21,290
Minority interest 8,134 7,529
-------- --------
TOTAL LIABILITIES 206,155 206,514
-------- --------
Commitments and Contingencies (Note 6)
SHAREHOLDERS' EQUITY:
Common stock 1,003 1,003
Additional paid-in capital 368,658 368,658
Accumulated earnings (deficit) 833 (377)
Cumulative translation adjustment (6,632) 1,132
Treasury stock at cost (5,643) -
-------- --------
TOTAL SHAREHOLDERS' EQUITY 358,219 370,416
TOTAL LIABILITIES AND SHAREHOLDERS' -------- --------
EQUITY $564,374 $576,930
======== ========
See accompanying Notes to the Consolidated Financial Statements.
4
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BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,210 $(509)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 9,819 10,210
Foreign exchange gains, net
and minority interest 306 (774)
Changes in operating assets and liabilities (5,244) (2,330)
-------- --------
Net cash provided by operating activities 6,091 6,597
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,175) (3,391)
Investment in joint ventures - (128)
-------- --------
Net cash used in investing activities (7,175) (3,519)
-------- --------
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 (5,782) (4,663)
Payment of deferred financing costs - (107)
-------- ---------
Net cash used in financing activities (5,425) (4,770)
-------- ---------
Effect of exchange rate changes on cash and
temporary investments (613) 1,183
-------- --------
Net decrease in cash and temporary investments (7,122) (509)
Cash and temporary investments, beginning of period 25,402 26,165
-------- --------
Cash and temporary investments, end of period $18,280 $25,656
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $3,526 $3,958
======== ========
Income taxes $2,887 $2,607
======== ========
Cash refunds of income taxes $ 415 $ -
======== ========
Noncash investing activities:
Accounts payable for capital expenditures in Japan $ - $1,400
======== ========
See accompanying Notes to the Consolidated Financial Statements.
5
<PAGE>
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:
JUNE 30, DECEMBER 31,
1996 1995
--------- ----------
Term Loan $ 16,024 $ 21,550
Senior Notes 56,000 56,000
Other 639 902
--------- ----------
Total debt 72,663 78,452
Less current maturities 13,173 11,371
--------- ----------
Long-term debt $ 59,490 $ 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 June 30, 1996 and December 31, 1995 were as follows:
1996 1995
-------------------- -------------------
Carrying Estimated Carrying Estimated
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
Assets: --------------------- ------------------
Cash and temporary investments $18,280 $18,280 $25,402 $25,402
Currency coupon swap agreement 36 36 - -
Liabilities:
Long-term debt, including
current maturities 72,663 76,491 78,452 84,419
Notes payable to affiliates 37,824 30,101 31,534 25,292
Currency coupon swap agreements 1,053 1,053 2,464 2,464
6
<PAGE>
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 (income) 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 (INCOME) EXPENSE, NET
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Interest income on temporary investments $ (168) $ (325)
Foreign exchange losses, net 186 141
Interest expense to affiliates 475 352
Loss on disposal of fixed assets 5 581
Other expense, net 505 378
------------- ------------
Total other expense, net $ 1,003 $ 1,127
============= ============
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Interest income on temporary investments $ (344) $ (593)
Foreign exchange gains, net (141) (1,055)
Interest expense to affiliates 858 700
Joint venture-related income - (750)
Loss on disposal of fixed assets 7 581
Other expense, net 1,018 848
------------- -------------
Total other (income) expense, net $ 1,398 $ (269)
============= ============
5.EARNINGS PER SHARE
Earnings per share are computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the period. Primary and
fully diluted earnings per share are the same since the Company has no common
stock equivalents (e.g. stock
7
<PAGE>
options, restricted stock and other stock equivalents) outstanding.
6. CONTINGENCIES
The Company was formerly included in the consolidated tax returns of the
affiliated group of which Macmillan Inc. ("Macmillan") was the parent (the
"Macmillan Group") and consequently is severally liable for any Federal tax
liabilities for the Macmillan Group arising prior to December 1989. Pursuant
to certain agreements, Maxwell Communication Corporation plc placed $39,500
into escrow to secure Macmillan's obligation, including any such tax liability
assessed against the Company. Management believes that such liability, if any,
will not result in a material effect on the financial condition of the Company.
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 six months
ended June 30, 1996, the Company recorded net periodic pension and
postretirement benefit costs of $275 and $550, respectively, related to the
SERP.
8
<PAGE>
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 JUNE 30, 1996 VS.
THREE MONTHS ENDED JUNE 30, 1995
Sales for the quarter ended June 30, 1996 were $91.3 million, 1.8% above the
same period in the prior year, reflecting increases in the Translations
segment.
Language Instruction sales for the quarter ended June 30, 1996 were $70.1
million, 1.2% below the same period in 1995, as decreases in Asia and Western
Europe more than offset increases in the other geographic divisions. The sales
declines in Asia ($4.0 million, or 18.4%) and Western Europe ($0.5 million, or
5.1%) were both due to the unfavorable impacts of exchange rate fluctuations
($4.5 million and $0.6 million, respectively). North America's sales increase
($1.2 million, or 8.9%) primarily resulted from volume increases. The
improvement in Central/Eastern European revenues ($1.2 million, or 7.6%) mainly
reflects improved volume, partially offset by the unfavorable effect of
exchange rate fluctuations ($1.7 million, or 10.9%). The increase in Latin
American revenues ($1.2 million, or 11.9%) was primarily attributable to volume
and average revenue per lesson ("ARPL") increases.
During the three-month period ended June 30, 1996, the number of lessons given
was approximately 1.3 million, 4.8% above the same period in the prior year,
reflecting increases in most divisions. Lesson volume in North America
increased 3.9% from the prior year. Lesson volume in Asia rose 1.4% from 1995,
reflecting increases in Japan and Hong Kong. Lesson volume in Latin America
increased by 6.7% from prior year, reflecting volume improvements in
Brazil, Colombia and Venezuela. Lesson volume in Central/Eastern Europe
increased 11.1% over the prior year, reflecting increases in most countries in
the division. Lesson volume in Western Europe declined 1.8% from 1995,
primarily due to a decrease in France.
Translation segment sales were $17.3 million for the three-month period ended
June 30, 1996, an increase of $3.5 million, or 25.1%, from the same period in
1995. This growth occurred in the United States and Ireland. The U.S. sales
increase was attributed primarily to increased volume from certain key clients,
an increased customer base, and 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 $4.1 million for the three months ended June 30,
1996, $0.7 million or 14.2% below 1995, primarily reflecting a general slowdown
in the travel publishing segment and a decrease in revenues from licensing
activities.
9
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Cost of services and products sold and selling general and administrative
expenses for the three months ended June 30, 1996 totalled $82.3 million, an
increase of $0.7 million from the comparable prior year period. EBITA{1}
(defined as sales less cost of services and products sold, and selling, general
and administrative expenses) for the 1996 second quarter was $9.0 million, or
9.8% of sales, compared to $8.0 million, or 8.9% of sales, in the same prior
year period.
Instruction segment EBITA for the quarter ended June 30, 1996 was $12.4
million, or 17.7% of segment sales, compared to $9.0 million, or 12.7% 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.
Translation segment EBITA for the three months ended June 30, 1996 was $0.6
million, or 3.4% of segment sales, compared to $0.8 million, or 5.7% of segment
sales, in the prior year. The 1996 results reflect costs incurred in
connection with the expansion of the Asian region production capabilities,
certain non-recurring costs associated with securing a long-term contract, and
lower margins resulting from an unfavorable product mix during the quarter.
Publishing recorded a break-even EBITA for the 1996 second quarter, compared to
positive EBITA of $0.6 million in the prior year. This decrease from the prior
year is a result of an unfavorable product mix.
The Company recorded an income tax expense of $1.9 million, or an effective
rate of 65.7%, during the current period. This compared to an income tax
expense of $1.2 million 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 June 30, 1996 was $1.0 million, or $0.11 per
share, compared to net income of $0.1 million, or $0.01 per share, in the prior
year's quarter. This improvement of $0.9 million resulted primarily from a
higher EBITA, reduced interest expense, and reduced losses from disposal of
fixed assets in 1996, partially offset by a higher income tax expense in 1996.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 VS.
SIX MONTHS ENDED JUNE 30, 1995
Sales for the six months ended June 30, 1996 were $180.6 million, 6.2% above
the same period in the prior year, primarily reflecting increases in the
Translations segment.
Language Instruction sales for the first half ended June 30, 1996 were $137.0
million, 0.8% above the same period in 1995, reflecting increases in all
geographic divisions except Asia and Western Europe. North America's sales
increase ($2.2 million, or 8.2%) was primarily due to volume increases. The
increase in Latin American revenues ($1.9 million, or 10.4%) was primarily
attributable to an improved ARPL. The improvement in Central/Eastern European
revenues ($2.1 million, or 6.7%) mainly reflects an increase in lesson volume,
indicative of most countries in the division, partially offset by the
unfavorable effects of exchange rate fluctuations ($1.6 million, or 5.0%).
Asia's sales decline ($5.0)
- -------------------------------------------------------------------------------
{1}EBITA 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.
10
<PAGE>
million, or 12.5%) was due to unfavorable exchange rate fluctuations ($6.1
million). Western Europe's results declined slightly from the prior year due
to unfavorable exchange fluctuations.
During the six-month period ended June 30, 1996, the number of lessons given
was approximately 2.6 million, 3.3% above the same period in the prior year,
primarily reflecting the continued overall strong demand for Instruction
services in Central/Eastern Europe, where volume increased by 9.2% over
1995. Lesson volume in North America improved by 1.9% over the prior year.
Lesson volume in Asia rose 0.9% from 1995, as a 1.8% increase in Japan was
partially offset by declines in Thailand. Lesson volume in Latin America
increased by 2.9% from prior year, primarily as strong volume improvements
in Brazil, Colombia and Venezuela more than offset a drop in Mexico of 10.1%.
Lesson volume in Western Europe declined 0.4% from 1995, primarily impacted by
weakness in France.
Translation segment sales were $36.0 million for the six-month period ended
June 30, 1996, an increase of $10.1 million, or 39.5%, from the same period in
1995. Most of this growth occurred in the United States and Ireland. The U.S.
sales increase was attributed primarily to increased volume from certain key
clients and 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. In addition, sales increases in Japan,
Germany and certain Western European countries reflected general business
expansion.
Publishing segment sales were $7.9 million for the six months ended June 30,
1996, $0.5 million or 5.5% below 1995, reflecting a general slowdown in the
travel publishing segment, a reduction in revenues from licensing activities,
and unfavorable exchange rate fluctuations.
Cost of services and products sold and selling general and administrative
expenses for the six months ended June 30, 1996 totaled $164.5 million, an
increase of $8.5 million from the comparable prior year period. EBITA for the
1996 first half was $16.1 million, or 8.9% of sales, compared to $14.1 million,
or 8.3% of sales, in the same prior year period.
Instruction segment EBITA for the six months ended June 30, 1996 was $20.8
million, or 15.2% of segment sales, compared to $16.8 million, or 12.4% 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.
Translation segment EBITA for the six-month period ended June 30, 1996 was $2.2
million, or 6.2% of segment sales, compared to $1.5 million, or 5.7% of segment
sales, in the prior year. The improved 1996 results were due to increased
volume worldwide. The overall EBITA increase was partially mitigated by costs
associated with the expansion of Asian resources and certain non-recurring
costs.
Publishing recorded a negative EBITA of $0.1 million in the 1996 first half,
compared to a positive EBITA of $0.4 million in the prior year. 1996 results
were negatively impacted by a $0.3 million charge for the anticipated costs of
the restructuring and relocation of the Company's U.K. publishing operations to
the United States, which is expected to be completed by the end of 1996. In
addition, 1996's EBITA was negatively impacted by an unfavorable product mix.
Other expense, net for the six months ended June 30, 1996 increased by $1.7
million from the same prior year period, primarily due to lower foreign
exchange gains in 1996, and to non-recurring joint venture related income in
1995.
11
<PAGE>
The Company recorded an income tax expense of $3.2 million, or an effective
rate of 72.7%, during the current period. This compared to an income tax
expense of $3.6 million 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 six months ended June 30, 1996 was $1.2 million, or $0.12
per share, compared to a net loss of $0.5 million, or $0.05 per share, in the
prior year's quarter. This improvement of $1.7 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. Generally, the Company collects cash from customers in the form of
prepayment of fees for instruction that gives rise to deferred revenues.
Capital expenditures during the six-month period ended June 30, 1996 were $7.2
million, reflecting costs of refurbishments and purchases for existing centers
and $2.5 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 June 30, 1996, representing the amount
that could be settled based on estimates obtained from a dealer, was a net
liability of approximately $1.0 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 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. The
Company intends to fund the SERP through a combination of funds generated from
operations and life insurance policies on the participants.
At June 30, 1996, the Company's liquid assets of $18.3 million consisted of
cash and temporary investments. The Company plans to meet its debt service
requirements and future working capital needs through funds generated from
operations.
12
<PAGE>
BERLITZ INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
All exhibits listed below are filed with this Quarterly Report on Form 10-Q.
EXHIBIT NO.
27 Financial Data Schedule, for the six months ended June 30, 1996.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 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: August 14, 1996 By: /s/ HENRY D. JAMES
--------------------
Henry D. James
Executive Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q OF BERLITZ INTERNATIONAL, INC. FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,280
<SECURITIES> 0
<RECEIVABLES> 37,121
<ALLOWANCES> 1,599
<INVENTORY> 8,684
<CURRENT-ASSETS> 77,108
<PP&E> 41,856
<DEPRECIATION> 13,726
<TOTAL-ASSETS> 564,374
<CURRENT-LIABILITIES> 79,019
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 357,216
<TOTAL-LIABILITY-AND-EQUITY> 564,374
<SALES> 0
<TOTAL-REVENUES> 180,598
<CGS> 0
<TOTAL-COSTS> 107,607
<OTHER-EXPENSES> 6,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,956
<INCOME-PRETAX> 4,432
<INCOME-TAX> 3,222
<INCOME-CONTINUING> 1,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,210
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
