UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
293 WALL STREET, PRINCETON, NEW JERSEY 08540
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 May 15, 1996, is 9,406,013.
Page 1 of 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(Dollars in thousands, except per share amounts)
1996 1995
------- -------
Sales of services and products $89,266 $80,406
------- -------
Costs and expenses:
Cost of services and products sold 54,125 49,223
Selling, general and administrative 27,997 25,128
Amortization of publishing rights, excess
of cost over net assets acquired, and
other intangibles 3,234 3,432
Interest expense on long-term debt 2,016 2,193
Other (income) expense, net 395 (1,396)
------- -------
Total costs and expenses 87,767 78,580
------- -------
Income before income taxes 1,499 1,826
Income tax expense 1,295 2,413
------- -------
Net income (loss) available to
common shareholders $204 $(587)
======= ========
Income (loss) per common share $0.02 $(0.06)
======= ========
Average number of common shares (000's) 10,033 10,033
======= ========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE> Page 3
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 28,124 $ 25,402
Accounts receivable, less allowance for
doubtful accounts of $1,600 and $1,468 33,880 34,825
Unbilled receivables 4,939 2,744
Inventories 8,958 9,343
Prepaid expenses and other current assets 9,658 6,856
----------- ------------
TOTAL CURRENT ASSETS 85,559 79,170
Property and equipment, net of accumulated
depreciation of $13,781 and $13,292 26,988 25,626
Publishing rights, net of accumulated amorti-
zation of $2,728 and $2,524 18,811 19,114
Excess of cost over net assets acquired and
other intangibles, net of accumulated
amortization of $37,882 and $35,114 435,221 439,407
Other assets 13,362 13,613
----------- ------------
TOTAL ASSETS $ 579,941 $576,930
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 12,246 $ 11,371
Accounts payable 6,949 7,481
Deferred revenues 35,422 35,608
Payrolls and commissions 11,420 10,846
Income taxes payable 2,824 2,251
Accrued expenses and other current liabilities 12,579 11,523
----------- ------------
TOTAL CURRENT LIABILITIES 81,440 79,080
Long-term debt 63,175 67,081
Notes payable to affiliates 37,616 31,534
Deferred taxes and other liabilities 22,174 21,290
Minority interest 7,604 7,529
----------- ------------
TOTAL LIABILITIES 212,009 206,514
----------- ------------
Commitments and Contingencies (Note 6)
SHAREHOLDERS' EQUITY:
Common stock 1,003 1,003
Additional paid-in capital 368,658 368,658
Accumulated deficit (173) (377)
Cumulative translation adjustment (1,556) 1,132
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 367,932 370,416
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 579,941 $576,930
============ ============
See accompanying Notes to the Consolidated Financial Statements.
<PAGE> Page 4
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 204 $ (587)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,906 5,082
Foreign exchange gains, net
and minority interest (350) (1,112)
Changes in operating assets and liabilities (966) (2,890)
---------- ----------
Net cash provided by operating activities 3,794 493
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,741) (1,553)
Investment in joint ventures - (89)
---------- ----------
Net cash used in investing activities (3,741) (1,642)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of note payable to affiliate 6,000 -
Repayment of long-term debt (3,019) (2,356)
Payment of deferred financing costs - (107)
---------- ----------
Net cash provided by (used in) financing
activities 2,981 (2,463)
---------- ----------
Effect of exchange rate changes on cash and
temporary investments (312) 533
---------- ----------
Net increase (decrease) in cash and temporary
investments 2,722 (3,079)
Cash and temporary investments, beginning of
period 25,402 26,165
---------- ----------
Cash and temporary investments, end of period $ 28,124 $ 23,086
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 432 $ 608
========== ==========
Income taxes $ 722 $ 1,146
========== ==========
Cash refunds of income taxes $ 53 $ 16
========== ==========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE> Page 5
BERLITZ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. GENERAL
The Consolidated Financial Statements of Berlitz International, Inc. (the
"Company") have been prepared in accordance with the instructions to Form
10-Q and are unaudited. The information reflects all adjustments which are
of a normal recurring nature which are, in the opinion of management,
necessary for a fair presentation of such financial statements. The
financial statements should be read in conjunction with the financial
statements and related notes to the Company's 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:
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
Term Loan $ 18,787 $ 21,550
Senior Notes 56,000 56,000
Other 634 902
--------- ------------
Total debt 75,421 78,452
Less current maturities 12,246 11,371
--------- ------------
Long-term debt $ 63,175 $ 67,081
========= ============
In connection with the Merger in February 1993, the Company incurred
indebtedness through borrowing under a bank term facility (the "Bank Term
Facility") and the issuance of Senior Notes (the "Senior
Notes")(collectively the "Acquisition Debt Facilities").
3. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
a) Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's financial
instruments at March 31, 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 $28,124 $ 28,124 $ 25,402 $ 25,402
Liabilities:
Long-term debt, including
current maturities 75,421 81,077 78,452 84,419
Notes payable to affiliates 37,616 29,606 31,534 25,292
Currency coupon swap agreements 1,519 1,519 2,464 2,464
<PAGE> Page 6
For cash and temporary investments, the carrying amount approximates fair
value due to their short maturities. The fair values of long-term debt and
notes payable to affiliates are estimated based on the interest rates
currently available for borrowings with similar terms and maturities. The
fair values of the coupon swap agreements represent the amounts that could
be settled based on estimates obtained from a dealer. The value of these
swaps will be affected by future interest rates and exchange rates.
b) Currency coupon swap agreements
On January 23, 1996, the Company exchanged its 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> <C>
FIXED RATE
AGREEMENTS: 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
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
Interest income on temporary investments $ (176) $ (268)
Foreign exchange gains, net (327) (1,196)
Interest expense to affiliates 383 348
Joint venture-related income - (750)
Other expense, net 515 470
-------- --------
Total other (income) expense, net $ 395 $(1,396)
======== ========
5. EARNINGS PER SHARE
Earnings per share of common stock are computed by dividing net income
(loss) available to common shareholders by the weighted average number of
common shares outstanding during the period. Primary and fully diluted
earnings per share of common stock are the same since the Company has no
common stock equivalents (e.g. stock options, restricted stock and other
stock equivalents) outstanding.
6. 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.
<PAGE> Page 7
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 months ended March 31, 1996, the
Company recorded net periodic pension and postretirement benefit costs of
$275 related to the SERP.
<PAGE> Page 8
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 MARCH 31, 1996 VS.
THREE MONTHS ENDED MARCH 31, 1995
Sales for the quarter ended March 31, 1996 were $89.3 million, 11.0% above the
same period in the prior year, reflecting increases in the Language
Instruction, Translations and Publishing segments.
Language Instruction sales for the quarter ended March 31, 1996 were
$66.8 million, 3.0% above the same period in 1995, reflecting increases in
all geographic divisions except Asia. North America's sales increase
($1.0 million, or 7.5%) was primarily due to price and volume increases. The
improvement in Central/Eastern European revenues ($0.9 million, or 5.8%)
mainly reflects an increase in lesson volume, indicative of most countries in
the division. The increase in Latin American revenues ($0.7 million, or 8.6%)
was primarily attributable to a higher average revenue per lesson ("ARPL")
resulting from increased numbers of students in group classes. Asia's sales
decline ($0.9 million, or 5.2%) was due to the unfavorable impact of exchange
rate fluctuations ($1.5 million).
During the three-month period ended March 31, 1996, the number of lessons given
was approximately 1.3 million, 1.8% above the same period in the prior year,
primarily reflecting the continued strong demand for Instruction services in
Central/Eastern Europe, where volume increased by 7.5% over 1995. Lesson
volume in Asia rose 0.4% from 1995, as a 1.7% increase in Japan was partially
offset by declines in Hong Kong and Thailand. Lesson volume in Latin America
declined by 1.6% from prior year, primarily as a drop in Mexico of 15.6% more
than offset strong volume improvements in Brazil, Colombia and Venezuela.
Lesson volume in Western Europe increased 0.9% from 1995, despite declines in
Finland, France, Norway and Portugal.
Translation segment sales were $18.6 million for the three-month period ended
March 31, 1996, an increase of $6.7 million, or 56.3%, 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 testing
services to new and existing clients. In addition, sales increases in Japan,
Germany and certain Latin American and Western European countries reflected
general business expansion.
Publishing segment sales were $3.8 million for the three months ended March 31,
1996, $0.2 million or 6.0% above 1995, reflecting increased sales volume of
travel-related products through the U.S. book store chains, partially offset by
decreased licensing revenue.
Cost of services and products sold and selling general and administrative
expenses for the three months ended
<PAGE> Page 9
March 31, 1996 totalled $82.1 million, an increase of $7.8 million from the
comparable prior year period. EBITA (defined as sales less cost of services
and products sold, and selling, general and administrative expenses) for the
1996 first quarter was $7.1 million, or 8.0% of sales, compared to $6.1 million,
or 7.5% of sales, in the same prior year period.
Instruction segment EBITA for the quarter ended March 31, 1996 was $8.3
million, or 12.5% of segment sales, compared to $7.8 million, or 12.1% of
segment sales, in the comparable prior year period. This improvement was
largely due to the results in Japan, which were affected by: i) a concerted
effort to reduce costs, particularly advertising; ii) a reduction of teacher
costs as a percentage of tuition revenues due partly to the gradual
implementation of technology-assisted learning tools; and iii) the unfavorable
effect of the Kobe earthquake on 1995's results.
Translation segment EBITA for the three months ended March 31, 1996 was $1.6
million, or 8.8% of segment sales, compared to $0.7 million, or 5.8% of segment
sales, in the prior year. The improved 1996 results were due to increased
volume worldwide and improved production efficiencies. 1995's EBITA was
adversely impacted by the rapid growth in the Translations business segment.
Publishing recorded an EBITA loss of $0.1 million in the 1996 first quarter,
compared to an EBITA loss of $0.2 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.
Other expense, net for the three months ended March 31, 1996 increased by $1.8
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.
The Company recorded an income tax expense of $1.3 million, or an effective
rate of 86.4%, during the current period. This compared to an income tax
expense of $2.4 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 to common shareholders for the quarter ended March 31, 1996 was $0.2
million, or $0.02 per common share, compared to a net loss of $0.6 million, or
$0.06 per common share, in the prior year's quarter. This improvement of $0.8
million resulted primarily from a higher EBITA and reduced income tax expense
in 1996, which was partially offset by higher other expense, net in 1996.
FINANCIAL CONDITION
The primary source of the Company's liquidity historically has been the cash
provided by operations. The Company's business generally is not capital
intensive and, historically, capital expenditures, working capital requirements
and acquisitions have been funded from internally generated cash. Although
each geographic area exhibits different patterns of lesson volume over the
course of the year, the Company's sales are generally not seasonal in the
aggregate. Generally, the Company collects cash from customers in the form of
prepayment of fees for instruction that gives rise to deferred revenues.
Capital expenditures during the three-month period ended March 31, 1996 were
$3.7 million, reflecting costs of refurbishments and purchases for existing
centers and $1.5 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.
<PAGE> Page 10
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 March 31, 1996, representing the
amount that could be settled based on estimates obtained from a dealer, was a
net liability of approximately $1.5 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 March 31, 1996, the Company's liquid assets of $28.1 million consisted of
cash and temporary investments. The Company plans to meet its debt service
requirements and future working capital needs through funds generated from
operations.
<PAGE> Page 11
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.
27Financial Data Schedule, for the three months ended March 31, 1996.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 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: May 15, 1996 By: /S/ HENRY D. JAMES
--------------------------------
Henry D. James
Executive Vice President and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q OF BERLITZ INTERNATIONAL, INC. FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 28,124
<SECURITIES> 0
<RECEIVABLES> 35,480
<ALLOWANCES> (1,600)
<INVENTORY> 8,958
<CURRENT-ASSETS> 85,559
<PP&E> 40,769
<DEPRECIATION> (13,781)
<TOTAL-ASSETS> 579,941
<CURRENT-LIABILITIES> 81,440
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 366,929
<TOTAL-LIABILITY-AND-EQUITY> 579,941
<SALES> 0
<TOTAL-REVENUES> 89,266
<CGS> 0
<TOTAL-COSTS> 54,125
<OTHER-EXPENSES> 3,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,016
<INCOME-PRETAX> 1,499
<INCOME-TAX> 1,295
<INCOME-CONTINUING> 204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
