UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
Commission File Number 1-10390
BERLITZ INTERNATIONAL, INC.
(Exact name of issuer as specified in its charter)
NEW YORK 13-3550016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
RESEARCH PARK, 293 WALL STREET, PRINCETON, NEW JERSEY 08540
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (609) 924-8500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title and class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Based on the average bid and ask price at March 1, 1996, the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$53,999,428.
The number of shares of the Registrant's common stock outstanding as of March
1, 1996 was 10,033,013.
DOCUMENTS INCORPORATED BY REFERENCE :
Part III - Those portions of the registrant's definitive proxy statement
relating to registrant's 1996 Annual Meeting of Shareholders which are
incorporated into Items 10, 11, 12, and 13.
Page 1 of 62 Pages
Exhibit Index Appears on Page 56
<PAGE> Page 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
Berlitz International, Inc. (the "Company") is a New York corporation,
organized in 1989. Prior to the organization of the Company, the Company's
business was conducted through commonly-owned subsidiaries including: Berlitz
Languages, Inc. (Language Instruction and Translation Services), Editions
Berlitz, S.A. (Publishing) and Berlitz Publications, Inc. (Publishing). In
February 1993, Benesse Corporation (formerly Fukutake Publishing Co., Ltd.)
("Benesse") indirectly acquired, through a merger of the Company with a wholly-
owned U.S. subsidiary (the "Merger"), 67% of the outstanding common stock, par
value $.10 per share, of the Company. Subsequent to the Merger, public
shareholders of the Company hold approximately 33% of the Company's common
stock. See Items 5 and 7 for further discussion.
The Company's operations are conducted through the following three business
segments: Language Instruction, Translation Services, and Publishing. Through
1995, these business segments were organized on a geographic basis as follows:
Language Instruction into four operating divisions (North America (the U.S. and
Canada), Europe (21 countries), Asia (Japan, Thailand and Hong Kong) and Latin
America (seven countries)) with some countries divided into regions and
districts; Translation Services into three operating divisions (the Americas
(primarily the U.S., Canada and Chile), Europe (10 countries) and Asia (Japan
and Thailand)); and Publishing into two operating divisions (the U.S. and the
United Kingdom). Beginning in 1996, all three business segments are expected
to be organized geographically into five operating divisions (North America,
Western Europe, Central/Eastern Europe, Asia and Latin America). The Company's
Japanese operations are conducted through its Japanese subsidiary which is
owned 80% by the Company and 20% by Benesse. At least 80% of total Asia sales,
operating profits, assets and employees are attributable to the operations in
Japan. Country and division managers determine pricing, teacher/translator and
administrative salaries, leasing of facilities, local advertising and sales
promotions, and other administrative matters, within guidelines established at
the Company's corporate headquarters. The country managers are evaluated and
provided incentives based on profit performance of their particular areas while
division managers are provided incentives based on profit performance of both
their particular areas and the Company as a whole. Business segment and
geographic area information is incorporated herein in the Notes to Consolidated
Financial Statements within Item 8, Financial Statements and Supplementary
Data, under Note 15.
<PAGE> Page 3
LANGUAGE INSTRUCTION
As of December 31, 1995, the Company owned and operated 323 language centers in
33 countries using the Berlitz Method<trademark>, as described herein, and the
Company's proprietary instruction material, to provide instruction in virtually
all spoken languages. Approximately 4.9 million language lessons were given in
1995, the most frequently taught languages being English, Spanish, German and
French. Revenues from Language Instruction accounted for approximately 77%,
82% and 82% of total Company revenues in 1995, 1994 and 1993, respectively.
The following tables set forth, by geographic division, the number of language
centers and the number of lessons given over the last five years:
NUMBER OF CENTERS AT DECEMBER 31,
1995 1994 1993 1992 1991
North America 72 72 72 73 68
Europe 139 137 136 139 123
Asia 52 53 57 59 56
Latin America 60 58 57 53 51
--- --- --- --- ---
Total 323 320 322 324 298
=== === === === ===
NUMBER OF LESSONS (IN THOUSANDS)
1995 *1994 *1993 1992 1991
North America 1,050 1,064 1,091 1,123 1,097
Europe 1,981 1,852 1,796 1,926 2,022
Asia 935 946 844 1,003 1,093
Latin America 981 911 857 818 713
----- ----- ----- ----- -----
Total 4,947 4,773 4,588 4,870 4,925
===== ===== ===== ===== =====
* 1994 and 1993 excludes 25 and 137 lessons, respectively, for centers
closed in connection with the Merger.
A lesson consists of a single 45-minute session given by a teacher (regardless
of the number of students). In 1995, the United States, Japan, and Germany
accounted for 19%, 17% and 12% of lessons given and 19%, 28% and 14% of
Language Instruction sales, respectively.
<PAGE> Page 4
In 1995, all of the Company's language centers were wholly-owned, except for a
joint venture operation in Russia. The following table sets forth, by
geographic division, the number of language centers in each of the countries in
which the Company owned and operated centers as of December 31, 1995:
EUROPE NORTH AMERICA
Western Europe:
Belgium 9 United States 62
Denmark 2 Canada 10
Finland 1 --
France 17 Total 72
Holland 1 ==
Israel 3
Italy 5 LATIN AMERICA
Norway 1 Argentina 5
Portugal 1 Brazil 16
Spain 12 Chile 4
Sweden 1 Colombia 5
United Kingdom 5 Mexico 17
Puerto Rico 4
Venezuela 9
Central/Eastern Europe: --
Austria 7 Total 60
Czech Republic 4 ==
Germany 50
Hungary 3
Poland 4
Russia 1 ASIA
Slovak Republic 1 Hong Kong 1
Slovenia 1 Japan 49
Switzerland 10 Thailand 2
--- --
Total 139 Total 52
=== ==
In 1995, five language centers were opened and two were closed, bringing the
worldwide total to 323. Capital expenditures incurred in connection with
opening a new language center in 1995 ranged from $75,000 to $248,000.
Language centers traditionally have been wholly-owned operations and the
Company has traditionally financed the cost of expansion with internally
generated funds. The Company does not anticipate that borrowing will be
necessary to finance its planned expansion.
The Company announced in 1995 that it plans to begin selling language center
franchises to the public in certain countries to expand the reach of its
language services business. The Company expects to sell the first of an
undetermined number of language center franchises in 1996.
BERLITZ METHOD<trademark>. At the heart of Language Instruction is the
Berlitz Method<trademark>, a proven technique that enables students to acquire
a working knowledge of a foreign language in a short period of time. Through
the exclusive use of the target language in the classroom, students learn to
think and speak
<PAGE> Page 5
naturally in the new language, without translation. With its primary objective
to develop conversational comprehension and speaking skills, the Berlitz Method
<trademark> combines the use of live instruction with proprietary written,
audio-visual, and CD-ROM support materials to ensure a fast, effective, and
enjoyable learning experience.
Berlitz instructors teach in their native language and are required to complete
a seven to ten-day training course in the Berlitz Method<trademark>. Upon
successful completion of this training course, instructors work either full-
time or part-time. The Berlitz Method<trademark> does not require that an
instructor be proficient in any language other than the language being taught.
This feature of the Berlitz Method<trademark> greatly increases the number of
potential instructors and tends to lower instructor costs.
The Company's centralized management and ownership of language centers permits
standardization of instructional method and materials. This standardization
also allows a client to begin a Berlitz course in one location and complete it
anywhere in the worldwide network of Berlitz language centers. Through
application of uniform standards to instructor training, development and usage
of materials, and classroom instruction, the Company seeks to achieve
consistent and predictable performance results.
LANGUAGE INSTRUCTION PROGRAMS. The Company offers several types of language
instruction programs, which vary in cost, length and intensity of study.
Believing individualized instruction to be the most effective way to learn a
foreign language, the Company emphasizes one-on-one instruction, including
private lessons and Total Immersion<reg-trade-mark> study as described below.
The Company also offers semi-private and group lessons.
Approximately 50% of all tuition revenues in 1995 were from private lessons
(excluding Total Immersion<reg-trade-mark>). Private instruction is typically
provided in blocks of three or more 45-minute lessons, with a short break after
each lesson. Total Immersion<reg-trade-mark> courses, an intensive form of
private instruction, accounted for approximately 5% of tuition revenues in
1995. Total Immersion<reg-trade-mark> programs last a full day and generally
continue for two to six weeks. The Company also offers semi-private lessons
designed for two to three clients, as well as group instruction, where classes
include four or more students. Group classes generally meet over a period of
weeks. Semi-private and group lessons together represented 45% of tuition
revenues in 1995.
As a majority of its clients are enrolled for business or professional reasons,
the Company's business is influenced by the level of international trade and
economic activity. In addition to individuals seeking work-related language
skills, Berlitz clients also include travelers and high school and university
students developing course-related language skills.
Included in the Language Instruction business are programs that combine
intensive language instruction with first-hand exposure to the cultural
environment of the country where the target language is spoken. The Company
has two programs in this specialty instruction area: Berlitz on
Campus<trademark>( formerly Language Institute For English<reg-trade-mark>
("L.I.F.E.<reg-trade-mark>")), a Berlitz branch since 1988, and Berlitz Study
Abroad.<trademark> A third specialty program, Berlitz Jr.<reg-trade-mark>,
provides complete language instruction programs to children in public and
private schools throughout the world. Cross-cultural training programs, another
specialty area, offer in-depth explorations of the culture, traditions and
values of a target country. Together, these specialty areas accounted for
approximately 4% of the Company's revenues in 1995.
MARKETING AND PRICING POLICY. The Company directs its marketing efforts
toward individuals,
<PAGE> Page 6
businesses and governments. The Company utilizes newspaper, magazine and
yellow page advertising in addition to direct contacts. Local marketing efforts
are coordinated on a divisional and country-by-country basis. Center directors,
district managers and regional managers are responsible for sales development
with existing and new clients. In addition, sales forces are maintained in the
Company's major markets to supplement other marketing methods.
Tuition, which is payable in advance by most individual clients and some
corporate clients, includes a registration fee, a charge for printed and
recorded course materials, and a per lesson fee. The per lesson fee varies
depending on the language being taught, type and quantity of lessons, and
country. Total Immersion<reg-trade-mark> courses are more expensive than
standard individual instruction, while semi-private and group instruction are
less expensive.
The Company generally negotiates fees with its corporate clients based on
anticipated volume. Concentration on the intensive, individualized segment of
the market has enabled the Company to maintain a pricing structure consistent
with a premium service. The Company, whose prices are usually higher than
those charged by its competitors, believes that it is able to charge premium
prices because of its reputation and the high and consistent quality of the
instruction it provides.
COMPETITION. The language instruction industry is fragmented, varying
significantly among different geographic locations. In addition to the
Company, providers of language instruction generally include individual tutors,
small language schools operated by individuals and public institutions, and
franchises of large language instruction companies. The smaller operations
typically offer large group instruction and self-teaching materials for home
study. Rather than compete with these smaller operators, the Company
concentrates on its leading position in the higher-priced, business-oriented
segment of the language instruction market through its offering of intensive
and individualized instruction. No competitors in this market offer language
instruction through wholly-owned operations on a worldwide basis. However, the
Company does have a number of competitors organized on a franchise basis which,
although not as geographically diverse as the Company, compete with it
internationally. The Company also faces significant competition in a number of
local markets.
TRANSLATION SERVICES
Berlitz Translations provides high quality technical translation,
interpretation, software localization, electronic publishing, and other foreign
language-related services. Translations represented approximately 18%, 13% and
13% of total Company revenues in 1995, 1994 and 1993, respectively, and is
expected to contribute an increasingly larger percentage of total corporate
revenues over the next few years as a result of growing demand for translation-
related services, an expanded and reorganized sales force, a continued focus on
larger customer accounts, and an expansion in Asian markets and multimedia
products.
Berlitz Translations' sales focus is on large, complex projects in multiple
languages for global markets. Translations' customer base is primarily in the
following sectors: information technology, automotive/manufacturing, medical
technology/pharmaceutical, and telecommunications. Translations is also
actively developing its multimedia translation business with a dedicated studio
located in Southern California. The Company has an international network
comprised of 36 full scale production and technology centers servicing
Translations in 15 countries, including three hubs located in the U.S., Dublin
and Singapore. The hubs provide project management and engineering services
and some
<PAGE> Page 7
specialized translation. The satellite production centers, located in
Baldock (England), Bangkok (Thailand), Bergen (Norway), Copenhagen, Dublin, Los
Angeles, Montreal, New York, Paris, Santiago, Sindelfingen (Germany),
Singapore, Tokyo, Washington, D.C., and other locations worldwide provide
language resource and translation services. Materials are electronically
transferred between locations to utilize specialized in-country translations
and production facilities in order to produce the highest quality products and
reduce costs.
The Company has developed an international network of over 2,500 contract
translators that provide a broad range of technical and linguistic resources,
with an internal qualification program to assure a high level of linguistic
expertise. The Company has also developed a production process that
incorporates several editing phases designed to maximize the accuracy of its
translations. Production staffs at dedicated Translations facilities generally
consist of production managers, translators, editors, translators and desktop
publishing ("DTP") specialists. Managers and editors are generally full-time
staff members, while the translator and DTP staffs are comprised of both full-
time employees and freelance workers. Freelance translators provide the
specialized skills that are necessary for technical translations at a more cost
effective rate than that of full-time employees.
COMPETITION. In the highly fragmented translation services market, providers
compete on the basis of price, quality and job turnaround time. The Company
does not believe that any one company accounts for a significant portion of the
entire commercial translation market.
PUBLISHING
The Company publishes pocket-size travel guides and language phrase books
through its facilities in Europe. In addition, Publishing product lines
include an extensive range of bilingual dictionaries, trade paperback travel
guides, self-teaching language and language reference products, some of which
are produced in the U.S. It is also involved with licensing projects that
capitalize on the Berlitz name in the international consumer market. The
Publishing business accounted for approximately 5% of total Company revenues in
each of 1995, 1994 and 1993. Approximately 48%, 50% and 52% of Publishing
segment sales in 1995, 1994 and 1993, respectively, were in Europe.
BERLITZ BOOKS AND GUIDES. Pocket-size, smaller format travel guides include
full-color pictures, maps, brief histories, points of interest, food and
shopping information and a practical A to Z section. There are a total of 108
titles in this format published in English, plus 432 titles in more than 12
other languages. For these multiple-language titles, the Company employs
manufacturing techniques utilizing the same graphics and layouts to reduce
manufacturing costs. Larger format travel guides, which include more detailed
descriptive information, are available primarily in English in two series: THE
BERLITZ<reg-trade-mark> TRAVELLERS GUIDES and the DISCOVER series.
The Company's phrase books include common expressions, words and phrases most
often used by travelers. These appear in color-coded sections covering such
topics as accommodations, eating, sightseeing, shopping, transportation and
medical reference. There are a total of 127 phrase books published in 17
languages, of which 28 are for English-speaking travelers. A EUROPEAN PHRASE
BOOK, EAST EUROPEAN PHRASE BOOK and a EUROPEAN MENU READER are also published
in English. Additional travel-related language products include Cassette Packs
and Compact Disc Packs, which consist of a 90-minute cassette tape or a 75-
minute compact disc ("CD") and phrase book packaged and sold
<PAGE> Page 8
together. Retail distribution for the books and audio products is generally
handled by an exclusive distribution agreement with an established book trade
distributor for each major country in which the products are sold (e.g.,
the U.K., France, Germany, U.S. and Canada).
BERLITZ SELF-TEACHING. The audio cassette and CD products produced by the
Company are intended for the self-instruction language market and draw on the
experience of the Language Centers. In addition to a general language
instruction curriculum, these products include a product for children and
courses for business people.
In the U.S., the audio cassette and CD products are marketed through in-flight
airline magazine space advertising, as well as through credit card statement
inserts for which the credit card company is compensated based on orders
received in response to promotions. In addition to the audio cassette and CD
products, the Company is presently involved in several licensing arrangements
for products which use published Berlitz materials as the basis of alternate
media products (such as hand-held electronic reference products and computer
software) for which the Company receives royalties.
The Company's Publishing segment plan includes the relaunching of certain
existing product lines and the creation of new products that will compete in
today's market place.
COMPETITION. The market for the Company's publications and self-teaching
language products is sensitive to factors that influence the level of
international travel, tourism and business. There is intense competition in
nearly all markets in which the Company sells its published products. The
Company's market share and Berlitz<reg-trade-mark> brand name recognition
levels vary considerably depending on market and product line.
EMPLOYEES
As of December 31, 1995, the Company employed 2,299 full-time employees and
1,985 full-time employee equivalents. Due to the nature of its businesses, the
Company retains a large number of teachers and translators on a freelance
basis. Full-time employee equivalents are calculated by aggregating all part-
time instructor hours and dividing these by the average number of hours worked
by a full-time employee.
The Company is party to collective bargaining agreements in Canada, Denmark,
France, Austria, Germany, and Italy and is currently negotiating an agreement
in Japan. The Company believes it has satisfactory employee relations in the
countries in which it operates. Certain countries in which the Company
operates impose obligations on the Company with respect to employee benefits.
None of these obligations materially inhibit the Company's ability to operate
its business.
GENERAL
The material trademarks used by the Company and its subsidiaries are
BERLITZ<reg-trade-mark>, TOTAL IMMERSION<reg-trade-mark> (including foreign
language variations used in certain foreign markets), BERLITZ
METHOD<trademark>, BERLITZ JR.<reg-trade-mark>, BERLITZ STUDY
ABROAD<trademark>, BERLITZ ON CAMPUS<trademark>, and L.I.F.E.<reg-trade-mark>.
The Company or its subsidiaries hold registrations for these trademarks, where
possible,
<PAGE> Page 9
in all countries in which (i) material use is made of the trademarks by the
Company or its subsidiaries, and (ii) failure to hold such a registration
is reasonably likely to have a material adverse effect on the Company or
its subsidiaries. The duration of the registrations varies from country to
country. However, all registrations are renewable upon a showing of use. The
effect of the registrations is to enhance the Company's ability to prevent
certain uses of the trademarks by competitors and other third parties. In
certain countries, the registrations create a presumption of exclusive
ownership of the trademarks.
Although the Company is not generally regulated as an educational institution
in the jurisdictions in which it does business, it is subject to general
business regulation and taxation. The Company's foreign operations are subject
to the effects of changes in the economic and regulatory environments of the
countries in which the Company operates.
<PAGE>
ITEM 2. PROPERTIES
The Company has its headquarters in Princeton, New Jersey and maintains
facilities throughout the world. Except for eight facilities in Brazil,
Chile, France, Hungary, Mexico, and Spain, all of the Company's facilities are
leased. Total annual rental expense for the twelve months ended December 31,
1995, principally for leased facilities, was $25,443,000. No one facility is
material to the operation of the Company. A typical Berlitz language center
has private classrooms designed for individual instruction, as well as some
larger rooms suitable for group instruction.
The following tables set forth, as of December 31, 1995, by geographic region,
the number of facilities maintained in that region, the use of the Company's
facility, whether owned or leased, and the aggregate square footage:
OWNED FACILITIES
NUMBER OF AGGREGATE
REGION FACILITIES USE SQUARE FOOTAGE
Europe 4 Center 6,343
Latin America 4 Center 13,151
-- ------
Total 8 Total 19,494
== =======
LEASED FACILITIES
NUMBER OF AGGREGATE
REGION FACILITIES USE SQUARE FOOTAGE
North America 80 Center/Offices 218,452*
Europe 170 Center/Offices 466,574
Asia 55 Center/Offices 141,241
Latin America 58 Center/Offices 206,864
--- ---------
Total 363 Center/Offices 1,033,131
=== =========
* In 1996, the Company will relocate its headquarters from its current
facility (26,500 square feet) to a new leased location (initially 62,275 square
feet) at 400 Alexander Park, Princeton, New Jersey 08540. The lease at its
current home office has expired and the Company is paying rent on a month-to-
month basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to several actions arising out of the ordinary course of
its business. Management believes that none of these actions, individually or
in the aggregate, will have a material adverse effect on the financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the fourth
quarter of 1995.
<PAGE> Page 11
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General
Instruction G(3) to Form 10-K, the following information is included in Part I
of this Form 10-K.
EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following table sets forth certain information concerning the Executive
Officers and Directors of the Company as of March 1, 1996.
<TABLE>
<CAPTION>
NAME, AGE,
POSITION WITH
REGISTRANT BUSINESS EXPERIENCE
<S> <C>
Soichiro Fukutake, 50 Mr. Fukutake has served as Chairman of the Board of the
Chairman of the Board; Company since February 1993. Mr. Fukutake joined Benesse
Director (A)(C) in 1973, and since May 1986 has served as its President and
Representative Director. He also serves on the Board of
Directors of a number of companies, private foundations and
associations in Japan. Mr. Fukutake became a Director of the
Company in February 1993. His term will expire in 1997.
Hiromasa Yokoi, 56 Mr. Yokoi was elected Vice Chairman of the Board and Chief
Vice Chairman of the Board, Executive Officer of the Company in February 1993 and
Chief Executive Officer and additionally was elected President effective on August 31,
President; Director (A) 1993. Mr. Yokoi has served as a director of Benesse since
June 1992 and Director for Berlitz and North American Sector
since April 1994. Prior to that, he served as General Manager
of the Overseas Operations Division (formerly the International
Division) of Benesse from October 1990 to March 1994 and as
General Manager of the President's Office of Benesse from
July 1990 to September 1990. Mr. Yokoi has served as a
Director of the Company since January 1991. His term will
expire in 1996.
Susumu Kojima, 53 Mr. Kojima has served as Executive Vice President, Asia
Executive Vice President, Division of the Company since January 1, 1996. Prior thereto,
Asia Division; he served as Executive Vice President, Corporate Planning
Director (A) from September 1993 to December 1995, and as Senior Vice
President, Corporate Planning of the Company from April
1993 to September 1993. Mr. Kojima has served as Director
of Benesse since March 1993. Prior to that, he was Joint
General Manager of the Business Development Department of
The Industrial Bank of Japan, Limited ("I.B.J.") from June
1991 to February 1993. Between November 1987 and June
1991, he served as Senior Deputy General Manager, Industrial
Research Department of I.B.J. after having served as Chief
Representative of I.B.J.'s Washington Representative Office
from September 1983. Mr. Kojima was elected as a Director
of the Company in February 1993. His term will expire in
1997.
Robert Minsky, 51 Mr. Minsky has served as Executive Vice President and Chief
Executive Vice President Operating Officer-Translations and Publishing of the Company
and Chief Operating Officer- since January 1, 1995. Prior thereto, he served as Executive
Translations and Publishing; Vice President-Translations of the Company from October 1,
Director (A) 1993 to January 1995, and as Chief Financial Officer of the
Company from November 1990 to January 1995. From
November 1990 to October 1993, he also served as Vice
President. Mr. Minsky has served as a Director of the
Company since April 1991. His term will expire in 1997.
Manuel Fernandez, 59 Mr. Fernandez has served as Executive Vice President and
Executive Vice President and Chief Operating Officer-Worldwide Language Instruction of
Chief Operating Officer- the Company since January 1, 1995. Prior thereto, he was
Worldwide Language Executive Vice President-Language Services of the Company
Instruction; from September 1993 to January 1995 and Vice President-
Director (A) European Operations of the Company from October 1989 to
September 1993. He previously served as Vice President-
European Operations for Berlitz Languages from January 1983
to October 1989. Mr. Fernandez was first employed by Berlitz
Languages in 1963 and served in various positions until
becoming Vice President in 1983. Mr. Fernandez has served
as a Director of the Company since July 1993. His term will
expire in 1997.
Henry D. James, 58 Mr. James has served as Executive Vice President and Chief
Executive Vice President and Financial Officer of the Company since November 21, 1995,
Chief Financial Officer; and as its Vice President and Chief Financial Officer from
Director (A) January 1, 1995 to November 1995. He previously served as
Vice President and Controller of the Company and its
predecessor, Berlitz Languages, since 1981. Mr. James joined
Berlitz Languages in 1977 and served as Controller with that
company prior to 1981. Mr. James has served as a Director
of the Company since November 21, 1995. His term will
expire in 1996.
Saburo Nagai, 65 Mr. Nagai has served as Senior Managing Director of Benesse
Director since June 1994 and as Managing Director of Benesse from
April 1988 to June 1994. He has also supervised its general
administration and accounting departments since April 1988
and its Capital Strategic Planning Office since April 1993.
Since joining Benesse in April 1985, he served as General
Manager and Head of its accounting department until April
1988 and supervised, concurrently with his other duties, its
corporate identity department (July 1991-April 1992) and
personnel department (April 1990-July 1991). Mr. Nagai
became a Director of the Company in February 1993. His
term will expire in 1996.
Edward G. Nelson, 64 Since January 1985, Mr. Nelson has served as Chairman and
Director President of Nelson Capital Corporation. From 1983 to 1985,
(B)(C)(D) he was Chairman and Chief Executive Officer of Commerce
Union Corporation. He also serves on the Board of Directors
of ClinTrials, Inc., Osborn Communications Corporation,
Central Parking System and Advocat, Inc. He is a trustee of
Vanderbilt University. Mr. Nelson became a Director of the
Company in February 1993. His term will expire in 1996.
Robert L. Purdum, 60 Mr. Purdum served as Chairman of the Board of Armco, Inc.
Director (B)(D) from December 1993 until his retirement in April 1994 and
currently is an independent consultant and partner with
American Industrial Partners, a private investment company
composed of former chairmen and chief executives. He served
in various positions since first joining Armco in 1962,
including Chairman and Chief Executive Officer (November
1990 to December 1993), President and Chief Executive
Officer (April 1990 to November 1990), President (October
1986 to April 1990), Chief Operating Officer (February 1985
to October 1986) and Chief Executive Officer-Steel Group
(November 1982 to February 1985). Mr. Purdum also serves
on the Board of Directors of Holophane Corporation since
1994. In addition, he is a member of the Board of Trustees of
GMI Engineering and Management Institute since 1991 and
serves on their International Committee and Capital Campaign
Committee. Mr. Purdum has served as a Director of the
Company since August 1994. His term will expire in 1996.
Aritoshi Soejima, 69 Mr. Soejima served as Senior Counselor of Benesse from
Director December 1980 until his appointment as a member of the
(B)(C)(D) Disinterested Directors and Compensation Committees of the
Company. From 1950 to 1981, Mr. Soejima served in various
positions with the Japanese government (including the Ministry
of Finance) and multilateral financial institutions (including the
World Bank and International Monetary Fund). Mr. Soejima
also currently serves as Chairman of Osaka, Tokyo Bay,
Nagoya Hilton Company, Ltd., Counselor of Nippon Hilton
Company, Ltd. and Director and Counselor of Capital
International Company, Ltd. and as special advisor to the
Board of Directors of the Nippon Fire & Marine Insurance
Company, Ltd.. In addition, he serves on the Board of
Directors of a number of companies, private foundations and
associations in Japan. Mr. Soejima became a Director of the
Company in February 1993. His term will expire in 1997.
Robert C. Hendon, Jr., 58 Mr. Hendon has served as Vice President-Legal Department of
Vice President, General the Company since January 1, 1995 and as Secretary and
Counsel and Secretary General Counsel of the Company since April 1992. Prior
thereto, he was first an associate then a partner at the law firm
of Waller Lansden Dortch & Davis from 1964 until April
1992.
Jose Alvarino, 56 Mr. Alvarino has been Vice President-Latin American Division
Vice President of the Company since October 1989. Prior thereto, he served
in the same capacity with Berlitz Languages from 1985 until
October 1989. Mr. Alvarino was first employed by Berlitz
Languages in 1970 and served in various positions from that
time until being appointed Vice President in 1985.
Yoshikazu Okazaki, 52 Mr. Okazaki has served as Vice President-Japan of the
Vice President Company since January 1, 1996. Prior to that, he served as
Vice President-East Asia Division of the Company from May
1, 1994 to December 1995 and as President & Representative
Director of Berlitz-Japan since September 15, 1994. From
January 1984 to March 1994, he served in a number of
executive positions with Uniden Corporation, both in Japan and
in the United States. Prior thereto, he held the position of
Senior Vice President with the advertising agency Dentsu,
Young & Rubicam, Los Angeles.
Anthony Tedesco, 53 Mr. Tedesco has served as Vice-President-North American
Vice President Division of the Company since October 1994. From July 1993
to October 1994, he served as Vice President-East Asian
Division of the Company. Prior thereto, Mr. Tedesco was
Vice President-North American Division of the Company from
October 1989 to July 1993 and he previously served in the
same capacity with Berlitz Languages from his initial
employment in 1983.
Wolfgang Wiedeler, 51 Mr. Wiedeler has served as Vice President Central/Eastern
Vice President Europe Division of the Company since January 1, 1996 and as
Vice President-Language Instruction, European Division of the
Company from September 1993 to December 1995. From
May 1992 to September 1993 he was Vice President,
Central/Eastern European Operations. Prior thereto, he served
as Divisional Manager of German-speaking countries since
October 1989. Prior thereto he served in the same capacity for
Berlitz Languages from his initial employment in 1984.
</TABLE>
(A) member of the Executive Committee of the Board of Directors
(B) member of the Audit Committee
(C) member of the Compensation Committee
(D) member of the Disinterested Directors Committee
There is no family relationship between any of the Directors or Executive
Officers of the Company.
SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The following table sets forth certain information concerning certain
significant employees of the Company as of March 1, 1996.
<TABLE>
<CAPTION>
<S> <C>
Frank Garton, 49 Mr. Garton has served as Vice President, Franchising of the
Vice President Company since March 1995. Prior to that, he was Director of
Worldwide Franchise Sales and Corporate Development for
King Bear Enterprises from 1987 to 1985. From 1978 to 1987,
Mr. Garton was President and Chief Executive Officer of
Regeneration, Inc., an automotive components manufacturing
company with internationally franchised manufacturing
processes.
Brian Kelly, 48 Mr. Kelly has served as Vice President - Western Europe
Vice President Division of the Company since January 1, 1996 and as General
Manager - Translations Services Europe since January 1993.
Prior to that, he was Managing Director of Softrans
International Ltd. of which the Company acquired a 51%
holding in December 1991 and fully acquired in 1994. Mr.
Kelly founded Softrans in 1984 and prior to that held senior
management positions with Apple Computer and Data General.
</TABLE>
<PAGE> Page 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock ("Common Stock") is traded on the New York Stock
Exchange ("NYSE") under the symbol BTZ. Holders of shares of Common Stock are
entitled to receive such dividends as may from time to time be declared by the
Board of Directors; however, such dividends are subject to restrictions set
forth in the debt facilities incurred in connection with the Merger Agreement
with Benesse. As a result, the Company does not expect to pay dividends during
the term of such debt facilities. See Item 7, Management's Discussion and
Analysis, Liquidity and Capital Resources, for further discussion. Holders of
Common Stock are entitled to one vote per share on all matters submitted to the
vote of such holders, including the election of directors. There were 90
holders of record of Common Stock as of March 1, 1996.
The sales prices per share of Common Stock as reported by the NYSE for each
quarter during the period from January 1, 1994 until December 31, 1995 ranged
as follows:
PRICE PER SHARE
HIGH LOW
First Quarter 1995 $14 3/4 $12 3/8
Second Quarter 1995 $15 $14 1/2
Third Quarter 1995 $15 $14 5/8
Fourth Quarter 1995 $16 1/2 $14
First Quarter 1994 $14 5/8 $12 3/4
Second Quarter 1994 $14 1/8 $12 7/8
Third Quarter 1994 $14 $13
Fourth Quarter 1994 $13 5/8 $12 1/2
No common stock dividends for 1994 or 1995 were declared or paid.
<PAGE> Page 17
ITEM 6. SELECTED FINANCIAL DATA
BERLITZ INTERNATIONAL, INC.
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
POST-MERGER POST-MERGER PRE-MERGER
--------------------------- -------------- ------------------------------------
Period from Period from
February 1, January 1,
Year Ended Year Ended Year Ended 1993 to 1993 to
December 31, December 31, December 31, December 31, January 31, Year Ended December 31,
------------ ------------ ----------- ------------- ----------- -----------------------
1995 1994 1993 (1) 1993 1993 1992 1991
------------- ------------ ----------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales of services and
products sold (2) $351,139 $300,234 $271,677 $252,069 $19,608 $281,320 $259,771
-------- -------- ------- -------- ------- -------- --------
Cost and expenses:
Cost of services and products
sold (2) 213,073 179,869 169,102 155,623 13,479 178,009 156,807
Selling, general and
administrative (2) 105,039 91,703 83,500 76,781 6,719 82,837 71,880
Amortization of publishing rights,
excess of cost over net assets
acquired and
other intangibles 13,425 12,750 12,423 11,551 872 10,463 10,417
Merger-related restructuring costs
(3) - - 4,808 4,808 - - -
Other (income) expense, net 9,932 8,808 1,770 2,233 (463) (833) (14,993)
Non-recurring Maxwell and
Merger related charges (4) - - - - - 1,356 195,354
------ ------ ------ ------ ----- -------- -------
Total costs and expenses 341,469 293,130 271,603 250,996 20,607 271,832 419,465
------ ------ ------ ------ ----- -------- -------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle $ 9,670 $ 7,104 $ 74 $ 1,073 $ (999) $9,488 $(159,694)
====== ====== ====== ====== ===== ======== =======
Cumulative effect of change in
accounting principle $ - $ - $ 3,172 $ - $3,172 $ - $ -
====== ====== ====== ====== ===== ======== =======
Net income (loss) $ 2,270 $ 909 $(2,018) $(3,556) $1,538 $4,041 $(171,947)
Preferred Stock dividends (5) - - - - - - 9,240
------ ------ ------ ------ ----- -------- -------
Net income (loss) available
to common shareholders $ 2,270 $ 909 $(2,018) $(3,556) $1,538 $4,041 $(181,187)
====== ====== ====== ====== ===== ======== =======
Earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.23 $ 0.09 $ (0.35) $(0.09) $ 0.21 $(9.53)
Cumulative effect of change in
accounting principle - - - .17 - -
------ ------ ------ ----- -------- -------
Earnings (loss) per common share $ 0.23 $ 0.09 $ (0.35) $ 0.08 $ 0.21 $(9.53)
====== ====== ====== ===== ======== =======
Cash dividends declared
per common share $ - $ - $ - $ - $ 0.42 $ 0.53
====== ====== ====== ===== ======== =======
Average number of common
shares (000) $ 10,033 10,033 10,031 19,024 19,022 19,014
====== ====== ====== ===== ======== =======
BALANCE SHEET DATA (AT YEAR END):
Total assets $ 576,930 $ 582,005 $570,472 $456,583 $479,096
Long-term debt $ 67,081 $ 78,420 $105,775 $ - $ 25,000
Shareholders' equity $ 370,416 $ 367,235 $364,953 $326,421 $331,256
OTHER DATA:
Language lessons given during
year (000) 4,947 4,773 4,588 4,870 4,925
Language centers open at year
end 323 320 322 324 298
Growth (decline) in same center
sales from year to year (6) 9.7% 9.4% (6.1)% 2.4% (2.8)%
<PAGE> Page 18
(1)Income Statement Data give effect to the combination of the results of the
Company for the 1993 Pre-Merger and Post-Merger periods.
(2)In 1993, under the purchase method of accounting, the Post-Merger sales and
expenses of facilities closed in connection with the Merger were reclassified
to "Merger-related restructuring costs" (33%) and "Excess of cost over net
assets acquired" (67%).
(3)Principally represents 33% of severance payments, language center closing
costs, and costs of reorganizing Translations and certain Language
Instruction divisions.
(4)In connection with the bankruptcy filing of Maxwell Communication
Corporation plc ("MCC") (the indirect former parent of the Company), the
Company wrote-off or provided reserves for promissory notes from MCC and
certain of MCC's subsidiaries, and provided reserves for other related
matters. In 1993, the Company recovered $30.8 million from the sale of such
notes previously written off, the net proceeds of which were distributed to
the shareholders as part of the Merger consideration.
(5)The Company's obligation to pay Preferred Stock dividends was indefinitely
suspended due to payment and other defaults which arose on the promissory
notes from MCC and its subsidiaries.
(6)Indicates year-over-year increase (decrease) in sales by language centers
which were operating during the entirety of both years being compared.
For a description of the Merger, see Note 2 to the Consolidated Financial
Statements.
<PAGE> Page 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and Notes thereto
contained elsewhere in this Annual Report on Form 10-K.
On December 9, 1992, Benesse agreed to acquire, indirectly through merger,
approximately 67% of the Company's common stock. The Merger was consummated on
February 8, 1993. After the Merger, public shareholders of the Company hold
approximately 33% of its common stock.
OPERATIONS OVERVIEW
For the period beginning January 1, 1993 and ending December 31, 1995, the
Company's sales grew at a compound annual growth rate of 13.7%.
The following table shows the Company's income and expense data as a percentage
of sales:
YEAR ENDED DECEMBER 31,
1995 1994 1993 (1)
Sales of Services and Products 100.0% 100.0% 100.0%
------ ------ ------
Costs of services and products sold (2) 60.7 59.9 62.2
Selling, general and administrative (3) 29.9 30.5 30.7
Amortization of publishing rights,
excess of cost over net assets acquired,
and other intangibles 3.8 4.2 4.6
Interest expense on long-term debt 2.5 3.5 3.3
Merger-related restructuring costs (4) - - 1.8
Other (income) expense, net 0.3 (0.5) (2.6)
------ ------ ------
Total costs and expenses 97.2 97.6 100.0
------ ------ ------
Income before income taxes
and cumulative effect of change in
accounting principle 2.8% 2.4% 0.0%
====== ====== ======
(1) Gives effect to the combination of the results of the Company for the
combined pre-Merger and post-Merger periods.
(2) Consists primarily of teachers', translators', and certain administrative
salaries, as well as cost of materials, rent, maintenance and other
center operating expenses.
(3) Consists primarily of headquarters, corporate services, marketing and
advertising expenses.
(4) Primarily severance payments and language center closing costs, including
lease cancellation penalties, writeoffs of leasehold improvements, and
operating losses for closed centers.
<PAGE> Page 20
Cost of services and products sold as a percentage of sales decreased from
62.2% in 1993 to 60.7% in 1995, principally as improved ratios for teacher
costs, rent, and certain salary and administrative expenses were partially
offset by higher translator cost percentages.
Selling, general and administrative expenses as a percentage of sales decreased
from 30.7% in 1993 to 29.9% in 1995, principally as the effect of higher
advertising expenditures were more than offset by decreases in other
administrative cost percentages.
The Company's operations are conducted through the following business segments:
Language Instruction, Translation Services, and Publishing. Language
Instruction sales grew from $223.6 million in 1993 to $270.5 million in 1995, a
compound annual growth rate of 10.0%. The number of lessons provided by the
Company's language centers were 4.6 million, 4.8 million and 4.9 million in
1993, 1994 and 1995, respectively. The growth in sales is largely attributable
to the increase in average revenue per lesson ("ARPL") as a result of price
increases and favorable foreign exchange fluctuations.
Over the three year period, the Company opened 25 new language centers and
closed 26. The following table shows the year-over-year increase/(decrease),
including the impact of foreign currency rate fluctuations, in sales by centers
which were operating during the entirety of both years being compared.
PERCENTAGE GROWTH (DECLINE)
1995 1994 1993 (1)
Same Center Sales 9.7% 9.4% (6.1%)
(1) Gives effect to the combination of the results of the Company for the
combined pre-Merger and post-Merger periods.
During the period from 1993 to 1995, the Company's Translations segment
expanded principally through continued focus on large customer accounts,
development of new customers, expansion of services to existing customers, and
the success of new services. Translations' sales grew at a compound annual
growth rate of 33.9%, increasing from $35.7 million in 1993 to $64.0 million in
1995. Translations' operating results continue to benefit from a comprehensive
reorganization plan implemented in 1993, which affects production, sales and
marketing activities.
Publishing segment sales increased from $12.4 million in 1993 to $16.6 million
in 1995, primarily as the 1993 product distribution problems were resolved and
successful marketing and sales programs were introduced.
The Company's participation in numerous licensing agreements and joint ventures
has allowed it to offer new high-tech products, including a line of language
instruction products on CD-ROM and multimedia courses for the home, school and
business markets.
During the three-year period, the percentage of the Company's annual sales
denominated in currencies other than U.S. dollars ranged from 73.6% in 1993 to
75.5% in 1995. As a result, changes in exchange rates had an impact on the
Company's sales revenues. The following table shows the impact of foreign
currency rate fluctuations on the annual growth rate of sales during the
periods presented:
<PAGE> Page 21
YEAR ENDED DECEMBER 31,
PERCENTAGE
GROWTH (DECLINE) 1995 1994 1993 (2)
Sales:
Operations (1) 10.3% 7.9% (2.4)%
Exchange 6.7 2.6 (1.0)
----- ---- ----
Total 17.0% 10.5% (3.4)%
===== ===== =====
(1) Adjusted to eliminate fluctuations in foreign currency from year-to-year
by assuming a constant exchange rate over two years, using as the base
the first year of the periods being compared.
(2) Gives effect to the combination of the results of the Company for the
combined pre-Merger and post-Merger periods.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994
Sales for the year ended December 31, 1995 were $351.1 million, 17.0% above the
same period in the prior year, reflecting increases in the Language
Instruction, Translations and Publishing segments.
Language Instruction sales for the twelve months ended December 31, 1995 were
$270.5 million, $26.0 million or 10.6% above the same period in 1994, primarily
reflecting increases in Asia ($5.6 million, or 7.7%), Europe ($14.4 million,
or 16.7%) and Latin America ($3.8 million, or 11.4%). The improvement in Asian
sales from 1994 resulted primarily from the favorable impact of exchange rate
fluctuations ($6.3 million). Europe's increase was favorably impacted by
exchange rate fluctuations ($9.8 million) and by operating activity in almost
all countries. The improvement in Latin American revenues was primarily due to
volume and price increases in Brazil and Colombia, which more than offset the
unfavorable effect of the devaluation of the Mexican peso.
During the twelve-month period ended December 31, 1995, the number of lessons
given was approximately 4.9 million, 3.6% above the same period in the prior
year. Lesson volume in Asia decreased 1.1% from 1994, unfavorably impacted by
declines in Japan. Lesson volume in Latin America increased by 7.6% from prior
year, primarily due to increases in Brazil and Colombia. Lesson volume in
Europe increased by 6.9% over 1994 with decreases in Germany, Switzerland,
Norway, Spain and Sweden being more than offset by increases in all other
countries.
For the twelve months ended December 31, 1995, ARPL was $46.70 as compared to
$43.27 in the comparable prior-year period. ARPL (excluding Russia) ranged
from a high of approximately $81.62 in Japan to a low of $16.48 in the Slovak
Republic, reflecting effects of foreign exchange rates and differences in the
economic value of the service. The Company opened five new language centers
during 1995 in Colombia, Israel, Mexico, Poland and Slovenia.
Translations sales were $64.0 million for the twelve-month period ended
December 31, 1995, an increase of $24.0 million, or 60.1%, from the same period
in 1994. This increase was primarily due to higher volume and, to a lesser
degree, favorable exchange rate fluctuations. Most of this growth occurred in
the United States, Ireland, Germany, Denmark and France.
<PAGE> Page 22
Publishing segment sales were $16.6 million for the twelve months ended
December 31, 1995, $0.8 million or 5.4% above 1994 sales, reflecting both
favorable exchange rate fluctuations and positive results in the United States.
Cost of services and products sold and selling, general and administrative
expenses for the twelve months ended December 31, 1995 totalled $318.1 million,
an increase of $46.5 million from the comparable prior year period. This
increase was due primarily to exchange rate fluctuations and volume increases.
As a percentage of sales, such aggregate expenses were slightly higher compared
to the prior year's period, due in large part to faster growth in the
Translations segment than in the higher margin Language Instruction segment. In
addition, included in 1995 were expenses of $1.9 million, which primarily
related to the Company's worldwide corporate image campaign; these types of
expenses were not incurred in prior years' periods.
Other expense, net for the twelve months ended December 31, 1995 increased by
$3.0 million from the same prior year period, primarily as joint venture-
related income was more than offset by: a) lower foreign exchange gains, b)
higher interest expense on notes payable to an affiliate, and c) losses from
the disposal of fixed assets in 1995 in connection with the consolidation and
relocation of certain Japanese centers for the purpose of reducing overhead
costs.
The Company recorded an income tax expense of $7.4 million, or an effective
rate of 76.5%, during the current period. This compared to an income tax
expense of $6.2 million in the prior year. The effective tax rates in both
1995 and 1994 were above the U.S. statutory Federal tax rate primarily as a
result of nondeductible charges related to the amortization of goodwill.
Net income available to common shareholders for the year ended December 31,
1995 was $2.3 million, or $0.23 per common share, compared to net income of
$0.9 million, or $0.09 per common share, in the prior year. This improvement
of $1.4 million resulted primarily from increased sales, partially offset by
increases in cost of services and products sold, and selling, general and
administrative expenses.
YEAR ENDED DECEMBER 31, 1994 VS. YEAR ENDED DECEMBER 31, 1993
As discussed earlier, on February 8, 1993, the Company and Benesse consummated
the Merger. The following selected financial data gives effect to the
combination of the results of the Company for the combined pre-Merger and post-
Merger 1993 periods.
TWELVE MONTHS ENDED DECEMBER 31,
1994 1993
Sales of services and products $300,234 $271,677
Total costs and expenses 293,130 271,603
Income before income taxes -------- --------
and cumulative effect of change
in accounting principle $ 7,104 $ 74
======== ========
Income (loss) available to
<PAGE> Page 23
common shareholders $ 909 $(2,018)
======== ========
Sales for the twelve months ended December 31, 1994 were $300.2 million, 10.5%
above the same period in the prior year, reflecting increases in the Language
Instruction, Translations and Publishing segments.
In connection with the Merger, certain restructuring charges were accrued in
the third and fourth quarters of 1993, including those for the reorganization
of Translations and certain Language Instruction divisions and the targeted
closing of language centers (of which 12 were closed in 1993 and 10 were closed
in 1994). In comparing the facilities not affected by Merger-related
restructuring activities, sales increased by $32.3 million, or 12.1%, from the
twelve months ended December 31, 1993.
Language Instruction sales were $244.5 million, an increase of $20.9 million,
or 9.4%, from sales of $223.6 million in the same period in 1993, primarily
reflecting increases in Asia ($10.9 million, or 17.6%), Europe ($4.6 million,
or 5.6%) and Latin America ($4.8 million, or 16.7%). The improvement in Asian
sales from 1993 largely resulted from the favorable impact of exchange rate
fluctuations ($5.7 million) and improved operating activity in Japan ($3.9
million). Europe's increase was impacted by favorable exchange rate
fluctuations ($1.1 million) and by increased operating activity in the
central/eastern European countries ($3.6 million). Furthermore, when comparing
language centers not affected by Merger-related restructuring activities, the
western European countries' sales increased $1.0 million, or 2.9%. The
increase in Latin American revenues was primarily due to increases in Brazil
and Mexico.
During the twelve-month period ended December 31, 1994, the number of lessons
given was approximately 4.8 million, 4.0% above the same period in the prior
year. Lesson volume in Asia increased 12.0% from 1993, favorably impacted by
the first full year of operations of certain centers in Hong Kong and Thailand
and by a 7.1% improvement in Japan. Lesson volume in Latin America increased
by 6.3% from the prior year, primarily due to growth in Mexico. Lesson volume
in the central/eastern European countries increased by 9.6% over 1993 primarily
due to the results of the new language centers in the Czech and Slovak
Republics, Hungary and Poland. Lesson volume in western Europe remained flat,
particularly reflecting weaknesses in Belgium, France and Spain.
For the twelve months ended December 31, 1994, ARPL was $43.27 as compared to
$41.07 in the comparable prior-year period. ARPL (excluding Russia and the
Slovak Republic) ranged from a high of approximately $73.16 in Japan to a low
of $15.19 in the Czech Republic, reflecting effects of foreign exchange rates
and differences in the economic value of the service. The Company opened eight
new language centers during 1994, including two in Germany and one each in the
Czech and Slovak Republics, Israel, Japan, Mexico and Poland.
Translation segment sales were $40.0 million for the twelve-month period ended
December 31, 1994, an increase of $4.3 million, or 12.1%, from the same period
in 1993. This increase was primarily attributable to strong performances in
Canada, Ireland, Norway and Japan and was benefited by the segment's
reorganization of its sales force to serve key regions and sharpen the focus on
targeted industries and customers. When comparing facilities not affected by
Merger-related restructuring activities, Translation sales increased $6.4
million, or 19.1%, from the prior year.
<PAGE> Page 24
Publishing segment sales were $15.7 million for the twelve months ended
December 31, 1994, $3.3 million, or 26.7%, above the same period in 1993,
primarily as product distribution problems were resolved and successful
marketing and sales programs were introduced. The effects of exchange rate
fluctuations were not material.
Net income to common shareholders for the twelve months ended December 31, 1994
was $0.9 million, or $0.09 per common share, compared to a net loss of $2.0
million, or net income of $0.08 per common share and net loss of $0.35 per
share for the one-month and eleven-month periods ended January 31, 1993 and
December 31, 1993, respectively, in the same period in 1993. This increase of
$2.9 million resulted primarily from increased sales in 1994 and Merger-related
restructuring costs in 1993, partially offset by increases in cost of services
and products sold, selling, general and administrative expenses and income tax
expense in 1994 and by non-recurring income items and the cumulative effect of
a change in accounting principle in 1993.
Cost of services and products sold and selling, general and administrative
expenses, totalled $271.6 million, or 90.5% of sales, for 1994, compared to
$252.6 million, or 93.0% of sales, in the prior year. This improvement in
expenses as a percentage of sales resulted primarily from certain cost
reduction measures, particularly teacher costs, office salaries and rent, which
more than offset increases in advertising, and the impacts in 1993 of the
settlement of a lease negotiation (income of $1.5 million) and certain other
Merger-related adjustments (expense of $0.4 million).
Interest expense on long-term debt increased by $1.5 million due primarily to
an increase in amortization of deferred financing costs.
Merger-related restructuring costs of $4.8 million were recorded for the twelve
months ended December 31, 1993, primarily for severance, the reorganization of
the Translations and certain Language Instruction divisions and the costs of
closing language centers, including lease cancellation penalties, write-offs of
leasehold improvements, and operating losses for such centers.
Other income, net for the twelve months ended December 31,1994 decreased by
$5.5 million from the same prior-year period, primarily due to non-recurring
income items, net, of $6.5 million in 1993 which were triggered by the terms of
the Merger and certain related restructuring activities.
The Company recorded an income tax expense for the twelve months ended December
31, 1994 of $6.2 million, or an effective rate of 87.2% which was raised
primarily by nondeductible amortization charges. This compared to an income
tax expense in the same prior year period of $5.3 million, for which the
effective rate was also raised primarily by nondeductible amortization charges.
ACCOUNTING FOR INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". As a
result of the adoption of this statement, as of January 1, 1993, the Company
recorded a tax credit of $3.2 million, or $0.17 per share, which resulted in
the reduction of the deferred tax liability as of that date. This amount has
been reflected in the Consolidated Statement of Operations as the cumulative
effect of a change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
<PAGE> Page 25
The primary source of the Company's liquidity has historically 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. The
Company's liquidity is principally generated from the Language Instruction and
Translations segments. Similarly, cash requirements for capital expenditures
and acquisitions are principally due to the Language Instruction and
Translations segments. Net cash needs of Publishing are generally not
material.
Although each geographic area exhibits different patterns of lesson volume over
the course of the year, the Company's sales are not seasonal in the aggregate.
Generally, the Company collects cash from the customer in the form of
prepayment of fees for instruction that gives rise to deferred revenues.
Net cash provided by operating activities was $16.6 million, $21.0 million and
$17.4 million for the
years ended December 31, 1995, 1994 and 1993, respectively. These cash flows
were affected by tax refunds of approximately $1.4 million, $5.6 million and
$5.1 million which were received in 1995, 1994 and 1993, respectively.
Net cash used in investing activities, which totalled $7.9 million, $8.0
million and $11.1 million in 1995, 1994 and 1993, respectively, consisted
primarily of capital expenditures for the opening of new centers, the
refurbishing of existing centers, or the 1995 relocation and consolidation of
certain centers in Japan. Included in 1994 and 1993 were investments in joint
ventures of $1.3 million and $2.9 million, respectively, primarily for
shutdown-related costs.
Net cash used for financing activities totalled $9.4 million in 1995, compared
with net cash provided of $2.0 million in 1994, and net cash used of $11.6
million in 1993. In 1993, in connection with the Merger, the Company incurred
certain long-term indebtedness ( the "Acquisition Debt Facilities"), with an
outstanding balance at December 31, 1995 of $77.6 million. In 1994, the
Company incurred indebtedness to an affiliate (the "Benesse Notes"), with an
outstanding balance at December 31, 1995 of $31.5 million. Certain financial
covenants contained in the Acquisition Debt Facilities restrict the ability of
the Company to pay dividends. The Company does not expect to pay dividends
during the term of the Acquisition Debt Facilities. Principal and interest
repayment on the Benesse notes are deferred until all obligations under the
Acquisition Debt Facilities are satisfied.
Pursuant to a covenant under the Acquisition Debt Facilities, the Company was
party at December 31, 1995 to five currency coupon swap agreements with a
financial institution to hedge the Company's net investments in certain foreign
subsidiaries and to help manage the effect of foreign currency fluctuations on
the Company's ability to repay its U.S. dollar debt. These agreements require
the Company, in exchange for U.S. dollar receipts, to periodically make foreign
currency payments, denominated in the Japanese yen, the Swiss franc, the
Canadian dollar, the British pound, and the German mark. Credit loss from
counterparty nonperformance is not anticipated. The fair value of these
agreements at December 31, 1995, representing the amount that could be settled
based on estimates obtained from a dealer, was a net liability of approximately
$2.5 million.
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 placed and agreed to maintain cash
and other assets,
<PAGE> Page 26
valued at $39.5 million, in escrow to secure Macmillan's obligation, including
any such tax liability assessed against the Company. Management believes that
such liability, if any, will not result in a material effect on the financial
condition of the Company.
As of May 31, 1995, the Company entered into a Stock Purchase Agreement to
purchase 627,000 of the Company's common shares (the "Berlitz Shares") from
Maxwell Communication, not later than September 16, 1996, at a price of $9
per share. The Company's obligation to buy the Berlitz Shares is subject
to the satisfaction of certain conditions. On March 25, 1996, the Company gave
notice to Maxwell Communication of its intention to consummate the purchase of
the Berlitz Shares on April 4, 1996.
In 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.
Effective January 1, 1996, the Company established a Supplemental Executive
Retirement Plan ("SERP") to provide retirement income, retiree medical and
certain other benefits to certain designated executives and their
beneficiaries. The Company intends to fund the SERP through a combination of
funds generated from operations and life insurance policies on the
participants.
As of December 31, 1995, the Company did not have any material commitments for
capital expenditures. During 1996, the Company anticipates capital
expenditures to be generally consistent with historical requirements, except
for an estimated $2.6 million related to the relocation of its corporate
headquarters to a new facility in Princeton, New Jersey. The Company plans
to meet its debt service requirements and future working capital needs
through funds generated from operations.
INFLATION
Historically, inflation has not had a material effect on the Company's overall
business. Management believes this is due to the fact that the Company's
business is a service business which is not capital intensive. The Company has
historically adjusted prices to compensate for inflation.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including information
appearing under the captions "Business", "Legal Proceedings", and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 which became effective in December
1995. Such forward-looking statements are subject to risks, uncertainties
and other factors which may cause actual results, levels of activity and
achievements to differ materially from estimated results, levels of
activity and achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, among others:
foreign currency exchange rates; demand for 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 and regulations; and the results of tax audits.
As a result, no assurance can be given as to future results, levels of
activity and achievements.
<PAGE> Page 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements, Supplementary Data and
Financial Statement Schedules are filed as part of this Annual Report on Form
10-K:
PAGE
REPORTS OF INDEPENDENT AUDITORS 28
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED 29
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Operations, years ended
December 31, 1995 and 1994, period from February 1, 1993
to December 31, 1993, and the period from January 1, 1993
to January 31, 1993 30
Consolidated Balance Sheets, December 31, 1995 and 1994 31
Consolidated Statements of Shareholders' Equity, years ended
December 31, 1995 and 1994, period from February 1, 1993
to December 31, 1993, and the period from January 1, 1993
to January 31, 1993 32
Consolidated Statements of Cash Flows, years ended
December 31, 1995 and 1994, period from February 1, 1993
to December 31, 1993, and the period from January 1, 1993
to January 31, 1993 33
Notes to Consolidated Financial Statements 34
FINANCIAL STATEMENT SCHEDULES:
Schedule II. Valuation and Qualifying Accounts 54
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
the Notes thereto.
<PAGE> Page 28
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of Berlitz International, Inc.:
We have audited the accompanying consolidated balance sheets of Berlitz
International, Inc. and its subsidiaries as of December 31, 1995 and 1994 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years ended December 31, 1995 and 1994, the eleven-month
period ended December 31, 1993 and the one-month period ended January 31, 1993.
Our audits also included the financial statement schedule listed in the Index
at Item 8 for the years ended December 31, 1995, 1994 and 1993. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Berlitz International, Inc. and
its subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for the years ended December 31, 1995 and
1994, the eleven-month period ended December 31, 1993 and the one-month period
ended January 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule for the
years ended December 31, 1995, 1994 and 1993, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As discussed in Note 7 to the financial statements, effective January 1, 1993
the Company changed its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards No. 109.
/S/ DELOITTE & TOUCHE LLP
New York, New York
February 26, 1996
<PAGE> Page 29
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders of Berlitz International, Inc.:
Management of Berlitz International, Inc. has prepared and is responsible for
the accompanying Consolidated Financial Statements and related information.
These financial statements, which include amounts based on judgments of
management, have been prepared in conformity with generally accepted accounting
principles. Financial data included in other sections of this Annual Report on
Form 10-K are consistent with that in the Consolidated Financial Statements.
Management believes that the Company's internal control systems are designed to
provide reasonable assurance, at reasonable cost, that the financial records
are reliable for preparing financial statements and maintaining accountability
for assets and that, in all material respects, assets are safeguarded against
loss from unauthorized use or disposition. These systems are augmented by
written policies, an organizational structure providing division of
responsibilities, qualified personnel throughout the organization, and a
program of internal audits.
The Board of Directors, through its Audit Committee consisting of outside
Directors of the Company, is responsible for reviewing and monitoring the
Company's financial reporting and accounting practices. Deloitte & Touche LLP
and the Company's internal auditors each have full and free access to the Audit
Committee, and meet with it regularly, with and without management.
/S/ HENRY D. JAMES
Henry D. James
Executive Vice President and Chief Financial Officer
<PAGE> Page 30
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
</TABLE>
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
-------------------------------------------- -------------
<S> <C> <C> <C> <C>
Period from Period from
February 1, January 1,
Year Ended Year Ended 1993 to 1993 to
December 31, December 31, December 31, January 31,
1995 1994 1993 1993
------------- ------------- ------------- ------------
Sales of services and products $351,139 $300,234 $252,069 $19,608
-------- -------- -------- -------
Costs and expenses:
Cost of services and products sold 213,073 179,869 155,623 13,479
Selling, general and administrative 105,039 91,703 76,781 6,719
Amortization of publishing rights, excess
of cost over net assets acquired, and
other intangibles 13,425 12,750 11,551 872
Interest expense on long-term debt 8,658 10,559 8,965 89
Merger-related restructuring costs - - 4,808 -
Other (income) expense, net 1,274 (1,751) (6,732) (552)
-------- -------- -------- -------
Total costs and expenses 341,469 293,130 250,996 20,607
-------- -------- -------- -------
Income (loss) before income taxes and
cumulative effect of change in accounting
principle 9,670 7,104 1,073 (999)
Income tax expense 7,400 6,195 4,629 635
-------- -------- -------- -------
Income (loss) before cumulative effect of
change in accounting principle 2,270 909 (3,556) (1,634)
Cumulative effect of change in
accounting principle - - - 3,172
-------- -------- -------- -------
Income (loss) available to common
shareholders $ 2,270 $ 909 $(3,556) $1,538
======== ======== ======== =======
Earnings (loss) per common share:
Income (loss) before cumulative
effect of change in accounting principle $ 0.23 $ 0.09 $ (0.35) $ (0.09)
Cumulative effect of change in
accounting principle - - - 0.17
-------- -------- -------- -------
Earnings (loss) per common share $ 0.23 $ 0.09 $ (0.35) $ 0.08
======== ======== ======== =======
Average number of common shares (000) 10,033 10,033 10,031 19,024
======== ======== ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> Page 31
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
DECEMBER 31,
-----------------------------
1995 1994
--------- ------------
ASSETS
Current assets:
Cash and temporary investments $25,402 $ 26,165
Accounts receivable, less allowance
for doubtful accounts
of $1,468 and $1,912 34,825 25,981
Unbilled receivables 2,744 1,304
Inventories 9,343 8,973
Prepaid expenses and other current assets 6,856 4,907
------ ------
Total current assets 79,170 67,330
Property and equipment, net 25,626 25,885
Publishing rights, net of accumulated
amortization of $2,524 and $1,665 19,114 20,048
Excess of cost over net assets acquired
and other intangibles, net
of accumulated amortization of
$35,114 and $22,675 439,407 453,712
Other assets 13,613 15,030
------ ------
Total assets $576,930 $582,005
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $11,371 $ 9,325
Accounts payable 7,481 6,999
Deferred revenues 35,608 35,994
Payrolls and commissions 10,846 10,785
Income taxes payable 2,251 1,356
Accrued expenses and other current
liabilities 11,523 10,219
------ ------
Total current liabilities 79,080 74,678
Long-term debt 67,081 78,420
Notes payable to affiliates 31,534 30,424
Deferred taxes and other liabilities 21,290 24,871
Minority interest 7,529 6,377
------ ------
Total liabilities 206,514 214,770
------ ------
Shareholders' Equity:
Common stock
$.10 par value - 40,000,000 shares
authorized; 10,033,013 and 10,032,935
shares outstanding in 1995 and
in 1994, respectively 1,003 1,003
Additional paid - in capital 368,658 368,658
Accumulated deficit (377) (2,647)
Cumulative translation adjustment 1,132 221
------ ------
Total shareholders' equity 370,416 367,235
------ ------
Total liabilities and shareholders' equity $576,930 $582,005
======== ========
See accompanying notes to the consolidated financial statements.
<PAGE> Page 32
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
REDEEMABLE ADDITIONAL CUMULATIVE TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS'
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $126,000 $1,908 $384,010 $(184,834) $(663) $326,421
Net income for the period from
January 1, 1993 to January 31, 1993 1,538 1,538
Amortization of unearned compensation
and other charges 119 119
Translation adjustment (280) (280)
------- ------ -------- -------- --- -------
Balance at January 31, 1993 126,000 1,908 384,129 (183,296) (943) 327,798
Merger-related transactions:
Equity capital contribution and
transaction-related fees 293,067 293,067
Merger consideration paid to existing
shareholders (374,515) (374,515)
Redemption of Preferred Stock (126,000) 126,000 -
Elimination of unearned compensation 598 (598) -
Elimination of predecessor company
equity accounts (1,503) (182,736) 183,296 943 -
Purchase price allocation adjustment 134,723 134,723
Other Merger financing activity (11,412) (11,412)
------- ------ -------- -------- --- -------
Opening balance at February 1, 1993 - 1,003 368,658 - - 369,661
Net loss for the period from
February 1, 1993 to December 31, 1993 (3,556) (3,556)
Translation adjustment (1,152) (1,152)
------- ------ -------- -------- --- -------
Balance at December 31, 1993 - 1,003 368,658 (3,556) (1,152) 364,953
Net income 909 909
Translation adjustment 1,373 1,373
------- ------ -------- -------- --- -------
Balance at December 31, 1994 - 1,003 368,658 (2,647) 221 367,235
Net income 2,270 2,270
Translation adjustment 911 911
------- ------ -------- -------- --- -------
Balance at December 31, 1995 $ - $1,003 $368,658 $ (377) $ 1,132 $370,416
======= ====== ======== ======== === =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> Page 33
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
------------------------------------------------------- --------------
Period from Period from
Year ended Year ended February 1, 1993 January 1, 1993
December 31, December 31, to December 31, to January 31,
1995 1994 1993 1993
-------------- -------------- ----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 2,270 $ 909 $ (3,556) $ 1,538
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - - - (3,172)
Gain on sale of interest in subsidiary - - (4,924) -
Depreciation 7,099 6,423 5,504 504
Amortization of publishing rights, excess of cost over
net assets acquired, and other intangibles 13,425 12,750 11,551 872
Amortization of unearned compensation - - - 20
Minority interest in income (loss) of subsidiary 1,106 738 (3,692) (168)
Equity in (gains) losses of joint ventures (13) 15 1,442 -
Deferred income taxes (1,405) 1,737 1,108 265
Provision for bad debts 349 442 1,084 32
Foreign exchange (gains) losses, net (20) (1,707) 1,278 38
Merger-related valuation adjustments - - 553 -
Maxwell related recoveries - - 312 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (10,504) (4,242) (2,309) 2,069
(Increase) decrease in inventories (154) 2,321 (1,853) 62
(Increase) decrease in prepaid expenses and other
assets (634) (3,207) 5,816 (504)
Increase (decrease) in deferred revenues (650) 419 (570) (771)
Increase (decrease) in accounts payable and
other current liabilities 1,125 (4,002) (6,975) 8,462
Increase in due to affiliates 1,416 384 - -
Increase (decrease) in income taxes payable 3,893 (868) (675) 585
Increase (decrease) in other liabilities (752) 8,913 3,650 (198)
------ ------ ------ -------
Net cash provided by operating activities 16,551 21,025 7,744 9,634
------ ------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,035) (5,892) (7,689) (560)
Acquisitions of businesses (15) (894) - -
Refunds from (investments in) joint ventures 177 (1,259) (2,838) (37)
------ ------ ------ -------
Net cash used in investing activities (7,873) (8,045) (10,527) (597)
------ ------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - - 115,000 -
Proceeds of notes payable to affiliates - 30,145 - -
Repayment of long-term debt (9,325) (24,935) (28,700) -
Net borrowings (repayments) under revolving
credit agreement - (3,000) 3,000 -
Payment of Merger-related expenses - - (13,996) -
Proceeds from equity capital contribution - - 293,067 -
Payment of cash portion of Merger consideration
to shareholders - - (374,541) -
Proceeds from sale of Notes - - 30,833 -
Distribution of Notes proceeds to shareholders - - (29,701) -
Payment of deferred financing costs (107) (232) (6,623) -
Other net financing activities - - - 99
------ ------ ------ -------
Net cash provided by (used in) financing activities (9,432) 1,978 (11,661) 99
------ ------ ------ -------
Effect of exchange rate changes
on cash and temporary investments (9) (531) (1,931) (204)
------ ------ ------ -------
Net increase (decrease) in cash and
temporary investments (763) 14,427 (16,375) 8,932
Cash and temporary investments at beginning of period 26,165 11,738 28,113 19,181
------ ------ ------ -------
Cash and temporary investments at end of period $25,402 $26,165 $11,738 $28,113
====== ====== ====== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 7,736 $ 8,988 $ 8,329 $ 109
====== ====== ====== =======
Income taxes $ 6,556 $ 6,070 $ 4,576 $ 192
====== ====== ====== =======
Cash refunds of income taxes $ 1,371 $ 5,584 $ 5,136 $ -
====== ====== ====== =======
Noncash investing activities:
Accounts payable for capital expenditures in Japan $ 456 $ - $ - $ -
====== ====== ====== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> Page 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Operations - Berlitz International, Inc. (the "Company")
is a New York corporation organized in 1989. Its operations are
conducted on a worldwide basis through three business segments:
Language Instruction, Translation Services and Publishing. Over 75%
of its 1995 revenues are denominated in currencies other than the
U.S. dollar.
b) Principles of Consolidation - The Consolidated Financial Statements
include those of the Company and its subsidiaries. The effects of
all significant intercompany transactions have been eliminated.
c) Foreign Currency Translation - Generally, balance sheet amounts have
been translated using exchange rates in effect at the balance sheet
dates and the translation adjustment has been included in the
cumulative translation adjustment, a separate component of
shareholders' equity, with the exception of hyperinflationary
countries. Income statement amounts have been translated using the
average exchange rates in effect for each period. Revaluation gains
and losses on certain intercompany accounts in all countries and
translation gains and losses in hyperinflationary countries have been
included in "Other (income) expense, net". Revaluation gains and
losses on intercompany balances for which settlement is not
anticipated in the foreseeable future are included in the cumulative
translation adjustment.
d) Translation Services contracts and unbilled receivables - Translation
Services contracts are accounted for under the percentage of
completion method of accounting, whereby sales and costs are
recognized as work on contracts progress. Changes in estimates for
sales, costs and profits are recognized in the period in which they
are determinable. Unbilled receivables represent the difference
between revenue recognized for financial reporting purposes and
amounts contractually permitted to be billed to customers. Unbilled
amounts will be invoiced in subsequent periods upon reaching certain
milestones.
e) Inventories - Inventories, which consist primarily of finished goods,
are valued at the lower of average cost or market.
f) Deferred Financing Costs - Direct costs relating to the indebtedness
incurred in connection with the Merger (hereinafter defined) and the
Benesse (hereinafter defined) borrowings (see Notes 8 and 11) have
been capitalized and are being amortized by the interest method over
the terms of the related debt.
g) Property and Equipment - Property and equipment is stated at cost and
depreciated over estimated useful lives, using principally
accelerated methods.
<PAGE> Page 35
h) Publishing Rights - Publishing rights are being amortized on a
straight-line basis over 25 years.
i) Excess of Cost Over Net Assets Acquired and Other Intangibles -
Excess of cost over net assets acquired is being amortized on a
straight-line basis over 40 years, while other intangibles are being
amortized primarily on a straight-line basis over 40 years. Their
carrying values are evaluated periodically to determine if there has
been a loss in value, by reviewing current and estimated future
revenues and cash flows, and the interrelated impact on the values of
the Company's trademark and franchise rights. The excess of cost
over net assets acquired and other intangibles will be written off if
and when it has been determined that an impairment in value has
occurred.
j) Deferred Revenues - Deferred revenues primarily arise from the
prepayment of fees for classroom instruction and are recognized as
income as lessons are given. The Company recognizes in income
deferred revenues for lessons paid for and not expected to be taken
based upon historical experience by country.
k) Income Taxes - The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates
expected to apply to taxable income in the periods in which the
differences are expected to reverse.
l) Cash and Temporary Investments - The Company considers all highly
liquid instruments purchased with an original maturity of three
months or less to be temporary investments.
m) Investment in Joint Ventures - Investments in joint ventures are
carried on the equity basis of accounting and the Company's share of
the net profits and losses of such investments is reflected in "Other
(income) expense, net" in the Consolidated Statements of Operations.
The Company's investment in these joint ventures included credit
balances of $896, classified as other current liabilities on the
Consolidated Balance Sheet at December 31, 1994, representing the
Company's obligation in excess of amounts invested with respect to
these joint ventures.
n) Financial Instruments - The Company has adopted Statement of
Financial Accounting Standard No. 107, "Disclosures about Fair Value
of Financial Instruments", which requires disclosure of fair value
information about financial instruments, whether or not recognized on
the balance sheet.
The fair values of the Company's long-term debt and notes payable to
affiliates are estimated based on the interest rates currently
available for borrowings with similar terms and maturities. The fair
values of the Company's currency coupon swap agreements represent the
amounts that could be settled based on estimates obtained from a
dealer.
<PAGE> Page 36
The carrying amounts reported in the balance sheets for cash and
temporary investments, trade receivables and payables, accrued
liabilities, accrued income taxes and short-term borrowings
approximate fair value due to the short-term nature of these
instruments.
o) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
p) Reclassifications - Certain reclassifications have been made in prior
years' financial statements and notes to conform with the 1995
presentation.
2. MERGER TRANSACTION
MERGER AGREEMENT
On December 9, 1992, Benesse Corporation (formerly Fukutake Publishing
Co., Ltd.) ("Benesse") agreed to acquire, through a merger of the Company
with an indirect wholly-owned U.S. subsidiary of Benesse (the "Merger"),
approximately 67% of the new common stock, par value $.10 per share ("New
Common") of the Company. The Merger was consummated on February 8, 1993.
The Company's shareholders received, for each of their outstanding shares
of common stock held prior to the Merger: (i) $19.50 in cash, (ii) 0.165
share of New Common and (iii) $1.48, representing the net proceeds per
share received from the sale of a certain promissory note from Maxwell
Communication Corporation plc ("Maxwell Communication") and certain 10-
year promissory notes due from affiliates (collectively the "Notes"). In
addition, the Company's shareholders received $.01 per share in redemption
of Rights in accordance with a Safeguard Rights Agreement between the
Company and U.S. Trust Company of New York. Subsequent to the Merger,
public shareholders of the Company hold the remaining approximately 33% of
New Common.
ACCOUNTING TREATMENT
The Merger was accounted for by the purchase method of accounting, which
resulted in a step-up in value of the Company's assets based upon the
purchase price paid for the outstanding common stock. A summary of the
purchase price allocation follows:
Benesse purchase price (including a portion of
long-term debt; See Note 8) $370,117
Net assets acquired:
Historical (based on 67% of $327,798) 219,625
Allocation to net assets 15,769
Total net assets acquired ------- 235,394
--------
Excess of cost over net assets acquired $134,723
========
<PAGE> Page 37
MERGER-RELATED RESTRUCTURING COSTS
In connection with the Company's strategic philosophy arising from the
Merger, certain restructuring costs outside the ordinary course of
business were incurred. The primary costs represented severance payments
and the closing of language centers. In 1993, 33% of these costs were
recorded in the consolidated statements of operations, and, in accordance
with the purchase method of accounting, 67% of these costs were allocated
to the excess of cost over net assets acquired.
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share of common stock is determined by dividing net
income (loss) by the weighted average number of common shares outstanding.
Primary and fully diluted earnings (loss) per share of common stock are
the same since common stock equivalents are either anti-dilutive or
immaterial in both calculations. The Company had no such common stock
equivalents outstanding as of December 31, 1995.
4. SALE OF INTEREST IN SUBSIDIARY
In November 1990, the Company completed the sale of 20% of the equity of
its Japanese subsidiary, The Berlitz Schools of Languages (Japan), Inc.,
to Benesse for $27,132 and deferred the pre-tax gain of $15,021 because,
under the terms of the agreement, Benesse had an option to sell the shares
back to the Company for the original yen-denominated purchase price plus
7% interest. The option was terminated in February 1993 in connection
with the Merger. In 1993, 33% of the deferred gain was recorded in the
Consolidated Statement of Operations and, in accordance with the purchase
method of accounting, 67% of the deferred gain was allocated to the excess
of cost over net assets acquired.
Benesse's equity in the income of the Japanese subsidiary is reflected in
the Company's Consolidated Statements of Operations within "Other (income)
expense, net".
5. PROPERTY AND EQUIPMENT, NET
DECEMBER 31,
------------------------
1995 1994
-------- ---------
Building and leasehold improvements $17,749 $16,705
Furniture, fixtures and equipment 19,766 16,541
Land 1,403 1,350
------- --------
38,918 34,596
Less: accumulated depreciation
and amortization 13,292 8,711
------- -------
Total $25,626 $25,885
======= =======
<PAGE> Page 38
6. OTHER (INCOME) EXPENSE, NET
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
------------------------------------------- ---------------
Period from Period from
Year Ended Year Ended February 1, 1993 January 1, 1993
December 31, December 31, to December 31, to January 31,
1995 1994 1993 1993
------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
Gain on sale of interest in subsidiary $ - $ - $ (4,924) $ -
Interest income on temporary investments (1,278) (1,692) (2,187) (143)
Foreign exchange (gains) losses, net (20) (1,707) 1,278 38
Equity in (gains) losses of joint ventures (13) 15 1,442 -
Joint venture-related income (1,299) - - -
Interest (income from) expense to affiliates 1,437 384 - (99)
Minority interest in earnings (losses) of
subsidiary 1,106 738 (3,692) (168)
Losses(gains) on disposal of fixed assets 622 136 91 (149)
Publishing rights valuation adjustment - 553 -
Other, net 719 375 707 (31)
------ ---------- --------- ----------
Total other (income) expense, net $1,274 $ (1,751) $ (6,732) $ (552)
====== ========== ========= ==========
</TABLE>
7. INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of SFAS 109.
SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates expected to apply to taxable income in the periods in which the
differences are expected to reverse.
As a result of the adoption of SFAS 109, as of January 1, 1993, the
Company recorded a tax credit of $3,172, or $0.17 per share, which
resulted in the reduction of the deferred tax liability as of that date.
This amount has been reflected in the Consolidated Statement of Operations
as the cumulative effect of a change in accounting principle. The
principal reason for the tax credit was the difference between SFAS 109
and SFAS 96 as related to the recognition of benefits for certain loss
carryforwards.
<PAGE> Page 39
The components of the deferred tax liability at December 31, 1995 and 1994
were as follows:
1995 1994
Deferred tax assets:
Inventory $ 896 $ 212
Joint ventures - 103
Deferred revenue 1,107 871
Unrealized hedging losses 1,272 1,129
Accrued expenses 3,689 3,848
Net operating losses 18,828 23,681
------ ------
Total deferred tax assets 25,792 29,844
------ ------
Deferred tax liabilities:
Joint ventures (408) -
Property and equipment
depreciation (226) (101)
Unrealized hedging gains (410) (354)
Publishing rights
amortization (8,052) (7,979)
Other intangibles
amortization - (3,313)
------ ------
Total deferred tax
liabilities (9,096) (11,747)
------ ------
Net deferred tax assets 16,696 18,097
Valuation allowance (18,874) (22,585)
------ ------
Net deferred tax liability $(2,178) $(4,488)
====== ======
As a result of the Merger, $5,050 of the valuation allowance will be
allocated to reduce goodwill and other intangibles in future periods if
realization of net operating losses becomes more likely than not.
<PAGE> Page 40
The Company's effective tax rate for 1995 was 76.5%, compared to 87.2% in
1994, and compared to 63.6% and 431.4% for the 1993 Pre-Merger and Post-
Merger periods, respectively. As a result of adopting SFAS 109, $2,654 of
deferred tax benefits from operating loss carryforwards were recognized at
January 1, 1993 as part of the cumulative effect of adopting such
Statement. Under prior accounting, a part of these benefits would have
been recognized as a reduction of tax expense from continuing operations
in 1993. Accordingly, the adoption of SFAS 109 at the beginning of 1993
had the effect of increasing the effective tax rate applied to continuing
operations for the Pre-Merger and the Post-Merger periods by 17.2% and
231.4% respectively.
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
U.S. U.S. STATE
FEDERAL FOREIGN* AND LOCAL TOTAL
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Current $ 272 $ 8,062 $ 471 $ 8,805
Deferred (1,180) 116 (341) (1,405)
--------- ---------- --------- ----------
Total $ (908) $ 8,178 $ 130 $ 7,400
========= ========== ========= ==========
Year ended December 31, 1994:
Current $ 202 $ 3,887 $ 369 $ 4,458
Deferred 1,286 166 285 1,737
--------- ---------- --------- ----------
Total $ 1,488 $ 4,053 $ 654 $ 6,195
========= ========== ========= ==========
Period from February 1, 1993 to
December 31, 1993
Current $ (505) $ 3,791 $ 235 $ 3,521
Deferred 1,534 (264) (162) 1,108
--------- ---------- --------- ----------
Total $ 1,029 $ 3,527 $ 73 $ 4,629
========= ========== ========= ==========
Period from January 1, 1993 to
January 31, 1993
Current $ (37) $ 369 $ 38 $ 370
Deferred 319 (39) (15) 265
--------- ---------- --------- ----------
Total $ 282 $ 330 $ 23 $ 635
========= ========== ========= ==========
</TABLE>
* Pre-tax income from foreign operations of the Company was $20,232, $13,541,
and $6,864 for the twelve months ended December 31, 1995, 1994 and 1993,
respectively.
<PAGE> Page 41
The provision (benefit) for deferred taxes is summarized as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
-------------------------------------------- ---------------
Period from Period from
Year Ended Year Ended February 1, 1993 January 1, 1993
December 31, December 31, to December 31, to January 31,
1995 1994 1993 1993
------------ ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Deferred gain on sale of 20% of Japanese
subsidiary $ - $ - $ (1,384) $ -
Accrued liabilities (76) 2,430 (1,497) (267)
Foreign exchange 410 - (353) (21)
Benefit of net operating loss (228) (2,646) 4,492 408
Amortization of intangibles (1,536) 2,027 (164) 143
Other, net 25 (74) 14 2
--------- ---------- --------- ----------
Total $ (1,405) $1,737 $ 1,108 $ 265
========= ========== ========= ==========
</TABLE>
The difference between the effective income tax and the U.S. statutory
Federal tax rate is explained as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
-------------------------------------------- ---------------
Period from Period from
Year Ended Year Ended February 1, 1993 January 1, 1993
December 31, December 31, to December 31, to January 31,
1995 1994 1993 1993
------------ ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
U.S. statutory Federal tax rate 35.0% 35.0% 35.0% (35.0)%
Foreign income taxes, net of Federal
income tax benefits 3.3 (28.0) (73.9) (8.2)
U.S. state and local income taxes,
net of Federal income taxes 3.0 6.0 4.4 1.5
Net domestic and foreign losses 3.9 14.1 107.6 58.5
20% sale of Japanese subsidiary - - (97.1) -
Amortization and writeoff of intangibles 30.5 58.6 372.7 30.3
Other, net 0.8 1.5 82.7 16.5
--------- ---------- --------- ----------
Total 76.5% 87.2% 431.4% 63.6%
========= ========== ========= ==========
</TABLE>
For tax return purposes, at December 31, 1995 the Company has a U.S.
Federal net operating loss carryforward of approximately $18,133. Such
loss may be carried forward through the year 2006. In addition to the
Federal net operating loss carryforward, the Company has net operating
loss carryforwards that relate to a number of foreign and state
jurisdictions that will expire on various dates.
At December 31, 1995, accumulated earnings of foreign subsidiaries of
approximately $48,510 are intended to be permanently reinvested outside
the U.S. and no tax has been provided for the remittance of these
earnings. However, it is estimated that foreign withholding taxes of
approximately $2,581 may be payable if such earnings were distributed.
These taxes, if ultimately paid, may be recoverable as foreign tax credits
in the U.S. The determination of deferred U.S. tax liability for the
undistributed earnings of international subsidiaries is not practicable.
<PAGE> Page 42
8. LONG-TERM DEBT
Long-Term Debt consists of the following:
DECEMBER 31,
---------------------
1995 1994
---------- ---------
Term Loan $21,550 $30,775
Senior Notes 56,000 56,000
Other 902 970
---------- ---------
Total debt 78,452 87,745
Less current maturities 11,371 9,325
---------- ---------
Long-term debt $ 67,081 $ 78,420
========= =========
Annual maturities of long-term debt outstanding as of December 31, 1995
are as follows: 1996, $11,371; 1997, $10,875; 1998, $206; 1999, $14,000;
2000, $14,000; thereafter, $28,000.
In connection with the Merger, the Company has outstanding indebtedness
through borrowing under a bank term facility (the "Bank Term Facility")
and the issuance of Senior Notes (the "Senior Notes") (collectively the
"Acquisition Debt Facilities"). The Bank Term Facility consists of a
senior term loan facility ("Term Loan"), originally in an amount equal to
$59,000, and originally included a $10,000 senior revolving loan facility
(the "Bank Revolving Facility"). The Company also issued an aggregate
principal amount of Senior Notes of $56,000. The borrowings by the
Company under the Acquisition Debt Facilities are collateralized by: (i)
certain shares of the Company's common stock indirectly owned by Benesse,
(ii) the capital stock of the Company's direct and indirect U.S.
subsidiaries and a portion of capital stock of certain foreign
subsidiaries, (iii) substantially all other tangible and intangible U.S.
assets of the Company and its direct and indirect U.S. subsidiaries, other
than leases of school premises, and (iv) subject to certain limitations,
trademark rights of the Company and its direct and indirect U.S.
subsidiaries in certain non-U.S. jurisdictions. The Term Loan amortizes
quarterly until final maturity on September 30, 1997. The Senior Notes
amortize in equal annual installments on December 31 in each of the years
1999 through 2002. The Term Loan and Senior Notes are also subject to
mandatory prepayment to the extent that the Company receives net proceeds
from asset sales or cash flow in excess of certain specified amounts. No
such mandatory prepayments have occurred.
Borrowings under the Bank Term Facility bear interest at variable rates
based on, at the option of the Company, (i) Chemical Bank's alternate base
rate plus a spread of 1.0%-1.5% or (ii) the rate offered by certain
reference banks to prime banks in the interbank Eurodollar market, fully
adjusted for reserves plus a spread of 2.0%-2.5%. The spread applicable
to the borrowings under the Bank Term Facility will depend on a specified
debt-to-cash flow ratio of the Company. The average interest rate on the
Term Loan during 1995 was approximately 8.2%. The Senior Notes bear
interest at 9.79%.
The Acquisition Debt Facilities contain certain covenants, including (i)
limitations on the ability of the Company and its subsidiaries to incur
indebtedness and guarantee obligations, to prepay indebtedness, to redeem
or repurchase capital stock or subordinated debt, to enter into, grant or
suffer to exist liens or sale-leaseback transactions, to make loans or
investments, to enter into mergers, acquisitions or sales of assets, to
change the nature of the business conducted, to
<PAGE> Page 43
amend material agreements, to enter into agreements restricting the
ability of the Company and its subsidiaries to grant or to suffer to
exist liens, to enter into transactions with affiliates or to limit the
ability of subsidiaries to pay dividends or make loans to the Company,
(ii) limitations on the payment of dividends by the Company on its capital
stock and (iii) a requirement that the Company maintain foreign currency
hedge agreements to fix the rate of exchange between the U.S. dollar and
such foreign currencies. The Acquisition Debt Facilities also contain
financial covenants requiring the Company to maintain certain levels of
earnings, liquidity and net worth and imposes limitations on capital
expenditures, cash flow and total debt. As of December 31, 1995, the
Company was in compliance with all Acquisition Debt Facilities covenants.
In September 1994, as part of a refinancing of a portion of its long-term
debt, the Company made a $19,000 prepayment against the Term Loan, applied
in inverse order of the scheduled principal maturities. The Company also
repaid $7,000 outstanding under its Bank Revolving Facility, which was
then terminated. In addition, amendments were made to certain covenants
under the Acquisition Debt Facilities.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company's operations are primarily conducted from leased facilities,
many of which are less than 2,500 square feet, which are under operating
leases that generally expire within five years.
Rent expense, principally for language centers, amounted to $25,443,
$24,816, $21,225 and $1,849, for the years ended December 31, 1995 and
1994, the period February 1, 1993 to December 31, 1993, and the period
January 1, 1993 to January 31, 1993, respectively. Certain leases are
subject to escalation clauses and/or renewal options.
The minimum rental commitments under noncancellable operating leases with
a remaining term of more than one year at December 31, 1995 are as
follows: 1996 - $8,336; 1997 - $6,936; 1998 - $5,936; 1999 - $4,749; 2000
- $3,700, and an aggregate of $18,525 thereafter.
LEGAL PROCEEDINGS
The Company is party to several actions arising out of the ordinary course
of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on
the financial condition or results of operations of the Company.
MACMILLAN GROUP CONSOLIDATED TAX RETURNS
The Company was formerly included in the consolidated Federal 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, the
parent company of Macmillan, placed and agreed to maintain cash and other
assets valued at $39,500 (including, at December 31, 1995, 627,000 shares
of the Company's common stock) in escrow
<PAGE> Page 44
to secure Macmillan's obligation. Management believes that such liability,
if any, will not result in a material effect on the financial condition of
the Company.
10. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
a) Currency coupon swap agreements
Pursuant to a covenant under the Acquisition Debt Facilities, the Company
maintains currency coupon swap agreements with a financial institution to
hedge the Company's net investments in certain foreign subsidiaries and to
help manage the effect of foreign currency fluctuations on the Company's
ability to repay its U.S. dollar debt. These agreements require the
Company to periodically exchange foreign currency denominated interest
payments for U.S. dollar-denominated interest receipts. Credit loss from
counterparty nonperformance is not anticipated.
The periodic interest exchanges for agreements existing during 1995 were
based upon annual interest rates applied to notional amounts as follows:
<TABLE>
<CAPTION>
INTEREST PAYMENTS TO FINANCIAL INSTITUTION INTEREST RECEIPTS FROM FINANCIAL INSTITUTION
NOTIONAL AMOUNT (000'S) INTEREST RATE NOTIONAL AMOUNT (000'S) INTEREST RATE
----------------------- ------------- ----------------------- ----------------
FIXED RATE
AGREEMENTS:
<S> <C> <C> <C>
Japanese Yen 2,335,500 9.71% $ 22,500 9.79%
Swiss Franc 11,475 9.89% $ 7,500 9.79%
British Pound 5,133 10.43% $ 7,550 9.79%
Canadian Dollar 5,596 10.43% $ 4,300 9.79%
FLOATING RATE
AGREEMENTS:
German Mark 60,165 DEM-LIBOR-BBA $ 35,000 USD-LIBOR-BBA
+2.8% +2.5%
Japanese Yen 1,660,480 JPY-LIBOR-BBA $ 16,000 USD-LIBOR-BBA
+3.535% +2.5%
</TABLE>
The Company marks coupon swaps to market. When these agreements are
effective as hedges, realized and unrealized gains and losses are excluded
from the Company's Consolidated Statements of Operations, and included,
net of deferred taxes, in the cumulative translation adjustment of
shareholders' equity.
In July 1995, the Company settled in full the Japanese yen floating rate
currency coupon swap agreement listed above. Net cash proceeds on
settlement were $695.
During the second half of 1995, the German mark coupon swap agreement
became ineffective as a hedge of the Company's net investment in its
German subsidiaries, and consequently the Company recognized a foreign
exchange gain of $1,151 in its Consolidated Statement of Operations within
"Other (income) expense, net". On January 23, 1996, the Company exchanged
this swap for a fixed interest rate coupon-only currency swap of equal
fair value. The Company will recognize a gain of approximately $400
during the first quarter of 1996,
<PAGE> Page 46
representing the change in fair value of the original swap from
December 31, 1995 to the date of the exchange.
b) Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and temporary
investments and trade accounts receivable.
The Company maintains cash and temporary investments with various high
credit qualified financial institutions. The majority of these financial
institutions are located outside of the U.S. and the Company's policy is
designed to limit exposure to any one of these foreign institutions. The
Company maintains U.S. concentration accounts, consisting of overnight
investments, with two major U.S. banks. During 1995 and 1994, balances in
these accounts averaged 27% and 26% of worldwide cash. As part of its
cash management process, the Company performs periodic evaluations of the
relative credit standing of all financial institutions in which it
maintains cash and temporary investments.
Credit risk with respect to Language Instruction and Translation Services
trade accounts receivable is generally diversified due to the large number
of entities comprising the Company's customer base and their dispersion
across many different industries and countries. The Publishing segment
also sells to a substantial client base, although several of its larger
receivables are from its distributors. Such receivables from Publishing's
distributors comprised approximately 8% and 10% of the Company's total
accounts receivable balance before allowances at December 31, 1995 and
1994, respectively.
c) Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
1995 1994
------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------- ---------- ------ ----------
Assets:
Cash and temporary investments $25,402 $25,402 $ 26,165 $26,165
Currency coupon swap agreements - - 1,011 1,011
Liabilities:
Long-term debt, including
current maturities 78,452 84,419 87,745 88,661
Notes payable to affiliates 31,534 25,292 30,424 19,538
Currency coupon swap agreements 2,464 2,464 3,226 3,226
For cash and temporary investments and short-term borrowings, the carrying
amount
<PAGE> Page 46
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.
11. RELATED PARTY TRANSACTIONS
In September 1994, the Company borrowed $20,000 from a U.S. subsidiary of
Benesse, as evidenced by a subordinated promissory note (the "U.S. Note")
bearing interest at a rate of 6.93% per annum. The Company's Japanese
subsidiary, The Berlitz Schools of Languages (Japan), Inc. ("Berlitz-
Japan"), also borrowed <yen>1.0 billion (approximately $10,145) from
Benesse as evidenced by an interest-free subordinated promissory note (the
"Japan Note"). A portion of the proceeds of these notes (collectively the
"Benesse Notes") were used to settle certain obligations under the
Acquisition Debt Facilities.
The Benesse Notes mature on the earlier of June 30, 2003 or twelve months
from the date that all payment obligations under the Acquisition Debt
Facilities have been satisfied. To the extent that interest payments on
the U.S. Note are not permitted while any amounts remain outstanding under
the Acquisition Debt Facilities, such accrued interest will roll over
semiannually into the note principal.
The Benesse Notes are subordinate in rights of payment to debt under the
Acquisition Debt Facilities, including the financial hedging instruments.
Payment obligations under the U.S. Note are guaranteed by the Company and
its significant U.S. subsidiaries, subject to senior guarantees of the
Acquisition Debt Facilities. The Company and its significant U.S.
subsidiaries have also executed a guarantee of payment obligations under
the Japan Note, effective as of the day following the date upon which all
payment obligations under the Acquisition Debt Facilities are satisfied.
The Benesse Notes contain certain covenants, including prohibitions on the
incurrence of other debt, liens, loans, mergers or consolidations and
amendments to the Acquisition Debt Facilities without consent.
Berlitz-Japan had a contract (the "Development Agreement") with Benesse,
originally executed in 1992 and amended in 1993, for the development of
English conversation video programs for elementary and junior high school
students in Japan. The programs consisted of printed study materials,
video cassettes and audio cassettes, which were used as the basis of a
correspondence course. Under this contract, Benesse was to reimburse
Berlitz-Japan for project-related production costs incurred, including
employee salaries and outside production fees, and pay to Berlitz-Japan a
one-time development fee and a coordination fee of 10% of project-related
employee salaries. Development activities under the Development Agreement
were completed during 1994.
Pursuant to the Development Agreement, the Company received reimbursement
for production costs of approximately $2,300 and $1,800 during 1994 and
1993, respectively. In addition, the Company received the coordination
fee and other project-related reimbursements of
<PAGE> Page 47
approximately $250 in 1994, and the development fee of approximately
$420 in 1993.
The Company and Benesse maintain a joint Directors and Officers ("D&O")
insurance policy covering acts by directors and officers of both Benesse
and the Company. Consequently, the premium on the D&O policy is
allocated 60% to Benesse and 40% to the Company. Commencing in May 1995,
the Company maintains a stand-alone Employment Practices Liability ("EPL")
insurance policy covering the Company, its officers and directors
(including the Benesse directors who are also directors of the Company).
Consequently, the premium on the EPL policy is allocated 30% to Benesse
and 70% to the Company.
The Company and Benesse participated in certain other joint business
arrangements in the ordinary course of business, none of which had a
material effect on the financial statements.
Management believes that the Company has entered into all such agreements
on terms no less favorable than it would have received in arms-length
transactions with independent third parties. Each of the transactions
with Benesse entered into after the Merger was approved by the
Disinterested Directors Committee.
12. STOCK OPTION AND INCENTIVE PLANS
During 1989, the Company established the 1989 Stock Option and Incentive
Plan (the "Plan") which authorized the issuance of up to 2,000,000 shares
of common stock. The Plan authorized the issuance of various stock
incentives to officers and key employees, including options, stock
appreciation rights, restricted stock, deferred stock and certain other
stock-based incentive awards. The options were to expire ten years from
the date of grant and were exercisable as determined by the committee
established to administer the plan.
A summary of the activity related to stock options under the Company's
Plan follows:
SHARES PRICE
PER SHARE
Options outstanding at
January 1, 1993 1,000,500 $ 14.50 -$18.625
Exercised (6,000) $ 16.50
Cancelled (10,000) $ 16.50 -$18.00
Merger-related liquidation (984,500) $ 14.50 -$18.625
----------
Options outstanding at
December 31, 1993 - -
==========
There were no stock option grants, exercises or cancellations during 1995
or 1994, and no options are outstanding at December 31, 1995.
At January 1, 1993, 68,500 restricted shares to key employees were
outstanding under the Plan. The resale restrictions on these shares,
granted prior to 1993, lapsed in equal installments over five years
commencing from date of grant. Deferred compensation, equivalent to the
market value of the common stock at the date of grant times the number of
shares granted, was charged to Shareholders' Equity as unearned
compensation in the year of grant and was being amortized over the service
period. During 1993, prior to the Merger, 2,000 shares were sold.
<PAGE> Page 48
All outstanding options and restricted shares as of February 8, 1993 were
liquidated in connection with the Merger. There were no grants of
restricted stock subsequent to the Merger and there are no restricted
shares outstanding at December 31, 1995.
At December 31, 1995, there were no shares outstanding pursuant to any
other stock-based awards under the Plan.
During 1991, the Company established the Non-Employee Directors Stock Plan
("Directors' Stock Plan") to provide non-employee Directors of the Company
the opportunity to elect to receive a portion of their annual retainer
fees in the form of common stock of the Company, or to defer receipt of a
portion of such fees and have the deferred amounts treated as if invested
in common stock. The Directors' Stock Plan, in which participation was
elective for non-employee Directors, limited the benefits paid in the form
of stock to 50% of the annual retainer. All deferred amounts outstanding
under the Director's Stock Plan as of February 8, 1993 were settled in
connection with the Merger. There were no deferrals subsequent to the
Merger and there are no deferred amounts outstanding at December 31, 1995.
On December 2, 1993, the Board of Directors of the Company approved the
Long-Term Executive Incentive Compensation Plan and the Short-Term
Executive Incentive Compensation Plan (the "Long-Term Plan" and "Short-
Term Plan", respectively). The Long-Term Plan, having an effective date
of January 1, 1994, provides for potential cash awards in 1999 to key
executive employees if certain financial goals and stock price results are
achieved for the five year period ending December 31, 1998. The Short-
Term Plan, commencing with the 1993 calendar year, provides for potential
cash awards to officers and other key employees if certain financial goals
and individual discretionary performance measures are met for the
applicable calendar year. The Company is not required to establish any
fund or to segregate any assets for payments under the Long-Term Plan or
the Short-Term Plan. Approximately $1,328 was paid for 1995 pursuant to
the Short-Term Plan.
The Company has severance agreements with three key employees which
generally provide for termination payments of between one and two times
annual base salary, plus a portion of the Company's bonus plan awards.
The agreements also provide for the continuation of certain benefits. One
of these agreements is in effect for 36 months following a change in
control. The maximum contingent liability under such agreements is
approximately $1,800.
The Company also had a consulting agreement with its former Chief
Operating Officer which provided, subject to certain conditions, for
payments totalling $220 over the two-year period ended August 31, 1995.
13. THRIFT AND RETIREMENT PLANS
The Berlitz International, Inc. Retirement Savings Plan (the "Berlitz
Plan") covers substantially all of the Company's full-time domestic
employees. The retirement portion of the Berlitz Plan provides for the
Company to make regular contributions based on salaries of eligible
employees. The thrift portion of the Berlitz Plan, in which employee
participation is elective, provides for Company matching contributions of
up to 3% of salary. Payments upon retirement or termination of employment
are based on vested amounts credited to individual accounts.
<PAGE> Page 49
In addition, certain foreign operations have other defined contribution
benefit plans. Total expense with respect to all benefit plans was $1,704,
$1,445, $1,417, and $121, for the years ended December 31, 1995 and 1994,
the period from February 1, 1993 to December 31, 1993, and the period from
January 1, 1993 to January 31, 1993, respectively.
Through December 31, 1995, the Company did not provide health care or
insurance coverage or other post-retirement benefits other than pensions
to retirees; therefore adoption of SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" has no effect on the
Company's consolidated financial statements.
14. SUBSEQUENT EVENTS
a) Stock Purchase Transaction
As of May 31, 1995, the Company entered into a Stock Purchase Agreement to
buy 627,000 shares of the Company's common stock (the "Berlitz Shares")
from Maxwell Communication not later than September 16, 1996, at a
price of $9 per share. The Company's obligation to buy these shares
is subject to the satisfaction of certain conditions. On March 25,
1996, the Company gave notice to Maxwell Communication of its intention to
consummate the purchase of the Berlitz Shares on April 4, 1996. The
Berlitz Shares will be placed into treasury and reserved for future use.
b) 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 (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 semiannually into the note principal. The FHAI
Note is subordinate in rights of payment to debt under the Acquisition
Debt Facilities, including the financial hedging instruments, 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 Benesse Notes.
c) Supplemental Executive Retirement Plan
Effective January 1, 1996, the Company established a Supplemental
Executive Retirement Plan ("SERP") to provide retirement income/disability
benefits, retiree medical benefits and death benefits to certain
designated executives and their designated beneficiaries. The 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 retirement
income/disability benefits will be based on up to 30% of an average
monthly salary (calculated on the base salary and short-term bonuses paid
over the last 36 months of employment) and will be paid to the participant
for life, with 50% of such benefit paid to a designated beneficiary for
life upon the participant's death. The Company will also
<PAGE> Page 50
provide each participant and their beneficiary with medical coverage for
both of their lives.
15. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company's operations are conducted through the following business
segments: Language Instruction, Translation Services, and Publishing.
Intersegment and intergeographical sales are not significant.
For 1995 and 1993, general corporate identifiable assets are principally
property and equipment. General corporate identifiable assets for 1994
include $1,011 of currency coupon swap agreements, with the balance
principally consisting of property and equipment. Depreciation and
amortization relates to property and equipment, excess of cost over net
assets acquired, other intangibles and publishing rights.
<PAGE> Page 51
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
----------------------------------------------- ---------------
Period from Period from
Year Ended Year Ended February 1, 1993 January 1, 1993
December 31, December 31, to December 31,to January 31,
BUSINESS SEGMENTS 1995 1994 1993 1993
- ------------------------------- ------------- ------------ ------------------ --------------
<S> <C> <C> <C> <C>
Sales of services and products:
Language Instruction $ 270,524 $ 244,502 $ 207,692 $ 15,875
Translation Services 64,036 39,997 32,720 2,971
Publishing 16,579 15,735 11,657 762
--------- ---------- ---------- ---------
Total $ 351,139 $ 300,234 $ 252,069 $ 19,608
========= ========== ========== =========
Operating profit (loss):
Language Instruction $ 24,286 $ 20,434 $ 11,471 $ (893)
Translation Services 3,836 1,731 726 219
Publishing 1,235 524 (255) (240)
--------- ---------- ---------- ---------
Total operating segments 29,357 22,689 11,942 (914)
General corporate expenses (9,755) (6,777) (8,636) (548)
--------- ---------- ---------- ---------
Total $ 19,602 $ 15,912 $ 3,306 $ (1,462)
========= ========== ========== =========
Capital expenditures:
Language Instruction $ 5,188 $ 3,508 $ 4,600 $ 481
Translation Services 1,659 648 709 26
Publishing 853 1,349 1,700 48
--------- ---------- ---------- ---------
Total operating segments 7,700 5,505 7,009 555
General corporate 335 387 680 5
--------- ---------- ---------- ---------
Total $ 8,035 $ 5,892 $ 7,689 $ 560
========= ========== ========== =========
Depreciation and amortization:
Language Instruction $ 15,933 $ 15,339 $ 13,684 $ 1,127
Translation Services 2,826 2,180 1,901 80
Publishing 1,551 1,371 1,161 146
--------- ---------- ---------- ---------
Total operating segments 20,310 18,890 16,746 1,353
General corporate 214 283 309 23
--------- ---------- ---------- ---------
Total $ 20,524 $ 19,173 $ 17,055 $ 1,376
========= ========== ========== =========
</TABLE>
DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ----------- -----------
Identifiable assets:
Language Instruction $ 477,300 $ 490,462 $ 485,333
Translation Services 76,368 65,925 59,654
Publishing 22,717 24,037 24,693
--------- ----------- -----------
Total operating segments 576,385 580,424 569,680
General corporate 545 1,581 792
--------- --------- ----------
Total $ 576,930 $ 582,005 $ 570,472
========= ========= ==========
<PAGE> Page 52
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
----------------------------------------------- ---------------
Period from Period from
Year Ended Year Ended February 1, 1993 January 1, 1993
December 31, December 31, to December 31,to January 31,
GEOGRAPHIC AREAS 1995 1994 1993 1993
- ------------------------------- ------------- ------------ ------------------ --------------
<S> <C> <C> <C> <C>
Sales of services and products:
North America $ 92,821 $ 79,984 $ 71,001 $ 5,436
Europe 139,198 111,791 95,125 8,411
Asia 81,652 74,915 58,853 4,167
Latin America 37,468 33,544 27,090 1,594
--------- ---------- ---------- ---------
Total $ 351,139 $ 300,234 $ 252,069 $ 19,608
========= ========== ========== =========
Operating profit (loss):
North America $ 13,526 $ 11,349 $ 10,389 $ 243
Europe 7,651 2,950 (87) (357)
Asia 4,507 4,627 (1,864) (814)
Latin America 6,976 6,170 4,371 93
Business segment corporate
expenses (3,303) (2,407) (867) (79)
--------- ---------- ---------- ---------
Total operating segments 29,357 22,689 11,942 (914)
General corporate expenses (9,755) (6,777) (8,636) (548)
--------- ---------- ---------- ---------
Total $ 19,602 $ 15,912 $ 3,306 $ (1,462)
========= ========== ========== =========
</TABLE>
Amortization of publishing rights, excess of cost over net assets acquired and
other intangibles, included in operating profit (loss) in the years ended
December 31, 1995 and 1994, the period from February 1, 1993 to December 31,
1993, and the period from January 1, 1993 to January 31, 1993 amounted to
$9,333, $9,216, $8,449 and $204 for North America; $1,895, $1,405, $1,191 and
$291 for Europe; $1,762, $1,575, $1,336 and $308 for Asia and $435, $554, $575
and $69 for Latin America.
Profit (expense), resulting from an intersegment allocation to compensate North
America for use of its intangibles, and included in operating profit (loss) in
the years ended December 31, 1995 and 1994 and the period from February 1, 1993
to December 31, 1993, amounted to $6,072, $6,072 and $5,564 for North America;
$(2,913), $(2,913) and $(2,669) for Europe; $(2,189), $(2,189) and $(2,006) for
Asia and $(970), $(970) and $(889) for Latin America.
Merger-related restructuring costs, included in operating profit (loss) in the
Post-Merger period from February 1, 1993 to December 31, 1993, amounted to $122
for North America; $1,090 for Europe; $2,826 for Asia; $50 for Latin America,
and $720 for General corporate expenses. No Merger-related restructuring costs
were incurred in 1995, 1994 or in the Pre-Merger period.
DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ----------- ----------
Identifiable assets:
North America $ 378,243 $ 382,203 $ 383,444
Europe 95,680 89,375 80,120
Asia 78,073 83,353 75,984
Latin America 24,934 27,074 30,924
--------- --------- ---------
Total $ 576,930 $ 582,005 $ 570,472
========= ========= =========
<PAGE> Page 53
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31 YEAR
--------- --------- ---------- ---------- --------
S> <C> <C> <C> <C> <C>
1995:
Sales of services and products $ 80,406 $ 89,674 $ 91,410 $ 89,649 $351,139
Operating profit 2,623 4,632 6,400 5,947 19,602
Income before income taxes 1,826 1,276 3,067 3,501 9,670
Income (loss) available to
common shareholders (587) 78 1,118 1,661 2,270
Earnings (loss) per common share $ (0.06) $ 0.01 $ 0.11 $ 0.17 $ 0.23
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31 YEAR
---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
1994:
Sales of services and products $ 69,021 $ 74,414 $ 77,694 $ 79,105 $300,234
Operating profit 1,996 4,759 5,134 4,023 15,912
Income (loss) before income taxes (255) 2,793 2,953 1,613 7,104
Income (loss) available to
common shareholders (1,779) (360) 719 2,329 909
Earnings (loss) per common share $ (0.18) $ (0.03) $ 0.07 $ 0.23 $ 0.09
======== ======== ======== ======== ========
</TABLE>
<PAGE> Page 54
BERLITZ INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
SCHEDULE II
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END OF
OF YEAR EXPENSES DEDUCTIONS(1) OTHER(2) OF YEAR
---------- ---------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Allowances for doubtful accounts:
Year Ended December 31, 1995 $ 1,912 $ 349 $ (814) $ 21 $ 1,468
========= ========= ========= ======== =========
Year Ended December 31, 1994 $ 2,566 $ 442 $ (1,176) $ 80 $ 1,912
========= ========= ========= ======== =========
Year Ended December 31, 1993 (3) $ 2,910 $ 1,116 $ (1,367) $ (93) $ 2,566
========= ========= ========= ======== =========
</TABLE>
(1) Principally represents net losses incurred in the ordinary course of
business and chargeable against the allowance.
(2) Principally represents foreign currency translation.
(3) Gives effect to the combination of the changes in the allowance for
doubtful accounts of the Company for the Pre-Merger and Post-Merger
periods of the year ended December 31, 1993.
<PAGE> Page 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K with respect to
Directors and Executive Officers of the Company is set forth in Part I of this
Form 10-K. The information required by Item 405 of Regulation S-K with respect
to Directors and Executive Officers of the Company is incorporated herein by
reference to the section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy for its 1996 Annual
Meeting of Shareholders (the "1996 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the section entitled "Executive Compensation and Related Information" in the
1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the section entitled "Certain Relationships and Related Transactions" in the
1996 Proxy Statement.
<PAGE> Page 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Index to Financial Statements and Financial Statement Schedules
1. FINANCIAL STATEMENTS
2. FINANCIAL STATEMENT SCHEDULES
The Financial Statements and the Financial Statement Schedules
included in the Annual Report on Form 10-K are listed in Item 8 on
page 27.
3. EXHIBITS
All Exhibits listed below are filed with this Annual Report
on Form 10-K unless specifically stated to be incorporated
by reference to other documents previously filed with the
Commission.
EXHIBIT NO.
2.1 Amended and Restated Agreement and Plan of Merger, dated as of December
9, 1992, among the registrant, Benesse Corporation (formerly Fukutake
Publishing Co., Ltd.) and BAC, Inc. Exhibit 1 to the registrant's Form
8-K, dated December 9, 1992, is incorporated by reference herein.
3.1 Restated Certificate of Incorporation of the registrant filed with the
State of New York on December 11, 1989. Exhibit 3.4 to Registration
Statement No. 33-31589 is incorporated by reference herein.
3.2 Certificate of Merger of BAC, Inc. into the registrant (including
amendments to the registrant's Certificate of Incorporation), filed with
the State of New York on February 8, 1993. Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992
is incorporated by reference herein.
4.1 Specimen Certificate of Old Common Stock with Legend. Exhibit 4.3 to
the Company's Form 10-K for the fiscal year ended December 31, 1991 is
incorporated by reference herein.
4.2 Specimen Certificate of Common Stock. Exhibit 4.1 to Registration
Statement No. 33-56566 is incorporated by reference herein.
4.5 Amended and Restated Safeguard Rights Agreement between the registrant
and United States Trust Company of New York. Exhibit 1 to the Company's
Form 8-K, dated March 6, 1992, is incorporated by reference herein.
<PAGE> Page 57
10.1 Credit Agreement, dated as of January 29, 1993, among the registrant,
the several lenders from time to time party thereto and Chemical Bank as
Agent. Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 is incorporated by reference herein.
10.2 First Amendment, dated as of September 21, 1994, to the Credit
Agreement, dated as of January 29, 1993, among the registrant, the
several lenders from time to time parties thereto and Chemical Bank as
Agent. Exhibit 99.6 to the Company's Form 8-K, dated September 21,
1994, is incorporated by reference herein.
10.3 Second Amendment and Consent, dated as of September 21, 1994, to the
Credit Agreement, dated as of January 29, 1993, among the registrant,
the lenders from time to time parties thereto and Chemical Bank.
Exhibit 99.7 to the Company's Form 8-K, dated September 21, 1994, is
incorporated by reference herein.
10.4* Form of Third Amendment, dated as of April 28, 1995, to the Credit
Agreement, dated as of January 29, 1993, among the registrant, the
lenders from time to time parties thereto and Chemical Bank.
10.5* Form of Consent, dated as of April 28, 1995, to the Credit Agreement,
dated as of January 29, 1993, among the registrant, the lenders from
time to time parties thereto, and Chemical Bank.
10.6* Form of Fourth Amendment, dated as of March 18, 1996, to the Credit
Agreement, dated as of January 29, 1993, among the registrant, the
lenders from time to time parties thereto and Chemical Bank.
10.7 Form of Senior Note Agreement, dated as of January 29, 1993, among the
registrant and each institutional lender party thereto. Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 is incorporated by reference herein.
10.8 Second Amendment, dated as of September 21, 1994, to the Senior Note
Agreements, dated as of January 29, 1993, among the registrant and each
institutional lender party thereto. Exhibit 99.10 to the Company's
Form 8-K, dated September 21, 1994, is incorporated by reference herein.
10.9 Third Amendment, dated as of September 21, 1994, to the Senior Note
Agreements, dated as of January 29, 1993 among the registrant and each
institutional lender party thereto. Exhibit 99.11 to the Company's Form
8-K, dated September 21, 1994, is incorporated by reference herein.
10.10* Form of Fourth Amendment, dated as of April 28, 1995, to the Senior Note
Agreements, dated as of January 29, 1993 among the registrant and each
institutional lender party thereto.
10.11* Form of Consent, dated April 28, 1995, to the Senior Note Agreements,
dated as of January 29, 1993, among the registrant and each
institutional lender party thereto.
10.12* Form of Fifth Amendment, dated as of March 18, 1996, to the Senior Note
Agreements, dated as of
<PAGE> Page 58
January 29, 1993, among the registrant and each institutional lender
party thereto.
10.13 <yen>1 billion (Japanese yen) Subordinated Non-Negotiable Promissory
Note, dated as of September 21, 1994, between the Berlitz Schools of
Languages (Japan), Inc. (as Borrower) and Benesee Corporation (formerly
Fukutake Publishing Co., Ltd.) (as Lender). Exhibit 99.2 to the
Company's Form 8-K, dated September 21, 1994, is incorporated by
reference herein.
10.14 US$20,000,000 Subordinated Non-Negotiable Promissory Note, dated as of
September 21, 1994, among the registrant (as Borrower) and Fukutake
Holdings (America) (as Lender). Exhibit 99.3 to the Company's Form 8-
K, dated September 21, 1994, is incorporated by reference herein.
10.15 Spring Guaranty Letter, dated as of September 21, 1994, from the
registrant to Benesse Corporation (formerly Fukutake Publishing Co.,
Ltd). Exhibit 99.4 to the Company's Form 8-K, dated September 21,
1994, is incorporated by reference herein.
10.16 Subsidiaries Guaranty, dated as of September 21, 1994, by Berlitz
Financial Corporation, Berlitz Investment Corporation, Berlitz
Languages, Inc. and Berlitz Publishing Company, Inc. in favor of
Fukutake Holdings (America), Inc. Exhibit 99.5 to the Company's Form
8-K, dated September 21, 1994, is incorporated by reference herein.
10.17 Subordination Agreement, dated as of September 21, 1994, among Benesse
Corporation (formerly Fukutake Publishing Co., Ltd.), The Berlitz
Schools of Languages (Japan), Inc. and Chemical Bank. Exhibit 99.8 to
the Company's Form 8-K, dated September 21, 1994, is incorporated by
reference herein.
10.18 First Amendment, dated as of September 21, 1994, to the Subordination
Agreement, dated as of January 29, 1993, among Benesse Corporation
(formerly Fukutake Publishing Co., Ltd.), Fukutake Holdings (America),
Inc., the registrant and Chemical Bank pursuant to the Master Collateral
and Intercreditor Agreement, dated as of January 29, 1993. Exhibit
99.9 to the Company's Form 8-K, dated September 21, 1994, is
incorporated by reference herein.
10.19* Form of US$6,000,000 Subordinated Non-Negotiable Promissory Note, dated
as of March 25, 1996, among the registrant (as Borrower) and Fukutake
Holdings (America), Inc. (as Lender).
10.20 Amended and Restated Tax Allocation Agreement among the registrant,
Macmillan, Inc. and Macmillan School of Publishing Holding Company,
Inc., dated as of October 11, 1989. Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992
is incorporated by reference herein.
10.21 Agreement among the registrant, Berlitz Financial Corporation, The
Berlitz School of Language (Japan) Inc., The Berlitz Schools of
Languages Limited and Maxwell Communication Corporation plc, dated
January 8, 1993. Exhibit 1 to the Company's Form, 8-K, dated January 7,
1993, is incorporated by reference herein.
10.22 Agreement among the registrant, Berlitz Financial Corporation,
Macmillan, Inc. and Macmillan School Publishing Holding Company, Inc.,
dated January 8,1993. Exhibit 2 to
<PAGE> Page 59
the Company's Form 8-K, dated January 7, 1993 is incorporated by
reference herein.
10.23 Escrow Agreement among the registrant, Maxwell Communication Corporation
plc, the beneficiaries named therein and IBJ Schroder Bank & Trust
Company, dated as of January 29, 1993. Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992
is incorporated by reference herein.
10.24 Amendment dated as of May 31, 1995 by and among the registrant, Maxwell
Communication Corporation plc (In Administration)("MCC"), and IBJ
Schroder Bank & Trust Company as escrow agent ("IBJ"), to the Escrow
Agreement dated as of January 29, 1993 by and among the registrant, MCC
and IBJ. Exhibit 99.1 to the Company's Form 8-K, dated May 31, 1995, is
incorporated by reference herein.
10.25 Stock Purchase Agreement dated as of May 31, 1995 between Maxwell
Communication Corporation plc (In Administration) and the registrant.
Exhibit 99.2 to the Company's Form 8-K, dated May 31, 1995, is
incorporated by reference herein.
10.26 Settlement Agreement between the registrant and Macmillan, Inc., dated
January 8, 1993. Exhibit 3 to the Company's Form 8-K, dated January 7,
1993 is incorporated by reference herein.
10.27 1989 Stock Option and Incentive Plan. Exhibit 10.13 to Registration
Statement No. 33-31589 is incorporated by reference herein.
10.28 Berlitz International, Inc. Non-Employee Directors' Stock Plan. Exhibit
10.17 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990 is incorporated by reference herein.
10.29 Berlitz International, Inc., Retirement Savings Plan, effective as of
January 1, 1992. Exhibit 10.31 to Registration Statement No. 33-56566
is incorporated by reference herein.
10.30 1993 Long-Term Executive Incentive Compensation Plan. Exhibit 1 to the
Company's Form 8-K, dated December 2, 1993 is incorporated by reference
herein.
10.31 1993 Short-Term Executive Incentive Compensation Plan. Exhibit 2 to the
Company's Form 8-K, dated December 2, 1993 is incorporated by reference
herein.
10.32 Form of Indemnity Agreement between the Registrant and Macmillan, Inc.
dated October 11, 1989. Exhibit 10.16 to Registration Statement No. 33-
31589 is incorporated by reference herein.
10.33 Shareholders' Agreement among Berlitz Languages, Inc., Benesse
Corporation (formerly Fukutake Publishing Co., Ltd.) and the registrant,
dated as of November 8, 1990. Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990 is
incorporated by reference herein.
10.34 Amendment No. 1 to Shareholders' Agreement among Berlitz Languages,
Inc., Benesse
<PAGE> Page 60
Corporation (formerly Fukutake Publishing Co., Ltd.) and
the registrant, dated as of November 8, 1990. Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1990 is incorporated by reference herein. Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992 is incorporated by reference herein.
10.35 Stock Purchase Agreement, dated as of November 8, 1990, between Berlitz
Languages, Inc., the registrant and Benesse Corporation (formerly
Fukutake Publishing Co., Ltd.) Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990 is
incorporated by reference herein.
10.36 Form of Indemnification Agreement between the registrant and each of
Robert Maxwell, Kevin Maxwell, Martin E. Maleska and David H. Shaffer.
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 is incorporated by reference herein.
10.37 Form of Amended and Restated Indemnification Agreement between the
registrant and each of Elio Boccitto, John Brademas, Rozanne L. Ridgway,
Joe M. Rodgers, Robert Minsky and Rudy G. Perpich. Exhibit 10.24 to
Registration Statement No. 33-56566 is incorporated by reference herein.
10.38 Amended and Restated Indemnification Agreement between the registrant
and Hiromasa Yokoi. Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 is incorporated by
reference herein.
10.39 Form of Indemnification Agreement between the registrant and each of
Soichiro Fukutake, Owen Bradford Butler, Susumu Kojima, Saburo Nagai,
Edward G. Nelson, Makoto Sato and Aritoshi Soejima. Exhibit 10.26 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 is incorporated by reference herein.
10.40 Form of Indemnification Agreement between the registrant and each of
Jose Alvari<n~>o, Manuel Fernandez, Paul Gendler, Robert C. Hendon, Jr.,
Henry James, Jacques Meon, Michael Mulligan, Kim Sonne, Anthony Tedesco
and Wolfgang Wiedeler. Exhibit 10.24 to Registration Statement No. 33-
56566 is incorporated by reference herein.
10.41 Employment Agreement dated December 4, 1992 between the registrant and
Robert C. Hendon, Jr. Exhibit 10.30 to Registration Statement No. 33-
56566 is incorporated by reference herein.
10.42 Employment Agreement, dated October 1, 1993, between the registrant and
Robert Minsky.
10.43 Employment Agreement, dated June 15, 1993, between the registrant and
Anthony Tedesco. Exhibit 10.37 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 is incorporated by
reference herein.
10.44 Letter Agreement, dated July 14, 1993, between the registrant and Elio
Boccitto. Exhibit 10.36 to the Company's Annual Report on Form 10-K for
the fiscal year ended December
<PAGE> Page 61
31, 1993 is incorporated by reference herein.
21 List of principal subsidiaries of the registrant. Exhibit 22 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992 is incorporated by reference herein.
27* Financial Data Schedule.
*Filed herewith.
B. Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter ended December
31, 1995.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
As of the date of the filing of this Annual Report on Form 10-K no proxy
materials have been furnished to security holders. Copies of all proxy
materials will be sent to the Commission in compliance with its rules.
<PAGE> Page 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Berlitz International, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
BERLITZ INTERNATIONAL, INC.
By: /S/ HIROMASA YOKOI
Hiromasa Yokoi
Vice Chairman of the Board,
Chief Executive Officer and President
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/S/ SOICHIRO FUKUTAKE Chairman of the Board March 29, 1996
---------------------
Soichiro Fukutake
/S/ HIROMASA YOKOI Vice Chairman of the Board, March 29, 1996
--------------------- Chief Executive Officer,
Hiromasa Yokoi and President
(Principal Executive Officer)
/S/ SUSUMU KOJIMA Executive Vice President, March 29, 1996
--------------------- and Director
Susumu Kojima
/S/ ROBERT MINSKY Executive Vice President, Chief March 29, 1996
--------------------- Operating Officer-Translations
Robert Minsky and Publishing, and Director
/S/ MANUEL FERNANDEZ Executive Vice President, Chief March 29, 1996
--------------------- Operating Officer-Worldwide
Manuel Fernandez Language Instruction, and
Director
/S/ HENRY D. JAMES Executive Vice President, March 29, 1996
--------------------- Chief Financial Officer, and
Henry D.James Director (Principal Financial
Officer)
/S/ SABURO NAGAI Director March 29, 1996
---------------------
Saburo Nagai
/S/ EDWARD G. NELSON Director March 29, 1996
---------------------
Edward G. Nelson
/S/ ROBERT L. PURDUM Director March 29, 1996
---------------------
Robert L. Purdum
/S/ ARITOSHI SOEJIMA Director March 29, 1996
---------------------
Aritoshi Soejima
</TABLE>
Exhibit 10.4
FORM OF THIRD AMENDMENT
THIRD AMENDMENT, dated as of April 28, 1995 (this
"Amendment"), to the Credit Agreement, dated as of January 29,
1993 (as amended, supplemented or otherwise modified, the "CREDIT
AGREEMENT"), among Berlitz International, Inc., a New York
corporation (the "BORROWER"), the several banks and other
financial institutions from time to time parties thereto (the
"LENDERS") and Chemical Bank, a New York bank corporation, as the
agent for the Lenders thereunder (in such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain loans and other extensions of credit
to the Borrower; and
WHEREAS, the Borrower has requested, and, upon this
Amendment becoming effective, each of the Lenders has agreed,
that certain provisions of the Credit Agreement be amended in the
manner and under the terms and conditions provided for in this
Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS. Terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the
Credit Agreement.
II. AMENDMENT TO CREDIT AGREEMENT.
1. The definition of the term "Prepublication Costs" is
hereby added to Section 1 in proper alphabetical order:
"Prepublication Costs": expenses incurred for the revision of
existing, and the creation of new, materials for (a) the
Borrower's publishing segment, including, without limitation,
self-teaching products, phrasebooks, travel guides, dictionaries
and CD-ROM and (b) the Borrower's language instruction multimedia
segment, including, without limitation, books, cassettes, CD-ROM
and videos used in the Borrower's language instruction business;
such expenses include, without limitation: (i) payments to third
party consultants and free-lancers for editorial art and similar
work; (ii) design work expenses; (iii) composition expenses,
including type set-up; (iv) talent and recording expenses; and
(v) external marketing research expenses for specific new
product.
<PAGE>
2. The definition of the term "Designated Subordinated
Debt" included in Section 1 is hereby amended by inserting,
immediately following the words "capital expenditures," the
parenthetical phrase "(excluding any such expenditures in the
nature of Prepublication Costs)".
3. The definition of the term "Excess Cash Flow" included
in Section 1 is hereby amended by revising clause (b)(ii) thereof
to read in its entirety as follows:
(ii) the amount of actual payments in cash during such
fiscal period for capital expenditures (other than those acquired with
the proceeds of, or in consideration of the issuance of, Indebtedness
of the Borrower or any of its Subsidiaries and excluding any such
expenditures in the nature of Prepublication Costs) and Prepublication
Costs not to exceed the amount permitted under subsection 8.8.
4. Subsection 7.1(c) of the Credit Agreement is hereby
amended by inserting, immediately prior to clause (vii) thereof,
the phrase "setting forth the amount of expenditures for
Prepublication Costs during such fiscal quarter and".
5. Subsection 8.1(c) of the Credit Agreement is hereby
amended by inserting at the end thereof the phrase ", and capital
expenditures shall not include any such expenditures in the
nature of Prepublication Costs".
6. Subsection 8.8 of the Credit Agreement is hereby
amended to read in its entirety as follows:
8.8 LIMITATION ON CAPITAL EXPENDITURES AND
PREPUBLICATION COSTS. (a) Make or commit to make (by way of the
acquisition of securities of a Person or otherwise) any expenditure in
respect of the purchase or other acquisition of fixed or capital
assets (excluding any such asset acquired in connection with normal
replacement and maintenance programs properly charged to current
operations and excluding any such expenditures in the nature of
Prepublication Costs) except for expenditures in the ordinary course
of business not exceeding, in the aggregate for the Borrower and its
Subsidiaries during any fiscal year of the Borrower, when added to the
aggregate expenditures by the Borrower and its Subsidiaries during
such fiscal year in respect of acquisitions permitted by subsection
8.9(e), an amount equal to (x) in the case of the 1993 fiscal year and
any other fiscal year following a fiscal year as at the last day of
which the Total Debt to EBITDA Ratio is greater than 2.5 to 1.0,
$15,000,000 or (y) in the case of any other
fiscal year, $20,000,000; PROVIDED, HOWEVER, that the sum of
(i) the aggregate price paid (including Indebtedness
assumed, but excluding the aggregate amount paid subsequent
to July 1, 1994 (but only to the extent such amount does not
exceed 1,100,000 Irish pounds) in connection with the
acquisition by the Borrower and/or any of its Subsidiaries
of the 30% interest in, and redemption of certain preferred
stock of, Softrans International Limited not owned by the
Borrower or any Subsidiary on such date) in connection with
acquisitions of stock of or assets constituting an operating
business unit of Persons engaged in the translation
business, plus (ii) capital expenditures (excluding
expenditures in the nature of Prepublication Costs) made in
respect of the translation business conducted by the
Borrower and its Subsidiaries shall not exceed in any fiscal
year of the Borrower an amount equal to the sum of $750,000
plus 50% of EBITDA (Translation) for the immediately
preceding fiscal year. Calculations pursuant to this
subsection shall be made on a non-cumulative basis to the
effect that any amounts permitted to be expended in any
fiscal year which are not expended in such fiscal year may
not be expended in any subsequent fiscal year.
(b) Make or commit to make any expenditure in the
nature of Prepublication Costs except for such expenditures
in the ordinary course of business not exceeding in the
aggregate for the Borrower and its Subsidiaries during any
fiscal year set forth below the amount set forth opposite
such fiscal year below:
FISCAL YEAR AMOUNT
1995 $2,500,000
1996 3,000,000
1997 3,500,000
1998 4,000,000
7. Subsection 8.9(h) of the Credit Agreement is hereby
amended by changing paragraph (h) to read in its entirety as
follows:
(h) Investments constituting capital expenditures and
expenditures for Prepublication Costs permitted by subsection 8.8.
III. General.
1. REPRESENTATION AND WARRANTIES. To induce the Agent and
the Lenders parties hereto to enter into this Amendment, the
Borrower hereby represents and warrants to the Agent and each
Lender, as of the effective date of this Amendment, that no
Default or Event of Default will have occurred and be continuing.
2. EFFECTIVENESS. This Amendment shall become effective
on the date upon which counterparts hereof, (or facsimile copies
thereof), duly executed by the Borrower, each of the Borrower's
Subsidiaries for which a signature line is set forth below and
the required Lenders, shall have been received by the Agent.
3. Payment of Expenses. The Borrower agrees to pay the
reasonable fees and disbursements of Simpson Thacher a Bartlett,
counsel to the Agent.
4. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly
amended, modified and supplemented hereby, the provisions of the
Credit Agreement and the Notes are and shall remain in full force
and effect.
5. GOVERNING LAW; COUNTERPARTS. (a) This Amendment and
the rights and obligations of the parties hereto shall be
governed by, and construed and interpreted in accordance with,
the laws of the State of New York.
(b) This Amendment may be executed by one or more of the
parties to this Agreement on any number of separate counterparts.
and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of
this Amendment signed by all the parties shall be lodged with the
Borrower and the Agent. This Amendment may be delivered by
facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective
proper and duly authorized officers as of the day and year first
above written.
BERLITZ INTERNATIONAL, INC.
BY:___________________________
Title:________________________
CHEMICAL BANK, as Agent and as a
Lender
By:____________________________
Title:_________________________
<PAGE>
THE BANK OF NOVA SCOTIA
By:__________________________
Title:_______________________
KEYPORT LIFE INSURANCE COMPANY
By:__________________________
Title:_______________________
LONG TERM CREDIT BANK OF JAPAN
By:__________________________
Title:_______________________
NATIONSBANK, N.A.
By:__________________________
Title:_______________________
PROTECTIVE LIFE INSURANCE CO.
BY:__________________________
Title:_______________________
THE CHUGOKU BANK, LTD.
By:__________________________
Title:_______________________
The undersigned do hereby consent
to the terms and conditions of the
foregoing Third Amendment and
Consent.
BERLITZ PUBLISHING COMPANY, INC.
BY:__________________________
Title:_______________________
<PAGE>
BERLITZ LANGUAGES, INC.
By:_________________________
Title:______________________
BERLTIZ FINANCIAL CORPORATION
By:_________________________
Title:______________________
BERLITZ INVESTMENT CORPORATION
By:_________________________
Title:______________________
BENESSE CORPORATION
(Formerly Fukutake Publishing Co., Ltd.)
By:_________________________
Title:______________________
FUKUTAKE HOLDINGS (AMERICA), INC.
By:_________________________
Title:______________________
Exhibit 10.5
FORM OF CONSENT
CONSENT, dated as of April 28, 1995 (this "CONSENT"), to the Credit
Agreement, dated as of January 29, 1993 (as amended, supplemented or
otherwise modified, the "CREDIT AGREEMENT"), among Berlitz International,
Inc., a New York corporation (the "BORROWER"), the several banks and other
financial institutions from time to time parties thereto (the "LENDERS")
and Chemical Bank, a New York banking corporation, as the agent for the
Lenders thereunder (in such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement the Lenders have agreed to
make, and have made, certain loans and other extensions of credit to the
Borrower; and
WHEREAS, the Borrower has requested that the Lenders consent to
certain amendments to the Escrow Agreement constituting one of the Global
Peace Plan Agreements, and, upon this Consent becoming effective, each of
the Lenders so consents.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS. Terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.
II. CONSENT.
The Lenders hereby consent and agree that, notwithstanding the
provisions of subsection 8.11 of the Credit Agreement, the Borrower may
enter into an Amendment to Escrow Agreement in substantially the form of
Annex A hereto providing for certain amendments to the Escrow Agreement
dated as of January 28, 1993 by and among Maxwell Communication Corporation
PLC, the Borrower and IBJ Schroder Bank & Trust Company, as escrow agent,
PROVIDED that this Consent is given subject to the understanding that it
shall become void and of no force or effect if, without first obtaining the
prior written consent of the Required Lenders, the Borrower shall agree to
(a) a withdrawal of cash or any other asset from the Escrow Fund (as
defined in such Escrow Agreement) in exchange for a deposit in the Escrow
Fund of shares of Common Stock of the Borrower ("BERLITZ SHARES") or any
other asset (EXCEPT that, without obtaining the prior written consent of
the Required Lenders, (i) the Borrower may agree to the withdrawal from the
Escrow Fund on or about the effective date of such Amendment to Escrow
Agreement of cash in the amount of not more
<PAGE>
than $5,643,000 in exchange for the deposit therein at such time of at
least 627,000 Berlitz Shares and (ii) the Borrower may agree to the
withdrawal from the Escrow Fund at any time of Berlitz Shares in exchange
for the deposit therein of cash in an amount at least equal to the product
of $9 and the number of Berlitz shares so withdrawn), (b) a valuation of
Berlitz Shares. in accordance with the provisions of Section 3.05 of said
Escrow Agreement, as amended, at a price less than $9 per share or (c) a
termination of said Escrow Agreement prior to September 15, 1996.
III. GENERAL.
1. REPRESENTATION AND WARRANTIES. To induce the Agent and the
Lenders parties hereto to enter into this Consent, the Borrower hereby
represents and warrants to the Agent and each Lender, as of the effective
date of this Consent, that no Default or Event of Default will have
occurred and be continuing.
2. EFFECTIVENESS. This Consent shall become effective on the date
upon which counterparts hereof (or facsimile copies thereof), duly executed
by the Borrower, each of the Borrower's Subsidiaries for which a signature
line is set forth below and the Required Lenders, shall have been received
by the Agent.
3. PAYMENT OF EXPENSES. The Borrower agrees to pay the reasonable
fees and disbursements of Simpson Thacher & Bartlett, counsel to the Agent,
in connection with the preparation, execution and delivery of this Consent.
4. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly modified
hereby, the provisions of the Credit Agreement and the Notes are and shall
remain in full force and effect.
5. GOVERNING LAW; COUNTERPARTS. (a) This Consent and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Consent may be executed by one or more of the parties
to this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the signed copies of this Consent shall be lodged with
the Borrower and the Agent. This Consent may be delivered by facsimile
transmission of the relevant signature pages hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
BERLITZ INTERNATIONAL, INC.
By:_____________________________
Title:__________________________
CHEMICAL BANK, as Agent and as Lender
By:_____________________________
Title:__________________________
THE BANK OF NOVA SCOTIA
By:_____________________________
Title:__________________________
KEYPORT LIFE INSURANCE COMPANY
By:_____________________________
Title:__________________________
LONG TERM CREDIT BANK OF JAPAN
By:_____________________________
Title:__________________________
NATIONSBANK, N.A.
By:_____________________________
Title:__________________________
PROTECTIVE LIFE INSURANCE CO.
By:_____________________________
Title:__________________________
<PAGE>
THE CHUGOKU BANK, LTD.
By:_____________________________
Title:__________________________
The undersigned do hereby consent
to the terms and conditions of the
foregoing Consent.
BERLITZ PUBLISHING COMPANY, INC.
By:____________________________
Title:_________________________
BERLITZ LANGUAGES, INC.
By:___________________________
Title:________________________
BERLITZ FINANCIAL CORPORATION
By:___________________________
Title:________________________
BERLITZ INVESTMENT CORPORATION
By:___________________________
Title:________________________
BENESSE CORPORATION (formerly
Fukutake Publishing Co., Ltd.)
By:___________________________
Title:________________________
FUKUTAKE HOLDINGS (AMERICA), INC.
By:__________________________
Title:_______________________
Exhibit 10.6
FORM OF FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of March 18, 1996 (this "AMENDMENT"), to
the Credit Agreement, dated as of January 29, 1993 (as amended,
supplemented or otherwise modified, the "CREDIT AGREEMENT"). between
Berlitz International, Inc, a New York corporation (the "BORROWER"), the
several banks and other financial institutions from time to time parties
thereto (the "LENDERS") and Chemical Bank, a New York banking corporation,
as the agent for the Lenders thereunder (in such capacity, the "AGENt").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders agreed to make,
and have made, certain loans and other extensions of credit to the
Borrower; and
WHEREAS, the parties to the Credit Agreement wish to amend the Credit
Agreement in the manner set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS. Unless otherwise defined in this Amendment, terms
which are defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
II. AMENDMENT TO SUBSECTION SECTION 1.1. The definition of the term
"Excess Cash Flow" contained in subsection 1.1 of the Credit Agreement is
hereby amended to read in its entirety as follows:
"'EXCESS CASH FLOW': for any fiscal period of the Borrower, the excess
of
(a) the sum of the amounts set forth in (a)(i) through
(a)(vi) below (but without any duplication):
(i) Adjusted Net Income for such fiscal period (other
than any income or loss included in Adjusted Net Income
resulting from Asset Sales permitted pursuant to subsection
8.6(e)),
(ii) consolidated expenses for such fiscal period for
depreciation, amortization and other similar noncash
charges, to the extent that the same are deducted from net
revenues in determining Adjusted Net Income for such fiscal
period,
<PAGE>
(iii) the difference between (A) the amount of taxes
deducted from net revenues to determine Adjusted Net Income
for such fiscal period (other than taxes described in clause
(b)(v) of this definition) and (B) the amount of taxes
actually paid by the Borrower and its Subsidiaries during
such fiscal period (other than taxes described in clause
(b)(v) of this definition),
(iv) interest accrued and not paid in cash during such
period in respect of Permitted Subordinated Debt,
(v) the difference between (A) any extraordinary or
non-recurring items of expense deducted from net revenues to
determine Adjusted Net Income for such fiscal period and (B)
the aggregate amount of all such cash payments made by the
Borrower or any Subsidiary during such period on account of
extraordinary or non-recurring items of expense, whether or
not accrued in such period, and
(vi) without duplication of any of the above items in
this paragraph (a), the amount, determined in conformity
with GAAP, of decreases in the excess of operating assets
over operating liabilities, determined on a consolidated
basis for the Borrower and its consolidated subsidiaries;
over
(b) the sum of the amounts set forth in (b)(i) through
(b)(vii) below (but without any duplication):
(i) the aggregate amount during such fiscal period of
payments of principal on the Term Loans and the Senior Notes
(other than prepayments pursuant to subsection 2.4(a)(i)
hereof or Section 4A(ii)(a) of the Senior Note Agreements)
and on any other Indebtedness (other than the Revolving
Credit Loans and Indebtedness permitted pursuant to
subsection 8.2(h)) permitted hereunder,
(ii) the amount of actual payments in cash during such
fiscal period for capital expenditures (other than those
acquired with the proceeds of, or in consideration of the
issuance of, Indebtedness of the Company or any of its
Subsidiaries and excluding any such expenditures in the
nature of Prepublication Costs) and Prepublication Costs not
to exceed the amount permitted under Subsection 8.8,
<PAGE>
(iii) the difference between (A) any extraordinary or
non-recurring items of income added to net revenues to
determine Adjusted Net Income and (B) the aggregate amount
of all cash receipts received by the Borrower or any
Subsidiary during such period on account of extraordinary or
non-recurring items of income, whether or not accrued in
such period,
(iv) the amount of Restricted Payments (as defined in
subsection 8.7) made pursuant to Subsection 8.7 (other than
Restricted Payments described in clause (i) of the second
parenthetical clause of Subsection 8.7),
(v) to the extent not deducted in determining Excess
Cash Flow in respect of any prior fiscal year, the aggregate
amount of taxes paid or withheld during such fiscal year or
the 90-day period following the end of such fiscal year in
respect of dividends paid during such fiscal year or 90-day
period by Foreign Subsidiaries,
(vi) any amounts included in Adjusted Net Income
attributable to the issuance and sale by Berlitz Japan of
its common stock in a public offering, and
(vii) without duplication of any of the above items in
this paragraph (b), the amount, determined in conformity
with GAAP, of increases in the excess of operating assets
over operating liabilities, determined on a consolidated
basis for the Borrower and its consolidated Subsidiaries.
The term "difference" as used in the previous sentence mean a positive
number if (A) is greater than (B) or a negative number if (B) is greater
than (A)."
III. GENERAL
1. REPRESENTATION AND WARRANTIES. To induce the Agent and the
Lenders parties hereto to enter into this Amendment, the Borrower hereby
represents and warrants to the Agent and each Lender, as of the effective
date of this Amendment, that no Default or Event of Default will have
occurred and be continuing.
<PAGE>
2. EFFECTIVENESS. This Amendment shall become effective on the date
on which counterparts hereof (or facsimile copies thereof), duly executed
by the Borrower, each of the Borrower's Subsidiaries for which a signature
line is set forth below and the Required Lenders, shall have been received
by the Agent (the "Effective Date").
3. PAYMENT OF EXPENSES. The Borrower agrees to pay the reasonable
fees and disbursements of Simpson Thacher & Bartlett, counsel to the Agent,
in connection with the preparation, execution and delivery of this
Amendment.
4. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly modified
hereby, the provisions of the Credit Agreement and the Notes shall remain
in full force and effect.
5. GOVERNING LAW; COUNTERPARTS.
(a) This Amendment and the rights, obligations of the parties
hereto shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties
to this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the signed copies of this Amendment shall be lodged
with the Borrower and the Agent. This Amendment may be delivered by
facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
BERLITZ INTERNATIONAL, INC.
By: _________________________
Title:
CHEMICAL BANK, as Agent and as a Lender
By: _________________________
Title: ______________________
<PAGE>
THE BANK OF NOVA SCOTIA
By: __________________________
Title: _______________________
KEYPORT LIFE INSURANCE COMPANY
By: __________________________
Title: _______________________
LONG TERM CREDIT BANK OF JAPAN
By: __________________________
Title: _______________________
NATIONSBANK, N.A.
By: ___________________________
Title: ________________________
PROTECTIVE LIFE INSURANCE CO.
By: ___________________________
Title: ________________________
THE CHUGOKU BANK, LTD.
By: ___________________________
Title: ________________________
The undersigned do hereby consent
to the terms and conditions of the
foregoing Amendment.
BERLITZ PUBLISHING COMPANY, INC.
By:_________________________
Title:______________________
<PAGE>
BERLITZ LANGUAGES, INC.
By:_________________________
Title:______________________
BERLITZ FINANCIAL CORPORATION
By:_________________________
Title:______________________
BERLITZ INVESTMENT CORPORATION
By:_________________________
Title:______________________
BENESSE CORPORATION (formerly
Fukutake Publishing Co., Ltd.)
By:_________________________
Title:______________________
FUKUTAKE HOLDINGS (AMERICA), INC.
By:_________________________
Title:______________________
Exhibit 10.10
FORM OF FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of April 28, 1995 (this "AMENDMENT"),
to the SENIOR NOTE AGREEMENT, dated as of January 29, 1993, as amended,
supplemented or otherwise modified (the "Senior Note Agreement"), between
Berlitz International, Inc., a New York corporation (the "Company"), and
[Senior Noteholder's Name] (the "PURCHASER").
W I T N E S S E T H
WHEREAS, pursuant to the Senior Note Agreement, the Company
agreed to issue and sell to the Purchaser and the Purchaser agreed to
purchase from the Company certain Senior Notes; and
WHEREAS, the Company has requested, and upon this Amendment
becoming effective, the Purchaser has agreed, that certain provisions of
the Senior Note Agreement be amended in the manner and under the terms and
conditions provided for in this Amendment.
NOW THEREFORE, the parties hereto hereby agree as
follows:
I. DEFINED TERMS. Terms defined in the Senior Note Agreement
and used herein shall have the meanings given to them in the Senior Note
Agreement.
II. AMENDMENT TO SENIOR NOTE AGREEMENT.
1. Subsection 5A(iii) of the Senior Note Agreement is
hereby amended by inserting, immediately prior to clause (g) thereof, the
phrase "setting forth the amount of expenditures for Prepublication Costs
during such fiscal quarter and".
2. Subsection 6A(iii) of the Senior Note Agreement is
hereby amended by inserting at the end thereof the phrase ", and capital
expenditures shall not include any such expenditures in the nature of
Prepublication Costs".
3. Subsection 6H of the Senior Note Agreement is hereby
amended to read in its entirety as follows:
6H. LIMITATION ON CAPITAL EXPENDITURES AND PREPUBLICATION COSTS.
(a) Make or commit to make (by way of the acquisition of securities of a
Person or otherwise) any expenditure in respect of the purchase or other
acquisition of fixed or capital assets (excluding any such asset acquired
in connection with normal replacement and maintenance programs properly
charged to current operations and excluding any such
expenditures in the nature of Prepublication Costs)except for expenditures
in the ordinary course of business not exceeding, in
<PAGE>
the aggregate for the Company and its Subsidiaries during any fiscal year
of the Company, when added to the aggregate expenditures by the Company and
its Subsidiaries during such fiscal year in respect of acquisitions
permitted by subsection 6H(v), an amount equal to (x) in the case of the
1993 fiscal year and any other fiscal year following a fiscal year as at
the last day of which the Total Debt to EBITDA Ratio is greater than 2.5 to
1.0, $15,000,000 or (y) in the case of any other fiscal year, $20,000,000;
provided, however, that the sum of (i) the aggregate purchase price paid
(including Indebtedness assumed, but excluding the aggregate amount paid
subsequent to July 1, 1994 (but only to the extent such amount does not
exceed 1,100,000 Irish pounds) in connection with the acquisition by the
Company and/or any of its Subsidiaries of the 30% interest in, and
redemption of certain preferred stock of, Softrans International Limited
not owned by the Company or any Subsidiary on such date) in connection with
acquisitions of stock of or assets constituting an operating business unit
of Persons engaged in the translation business, plus (ii) capital
expenditures (excluding expenditures in the nature of Prepublication Costs)
made in respect of the translation business conducted by the Company and
its Subsidiaries shall not exceed in any fiscal year of the Company an
amount equal to the sum of $750,000 plus 50% of EBITDA (Translation) for
the immediately preceding fiscal year. Calculations pursuant to this
subsection shall be made on a non-cumulative basis to the effect that any
amounts permitted to be expended in any fiscal year which are not expended
in such fiscal year may not be expended in any subsequent fiscal year.
(b) Make or commit to make any expenditure in the nature of
Prepublication Costs except for such expenditures in the ordinary course of
business not exceeding in the aggregate for the Company and its
Subsidiaries during any fiscal year set forth below the
amount set forth opposite such fiscal year below:
FISCAL YEAR AMOUNT
1995 $2,500,000
1996 3,000,000
1997 3,500,000
1998 4,000,000
4. Subsection 6I(viii) of the Senior Note Agreement is hereby
amended by changing paragraph (viii) to read in its entirety as follows:
(viii) Investments constituting capital expenditures and
expenditures for Prepublication Costs permitted by subsection 6H.
5. The definition of the term "Prepublication Costs" is hereby
added to Section 10 in proper alphabetical order:
"Prepublication Costs": expenses incurred for the revision of
existing, and the creation of new, materials for (a) the
Company's publishing segment, including, without limitation,
self-teaching products, phrasebooks, travel guides, dictionaries
and CD-ROM and (b) the Company's language instruction multimedia
segment, including, without limitation, books, cassettes, CD-ROM
and videos used in the Company's language instruction business;
such expenses include, without limitation: (i) payments to third
party consultants and free-lancers for editorial, art and similar
work; (ii) design work expenses; (iii) composition expenses,
including type set-up; (iv) talent and recording expenses; and
(v) external marketing research expenses for specific new
products.
6. The definition of the term "Designated Subordinated Debt"
included in Section 10 is hereby amended by inserting, immediately
following the words" capital expenditures," the parenthetical phrase
"(excluding any such expenditures in the nature of Prepublication Costs)".
7. The definition of the term "Excess Cash Flow" included in
Section 10 is hereby amended by revising clause (b)(ii) thereof to read in
its entirety as follows:
(ii) the amount of actual payments in cash during such
fiscal period for capital expenditures (other than those acquired with the
proceeds of, or in consideration of the issuance of, Indebtedness of the
Company or any of its Subsidiaries and excluding any such expenditures in
the nature of Prepublication Costs) and Prepublication Costs not to exceed
the amount permitted under subsection 6H.
<PAGE>
III. General
1. REPRESENTATION AND WARRANTIES. To induce the Purchaser to
enter into this Amendment, the Company hereby represents and warrants to
the Purchaser, as of the effective date of this Amendment, that no Default
or Event of Default will have occurred and Be continuing.
2. EFFECTIVENESS. This Amendment shall become effective on the
date upon which counterparts hereof (or facsimile copies thereof), duly
executed by the Company and each of the Company's Subsidiaries for which a
signature line is set forth below shall have been received by the
Purchaser.
3. PAYMENT OF EXPENSES. The Company agrees to pay the
reasonable fees and disbursements of the Purchaser in connection with the
execution and delivery of this Amendment.
4. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly
modified hereby, the provisions of the Senior Note Agreement and the Senior
Notes are and shall remain in full force and effect.
5. GOVERNING LAW; COUNTERPARTS. (a) This Amendment and the
rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
(b) This Amendment may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the signed copies of this Amendment shall be
lodged with the Company and the Purchaser. This Amendment may be delivered
by facsimile transmission of the relevant signature pages hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
BERLITZ INTERNATIONAL, INC.
By:__________________________
Title:_______________________
[PURCHASER]
By:__________________________
Title:_______________________
The undersigned do hereby
consent to the terms and
conditions of the foregoing
Amendment.
BERLITZ PUBLISHING COMPANY, INC.
By:___________________________
Title:________________________
BERLITZ LANGUAGES, INC.
BY:___________________________
Title:________________________
BERLITZ FINANCIAL CORPORATION
By:__________________________
Title:_______________________
Exhibit 10.11
FORM OF CONSENT
CONSENT, dated as of April 28, 1995 (this "Consent"), to the
Senior Note Agreement, dated as of January 29, 1993, as amended,
supplemented or otherwise modified (the "SENIOR NOTE AGREEMENT"), between
Berlitz International, Inc., a New York corporation (the "COMPANY"), and
[Senior Noteholder] (the "PURCHASER").
W I T N E S S E T H
WHEREAS, pursuant to the Senior Note Agreement, the Company
agreed to issue and sell to the Purchaser and the Purchaser agreed to
purchase from the Company certain Senior Notes; and
WHEREAS, the Company has requested that the Purchaser consent to
certain amendments to the Escrow Agreement constituting one of the Global
Peace Plan Agreements, and, upon this Consent becoming effective, the
Purchaser so consents.
NOW THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS. Terms defined in the Senior Note Agreement
and used herein shall have the meanings given to them in the Senior Note
Agreement.
II. Consent.
The Purchaser hereby consents and agrees that notwithstanding the
provisions of subsection 6K of the Senior Note Agreement, the Company may
enter into an Amendment to Escrow Agreement in substantially the form of
Annex A hereto providing for certain amendments to the Escrow Agreement
dated as of January 28, 1993 by and among Maxwell Communication Corporation
PLC, the Company and IBJ Schroeder Bank & Trust Company, as escrow agent
(the "Escrow Agreement Amendment"), provided that this Consent is given
subject to the understanding that it shall become void and of no force or
effect if, without first obtaining the prior written consent of the
Purchaser, the Company shall agree to (a) a withdrawal of cash or any other
asset from the Escrow Fund (as defined in such Escrow Agreement) in
exchange for a deposit in the Escrow Fund of shares of Common Stock of the
Company ("Berlitz Shares") or any other asset (except that, without
obtaining the prior written consent of the Purchaser, (i) the Company may
agree to the withdrawal from the Escrow Fund on or about the effective date
of the Escrow Agreement Amendment of cash in the amount of not more than
$5,643,000 in exchange for the deposit therein at such time of at least
627,000 Berlitz Shares and (ii) the Company may agree to the withdrawal
from the Escrow Fund at any time of Berlitz Shares in exchange for the
deposit therein of cash in an amount at least equal to the product of $9
and the number of Berlitz Shares so withdrawn), (b)
<PAGE>
a valuation of Berlitz Shares, in accordance with the provisions of Section
3.05 of said Escrow Agreement, as amended, at a price less than $9 per
share or (c) a termination of said Escrow Agreement prior to September 15,
1996.
III. General.
1. REPRESENTATION AND WARRANTIES. To induce the Purchaser to
enter into this Consent, the Company hereby represents and warrants to the
Purchaser, as of the effective date of this Consent, that no Default or
Event of Default will have occurred and be continuing.
2. EFFECTIVENESS. This Consent shall become effective on the
date upon which counterparts hereof (or facsimile copies thereof), duly
executed by the Company and each of the Company's Subsidiaries for which a
signature line is set forth below shall have been received by the
Purchaser.
3. PAYMENT OF EXPENSES. The Company agrees to pay the
reasonable fees and disbursements of the Purchaser in connection with the
execution and delivery of this Consent.
4. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly
modified hereby, the provisions of the Senior Note Agreement and the Senior
Notes are and shall remain in full force and effect.
5. GOVERNING LAW; COUNTERPARTS. (a) This Consent and the rights
and obligations of the parties hereto shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.
(b) This Consent may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the signed copies of this Consent shall be
lodged with the Company and the Purchaser. This Consent may be delivered
by facsimile transmission of the relevant signature pages hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent
to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
BERLITZ INTERNATIONAL, INC.
By:_________________________
Title:______________________
[PURCHASER]
By:_________________________
Title:______________________
The undersigned do hereby
consent to the terms and
conditions of the foregoing
Consent.
BERLITZ PUBLISHING COMPANY, INC.
By:____________________________
Title:_________________________
BERLITZ LANGUAGES, INC.
By:____________________________
Title:_________________________
BERLITZ FINANCIAL CORPORATION
By:____________________________
Title:_________________________
<PAGE>
BERLITZ INVESTMENT CORPORATION
By:___________________________
Title:________________________
BENESSE CORPORATION
(Formerly Fukutake Publishing Co., Ltd.)
By:___________________________
Title:________________________
FUKUTAKE HOLDINGS (AMERICA), INC.
By:___________________________
Title:________________________
Exhibit 10.12
FORM OF FIFTH AMENDMENT
FIFTH AMENDMENT, dated as of March 18, 1996 (this "AMENDMENT"), to the
Senior Note Agreements, dated as of January 29, 1993 (as amended,
supplemented or otherwise modified, the "SENIOR NOTE AGREEMENTS") between
Berlitz International, Inc, a New York corporation (the "COMPANY"), and
each of the Purchasers of the Company's 9.79% Senior Secured Notes parties
thereto (collectively, the "SENIOR NOTEHOLDERS").
W I T N E S S E T H:
WHEREAS, pursuant to the Senior Note Agreements, the Senior
Noteholders have agreed to make, and have purchased $56,000,000 aggregate
principal amount of the 9.79% Senior Secured Notes of the Company; and
WHEREAS, the parties to the Senior Note Agreements wish to amend the
Senior Note Agreements in the manner set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS. Unless otherwise defined in this Amendment, terms
defined in the Senior Note Agreement and used herein shall have the
meanings given to them in the Senior Note Agreements.
II. AMENDMENT TO SECTION 10A. The definition of the term "Excess Cash
Flow" contained in Section 10A of the Senior Note Agreement is hereby
amended to read in its entirety as follows:
"'Excess Cash Flow' means for any fiscal period of the Company, the
excess of
(a) the sum of the amounts set forth in (a)(i) through
(a)(vi) below (but without any duplication):
(i) Adjusted Net Income for such fiscal period (other
than any income or loss included in Adjusted Net Income
resulting from Asset Sales permitted pursuant to Section
6F),
(ii) consolidated expenses for such fiscal period for
depreciation, amortization and other similar noncash
charges, to the extent that the same are deducted from net
revenues in determining Adjusted Net Income for such fiscal
period,
(iii) the difference between (A) the amount of taxes
deducted from net revenues to determine Adjusted Net Income
for such fiscal period (other than taxes described in clause
(b)(v) of this definition) and (B) the amount of taxes
actually
<PAGE>
paid by the Company and its Subsidiaries during such fiscal
period (other than taxes described in clause (b)(v) of this
definition),
(iv) interest accrued and not paid in cash during such
period in respect of Permitted Subordinated Debt,
(v) the difference between (A) any extraordinary or
non-recurring items of expense deducted from net revenues to
determine Adjusted Net Income for such fiscal period and (B)
the aggregate amount of all such cash payments made by the
Company or any Subsidiary during such period on account of
extraordinary or non-recurring items of expense, whether or
not accrued in such period, and
(vi) without duplication of any of the above items in
this paragraph (a), the amount, determined in conformity
with GAAP, of decreases in the excess of operating assets
over operating liabilities, determined on a consolidated
basis for the Company and its consolidated subsidiaries;
over
(b) the sum of the amounts set forth in (b)(i) through
(b)(vii) below (but without any duplication):
(i) the aggregate amount during such fiscal period of
payments of principal on the Term Loans and the Senior Notes
(other than prepayments pursuant to Section 4A(ii)(a) hereof
or Subsection 2.4(a)(i) of the Bank Loan Agreement) and on
any other Indebtedness (other than the Revolving Credit
Loans and Indebtedness permitted pursuant to Section
6B(viii)) permitted hereunder,
(ii) the amount of actual payments in cash during such
fiscal period for capital expenditures (other than those
acquired with the proceeds of, or in consideration of the
issuance of, Indebtedness of the Company or any of its
Subsidiaries and excluding any such expenditures in the
nature of Prepublication Costs) and Prepublication Costs not
to exceed the amount permitted under Section 6H,
(iii) the difference between (A) any extraordinary or
non-recurring items of income added to net revenues to
determine Adjusted Net Income and (B) the aggregate amount
of all cash receipts received by the Company or any
Subsidiary during such period on account of extraordinary or
<PAGE>
non-recurring items of income, whether or not accrued in
such period,
(iv) the amount of Restricted Payments made pursuant to
Section 6G (other than Restricted Payments described in
clause (i) of the second parenthetical clause of Section 6G,
(v) to the extent not deducted in determining Excess
Cash Flow in respect of any prior fiscal year, the aggregate
amount of taxes paid or withheld during such fiscal year or
the 90-day period following the end of such fiscal year in
respect of dividends paid during such fiscal year or 90-day
period by Foreign Subsidiaries,
(vi) any amounts included in Adjusted Net Income
attributable to the issuance and sale by Berlitz Japan of
its common stock in a public offering, and
(vii) without duplication of any of the above items in
this paragraph (b), the amount, determined in conformity
with GAAP, of increases in the excess of operating assets
over operating liabilities, determined on a consolidated
basis for the Company and its consolidated Subsidiaries.
The term "difference" as used in clauses (a)(iii), (a)(v) and (b)(iii)
above shall mean a positive number if (A) is greater than (B) or a negative
number if (B) is greater than (A)."
III. GENERAL
1. REPRESENTATION AND WARRANTIES. To induce the Senior Noteholders
parties hereto to enter into this Amendment, the Company hereby represents
and warrants to each Senior Noteholder, as of the effective date of this
Amendment, that no Default or Event of Default will have occurred and be
continuing.
2. EFFECTIVENESS. This Amendment shall become effective on the date
on which counterparts hereof (or facsimile copies thereof), duly executed
by the Company, each of the Company's Subsidiaries for which a signature
line is set forth below and the Majority Senior Noteholders, shall have
been received by the Company.
3. PAYMENT OF EXPENSES. The Company agrees to pay the reasonable
fees and disbursements of the Senior Noteholders in connection with the
preparation, execution and delivery of this Amendment.
<PAGE>
4. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly modified
hereby, the provisions of the Senior Note Agreements and the Senior Notes
shall remain in full force and effect.
5. GOVERNING LAW; COUNTERPARTS.
(a) This Amendment and the rights, obligations of the parties
hereto shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties
to this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the signed copies of this Amendment shall be lodged
with the Company and each of the Senior Noteholders. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
BERLITZ INTERNATIONAL, INC.
By: _________________________
Title:
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: __________________________
Title: _______________________
INTERNATIONAL LIFE INVESTORS INSURANCE
COMPANY
By: __________________________
Title: _______________________
<PAGE>
PFL LIFE INSURANCE COMPANY
By: __________________________
Title: _______________________
MONUMENTAL LIFE INSURANCE COMPANY
By: __________________________
Title: _______________________
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
By: __________________________
Title: _______________________
SUN LIFE INSURANCE COMPANY OF AMERICA
By: __________________________
Title: _______________________
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
By: __________________________
Title: ________________________
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By: ______________________________
Title: ____________________________
<PAGE>
The undersigned do hereby consent
to the terms and conditions of
the foregoing Amendment.
BERLITZ PUBLISHING COMPANY, INC.
By:____________________________
Title:_________________________
BERLITZ LANGUAGES, INC.
By:____________________________
Title:_________________________
BERLITZ FINANCIAL CORPORATION
By:____________________________
Title:_________________________
BERLITZ INVESTMENT CORPORATION
By:____________________________
Title:_________________________
BENESSE CORPORATION (formerly
Fukutake Publishing Co., Ltd.)
By:____________________________
Title:_________________________
FUKUTAKE HOLDINGS (AMERICA), INC.
By:____________________________
Title:_________________________
Exhibit 10.19
FORM OF SUBORDINATED NON-NEGOTIABLE PROMISSORY NOTE
New York, New York
U.S. $6,000,000 March 25, 1996
SECTION 1. PAYMENT OF PRINCIPAL AND INTEREST.
BERLITZ INTERNATIONAL, INC. (the "Borrower"), a New York
corporation, hereby promises to pay to the order of FUKUTAKE HOLDINGS
(AMERICA), INC., a Delaware corporation, or its successors or assigns (the
"Lender") the principal sum of Six Million U.S. Dollars (U.S. $6,000,000).
The principal amount of this Promissory Note (herein, this "Note")
remaining unpaid from time to time shall bear interest from the date
hereof, until paid in full, payable in accordance with Section 2 hereof.
The Borrower agrees to repay the entire principal amount of this Note, and
all accrued and unpaid interest thereon, in a single payment on the
Maturity Date. As used herein, "Maturity Date" means the earlier to occur
of (i) June 30, 2003 and (ii) the date which is twelve months from the date
by which all amounts of principal and interest have been repaid under that
certain Credit Agreement among the Borrower, the Several Lenders from Time
to Time Parties Thereto and Chemical Bank, as agent and collateral agent,
dated as of January 29, 1993 (the "Chemical Agreement") and the Senior Note
Agreements among the Borrower and Each Purchaser Listed Therein dated as of
January 29, 1993 (the "Senior Notes") and all commitments to lend under the
Chemical Agreement and Senior Notes have expired or been terminated.
SECTION 2. INTEREST.
(a) Interest on all amounts outstanding hereunder shall be
payable semi-annually in arrears on each Interest Payment Date. As used
herein, "Interest Payment Date" means June 30 and December 31 of each year
during the term hereof. If an Interest Payment Date does not fall on a
Business Day, then the Interest Payment Date shall be the next preceding
Business Day. As used herein, "Business Day" means any day other than a
Saturday, Sunday or public holiday in Tokyo, Japan or New York, New York.
(b) Interest shall be calculated at the base rate of the LIBOR
(London Interbank Offering Rate) 6 months rate quoted two business days
before the drawdown date of this Note plus 1% per annum which shall be
adjusted every six months from the date of this Note. Interest shall be
calculated on the basis of a 360 day year and the actual number of days
elapsed.
(c) Notwithstanding anything herein to the contrary, if on any
Interest Payment Date the payment in cash of any amount of interest on this
Note is prohibited under the Subordination Agreement referred to below, in
lieu of a cash payment of such amount of interest, the then principal
amount payable under this Note shall be increased with effect from such
Interest Payment Date by an amount equal to the amount of such prohibited
cash payment.
<PAGE>
(d) Notwithstanding anything herein to the contrary, the
interest payable by the Borrower with respect to this Note shall not exceed
the maximum amount permitted by applicable law and, to the extent that any
payments in excess of such permitted amount are received by the Lender,
such excess shall be considered payments in respect of the principal amount
of this Note.
SECTION 3. CERTAIN PAYMENT PROVISIONS.
Principal and interest hereunder shall be payable to the Lender
without set-off or counterclaim in U.S. Dollars in immediately available
funds to the bank account of the Lender as notified in writing to the
Borrower.
SECTION 4. PREPAYMENT.
The Borrower may prepay this Note at any time without prepayment
penalty or premium upon notice in writing to the Lender.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Lender as
follows:
(a) ORGANIZATION AND LICENSES - The Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and is duly qualified as a foreign corporation in good
standing under the laws of each jurisdiction where its current operations
require such qualification, except where the failure to so qualify will not
have a material adverse effect. Each of the Borrower's subsidiaries party
to the Subsidiaries Guaranty (the "Subsidiaries" and each a "Subsidiary")
dated September 21, 1994 in favor of the Lender (the "Guaranty") is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified as a foreign
corporation in good standing under the laws of each jurisdiction where its
current operations require such qualification, except where the failure to
so qualify will not have a material adverse effect on such Subsidiary.
(b) POWER AND AUTHORIZATION - The Borrower and each Subsidiary
has full legal right, power and authority to carry on its present business
as currently conducted, to own its properties and assets, to execute and
deliver this Note, and to borrow and repay with interest the principal
amount hereunder and to perform all its other obligations hereunder or
under the Guaranty, as applicable, and has taken all necessary and
appropriate legal action to authorize the execution and delivery of this
Note or the Guaranty, as applicable, and to authorize the performance of
the terms hereof or thereof.
(c) NOTE BINDING; NO VIOLATION; ETC. - This Note and the other
contracts or agreements referred to herein to which the Borrower or a
Subsidiary is a party constitute the legal, valid and binding obligation of
the Borrower or Subsidiary, as applicable, enforceable in accordance with
their terms except that such enforceability may be limited by bankruptcy,
insolvency,
<PAGE>
reorganization, moratorium or similar laws affecting the enforcement of
creditors rights generally and by general principles of equity. The
execution, delivery and performance of this Note and the payment of all
amounts due hereunder will not (i) violate any provision of applicable law,
(ii) conflict with the certificate of incorporation or bylaws of the
Borrower or any Subsidiary, as applicable, (iii) conflict with or result in
the breach of any material provision of, or give rise to a default under,
any agreement with respect to indebtedness or of any other material
agreement to which the Borrower or any Subsidiary is a party or by which it
or any of its properties or assets are bound, or (iv) result in the
creation of imposition of any lien, charge, mortgage, encumbrance or other
security interest or any segregation of assets or revenues or other
preferential arrangement (whether or not constituting a security interest)
with respect to any present or future assets, revenues or rights to the
receipt of income of the Borrower or any Subsidiary in each case, except
those violations, conflicts or impositions, which, individually or in the
aggregate, could not reasonably be expected to have a material adverse
effect on the Borrower or any subsidiary thereof.
(d) PROCEEDINGS - There are no legal actions, arbitration
proceedings, official investigations or other proceedings pending or, to
the knowledge of the Borrower, threatened again the Borrower or any
Subsidiary that if adversely determined would materially affect the
financial condition or results of operations of the Borrower or any
Subsidiary or the validity or enforceability of this Note or the Guaranty
except as disclosed in the annual report on form 10-K for the year ending
December 31, 1994 of the Borrower filed with the Securities and Exchange
Commission.
(d) OTHER OBLIGATIONS - Neither the Borrower nor any Subsidiary
is in default in any material respect under any agreement relating to, or
instrument evidencing, indebtedness or any other material agreement to
which it is a party or by which it is bound.
(f) FINANCIAL STATEMENTS - The consolidated balance sheet of the
Borrower and its consolidated subsidiaries as at December 31, 1994 and the
related consolidated statements of income, of shareholders' equity and of
cash flows for the fiscal year ended on such date, reported on by Deloitte
& Touche LLP, copies of which have heretofore been furnished to the Lender,
present fairly the consolidated financial condition of the Borrower and its
consolidated subsidiaries as at such date, and the consolidated results of
their operations and their consolidated cash flows for the fiscal year then
ended. Except as disclosed to the Lender, during the period from December
31, 1994 to and including the date hereof there has been no sale, transfer
or other disposition by the Borrower or any of its consolidated
subsidiaries of any material part of its business or property and no
purchase or other acquisition of any business or property (including any
capital stock of any other person), nor any other change material in
relation to the consolidated financial condition of the Borrower and its
consolidated subsidiaries at December 31, 1994. Neither
<PAGE>
the Borrower nor any of its consolidated subsidiaries had at December 31,
1994 any material liabilities, contingent or otherwise that are not
disclosed in the foregoing statements.
(g) OWNERSHIP OF PROPERTY; LIENS - Each of the Borrower and its
Subsidiaries has good and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property including copyrights,
trademarks, service marks, trade names, trade dress and other intellectual
property, in each case, except as could not reasonably be expected to have
a material adverse effect on its business, and none of the property the
Borrower or any of its Subsidiaries owns is subject to any lien except as
permitted by the Chemical Agreement or Senior Notes.
(h) TAXES - Each of the Borrower and its Subsidiaries has duly
and timely filed or caused to be duly and timely filed all tax returns
which, to the knowledge of the Borrower, are required to be filed by it and
has timely paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other taxes,
fees or other charges imposed on it or any of its property by any
governmental authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings
diligently conducted and with respect to which reserves in conformity with
United States generally accepted accounting principles ("GAAP") have been
provided on the books of the Borrower or the applicable Subsidiary, (as the
case may be); no tax lien has been filed with respect to any such tax, fee
or other charge; to the knowledge of the Borrower, no claim is being
asserted with respect to any such tax, fee or other charge that is not
currently being contested as provided in this subsection.
SECTION 6. COVENANTS.
In addition to the other undertakings herein contained, the
Borrower hereby covenants to the Lender that so long as any amount payable
hereunder is outstanding the Borrower shall, and shall cause its
consolidated Subsidiaries to, perform the following obligations:
(a) TAXES - The Borrower and its consolidated subsidiaries shall
pay and discharge all taxes and governmental charges upon it or against any
of its properties or assets prior to the date after which penalties attach
for failure to pay (other than any the amount or validity of which the
Borrower shall be contesting in good faith by appropriate proceedings
diligently conducted and with respect to which reserves in conformity with
GAAP have been provided on the books of the Borrower or the applicable
subsidiary, as the case may be). The Borrower shall make timely filings of
all tax returns and governmental reports required to be filed or submitted
under any applicable laws. The Borrower further agrees to make all
payments of interest and principal due hereunder free and clear of any
withholding taxes now or hereafter applicable to such payments, and agrees
to pay such taxes prior to the date after which penalties attach for
failure to pay.
<PAGE>
(b) MAINTENANCE AND CONTINUITY OF BUSINESS - The Borrower and
each Subsidiary shall maintain its existence in good standing under, and
conduct its business in material compliance with, all applicable laws and
shall maintain adequate licenses and authorization to conduct its business.
The Borrower and each Subsidiary shall not, without the express written
consent of the Lender, in any manner dispose of all or any material portion
of its assets.
(c) NOTICE OF DEFAULTS AND OTHER MATTERS - The Borrower shall,
promptly, upon acquiring actual knowledge of such matters, give notice to
the Lender of each of the following events: (i) any material loss of or
damage to its properties or assets or those of any Subsidiary; (ii) the
commencement of any litigation or proceedings against it or any Subsidiary
which may materially adversely affect the ability of the Borrower to
fulfill its obligations under this Note or any Subsidiary to fulfill its
obligations under the Guaranty; (iii) any other circumstances that could
materially adversely affect the performance by the Borrower of its
obligations under this Note or of any Subsidiary under the Guaranty; (iv)
the occurrence of any Event of Default described in Section 7 hereof; and
(v) any other event notice of which is required to be given to the lenders
under the Chemical Agreement or Senior Notes.
(d) OTHER AGREEMENTS - The Borrower shall perform all of its
obligations as and when required pursuant to the Chemical Agreement and
Senior Notes. The Borrower shall not, without the express written consent
of the Lender, amend the Chemical Agreement, the Senior Notes or the
security and other documents related thereto or any other agreement
creating indebtedness of the Borrower or any Subsidiary in any manner which
would increase the burden on the Borrower or any Subsidiary or affect the
rights of the Lender without the prior written consent of the Lender.
(e) ADDITIONAL INDEBTEDNESS AND NEGATIVE PLEDGE - Except for the
Chemical Agreement and Senior Notes and indebtedness and liens permitted
thereunder, the <yen>1 billion Subordinated Non-Negotiable Promissory Note
(the "<yen>1 Billion Note") in favor of Fukutake Publishing Co., Ltd. (now
Benesse Corporation), the $20,000,000 Subordinated Non-Negotiable
Promissory Note (the $20,000,000 Note") in favor of Fukutake Holdings
(America), Inc. and indebtedness permitted thereunder and except in the
ordinary course of business, the agreement to purchase all of the remaining
outstanding ordinary shares and preference shares of Softrans International
Limited and indebtedness permitted thereunder, neither the Borrower nor any
Subsidiary shall, without the prior written consent of the Lender, incur
any additional indebtedness, contingent or otherwise, that when aggregated
exceeds $3,500,000 nor consent or agree to the creation or imposition of
any lien, charge, mortgage, encumbrance or other security interest or any
segregation of assets or revenues or other preferential arrangement
(whether or not constituting a security interest) with respect to any
present or future assets, revenues or rights to the receipt of income of
the Borrower or any Subsidiary.
<PAGE>
(f) FINANCIAL STATEMENTS - The Borrower shall furnish to the
Lender:
(i) as soon as available, but in any event, within 90 days
after the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
subsidiaries as at the end of such year and the related audited
consolidated statements of income, of shareholder's equity and of cash
flows for such year, setting forth in each case a comparative form the
figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope
of the audit, by Deloitte & Touche LLP or other independent certified
public accountants of nationally recognized standing; and
(ii) as soon as available, but in any event, not later than
60 days after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated balance sheet of
the Borrower and its consolidated subsidiaries as at the end of such
quarter and the related unaudited consolidated statements of income, of
shareholder's equity and of cash flows for such quarter and the portion of
the fiscal year through the end of such quarter, setting forth in each case
in comparative form the figures for the previous year, certified by an
officer of the Borrower as presenting fairly the consolidated financial
position of the Borrower and its consolidating subsidiaries as at the end
of such fiscal quarter and the consolidated results of their operations and
their consolidated cash flows for such quarter and for the portion of the
fiscal year ending at the end of such quarter (subject to normal year-end
audit adjustments); all such financial statements shall be prepared in
accordance with GAAP applied consistently throughout the periods reflected
therein and with prior periods (except as otherwise approved by such
accountants or officer, as the case may be, and disclosed therein).
(g) CERTIFICATES: OTHER INFORMATION - The Borrower shall furnish
to the Lender (i) promptly, such additional financial and other information
as the Lender may from time to time reasonably request; and (ii) promptly,
any financial and other information provided to the Lenders under the
Chemical Agreement or Senior Notes and not otherwise provided to the Lender
pursuant to subsection (i) or this subsection (g).
(h) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS - The
Borrower and each Subsidiary shall keep proper books of records and account
in which true and correct entries in conformity with GAAP shall be made,
and permit representatives of the Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records
at any reasonable time and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other
condition of the Borrower and its Subsidiaries with officers and employees
of the Borrower and its Subsidiaries and with the Borrower's independent
certified public accountants, PROVIDED that the Borrower or any such
Subsidiary shall be given reasonable notice of and an opportunity to be
present at reasonable times
<PAGE>
during normal business hours at any discussions with such accountants.
(i) FURTHER DOCUMENTS - The Borrower shall execute all such
other documents and instruments and do all such other acts and things as
the Lender may from time to time reasonably require to carry out the
transactions contemplated herein.
SECTION 7. EVENTS OF DEFAULT.
Except upon the occurrence of an event under (f) or (g) below,
whereupon this Note shall become immediately due and payable without notice
or declaration by the Lender, the Lender may, by written notice to the
Borrower, declare this Note immediately due and payable, whereupon this
Note and all sums due hereunder shall become immediately due and payable
without protest, presentment, demand or notice (except the notice referred
to above in this Section 7) or without petition to any court, all of which
are expressly waived by the Borrower, if any of the following events (each
an "Event of Default") shall occur:
(a) principal or interest due under this Note shall not be paid
as and when due, whether at maturity, by declaration or otherwise; or
(b) any representation by the Borrower herein shall prove to be
false or misleading in any material respect as of the date made; or
(c) the Borrower shall default in any material respect in the
due performance of any term or covenant of this Note (which is not the
subject of another subsection of this Section 7) which default, if
remediable, shall continue unremedied for a period of twenty (20) days
after the Lender gives written notice of such default to the Borrower; or
(d) the Borrower or any Subsidiary shall default in the due
observance or performance of any covenant or agreement to be observed or
performed by it pursuant to any evidence of indebtedness or liability for
borrowed money (other than this Note) of the Borrower or such Subsidiary if
such default accelerates or permits the obligee thereof to accelerate the
maturity of such indebtedness or liability for borrowed money; or any such
indebtedness or liability, after the expiration of any applicable grace
period therefor, shall not be paid as and when due; or
(e) Either (i) The Borrower shall default in any material
respect in the due observance or performance of any covenants or agreement
to be observed or performed by it pursuant to the $20,000,000 Note, or (ii)
Berlitz (Japan) Inc. ("BJ") shall default in any material respect in the
due observance or performance of any covenants or agreement to be observed
or performed by its pursuant to the <yen>1,000,000,000 Note; or
<PAGE>
(f) the Borrower or any of its Subsidiaries shall (i) apply for
or consent to the appointment of a receiver, trustee or liquidator for
itself or any of its assets or properties, (ii) admit in writing its
inability to pay its debts at they mature, (iii) make a general assignment
for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent,
(v) file a voluntary petition in bankruptcy, or a petition or an answer
seeking reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of
debt, dissolution or liquidation law or statute, or any answer admitting
the material allegations of a petition filed against it in any proceeding
under any such law or if action shall be taken by the Borrower or any
Subsidiary for the purpose of effecting any of the foregoing, (vi) have
commenced against it any case, proceeding or other action of a nature
described in (i) through (v) above which remains undismissed for a period
of 60 days or (vii) take or be subject to any action similar to those
specified in clauses (i) through (vi) in any jurisdiction; or
(g) an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or any Subsidiary, with
respect to the Borrower or such Subsidiary or all or a substantial part of
the assets of the Borrower or any such Subsidiary, appointing a receiver,
trustee or liquidator of the Borrower or any such Subsidiary, or any
similar order, judgment or decree shall be entered or appointment made in
any jurisdiction, and such order, judgment or decree or appointment shall
continue unstayed and in effect for a period of 60 days; or
(h) one or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving in the aggregate a
liability (not paid and to the extent not covered by insurance) of
$2,500,000 or more, and all such judgments or decrees shall not have been
appealed, vacated, discharged, stayed or bonded pending appeal within 60
days from the entry thereof; or
(i) The Guaranty shall cease to be in full force and effect or
any of the Borrower or any Subsidiary shall so assert, except in accordance
with its own terms.
SECTION 8. APPLICATION OF PAYMENTS.
The Lender agrees that each payment or prepayment received by it
hereunder, except as expressly set forth herein, shall be applied, first,
to the payment of accrued interest on this Note to the date of such
payment; and second, to the payment of the principal amount of this Note.
SECTION 9. SUBORDINATION AGREEMENT.
The Borrower covenants and agrees and the Lender, by the Lender's
acceptance hereof likewise covenants and agrees, that this Note is issued,
and the advance evidenced hereby and repayment hereof shall be, subject to
the provisions of the Subordination Agreement dated as of January 29, 1993
(as amended from time to time, the "Subordination Agreement") among the
Lender, the Borrower and Chemical Bank, as Collateral Agent under the
Master Collateral
<PAGE>
and Intercreditor Agreement dated as of January 29, 1993, as amended from
time to time, among the Secured Lenders (as defined therein) and Chemical
Bank, as Collateral Agent, and the Lender accepts and agrees that the
payment of the principal of an interest on this Note by the Borrower shall,
to the extent and in the manner set forth in the Subordination Agreement,
be subordinate and junior in right of payment to the prior payment in full
of all Senior Obligations (as defined in the Subordination Agreement).
This Note shall rank PARI PASSU with the existing indebtedness which are or
may in the future be subordinated under the Subordination Agreement. In
the event that any payment or distribution of any kind of character
otherwise payable to the Lender hereunder is paid or delivered to the
Secured Lenders pursuant to the Subordination Agreement, the principal
amount hereunder shall be increased with effect from the date of such
payment or distribution by an amount equal to the amount so paid or
delivered.
SECTION 10. RELATION TO OTHER TRANSACTIONS.
Except as expressly set forth herein, the obligations of the
Borrower hereunder are unconditional and no reference to any other document
or agreement herein is intended or shall be deemed to render the Borrower's
obligations hereunder conditional. The illegality or unenforceability of,
or the default by any party under, any other document or agreement referred
to herein shall not constitute a defense to any claim by the Lender for the
payment of principal, interest or any other amount hereunder.
Notwithstanding the foregoing, this Section 10 shall in no manner affect or
be deemed to affect the subordination of this Note pursuant to the
Subordination Agreement or the rights of the lenders under the Chemical
Agreement and Senior Notes under the Subordination Agreement.
SECTION 11. ASSIGNMENT, ETC.
This Note shall be binding upon each of the Borrower and Lender
and its respective successors and assigns, provided however, the Borrower
may not assign this Note. The Lender may assign this Note, which
assignment shall be deemed to be a novation, without any requirement of
consent by the Borrower.
SECTION 12. INDEMNIFICATION.
The Borrower shall pay, indemnify, and hold the Lender harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever ("Losses") arising out of or in connection
with any claim (whether or not asserted in any legal proceeding),
litigation, investigation, arbitration or proceeding relating to this Note
or the Guaranty (collectively, "Indemnified Liabilities"), PROVIDED that
the Borrower shall have no obligation hereunder to the Lender with respect
to Indemnified Liabilities arising from (i) the gross negligence or willful
misconduct of the Lender, (ii) legal proceedings commenced against the
Lender by any security holder or creditor of the Lender arising out of or
based upon rights afforded any such security holder or creditor solely in
its capacity as
<PAGE>
such. The Lender shall indemnify and hold Borrower and any of its
subsidiaries harmless from and against any Losses resulting from
Indemnified Liabilities arising out of the gross negligence or willful
misconduct of the Lender or legal proceedings commenced against the Lender
by any security holder or creditor of the Lender arising out of or based
upon rights afforded any such security holder or creditor solely in its
capacity as such. The agreements in this section shall survive for
eighteen (18) months after repayment of this Note and all other amounts
payable hereunder.
SECTION 13. NO WAIVER; CUMULATIVE REMEDIES.
The Lender shall not by any act (except by a written instrument
signed by the Lender), delay, indulgence, omission or otherwise be deemed
to have waived any right or remedy hereunder or to have acquiesced in any
Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part
of the Lender, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercise singly or concurrently and are not exclusive of
any rights or remedies provided by law.
SECTION 14. EXPENSES.
Each party hereto agrees to pay or reimburse, or cause to be paid
or reimbursed, all of its costs and expenses incurred in connection with
the preparation, execution, waiver, amendment, modification, enforcement or
preservation of any rights under this Note, any guaranty or any other
document referenced herein, including, without limitation, the fees and
disbursements of counsel.
SECTION 15. GOVERNING LAW.
This Note and the rights and obligations of the Borrower and
Lender under this Note shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York without giving effect
to the conflict of law provisions which may indicate the applicability of
the laws of another state.
SECTION 16. WAIVERS OF JURY TRIAL.
The Borrower hereby irrevocably and unconditionally waives trial
by jury in any legal action or proceeding relating to this Note or any
other documents related hereto and for any counterclaim therein.
<PAGE>
IN WITNESS WHEREOF, a duly authorized officer of the Borrower,
solely in such officer's capacity as such, has caused this Note to be duly
executed in New York, New York as of the date hereof.
BERLITZ INTERNATIONAL, INC.
By:_____________________________
Name:___________________________
Title:__________________________
AGREED TO AND ACCEPTED:
FUKUTAKE HOLDINGS (AMERICA), INC.
By:_________________________
Name:_______________________
Title:______________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K OF BERLITZ INTERNATIONAL, INC. FOR THE YEAR ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 25,402
<SECURITIES> 0
<RECEIVABLES> 36,293
<ALLOWANCES> 1,468
<INVENTORY> 9,343
<CURRENT-ASSETS> 79,170
<PP&E> 38,918
<DEPRECIATION> 13,292
<TOTAL-ASSETS> 576,930
<CURRENT-LIABILITIES> 79,080
<BONDS> 0
<COMMON> 1,003
0
0
<OTHER-SE> 369,413
<TOTAL-LIABILITY-AND-EQUITY> 576,930
<SALES> 0
<TOTAL-REVENUES> 351,139
<CGS> 0
<TOTAL-COSTS> 213,073
<OTHER-EXPENSES> 13,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,658
<INCOME-PRETAX> 9,670
<INCOME-TAX> 7,400
<INCOME-CONTINUING> 2,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,270
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
