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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----- -----
COMMISSION FILE NUMBER 1-10390
BERLITZ INTERNATIONAL, INC.
(Exact name of issuer as specified in its charter)
New York 13-3550016
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 Alexander Park, Princeton, New Jersey 08540
--------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (609) 514-9650
--------------
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 27, 1997, the aggregate market
value of the voting stock held by non-affiliates of the registrant was
$59,756,353.
The number of shares of the Registrant's common stock outstanding as of March
27, 1997 was 9,406,013.
DOCUMENTS INCORPORATED BY REFERENCE : None
Page 1 of 80 Pages
Exhibit Index Appears on Page 74
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Berlitz International, Inc. (the "Company" or "Berlitz") is the world's premier
language services firm, with worldwide market leading positions in language
instruction and translation services. The Company also publishes the well-known
Berlitz travel guides, foreign language phrase books, dictionaries and a variety
of other related products. Since its founding, the Company has established a
highly recognized brand name and superior reputation throughout the world as a
result of the Company's tradition of teaching excellence.
The Company, through its predecessors, was founded over 115 years ago and
completed its initial public offering in 1989. Since February 1993, Benesse
Corporation (formerly Fukutake Publishing Co., Ltd.) ("Benesse") has
beneficially owned approximately 6.7 million shares of common stock (which
currently represents 71.6% of the outstanding common stock of the Company).
Public shareholders of the Company hold the remaining outstanding common stock.
Since 1990, Benesse has also owned a 20% interest in Berlitz Japan, Inc.,
("Berlitz Japan"), the Company's Japanese subsidiary.
Berlitz is the only company to operate a language services business on a
worldwide basis. This worldwide presence enables Berlitz to provide a full range
of language services to multi-national customers and to take advantage of new
business opportunities. Its operations are conducted through three business
segments (Language Instruction, Translation Services, and Publishing), each of
which is currently organized geographically into five operating divisions: North
America, Western Europe, Central/Eastern Europe, Asia and Latin America. At
least 89% of total Asia sales, operating profits, assets and employees in 1996
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 13.
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LANGUAGE INSTRUCTION
As of December 31, 1996, the Company owned and operated 325 language centers in
35 countries using the Berlitz Method(R), hereinafter described, and the
Company's proprietary instruction material, to provide instruction in virtually
all spoken languages. Approximately 5.1 million language lessons were given in
1996, the most frequently taught languages being English, Spanish, German and
French. Revenues from Language Instruction accounted for approximately 75%, 77%
and 81% of total Company revenues in 1996, 1995 and 1994, 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 (excluding
franchise locations):
NUMBER OF CENTERS AT DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
North America 70 72 72 72 73
Western Europe 57 55 56 60 67
Central/Eastern Europe 86 84 81 76 72
Asia 52 52 53 57 59
Latin America 60 60 58 57 53
---- ---- ---- ---- ----
Total 325 323 320 322 324
==== ==== ==== ==== ====
NUMBER OF LESSONS (IN THOUSANDS)
-------------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
North America 1,095 1,050 1,064 1,091 1,123
Western Europe 896 897 835 876 1,029
Central/Eastern Europe 1,160 1,084 1,017 920 897
Asia 939 935 946 844 1,003
Latin America 1,049 981 911 857 818
----- ----- ----- ----- -----
Total 5,139 4,947 4,773 4,588 4,870
===== ===== ===== ===== =====
A lesson consists of a single 45-minute session (regardless of the number of
students). In 1996, the United States, Japan, and Germany accounted for
approximately 19%, 16% and 12% of lessons given and 20%, 24% and 14% of Language
Instruction sales, respectively.
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At December 31, 1996, all of the language centers operated by the Company and
its subsidiaries were wholly-owned, except for a joint venture operation in
Korea. The following table sets forth, by geographic division, the number of
language centers in each of the countries in which the Company and its
subsidiaries owned and operated centers as of December 31, 1996:
WESTERN EUROPE NORTH AMERICA
- -------------- -------------
Belgium 11 United States 62
Denmark 2 Canada 8
Finland 1 -----
France 17 Total 70
Holland 2 =====
Italy 5
Norway 1 LATIN AMERICA
Portugal 1 -------------
Spain 11 Argentina 5
Sweden 1 Brazil 16
United Kingdom 5 Chile 4
----- Colombia 6
Total 57 Mexico 17
===== Puerto Rico 4
Venezuela 8
-----
CENTRAL/EASTERN EUROPE Total 60
- ---------------------- =====
Austria 7
Czech Republic 5
Germany 50
Greece 1 ASIA
Hungary 3 ----
Israel 3 Hong Kong 1
Poland 6 Japan 47
Slovak Republic 1 Korea 1
Slovenia 1 Singapore 1
Switzerland 9 Thailand 2
----- -----
Total 86 Total 52
===== =====
In 1996, 10 language centers were added and 8 were removed, bringing the
worldwide total to 325. Capital expenditures incurred in connection with opening
a new language center in 1996 ranged from $121,000 to $296,000.
The Company has traditionally financed the cost of expansion with internally
generated funds and does not anticipate that borrowing will be necessary to
finance its planned expansion.
As discussed subsequently, in an effort to continue to capture additional market
share in its existing markets and to reach additional retail and corporate
customers in secondary or emerging markets, the Company introduced a franchising
program in 1996.
BERLITZ METHOD(R). At the heart of Language Instruction is the Berlitz
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Method(R), a proven technique that enables students to acquire a working
knowledge of a foreign language in a short period of time. Through the exclusive
use of the target language in the classroom, students learn to think and speak
naturally in the new language, without translation. With its primary objective
to develop conversational comprehension and speaking skills, the Berlitz
Method(R) 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 generally teach in their national language and are required
to complete a seven to ten-day initial training course in the Berlitz Method(R),
followed by periodic refresher courses. Upon successful completion of the
initial training course, instructors work either full-time or part- time. The
Berlitz Method(R) does not require that an instructor be proficient in any
language other than the language being taught. This feature of the Berlitz
Method(R) 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.
Approximately 48% of all tuition revenues in 1996 were from private lessons
(excluding Total Immersion(R)). Private instruction is typically provided in
blocks of three or more 45-minute lessons, with a short break after each lesson.
Total Immersion(R) courses, an intensive form of private instruction, accounted
for approximately 5% of tuition revenues in 1996. Total Immersion(R) 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 programs, together
represented 47% of tuition revenues in 1996.
A majority of the Company's clients are from the "corporate" segment of the
market and are enrolled for business or professional reasons. Consequently, 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 specialty areas that in the
aggregate accounted for approximately 5% of the Company's revenues in 1996. Two
such programs, Berlitz on Campus(TM) ( formerly Language Institute For English
("L.I.F.E.(R)")) and Berlitz Study Abroad(R), combine intensive language
instruction with first-hand exposure to the cultural environment of the country
where the target language is spoken. A third specialty program, Berlitz Jr.(R),
provides complete language instruction programs to children in public and
private schools throughout the world. A fourth area, cross-cultural training,
which is typically provided on a fee basis to corporate employees, complements
language study by providing expatriates with detailed practical and cultural
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information about the countries to which they are relocating.
MARKETING AND PRICING POLICY. The Company directs its marketing efforts toward
individuals, businesses and governments. The Company utilizes newspaper,
magazine and yellow page advertising in addition to direct contacts. Local
marketing efforts are coordinated on a divisional and country-by-country basis.
Center directors, district managers and regional managers are responsible for
sales development with existing and new clients. In addition, sales forces are
maintained in the Company's major markets to supplement other marketing methods.
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(R) 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.
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 Services provides high quality software localization (i.e.
the translation of software-related products), software quality assurance
("SQA") testing, technical translation, interpretation, electronic publishing,
and other foreign language-related services. Translations Services represented
approximately 21%, 18% and 13% of total Company revenues in 1996, 1995 and 1994,
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, a continued focus on larger customer accounts,
and an expansion in Asian and Latin American markets and multimedia products.
The majority of Translations Services' recent growth has been fueled by software
localization, which combines Berlitz's translations expertise with the
technological ability to provide software quality assurance and project
management. In addition, the Company has increased its product offerings to
include software testing of localized products, multimedia localizations
(CD-ROM) and Internet related offerings such as web site localization.
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Berlitz Translations' sales focus is on large, complex projects in multiple
languages for global markets. Translations Services' customer base is primarily
in the following sectors: information technology, automotive/manufacturing,
medical technology/pharmaceutical, and telecommunications. Translations Services
is also actively developing its multimedia translation business with a dedicated
studio located in Southern California.
The Company has an international network of full scale production and technology
centers. 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 contract translators who 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
Services facilities generally consist of production managers, project managers,
translators, editors, 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 translation services market, providers compete on the basis
of expertise, quality, price and job turnaround time. Although currently
fragmented, the market is consolidating and the Company believes that in the
near future, there will be less, but larger, competitors. 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, language phrase books,
bilingual dictionaries, medium format travel guides, self-teaching language
audio and language reference products. It is also involved in several licensing
arrangements for products that use Berlitz materials and for which the Company
receives royalties. The Company has recently instituted a new prototype language
center that is designed, in part, to create an attractive retail store that the
Company expects will facilitate greater sales of Company-published materials.
The Publishing business accounted for approximately 4%, 5% and 5% of total
Company revenues in 1996, 1995 and 1994, respectively. Approximately 43%, 48%
and 50% of Publishing segment sales in 1996, 1995 and 1994, respectively, were
in Europe.
In 1996, the Company initiated the relocation of most of its U.S. publishing
operations and all editorial and production functions of its U.K. Publishing
operations to the Company's new Princeton headquarters.
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 99
titles in this format published in English, plus more than 200 titles in more
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than 11 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 TRAVELERS 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 115 phrase books published in 14
languages, of which 30 are for English-speaking travelers. A EUROPEAN PHRASE
BOOK, EAST EUROPEAN PHRASE BOOK and a EUROPEAN MENU READER are also published in
English. Additional travel-related language products include Cassette Packs and
Compact Disc Packs, which consist of a 90-minute cassette tape or a 75-minute
compact disc ("CD") and phrase book packaged and sold together. Retail
distribution for the books and audio products is generally handled by an
exclusive distribution agreement with an established 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 gained through operating language centers. In addition to a general
language instruction curriculum, these products include products for children
and courses for business people.
In the U.S., the high-end audio cassette and CD products are marketed through
in-flight airline magazine space advertising, as well as through credit card and
travel club statement inserts. In addition to the audio cassette and CD
products, the Company is presently involved in several licensing arrangements
for products that use published Berlitz materials as the basis of alternate
media products (such as hand-held electronic reference products and CD-ROM
computer software) for which the Company receives royalties.
The Company's Publishing segment plan includes the relaunching of existing
product lines and the creation of new products that will compete in today's
market place. For example, Berlitz publishes illustrated book and audiotape
language learning products for children under the brand name BERLITZ KIDS(TM).
In 1997, Berlitz will publish an all-new series of technologically and
pedagogically advanced self-teaching language instruction products that will
supercede the Company's current THINK & TALK(R) series. In addition, the Company
plans to take advantage of the growing Asian and Latin American markets for
distribution of its products.
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 brand name recognition levels vary
considerably depending on market and product line.
FRANCHISING ACTIVITIES
In 1996, the Company began selling language center franchises to independent
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franchisees in certain countries to expand the reach of its language services
business. The Company has sold 13 language center franchises as of December 31,
1996, three of which will be located in Indonesia, two each in the Dominican
Republic and Japan and one each in Argentina, Brazil, Mexico, Oregon, South
Carolina, and Tennessee. Franchisees are granted franchises to operate Berlitz
language centers in a specific territory, the size of which depends on
demographic and geographic factors. Such sites are selected to improve the
Company's geographic reach beyond areas in which the Company and other
franchisees operate. Franchisees pay Berlitz an application fee of $5,000, an
initial franchise fee of $25,000 ($45,000 in Asia), 10% (7.5% in Europe) of the
language center's gross revenues in royalties, and 2% of gross revenues for
advertising participation.
The Company will actively monitor the operations and lesson quality of its
franchisees, and has developed an extensive confidential operations manual,
which together with the Company's Berlitz Method(R), forms the core of the
Berlitz franchise system. All franchisees are required to complete a two-week
training program at the Company's Princeton headquarters and the Company also
offers two additional weeks of on-site teacher training. Franchisees participate
in the Berlitz Language Center Management System ("LCMS"), a management
information system tied to Berlitz's headquarters, and are subject to periodic
financial audit and quality inspection.
EMPLOYEES
As of December 31, 1996, the Company employed 4,611 full-time employee and
employee equivalents. Due to the nature of its businesses, the Company retains a
large number of teachers and translators on a part-time or freelance basis.
Full-time employee equivalents are calculated by aggregating all part-time hours
(excluding freelance translators) 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, Italy and 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.
TRADEMARKS
The material trademarks used by the Company and its subsidiaries are BERLITZ(R),
TOTAL IMMERSION(R) (including foreign language variations used in certain
foreign markets), BERLITZ METHOD(R), BERLITZ JR.(R), BERLITZ STUDY ABROAD(R),
BERLITZ ON CAMPUS(TM), and L.I.F.E.(R). The Company or its subsidiaries hold
registrations for these trademarks, where possible, in all countries in which
(i) material use is made of the trademarks by the Company or its subsidiaries,
and (ii) failure to hold such a registration is reasonably likely to have a
material adverse effect on the Company or its subsidiaries. The duration of the
registrations varies from country to country. However, all registrations are
renewable upon a showing of use. The effect of the registrations is to enhance
the Company's ability to prevent certain uses of the trademarks by competitors
and other third parties. In certain countries, the registrations create a
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presumption of exclusive ownership of the trademarks.
REGULATORY ISSUES
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. In certain countries and states of the U.S., laws
and regulations restrict the operation of language schools.
The Uniform Offering Circular ("UFOC") of Berlitz Franchising Corporation, a
wholly owned subsidiary of the Company, has been registered with the FTC and by
various states as required. An "internationalized" version of the UFOC has been
prepared and has been modified to comply with foreign law requirements where
applicable.
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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, 1996,
principally for leased facilities, was $26,020,000. 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, 1996, 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
- ------ ---------- --- --------------
Western Europe 2 Center 3,397
Central/Eastern Europe 2 Center 2,945
Latin America 4 Center 13,151
------ ----------
Total 8 Total 19,493
====== ==========
LEASED FACILITIES
Number of Aggregate
Region Facilities Use Square Footage
- ------ ---------- --- --------------
North America (1) 81 (2) 266,263
Western Europe 70 (2) 216,495
Central/Eastern Europe 90 (2) 233,559
Asia 58 (2) 145,837
Latin America 59 (2) 227,255
------ ----------
Total 358 1,089,409
====== ==========
(1) In April 1996, the Company relocated its worldwide headquarters to a 70,550
square foot office building, which is leased for an initial 15 year term
with options to renew for two additional five year terms. The new
headquarters is located at 400 Alexander Park, Princeton, New Jersey 08540.
(2) Principally language centers. Also includes administrative offices and
Translations Services production and technology centers.
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 1996.
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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, 1997.
NAME, AGE, POSITION WITH
REGISTRANT BUSINESS EXPERIENCE
- ---------- -------------------
Soichiro Fukutake, 51 Mr. Fukutake has served as Chairman of the
Chairman of the Board; Board of the Company since February 1993. Mr.
Director (A) Fukutake joined Benesse 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, 57 Mr. Yokoi was elected Vice Chairman of the
Vice Chairman of the Board, Board and Chief Executive Officer of the
Chief Executive Officer and Company in February 1993 and additionally was
President; Director (A) elected President effective on August 31,
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 currently is also a Director of La
Petite Academy and serves on its compensation
committee. Mr. Yokoi has served as a Director
of the Company since January 1991. His term
will expire in 1998.
Susumu Kojima, 54 Mr. Kojima has served as Executive Vice
Executive Vice President, President, Asia Division of the Company since
Asia Division; January 1, 1996. Prior thereto, he served as
Director (A) Executive Vice President, Corporate Planning
from September 1993 to December 1995, and as
Senior Vice President, Corporate Planning of
the Company from February 1993 to September
1993. Mr. Kojima has served as a 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
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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, 52 Mr. Minsky has served as Executive Vice
Executive Vice President President and Chief Operating Officer,
and Chief Operating Officer, Translations and Publishing of the Company
Translations and Publishing; since January 1, 1995. Prior thereto, he
Director (A) served as Executive Vice President,
Translations of the Company from October 1,
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, 60 Mr. Fernandez has served as Executive Vice
Executive Vice President and President and Chief Operating Officer,
Chief Operating Officer, Worldwide Language Instruction of the Company
Worldwide Language since January 1, 1995. Prior thereto, he was
Instruction; Executive Vice President, Language Services of
Director (A) the Company from September 1993 to January
1995 and Vice President, European Operations
of the Company from October 1989 to September
1993. He previously served as Vice President,
European Operations for Berlitz Languages from
January 1983 to October 1989. Mr. Fernandez
was first employed by Berlitz Languages in
1963 and served in various positions until
becoming Vice President in 1983. Mr. Fernandez
has served as a Director of the Company since
July 1993. His term will expire in 1997.
Henry D. James, 59 Mr. James has served as Executive Vice
Executive Vice President and President and Chief Financial Officer of the
Chief Financial Officer; Company since November 21, 1995, and as its
Director Vice President and Chief Financial Officer
from 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 1998.
Edward G. Nelson, 65 Since January 1985, Mr. Nelson has served as
Director Chairman and President of Nelson Capital
(B)(C)(D) Corporation. From 1983 to 1985, he was
Chairman and Chief Executive Officer of
Commerce Union Corporation. He also serves on
the Board of Directors of ClinTrials, Inc.,
Osborn Communications Corporation, Central
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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 1998.
Robert L. Purdum, 61 Mr. Purdum is the retired Chairman of the
Director (B)(C)(D) Board of Armco, Inc. and currently is an
independent consultant and partner with
American Industrial Partners, a private
investment company located in New York and San
Francisco. During his Armco career, 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 is chairman of their Investment
Committee. Mr. Purdum has served as a Director
of the Company since August 1994. His term
will expire in 1998.
Aritoshi Soejima, 70 Mr. Soejima served as Senior Counselor of
Director Benesse from December 1980 until his
(B)(C)(D) appointment as a member of the Disinterested
Directors and Compensation Committees of the
Company. From 1950 to 1981, Mr. Soejima served
in various positions with the Japanese
government (including the Ministry of Finance)
and multilateral financial institutions
(including the World Bank and International
Monetary Fund). Mr. Soejima also currently
serves as Chairman of Osaka, Tokyo Bay, Nagoya
Hilton Company, Ltd., 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.
Kazuo Yamakawa, 56 Mr. Yamakawa has served as a Director of
Director Benesse and has supervised its General
Administration and Accounting Departments
since June 1995. He also has served as General
Manager of Benesse's Accounting Department
since January 1996. Since joining Benesse in
April 1995, he served as Counselor until June
1995. Prior to that, Mr. Yamakawa served in
various positions with The Shokochukin Bank,
including Director (April 1993 to March 1995),
14
<PAGE>
General Manager of its Tokyo branch (April
1993 to March 1995), General Manager of its
International Department (October 1991 to
March 1993) and General Manager of its New
York Branch (April 1988 to September 1991).
Mr. Yamakawa became a Director of the Company
in May 1996. His term will expire in 1998.
Robert C. Hendon, Jr., 59 Mr. Hendon has served as Vice President, Legal
Vice President, General Department of the Company since January 1,
Counsel and Secretary 1995 and as Secretary and 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, 57 Mr. Alvarino has been Vice President, Latin
Vice President American Division of the Company since October
1989. Prior thereto, he served in the same
capacity with Berlitz Languages from 1985
until October 1989. Mr. Alvarino was first
employed by Berlitz Languages in 1970 and
served in various positions from that time
until being appointed Vice President in 1985.
Anthony Tedesco, 54 Mr. Tedesco has served as Vice President,
Vice President North American Division of the Company since
October 1994. From July 1993 to October 1994,
he served as Vice President, East Asian
Division of the Company. Prior thereto, Mr.
Tedesco was Vice President, North American
Division of the Company from October 1989 to
July 1993 and he previously served in the same
capacity with Berlitz Languages from his
initial employment in 1983.
Wolfgang Wiedeler, 51 Mr. Wiedeler has served as Vice President,
Vice President Central/Eastern 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.
(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
The Company's Disinterested Directors Committee evaluates all significant
transactions between the Company and Benesse. There is no family relationship
15
<PAGE>
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, 1997.
Frank Garton, 50 Mr. Garton has served as Vice President,
Vice President Franchising of the Company since March 1995.
Prior to that, he was Director of Worldwide
Franchise Sales and Corporate Development for
King Bear Enterprises from 1987 to 1995. 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, 49 Mr. Kelly has served as Vice President,
Vice President Western Europe 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.
Isao Hisai, 44 Mr. Hisai has served as Executive Vice
Executive Vice President of President of Berlitz Japan since September
Berlitz Japan 1996. He previously served as Vice President,
Finance of the Company from February 1993
until September 1996. From October 1992 until
February 1993, Mr. Hisai was employed in
Benesse's Overseas Operation Department, and
from April 1988 until October 1992, he served
as Manager, Finance and Accounting Department
of Benesse.
16
<PAGE>
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 86 holders
of record of Common Stock as of February 28, 1997.
The sales prices per share of Common Stock as reported by the NYSE for each
quarter during the period from January 1, 1995 until December 31, 1996 ranged as
follows:
PRICE PER SHARE
-----------------
HIGH LOW
------- -------
First Quarter 1996 $17 1/8 $15 3/4
Second Quarter 1996 $21 3/4 $15 7/8
Third Quarter 1996 $23 5/8 $20 3/8
Fourth Quarter 1996 $22 3/4 $18 7/8
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
No common stock dividends for 1995 or 1996 were declared or paid.
17
<PAGE>
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(1)
Pre-Merger (1) -------------------------------- --------------
- -------------- Period from Period from
Feb. 1, Jan. 1, Year
Year Ended December 31, Year Ended 1993 to 1993 to Ended
-------------------------------- December 31, Dec. 31, Jan. 31, Dec. 31,
1996 1995 1994 1993 (2) 1993 1993 1992
--------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales of services and
products sold (3) $ 366,067 $ 351,139 $ 300,234 $ 271,677 $ 252,069 $ 19,608 $ 281,320
--------- --------- --------- --------- --------- -------- ---------
Cost and expenses:
Cost of services and
products sold (3) 218,758 213,073 179,869 169,102 155,623 13,479 178,009
Selling, general and
administrative (3) 113,695 105,039 91,703 83,500 76,781 6,719 82,837
Amortization of publishing
rights, excess of cost over
net assets acquired and
other intangibles 12,746 13,425 12,750 12,423 11,551 872 10,463
Merger-related restructuring
costs (4) -- -- -- 4,808 4,808 -- --
Other (income) expense, net 8,054 8,826 8,070 5,630 5,925 (295) (1,871)
Non-recurring Merger-related
charges -- -- -- -- -- -- 1,356
--------- --------- --------- --------- --------- -------- ---------
Total costs and expenses 353,253 340,363 292,392 275,463 254,688 20,775 270,794
--------- --------- --------- --------- --------- -------- ---------
Income (loss) before income
taxes, minority interest and
cumulative effect of change
in accounting principle $ 12,814 $ 10,776 $ 7,842 $ (3,786) $ (2,619) $ (1,167) $ 10,526
========= ========= ========= ========= ========= ======== =========
Minority interest-income/(expense) $ (1,503) $ (1,106) $ (738) $ 3,860 $ 3,692 $ 168 $ (1,038)
========= ========= ========= ========= ========= ======== =========
Cumulative effect of change in
accounting principle $ -- $ -- $ -- $ 3,172 $ -- $ 3,172 $ --
========= ========= ========= ========= ========= ======== =========
Net income (loss) $ 3,803 $ 2,270 $ 909 $ (2,018) $ (3,556) $ 1,538 $ 4,041
========= ========= ========= ========= ========= ======== =========
Earnings (loss) per share:
Income (loss) before cumulative
effect of change in accounting
principle $ 0.40 $ 0.23 $ 0.09 $ (0.35) $ (0.09) $ 0.21
Cumulative effect of change in
accounting principle -- -- -- -- 0.17 --
--------- --------- --------- --------- -------- ---------
Earnings (loss) per share $ 0.40 $ 0.23 $ 0.09 $ (0.35) $ 0.08 $ 0.21
========= ========= ========= ========= ======== =========
Dividends declared per share $ -- $ -- $ -- $ -- $ -- $ 0.42
========= ========= ========= ========= ======== =========
Average number of shares (000) 9,569 10,033 10,033 10,031 19,024 19,022
========= ========= ========= ========= ======== =========
Balance sheet data (at year end):
Total assets $ 561,245 $ 576,930 $ 582,005 $ 570,472 $ 456,583
Long-term debt $ 56,353 $ 67,081 $ 78,420 $ 105,775 $ --
Shareholders' equity $ 357,407 $ 370,416 $ 367,235 $ 364,953 $ 326,421
Other data:
Language lessons given
during year (000) 5,139 4,947 4,773 4,588 4,870
Language centers at year end 325 323 320 322 324
Growth (decline) in same center
sales from year to year (5) 0.5% 9.7% 9.4% (6.1)% 2.4%
</TABLE>
18
<PAGE>
(1) In February 1993, Benesse Corporation (formerly Fukutake Publishing Co.,
Ltd.) ("Benesse") acquired, through a merger of the Company with an
indirect wholly-owned U.S. subsidiary of Benesse (the "Merger"),
approximately 6.7 million shares of the common stock, par value $.10 per
share ("Common") of the Company (which currently represents 71.6% of the
outstanding Common). Subsequent to the Merger, public shareholders of the
Company hold the remaining outstanding Common.
(2) Income statement data give effect to the combination of the results of the
Company for the 1993 Pre-Merger and Post-Merger periods.
(3) 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" on the income
statement (33%) and "Excess of cost over net assets acquired" on the
balance sheet (67%).
(4) Principally represents 33% of severance payments, language center closing
costs, and costs of reorganizing Translations and certain Language
Instruction divisions.
(5) Indicates year-over-year increase (decrease), including the impact of
foreign currency rate fluctuations, in sales by language centers which were
operating during the entirety of both years being compared.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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. Certain statements
contained within this discussion constitute forward looking statements. See
"Special Note Regarding Forward Looking Statements."
OPERATIONS OVERVIEW
The Company's operations are conducted through the following business segments:
Language Instruction, Translation Services, and Publishing. The Company's sales
grew from $300.2 million in 1994 to $366.1 million in 1996, a compound annual
growth rate of 10.4%, and its earnings per share rose from $0.09 to $0.40 in the
same three-year period, favorably impacted by higher operating profits.
The majority of the Company's subsidiaries are located outside the United
States, with operations conducted in their respective local currencies. For the
three years ended December 31, 1996, the percentage of total revenues
denominated in currencies other than U.S. dollars averaged 74.7%, in foreign
currencies including the Japanese yen, the German mark, the Irish punt, the
British pound and the French and Swiss francs. As a result, changes in exchange
rates affected the comparisons of the Company's earnings from period to period,
benefiting 1995's financial results when the U.S. dollar weakened against most
foreign currencies, while adversely affecting 1996's financial results when the
dollar generally strengthened. The following table shows the impact of foreign
currency rate fluctuations on the annual growth rate of sales and EBITA (1)
during the periods presented:
PERCENTAGE GROWTH (DECLINE)
---------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
Sales:
Operations (2) 9.0% 10.3% 7.9%
Exchange (4.7) 6.7 2.6
---- ---- ----
Total 4.3% 17.0% 10.5%
==== ==== ====
EBITA:
Operations (2) 7.8% 10.6% 47.0%
Exchange (6.0) 4.6 3.3
---- ---- ----
Total 1.8% 15.2% 50.3%
==== ==== ====
(1) EBITA as used herein is defined as sales less cost of services and products
sold, and selling, general and administrative expenses. It is calculated
using amounts determined in accordance with U.S. generally accepted
accounting principles ("U.S. GAAP"). EBITA is not a defined term under U.S.
GAAP and is not indicative of operating income or cash flows from
operations as determined under U.S. GAAP.
(2) 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.
20
<PAGE>
The Company's operations have benefited in recent years from a number of global
trends. For example, the opening of Central and Eastern Europe to capitalism and
the recent economic growth experienced in Latin America and parts of Asia have
contributed to increased international business activity and the use of English
worldwide as a business language. The Company intends to continue to capitalize
on these trends, anticipating, for example, that franchising and joint ventures
may be used in emerging and secondary markets to increase market penetration.
Through December 31, 1996, the Company had sold 13 franchises (recognizing a
related $0.1 million as revenue under Language Instruction, and recording a
related $0.4 million as deferred revenue.)
In recent years, the Company has focused its marketing and product development
efforts on meeting the needs of existing customers and reaching out to new
customers. In 1995, the Company introduced a new corporate identity program,
which included the adoption of a new corporate logo and slogan. In Language
Instruction, the Company continued to expand several niche programs, including
cross-cultural services, Berlitz Jr(R), Berlitz on Campus(TM) and Berlitz Study
Abroad(R), enabling it to operate even more effectively as a "one-stop" language
service provider. To complement its live instruction, the Company has
increasingly used technology, such as CD-ROM, video and audio tools, to enhance
its traditional teaching programs while reducing teaching costs. In its
publishing business, the Company has updated some of its language reference
titles and has introduced a new language instruction series for children. In
1995, the Company introduced a new prototype language center design, which
features a distinctive reception rotunda and display kiosks featuring Berlitz
publishing and other Berlitz brand products to create a retail store
point-of-sale environment.
A discussion of revenues by business segment follows:
From 1994 to 1996, Language Instruction revenues, which declined from 81% to 75%
of total Company revenues, grew at a compound annual growth rate of 5.7%. This
growth was attributable to a number of factors, including: a) an average annual
increase in lesson volume of 3.8%; b) an overall improvement, excluding exchange
rate fluctuations, in average revenue per lesson ("ARPL") resulting from price
increases and a greater emphasis on more profitable semi-private and group
lessons, and c) strong performances from specialty areas such as Berlitz On
Campus and cross-cultural services. Foreign currency rate fluctuations had the
following impact on Language Instruction's annual revenue growth:
PERCENTAGE GROWTH (DECLINE)
---------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
Sales:
Operations (1) 6.9% 4.1% 6.4%
Exchange (5.6) 6.5 3.0
---- ---- ----
Total 1.3% 10.6% 9.4%
==== ==== ====
(1) See Note 2 on page 20 .
21
<PAGE>
Over the three year period ending December 31, 1996, the Company opened 23 new
language centers and closed 20. The following table shows the year-over-year
increase, 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)
---------------------------
1996 1995 1994
----- ----- -----
Same Center Sales 0.5% 9.7% 9.4%
===== ===== =====
From 1994 to 1996, Translations Services revenues, which increased from 13% to
21% of total Company revenues, grew at an annual compound rate of 38.7%,
principally through continued focus on large corporate accounts, development of
new customers, expansion of services to existing customers, and the success of
new services. The Company's continuing commitment to the information technology
industry and the expansion of software localization and testing services has
provided increased revenue, particularly in 1995. In addition, continued
customer satisfaction has led to increased business within the existing customer
base. The table that follows shows the impact of foreign currency rate
fluctuations on Translations' annual revenue growth:
PERCENTAGE GROWTH (DECLINE)
---------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
Sales:
Operations (1) 22.6% 51.0% 11.0%
Exchange (2.5) 9.1 1.1
----- ----- -----
Total 20.1% 60.1% 12.1%
===== ===== =====
(1) See Note 2 on page 20 .
The Company is a global leader in software localization and technical
translations. Demand for software localization services has increased rapidly as
(i) software programs have proliferated and have been translated into numerous
language versions; (ii) simultaneous shipment of domestic and local language
products, translation into at least 10 different languages and software updates
every six months are becoming the norm; and (iii) the Company's customers have
increasingly outsourced the software localization process. The Company believes
that its global translation network and technical capability provide it with an
advantage in pursing this growing market. The Company is currently providing
these services to some of the leading software companies in the world.
As Translations Services continues to grow, the Company will seek to improve the
profitability of the segment through (i) improving its pricing strategy, (ii)
increasing productivity through the use of more advanced computer-aided
translation tools and communications technology; (iii) continuing to centralize
certain non-linguistic functions, such as software engineering, software quality
assurance and desktop publishing; (iv) increasing the percentage of multi-year
projects which reduce the Company's project start-up costs; and (v) expanding
on-line translation capabilities to customers.
22
<PAGE>
From 1994 to 1996, Publishing revenues, which decreased from 5% to 4% of total
Company revenues, declined slightly due to the loss of licensing revenues in
1996 and costs associated with the relocation, initiated in 1996, of
Publishing's editorial and production functions from the United Kingdom to the
United States.
The following table shows the Company's income and expense data as a percentage
of sales:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
Sales of Services and Products 100.0% 100.0% 100.0%
------- ------- -------
Costs of services and products sold (1) 59.8 60.7 59.9
Selling, general and administrative (2) 31.1 29.9 30.5
Amortization of publishing rights
excess of cost over net assets acquired,
and other intangibles 3.5 3.8 4.2
Interest expense on long-term debt 2.1 2.5 3.5
Interest expense to affiliate 0.5 0.4 0.1
Other (income), net (0.5) (0.4) (0.8)
------- ------- -------
Total costs and expenses 96.5 96.9 97.4
------- ------- -------
Income before income taxes and minority
interest in earnings of subsidiary 3.5 3.1 2.6
Income tax expense 2.1 2.1 2.1
Minority interest 0.4 0.4 0.2
------- ------- -------
Net Income 1.0% 0.6% 0.3%
======= ======= =======
(1) Consists primarily of teachers', translators', and certain administrative
salaries, as well as cost of materials, rent, maintenance, depreciation and
other center operating expenses.
(2) Consists primarily of administrative salaries, marketing and advertising
expenses, and other headquarters related expenses.
Cost of services and products sold as a percentage of sales ("COS Ratio")
increased from 1994 to 1995 principally as percentage increases in translator
costs (compared to both segment and total company revenues) more than offset
percentage decreases in teacher costs. The increases in translator costs
occurred as the Company aggressively expanded services to the information
technology industry while the teacher cost ratio improvements were favorably
impacted by higher usage of supplemental CD- ROM teaching aids, as well as
increased semi-private and group lessons. From 1995 to 1996, the COS Ratio
declined primarily due to: a) a continued percentage reduction in teacher costs;
b) a decline in Publishing's cost of materials; and c) an overall percentage
decrease in rent and premises upkeep due to renegotiated language center leases,
23
<PAGE>
partially offset by expanded translation facilities. Translator costs as a
percentage of 1996 total company revenues increased from the prior year, but
remained consistent with 1995 as a percentage of Translations Services revenues.
Translation Services margins are expected to improve as growth stabilizes and
production efficiencies improve.
Selling, general and administrative expenses as a percentage of sales ("SGA
Ratio") declined from 1994 to 1995, principally as the effect of higher
advertising expenditures was more than offset by decreases in other
administrative cost percentages. The SGA Ratio increased from 1995 to 1996,
primarily reflecting higher franchise related expenses and a percentage increase
in administrative salaries, including the impact in 1996 of $1.6 million expense
related to the Company's Supplemental Executive Retirement Plan ("SERP") and New
Long-Term Incentive Plan ("New LTIP").
The year to year comparison of the results of operations are discussed in
further detail in the sections which follow.
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------
The Company's Language Instruction sales for the twelve months ended December
31, 1996 were $274.0 million, 1.3% above the same period in 1995, reflecting
increases in all geographic divisions except Asia. North America's sales
increase ($5.1 million, or 9.4%) was primarily due to volume increases and
strong performance from specialty programs such as Berlitz on Campus(TM) and
cross cultural programs. The increase in Latin American revenues ($4.5 million,
or 12.3%) was primarily attributable to volume increases in Brazil and a higher
ARPL in Mexico, which more than offset weakness in Venezuela. The improvement in
Central/Eastern European revenues ($2.7 million, or 4.6%) mainly reflects
increases in lesson volume and ARPL, experienced in most countries in the
division, partially offset by the unfavorable effects of exchange rate
fluctuations ($3.5 million, or 5.9%), more than half of which is due to the
strengthening of the U.S. dollar against the German mark. Asia's sales decline
($9.0 million, or 11.5%) resulted primarily when favorable volume and price
fluctuations were more than offset by unfavorable exchange rate fluctuations
($10.9 million) due to a stronger dollar versus the Japanese yen. Western
Europe's results increased $0.2 million from the prior year, reflecting a number
of factors, including volume increases in Denmark and Belgium and an improved
ARPL in France and Italy, all of which were partially offset by volume declines
in France and unfavorable exchange rate fluctuations ($0.8 million, or 1.9%)
arising primarily from the strengthening of the U.S. dollar against the French
and Belgium francs.
During the twelve-month period ended December 31, 1996, the number of lessons
given was approximately 5.1 million, 3.9% above the same period in the prior
year. Lesson volume in North America improved by 4.3% over the prior year.
Lesson volume in Asia rose only 0.4% from 1995, reflecting the negative effects
of a continuing flat economy in Japan, and declines in Thailand. Lesson volume
in Latin America rose by 7.0% from prior year, primarily due to increases in
Brazil and Colombia (reflecting strong economic conditions), and increases in
Venezuela despite economic turmoil, offset by a 4.2% drop in Mexico, which is
recovering from the 1994/1995 devaluation of the Mexican peso. Central/Eastern
Europe lesson volume increased by 7.0% over 1995, reflecting strong demand for
the Company's services in Poland, Israel, and Slovenia. Lesson volume in Western
Europe remained flat with 1995, primarily as improvements in Denmark and Belgium
were offset by declines in France.
24
<PAGE>
For the twelve months ended December 31, 1996, ARPL was $44.91 as compared to
$46.70 in the comparable prior-year period. The decline reflected the
unfavorable effect of exchange rate fluctuations. ARPL ranged from a high of
approximately $70.75 in Japan to a low of $16.61 in the Slovak Republic,
reflecting effects of foreign exchange rates and differences in the economic
value of the service. The Company opened new language centers during 1996 in
Korea, Singapore, Colombia, the Czech Republic, Greece and Poland.
Translation segment sales were $76.9 million for the twelve-month period ended
December 31, 1996, an increase of $12.9 million, or 20.1%, from the same period
in 1995. Most of this growth occurred in Ireland and the United States. The U.S.
sales increase was attributed primarily to increased volume from certain key
clients and to the success of new services. Ireland's revenue increase resulted
from the development of new customers and the expansion of software related
services to new and existing clients. In addition, sales increases in certain
Western European countries also reflected the expansion of software-related
services. Revenue growth is expected to continue since the Company has
established a foundation as a world leader in documentation translation and
software related services.
Publishing segment sales were $15.2 million for the twelve months ended December
31, 1996, $1.4 million or 8.2% below 1995, reflecting a reduction in revenues
from licensing activities and a general slowdown in the travel publishing
segment.
EBITA for the year was $33.6 million, or 9.2% of sales in 1996, compared to
$33.0 million, or 9.4% of sales, in the same prior year period. The percentage
decline in 1996 primarily reflected margin decreases in the Translation and
Publishing segments, as well as the impact of SERP related expense.
Instruction segment EBITA for the twelve months ended December 31, 1996 was
$44.1 million, or 16.1% of segment sales, compared to $39.9 million, or 14.8% of
segment sales, in the comparable prior year period. This improvement was largely
due to percentage reductions in teacher costs, rent and premises upkeep, and
advertising, partially offset by higher franchise related expenses and
administrative salaries.
Translation segment EBITA for the twelve-month period ended December 31, 1996
was $5.0 million, or 6.6% of segment sales, compared to $5.5 million, or 8.6% of
segment sales, in the prior year. The 1996 results were hurt by costs associated
with the significant expansion of Asian production resources, certain lower
margin contracts and certain non-recurring costs. Exchange rate fluctuations
were not material.
Publishing segment EBITA was $1.1 million in the 1996 twelve-month period,
compared to EBITA of $1.6 million in the prior year. Results in 1996 were
negatively impacted by costs associated with the relocation of Publishing's
editorial and production functions from the United Kingdom to the United States,
as well as by the loss of licensing revenues. Exchange rate fluctuations were
not material.
Non-segment related corporate and divisional expenses included in EBITA were
$16.6 million for the twelve months ended December 31, 1996, compared with $14.0
million in the same prior year period. This increase was primarily attributable
25
<PAGE>
to a reallocation of resources under the new matrix management structure in
1996, and to expenses associated with the SERP and corporate training programs.
Amortization of publishing rights, excess of cost over net assets acquired and
other intangibles decreased by $0.7 million, or 5.1%, from the prior twelve
month period, primarily due to the effects of translating into U.S. dollars the
excess of cost over net assets acquired related to the Company's foreign
subsidiaries.
Interest expense on long-term debt for the twelve months ended December 31, 1996
decreased by $1.0 million, or 11.7%, from the comparable prior year period,
primarily due to scheduled principal repayments and a lower average interest
rate on a portion of the Company's long-term debt.
Interest expense to affiliates for the year ended December 31, 1996 increased by
$0.4 million, or 28.6%, from the prior twelve month period, due to a $6.0
million increase in notes payable to the Company's majority shareholder (see
"Liquidity and Capital Resources").
Other income, net for the twelve months ended December 31, 1996 increased by
$0.2 million, or 13.6%, from the prior year, primarily as a favorable $2.1
million fluctuation in foreign exchange gains (principally reflecting the
impacts of certain Japanese yen, Swiss franc, U.S. dollar and British pound
denominated intercompany transactions) more than offset: a) a decline in
interest income on temporary investments due to lower average cash balances, b)
a lower gain on the Company's German mark floating rate coupon swap which was
settled in January 1996; c) the absence of non-recurring joint venture-related
income, which reduced expenses in 1995, and d) a favorable fluctuation in losses
on disposal of fixed assets, which was significantly increased in 1995 due to
certain Japanese language centers relocations.
Minority interest in subsidiary earnings increased $0.4 million, or 35.9%, from
the prior year due to higher net income in the Company's Japanese subsidiary.
The Company recorded an income tax expense of $7.5 million, or an effective rate
of 58.6%, during the current twelve-month period. This compared to an income tax
expense of $7.4 million, or an effective rate of 68.7%, in the prior year's
period. The effective tax rates in both 1996 and 1995 were above the U.S.
Federal statutory tax rate primarily as a result of nondeductible amortization
charges.
Net income for the twelve months ended December 31, 1996 was $3.8 million, or
$0.40 per share, compared to net income of $2.3 million, or $0.23 per share, in
the comparable prior year's period. This improvement of $1.5 million resulted
primarily from a higher operating profit and a reduced effective tax rate in
1996.
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.
26
<PAGE>
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, reflecting
increases in all geographic divisions. The improvement in Asian sales from 1994
($5.6 million, or 7.7%) resulted primarily from the favorable impact of exchange
rate fluctuations ($6.3 million) due to the weakening of the U.S. dollar against
the Japanese yen. Central/Eastern Europe's increase ($7.9 million, or 15.6%) was
favorably impacted by exchange rate fluctuations ($6.2 million), due primarily
to the weakening of the U.S. dollar against the German mark and the Swiss franc,
and by operating activity in almost all countries. The improvement in Western
Europe's revenues ($6.5 million, or 18.4%) was due both to favorable exchange
rate fluctuations ($3.6 million, primarily reflecting the weakening of the U.S.
dollar against the Belgian and
French francs) and to favorable operating activity primarily in Italy, Belgium,
the United Kingdom and Holland. The improvement in Latin American revenues ($3.8
million, or 11.4%) was primarily due to volume and price increases in Brazil and
Colombia, reflecting improved economic conditions, 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 affected by
declines in Japan due in part to the Kobe earthquake in early 1995 and a
continuing flat economy. Lesson volume in Latin America increased by 7.6% from
prior year, primarily due to increases in Brazil and Colombia resulting from
improved economic conditions. Lesson volume in Central/Eastern Europe increased
6.6% over 1994 as increases in most countries more than offset slight decreases
in Germany (2.3%, due primarily to competition) and Switzerland (2.0%, due
primarily to economic conditions). Lesson volume in Western Europe increased by
7.4% over 1994 as increases in most countries more than offset slight decreases
in Spain (0.3%, due primarily to competition), Norway (2.2%) and Sweden (2.7%).
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 resulting from a weakening of the U.S.
dollar against the Irish punt, the Danish krone, and the German mark. Most of
the volume growth occurred in the United States, Ireland, Germany, Denmark and
France. The U.S. sales increase was attributed primarily to increased volume
from certain key clients and the expansion into new and existing markets.
Ireland's revenue increase resulted from the increased volume from certain key
clients, development of new customers and the expansion of software related
services. In addition, sales increases in Germany and certain Western European
countries reflected general business expansion.
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
27
<PAGE>
exchange rate fluctuations versus the British pound and positive operating
results in the United States, primarily from an increase in travel- related
product sales and revenues from licensing activities.
The Company's EBITA for the year was $33.0 million, or 9.4% of sales in 1995,
compared to $28.7 million, or 9.5% of sales, in the same prior year period.
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. The percentage change was also impacted by
faster growth in the Translation segment than in the higher margin Language
Instruction segment.
Instruction segment EBITA for the twelve months ended December 31, 1995 was
$39.9 million, or 14.8% of segment sales, compared to $35.9 million, or 14.7% of
segment sales, in the comparable prior year period. This percentage improvement
was primarily due to percentage reductions in teacher costs, offset by increases
in certain other expenses.
Translation segment EBITA for the twelve-month period ended December 31, 1995
was $5.5 million, or 8.6% of segment sales, compared to $3.1 million, or 7.7% of
segment sales, in the prior year. This percentage improvement was primarily the
result of percentage reductions in most fixed administrative expenses, which
more than offset percentage increases in translator costs.
Publishing segment EBITA was $1.6 million in the 1995 twelve-month period,
compared to EBITA of $0.9 million in the prior year.
Non-segment related corporate and divisional expenses included in EBITA were
$14.0 million for the twelve months ended December 31, 1995, compared with $11.3
million in the same prior year period. This increase primarily reflected 1995
expenses associated with the Company's corporate image campaign and its
franchising program, as well as higher administrative expenses.
Amortization of publishing rights, excess of cost over net assets acquired and
other intangibles was $13.4 million for the year ended December 31, 1995, an
increase of 5.3% from $12.8 million in the comparable prior-year period. This
increase was primarily attributable to the effect of translating into U.S.
dollars the excess of cost over net assets acquired related to the Company's
foreign subsidiaries.
Interest expense on long-term debt for the year ended December 31, 1995
decreased by $1.9 million, or 18.0%, from the comparable prior-year period,
primarily due to scheduled principal repayments and the refinancing of a portion
of long-term debt in September 1994.
Interest expense to affiliates for the year ended December 31, 1995 increased by
$1.1 million from the comparable prior-year period, due to a full year's
outstanding balance on borrowings from Benesse.
Other income, net for the twelve months ended December 31, 1995 decreased by
$1.6 million, or 55.8%, from the same prior-year period, primarily as joint
28
<PAGE>
venture-related income (consisting principally of value-added-tax refunds and a
reduction in accrued expenses) and a $1.2 million gain on the Company's German
mark coupon swap was more than offset by: a) lower net foreign exchange gains
(reflecting principally the adverse impact of certain yen and Swiss franc
denominated intercompany transactions), b) higher non-operating taxes 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.
Minority interest in subsidiary earnings increased $0.4 million, or 49.9%, from
the prior year due to higher net income in the Company's Japanese subsidiary.
The Company recorded an income tax expense of $7.4 million, or an effective rate
of 68.7%, during the current period. This compared to an income tax expense of
$6.2 million, or an effective rate of 79.0%, in the prior year. The effective
tax rates in both 1995 and 1994 were above the U.S. Federal statutory 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.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the primary source of the Company's liquidity has been the cash
provided by operations, and capital expenditures, working capital requirements
and acquisitions have been funded from internally generated cash. 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 generally not seasonal in the aggregate.
Net cash provided by operating activities was $25.4 million, $16.6 million and
$21.0 million for the years ended December 31, 1996, 1995 and 1994,
respectively. These cash flows were affected by tax refunds of approximately
$1.3 million, $1.4 million and $5.6 million which were received in 1996, 1995
and 1994, respectively. The 1994 refund principally was due to tax deductions
related to the bankruptcy filing of the indirect former parent of the Company.
In reconciling reported net income to net cash provided by operations, changes
in net operating assets decreased operating cashflows by $0.4 million, $6.9
million and $0.4 million in 1996, 1995 and 1994, respectively. The 1996 change
in net operating assets was primarily attributable to a number of factors,
including: a) accounts and unbilled receivable increases, primarily from
Translations sales growth; b) an increase in franchising- related inventory; c)
an increase in deferred revenues in Ireland, Japan, Poland, Mexico and Canada;
d) an increase in accrued interest payable on affiliate debt; and e) higher
taxes payable. The 1995 change in net operating assets was primarily
attributable to a $10.5 million increase in accounts receivable due to sales
growth in the Translations business segment, partially offset by a change in
29
<PAGE>
income taxes payable of $3.9 million, primarily adjusting the current tax
provision for a net operating loss benefit recorded to the excess of cost over
net assets acquired. The 1994 change in net operating assets primarily reflected
the effects of accounts receivable increases from Translations segment sales
growth, a decrease in other current liabilities due to payment of non-recurring
Merger-related restructuring costs, and an increase in other liabilities due
primarily to accruals for future taxes and the reflection of the entire $3.2
million change in the fair value of the Company's currency coupon swap
agreements.
Net cash used in investing activities, which totaled $13.1 million, $7.9 million
and $8.0 million in 1996, 1995 and 1994, respectively, consisted primarily of
capital expenditures for the opening of new facilities and the refurbishing of
existing facilities, and, in 1995, for the relocation and consolidation of
certain centers in Japan. Included in 1996 were capital expenditures of $3.2
million related to the April 1996 relocation of the Company's corporate
headquarters and Princeton language center to a new facility in Princeton, New
Jersey. 1996 also reflected higher Translation segment expenditures than in
prior years due to the segment's growth. Included in 1994 were investments in
joint ventures of $1.3 million, respectively, primarily for shutdown-related
costs.
Net cash used for financing activities totaled $11.0 million and $9.4 million in
1996 and 1995, respectively, compared with net cash provided of $2.0 million in
1994. A substantial portion of this activity represents repayments of certain
long-term indebtedness incurred in 1993 in connection with the Merger ( the
"Acquisition Debt Facilities"). Certain financial covenants contained in the
Acquisition Debt Facilities restrict the ability of the Company to pay dividends
and the Company does not expect to pay dividends during the term of the
Acquisition Debt Facilities. Additional activity included the March 1996 receipt
of the proceeds of a $6.0 million subordinated promissory note payable to a U.S.
subsidiary of Benesse, which together with prior affiliate indebtedness incurred
in 1994 (collectively, the "Benesse Notes"), had a combined balance at December
31, 1996 of $38.3 million. Principal and interest repayment on the Benesse notes
are deferred until all obligations under the Acquisition Debt Facilities are
satisfied. Finally, in April 1996, the Company consummated the purchase of
627,000 shares of its common stock from Maxwell Communication Corporation, plc
(In Administration) at a price of $9 per share. Such shares were placed into
treasury and reserved for future use.
Pursuant to a covenant under the Acquisition Debt Facilities, the Company was
party at December 31, 1996 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, 1996, representing the amount that could be settled
based on estimates obtained from a dealer, was a net liability of approximately
$0.5 million.
Effective January 1, 1996, the Company established the SERP to provide
retirement income / disability retirement benefits, retiree medical benefits and
death benefits to the Chairman of the Board, certain designated executives and
their designated beneficiaries. The Company intends to fund the SERP through a
30
<PAGE>
combination of funds generated from operations and life insurance policies on
the participants.
In October 1996, the Internal Revenue Service issued a deficiency notice to the
Company relating to its 1989, 1990, 1992 and 1993 Federal tax returns. Such
notice proposed adjustments which could result in additional tax payments of
approximately $9.3 million, plus accrued interest. The Company is contesting the
deficiency notice, and intends to fund any deficiency that may ultimately
result, by settlement or litigation, through the Company's cash resources. The
Company believes that it has adequate cash resources to pay any such deficiency
and to pursue its business plans.
On October 4, 1996, the Company filed a Protest with the Government Accounting
Office ("GAO") protesting the Department of Justice, Executive Office for
Immigration Review ("EOIR") award of its nationwide interpreter services
contract for the next five years to a competing bidder. The Company has been the
contractor for these EOIR services for the last 10 years and its 1996 revenues
under the current contract were approximately $10.0 million. On January 13,
1997, the GAO sustained the Company's protest and recommended that the EOIR
contract be awarded to Berlitz. On March 21, 1997, EOIR advised the Company that
based on the GAO decision, and after reviewing its programmatic needs, the
Department of Justice had selected the Company to receive the interpreter
services contract. It is anticipated that contract documents will be finalized
by the end of March 1997. The contract award is subject to applicable government
procurement laws, including EOIR's right to initiate recompetition for a portion
(less than 5%) of the EOIR contract; to elect not to exercise its annual renewal
rights under the EOIR contract for the contract year beginning May 1, 1999; and
any contract Protest rights of third persons.
At December 31, 1996, the Company's liquid assets of $25.8 million consisted of
cash and temporary investments. At December 31, 1996, the Company does not have
any material commitments for capital expenditures. During 1997, the Company
anticipates capital expenditures to increase in connection with the expansion of
the Company's Translations segment and the refurbishment of the Company's
language centers. The Company plans to meet its debt service requirements and
future working capital needs through funds generated from operations.
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 (the "Reform Act"). The Company desires
to take advantage of certain "Safe Harbor" provisions of the Reform Act and is
including this special note to enable the Company to do so. Forward-Looking
Statements involve known and unknown risks, uncertainties, and other factors
which could cause the Company's actual results, performance (financial or
operating) or achievements to differ materially from the future results,
performance (financial or operating) or achievements expressed or implied by
such Forward- Looking Statements. Such risks, uncertainties and other factors
include, among others: the finalization of definitive contract documents and the
future continuation of the EOIR contract; the outcome of future negotiations
and/or litigation pertaining to the deficiency assessed by the IRS; the
31
<PAGE>
Company's success in selling new franchises; as well as more general factors
affecting future cashflows, including fluctuations in foreign currency exchange
rates; demand for the Company's products and services; the impact of
competition; 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, tax audits and other
factors (known or unknown) which may affect the Company. As a result, no
assurance can be given as to future results, levels of activity and
achievements.
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.
32
<PAGE>
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
REPORT OF INDEPENDENT AUDITORS 34
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED
FINANCIAL STATEMENTS 35
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Operations, years ended
December 31, 1996, 1995 and 1994 36
Consolidated Balance Sheets, December 31, 1996 and 1995 37
Consolidated Statements of Shareholders' Equity, years ended
December 31, 1996, 1995 and 1994 38
Consolidated Statements of Cash Flows, years ended
Decembe 31, 1996, 1995 and 1994 39
Notes to Consolidated Financial Statements 40
FINANCIAL STATEMENT SCHEDULE:
Schedule II. Valuation and Qualifying Accounts 59
All other schedules are omitted because they are not applicable or
the required information is shown in the Consolidated Financial
Statements or the Notes thereto.
33
<PAGE>
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, 1996 and 1995 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years ended December 31, 1996, 1995 and 1994. Our audits also
included the financial statement schedule listed in the Index at Item 8 for the
years ended December 31, 1996, 1995 and 1994. 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 disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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, 1996 and 1995 and the results of their
operations and their cash flows for the years ended December 31, 1996, 1995 and
1994, in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule for the years ended December 31, 1996,
1995 and 1994, 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.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
New York, New York
February 21, 1997
34
<PAGE>
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
35
<PAGE>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Sales of services and products $ 366,067 $ 351,139 $ 300,234
-------------- -------------- ------------
Costs and expenses:
Cost of services and products sold 218,758 213,073 179,869
Selling, general and administrative 113,695 105,039 91,703
Amortization of publishing rights, excess
of cost over net assets acquired, and
other intangibles 12,746 13,425 12,750
Interest expense on long-term debt 7,647 8,658 10,559
Interest expense to affiliates 1,848 1,437 384
Other income, net (1,441) (1,269) (2,873)
-------------- -------------- -------------
Total costs and expenses 353,253 340,363 292,392
------------- -------------- ------------
Income before income taxes and minority
interest in earnings of subsidiary 12,814 10,776 7,842
Income tax expense 7,508 7,400 6,195
Minority interest in earnings
of subsidiary 1,503 1,106 738
------------- -------------- ------------
Net income $ 3,803 $ 2,270 $ 909
============= ============== ============
Earnings per common share $ 0.40 $ 0.23 $ 0.09
============= ============== ============
Average number of shares (000) 9,569 10,033 10,033
============= ============== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
36
<PAGE>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 25,781 $ 25,402
Accounts receivable, less allowance for doubtful accounts
of $1,914 and $1,468 36,048 34,825
Unbilled receivables 3,807 2,744
Inventories, net 10,260 9,343
Prepaid expenses and other current assets 6,815 6,856
------------ ----------
Total current assets 82,711 79,170
Property and equipment, net 29,363 25,626
Publishing rights, net of accumulated
amortization of $3,504 and $2,524 18,864 19,114
Excess of cost over net assets acquired and other intangibles, net
of accumulated amortization of $46,049 and $35,114 417,611 439,407
Other assets 12,696 13,613
------------ ----------
Total assets $ 561,245 $ 576,930
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10,741 $ 11,371
Accounts payable 5,383 7,481
Deferred revenues 34,748 35,608
Payrolls and commissions 10,227 10,846
Income taxes payable 4,207 2,251
Accrued expenses and other current liabilities 12,273 11,523
------------ ----------
Total current liabilities 77,579 79,080
Long-term debt 56,353 67,081
Notes payable to affiliates 38,294 31,534
Deferred taxes and other liabilities 22,348 21,290
Minority interest 9,264 7,529
------------ ----------
Total liabilities 203,838 206,514
------------ ----------
Shareholders' Equity:
Common stock
$.10 par value - 40,000,000 shares authorized;
10,033,013 shares issued 1,003 1,003
Additional paid - in capital 368,658 368,658
Retained earnings (deficit) 3,426 (377)
Cumulative translation adjustment (10,037) 1,132
Treasury stock at cost; 627,000 shares (5,643) --
------------ ----------
Total shareholders' equity 357,407 370,416
------------ ----------
Total liabilities and shareholders' equity $ 561,245 $ 576,930
============ ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
37
<PAGE>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED CUMULATIVE TOTAL
COMMON PAID-IN EARNINGS TRANSLATION TREASURY SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) ADJUSTMENT STOCK EQUITY
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 1,003 $ 368,658 $ (3,556) $ (1,152) $ -- $ 364,953
Net income 909 909
Translation adjustment and other,
including the effects of certain
hedges and intercompany
transactions 598 598
Allocated income taxes 775 775
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 1,003 368,658 (2,647) 221 -- 367,235
Net income 2,270 2,270
Translation adjustment and other,
including the effects of certain
hedges and intercompany
transactions 414 414
Allocated income taxes 497 497
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 1,003 368,658 (377) 1,132 -- 370,416
Net income 3,803 3,803
Translation adjustment and other,
including the effects of certain
hedges and intercompany
transactions (10,266) (10,266)
Allocated income taxes (559) (559)
Transfers from CTA related to
liquidation of foreign subsidiaries (344) (344)
Treasury share purchase (5,643) (5,643)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 $ 1,003 $ 368,658 $ 3,426 $ (10,037) $ (5,643) $ 357,407
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
38
<PAGE>
BERLITZ INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,803 $ 2,270 $ 909
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,972 7,099 6,423
Amortization of publishing rights, excess of cost over
net assets acquired, and other intangibles 12,746 13,425 12,750
Minority interest in earnings of subsidiary 1,503 1,106 738
Deferred income taxes (172) (1,405) 1,737
Provision for bad debts 1,168 349 442
Foreign exchange (gains) losses, net (1,005) 1,131 (1,707)
Gains on currency coupon swap agreements (399) (1,151) --
Equity in (gains) losses of joint ventures 187 (13) 15
Losses on disposal of fixed assets 70 622 136
Changes in operating assets and liabilities:
(Increase) in accounts and unbilled receivables (3,900) (10,504) (4,242)
(Increase) decrease in inventories (1,039) (154) 2,321
(Increase) in prepaid expenses and other assets (1,130) (1,256) (3,343)
Increase (decrease) in deferred revenues 1,732 (650) 419
Increase (decrease) in accounts payable and
other current liabilities (772) 1,125 (4,002)
Increase in due to affiliates 1,862 1,416 384
Increase (decrease) in income taxes payable 2,178 3,893 (868)
Increase (decrease) in other liabilities 630 (752) 8,913
-------- -------- --------
Net cash provided by operating activities 25,434 16,551 21,025
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,034) (8,035) (5,892)
Acquisitions of businesses -- (15) (894)
Refunds from (investments in) joint ventures (72) 177 (1,259)
-------- -------- --------
Net cash used in investing activities (13,106) (7,873) (8,045)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable to affiliates 6,000 -- 30,145
Repayment of long-term debt (11,366) (9,325) (24,935)
Payments to acquire treasury stock (5,643) -- --
Net repayments under revolving credit agreement -- -- (3,000)
Payment of deferred financing costs -- (107) (232)
-------- -------- --------
Net cash provided by (used in) financing activities (11,009) (9,432) 1,978
-------- -------- --------
Effect of exchange rate changes
on cash and temporary investments (940) (9) (531)
-------- -------- --------
Net increase (decrease) in cash and
temporary investments 379 (763) 14,427
Cash and temporary investments at beginning of period 25,402 26,165 11,738
-------- -------- --------
Cash and temporary investments at end of period $ 25,781 $ 25,402 $ 26,165
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 6,835 $ 7,736 $ 8,988
======== ======== ========
Income taxes $ 6,640 $ 6,556 $ 6,070
======== ======== ========
Cash refunds of income taxes $ 1,298 $ 1,371 $ 5,584
======== ======== ========
Noncash investing activities:
Accounts payable for capital expenditures in Japan $ -- $ 456 $ --
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
39
<PAGE>
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 73%
of its 1996 revenues are denominated in currencies other than the
U.S. dollar.
In February 1993, Benesse Corporation (formerly Fukutake Publishing
Co., Ltd.) ("Benesse") acquired, through a merger of the Company
with an indirect wholly-owned U.S. subsidiary of Benesse (the
"Merger"), approximately 6.7 million shares of the common stock,
par value $.10 per share ("Common") of the Company (which currently
represents 71.6% of the outstanding Common). Subsequent to the
Merger, public shareholders of the Company hold the remaining
outstanding Common.
Since 1990, Benesse has also owned a 20% minority interest in the
equity of the Company's Japanese subsidiary, Berlitz Japan, Inc.
("Berlitz-Japan").
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, 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) Revenue Recognition and Unbilled Receivables - Revenues are
recognized in the Instruction and Publishing business segments when
services are rendered to the customer or when products are shipped,
as applicable. 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
40
<PAGE>
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 and the Benesse
borrowings (see Notes 6 and 9) 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.
h) Publishing Rights - Publishing rights are associated with the
Company's proprietary language instruction print materials and
travel related titles. They are being amortized on a straight-line
basis over 25 years. The carrying value of publishing rights is
evaluated periodically to determine if there has been a loss in
value by considering the impacts of expected future revision dates.
Publishing rights will be written off if and when it has been
determined that an impairment in value has occurred.
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
41
<PAGE>
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, net" in the Consolidated Statements of Operations.
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.
The carrying amounts reported in the balance sheets for cash and
temporary investments, accounts receivable and payable, accrued
expenses, 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
1996 presentation.
2. EARNINGS PER SHARE
------------------
Earnings per share of common stock is determined by dividing net
income by the weighted average number of common shares outstanding.
Primary and fully diluted earnings per share of common stock are the
same since there were no common stock equivalents outstanding during
the years ended December 31, 1996, 1995 or 1994.
42
<PAGE>
3. PROPERTY AND EQUIPMENT, NET
---------------------------
DECEMBER 31,
------------------------
1996 1995
------- -------
Building and leasehold improvements $17,938 $17,749
Furniture, fixtures and equipment 25,318 19,766
Land 1,382 1,403
------- -------
44,638 38,918
Less: accumulated depreciation
and amortization 15,275 13,292
------- -------
Total $29.363 $25,626
======= =======
4. OTHER INCOME, NET
-----------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest income on temporary investments $ (728) $(1,278) $(1,692)
Foreign exchange (gains) losses, net (1,005) 1,131 (1,707)
Gains on currency coupon swap agreement (399) (1,151) --
Equity in (gains) losses of joint ventures 187 (13) 15
Joint venture-related income -- (1,299) --
Other non-operating taxes 586 669 48
Term Loan administration fee 150 150 150
Losses on disposal of fixed assets 70 622 136
Other interest income, net (67) (242) (173)
Other (income) expense, net (235) 142 350
------- ------- -------
Total other income, net $(1,441) $(1,269) $(2,873)
======= ======= =======
</TABLE>
5. INCOME TAXES
------------
The components of the deferred tax liability at December 31, 1996 and
1995 were as follows:
1996 1995
------- -------
Deferred tax assets:
Inventory $ 827 $ 896
Property and equipment depreciation 122 --
Deferred revenue 1,836 1,107
Unrealized hedging losses 243 1,272
Accrued expenses 2,871 3,689
Net operating losses 12,965 18,828
------- -------
Total deferred tax assets 18,864 25,792
------- -------
43
<PAGE>
Deferred tax liabilities:
Joint ventures (368) (408)
Property and equipment depreciation -- (226)
Unrealized hedging gains (80) (410)
Publishing rights amortization (7,853) (8,052)
Other intangibles amortization (92) --
-------- --------
Total deferred tax liabilities (8,393) (9,096)
-------- --------
Net deferred tax assets 10,471 16,696
Valuation allowance (13,036) (18,874)
-------- --------
Net deferred tax liability $ (2,565) $ (2,178)
======== ========
As a result of the Merger, $4,086 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.
The Company's effective tax rate for 1996 was 58.6%, compared with
68.7% and 79.0% in 1995 and 1994, 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, 1996:
Current $ 1,945 $ 5,364 $ 371 $ 7,680
Deferred (182) (7) 17 (172)
-------------- -------------- ------------- ------------
Total $ 1,763 $ 5,357 $ 388 $ 7,508
============== ============== ============= ============
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
============== ============== ============= =============
</TABLE>
* Pre-tax income from foreign operations of the Company was $22,429,
$20,232, and $13,541 for the twelve months ended December 31,
1996, 1995 and 1994, respectively.
44
<PAGE>
The provision (benefit) for deferred taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Accrued liabilities $ 88 $ (76) $ 2,430
Foreign exchange 232 410 -
Benefit of net operating loss (313) (228) (2,646)
Amortization of intangibles (199) (1,536) 2,027
Other, net 20 25 (74)
------------- -------------- --------------
Total $ (172) $ (1,405) $ 1,737
============= ============== ==============
</TABLE>
The difference between the effective income tax and the U.S. Federal
statutory tax rate is explained as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Foreign income taxes, net of Federal
income tax benefits (34.5) 3.3 (28.0)
U.S. state and local income taxes,
net of Federal income taxes 2.0 3.0 6.0
Net domestic and foreign losses 12.4 3.9 14.1
Amortization and writeoff of intangibles 34.8 30.5 58.6
Other, net 8.9 (7.0) (6.7)
------ ------ ------
Total 58.6% 68.7% 79.0%
====== ====== ======
</TABLE>
For tax return purposes, at December 31, 1996 the Company has a U.S.
Federal net operating loss carryforward of $13,792. Such loss may be
carried forward through the year 2006. In addition to the U.S. 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, 1996, accumulated earnings of foreign subsidiaries of
$49,087 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 $2,585 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.
45
<PAGE>
6. LONG-TERM DEBT
--------------
Long-Term Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Term Loan $ 10,500 $ 21,550
Senior Notes 56,000 56,000
Other 594 902
---------- -----------
Total debt 67,094 78,452
Less current maturities 10,741 11,371
-------------- --------------
Long-term debt $ 56,353 $ 67,081
============== ==============
</TABLE>
Annual maturities of long-term debt outstanding as of December 31,
1996 are as follows: 1997, $10,741; 1998, $353; 1999, $14,000; 2000,
$14,000; 2001, $14,000; thereafter, $14,000.
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) Chase Manhattan'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 1996 was
approximately 7.63%. 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
46
<PAGE>
into, grant or suffer to exist liens or sale-leaseback transactions,
to make loans or investments, to enter into mergers, acquisitions or
sales of assets, to change the nature of the business conducted, to
amend material agreements, to enter into agreements restricting the
ability of the Company and its subsidiaries to grant or to suffer to
exist liens, to enter into transactions with affiliates or to limit
the ability of subsidiaries to pay dividends or make loans to the
Company, (ii) limitations on the payment of dividends by the Company
on its capital stock and (iii) a requirement that the Company 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, 1996, 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.
7. 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 $26,020,
$25,443 and $24,816, for the years ended December 31, 1996, 1995 and
1994, 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, 1996 are
as follows: 1997-$13,640; 1998-$10,189; 1999-$7,907; 2000-$5,808;
2001-$4,876; and an aggregate of $19,363 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.
IRS DEFICIENCY NOTICE
In October 1996, the Internal Revenue Service issued a deficiency
notice to the Company relating to its 1989, 1990, 1992 and 1993 U.S.
Federal tax returns. The Company is contesting the deficiency notice
47
<PAGE>
and believes that any liability that may ultimately result is
adequately provided for at December 31, 1996.
SEVERANCE AGREEMENTS
The Company has severance agreements with two key employees which
generally provide for termination payments of one times annual base
salary, plus a portion of the Company's bonus plan awards. The
agreements also provide for the continuation of certain benefits. The
maximum contingent liability under such agreements is approximately
$800.
8. 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 1996
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
----------------------- ------------- ----------------------- -------------
<S> <C> <C> <C> <C>
FIXED RATE
AGREEMENTS:
Japanese Yen 2,335,500 9.71% $ 22,500 9.79%
Swiss Franc 11,475 9.89% $ 7,500 9.79%
British Pound 5,133 10.43% $ 7,550 9.79%
Canadian Dollar 5,596 10.43% $ 4,300 9.79%
German Mark 60,165 4.78% $ 35,000 5.31%
FLOATING RATE
AGREEMENTS:
German Mark 60,165 DEM-LIBOR-BBA $ 35,000 USD-LIBOR-BBA
+2.8% +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.
48
<PAGE>
During the second half of 1995, the German mark floating rate 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, 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 recognized a gain of $399 during the first
quarter of 1996, 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 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 one major U.S.
bank. During 1996 and 1995, balances in these accounts averaged 31% and
27% 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 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%
of the Company's total accounts receivable balance before allowances at
both December 31, 1996 and 1995.
49
<PAGE>
c) Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and temporary investments $25,781 $25,781 $25,402 $25,402
Currency coupon swap agreements 228 228 -- --
Liabilities:
Long-term debt, including
current maturities 67,094 71,652 78,452 84,419
Notes payable to affiliates 38,294 32,926 31,534 25,292
Currency coupon swap agreements 694 694 2,464 2,464
</TABLE>
For cash and temporary investments and short-term borrowings, the
carrying amount approximates fair value due to their short maturities.
The fair values of long-term debt and notes payable to affiliates are
estimated based on the interest rates currently available for
borrowings with 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.
9. 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. Berlitz-Japan
also borrowed (Yen)1.0 billion (approximately $10,145 at inception)
from Benesse as evidenced by an interest-free subordinated promissory
note (the "Japan Note"). A portion of the proceeds of these notes were
used to settle certain obligations under the Acquisition Debt
Facilities. In March 1996, the Company received the proceeds of an
additional $6,000 subordinated promissory note payable to a U.S.
subsidiary of Benesse and bearing interest at a rate of the six-month
LIBOR plus 1% per annum, adjusted semi-annually. These notes are
collectively referred to as the Benesse Notes.
The Benesse Notes rank PARI PASSU with one another and are subordinate
in rights of payment to debt under the Acquisition Debt Facilities,
including the currency coupon swap agreements. They 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 are not permitted while
any amounts remain outstanding under the Acquisition Debt Facilities,
such accrued interest will roll over semi-annually into the note
principal.
Payment obligations under the U.S. Note are guaranteed by the Company
50
<PAGE>
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.
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 premiums on the D&O policy
are allocated 60% to Benesse and 40% to the Company, except for,
commencing in 1997, the premium for entity coverage which benefits
Berlitz only and is allocated 100% to Berlitz, resulting in a total D&O
allocation of 57% to Benesse and 43% to the Company. Since May 1995,
the Company has maintained 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.
During 1994, pursuant to a 1992 contract (the "Development Agreement")
with Benesse for the development of English conversation video programs
for elementary and junior high school students in Japan, Berlitz-Japan
received from Benesse production cost reimbursements of approximately
$2,300, and a coordination fee and other project-related reimbursements
of approximately $250. All development activities under the Development
Agreement were completed during 1994.
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.
10. STOCK OPTION AND INCENTIVE PLANS
--------------------------------
The Company's 1993 Short-Term Executive Incentive Compensation Plan
(the "Short-Term Plan"), 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. Approximately $811, $1,328 and $1,300 was paid for 1996, 1995 and
1994, respectively, pursuant to the Short-Term Plan.
In September 1996, the Company adopted the New Long-Term Executive
Incentive Compensation Plan (the "New LTIP") and, subject to
shareholder approval in 1997, the 1996 Stock Option Plan (the "1996
Stock Option Plan") (collectively, the "Plans"). The Plans
51
<PAGE>
replaced the Company's then existing Long Term Executive Incentive
Compensation Plan (the "Old LTIP"), which was initially adopted in
1994.
The New LTIP provides for potential cash awards in 1999 to key
executive employees and the Chairman of the Board of the Company if
certain financial goals are met for the year ended December 31, 1998.
Such awards may not exceed $5.0 million in the aggregate. The Company
is not required to establish any fund or segregate any assets for
payments under the New LTIP. For the twelve months ended December 31,
1996, the Company recorded expense of $318 related to the New LTIP.
The 1996 Stock Option Plan authorizes the issuance of options to
directors and key executive employees of the Company. The total number
of shares for which options may be granted is 300,000. The Company has
agreed to grant 277,200 of these options not later than June 30, 1997
at an exercise price equal to the closing price of the Company's common
stock on the New York Stock Exchange on the date of grant.
The Company has two other stock plans: the 1989 Stock Option and
Incentive Plan (the "1989 Plan") and the Non-Employee Directors' Stock
Plan (the "Directors' Plan"). The 1989 Plan authorizes the issuance of
various stock incentives to officers and key employees and the related
issuance of up to 2,000,000 shares of common stock. The Directors' Plan
provides 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. There has been no activity related to these plans during 1994,
1995 or 1996, and there are no related incentives or shares outstanding
at December 31, 1996.
11. THRIFT AND RETIREMENT PLANS
---------------------------
The Berlitz International, Inc. Retirement Savings Plan (the "Berlitz
Plan") is a defined contribution benefit plan covering substantially
all of the Company's full-time domestic employees. The retirement
portion of the Berlitz Plan provides for the Company to make regular
contributions based on salaries of eligible employees. The thrift
portion of the Berlitz Plan, in which employee participation is
elective, provides for Company matching contributions of up to 3% of
salary. Payments upon retirement or termination of employment are based
on vested amounts credited to individual accounts.
In addition, certain foreign operations have other defined contribution
benefit plans. Total expense with respect to all benefit plans,
excluding the SERP (hereafter defined), was $1,632, $1,704 and $1,445
for the years ended December 31, 1996, 1995 and 1994, respectively.
Effective January 1, 1996, the Company established the Supplemental
Executive Retirement Plan ("SERP"), a defined benefit plan which
provides retirement income / disability retirement benefits, retiree
medical benefits and death benefits to the Chairman of the Board,
certain designated executives and their designated beneficiaries.
Monthly benefits will be available to any participant who retires at
age 60 or above, with at least 5 years of service with the Company.
52
<PAGE>
The retirement income/disability retirement benefits are based on a
percentage 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 retired participant for life, with 50% of such
benefit paid to the participant's surviving spouse for life upon the
retired participant's death. Such percentage for initial participants
as of January 1, 1996 is 30%. For future participants, such percentage
will be 2% (or such other percentage as the Board of Directors may
determine) multiplied by years of service, not to exceed 30%. The
Company will also provide each retired participant and their surviving
spouse with medical coverage for both of their lives. If a participant
with at least 5 years of service dies before retirement, the
participant's designated beneficiary will receive, in lieu of the
above-mentioned benefits, a one-time payment equal to the participant's
base salary projected to age 65 at a 4% annual increase.
Awards under the SERP are not subject to deduction for Social Security
or other offset amounts, except to the extent of any disability
benefits payable under the Company's long-term disability insurance
policy. In the case of Chairman of the Board, who does not receive a
salary from the Company, the SERP benefits are based on an imputed
salary determined by the Company's Board of Directors. The Company
intends to fund the SERP through a combination of funds generated from
operations and life insurance policies on the participants.
The following table sets forth the funded status of the medical
coverage portion of the SERP, reconciled with amounts recognized in the
Company's statement of financial position at December 31, 1996:
Accumulated postretirement benefit obligation:
Retirees $ --
Fully eligible active plan participants --
Other active plan participants 1,435
-------
1,435
Plan assets at fair value --
-------
Accumulated postretirement benefit obligation
in excess of plan assets 1,435
Prior service cost not yet recognized in net
periodic postretirement benefit cost (999)
-------
Accrued postretirement benefit cost $ 436
=======
53
<PAGE>
Net periodic postretirement benefit cost for the year ended December
31, 1996 included the following components:
Service cost - benefits earned during the period $ 196
Interest cost on accumulated postretirement
benefit obligation 81
Amortization of prior service cost 159
-----------
Net periodic postretirement benefit cost $ 436
===========
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was a beginning rate of
14% leveling to an ultimate rate of 6% over 15 years. The weighted
average discount rate used in determining the accumulated
postretirement benefit obligation was 7%. If the health care cost trend
rate assumption were increased by 1%, the accumulated postretirement
benefit obligation as of January 1, 1996 would increase by $206 and the
service cost for benefits earned during the period ending December 31,
1996 would increase by $36.
Net periodic pension cost of the retirement income portion of the SERP
is as follows:
Service cost on benefits earned during the period $ 407
Interest cost on projected benefit obligation 188
Net amortization and deferral 179
-----------
Net periodic pension cost $ 774
===========
The actuarial present value of benefit obligations and funded status
for the SERP at December 31, 1996 is as follows:
Benefit obligations:
Vested benefits $ --
Nonvested benefits 2,370
-------
Accumulated benefit obligation 2,370
Projected compensation increases 818
-------
Projected benefit obligation 3,188
Plan assets at fair value --
-------
Projected benefit obligation in excess of plan assets 3,188
Unrecognized prior service cost (2,503)
Unrecognized actuarial gain 89
Adjustment required to recognize minimum liability 1,596
-------
Net pension liability $ 2,370
=======
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
Discount rate (annual compounding) 7.0%
Annual rate of increase in compensation 4.0%
54
<PAGE>
The assumed interest rate at the beginning of each year is the same as
the discount rate at the end of each prior year. Net pension income is
determined using assumptions as of the beginning of each year. Funded
status is determined using assumptions as of the end of each period.
12. TREASURY STOCK
--------------
On April 4, 1996, the Company consummated the purchase of 627,000
shares of its common stock from Maxwell Communication Corporation plc
(In Administration) at a price of $9 per share. Such shares were placed
into treasury and are reserved for future use.
13. 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.
Included within general corporate identifiable assets for 1996 is
$1,596 for an intangible required to recognize minimum liability under
the SERP. Also included for 1996 and 1994 are $288 and $1,011,
respectively, of currency coupon swap agreements. The balance of
general corporate identifiable assets consist of property and
equipment. Depreciation and amortization relates to property and
equipment, excess of cost over net assets acquired, other intangibles
and publishing rights.
55
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
------------- -------------- --------------
BUSINESS SEGMENTS
-----------------
<S> <C> <C> <C>
Sales of services and products:
Language Instruction $ 273,957 $ 270,524 $ 244,502
Translation Services 76,897 64,036 39,997
Publishing 15,213 16,579 15,735
------------- -------------- -------------
Total $ 366,067 $ 351,139 $ 300,234
============= ============== =============
Operating profit (loss):
Language Instruction $ 33,312 $ 28,560 $ 24,884
Translation Services 3,458 3,836 1,731
Publishing 682 1,235 524
Divisional expenses (6,147) (4,275) (4,450)
------------- -------------- --------------
Total operating segments 31,305 29,356 22,689
General corporate (10,437) (9,754) (6,777)
------------- -------------- --------------
Total $ 20,868 $ 19,602 $ 15,912
============= ============= =============
Capital expenditures:
Language Instruction $ 5,693 $ 5,188 $ 3,508
Translation Services 3,903 1,659 648
Publishing 1,289 853 1,349
------------- ------------- -------------
Subtotal 10,885 7,700 5,505
General corporate and divisional 2,149 335 387
------------- -------------- -------------
Total $ 13,034 $ 8,035 $ 5,892
============= ============== =============
Depreciation and amortization:
Language Instruction $ 15,395 $ 15,900 $ 15,339
Translation Services 3,391 2,826 2,180
Publishing 1,450 1,551 1,371
------------- -------------- -------------
Subtotal 20,236 20,277 18,890
General corporate and divisional 482 247 283
------------- -------------- -------------
Total $ 20,718 $ 20,524 $ 19,173
============= ============== =============
DECEMBER 31,
----------------------------------------------------
1996 1995 1994
------------- -------------- --------------
Identifiable assets:
Language Instruction $ 457,198 $ 477,300 $ 490,462
Translation Services 77,945 76,368 65,925
Publishing 22,415 22,717 24,037
------------- -------------- --------------
Subtotal 557,558 576,385 580,424
General corporate 3,687 545 1,581
------------- -------------- --------------
Total $ 561,245 $ 576,930 $ 582,005
============= ============== ==============
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
------------- -------------- --------------
GEOGRAPHIC AREAS
<S> <C> <C> <C>
Sales of services and products:
North America $ 101,921 $ 92,821 $ 79,984
Western Europe 82,869 76,198 58,934
Central/Eastern Europe 66,037 63,000 52,857
Asia 72,922 81,652 74,915
Latin America 42,318 37,468 33,544
------------- -------------- -------------
Total $ 366,067 $ 351,139 $ 300,234
============= ============== =============
Operating profit (loss):
North America $ 12,506 $ 13,634 $ 11,308
Western Europe 4,927 4,231 (70)
Central/Eastern Europe 3,766 3,453 3,024
Asia 6,462 4,476 4,628
Latin America 8,162 6,976 6,170
Business segment corporate expenses (4,518) (3,414) (2,371)
------------- -------------- --------------
Total operating segments 31,305 29,356 22,689
General corporate expenses (10,437) (9,754) (6,777)
------------- -------------- --------------
Total $ 20,868 $ 19,602 $ 15,912
============= ============== =============
</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, 1996, 1995 and 1994 amounted to $9,282,
$9,344, and $9,220 for North America; $1,148, $1,196, and $873 for
Western Europe; $484, $688, and $528 for Central/Eastern Europe;
$1,446, $1,762, and $1,575 for Asia; and $387, $435, and $554 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 each of the years ended December 31, 1996,
1995 and 1994 amounted to $6,071 for North America; $(1,505) for
Western Europe; $(1,408) for Central/Eastern Europe; $(2,188) for Asia;
and $(970) for Latin America.
DECEMBER 31,
------------------------------------------
1996 1995 1994
-------- -------- --------
Identifiable assets:
North America $374,540 $377,253 $382,203
Western Europe 57,699 56,985 52,922
Central/Eastern Europe 34,392 39,319 36,453
Asia 68,680 78,458 83,353
Latin America 25,934 24,914 27,074
-------- -------- --------
Total $561,245 $576,930 $582,005
======== ======== ========
57
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31 YEAR
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1996:
Sales of services and products $ 89,266 $ 91,332 $ 93,177 $ 92,292 $ 366,067
Operating profit 3,910 5,876 5,022 6,060 20,868
Income before income taxes
and minority interest 1,476 3,404 2,670 5,264 12,814
Net income 204 1,006 439 2,154 3,803
Earnings per share $ 0.02 $ 0.11 $ 0.05 $ 0.23 $ 0.40
=========== ============ ============ ============ ============
</TABLE>
<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
and minority interest 1,910 1,473 3,417 3,976 10,776
Net income (loss) (587) 78 1,118 1,661 2,270
Earnings (loss) per share $ (0.06) $ 0.01 $ 0.11 $ 0.17 $ 0.23
========== ============ ============ ============ ============
</TABLE>
58
<PAGE>
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
------------ --------------- --------------- -------------- -------------
Allowances for doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996 $ 1,468 $ 1,168 $ (698) $ (24) $ 1,914
============ =============== ================ =============== =============
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
============ =============== ================ =============== =============
</TABLE>
(1) Principally represents net losses incurred in the ordinary course of
business and chargeable against the allowance.
(2) Principally represents foreign currency translation.
59
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K with respect to Directors
and Executive Officers of the Company is set forth in Part I of this Form 10-K.
The information required by Item 405 of Regulation S-K with respect to Directors
and Executive Officers of the Company is set forth in Item 12 to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth the compensation awarded to,
earned by or paid to the Chief Executive Officer ("CEO") and certain executive
officers (collectively, the "Named Executive Officers") during the fiscal years
ended December 31, 1996, 1995 and 1994 for services rendered in all capacities
to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (3)
-------------------------------------- ----------
OTHER AWARDS OF
NAME AND ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION
($) ($) ($) (2) (#) (4) ($) (5)
---- ------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Hiromasa Yokoi 1996 480,000 84,000 60,469 None 9,750
Vice Chairman of the Board, 1995 444,800 180,000 55,200 None 9,750
CEO and President 1994 404,320 161,700 39,000 None 9,750
Manuel Fernandez 1996 240,000 40,900 990 None 9,750
Executive Vice President and 1995 224,800 51,000 1,312 None 9,750
Chief Operating Officer, 1994 207,200 72,500 20,978 None 9,750
Worldwide Language Instruction
Robert Minsky 1996 240,000 10,000 874 None 9,750
Executive Vice President and 1995 227,900 80,000 None None 9,750
Chief Operating Officer, 1994 207,200 46,600 None None 9,750
Translations and Publishing
Susumu Kojima 1996 225,000 8,700 65,000 None None
Executive Vice President, 1995 210,000 25,200 42,000 None 9,750
Asia Division 1994 200,000 45,000 42,000 None 9,500
Henry D. James (1) 1996 210,000 32,000 771 None 9,750
Executive Vice President and 1995 182,300 51,000 None None 9,750
Chief Financial Officer 1994 168,000 78,800 None None 9,750
</TABLE>
60
<PAGE>
(1) Mr. James' 1996 percentage increase in base salary was due in part to the
additional responsibilities he assumed as a result of his promotion to
Executive Vice President.
(2) Other Annual Compensation for Mr. Yokoi and Mr. Kojima primarily represents
monthly housing allowances. For Mr. Fernandez, this column includes
relocation expense reimbursements of $19,795 in 1994.
(3) The column designated by the SEC to report Long-Term Incentive Plan Payouts
has been excluded because no payouts have been made in 1994, 1995 or 1996
under the Company's long-term incentive plans, as discussed in the
Compensation Committee report under "Long-Term Executive Incentive
Compensation Plan".
The column designated by the SEC to report Restricted Stock Awards has been
excluded because the Company made no awards of restricted stock to the Named
Executive Officers during any portion of fiscal years 1996, 1995 or 1994.
There were no Common restricted shares outstanding at December 31, 1996.
(4) The Company has not granted stock options or SARs to any of the Named
Executive Officers during fiscal years 1996, 1995 or 1994. There have been
no exercises of options or SARs for the fiscal year 1996, and at December
31, 1996, there were no options or SARs outstanding.
(5) The amounts reported in this column for the fiscal year 1996 include a
contribution of $4,500 made by the Company for the account of each Named
Executive Officer pursuant to the thrift portion (the "401(k) Plan") of the
Berlitz Retirement Savings Plan (the "Retirement Savings Plan"). The amounts
reported also include a contribution of $5,250 made by the Company for the
account of each Named Executive Officer pursuant to the retirement portion
(the "Pension Plan") of the Retirement Savings Plan.
61
<PAGE>
PENSION PLAN TABLE
The Company's Supplemental Executive Retirement Plan ("SERP"), effective January
1, 1996, is a defined benefit plan which provides retirement income/disability
retirement benefits, retiree medical benefits and death benefits to the Chairman
of the Board, certain designated executives and their designated beneficiaries.
The following table shows the estimated annual retirement income/disability
retirement benefits (assuming payments made on the normal life annuity) payable
upon retirement at age 60 to a participant in specified compensation and years
of service classifications.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
INITIAL
PARTICIPANT
(HEREINAFTER
DEFINED) ALL OTHER PARTICIPANTS
COMPENSATION 5 OR MORE 5 10 15 OR MORE
------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$100,000 $ 30,000 $ 10,000 $ 20,000 $ 30,000
150,000 45,000 15,000 30,000 45,000
200,000 60,000 20,000 40,000 60,000
250,000 75,000 25,000 50,000 75,000
300,000 90,000 30,000 60,000 90,000
400,000 120,000 40,000 80,000 120,000
550,000 165,000 55,000 110,000 165,000
750,000 225,000 75,000 150,000 225,000
</TABLE>
Under the SERP, monthly benefits are 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 retirement benefits are based on a percentage of an
average monthly salary (calculated on the base salary and short-term bonuses
paid over the last 36 months of employment/1/) and will be paid to the retired
participant for life, with 50% of such benefit paid to the participant's
surviving spouse for life upon the retired participant's death. Such percentage
for participants designated as of January 1, 1996 ("Initial Participants") is
30%. For future participants, such percentage will be 2% (or such other
percentage as the Board of Directors may determine) multiplied by years of
service, not to exceed 30%. The Company will also provide each retired
participant and their surviving spouse with medical coverage for both of their
lives. If a participant with at least 5 years of service dies before retirement,
the participant's designated beneficiary will receive, in lieu of the
above-mentioned benefits, a one-time payment equal to the participant's base
salary projected to age 65 at a 4% annual increase. Awards under the SERP are
not subject to deduction for Social Security or other offset amounts, except to
the extent of any disability benefits payable under the Company's long-term
disability insurance policy. The Company intends to fund the SERP through a
combination of funds generated from operations and life insurance policies on
the participants.
The Named Executive Officers, all of whom are Initial Participants, will each
have at least 5 years of service at age 60. The compensation covered under the
SERP for each of the Named Executive Officers is shown under the "Salary" and
"Bonus" columns of the Summary Compensation Table.
- ---------------
/1/ In the case of the Chairman of the Board, who does not receive a salary
from the Company, the SERP benefits are based on an imputed salary
determined by the Company's Board of Directors.
62
<PAGE>
LONG-TERM INCENTIVE PLANS - AWARDS IN FISCAL YEAR 1996
The following awards were made pursuant to the New LTIP (hereinafter defined),
which completely replaced the Old LTIP (hereinafter defined). See the
"Compensation Committee Report" for a further description.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
--------------------------------------
PERFORMANCE
NAME NUMBER OF PERIOD THRESHOLD TARGET MAXIMUM
UNITS(#) UNTIL PAYOUT ($)(1) ($) ($)
-------- ------------ ---------- ------- ---------
<S> <C> <C> <C> <C>
Hiromasa Yokoi 882,223 12/31/98 441,112 441,112 882,223
Manuel Fernandez 330,834 12/31/98 165,417 165,417 330,834
Robert Minsky 330,834 12/31/98 165,417 165,417 330,834
Susumu Kojima 310,432 12/31/98 155,216 155,216 310,432
Henry D. James 230,481 12/31/98 115,241 115,241 230,481
</TABLE>
(1) Assumes that minimum revenues and earnings goals are met. Should such
goals not be met, no payments will be made.
1996 BOARD OF DIRECTORS MEETINGS, COMMITTEES AND FEES
During 1996, the Board of Directors of the Company met in person four times,
participated in one telephonic meeting and took no actions by unanimous written
consent.
In 1996, the Board of Directors had standing Executive, Audit, Disinterested
Directors, and Compensation Committees. The Company does not have a standing
Nominating Committee.
The Executive Committee, during the intervals between meetings of the Board of
Directors, may, with certain exceptions, exercise the powers of the Board of
Directors. The Executive Committee did not meet during 1996.
The Audit Committee recommends to the Board of Directors the engagement of the
independent auditors of the Company and reviews with the independent auditors
the scope and results of the Company's audits. The Audit Committee reviews the
terms of all agreements between the Company and its affiliates. The Audit
Committee meets with management and with the Company's internal auditors and
independent auditors to review matters relating to the quality of financial
reporting and internal accounting control, including the nature, extent and
results of their audits, and otherwise maintains communications between the
Company's independent auditors and the Board of Directors. The Audit Committee
met four times during 1996.
Initially, the Disinterested Directors Committee was established for the purpose
of protecting the long-term interests of the Company and its minority
shareholders by independently reviewing and monitoring all matters affecting the
relationship between the Company and Maxwell Communication Corporation, plc
("Maxwell Communication") and its affiliates. Following the Merger (hereinafter
defined), the Disinterested Directors Committee's role was retained and
reconstituted to review and monitor all matters affecting the relationship
between the Company and Benesse Corporation ("Benesse") and its affiliates.
During 1996, the Disinterested Directors Committee met in person two times and
participated in one telephonic meeting.
63
<PAGE>
The Compensation Committee reviews performance of corporate officers,
establishes overall employee compensation policies and recommends to the Board
of Directors major compensation programs. The Compensation Committee also
reviews and approves salary arrangements and other remuneration for executive
officers of the Company and is responsible for review of certain employee
benefit plans. The Compensation Committee oversees and approves grants of stock
options and other stock-based awards pursuant to the 1989 and 1996 Stock Option
Plans (individually, the "1989 Stock Option Plan" and the "1996 Stock Option
Plan", and collectively, the "Stock Option Plans") and the Company's
Non-Employee Directors Stock Plan (the "Directors' Stock Plan"). The Committee
also administers the 1993 Short-Term Executive Incentive Compensation Plan (the
"Short-Term Incentive Plan"), and the 1996 New Long-Term Executive Incentive
Compensation Plan (the " New LTIP"), which replaced the 1993 Long-Term Executive
Incentive Compensation Plan (the "Old LTIP"), and approves awards and
discretionary bonuses under these plans. No member of the Compensation Committee
is eligible to participate in the Stock Option Plans or the Short-Term Incentive
Plan. During 1996, the Compensation Committee met four times and participated in
telephonic meetings one time.
The Company's standard retainer payable to each director who is not an employee
of the Company or any of its affiliates is $30,000 per annum plus expenses, with
an additional $2,000 for each Committee meeting attended in person and $1,000
for each meeting participated in by telephone. No fees are paid for actions
taken by unanimous written consent. Only those directors who are also full-time
employees of the Company or any of its affiliates are eligible to participate in
the health benefit plan maintained by the Company. Directors employed by the
Company or any of its affiliates receive no compensation in consideration of
their duties as directors. The outside directors earned an aggregate of
approximately $146,000 as cash compensation for their services during 1996.
The Company has entered into indemnification agreements with each director
pursuant to which the Company agreed to pay any amount such director becomes
obligated to pay as a result of any claims made against such director because of
any alleged act, omission, neglect or breach of duty which he commits while
acting in his capacity as a director and solely because of his being a director,
subject to limitations imposed by the New York Business Corporation Law
("NYBCL").
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company has a severance agreement with Robert Minsky which provides that if
Mr. Minsky is terminated other than for cause, he is to be paid one year's
severance at his then current annual base salary plus a prorated amount of the
award under the Company's Short-Term Incentive Plan to which he would have been
entitled for such year and the continuation of certain other benefits.
The Company is a party to indemnification agreements with each director and
executive officer pursuant to which the Company agrees to pay, subject to
limitations imposed by the NYBCL, any amount such director or executive officer
becomes obligated to pay as a result of any claims made against such director or
executive officer because of any alleged act or omission or neglect or breach of
duty which he commits while acting in his capacity as a director or executive
officer, as the case may be.
64
<PAGE>
COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1996
The Compensation Committee of the Board of Directors reviews and determines the
compensation of the Company's executive officers. It also reviews and approves
any employment, severance or similar agreements for executive officers. The
Committee determines the amount, if any, of the Company's contributions pursuant
to the Retirement Savings Plan, and oversees and approves grants of stock
options and other stock-based awards pursuant to the Stock Option Plans and the
Directors' Stock Plan. The Committee also administers the Short-Term Incentive
Plan and the New LTIP (which has replaced the Old LTIP) and approves awards and
discretionary bonuses under each of such plans.
The Company seeks to compensate executive officers at levels competitive with
other companies with similar annual revenues and to provide incentives for
superior individual and corporate performance. Salaries are set to correspond to
the mid-range of salaries paid by competitive companies. In setting
compensation, the Company compares itself with companies with similar annual
revenues rather than with industry peers because the Company is the only
publicly-held language instruction company.
The key components of executive officer compensation are base salary, cash
bonuses, and awards pursuant to incentive-based plans. The Committee attempts to
combine these components in such a way to attract, motivate and retain key
executives critical to the long-term success of the Company. A discussion of the
various components of executive compensation for the fiscal year 1996 follows.
BASE SALARY
Each executive officer receives a base salary, with the potential for annual
salary increases based largely on merit from prior annual performance.
The proposed annual compensation of Company employees was discussed at
Compensation Committee meetings held in 1996 and 1997. Base salary
recommendations were made by management of the Company for the Committee to
approve. After review and consideration by the Committee of management's
recommendations, the Committee approved base salary adjustments for executive
officers considering individual and Company performance. Such adjustments
averaged 8.9% and 3.3% for 1996 and 1997, respectively. The criteria used to
evaluate Company performance were sales and earnings figures, and return on
equity. The Committee believes that all such criteria were accorded equal
weight.
BONUSES
In 1993, the Committee approved the Short-Term Incentive Plan, commencing with
the 1993 calendar year, pursuant to which each executive officer is eligible for
an annual bonus based upon the officer's present employment position, individual
performance, and, through 1994, the total Company's performance compared to
earnings goals. In 1995, the Committee amended the Short-Term Incentive Plan so
that Division Vice Presidents would receive 1995 and subsequent years' awards
based on 60% of divisional performance and 40% of total Company performance. The
Committee believes that individual performance and Company performance are given
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approximately equal weight. The Short-Term Incentive Plan also permits the
Committee to award discretionary cash awards to employees, who may or may not be
participants under the Short-Term Incentive Plan, subject to those terms and
conditions as the Committee shall determine in its sole discretion.
At its March 1997 meeting, the Committee approved, after discussion, 1996
bonuses for executive officers under the Short-Term Incentive Plan. Such bonuses
that accrued for 1996 ranged up to 24.4% of each executive officer's base
salary. The Committee also approved a discretionary special bonus proposal for
certain executive officers, recommended by management based upon exceptional
individual performance. Such special bonuses that accrued for 1996 for such
executive officers ranged from 2.1% to 4.2% of their total salary.
STOCK OPTIONS AND RESTRICTED STOCK
The 1989 Stock Option Plan provides for the award of stock options, restricted
stock and other stock-based awards to senior management of the Company. Grants
under this plan are intended to provide executives with the promise of
longer-term rewards which appreciate in value with favorable future performance
of the Company. In determining grants of stock options and restricted stock, the
Compensation Committee reviews individual performance and Company performance.
The criteria used to evaluate Company performance include sales and earnings
figures, and return on equity. The Committee believes that all such criteria are
accorded equal weight. The Committee did not approve, and the Company did not
make, any grants of stock options, restricted stock, or any other stock-based
award under the 1989 Stock Option Plan in 1996, and there are no outstanding
option grants under this plan.
In September 1996, the Company adopted, subject to shareholder approval in 1997,
the 1996 Stock Option Plan, which, together with the New LTIP (hereinafter
discussed), replaced the Company's then existing Old LTIP. The 1996 Stock Option
Plan authorizes the issuance of options to directors and key executive employees
of the Company. The total number of shares for which options may be granted is
300,000. The Company has agreed to grant 277,200 of these options not later than
June 30, 1997 at an exercise price equal to the closing price of the Company's
common stock on the New York Stock Exchange on the date of grant.
LONG-TERM EXECUTIVE INCENTIVE COMPENSATION PLANS
In 1993, the Committee approved the Old LTIP, effective January 1, 1994,
pursuant to which the Chairman of the Board, officers and certain key employees
were eligible to receive, for each performance unit granted to the individual by
the Committee, cash awards based on Company performance and common stock price
results over a five year period ending on December 31, 1998. The plan was
instituted to, among other things, provide executives with a direct economic
interest in meeting long-term business objectives. Performance units were
granted by the Committee to each participant in its discretion. Criteria used to
evaluate Company performance were earnings and sales figures. For each
performance unit granted by the Committee, each participant was to receive a
cash award based on Company performance and the Company's common stock price
results from January 1, 1994 through December 31, 1998. The Old LTIP also
contained provisions governing such awards in the event of a change of control
of the Company or a "going private" transaction with Benesse or its affiliates.
In September 1996, the Committee adopted the New LTIP, which together with the
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1996 Stock Option Plan, replaced the Old LTIP. The New LTIP provides for
potential cash awards in 1999 to key executive employees and the Chairman of the
Board of the Company if certain sales and earnings goals are met for the year
ended December 31, 1998. Common stock price does not impact potential awards,
which may not exceed $5.0 million in the aggregate. While the New LTIP's minimum
threshold for potential awards is lower than under the Old LTIP, the Old LTIP
did not contain a limitation on maximum awards.
OTHER COMPENSATION
The executive officers also are eligible to participate in the Pension Plan. The
Pension Plan provides for the Company to make regular contributions based on
salaries of eligible employees. During 1996, the Compensation Committee
determined that the Company would contribute 3.5% of eligible employees'
respective base salary to the Pension Plan. During 1996, the Compensation
Committee also determined that matching contributions by the Company would be
provided under the 401(k) Plan to all domestic employees up to a maximum of 3%
of the employee's salary.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Hiromasa Yokoi's base salary for 1996 was $480,000, and he also earned a
bonus of $84,000 for 1996 under the Short-Term Incentive Plan. The Compensation
Committee approved and ratified the compensation paid to Mr. Yokoi for fiscal
year 1996 based on Mr. Yokoi's business experience and familiarity with the
Company, and his responsibilities to guide, among other things, the Company's
daily affairs and the Company's long-term strategic plan in a global
marketplace. The Company's 1996 performance was taken into consideration in
determining Mr. Yokoi's 1996 compensation package. The Committee believes that
Mr. Yokoi's 1996 compensation package was in line with compensation packages of
chief executive officers of other companies with similar annual revenues.
TAX LEGISLATION
The Committee has reviewed regulations issued by the U.S. Internal Revenue
Service which limit deductions for certain compensation in excess of $1 million
annually paid to executive officers of public companies. Based on present levels
of compensation, the Company does not anticipate the loss of deductibility for
any compensation paid over the next year.
COMPENSATION COMMITTEE MEMBERSHIP
During 1996, the Compensation Committee consisted of Edward G. Nelson, Robert L.
Purdum and Aritoshi Soejima. All of the views expressed by the Compensation
Committee in 1996 may not have been the views of each member of the Compensation
Committee individually. However, all decisions affecting compensation were
approved by all of the members of the Compensation Committee.
Compensation Committee for Fiscal Year 1996
Edward G. Nelson
Robert L. Purdum
Aritoshi Soejima
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above, during 1996 and at March 1, 1997, the Compensation Committee
consisted of Edward G. Nelson, Robert L. Purdum and Aritoshi Soejima. None of
these committee members were officers of the Company or any of its subsidiaries
during 1996 or any previous year.
Aritoshi Soejima previously served as an advisor to Benesse. He resigned such
position prior to his appointment as a Disinterested Director and a member of
the Compensation Committee.
PERFORMANCE GRAPHS
The following graphs set forth the Company's total shareholder return as
compared to the S&P 400 Industrial Index and two peer groups (described below)
over a five-year period, beginning on December 31, 1991, and effectively ending
on December 31, 1996. The total shareholder return assumes $100 invested at the
beginning of the period in the Company's common stock, the S&P 400 Industrial
Index and the peer group indices. It also assumes reinvestment of all dividends.
As the Company is the only publicly-held language instruction company, there are
no directly comparable companies. The two closest industry groups to the Company
are education companies and educational publishers. Therefore, the Company has
created an index of selected publicly-held companies in each of these two
industries. These indices have been plotted against the Company's total
shareholder return and the S&P 400 Industrial Index. The companies included in
the education companies index are Flightsafety International, which sells
primarily flight training materials, and National Education Corporation, which
sells primarily technical and vocational training materials. The companies
included in the educational publishing index are Houghton Mifflin, John Wiley &
Sons and McGraw-Hill, Inc. While none of these companies are directly comparable
to the Company, the Company believes they come under either the same broad
rubric of education-related activities as the Company, in the case of the
education companies index, or educational publishers, in the case of the
educational publishing index.
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<PAGE>
COMPARISON OF STOCK PRICES
BERLITZ INTERNATIONAL, INC., THE S&P 400 INDUSTRIAL INDEX
AND SELECTED EDUCATION COMPANIES
[INSERT GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
=============================== ============ ============= ============= ============= =============== ===================
<S> <C> <C> <C> <C> <C> <C>
Berlitz $ 100 $ 111 $ 70(1) $ 66 $ 84 $ 105
- ------------------------------- ------------ ------------- ------------- ------------- --------------- -------------------
S & P 400 Index $ 100 $ 103 $ 110 $ 111 $ 146 $ 177
- ------------------------------- ------------ ------------- ------------- ------------- --------------- -------------------
Education Companies $ 100 $ 89 $ 73 $ 80 $ 105 $ 115
=============================== ============ ============= ============= ============= =============== ===================
</TABLE>
(1) As a result of the Merger (hereinafter defined), each share of the Company's
common stock outstanding prior to the Merger ("Old Common") was converted into
the right to receive i) $19.50, ii) 0.165 share of new common stock of the
Company ("Common"), iii) $1.48, representing the net proceeds from the
disposition of the Company's claims on promissory notes from Maxwell
Communications Corporation, plc and certain of its affiliates (the "Maxwell
Notes"), and iv) $.01, representing consideration paid for the redemption of
each right under the a shareholders rights agreement (the "Rights Agreement").
Immediately following the Merger, 10,033,013 shares of Common were outstanding.
Prior to the Merger, 19,075,584 shares of Old Common were outstanding.
COMPARISON OF STOCK PRICES
BERLITZ INTERNATIONAL, INC., THE S & P 400 INDUSTRIAL INDEX,
AND SELECTED EDUCATIONAL PUBLISHING COMPANIES
[INSERT GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
=============================== ============== ============= ============== ============== ============= =================
<S> <C> <C> <C> <C> <C> <C>
Berlitz $ 100 $ 111 $ 70(1) $ 66 $ 84 $ 105
- ------------------------------- -------------- ------------- -------------- -------------- ------------- -----------------
S & P 400 Index $ 100 $ 103 $ 110 $ 111 $ 146 $ 177
- ------------------------------- -------------- ------------- -------------- -------------- ------------- -----------------
Educational Publishing $ 100 $ 113 $ 127 $ 127 $ 159 $ 173
Companies
=============================== ============== ============= ============== ============== ============= =================
</TABLE>
(1) As a result of the Merger, each share of Old Common was converted into the
right to receive i) $19.50, ii) 0.165 share of Common, iii) $1.48,
representing the net proceeds from the disposition of the Company's claims
on the Maxwell Notes, and iv) $.01, representing consideration paid for the
redemption of each Right under the Rights Agreement. Immediately following
the Merger, 10,033,013 shares of Common were outstanding. Prior to the
Merger, 19,075,584 shares of Old Common were outstanding.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number and percentage of outstanding shares
of Common beneficially owned as of March 1, 1997 by each director, nominee, the
Company's chief executive officer during the fiscal year ended December 31,
1996, the four most highly compensated executive officers of the Company at
December 31, 1996 and all officers and directors as a group who served at
December 31, 1996. If not mentioned by name, no individual in the categories
described above beneficially owned any shares of Common as of March 1, 1997. No
security set forth in the third column of the following table reflects an amount
as to which the beneficial owner has joint voting or investment power.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ---------------- --------- --------
<S> <C> <C> <C>
Common Soichiro Fukutake 6,735,338 (1) 71.61%
Common Manuel Fernandez 8,745 *
Common Robert Minsky 2,857 *
Common Henry D. James 7,672 *
Common Edward G. Nelson 1,500 (2) *
Common Robert L. Purdum 2,000 *
All Officers and
Directors as a Group
Common (14 in number) 6,777,746 72.06%
------
</TABLE>
To the best of registrant's knowledge, there are no events of delinquent filing
requiring disclosure under Item 405 of Regulation S-K.
- ---------------------
(1) Soichiro Fukutake is the President, Representative Director and principal
shareholder of Benesse Corporation, which is the beneficial owner of
6,735,338 shares of Common. See "Security Ownership of Certain Beneficial
Owners."
(2) An additional 1,000 shares of Common, for which Mr. Nelson has disclaimed
ownership, are owned by Mr. Nelson's wife.
* Less than 1%
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the ownership by each person or group known by
the Company to own beneficially more than 5% of Common:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ---------------- --------- --------
<S> <C> <C> <C>
Common Benesse Corporation (1) 6,735,338 71.61%
3-17-17 Minamigata
Okayama-shi 700, Japan
Common Dimensional Fund Advisors, Inc (2) 507,672 5.40%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
(1) Fukutake Publishing Co., Ltd. changed its name to Benesse Corporation on
April 1, 1995. As of March 1, 1997, 6,722,138 shares of Common are held by a
wholly owned subsidiary of Benesse and 13,200 shares of Common are held
directly by Benesse. Soichiro Fukutake is the President, Representative
Director and principal shareholder of Benesse.
(2) This information is taken from the Schedule 13G, dated February 5, 1997,
filed by Dimensional Fund Advisors, Inc. ("Dimensional") with the Securities
and Exchange Commission. Dimensional, a registered investment advisor, is
deemed to have beneficial ownership of these 507,672 shares of Common at
December 31, 1996, all of which are held in portfolios of DFA Investment
Dimensions Group, Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
On April 4, 1996, the Company consummated the purchase of 627,000 shares of
Common from Maxwell Communication Corporation, plc (In Administration) ("Maxwell
Communication") at a price of $9 per share. These shares were previously held in
escrow pursuant to an Escrow Agreement among the Company, Maxwell Communication
and IBJ Schroder Bank & Trust Company, and subject to a Stock Purchase Agreement
between the Company and Maxwell Communication. These shares were placed into
treasury by the Company and reserved for future use.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Kazuo Yamakawa currently serves as the Benesse nominee on the Board of
Directors of the Company pursuant to the acquisition by Benesse in January 1991
of a 20% interest in Berlitz Japan, Inc. ("Berlitz-Japan"), a subsidiary of the
Company.
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<PAGE>
On December 9, 1992, the Company and Benesse entered into the Merger Agreement
pursuant to which Benesse agreed to acquire, through a Merger of the Company
with an indirect wholly owned U.S. subsidiary of Benesse (the "Merger"),
approximately 6.7 million shares of the Common (which currently represents 71.6%
of the outstanding Common). Subsequent to the Merger, public shareholders of the
Company held the remaining outstanding Common. Mr. Soichiro Fukutake is the
President, Representative Director and principal shareholder of Benesse.
In September 1994, the Company borrowed $20.0 million 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. In 1994, Berlitz-Japan also
borrowed (Yen)1.0 billion (approximately $10.1 million) from Benesse as
evidenced by an interest-free subordinated promissory note (the "Japan Note").
In March 1996, the Company received the proceeds of a $6.0 million subordinated
promissory note payable to a U.S. subsidiary of Benesse (the "FHAI Note"),
bearing interest at a rate of the six month LIBOR plus 1% per annum, reset
semi-annually. Such notes, (collectively, the "Benesse Notes") mature on the
earlier of June 30, 2003 or twelve months from the date that all payment
obligations under a bank term loan and senior notes established in connection
with the Merger (the "Acquisition Debt Facilities") have been satisfied. To the
extent that interest payments on the U.S. or FHAI Notes 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
Company recorded $1.8 million in interest expense on the Benesse Notes in 1996.
The Benesse Notes rank PARI PASSU with one another and are subordinate in rights
of payment to debt under the Acquisition Debt Facilities, including the currency
coupon swap agreements. 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 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, except for, commencing in 1997, the premium for entity
coverage which benefits the Company only and is allocated 100% to the Company,
resulting in a total D&O allocation of 57% to Benesse and 43% to the Company.
Since May 1995, the Company has maintained 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). 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 during 1996, in the ordinary course of business, including the
following: i) pursuant to an extended industrial block contract renewed in 1996
for a prepayment of (Y)10.0 million (approximately $90,000), Berlitz-Japan
provided lessons to Benesse at an industrial lesson rate which was approximately
20% below the rate charged for individual instruction; ii) pursuant to a
services agreement, Benesse periodically offered its customers language and
homestay programs arranged and operated by the Company's specialty instruction
program, Berlitz Study Abroad(R), and iii) Benesse also periodically offered its
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<PAGE>
customers language study and homestay programs arranged and operated by Berlitz
on Campus(TM), another of the Company's specialty instruction programs.
Management believes that the Company has entered into all such agreements on
terms no less favorable than it would have received in an arms-length
transaction with independent third parties. Each of the transactions with
Benesse entered into after the Merger was approved by the Disinterested
Directors Committee.
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<PAGE>
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 33.
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.
74
<PAGE>
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. Exhibit
10.4 to the Company's Form 10K for the fiscal year ended December 31,
1995 is incorporated by reference herein.
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. Exhibit 10.5 to the
Company's Form 10K for the fiscal year ended December 31, 1995 is
incorporated by reference herein.
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. Exhibit
10.6 to the Company's Form 10K for the fiscal year ended December 31,
1995 is incorporated by reference herein.
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.
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<PAGE>
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. Exhibit 10.10 to the
Company's Form 10K for the fiscal year ended December 31, 1995 is
incorporated by reference herein.
10.11 Form of Consent, 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. Exhibit 10.11 to the Company's
Form 10K for the fiscal year ended December 31, 1995 is incorporated
by reference herein.
10.12 Form of Fifth Amendment, dated as of March 18, 1996, to the Senior
Note Agreements, dated as of January 29, 1993, among the registrant
and each institutional lender party thereto. Exhibit 10.12 to the
Company's Form 10K for the fiscal year ended December 31, 1995 is
incorporated by reference herein.
10.13 (Y)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 Benesse 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.
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<PAGE>
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). Exhibit 10.19 to the
Company's Form 10K for the fiscal year ended December 31, 1995 is
incorporated by reference herein.
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 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 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.
10.26 1989 Stock Option and Incentive Plan. Exhibit 10.13 to Registration
Statement No. 33- 31589 is incorporated by reference herein.
10.27 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.
10.28 Form of Berlitz International, Inc. 1996 Stock Option Plan. Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1996 is incorporated by reference herein.
77
<PAGE>
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 1996 New Long-Term Executive Incentive Compensation Plan. Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the nine months
ended September 30, 1996 is incorporated by reference herein.
10.32 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.
10.33*Supplemental Executive Retirement Plan, effective as of January 1,
1996.
10.34 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.
10.35 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.
10.36 Amendment No. 1 to 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. 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.
10.37 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.
10.38 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.
10.39 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.
78
<PAGE>
10.40 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.
10.41 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.
10.42 Form of Indemnification Agreement between the registrant and each of
Jose Alvarino, Manuel Fernandez, Paul Gendler, Robert C. Hendon, Jr.,
Henry James, Jacques Meon, Michael Mulligan, Kim Sonne, Anthony
Tedesco and Wolfgang Wiedeler. Exhibit 10.24 to Registration Statement
No. 33-56566 is incorporated by reference herein.
10.43 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.
10.44 Employment Agreement, dated October 1, 1993, between the registrant
and Robert Minsky.
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,
1996.
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.
79
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Berlitz International, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BERLITZ INTERNATIONAL, INC.
By: /s/ HIROMASA YOKOI
-----------------------------
Hiromasa Yokoi
Vice Chairman of the Board,
Chief Executive Officer and President
Dated: March 31, 1997
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>
<S> <C> <C>
/s/ SOICHIRO FUKUTAKE Chairman of the Board March 31, 1997
- ----------------------------
Soichiro Fukutake
/s/ HIROMASA YOKOI Vice Chairman of the Board, March 31, 1997
- ----------------------------
Hiromasa Yokoi Chief Executive Officer,
and President
(Principal Executive Officer)
/s/ SUSUMU KOJIMA Executive Vice President, March 31, 1997
- ----------------------------
Susumu Kojima and Director
/s/ ROBERT MINSKY Executive Vice President, Chief March 31, 1997
- ----------------------------
Robert Minsky Operating Officer-Translations and
Publishing, and Director
/s/ MANUEL FERNANDEZ Executive Vice President, Chief March 31, 1997
- ----------------------------
Manuel Fernandez Operating Officer-Worldwide Language
Instruction, and Director
/s/ HENRY D. JAMES Executive Vice President, March 31, 1997
- ----------------------------
Henry D. James Chief Financial Officer, and Director
(Principal Financial Officer)
/s/ EDWARD G. NELSON Director March 31, 1997
- ----------------------------
Edward G. Nelson
/s/ ROBERT L. PURDUM Director March 31, 1997
- ----------------------------
Robert L. Purdum
/s/ ARITOSHI SOEJIMA Director March 31, 1997
- ----------------------------
Aritoshi Soejima
/s/ KAZUO YAMAKAWA Director March 31, 1997
- ----------------------------
Kazuo Yamakawa
</TABLE>
80
BERLITZ INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The purpose of this Supplemental Executive Retire ment Plan (the
"Plan") sponsored by Berlitz International Inc. (the "Company") is to attract,
retain and encourage the productive efforts of a select group of officers and
senior executives who render valuable services to the Company that constitute an
important contribution toward the Company's continued growth and success, by
providing retirement income, disability benefits, retiree medical benefits and
death benefits to such designated executives and their beneficiaries.
The Plan is effective as of January 1, 1996 and reads as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS
The following terms when used in this Plan shall
have the designated meaning, unless a different meaning is
clearly required by the context.
1.1 AFFILIATE. Any trade or business, whether or not incorporated,
which (a) at the time of reference (i) controls, is controlled by or is under
common control with the Company within the meaning of section 414(b) or (c) of
the Code, or (ii) is, together with the Company, a member of an affiliated
service group within the meaning of section 414(m) of the Code, or (b) is
designated as an Affiliate by the Committee (but shall be treated as an
Affiliate only for such periods as the Committee shall prescribe in such
designation).
1.2 BENEFICIARY. The person or entity designated by a Participant to
receive the Pre-Retirement Death Benefit pursuant to Section 4.2 hereof.
1.3 BOARD. The Board of Directors of the Company as constituted from
time to time.
1.4 CODE. The Internal Revenue Code of 1986, as amended.
1.5 COMMITTEE. The Compensation Committee of the Board.
1.6 COMPANY. Berlitz International, Inc. and its successors.
<PAGE>
3
1.7 CONTINUOUS SERVICE. A Participant's most recent period of
continuous employment with the Company and its Affiliates, including employment
before the Effective Date. A transfer between employment with the Company and an
Affiliate or between Affiliates shall not be deemed a Termination of Employment
or otherwise interrupt a Participant's Continuous Service. Leaves of absence of
not more than two years may be taken into account as Continuous Service, to the
extent provided by the Committee. The absence of a Participant due to service in
the Armed Forces of the United States shall be taken into account as Continuous
Service provided that the Participant resumes employment with the Company within
the period provided by law. Except to the extent provided by the Committee,
employment with a predecessor of the Company or an Affiliate and employment with
an Affiliate prior to the time it became such shall be disregarded in
determining a Participant's Continuous Service. References herein to a
participant's employment, termination of employment and the like shall include
periods during which the Participant was serving as a director of the Company
notwithstanding that he may not have been a common law employee of the Company
or any Affiliate.
1.8 EFFECTIVE DATE. January 1, 1996.
1.9 INITIAL PARTICIPANT. A Participant designated to participate in
the Plan as of the Effective Date, pursuant to Section 2.2 hereof.
<PAGE>
4
1.10 NORMAL RETIREMENT DATE. The later of (a) the date on which the
Participant attains age sixty (60) and (b) the date on which the Participant
completes five (5) years of Continuous Service.
1.11 PARTICIPANT. An individual who has been designated as a
Participant pursuant to Article II and continues to be entitled to any benefits
under the Plan.
1.12 PROJECTED BASE SALARY. In the case of a Participant who dies
while employed, the Participant's base salary rate immediately before death,
projected to age 65 at an annually compounded interest rate of four percent
(4%).
1.13 SURVIVING SPOUSE. The person, if any, legally married to the
Participant at the time of his death.
1.14 TERMINATION OF EMPLOYMENT. References hereunder to a
Participant's termination of employment, the date a Participant's employment
terminates and the like, shall refer to the ceasing of the Participant's
employment with the Company and all Affiliates for any reason.
<PAGE>
5
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 IN GENERAL. The Board may at any time and from time to time (but
prospectively only) designate any officer or senior executive of the Company or
any Affiliate as a Plan Participant.
2.2 INITIAL PARTICIPANTS. The individuals listed on Schedule A
attached hereto are designated as Participants as of the Effective Date.
<PAGE>
6
ARTICLE III
RETIREMENT BENEFITS
3.1 BENEFITS.
3.1.1 NORMAL RETIREMENT BENEFIT. If a Participant's employment
terminates on or after his Normal Retirement Date, for any reason other than
death, Disability or discharge for Cause, the Company will pay the Participant a
monthly benefit, starting on the first of the month after his Termination of
Employment and ending with the payment for the month in which his death occurs.
Such monthly benefit shall be in an amount equal to the product of his
Applicable Percentage, as defined in Section 3.2.2 below, and his Final Average
Pay, as defined in Section 3.2.1 below.
3.1.2 DISABILITY RETIREMENT BENEFIT. If a Participant who has
completed at least five (5) years of Continuous Service shall incur a Disability
while employed by the Company or any Affiliate, the Company shall pay such
Participant a monthly benefit starting on the first of the month after his
Termination of Employment and ending with the payment for the month in which his
death occurs. Such monthly benefit shall be calculated in the same manner as a
Normal Retirement Benefit as set forth in Section 3.1.1 but shall be based on
his Final Average Pay when his employment terminates due to the Disability and
shall be reduced by the amount of any disability benefits payable under the
Company's Long Term Disability Policy. For purposes of this
<PAGE>
7
Section 3.1.2, "Disability" means a Participant's total inability to perform the
customary duties of his employment by reason of any medical or psychological
illness or condi tion incurred while employed by the Company which is expected
to be permanent or of indefinite duration, excluding any such illness or
condition which results from self-inflicted injury, alcoholism or drug abuse.
Whether or not a Participant has incurred a Disability shall be determined
solely by the Committee in its discretion, on the basis of evidence satisfactory
to it. If a Participant who incurs a Disability while employed by the Company
shall cease to be disabled, no benefits shall be paid on account of such
Disability with respect to periods after recovery from such Disability. If such
a recovered Participant shall thereafter be reemployed by the Company, he shall
be entitled to participate in the Plan as if he had been employed throughout the
period of his Disability and shall be deemed to have received compensation
during such period of Disability at a rate equal to his rate of Final Average
Pay determined immediately prior to his Disability. The benefit, if any,
ultimately payable to or on behalf of such a recovered Participant shall be
determined without regard to Disability benefits previously paid.
3.1.3 RETIREE MEDICAL BENEFITS. If a Participant retires under
Section 3.1.1 (Normal Retirement) or 3.1.2 (Disability Retirement), or if a
Participant dies while employed after Normal Retirement Date, the Company
<PAGE>
8
will continue to provide medical coverage to the Participant and his spouse, for
their lifetimes, which is substantially similar, in all material respects, to
the coverage to which the Participant was entitled at the time of his
Termination of Employment; provided, that in the case of Disability, such
coverage shall cease if the Participant recovers from his Disability prior to
his Normal Retirement Date.
3.2 DEFINITIONS RELATING TO
BENEFIT CALCULATIONS:
3.2.1 FINAL AVERAGE PAY. Final Average Pay with respect to a
Participant shall mean the sum of (a) the average monthly base salary of a
Participant for the 36 consecutive month period of Continuous Service prior to
his Termination of Employment and (b) 1/36 of the sum of the last three annual
Short Term Incentive Bonuses paid to the Participant prior to his Termination of
Employment.
3.2.2 APPLICABLE PERCENTAGE. The Applicable Percentage with
respect to a Participant shall be as follows: (a) For the Initial Participants,
thirty percent (30%), and (b) for all other Participants, the product of two
percent (2%) (or such other percentage as the Board may determine), multiplied
by the Participant's years of Continuous Service, but not more than 30%.
3.3 SPECIAL PAYMENT. If it shall be determined by a final
administrative decision of the Internal Revenue Service (which is not appealed
by the Participant) or by a final decision of a court of competent jurisdiction
(which
<PAGE>
9
is not appealed by the Participant) that the value of all or any part of any
benefit contemplated by the Plan is includable in the income of a Participant
for federal income tax purposes prior to the actual receipt of such benefit, the
Company shall make a special payment to such Participant, in discharge of the
actuarially equivalent value of any benefits otherwise due hereunder, in an
amount equal to such Participant's estimated federal, state and local income tax
liabilities related to such inclusion and to the inclusion in income of such
special payment. The Participant shall have no obligation to appeal any
determination made by the Internal Revenue Service or the decision of any such
court. The foregoing special payment shall not be payable on account of the
Participant's share of FICA, FUTA, Medicare or other payroll taxes.
<PAGE>
10
ARTICLE IV
SURVIVOR BENEFITS
4.1 POST-RETIREMENT SURVIVOR BENEFIT. Upon a Participant's death
after payment of his benefits under Article III has started, the Company shall
pay a monthly benefit to the Participant's Surviving Spouse, if any, for her
lifetime, starting on the first of the month immediately following the month in
which the Participant dies. Such monthly benefit shall be in an amount equal to
50% of the monthly benefit the Participant was receiving under the Plan.
4.2 PRE-RETIREMENT DEATH BENEFIT. If an Initial Participant dies
while employed by the Company or if any other Participant who has completed at
least five years of Continuous Service dies while employed by the Company, the
Company shall pay a lump sum benefit to the Participant's designated Beneficiary
or, if no Beneficiary is designated, to the Participant's estate, in an amount
equal to 100% of the Participant's Projected Base Salary.
<PAGE>
11
ARTICLE V
FORFEITURES
5.1 FORFEITURE FOR COMPETITIVE EMPLOYMENT/ DIVULGING CONFIDENTIAL
INFORMATION. If a Participant enters Competitive Employment, as defined in
Section 5.3.1 below, or divulges any Confidential Information, as defined in
Section 5.3.3 below, to any person or organization which could be of aid or
assistance to a Competitive Business, as defined in Section 5.3.2 below, without
prior authorization by the Company and within three years after his employment
terminates he shall forever and irrevocably forfeit all benefits otherwise due
him under the terms of the Plan. If a Participant first enters Competitive
Employment more than three years after his employment terminates, any benefits
otherwise payable to such Participant during the period of such Competitive
Employment shall not be so paid and shall be forever and irrevocably forfeited,
and only after such period of Competitive Employment ends shall any benefits
otherwise due hereunder commence or continue to be paid.
5.2 FORFEITURE FOR CAUSE. If a Participant's employment is
terminated for Cause, as defined in Section 5.3.4 below, he shall forever and
irrevocably forfeit all benefits otherwise due him under the terms of the Plan.
5.3 RELATED DEFINITIONS.
5.3.1 COMPETITIVE EMPLOYMENT. For purposes of Section 5.1,
"Competitive Employment" means a Partici-
<PAGE>
12
pant's (i) entering into the employ of or rendering any services to any
"Competitive Business," or (ii) engaging in any Competitive Business for his
own account, or (iii) becoming interested in any Competitive Business as an
individual, partner, shareholder, creditor, director, officer, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or capacity;
provided, however, that nothing contained in this Article V shall be deemed to
prohibit the Participant from acquiring, solely as an investment through market
purchases, securities of any corporation which are registered under Section 12
of the Securities Exchange Act of 1934 and which are publicly traded so long as
he is not part of any control group of such corporation.
5.3.2 COMPETITIVE BUSINESS. For purposes of this Section, the
term "Competitive Business" shall mean any line of business that is
substantially the same as any line of any operating business engaged in or
conducted by the Company or any Affiliate and which, when the Participant's
employment terminates, the Company (or any Affiliate) was engaged in or
conducting, or had, to the knowledge of the Participant, definitively planned to
engage in or conduct.
5.3.3 CONFIDENTIAL INFORMATION. For purposes of this Section,
Confidential Information means any information with respect to the Company's (or
any Affiliate's) customers, processes, and procedures, other
<PAGE>
13
than information that is generally known or available to the
public.
5.3.4 CAUSE. For purposes of this Section, Cause shall mean
(i) serious and repeated willful misconduct in respect of a Participant's duties
which has resulted in material, economic damage to the Company or any Affiliate,
and, to the extent such misconduct is susceptible of being cured, such
misconduct continues for thirty days following written notice to the Participant
by the Company detailing such misconduct, (ii) the final, unappealable
conviction in a court of law of any crime or offense (A) for which the
Participant is imprisoned for a term of six months or more or (B) that involves
the commission of fraud or theft against, or embezzlement from, the Company or
any Affiliate, or (iii) chronic alcoholism or abuse of controlled substances.
5.4 OTHER FORFEITURES. If a Participant's employment terminates for
any reason other than death at a time when he is not eligible for benefits
hereunder, such Participant shall irrevocably forfeit any and all rights to any
benefits hereunder and his prior Continuous Service shall be cancelled. If such
Participant is later reemployed by the Company or an Affiliate, he shall be
treated for purposes of this Plan as a new employee and shall not be eligible to
participate herein unless specifically redesignated as a Participant by the
Committee.
<PAGE>
14
5.5 LIMITATION. If any provision of this Article V shall be
unenforceable as a matter of law, it shall be construed to apply to the greatest
extent permitted by law so as to give effect to its intended purposes.
<PAGE>
15
ARTICLE VI
CONDITIONS RELATED TO BENEFITS
6.1 ADMINISTRATION OF PLAN. The Committee shall
administer the Plan and shall have the sole and exclusive authority to
interpret, construe and apply its provisions, and shall have full discretionary
power and authority to construe the document, rectify errors, supply omissions
and resolve ambiguities. The Committee shall have the power to establish, adopt
and revise such rules and regulations as it may deem necessary or advisable for
the administration of the Plan and the operation of the Committee's activities
in connection therewith. The Committee shall file with the Department of Labor
and distribute to the Participants any reports and other information required by
applicable law and shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by it with
respect to the Plan. To the maximum extent permitted by law, all interpretations
and other decisions of the Committee shall be conclusive and binding on all
parties. All decisions of the Committee shall be by vote or written consent of
the majority of its members and shall be final and binding. Members of the
Committee shall be eligible to participate in the Plan while serving as a member
of the Committee, but a member of the Committee shall not vote or act upon any
matter which
<PAGE>
16
relates solely to such member in his capacity as a
Participant.
6.2 GRANTOR TRUST. The Company may create a grantor trust (within
the meaning of section 671 of the Code) in connection with the adoption of this
Plan to which it may from time to time contribute amounts to accumulate an
appropriate reserve against its obligations hereunder. Notwithstanding the
creation of such trust, the benefits hereunder shall be a general obligation of
the Company. Payment of benefits from such trust shall, to that extent,
discharge the Company's obligations under this Plan. A Participant shall have
only a contractual right as a general creditor of the Company to the amounts, if
any, payable hereunder and such right shall not be secured by any assets of the
Company or the trust.
6.3 NO RIGHT TO COMPANY ASSETS. Neither a Par ticipant nor any other
person shall acquire by reason of the Plan any right in or title to any assets,
funds or property of the Company whatsoever including, without limiting the
generality of the foregoing, any specific funds or assets which the Company may
set aside in anticipation of a liability hereunder, or in or to any policy or
policies of insurance on the life of a Participant owned by the Company.
6.4 NO EMPLOYMENT RIGHTS. Nothing herein shall constitute a contract
of continuing employment or in any manner obligate the Company or any Affiliate
to continue the service of a Participant, or obligate a Participant to
<PAGE>
17
continue in the service of the Company or any Affiliate, and nothing herein
shall be construed as fixing or regulating the compensation paid to a
Participant.
6.5 COMPANY'S RIGHT TO TERMINATE AND AMEND. The Company reserves the
right in its sole discretion at any time to amend the Plan in any respect or
terminate the Plan. Notwithstanding the foregoing, no such amendment or
termination shall reduce the amount of the benefit theretofore accrued by any
Participant or change the conditions required to be satisfied to receive payment
of such past accrued benefit (including contingent spousal death benefits) based
on the provisions of the Plan as theretofore in effect (in each case, unless the
Participant expressly consents thereto in writing).
6.6 PROTECTIVE PROVISIONS. The Participant shall cooperate with the
Company by furnishing any and all infor mation requested by the Company in order
to facilitate the payment of benefits hereunder.
6.7 FACILITY OF PAYMENT. Whenever and as often as any person
entitled to payments hereunder shall be under a legal disability, or in the sole
judgment of the Committee shall otherwise be unable to apply such payments to
his own best interest and advantage, the Committee, in the exercise of its
discretion, may direct all or any portion of such payments to be made in any one
or more of the following ways:
(a) Directly to such person;
<PAGE>
18
(b) To his legal curator, guardian, or conservator, or other
court-appointed or court-recognized representatives; or
(c) To his spouse, to another member of his family, or to any
other person, to be expended for his benefit.
6.8 CLAIMS PROCEDURES. In the event that any claim for benefits is
denied (in whole or in part) hereunder, the claimant shall receive from the
Committee notice in writing, written in a manner calculated to be understood by
the claimant, setting forth the specific reasons for denial, with specific
reference to pertinent provisions of this Plan. Such notice shall be provided
within 90 days of the Participant's claim for benefits. Any disagreements about
such interpretations and construction may be appealed within 90 days to the
Committee. The Committee shall respond to such appeal within 60 days with a
notice in writing fully disclosing its decision and the reasons therefore. No
member of the Committee shall be liable to any person for any action taken
hereunder except those actions undertaken with lack of good faith.
6.9 NO RIGHT OF OFFSET. If at the time any payment is to be made
hereunder a Participant or his spouse or both are indebted to the Company (or an
Affiliate) or otherwise subject to a monetary claim by the Company (or an
Affiliate), the payments remaining to be paid to the Participant or his spouse
or both shall nevertheless be paid
<PAGE>
19
without reduction by or set off against the amount of such indebtedness or
claim.
6.10 NO THIRD PARTY RIGHTS. Nothing in this Plan or any trust
established pursuant to Section 6.2 hereof shall be construed to create any
rights hereunder in favor of the spouse of any Participant prior to the
Participant's death or in favor of any other person (other than the Company and
any Participant) or to limit the Company's right to amend or terminate the Plan
in any manner subject to the consent of the Participant to the extent provided
in Sec tion 6.5 notwithstanding that such amendment or termination might result
in such spouse receiving no benefits under the Plan.
6.11 SELECT GROUP OF EMPLOYEES. The Plan is intended to qualify as a
plan maintained primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees, and, as such, to
be exempt from certain provisions of the Employee Retirement Income Security Act
of 1974, as amended.
<PAGE>
20
ARTICLE VII
MISCELLANEOUS
7.1 NONASSIGNABILITY. No rights or payments
under this Plan shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, and no attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be valid, nor shall any such benefit
or payment be in any way liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person entitled to such benefit or
payment or subject to levy, garnishment, attachment, execution or other legal or
equitable process. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other
person, nor be transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
7.2 WITHHOLDING. To the extent required by law the Company shall be
entitled to withhold from any payments due hereunder any federal, state and
local taxes required to be withheld in connection with such payment.
7.3 GENDER AND NUMBER. Wherever appropriate herein, the masculine
shall mean the feminine and the singu lar shall mean the plural or vice versa.
<PAGE>
21
7.4 NOTICE. Any notice required or permitted to be made under the
Plan shall be sufficient if in writing and hand delivered, or sent by registered
or certified mail, to (a) in the case of notice to the Company or the Committee,
the principal office of the Company at: Research Park, 293 Wall Street,
Princeton, New Jersey 08450, Attention: Vice President, Human Resources, and (b)
in the case of a Participant or the Participant's spouse, the Participant's (or
such spouse's) mailing address maintained in the Company's personnel records.
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark or on the receipt for
registration or certification.
7.5 VALIDITY. In the event any provision of this Plan is held
invalid, void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Plan.
<PAGE>
22
7.6 APPLICABLE LAW. This Plan shall be governed and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this BERLITZ
INTERNATIONAL, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN to be executed by its
duly authorized officers and its corporate seal to be hereunto affixed on this
day of , 1996.
- ----- ---------
BERLITZ INTERNATIONAL, INC.
By
-----------------------------------
Its
-----------------------------------
Attest:
--------------------
[Seal]
<PAGE>
SCHEDULE A
BERLITZ INTERNATIONAL, INC.
Supplemental Executive Retirement Plan
Individuals Designated for Plan Participation
Effective January 1, 1996
Hiromasa Yokoi
Manuel Fernandez
Robert Minsky
Susumu Kojima
Henry D. James
Robert Hendon, Jr.
Isao Hisai
M. Strumpen-Darrie
Alistair Gatoff
David Horn
Anthony Tedesco
Jose Alvarino
Wolfgang Wiedeler
John Okazaki
Frank Garton
<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, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,781
<SECURITIES> 0
<RECEIVABLES> 37,962
<ALLOWANCES> 1,914
<INVENTORY> 10,260
<CURRENT-ASSETS> 82,711
<PP&E> 44,638
<DEPRECIATION> 15,275
<TOTAL-ASSETS> 561,245
<CURRENT-LIABILITIES> 77,579
<BONDS> 0
0
0
<COMMON> 1,003
<OTHER-SE> 356,404
<TOTAL-LIABILITY-AND-EQUITY> 561,245
<SALES> 0
<TOTAL-REVENUES> 366,067
<CGS> 0
<TOTAL-COSTS> 218,758
<OTHER-EXPENSES> 12,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,647
<INCOME-PRETAX> 12,814
<INCOME-TAX> 7,508
<INCOME-CONTINUING> 3,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,803
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
