ITEM 1. Business
Introduction
Berlitz International, Inc. (the "Company") is a New York corporation, organized in 1989. Prior to the organization of the Company, the Company's business was conducted through subsidiaries of Macmillan, Inc. ("Macmillan") including: Berlitz Languages, Inc. (Language Instruction and Translation Services), Editions Berlitz, S.A. (Publishing) and Berlitz Publications, Inc. (Publishing). Prior to the Company's initial public offering in December 1989, Macmillan caused the Company to be incorporated and transferred to it the capital stock of these predecessor corporations in exchange for shares of the capital stock of the Company. In February 1993, Fukutake Publishing Co., Ltd. ("Fukutake") indirectly acquired, through a merger of the Company with a wholly-owned U.S. subsidiary (the "Merger"), 67% of the outstanding common stock, par value $.10 per share, of the Company ("New Common"). Subsequent to the Merger, public shareholders of the Company hold approximately 33% of the Company's New Common. See Items 5 and 7 for further discussion.
The Company's operations are conducted through the following business segments: Language Instruction, Translation Services, and Publishing. Language Instruction is organized on a geographic basis into four operating divisions: North America (the U.S. and Canada), Europe (20 countries), East Asia (Japan, Thailand and Hong Kong) and Latin America (seven countries, including Puerto Rico). Some countries are divided into regions and districts. Translation Services is organized on a geographic basis into three operating divisions: the Americas (the U.S., Canada and Chile), Europe (10 countries) and East Asia (Japan and Thailand). Publishing is organized on a geographic basis into two operating divisions (the U.S. and the United Kingdom). The Company's Japanese operations are conducted through its Japanese subsidiary which is owned 80% by the Company and 20% by Fukutake. At least 90% of total East Asia sales, operating profits, assets and employees are attributable to the operations in Japan. Country and division managers determine pricing, teacher/translator and administrative salaries, leasing of facilities, local advertising and sales promotions, and other administrative matters, within guidelines established at the Company's corporate headquarters. The country managers are evaluated and provided incentives based on profit performance of their particular areas while, for 1994, division managers were provided incentives based on profit performance of 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 17.
Language Instruction
As of December 31, 1994, the Company owned and operated 320 language centers in 32 countries using the Berlitz (Registered Trademark) Method, as described herein, and the Company's proprietary instruction material, to provide instruction in virtually all spoken languages. Approximately 4.8 million language lessons were given in 1994, the most frequently taught languages being English, Spanish, German and French. Revenues from Language Instruction accounted for approximately 82%, 82% and 83% of total Company revenues in 1994, 1993 and 1992, respectively.
The following tables set forth, by geographic division, the number of language centers and the number of lessons given over the last five years:
Number of Centers at December 31, ---------------------------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- North America 72 72 73 68 67 Europe 137 136 139 123 118 East Asia 53 57 59 56 53 Latin America 58 57 53 51 46 --- --- --- --- --- Total 320 322 324 298 284 ==== ==== ==== ==== ====
Number of Lessons (in thousands) ----------------------------------------------------- *1994 *1993 1992 1991 1990 ----- ----- ----- ----- ----- North America 1,064 1,091 1,123 1,097 1,088 Europe 1,852 1,796 1,926 2,022 2,175 East Asia 946 844 1,003 1,093 1,148 Latin America 911 857 818 713 693 ----- ----- ----- ----- ----- Total 4,773 4,588 4,870 4,925 5,104 ===== ===== ===== ===== =====
* 1994 and 1993 excludes 25 and 137 lessons, respectively, for centers closed in connection with the Merger.
A lesson consists of a single 45-minute session given by a teacher (regardless of the number of students). In 1994, the United States, Japan, and Germany accounted for 20%, 18% and 13% of lessons given and 20%, 29% and 14% of Language Instruction sales, respectively.
All of the Company's language centers are wholly-owned, except for a joint venture operation in Russia. The following table sets forth, by geographic division, the number of language centers in each of the countries in which the Company owned and operated centers as of December 31, 1994:
EUROPE NORTH AMERICA ------ ------------- Western Europe: Belgium 10 United States 62 Denmark 2 Canada 10 Finland 1 -- France 17 Total 72 Holland 1 == Israel 2 LATIN AMERICA Italy 5 ------------- Norway 1 Argentina 5 Portugal 1 Brazil 16 Spain 12 Chile 4 Sweden 1 Colombia 4 United Kingdom 5 Mexico 16 Puerto Rico 4 Central/Eastern Europe: Venezuela 9 Austria 7 -- Czech Republic 4 Total 58 Germany 50 == Hungary 3 EAST ASIA Poland 3 --------- Russia 1 Hong Kong 1 Slovak Republic 1 Japan 50 Switzerland 10 Thailand 2 --- -- Total 137 Total 53 === ==
In 1994, eight language centers were opened and ten were closed, bringing the worldwide total to 320. The average capital expenditure incurred in connection with opening a new language center in 1994 was approximately $113,500.
Language centers traditionally have been wholly-owned operations and the Company has traditionally financed the cost of expansion with internally generated funds. The Company does not anticipate that borrowing will be necessary to finance its planned expansion.
Berlitz (Registered Trademark) Method. At the heart of Language Instruction is the Berlitz (Registered Trademark) Method, 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 (Registered Trademark) Method combines the use of live instruction with proprietary written, audio-visual, and beginning in 1995, CD-ROM support materials to ensure a fast, effective, and enjoyable learning experience.
Berlitz instructors teach in their native language and are required to complete a seven to ten-day training course in the Berlitz (Registered Trademark) Method. Upon successful completion of this training course, instructors work either full-time or part-time. The Berlitz (Registered Trademark) Method does not require that an instructor be proficient in any language other than the language being taught. This feature of the Berlitz (Registered Trademark) Method greatly increases the number of potential instructors and tends to lower instructor costs.
The Company's centralized management and ownership of language centers permits standardization of instructional method and materials. This standardization also allows a client to begin a Berlitz course in one location and complete it anywhere in the worldwide network of Berlitz language centers. Through application of uniform standards to instructor training, development and usage of materials, and classroom instruction, the Company seeks to achieve consistent and predictable performance results.
Language Instruction Programs. The Company offers several types of language instruction programs, which vary in cost, length and intensity of study. Believing individualized instruction to be the most effective way to learn a foreign language, the Company emphasizes one-on-one instruction, including private lessons and Total Immersion (Registered Trademark) study as described below. The Company also offers semi-private and group lessons.
Approximately 51% of all tuition revenues in 1994 were from private lessons (excluding Total Immersion(Registered Trademark)). Private instruction is typically provided in blocks of three or more 45-minute lessons, with a short break after each lesson. Total Immersion (Registered Trademark) courses, an intensive form of private instruction, accounted for 5% of tuition revenues in 1994. Total Immersion (Registered Trademark) programs last a full day and generally continue for two to six weeks. The Company also offers semi-private lessons designed for two to three clients, as well as group instruction, where classes include four or more students. Group classes generally meet over a period of weeks. Semi-private and group lessons together represented 44% of tuition revenues in 1994.
As a majority of its clients are enrolled for business or professional reasons, the Company's business is influenced by the level of international trade and economic activity. In addition to individuals seeking work-related language skills, Berlitz clients also include travelers and high school and university students developing course- related language skills.
Included in the Language Instruction business are programs that combine intensive language instruction with first-hand exposure to the cultural environment of the country where the target language is spoken. The Company has two programs in this specialty instruction area: Language Institute For English (Registered Trademark) ("L.I.F.E.(Registered Trademark"), a Berlitz branch since 1988, and Berlitz Study Abroad.(TM) A third specialty program, Berlitz Jr.(TM), provides complete language instruction programs to children in public and private schools throughout the world. Cross-cultural training programs, another specialty area, offer in-depth explorations of the culture, traditions and values of a target country. Together, these specialty areas accounted for approximately 4.4% of the Company's revenues in 1994.
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 (Registered Trademark) courses are more expensive than standard individual instruction, while semi-private and group instruction are less expensive.
The Company generally negotiates fees with its corporate clients based on anticipated volume. Concentration on the intensive, individualized segment of the market has enabled the Company to maintain a pricing structure consistent with a premium service. The Company, whose prices are usually higher than those charged by its competitors, believes that it is able to charge premium prices because of its reputation and the high and consistent quality of the instruction it provides.
Franchising. While its language centers have traditionally been wholly-owned, the Company is currently considering the utilization of franchising in certain countries to expand the reach of its language center business.
Competition. The language instruction industry is fragmented, varying significantly among different geographic locations. In addition to the Company, providers of language instruction generally include individual tutors, small language schools operated by individuals and public institutions, and franchises of large language instruction companies. The smaller operations typically offer large group instruction and self- teaching materials for home study. Rather than compete with these smaller operators, the Company concentrates on its leading position in the higher-priced, business-oriented segment of the language instruction market through its offering of intensive and individualized instruction. No competitors in this market offer language instruction through wholly- owned operations on a worldwide basis. However, the Company does have a number of competitors organized on a franchise basis which, although not as geographically diverse as the Company, compete with it internationally. The Company also faces significant competition in a number of local markets.
Translation Services
Berlitz Translations provides high quality technical translation, interpretation, software localization, electronic publishing, and other foreign language-related services. Translations represented approximately 13%, 13% and 12% of total Company revenues in 1994, 1993 and 1992, respectively, and is expected to contribute an increasingly larger percentage of total corporate revenues over the next few years as a result of restructuring efforts initiated in 1993, an expanded and reorganized sales force and a greater focus on larger customer accounts.
Berlitz Translations' sales focus is on industry segments viewed by management as likely to contribute to the future growth of the business, such as: information technology, automotive/manufacturing, medical technology/pharmaceutical, and telecommunications. The Company has an international network comprised of 37 translation centers in 15 countries, including Baldock (England), Bangkok (Thailand), Bergen (Norway), Copenhagen, Dublin, Los Angeles, Montreal, New York, Paris, Santiago, Sindelfingen (Germany), Toronto, Tokyo, Washington, D.C., and other locations worldwide. 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 a global network of translators that provides it with a broad range of
technical and linguistic resources. The Company has also developed a production process that incorporates several editing phases designed to maximize the accuracy of its translations. Production staffs at dedicated Translations facilities generally consist of production managers, editors, translators and desktop publishing ("DTP") specialists. Managers and editors are generally full-time staff members, while the translator and DTP staffs are comprised of both full-time employees and freelance workers. Freelance translators provide the specialized skills that are necessary for technical translations at a more cost effective rate than that of full-time employees.
Competition. In the highly fragmented translation services market, providers compete on the basis of price, accuracy and job turnaround time. The Company does not believe that any one company accounts for a significant portion of the entire commercial translation market.
Publishing
The Company publishes pocket-size travel guides and language phrase books through its facilities in Europe. In addition, Publishing's list includes an extensive range of bilingual dictionaries, trade paperback travel guides and self-teaching language products, some of which are produced in the U.S.. It is also involved with licensing projects that capitalize on the Berlitz name in the international consumer market. The Publishing business accounted for approximately 5% of total Company revenues in each of 1994, 1993 and 1992. Approximately 50%, 52% and 55% of Publishing segment sales in 1994, 1993 and 1992, respectively, were in Europe.
Berlitz Books and Guides. Pocket-size, smaller format travel guides include full-color pictures, maps, brief histories, points of interest, food and shopping information and a practical A to Z section. There are a total of 144 titles in this format published in English, plus approximately 519 titles in more than 10 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 (Registered Trademark) Travellers Guides and the Discover series.
The Company's phrase books include common expressions, words and phrases most often used by travelers. These appear in color-coded sections covering such topics as accommodations, eating, sightseeing, shopping, transportation and medical reference. There are a total of 129 phrase books published in 17 languages, of which 27 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 distributor for each major country in which the products are sold (e.g., the U.K., France, Germany, U.S. and Canada).
Berlitz Self-Teaching. The audio cassette and CD products produced by the Company are intended for the self-instruction language market and draw on the experience of the Language Centers. These products include a product for children and courses for business people.
In the U.S., the audio cassette and CD products are marketed through in- flight airline magazine space
advertising, as well as through credit card statement inserts for which the credit card company is compensated based on orders received in response to promotions. In addition to the audio cassette and CD products, the Company is presently involved in several licensing arrangements for products which use published Berlitz materials as the basis of alternate media products (such as hand-held electronic reference products and computer software) for which the Company receives royalties.
The Company's Publishing segment plan includes the relaunching of certain existing product lines and the creation of new products that will compete in today's market place.
Competition. The market for the Company's publications and self- teaching language products is sensitive to factors that influence the level of international travel, tourism and business. There is intense competition in nearly all markets in which the Company sells its published products. The Company's market share and Berlitz (Registered Trademark) brand name recognition levels vary considerably depending on market and product line.
Employees
As of December 31, 1994, the Company employed 1,962 full-time employees and 2,045 full-time employee equivalents. Due to the nature of its businesses, the Company retains a large number of teachers and translators on a freelance basis. Full-time employee equivalents are calculated by aggregating all part-time instructor hours and dividing these by the average number of hours worked by a full-time employee.
The Company is party to collective bargaining agreements in Canada, Denmark, France, Austria, Germany, and Italy which do not cover a significant number of employees. The Company believes it has satisfactory employee relations in the countries in which it operates. Certain countries in which the Company operates impose obligations on the Company with respect to employee benefits. None of these obligations materially inhibit the Company's ability to operate its business.
General
The material trademarks used by the Company and its subsidiaries are BERLITZ (Registered Trademark), TOTAL IMMERSION (Registered Trademark) (including foreign language variations used in certain foreign markets) and L.I.F.E. (Registered Trademark). 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 presumption of exclusive ownership of the trademarks.
Although the Company is not generally regulated as an educational institution in the jurisdictions in which it does business, it is subject to general business regulation and taxation. The Company's foreign operations are subject to the effects of changes in the economic and regulatory environments of the countries in which the Company operates.
ITEM 2.
ITEM 2. Properties
The Company has its headquarters in Princeton, New Jersey and maintains facilities throughout the world. The Company plans to relocate its headquarters prior to the expiration of its current lease in 1995 and is considering properties in the Princeton area for its new home office, which will be leased. Except for eight facilities in France, Spain, Hungary, Brazil and Chile, all of the Company's facilities, including its headquarters, are leased. Total annual rental expense for the twelve months ended December 31, 1994 was $24,816,000. No one facility is material to the operation of the Company. A typical Berlitz language center has private classrooms designed for one-on-one instruction, as well as some larger rooms suitable for small group instruction.
The following tables set forth, as of December 31, 1994, by geographic region, the number of facilities maintained in that region, the use of the Company's facility, whether owned or leased, and the aggregate square footage:
OWNED FACILITIES
Number of Aggregate Region Facilities Use Square Footage ------ ---------- --- -------------- Europe 5 Center/Leased to Others 7,319 Latin America 3 Center 19,480 -- ------ Total 8 Total 26,799 == ======
LEASED FACILITIES
Number of Aggregate Region Facilities Use Square Footage ------ ---------- --- -------------- North America 81 Center/Offices 222,738 Europe 168 Center/Offices 440,534 East Asia 57 Center/Offices 140,291 Latin America 60 Center/Offices 217,765 --- --------- Total 366 Center/Offices 1,021,328 === =========
ITEM 3.
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.
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 1994.
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, 1995.
Name, Age, Position with Registrant Business Experience -------------------- -------------------
Soichiro Fukutake, Mr. Fukutake has served as Chairman of the 49 Board of the Company since February 1993. Chairman of the Mr. Fukutake joined Fukutake in 1973, and Board; since May 1986 has served as its President Director (A)(C) 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 1995.
Hiromasa Yokoi, 55 Mr. Yokoi was elected Vice Chairman of the Vice Chairman of the Board and Chief Executive Officer of the Board, Chief Company in February 1993 and additionally Executive Officer was elected President effective on August and President; 31, 1993. Mr. Yokoi has served as a Director (A) director of Fukutake 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 Fukutake from October 1990 to March 1994 and as General Manager of the President's Office of Fukutake from July 1990 to September 1990. From June 1987 to July 1990, he was General Manager of the Corporate International Trade division of Matsushita Electric Industries Co., Ltd.. Between April 1981 and June 1987, he served as Managing Director and Chief Executive Officer of National Panasonic (Australia) PTY Ltd. in Sydney, Australia. Mr. Yokoi has served as a Director of the Company since January 1991. His term will expire in 1996.
Susumu Kojima, 52 Mr. Kojima has served as Executive Vice Executive Vice President, Corporate Planning of the Company President, since September 1993. Prior thereto, he was Corporate Planning; Senior Vice President, Corporate Planning of Director (A) the Company from February 1993 to September 1993. Mr. Kojima has served as Director of Fukutake since March 1993. Prior to that, he was Joint General Manager of the Business Development Department of The Industrial Bank of Japan,
Limited ("I.B.J.") from June 1991 to February 1993. Between November 1987 and June 1991, he served as Senior Deputy General Manager, Industrial Research Department of I.B.J. after having served as Chief Representative of I.B.J.'s Washington Representative Office from September 1983. Mr. Kojima also serves on the Board of Directors and Compensation Committee of La Petite Academy. Mr. Kojima was elected as a Director of the Company in February 1993. His term will expire in 1995.
Robert Minsky, 50 Mr. Minsky has served as Executive Vice Executive Vice President and Chief Operating Officer- President Translations and Publishing of the Company and Chief Operating since January 1, 1995. Prior thereto, he Officer- served as Executive Vice President- Translations and Translations of the Company from October 1, Publishing; 1993 to January 1995, and as Chief Financial Director (A) Officer of the Company from November 1990 to January 1995. From November 1990 to October 1993, he also served as Vice President. From January 1990 to October 1990, Mr. Minsky was Vice President and Chief Financial Officer of DRI/McGraw-Hill, Inc. Between January 1986 and June 1989, Mr. Minsky served as Vice President and Chief Financial Officer of McCormack & Dodge Corporation, a subsidiary of The Dun & Bradstreet Corporation. Mr. Minsky has served as a Director of the Company since April 1991. His term will expire in 1995.
Manuel Fernandez, 58 Mr. Fernandez has served as Executive Vice Executive Vice President and Chief Operating Officer- President and Worldwide Language Instruction of the Chief Operating Company since January 1, 1995. Prior Officer, thereto, he was Executive Vice President- Worldwide Language Language Services of the Company from Instruction; September 1993 to January 1995 and Vice Director (A) 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 1995.
Saburo Nagai, 64 Mr. Nagai has served as Senior Managing Director Director of Fukutake since June 1994 and as Managing Director of Fukutake from April 1988 to June 1994. He has also supervised its general administration and accounting departments since April 1988 and its Capital Strategic Planning Office since April 1993. Since joining Fukutake in April 1985, he served as General Manager and Head of its
accounting department until April 1988 and supervised, concurrently with his other duties, its corporate identity department (July 1991-April 1992) and personnel department (April 1990-July 1991). Mr. Nagai became a Director of the Company in February 1993. His term will expire in 1996.
Edward G. Nelson, 63 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, A+ Communications, Inc. and Advocate, Inc. He is a trustee of Vanderbilt University. Mr. Nelson became a Director of the Company in February 1993. His term will expire in 1996.
Robert L. Purdum, 59 Mr. Purdum served as Chairman of the Board Director (B)(D) of Armco, Inc. from December 1993 to April 1994 and currently is an independent consultant. He served in various positions since first joining Armco in 1962, including Chairman and Chief Executive Officer (April 1990 to November 1990), President (October 1986 to April 1990), Chief Operating Officer (February 1985 to October 1986) and Chief Executive Officer-Steel Group (November 1982 to February 1985). Mr. Purdum also serves on the Board of Directors of Holophane Corporation since 1994. In addition, he is a member of the Board of Trustees of GMI Engineering and Management Institute since 1991 and serves on their International Committee and Capital Campaign Committee. He is also a member of the Corporate Affairs Committee of the Japan Society and served as a trustee for the Committee for Economic Development. Mr. Purdum has served as a Director of the Company since August 1994. His term will expire in 1996.
Aritoshi Soejima, 68 Mr. Soejima has served as Senior Counselor Director of Fukutake 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., Counselor of Nippon Hilton Company, Ltd. and Director and Counselor of Capital International Company, Ltd. and as special advisor to the Board of Directors of the Nippon Fire & Marine Insurance Company, Ltd.. In addition, he serves on the Board of
Directors of a number of companies, private foundations and associations in Japan. Mr. Soejima became a Director of the Company in February 1993. His term will expire in 1995.
Henry D. James, 57 Mr. James has served as Chief Financial Vice President and Officer of the Company since January 1, 1995 Chief Financial and as Vice President and Controller of the Officer Company since November 1990. For the period from October 1989 through October 1990, he served in his present capacity for the Company and prior thereto, he served in the same capacity for Berlitz Languages from 1981 to October 1989. Mr. James joined Berlitz Languages in 1977 and served in various positions with that company prior to 1981.
Robert C. Hendon, Mr. Hendon has served as Vice President- Jr., 57 Legal Department of the Company since Vice President, January 1, 1995 and as Secretary and General General Counsel and Counsel of the Company since April 1992. Secretary 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, 55 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.
Yoshikazu Okazaki, Mr. Okazaki has served as Vice President- 51 East Asia Division of the Company since May Vice President 1, 1994 and as President & Representative Director of Berlitz-Japan since September 15, 1994. From January 1984 to March 1994, he served in a number of executive positions with Uniden Corporation, both in Japan and in the United States. Prior thereto, he held the position of Senior Vice President with the advertising agency Dentsu, Young & Rubicam, Los Angeles.
Anthony Tedesco, 52 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, Mr. Wiedeler has served as Vice President- 50 Language Instruction, European Division of Vice President the Company since September 1993. From May 1992 to September 1993 he was Vice President, Central/Eastern European Division. 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
There is no family relationship between any of the Directors or Executive Officers of the Company.
Owen Bradford Butler served as a Director, and as a member of the Audit and Disinterested Directors Committees until August 1994, when he retired.
PART II
ITEM 5.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The New Common is traded on the New York Stock Exchange ("NYSE") under the symbol BTZ. Holders of shares of New Common 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 Fukutake. 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 New Common are entitled to one vote per share on all matters submitted to the vote of such holders, including the election of directors. There were 101 holders of record of New Common as of December 31, 1994 and March 1, 1995.
The sales prices per share of the New Common as reported by the NYSE for each quarter during the period from February 9, 1993 until December 31, 1994 ranged as follows:
Price per Share ------------------------------ High Low ------------ ---------- First Quarter 1994 $14 5/8 $12 3/4 Second Quarter 1994 $14 1/8 $12 7/8 Third Quarter 1994 $14 $13 Fourth Quarter 1994 $13 5/8 $12 1/2
February 9, 1993 to March 31, 1993 $15 7/8 $14 3/8 Second Quarter 1993 $15 5/8 $12 1/4 Third Quarter 1993 $14 1/8 $12 Fourth Quarter 1993 $14 7/8 $12 5/8
Prior to the Merger, the Company's common stock, par value $.10 per share (40,000,000 shares authorized) ("Old Common"), was traded on the NYSE.
The sales prices per share of the Old Common as reported by the NYSE for each quarter during the period from January 1, 1993 until February 8, 1993 ranged as follows:
Price Per Share ----------------------- High Low ------- -------
January 1, 1993 to February 8, 1993 $23 1/2 $22 1/8
Management believes the price per share for periods subsequent to February 8, 1993 is not directly comparable to the price per share for the periods presented prior to February 8, 1993 because the outstanding number of shares was reduced as a result of the Merger.
No common stock dividends for 1993 or 1994 were declared or paid.
ITEM 6.
ITEM 6. Selected Financial Data
(1) Income Statement Data give effect to the combination of the results of the Company for the periods January 1, 1993 through January 31, 1993 and February 1, 1993 through December 31, 1993.
(2) In 1993, under the purchase method of accounting, the Post-Merger sales and expenses of facilities closed in connection with the Merger were reclassified to "Merger-related restructuring costs" (33%) and "Excess of cost over net assets acquired" (67%).
(3) Principally represents 33% of severance payments, language center closing costs, and costs of reorganizing the Translations and certain Language Instruction divisions.
(4) Represents the write-off of the Maxwell Note and certain Receivable Notes and other reserves related to the bankruptcy filing of Maxwell Communication Corporation plc.
(5) Indicates year-over-year increase (decrease) in sales by language centers which were operating during the entirety of both years being compared.
For a description of the Merger, see Note 2 to the Consolidated Financial Statements.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
General
The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto contained elsewhere in this Annual Report on Form 10-K.
In connection with its initial public offering in 1989, the Company entered into a series of transactions with Maxwell Communication Corporation, plc ("Maxwell Communication") and certain of its subsidiaries. As a result, Macmillan held 10.6 million shares of Old Common and 180,000 shares of the Company's 7% non-cumulative preferred stock (the "Preferred Stock"). In addition, the Company held promissory notes from Maxwell Communication and certain of its subsidiaries (collectively, the "Maxwell Note and the Receivable Notes"), including a note from Macmillan for $64.6 million (the "Macmillan Note"). The Preferred Stock provided for quarterly dividends at the lesser of $3.15 million (i.e., $12.6 million annually) or the amount equal to the Company's after-tax income during the preceding quarter from the Maxwell Note and the Receivable Notes.
In the fourth quarter of 1991, as a result of bankruptcy filings by Maxwell Communication in the U.S. and the United Kingdom, the Company wrote off the Maxwell and certain Receivable Notes and provided reserves for the Macmillan Note and other related charges, totaling $195.4 million. In addition, the Company's obligation to pay dividends on the Preferred Stock was indefinitely suspended due to payment and other defaults which arose on the Maxwell Note and the Receivable Notes. In the first quarter of 1993, the Company recovered $30.8 million from the sale of the Maxwell and Receivable Notes previously written off.
On December 9, 1992, the Company and Fukutake entered into an amended and restated merger agreement (the "Merger Agreement") pursuant to which Fukutake agreed to acquire, indirectly through merger, approximately 67% of the New Common. The Merger was consummated on February 8, 1993. The Company's shareholders received, for each share of Old Common, (i) $19.50 in cash, (ii) 0.165 share of New Common and (iii) $1.48, representing the net proceeds per share from the sale of the Maxwell Note and certain Receivable Notes. In addition, the shareholders at the time of the closing received $.01 per share upon redemption of each Common Share Purchase Right under the terms of the Safeguard Rights Agreement between the Company and U.S. Trust Company of New York, which was redeemed pursuant to a condition of the Merger. After the Merger, public shareholders of the Company hold approximately 33% of New Common.
The Company incurred approximately $115.0 million of long-term indebtedness in connection with the Merger. (See Note 9 to the Consolidated Financial Statements.)
In January 1993, the Company entered into agreements with Maxwell Communication and Macmillan (the "Disengagement Agreements") to disengage certain relationships. Pursuant to these agreements, among other things, (i) the Company redeemed from Macmillan all of the outstanding Preferred Stock of the Company, (ii) Maxwell Communication waived a) all claims that payments to the Company should be considered preferential and returned to Maxwell Communication and b) other claims of Maxwell Communication and its affiliates against the Company and its subsidiaries which Maxwell Communication may have as a result of Maxwell Communication's bankruptcy filings and (iii) U.S. and
U.K. bankruptcy authorities allowed for all purposes a portion of the Maxwell Note and certain Receivable Notes and a claim against Maxwell Communication as subrogee for Midland Bank plc in the Chapter 11 case (and any superseding Chapter 7 case) and in the Maxwell Communication administration pending in the High Court of Justice in the United Kingdom. In addition, the Company and its subsidiaries (a) sold to Macmillan the Macmillan Note and (b) reduced by $58.0 million the amount of their claims against Maxwell Communication for the Maxwell Note and certain Receivable Notes previously written off.
As a result of the redemption of the Preferred Stock, the Company's obligation to pay any preferred dividends in the future was eliminated.
The Company was included in the consolidated tax returns of the affiliated group of which Macmillan was the parent (the "Macmillan Group") prior to the Company's initial public offering in December 1989 and consequently is jointly and severally liable for any federal tax liabilities for the Macmillan Group arising prior to that date. Pursuant to the Disengagement Agreements, Macmillan agreed to pay all such federal tax liabilities pursuant to an amended and restated tax allocation agreement (the "Tax Allocation Agreement"), and Maxwell Communication put into escrow $39.5 million to secure Macmillan's obligations.
On November 10, 1993, Macmillan commenced a voluntary Chapter 11 case in the United States Bankruptcy Court for the Southern District of New York and filed a prepackaged plan of reorganization (the "Reorganization Plan"). The Reorganization Plan provides that the Tax Allocation Agreement, along with many other contracts between Macmillan and other parties, is to be assumed by Macmillan and assigned to a trust intended to have sufficient assets to satisfy the obligations being assumed and assigned. The Reorganization Plan also provides a cash reserve to pay tax claims that are entitled to priority, which may include tax liabilities covered by the Tax Allocation Agreement. On February 18, 1994, the Bankruptcy Court confirmed the Reorganization Plan. Any tax liability assessed against the Company that would otherwise be payable by Macmillan under the Tax Allocation Agreement (as described in the preceding paragraph) is likely to be paid either by the trust or from the cash reserve described above. Management believes that any such liability will not result in a material effect on the financial condition of the Company.
Operations Overview
For the period beginning January 1, 1992 and ending December 31, 1994, the Company's sales grew at a compound annual growth rate of 3.3%.
The following table shows the Company's income and expense data as a percentage of sales:
Year Ended December 31, ---------------------------------------- 1994 1993 (1) 1992 -------- --------- -------
Sales of Services and Products 100.0% 100.0% 100.0% ------ ------ ------ Costs of services and products sold (2) 59.9 62.2 63.3 Selling, general and administrative (3) 30.5 30.7 29.4 Amortization of publishing rights, excess of cost over net assets acquired, and other intangibles 4.2 4.6 3.7 Interest expense on long-term debt 3.5 3.3 0.7 Merger-related restructuring costs (4) - 1.8 - Non-recurring Maxwell and Merger-related charges - - 0.5 Other income, net (0.5) (2.6) (1.0) ----- ----- ----- Total costs and expenses 97.6 100.0 96.6 ----- ----- ----- Income before income taxes and cumulative effect of change in accounting principle 2.4% 0.0% 3.4% ===== ====== =====
(1) Gives effect to the combination of the results of the Company for the combined periods January 1, 1993 through January 31, 1993 and February 1, 1993 through December 31, 1993.
(2) Consists primarily of teachers', translators', and administrative salaries, as well as cost of materials, rent, maintenance and other center operating expenses.
(3) Consists of headquarters, corporate services, marketing and advertising expenses.
(4) Primarily severance payments and language center closing costs, including lease cancellation penalties, writeoffs of leasehold improvements, and operating losses for closed centers.
Despite continued economic weakness in certain European countries, the Company's restructuring efforts, as well as a stabilization of economic conditions in Japan, have reversed the downward trend in Company's operations through 1993, positioning the Company for future growth.
Cost of services and products sold as a percentage of sales decreased from 63.3% in 1992 to 59.9% in 1994, principally due to decreases in teacher costs and certain administrative expenses, as well as the closing of unprofitable facilities under the Merger-related restructuring and from certain cost reduction measures.
Selling, general and administrative expenses as a percentage of sales increased from 29.4% in 1992 to 30.5% in 1994, principally as a result of increased office salaries and advertising expenditures, and a reorganization of the corporate headquarters.
Interest expense on long-term debt as a percentage of sales increased from 0.7% in 1992 to 3.5% in 1994 as a result of the increased indebtedness in connection with the Merger.
The Company's operations are conducted through the following business segments: Language Instruction, Translation Services, and Publishing. Language Instruction sales grew from $233.4 million in 1992 to $244.5 million in 1994, a compound annual growth rate of 2.3%. The number of lessons provided by the Company's language centers were 4.9 million, 4.6 million and 4.8 million in 1992, 1993 and 1994, respectively. The growth in sales is largely attributable to the increase in average revenue per lesson as a result of price increases in excess of inflation and favorable foreign exchange fluctuations.
Over the three year period, the Company opened 46 new language centers and closed 24. While the weakness in the worldwide economy led to weak sales growth in 1992 and 1993, economic recoveries in certain regions in 1994 led to overall improved growth in 1994. The following table shows the year-over-year increase/(decrease), including the impact of foreign currency rate fluctuations, in sales by centers which were operating during the entirety of both years being compared.
Percentage Growth (Decline) -------------------------------------------- 1994 1993 (1) 1992 ------- --------- -------
Same Center Sales 9.4% (6.1%) 2.4% ======= ========= =======
(1) Gives effect to the combination of the results of the Company for the combined periods January 1, 1993 through January 31, 1993 and February 1, 1993 through December 31, 1993.
During the period from 1992 to 1994, the Company's Translations segment expanded principally through internal growth. Translations' sales grew at a compound annual growth rate of 11.2%, increasing from $32.4 million in 1992 to $40.0 million in 1994. Translations' operating results have benefitted from a comprehensive reorganization plan, started in 1993 and carrying over into 1994, which affects production, sales and marketing activities.
Publishing segment sales increased from $15.5 million in 1992 to $15.7 million in 1994, primarily as the 1993 product distribution problems were resolved and successful marketing and sales programs were introduced.
The Company's participation in numerous licensing agreements and joint ventures has allowed it to offer new high-tech products, including a line of language instruction products on CD-ROM and multimedia courses for the home, school and business markets.
During the three-year period, the percentage of the Company's annual sales denominated in currencies other than U.S. dollars ranged from 74.9% in 1992 to 75.2% in 1994. As a result, changes in exchange rates had an impact on the Company's sales revenues. The following table shows the impact of foreign currency rate fluctuations on the annual growth rate of sales during the periods presented:
Year Ended December 31, Percentage -------------------------------------------- Growth (Decline) 1994 1993 (2) 1992 ------------------ --------- ---------- ---------- Sales: Operations (1) 2.6% (2.4)% 5.0% Exchange 7.9 (1.0) 3.3 --------- ---------- ---------- Total 10.5% (3.4)% 8.3% ========= ========== ==========
(1) Adjusted to eliminate fluctuations in foreign currency from year-to-year by assuming a constant exchange rate over two years, using as the base the first year of the periods being compared.
(2) Gives effect to the combination of the results of the Company for the combined periods January 1, 1993 through January 31, 1993 and February 1, 1993 through December 31, 1993.
Results of Operations
Year Ended December 31, 1994 vs. Year Ended December 31, 1993
As discussed in Note 2 to the Consolidated Financial Statements, on February 8, 1993, the Company and Fukutake consummated the Merger. The following selected financial data gives effect to the combination of the results of the Company for the combined periods January 1, 1993 through January 31, 1993 and February 1, 1993 through December 31, 1993.
Twelve Months Ended December 31, -------------------------------------- 1994 1993 ----------------- ----------------
Sales of services and products $ 300,234 $ 271,677 Total costs and expenses 293,130 271,603 ---------- ---------- Income before income taxes and cumulative effect of change in accounting principle $ 7,104 $ 74 ========== ========== Income (loss) available to common shareholders $ 909 $ (2,018) ========== ==========
Sales for the twelve months ended December 31, 1994 were $300.2 million, 10.5% above the same
period in the prior year, reflecting increases in the Language Instruction, Translations and Publishing segments.
In connection with the Merger, certain restructuring charges were accrued in the third and fourth quarters of 1993, including those for the reorganization of the Translations and certain Language Instruction divisions and the targeted closing of language centers (of which 12 were closed in 1993 and 10 were closed in 1994). In comparing the facilities not affected by Merger-related restructuring activities, sales increased by $32.3 million, or 12.1%, from the twelve months ended December 31, 1993.
Language Instruction sales were $244.5 million, an increase of $20.9 million, or 9.4%, from sales of $223.6 million in the same period in 1993, primarily reflecting increases in East Asia ($10.9 million, or 17.6%), Europe ($4.6 million, or 5.6%) and Latin America ($4.8 million, or 16.7%). The improvement in East Asian sales from 1993 largely resulted from the favorable impact of exchange rate fluctuations ($5.7 million) and improved operating activity in Japan ($3.9 million). Europe's increase was impacted by favorable exchange rate fluctuations ($1.1 million) and by increased operating activity in the central/eastern European countries ($3.6 million). Furthermore, when comparing language centers not affected by Merger-related restructuring activities, the western European countries' sales increased $1.0 million, or 2.9%. The increase in Latin America revenues was primarily due to increases in Brazil and Mexico.
During the twelve-month period ended December 31, 1994, the number of lessons given was approximately 4.8 million, 4.0% above the same period in the prior year. Lesson volume in East Asia increased 12.0% from 1993, favorably impacted by the first full year of operations of certain centers in Hong Kong and Thailand and by an 7.1% improvement in Japan. Lesson volume in Latin America increased by 6.3% from the prior year, primarily due to growth in Mexico. Lesson volume in the central/eastern European countries increased by 9.6% over 1993 primarily due to the results of the new language centers in the Czech and Slovak Republics, Hungary and Poland. Lesson volume in western Europe remained flat, particularly reflecting weaknesses in Belgium, France and Spain.
For the twelve months ended December 31, 1994, average revenue per lesson ("ARPL") was $43.27 as compared to $41.07 in the comparable prior-year period. ARPL (excluding Russia and the Slovak Republic) ranged from a high of approximately $73.16 in Japan to a low of $15.19 in the Czech Republic, reflecting effects of foreign exchange rates and differences in the economic value of the service. The Company opened eight new language centers during 1994, including two in Germany and one each in the Czech and Slovak Republics, Israel, Japan, Mexico and Poland.
Translation segment sales were $40.0 million for the twelve-month period ended December 31, 1994, an increase of $4.3 million, or 12.1%, from the same period in 1993. This increase was primarily attributable to strong performances in Canada, Ireland, Norway and Japan and was benefited by the segment's reorganization of its sales force to serve key regions and sharpen the focus on targeted industries and customers. When comparing facilities not affected by Merger-related restructuring activities, Translation sales increased $6.4 million, or 19.1%, from the prior year.
Publishing segment sales were $15.7 million for the twelve months ended December 31, 1994, $3.3 million, or 26.7%, above the same period in 1993, primarily as product distribution problems were resolved and successful marketing and sales programs were introduced. The effects of exchange rate
fluctuations were not material.
Net income to common shareholders for the twelve months ended December 31, 1994 was $0.9 million, or $0.09 per common share, compared to a net loss of $2.0 million, or net income of $0.08 per common share and net loss of $0.35 per share for the one-month and eleven-month periods ended January 31, 1993 and December 31, 1993, respectively, in the same period in 1993. This increase of $2.9 million resulted primarily from increased sales in 1994 and Merger-related restructuring costs in 1993, partially offset by increases in cost of services and products sold, selling, general and administrative expenses and income tax expense in 1994 and by non-recurring income items and the cumulative effect of a change in accounting principle in 1993.
Cost of services and products sold and selling, general and administrative expenses, totalled $271.6 million, or 90.5% of sales, for 1994, compared to $252.6 million, or 93.0% of sales, in the prior year. This improvement in expenses as a percentage of sales resulted primarily from certain cost reduction measures, particularly teacher costs, office salaries and rent, which more than offset increases in advertising, and the impacts in 1993 of the settlement of a lease negotiation (income of $1.5 million) and certain other Merger-related adjustments (expense of $0.4 million).
Interest expense on long-term debt increased by $1.5 million due primarily to an increase in amortization of deferred financing costs.
Merger-related restructuring costs of $4.8 million were recorded for the twelve months ended December 31, 1993, primarily for severance, the reorganization of the Translations and certain Language Instruction divisions and the costs of closing language centers, including lease cancellation penalties, write-offs of leasehold improvements, and operating losses for such centers.
Other income, net for the twelve months ended December 31,1994 decreased by $5.5 million from the same prior-year period, primarily due to non- recurring income items, net, of $6.5 million in 1993 which were triggered by the terms of the Merger and certain related restructuring activities.
The Company recorded an income tax expense for the twelve months ended December 31, 1994 of $6.2 million, or an effective rate of 87.2% which was raised primarily by nondeductible amortization charges. This compared to an income tax expense in the same prior year period of $5.3 million, for which the effective rate was also raised primarily by nondeductible amortization charges.
Year Ended December 31, 1993 vs. Year Ended December 31, 1992
As discussed in Note 2 to the Consolidated Financial Statements, on February 8, 1993, the Company and Fukutake consummated the Merger. The following selected financial data gives effect to the combination of the results of the Company for the combined periods January 1, 1993 through January 31, 1993 and February 1, 1993 through December 31, 1993.
Twelve Months Ended December 31, ---------------------------------------- 1993 1992 -------------- -------------
Sales of services and products $ 271,677 $ 281,320 Total costs and expenses 271,603 271,832 Income before income taxes ---------- ---------- and cumulative effect of change in accounting principle $ 74 $ 9,488 ========== ========== Income (loss) available to common shareholders $ (2,018) $ 4,041 ========== ==========
Under the purchase method of accounting, the post-February 1, 1993 sales and expenses of centers to be closed in connection with the Merger have been reclassified to "Merger-related restructuring costs" (33%) and "Excess of cost over net assets acquired" (67%). The following selected financial data gives effect to the presentation of 1992 on a pro forma basis, excluding eleven months of activity for those centers to be closed in connection with the Merger:
Twelve Months Ended December 31, ----------------------------------- Pro Forma 1993 1992 ------------ ------------
Sales of services and products $ 271,677 $ 270,790
Lessons given 4,588 4,691
Sales for the twelve months ended December 31, 1993 were $271.7 million, a decrease of $9.6 million, or 3.4%, from sales of $281.3 million in the comparable period in 1992, but an increase of $0.9 million, or 0.3%, from pro forma 1992 sales.
Language Instruction sales were $223.6 million, a decrease of $9.9 million, or 4.2%, from sales of $233.4 million in the comparable period in 1992. However, sales increased $0.4 million over pro forma 1992 sales, as aggregate decreases in western European countries were offset by increases in the other regions. Sales in the western European countries declined $7.6 million from pro forma 1992 as a result of the unfavorable impacts of exchange rate fluctuation of $4.7 million, combined with the continued economic weakness in this region, particularly in France, Spain, Belgium and England. This decline was offset by increases in North America, Latin America and the central/eastern European countries of $0.3 million, $4.2 million and $0.2 million, respectively. In addition, sales of the East
Asian division increased by $3.2 million, or 5.5%, over pro forma 1992. However, excluding the favorable impact of exchange rate fluctuations, sales of this region decreased $4.4 million, or 7.5% as a result of the continuing recessionary environment in Japan.
During the twelve-month period ended December 31, 1993, the number of lessons given was approximately 4.6 million, 5.8% below that of the same period in the prior year, and 2.2% below the pro forma 1992 period. Lesson volume in the North American division remained relatively flat at 1.1 million. East Asia and western Europe experienced lesson volume declines from pro forma 1992 of 6.4% and 7.6%, respectively, due to the continued weak economy. Lesson volume in Latin America increased by 4.8% from prior year in most countries except Argentina, where lesson volume declined 17.2%. Lesson volume in central/eastern Europe increased by 2.4% over pro forma 1992 volume, as activity from the new language centers in the Czech Republic, Poland and Hungary exceeded negative volume variances in the other countries.
For the twelve months ended December 31, 1993, ARPL was $41.07 as compared to $40.51 in the comparable prior-year period and $40.16 in pro forma 1992. ARPL (excluding Russia) ranged from a high of approximately $67.12 in Japan to a low of $13.17 in the Czech Republic, reflecting effects of foreign exchange rates and differences in the economic value of the service. The Company opened 12 new language centers during 1993, including six in central/eastern Europe, five in Latin America, and one in Japan.
Translation Services sales were $35.7 million for the twelve-month period ended December 31, 1993, an increase of $3.3 million, or 10.3%, from sales of $32.4 million in the comparable period in 1992. Most of this growth came from the U.S. and Ireland, as a result of an increase in large volume accounts, and continued strong sales efforts with particular attention focused on the information technology market segment.
Publishing segment sales were $12.4 million for the twelve months ended December 31, 1993, a decrease of $3.1 million, or 20.1%, from sales of $15.5 million in the comparable period in 1992. Excluding the unfavorable impact of foreign exchange rate fluctuations, Publishing sales declined by $1.6 million, or 10.5%, largely due to product distribution problems which were resolved in 1994.
For the twelve months ended December 31, 1993, the Company reported a net loss of $2.0 million as compared to net income of $4.0 million in the same period in 1992. This decrease, totalling $6.0 million resulted primarily from i) Merger-related restructuring costs, ii) increases in cost of services and products sold, selling, general and administrative expenses, amortization expense and interest expense, and iii) decreases in interest income from affiliates, all partially offset by non-recurring income items and the cumulative effect of a change in accounting principle. The Company reported, for the one-month and eleven-month periods ended January 31, 1993 and December 31, 1993, net income of $0.08 per share and net loss of $0.35 per share, respectively, compared to net income of $0.21 per share for the twelve months ended December 31, 1992.
Cost of services and products sold, and selling, general, and administrative expenses were negatively impacted by increases in certain fixed costs, primarily office salary and rent, which more than offset the favorable impact of exchange rate fluctuations and an adjustment for the settlement of a lease negotiation ($1.5 million).
Amortization of publishing rights and excess of cost over net assets acquired increased by $2.0 million due to the Merger.
Interest expense on long-term debt increased by $7.2 million due to increased borrowing in connection with the Merger.
Merger-related restructuring costs of $4.8 million were recorded, primarily for severance, the reorganization of Translations and certain Language Instruction divisions and the costs of closing language centers, including lease cancellation penalties, write-offs of leasehold improvements, and operating losses for closed centers.
Interest income from affiliates decreased $6.7 million as a result of the sale, in connection with the Merger, of a promissory note due from an affiliate.
In connection with the Merger, the Company recognized certain non- recurring income items. The Company recognized a portion ($4.9 million) of the gain on the 1990 sale of 20% of the equity of its Japanese subsidiary, as a result of the elimination of certain contingencies upon consummation of the Merger. Joint venture losses of $1.4 million were recorded in the twelve-month period, primarily as a result of liabilities anticipated to be incurred in connection with the discontinuation of a European Publishing joint venture and an East Asian joint venture. Other income (expense), net, was also favorably impacted in the current year (income of $2.9 million) and unfavorably impacted in the prior year (expense of $1.2 million) by the effect of certain adjustments to minority interest of the Company's Japanese subsidiary.
The Company's effective income tax rates for the 1993 Pre-Merger and Post-Merger periods were higher than for the 1992 twelve-month period due to the Company's inability to utilize net operating losses in certain countries, and to nondeductible amortization charges. The effect of the increase in the US statutory Federal rate from 34% to 35% was not material.
Accounting for Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". As a result of the adoption of this statement, as of January 1, 1993, the Company recorded a tax credit of $3.2 million, or $0.17 per share, which resulted in the reduction of the deferred tax liability as of that date. This amount has been reflected in the Consolidated Statement of Operations as the cumulative effect of a change in accounting principle.
Liquidity and Capital Resources
The primary source of the Company's liquidity is the cash provided by operations. The Company's business is not capital intensive and, historically, capital expenditures, working capital requirements and acquisitions have been funded from internally generated cash. The Company's liquidity is principally generated from the Language Instruction and Translations segments. Similarly, cash requirements for capital expenditures and acquisitions are principally due to the Language Instruction and Translations segments. Net cash needs of Publishing are generally not material.
Although each geographic area exhibits different patterns of lesson volume over the course of the year,
the Company's sales are not seasonal in the aggregate. Generally, the Company collects cash from the customer in the form of prepayment of fees for instruction that gives rise to deferred revenues.
Net cash provided by operating activities was $20.8 million, $10.8 million and $30.9 million for the years ended December 31, 1994, 1993 and 1992, respectively. These cash flows were affected by tax refunds of approximately $5.6 million, $5.1 million and $12.8 million which were received in 1994, 1993 and 1992, respectively. In addition, 1993 was adversely affected by the payment, in connection with the Merger, of $6.6 million in fees to secure the Acquisition Debt Facilities, hereinafter defined. The 1994 improvement from 1993 in net cash provided is partly reflective of the restructuring efforts initiated in 1993.
Net cash used in investing activities, which totalled $8.0 million, $11.1 million and $11.9 million in 1994, 1993 and 1992, respectively, was affected largely by capital expenditures and investments in joint ventures. The Company made capital expenditures of $5.9 million, $8.2 million, and $11.2 million in the years ended December 31, 1994, 1993, and 1992, respectively, primarily for the opening of new centers and refurbishing of existing centers. The decreasing trend in capital expenditures and new school openings is the result of cost control measures. The closing of ten language centers in 1994 completed the targeted closure of centers as part of the Merger-related restructuring activities. The Company invested $1.3 million, $2.9 million and $0.8 million in joint ventures in 1994, 1993 and 1992, respectively. The 1993 and 1992 investments were primarily for shutdown-related costs.
Net cash provided by financing activities totalled $2.2 million in 1994, compared with net cash used of $4.9 and $25.7 million in 1993 and 1992, respectively. In 1993, in connection with the Merger, the Company borrowed $59.0 million under a Bank Term Loan, issued $56.0 million of Senior Notes and established a $10.0 million Bank Revolving Facility (collectively, the "Acquisition Debt Facilities"). In September 1994, the Company received approximately $30.1 million from promissory notes issued to Fukutake and its subsidiary. Approximately $19.0 million of the proceeds of such notes were used to reduce obligations, in reverse order of maturities, under the Bank Term Loan and $7.0 million were used to repay amounts outstanding under the Bank Revolving Facility, which was then terminated. Principal and interest repayment on such notes will be deferred until all obligations under the Acquisition Debt Facilities are satisfied.
Certain financial covenants contained in the Acquisition Debt Facilities restrict the ability of the Company to pay dividends. The Company does not expect to pay dividends during the term of the Acquisition Debt Facilities.
Pursuant to a covenant under the Acquisition Debt Facilities, the Company is party to six 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, 1994, representing the amount that could be settled based on estimates obtained from a dealer, was a net liability of approximately $2.2 million.
As of December 31, 1994, the Company did not have any material commitments for capital
expenditures. During 1995, the Company anticipates capital expenditures to be consistent with historical requirements. The Company believes that the strategic restructuring undertaken in 1993 has strengthened the core businesses and positioned the Company for future growth. Thus, the Company plans to meet its debt service requirements and future working capital needs through funds generated from operations, and through the increase in available cash as the result of the discontinuation of dividends resulting from restrictions imposed by the Acquisition Debt Facilities.
Inflation
Historically, inflation has not had a material effect on the Company's 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.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements, Supplementary Data and Financial Statement Schedules are filed as part of this Annual Report on Form 10-K:
Page ----
Reports of Independent Auditors 31, 32
Statement of Management's Responsibility for Consolidated Financial Statements 33
Consolidated Financial Statements:
Consolidated Statements of Operations, year ended December 31, 1994, period from February 1, 1993 to December 31, 1993, period from January 1, 1993 to January 31, 1993, and the year ended December 31, 1992 34
Consolidated Balance Sheets, December 31, 1994 and 1993 35
Consolidated Statements of Shareholders' Equity, year ended December 31, 1994, period from February 1, 1993 to December 31, 1993, period from January 1, 1993 to January 31, 1993, and the year ended December 31, 1992 36
Consolidated Statements of Cash Flows, year ended December 31, 1994, period from February 1, 1993 to December 31, 1993, period from January 1, 1993 to January 31, 1993, and the year ended December 31, 1992 37
Notes to Consolidated Financial Statements 38
Financial Statement Schedules:
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.
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, 1994 and 1993 and the related consolidated statements of operations, shareholders' equity, and cash flows for the year ended December 31, 1994, the eleven-month period ended December 31, 1993 and the one-month period ended January 31, 1993. Our audits also included the financial statement schedule listed in the Index at Item 8 for the years ended December 31, 1994 and 1993. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Berlitz International, Inc. and its subsidiaries as of December 31, 1994 and 1993 and the results of their operations and their cash flows for the year ended December 31, 1994, the eleven-month period ended December 31, 1993 and the one-month period ended January 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule for the years ended December 31, 1994 and 1993, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 8 to the financial statements, effective January 1, 1993 the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109.
/s/ DELOITTE & TOUCHE New York, New York March 3, 1995
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Berlitz International, Inc.:
We have audited the consolidated statements of operations, shareholders' equity and cash flows of Berlitz International, Inc. ("Berlitz") for the year ended December 31, 1992. We have also audited the financial statement schedule listed in the index at Item 8 for the year ended December 31, 1992. These financial statements and the financial statement schedule are the responsibility of Berlitz management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company completed its merger with Fukutake, effective February 8, 1993. Following the Merger, approximately 67% of the outstanding common stock of the Company is held directly, or indirectly, by Fukutake. In connection with the Fukutake merger, the Company entered into Disengagement Agreements with each of Maxwell Communication and Macmillan which sever certain relationships with Maxwell Communication and Macmillan. The Company also completed the sale of certain Maxwell notes in February, 1993.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of Berlitz's operations and its cash flows for the year ended December 31, 1992, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND LLP New York, New York March 24, 1993
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, Vice President and Chief Financial Officer
See accompanying notes to the consolidated financial statements.
BERLITZ INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
December 31, ------------------------------ 1994 1993 ------------- --------------- Assets Current assets: Cash and temporary investments $ 26,165 $ 11,738 Accounts receivable, less allowance for doubtful accounts of $1,912 and $2,566 25,593 22,999 Inventories 8,973 10,684 Prepaid expenses and other current assets 6,906 6,054 ------- ------ Total current assets 67,637 51,475
Property and equipment, net 25,885 26,858 Publishing rights, net of accumulated amortization of $1,665 and $788 20,048 20,712 Excess of cost over net assets acquired and other intangibles, net of accumulated amortization of $22,675 and $10,763 453,712 457,897 Other assets 15,030 13,530 ------- ------- Total assets $ 582,312 $ 570,472 ======= ======= Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $ - $ 3,000 Current portion of long-term debt 9,325 5,525 Accounts payable 6,999 5,278 Deferred revenues 36,301 33,187 Payrolls and commissions 10,785 9,468 Income taxes payable 1,356 1,971 Accrued Merger-related restructuring costs 263 7,978 Accrued expenses and other current liabilities 9,956 11,607 ------- ------- Total current liabilities 74,985 78,014
Long-term debt 78,247 105,775 Notes payable to affiliates 30,424 - Deferred taxes and other liabilities 25,044 15,169 Minority interest 6,377 6,561 ------- ------- Total liabilities 215,077 205,519 ------- -------
Shareholders' Equity: Common stock $.10 par value - 40,000,000 shares authorized; 10,032,935 and 10,032,903 shares outstanding in 1994 and in 1993, respectively 1,003 1,003 Additional paid - in capital 368,658 368,658 Retained deficit (2,647) (3,556) Cumulative translation adjustment 221 (1,152) ------- ------- Total shareholders' equity 367,235 364,953 ------- ------- Total liabilities and shareholders' equity $ 582,312 $ 570,472 ======= =======
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies
a) 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.
b) 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.
c) Inventories -Inventories, which consist primarily of finished goods, are valued at the lower of average cost or market.
d) Deferred Financing Costs - Direct costs relating to the indebtedness incurred in connection with the Merger and the Fukutake borrowings (see Notes 9 and 12) have been capitalized and are being amortized by the interest method over the terms of the related debt.
e) Property and Equipment - Property and equipment is stated at cost and depreciated over estimated useful lives, using principally accelerated methods.
f) Publishing Rights - Publishing rights are being amortized on a straight-line basis over 25 years.
g) 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.
h) Deferred Revenues - Deferred revenues generally arise from the prepayment of fees for classroom instruction and are recognized as income over the term of instruction. The Company recognizes in income deferred revenues for lessons paid for and not expected
to be taken based upon historical experience by country.
i) Income Taxes - The Company has filed its own Federal income tax returns since December 1989. The Company was previously included in the consolidated Federal income tax returns of the affiliated group of which Macmillan was the parent (the "Macmillan Group"). See Note 2 for further discussion.
Effective January 1, 1993, the Company 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.
j) Cash and Temporary Investments - The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be temporary investments.
k) 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 Statement of Operations. The Company's investment in these joint ventures included credit balances of $896 and $2,085, classified as other current liabilities on the Consolidated Balance Sheets at December 31, 1994 and 1993, respectively, and represents the Company's obligation in excess of amounts invested with respect to these joint ventures.
l) Financial Instruments - In 1993, the Company 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, trade receivables and payables, accrued liabilities, accrued income taxes and short-term borrowings approximate fair value due to the short-term nature of these instruments.
m) Reclassifications - Certain reclassifications have been made in prior years' financial statements and notes to conform with the 1994 presentation.
2. Merger Transaction
Merger Agreement
On December 9, 1992, the Company and Fukutake Publishing Co., Ltd. ("Fukutake") entered into an amended and restated merger agreement (the "Merger Agreement") pursuant to which Fukutake agreed to acquire, through a merger of the Company with an indirect wholly- owned U.S. subsidiary of Fukutake (the "Merger"), approximately 67% of the new common stock, par value $.10 per share ("New Common") of the Company. The Merger was consummated on February 8, 1993. The Company's shareholders received, for each of their outstanding shares of common stock held prior to the Merger ("Old Common") (i) $19.50 in cash, (ii) 0.165 share of New Common and (iii) $1.48, representing the net proceeds per share received from the sale of a certain promissory note from Maxwell Communication Corporation plc ("Maxwell Communication") (the "Maxwell Note") and certain 10- year promissory notes due from affiliates ("Receivable Notes"). In addition, the Company's shareholders received $.01 per share in redemption of Rights in accordance with a Safeguard Rights Agreement between the Company and U.S. Trust Company of New York. Public shareholders of the Company hold the remaining approximately 33% of New Common.
Accounting Treatment
The Merger was accounted for by the purchase method of accounting. The purchase method of accounting contemplates a step-up in value of the Company's assets based upon the purchase price paid for the outstanding common stock. Utilizing such method, the purchase price paid for approximately 67% of the Company resulted in an increase in value of the Company's assets based upon the amount paid for such shares. The remaining (approximately 33%) ownership will continue to be carried at historical cost. The Fukutake purchase price (including a portion of long-term debt; See Note 9 for further discussion) was allocated to the Company's assets and liabilities. The Post-Merger financial statements include an allocation of the Fukutake purchase price. The excess of Fukutake's purchase price over net assets acquired will be amortized on a straight-line basis over 40 years.
Although the Merger was consummated on February 8, 1993, the Consolidated Financial Statements present the 1993 results of operations for the period from January 1, 1993 through January 31, 1993 ("Pre-Merger" period) and from February 1, 1993 to December 31, 1993 ("Post-Merger" period). Adjustments to such financial information for the period February 1, 1993 through February 8, 1993 are not material to the consolidated results of operations.
A summary of the purchase price allocation follows: Fukutake purchase price $ 370,117 Net assets acquired: Historical (based on 67% of $327,798) 219,625 Allocation to net assets 15,769 Total net assets acquired ------- 235,394 ------- Purchase price allocation adjustment $ 134,723 =======
Disengagement Agreements and other Maxwell Matters
In 1989, in anticipation of its initial public offering, the Company entered into a series of financial transactions with Macmillan, Inc. ("Macmillan"), Maxwell Communication Corporation, plc ("Maxwell Communication") and its affiliate. As a result, Macmillan held 180,000 shares of the Company's 7% non-cumulative preferred stock (the "Preferred Stock") and the Company held the Maxwell Note of $99,600 and the Receivable Notes comprised of the following: a Yen 3 billion note of Maxwell Communication, a $3,300 note of MLL Holdings Ltd. (which is a subsidiary of Maxwell Communication) and a $64,568 note of Macmillan (the "Macmillan Note").
In the fourth quarter of 1991, payment and other defaults arose on the Maxwell Note and the Receivable Notes, which, in view of the December 1991 bankruptcy of Maxwell Communication, were unlikely to be cured. Consequently, the Company wrote off or provided reserves for the Maxwell Note and the Receivable Notes in 1991, and the Company's obligation to pay dividends on the Preferred Stock was indefinitely suspended.
In the first quarter of 1993, the Company recovered $30,833 of such notes previously written off, the net proceeds of which were distributed to the shareholders as part of the Merger consideration.
In January 1993, the Company entered into agreements with Maxwell Communication and Macmillan (the "Disengagement Agreements") to disengage certain relationships among such companies. Pursuant to these agreements, among other things, (i) the Company redeemed from Macmillan all of the outstanding Preferred Stock of the Company, (ii) Maxwell Communication waived (a) all claims that payments to the Company should be considered preferential and returned to Maxwell Communication and (b) other claims of Maxwell Communication and its affiliates against the Company and its subsidiaries which Maxwell Communication may have as a result of Maxwell Communication's bankruptcy filing on December 16, 1991, and (iii) U.S. and U.K. bankruptcy authorities allowed for all purposes a portion of the Maxwell Note and certain Receivable Notes and a claim by the Company against Maxwell Communication as subrogee of Midland Bank plc in the Chapter 11 case (and any superseding Chapter 7 case) and in the Maxwell Communication administration pending in the High Court of Justice in the United Kingdom. In addition, the Company and its subsidiaries (a) sold to Macmillan the Macmillan Note and (b) reduced by $58,000 the amount of their claims against Maxwell Communication in respect of the Maxwell Note and certain Receivable Notes previously written off.
The Company was included in the consolidated tax returns of the Macmillan Group prior to the Company's initial public offering in December 1989 and consequently is severally liable for any Federal tax liabilities for the Macmillan Group arising prior to that date. Pursuant to the Disengagement Agreements, Macmillan agreed to pay all such Federal tax liabilities pursuant to an amended and restated tax allocation agreement (the "Tax Allocation Agreement"), and Maxwell Communication put into escrow $39,500 to secure Macmillan's obligations.
On November 10, 1993, Macmillan commenced a voluntary Chapter 11 case in the United States Bankruptcy Court for the Southern District of New York and filed a prepackaged plan of
reorganization (the "Reorganization Plan"). The Reorganization Plan provides that the Tax Allocation Agreement, along with many other contracts between Macmillan and other parties, is to be assumed by Macmillan and assigned to a trust intended to have sufficient assets to satisfy the obligations being assumed and assigned. The Reorganization Plan also provides a cash reserve to pay tax claims that are entitled to priority, which may include tax liabilities covered by the Tax Allocation Agreement. On February 18, 1994, the Bankruptcy Court confirmed the Reorganization Plan. Any tax liability assessed against the Company that would otherwise be payable by Macmillan under the Tax Allocation Agreement (as described in the preceding paragraph) is likely to be paid either by the trust or from the cash reserve described above. Management believes that any such liability will not result in a material effect on the financial condition of the Company.
As part of the Merger, Fukutake established a $50,000 irrevocable letter of credit to be used in the event that income tax liabilities are imposed on the Company that relate to the Macmillan Group. The Company was obligated to pay fees charged in connection with such letter of credit and to reimburse Fukutake for amounts paid by Fukutake to the issuer of the letter of credit to the extent that it was drawn upon. This letter of credit was terminated in 1994.
Merger-related restructuring costs
In connection with the Company's strategic philosophy arising from the Merger, certain restructuring costs outside the ordinary course of business were incurred. The primary costs represented severance payments and the closing of language centers. In 1993, 33% of these costs were recorded in the consolidated statements of operations, and, in accordance with the purchase method of accounting, 67% of these costs were allocated to the excess of cost over net assets acquired.
3. Earnings (Loss) Per Share
Earnings (loss) per share of common stock is determined by dividing net income (loss) by the weighted average number of common shares outstanding.
Primary and fully diluted earnings (loss) per share of common stock are the same since common stock equivalents are either anti- dilutive or immaterial in both calculations. The Company had no such common stock equivalents outstanding as of December 31, 1994.
4. Acquisitions
In September 1994, the Company purchased all of the remaining outstanding ordinary and preference shares of Softrans International, Ltd., a Dublin-based leading supplier of software localization-related services in Europe, for an aggregate purchase price of approximately $1,667. In connection with this purchase, the Company made cash payments of $659 as of September 30, 1994 and incurred an installment obligation payable to the sellers with various maturities through January 1998. Between October 1994 and December 1994, $411 was paid against the installment obligation.
The Company also purchased a consulting firm specializing in cross- cultural services for an
aggregate consideration of $435, including the issuance of a note payable for $200 with various maturities through 1996.
5. Sale of Interest in Subsidiary
In November 1990, the Company completed the sale of 20% of the equity of its Japanese subsidiary, The Berlitz Schools of Languages, Inc. (Japan), to Fukutake for $27,132 and deferred the pre-tax gain of $15,021 because, under the terms of the agreement, Fukutake had an option to sell the shares back to the Company for the original yen-denominated purchase price plus 7% interest. The option was terminated in February 1993 in connection with the Merger Agreement. In 1993, 33% of the deferred gain was recorded in the Consolidated Statement of Operations and, in accordance with the purchase method of accounting, 67% of the deferred gain was allocated to the excess of cost over net assets acquired.
Fukutake's equity in the income of the Japanese subsidiary is reflected in the Company's Consolidated Statements of Operations within "Other income, net".
6. Property and Equipment, net
December 31, ------------------------------ 1994 1993 -------- --------
Building and leasehold improvements $ 16,705 $ 15,010 Furniture, fixtures and equipment 16,541 13,197 Land 1,350 1,317 ------ ------ 34,596 29,524 Less: accumulated depreciation 8,711 2,666 ------ ------ Total $ 25,885 $ 26,858 ====== ======
7. Other Income, net
8. Income Taxes
Effective January 1, 1993, the Company adopted the provisions of SFAS 109. SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included on the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply to taxable income in the periods in which the differences are expected to reverse.
As a result of the adoption of SFAS 109, as of January 1, 1993, the Company recorded a tax credit of $3,172, or $0.17 per share, which resulted in the reduction of the deferred tax liability as of that date. This amount has been reflected in the Consolidated Statement of Operations as the cumulative effect of a change in accounting principle. The principal reason for the tax credit was the difference between SFAS 109 and SFAS 96 as related to the recognition of benefits for certain loss carryforwards.
The components of the deferred tax liability at December 31, 1994 and 1993 were as follows:
1994 1993 --------- ----------
Deferred tax assets: Inventory $ 212 $ 511 Joint ventures 103 86 Deferred revenue 871 1,781 Unrealized hedging losses 1,129 - Accrued expenses 3,848 5,368 Net operating losses 23,681 22,052 ------ ------ Total deferred tax assets 29,844 29,798 ------ ------ Deferred tax liabilities: Property and equipment depreciation (101) (177) Unrealized hedging gains (354) - Publishing rights amortization (7,979) (8,257) Other intangibles amortization (3,313) (1,286) ------- ------- Total deferred tax liabilities (11,747) (9,720) ------- -------
Net deferred tax assets 18,097 20,078 Valuation allowance (22,585) (23,602) ------- ------- Net deferred tax liability $ (4,488) $ (3,524) ======= =======
As a result of the Merger, $16,620 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 1994 was 87.2%, compared to 63.6% and 431.4% for the 1993 Pre-Merger and Post-Merger periods, respectively. As a result of adopting SFAS 109, $2,654 of deferred tax benefits from operating loss carryforwards were recognized at January 1, 1993 as part of the cumulative effect of adopting such Statement. Under prior accounting, a part of these benefits would have been recognized as a reduction of tax expense from continuing operations in 1993. Accordingly, the adoption of SFAS 109 at the beginning of 1993 had the effect of increasing the effective tax rate applied to continuing operations for the Pre-Merger and the Post-Merger periods by 17.2% and 231.4% respectively.
The provision (benefit) for income taxes is as follows:
* Pre-tax income (loss) from foreign operations of the Company was $13,541, $6,864, and $(2,499) for the twelve months ended December 31, 1994, 1993 and 1992, respectively.
The provision (benefit) for deferred taxes is summarized as follows:
The difference between the effective income tax and the U.S. statutory Federal tax rate is explained as follows:
For tax return purposes, at December 31, 1994 the Company has a U.S. Federal net operating loss carryforward of approximately $31,500. Such loss may be carried forward through the year 2006. In addition to the Federal net operating loss carryforward, the Company has net operating loss carryforwards that relate to a number of foreign and state jurisdictions that will expire on various dates.
At December 31, 1994, U.S. income and foreign withholding taxes have not been provided on approximately $45,995 of undistributed earnings of foreign subsidiaries as such earnings are intended to be permanently reinvested. However, it is estimated that foreign withholding taxes of approximately $2,391 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.
9. Long-Term Debt
Long-Term Debt consists of the following:
December 31, ------------------------------------------ 1994 1993 ----------------- ----------------- Term Loan $ 30,775 $ 55,300 Senior Notes 56,000 56,000 Other (See Note 4) 797 - ----------------- ----------------- Total debt 87,572 111,300 Less current maturities 9,325 5,525 ----------------- ----------------- Long-term debt $ 78,247 $ 105,775 ================= =================
Annual maturities of long-term debt outstanding as of December 31, 1994 are as follows: 1995, $9,325; 1996, $11,349; 1997, $10,699; 1998, $199; 1999, $14,000; thereafter, $42,000.
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 New Common indirectly owned by Fukutake, (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, beginning March 31, 1993, until final maturity on September 30, 1997. The Company made four scheduled quarterly installment payments of $1,381 each during the year ended December 31, 1994. The Senior Notes amortize in annual installments of $14,000 on December 31 in each of the years 1999 through 2001, and have a final maturity on December 31, 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. Under certain circumstances, mandatory prepayments of the Senior Notes resulting from asset sales are required.
Borrowings under the Bank Term Facility bear interest at variable rates based on, at the option of the Company, (i) Chemical Bank's alternate base rate plus a spread of 1.0%-1.5% or (ii) the rate offered by certain reference banks to prime banks in the interbank Eurodollar market, fully adjusted for reserves plus a spread of 2.0%-2.5%. The spread applicable to the borrowings under the Bank Term Facility will depend on a specified debt-to-cash flow ratio of the Company. In addition, a commitment fee of approximately 0.4% was charged on the average daily balance of available but unused amounts under the Bank Revolving Facility. The interest rate on the Term Loan at December 31, 1994 was approximately 7.8%. The Senior Notes bear interest at 9.79%.
The Acquisition Debt Facilities contain certain covenants, including (i) limitations on the ability of the Company and its subsidiaries to incur indebtedness and guarantee obligations, to prepay indebtedness, to redeem or repurchase capital stock or subordinated debt, to enter into, grant or suffer to exist liens or sale-leaseback transactions, to make loans or investments, to enter into mergers, acquisitions or sales of assets, to change the nature of the business conducted, to 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 obtain, within 180 days of the Merger, 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, 1994, 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.
Long-term debt outstanding at December 31, 1992 under a loan agreement with Societe Generale was paid in full on February 8, 1993.
10.Commitments
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 $24,816, $21,225, $1,849 and $21,264, for the year ended December 31, 1994, the period February 1, 1993 to December 31, 1993, the period January 1, 1993 to January 31, 1993 and the year ended December 31, 1992, 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, 1994 are as follows: 1995 - $7,233; 1996 - $5,821; 1997 - $4,698; 1998 - $3,081; 1999 - $2,139, and an aggregate of $5,391 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.
11. Financial Instruments and Related Disclosures
a) Currency coupon swap agreements
Pursuant to a covenant under the Acquisition Debt Facilities, in August 1993 the Company entered into six 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, which utilize fixed and floating interest rates, require the Company to periodically exchange foreign currency denominated interest payments for U.S. dollar-denominated interest receipts. Under the fixed rate agreements, effective for the period from December 31, 1993 to December 31, 1998, semiannual interest exchanges began June 30, 1994. Under the floating interest rate agreements, effective for the period from December 31, 1994 to December 31, 1998, quarterly interest exchanges begin March 31, 1995. Credit loss from counterparty nonperformance is not anticipated.
The periodic interest exchanges are based upon annual interest rates applied to notional amounts as follows:
The Company marks coupon swaps to market. When these agreements are effective as hedges, realized and unrealized gains and losses have been excluded from the Company's Consolidated Statements of Operations, and included, net of deferred taxes, in the cumulative translation adjustment of shareholders' equity.
b) Concentration of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and temporary investments and trade accounts receivable.
The Company maintains cash and temporary investments with various high credit qualified financial institutions. The majority of these financial institutions are located outside of the U.S. and the Company's policy is designed to limit exposure to any one of these foreign institutions. The Company maintains U.S. concentration accounts, consisting of overnight investments, with two major U.S. banks. During 1994 and 1993, balances in these accounts averaged 26% and 25% of worldwide cash. As part of its cash management process, the Company performs periodic evaluations of the relative credit standing of all financial institutions in which it maintains cash and temporary investments.
Credit risk with respect to Language Instruction and Translation Services trade accounts receivable is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and countries. The Publishing segment also sells to a substantial client base, although several of its larger receivables are from its distributors. Such receivables from Publishing's distributors comprised approximately 10% of the Company's total accounts receivable balance before allowances at December 31, 1994.
c) Fair values of financial instruments
The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1994 and 1993 were as follows:
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.
12. Related Party Transactions
a) Transactions with current related party
In September 1994, the Company borrowed $20,000 from a U.S. subsidiary of Fukutake, as evidenced by a subordinated promissory note (the "U.S. Note") bearing interest at a rate of 6.93% per annum. The Company's Japanese subsidiary, The Berlitz Schools of Languages (Japan), Inc. ("Berlitz-Japan), also borrowed Yen 1.0 billion (approximately $10,145) from Fukutake as evidenced by an interest-free subordinated promissory note (the "Japan Note"). A portion of the proceeds of these notes (collectively the "Fukutake Notes") were used to settle certain obligations under the Acquisition Debt Facilities.
The Fukutake Notes mature on the earlier of June 30, 2003 or twelve months from the date that all payment obligations under the Acquisition Debt Facilities have been satisfied. To the extent that interest payments on the U.S. Note are not permitted while any amounts remain outstanding under the Acquisition Debt Facilities, such accrued interest will roll over semiannually into the note principal.
The Fukutake Notes are subordinate in rights of payment to debt under the Acquisition Debt Facilities, including the financial hedging instruments. Payment obligations under the U.S. Note are guaranteed by the Company and its significant U.S. subsidiaries, subject to senior guarantees of the Acquisition Debt Facilities. The Company and its significant U.S. subsidiaries have also executed a guarantee of payment obligations under the Japan Note, effective as of the day following the date upon which all payment obligations under the Acquisition Debt Facilities are satisfied.
The Fukutake Notes contain certain covenants, including prohibitions on the incurrence of other debt, liens, loans, mergers or consolidations and amendments to the Acquisition Debt Facilities without consent.
Berlitz-Japan had a contract (the "Development Agreement") with Fukutake, originally executed in 1992 and amended in 1993, for the development of English conversation video programs for elementary and junior high school students in Japan. The programs consist of printed study materials, video cassettes and audio cassettes, which are used as the basis of a correspondence course. Under this contract, Fukutake was to reimburse Berlitz-Japan for project- related production costs incurred, including employee salaries and outside production fees, and pay to Berlitz-Japan a one-time development fee and a coordination fee of 10% of project-related employee salaries. Development activities under the Development Agreement were completed during 1994.
Pursuant to the Development Agreement, the Company received reimbursement for production costs of approximately $2,300, $1,800 and $296 during 1994, 1993 and 1992, respectively. In addition, the Company received the coordination fee and other project-related reimbursements
of approximately $250 in 1994, and the development fee of approximately $420 in 1993. The Company had recorded in accounts receivable $0 and $213 at December 31, 1994 and 1993, respectively, related to the Development Agreement.
The Company and Fukutake maintain a joint Directors and Officers ("D&O") insurance policy covering acts by directors and officers of both Fukutake and the Company. Consequently, the premium on the D&O policy is allocated 60% to Fukutake and 40% to the Company. Commencing in February 1995, the Company will maintain a stand- alone Employment Practices Liability ("EPL") insurance policy covering the Company, its officers and directors (including the Fukutake directors who are also directors of the Company). Consequently, the premium on the EPL policy will be allocated 30% to Fukutake and 70% to the Company.
The Company and Fukutake participated in certain other joint business arrangements in the ordinary course of business, as follows: i) Pursuant to a June 1, 1993 sublease agreement, the Company subleased space during 1994 in Fukutake's New York offices at an annual base rent of $79 plus operating expenses. The sublease expired in January 1995. ii) During 1994, Berlitz-Japan provided lessons to Fukutake under an extended industrial block contract, entered into in 1993 for a prepayment of Yen 10 million, whereby Berlitz-Japan waived a one-time registration charge and provided Fukutake with an industrial lesson rate which is approximately 20% below the individual rate. iii) In 1994, the Company and Fukutake entered into a services agreement whereby Fukutake would offer its customers language and homestay programs arranged and operated by the Company's specialty instruction program, Berlitz Study Abroad (Trademark). During 1994, Fukutake also periodically offered its customers language study and homestay programs arranged and operated by L.I.F.E. (Registered Trademark), 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 a arms-length transaction with independent third parties. Each of the transactions with Fukutake entered into after the Merger was approved by the Disinterested Directors Committee.
b) Transactions with former related parties
Amounts applicable to transactions with Macmillan and Maxwell Communication are summarized below:
Year Ended December 31, ------------
Balance payable, beginning of period $ (617) Charge from Macmillan for corporate services (26) Charge for distribution services (564) Interest income 6,798 Cash transfers, net (1,934) Common stock dividends declared (4,452) Other activity, net 3,109 ---------- Balance receivable, end of period $ 2,314 ==========
Pursuant to the terms of a distribution agreement between the Company and Maxwell Macmillan Canada, Inc. ("Maxwell Canada"), Macmillan and Maxwell Canada served, until 1994, as the exclusive distributors for certain travel guide books and related publications of the Company in the United States and Canada, respectively. The Company paid Macmillan an aggregate of approximately $564 pursuant to the terms of these distribution agreements in 1992. The costs of the services provided under the distribution agreement are included in the accompanying consolidated Statements of Operations as selling, general and administrative expenses.
"Interest income" represents interest on the Macmillan Note at 10.5% per annum.
13. Redeemable Preferred Stock
The holders of the Redeemable Preferred Stock were entitled to quarterly dividends at the lesser of the quarterly rate of 1.75% of $180,000 liquidation preference of such shares (i.e. $12,600 annually) or the quarterly rate which resulted in the aggregate dividends on all shares of the Preferred Stock being equal to the Company's after-tax income during the preceding quarter from the Maxwell Note and the Receivable Notes.
As a result of the payment defaults of the Maxwell Note and certain receivable Notes and the recording of the write-offs and reserves in the Company's 1991 Consolidated Statement of Operations with respect to such Notes, no dividends were declared or paid on the preferred Stock during 1992 and 1993.
The Preferred Stock was redeemed in 1993 in connection with the Merger.
14. Stock Option and Incentive Plans
During 1989, the Company established the 1989 Stock Option and Incentive Plan (the "Plan") which authorized the issuance of up to 2,000,000 shares of common stock. The Plan authorized the issuance of various stock incentives to officers and key employees, including options, stock appreciation rights, restricted stock, deferred stock and certain other stock-based incentive awards. The options were to expire ten years from the date of grant and were exercisable as determined by the committee established to administer the plan.
A summary of the activity related to stock options under the Company's Plan follows:
Shares Price per Share --------- ----------------------- Options outstanding at January 1, 1992 707,000 $ 14.50 - $18.625 Granted 320,000 $ 17.25 - $18.00 Cancelled (26,500) $ 17.875 - $18.625 --------- Options outstanding at December 31, 1992 1,000,500 $ 14.50 - $18.625 Exercised (6,000) $ 16.50 Cancelled (10,000) $ 16.50 - $18.00 Merger-related liquidation (984,500) $ 14.50 - $18.625 --------- Options outstanding at December 31, 1993 - - ========= Options exercisable at December 31, 1992 336,500 $ 14.50 - $18.625 =========
There were no stock option grants, exercises or cancellations during 1994, and no options are outstanding at December 31, 1994.
At January 1, 1992, 75,000 restricted shares to key employees were outstanding under the Plan. The resale restrictions on these shares, granted prior to 1992, lapsed in equal installments over five years commencing from date of grant. Deferred compensation, equivalent to the market value of the common stock at the date of grant times the number of shares granted, was charged to Shareholders' Equity as unearned compensation in the year of grant and was being amortized over the service period. During 1992, 3,000 shares were cancelled and 3,500 shares were sold. During 1993, prior to the Merger, 2,000 shares were sold.
All outstanding options and restricted shares as of February 8, 1993 were liquidated in connection with the Merger. (See Note 2). There were no grants of restricted stock subsequent to the Merger and there are no restricted shares outstanding at December 31, 1994.
At December 31, 1994, there were no shares outstanding pursuant to any other stock-based awards under the Plan.
During 1991, the Company established the Non-Employee Directors Stock Plan ("Directors' Stock Plan") to provide non-employee Directors of the Company the opportunity to elect to receive a portion of their annual retainer fees in the form of common stock of the Company, or to defer receipt of a portion of such fees and have the deferred amounts treated as if invested in common stock. The Directors' Stock Plan, in which participation was elective for non-employee Directors, limited the benefits paid in the form of stock to 50% of the annual retainer. All deferred amounts outstanding under the Director's Stock Plan as of February 8, 1993 were settled in connection with the Merger. There were no deferrals subsequent to the Merger and there are no deferred amounts outstanding at December 31, 1994.
On December 2, 1993, the Board of Directors of the Company approved the Long-Term Executive Incentive Compensation Plan and the Short- Term Executive Incentive Compensation Plan (the "Long-Term Plan" and "Short-Term Plan", respectively). The Long-Term Plan, having an effective date of January 1, 1994, provides for potential cash awards in 1999 to key executive employees if certain financial goals and stock price results are achieved for the five year period ending December 31, 1998. The Short-Term Plan, commencing with the 1993 calendar year, provides for potential cash awards to officers and other key employees if certain financial goals and individual discretionary performance measures are met for the applicable calendar year. The Company is not required to establish any fund or to segregate any assets for payments under the Long-Term Plan or the Short-Term Plan. Approximately $1,300 was paid for 1994 pursuant to the Short-Term Plan.
The Company has severance agreements with three key employees which generally provide for termination payments of between one and two times annual base salary, plus shares of the Company's bonus plan awards. The agreements also provide for the continuation of certain benefits. One of these agreements is in effect for 36 months following a change in control. The maximum contingent liability under such agreements is approximately $1,500.
The Company also has a consulting agreement with its former Chief Operating Officer which
provides, subject to certain conditions, for payments totalling $220 over the two-year period ending August 31, 1995.
15. Thrift and Retirement Plans
The Berlitz International, Inc. Retirement Savings Plan (the "Berlitz Plan") covers substantially all of the Company's full-time domestic employees. The retirement portion of the Berlitz Plan provides for the Company to make regular contributions based on salaries of eligible employees. The thrift portion of the Berlitz Plan, in which employee participation is elective, provides for Company matching contributions of up to 3% of salary. Payments upon retirement or termination of employment are based on vested amounts credited to individual accounts.
In addition, certain foreign operations have other defined contribution benefit plans. Total expense with respect to all benefit plans was $1,445, $1,417, $121, and $1,267, for the year ended December 31, 1994, the period from February 1, 1993 to December 31, 1993, the period from January 1, 1993 to January 31, 1993, and the year ended December 31, 1992.
The Company does not provide health care or insurance coverage or other post-retirement benefits other than pensions to retirees; therefore adoption of SFAS No. 106, "Post-retirement Benefits Other Than Pensions" has no effect on the Company's consolidated financial statements.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits". This standard is effective in 1994 and establishes accounting standards for employers who provide benefits to former or inactive employees after employment but before retirement. The Company believes that the adoption of this standard will have no effect on its consolidated financial statements.
16. 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.
General corporate identifiable assets for 1994 include $1,011 of currency coupon swap agreements, with the balance principally consisting of property and equipment. For 1993 and 1992, general corporate identifiable assets are principally property and equipment. Depreciation and amortization relates to property and equipment, excess of cost over net assets acquired, other intangibles and publishing rights.
December 31, ------------------------------------- 1994 1993 1992 --------- ---------- ----------- Identifiable assets: Language Instruction $ 486,437 $ 478,829 $ 400,405 Translation Services 66,232 59,654 22,722 Publishing 28,062 31,197 32,677 --------- ---------- ----------- Total operating segments 580,731 569,680 455,804 General corporate 1,581 792 779 --------- ---------- ----------- Total $ 582,312 $ 570,472 $ 456,583 ========= ========== ===========
Amortization of publishing rights, excess of cost over net assets acquired and other intangibles, included in operating profit (loss) in the year ended December 31, 1994, the period from February 1, 1993 to December 31, 1993, the period from January 1, 1993 to January 31, 1993, and the year ended December 31, 1992 amounted to $9,216, $8,449, $204 and $2,452 for North America; $1,405, $1,191, $291 and $3,492 for Europe; $1,575, $1,336, $308 and $3,697 for East Asia and $554, $575, $69 and $822 for Latin America.
Profit (expense), resulting from an intersegment allocation to compensate North America for use of its intangibles, and included in operating profit (loss) in the year ended December 31, 1994 and the period from February 1, 1993 to December 31, 1993, amounted to $6,072 and $5,564 for North America; $(2,913) and $(2,669) for Europe; $(2,189) and $(2,006) for East Asia and $(970) and $(889) for Latin America.
Merger-related restructuring costs, included in operating profit (loss) in the Post-Merger period from February 1, 1993 to December 31, 1993, amounted to $122 for North America; $1,090 for Europe; $2,826 for East Asia; $50 for Latin America, and $720 for General corporate expenses. No Merger-related restructuring costs were incurred in 1994 or in the Pre-Merger periods.
December 31, ------------------------------------------------- 1994 1993 1992 ---------- ----------- --------------
Identifiable assets: North America $ 382,203 $ 383,444 $ 119,284 Europe 89,682 80,120 154,698 East Asia 83,353 75,984 146,087 Latin America 27,074 30,924 36,514 ----------- ----------- -------------- Total $ 582,312 $ 570,472 $ 456,583 =========== =========== ==============
17. Quarterly Financial Data (unaudited)
(1) Gives effect to the combination of the results of the Company for the Pre- Merger and Post-Merger periods. (2) Assumes 10,031,000 shares of common stock outstanding. (3) Reflects effects of Merger-related restructuring adjustments. Refer to Note 2.
BERLITZ INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Schedule II
(1) Principally represents net losses incurred in the ordinary course of business and chargeable against the allowance.
(2) Principally represents foreign currency translation.
(3) Gives effect to the combination of the changes in the allowance for doubtful accounts of the Company for the Pre-Merger and Post-Merger periods of the year ended December 31, 1993.
See Note 2 regarding the Maxwell Note and the Receivable Notes.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
ITEM 10.
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.
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 each of the Chief Executive Officer ("CEO") and certain executive officers (collectively, the "Named Executive Officers") during the fiscal years ended December 31, 1994, 1993 and 1992 for services rendered in all capacities to the Company and its subsidiaries.
The compensation disclosed below under "All Other Compensation" incorporates amounts received by the Named Executive Officers in 1993 as a result of the Merger.
SUMMARY COMPENSATION TABLE
(1) Mr. Yokoi joined the Company as an officer in 1993 and his base salary of $355,000 became effective April 1, 1993. Therefore, amounts shown for him for 1993 reflect less than a full year of compensation. Mr. Yokoi's salary increased to $361,000 effective August 30, 1993, to $404,320 effective January 1, 1994 and to $444,800 effective January 1, 1995. During 1992, Mr. Yokoi was not employed by the Company but served as a Director; however, there was no compensation paid to or earned by him in respect of such year.
(2) Mr. Kojima joined the Company as an officer in 1993 and his base salary of $190,000 became effective on April 1, 1993. Therefore, amounts shown for him for 1993 reflect less than a full year of compensation. Mr. Kojima's salary increased to $200,000 effective January 1, 1994 and to $210,000 effective January 1, 1995. During 1992, Mr. Kojima was not employed by the Company and, accordingly, there is no compensation information to report for him in respect of such year.
(3) Mr. Fernandez's base salary increased from a base salary of $143,418 effective April 1, 1992, to $185,000 effective August 30, 1993, to $207,200 effective January 1, 1994 and to $224,800 effective January 1, 1995. Mr. Fernandez's 1993 percentage increase in base salary was based on the additional responsibilities he assumed as a result of his promotion to Executive Vice President - Language Services from Vice President - European Operations.
(4) Mr. Minsky's salary increased from a base salary of $174,900 effective April 1, 1992, to $178,000 effective August 30, 1993, to $185,000 effective October 4, 1993, to $207,200 effective January 1, 1994 and to $227,900 effective January 1, 1995.
(5) Mr. James' salary increased from a base salary of $157,755 effective April 1, 1992, to $168,000 effective January 1, 1994 and to $182,300 effective January 1, 1995.
(6) Amounts shown represent base salary earned in the respective years.
(7) Other Annual Compensation for Mr. Yokoi and Mr. Kojima represents monthly housing allowances commencing September 1, 1993. For Mr. Fernandez, this column includes relocation expense reimbursements of $19,795 and $10,494 in 1994 and 1993, respectively. For Mr. Minsky, this column represents relocation expense reimbursement.
(8) The column designated by the SEC to report Long-Term Incentive Plan Payouts has been excluded because the Company had no performance-based long-term compensation plans for employees effective during any portion of fiscal years 1993 or 1992. The Compensation Committee of the Company's Board of Directors approved a long-term incentive plan, effective January 1, 1994, as discussed in the Compensation Committee report under "Long-Term Executive Incentive Compensation Plan". No payouts have been made under such plan in 1994.
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 1994, 1993 or 1992. Prior to the Merger, all restricted stock awards had vested in twenty percent increments over a five year period commencing on the first anniversary of the date of grant. Shareholders of restricted stock received dividends at the same rate and at the same time as shareholders of common stock of the Company.
Pursuant to the terms of the Merger Agreement and the 1989 Stock Option and Incentive Plan (the "Stock Option Plan"), on February 8, 1993 all restrictions on restricted stock lapsed and the holders of such shares received (i) $19.50, (ii) 0.165 share of New Common and (iii) $1.48, representing the net proceeds from the disposition of the Company's claims arising from three promissory notes issued by Maxwell Communication and an affiliate in favor of the Company or a subsidiary of the Company (the "Maxwell Notes"). In addition, holders of restricted stock received $.01 per share at such time in consideration for the redemption of the Common Share Purchase Rights (each, a "Right") granted pursuant to the terms of the Amended and Restated Safeguard Rights Agreement, dated as of February 5, 1992, between the Company and United States Trust Company of New York (the "Rights Agreement"). Consequently, there are no New Common restricted shares outstanding at December 31, 1994.
(9) The awards set forth in this column are of grants of stock options only. The Company has not granted SARs to any of the Named Executive Officers during fiscal years 1994, 1993 or 1992. There have been no exercises of options or SARs for the fiscal year 1994.
Pursuant to the Merger Agreement and the Stock Option Plan, on February 8, 1993, each outstanding option became fully vested and was converted into the right to receive (i) 0.165 share of New Common, (ii) $19.50 minus the exercise price of such option and (iii) $1.48, representing the net proceeds from
the disposition of the Company's claims arising from the Maxwell Notes.
At December 31, 1994, there were no options or SARs outstanding.
(10)The amounts reported in this column for the fiscal year 1994 include contributions made by the Company for the accounts of the Named Executive Officers pursuant to the thrift portion (the "401(k) Plan") of the Berlitz Retirement Savings Plan (the "Retirement Savings Plan"), as follows: Mr. Yokoi, $8,864, Mr. Fernandez, $6,134; Mr. Minsky, $6,216; Mr. Kojima, $4,385, and Mr. James, $5,040. The amounts reported also include contributions made by the Company for the accounts of the Named Executive Officers pursuant to the retirement portion (the "Pension Plan") of the Retirement Savings Plan, as follows: Mr. Yokoi, $10,341; Mr. Fernandez, $7,252; Mr. Minsky, $7,252; Mr. Kojima, $5,115; and Mr. James, $5,880.
Long-term Incentive Plans - Awards Effective in Fiscal Year 1994
The following awards were made pursuant to the 1993 Long-Term Executive Incentive Compensation Plan (the "Long-Term Incentive Plan"). See the Compensation Committee Report for a further description.
(1) Assumes that minimum revenues and earnings goals are met. Should such goals not be met, no payments will be made.
(2) The threshold, target and maximum dollar amounts listed below will change based on a multiplier related to the change in stock price, if any.
(3) Pursuant to the Long-Term Incentive Plan, maximum payouts are capped at three times the participant's annual salary at December 31, 1998.
Directors Committees and Compensation of Directors
In 1994, 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 1994.
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 three times during 1994.
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 and its affiliates. As a result of the Merger, the Disinterested Directors Committee's role was retained and reconstituted to review and monitor all matters affecting the relationship between the Company and Fukutake and its affiliates. During 1994, the Disinterested Directors Committee met in person one time and took action by unanimous consent three times.
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 Stock Option Plan 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 Long-Term Incentive Plan and approves awards and discretionary bonuses under these plans. No member of the Compensation Committee is eligible to participate in the Stock Option Plan or the Short-Term Incentive Plan. During 1994, the Compensation Committee met three times.
The Company's standard retainer payable to each director who is not an employee of the Company or 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 its affiliates are eligible to participate in the health benefit plan maintained by the Company. Directors employed by the Company or its affiliates receive no compensation in consideration of their duties as directors. The outside directors earned an aggregate of approximately $128,000 as cash compensation for their services during 1994.
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 or omission or 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
During 1993, the Company entered into a severance agreement with Robert Minsky, replacing all previous agreements entered into between Mr. Minsky and the Company, which provides that if Mr. Minsky is terminated other than for cause (1) at any time prior to August 8, 1995, he is to be paid two years' 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 both years and the continuation of certain other benefits, or (2) at any time after August 8, 1995, such benefits would be payable for one year.
The Company also had severance agreements with Manuel Fernandez and Henry D. James, dated February 6, 1992, which provided that if, within 18 months following a change of control occurring at any time before February 6, 1994, the Company terminated such executive officer's employment other than for cause, such executive officer would receive amounts equal to his annual base salary for one year plus a prorated share of the award under the Company's short-term bonus plan to which he would have been entitled and the continuation of certain other benefits. These agreements lapsed in August 1994.
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.
COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1994
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 Plan and the Directors' Stock Plan. The Committee also administers the Short-Term Incentive Plan and the Long-Term Incentive Plan 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 1994 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 two of the three Compensation Committee meetings held in 1994. 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 ranged from 1.9% to 12% for 1994, and from 4.7% to 10% for 1995. 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. The Committee believes that individual performance and Company performance are given 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.
In 1995, the Committee amended the Short-Term Incentive Plan so that Division Vice Presidents would
receive 1995 and subsequent awards based on 60% of divisional performance and 40% of total Company performance.
At its March 1995 meeting, the Committee approved, after discussion, 1994 bonuses for executive officers under the Short-Term Incentive Plan. Such bonuses that accrued for 1994 ranged from 22.5% to 40% 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 1994 for such executive officers ranged from 6.2% to 19.4% of their total salary.
Stock Options and Restricted Stock
The 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 Stock Option Plan in 1994.
Long-Term Executive Incentive Compensation Plan
In 1993, the Committee approved the Long-Term Incentive Plan, effective January 1, 1994, pursuant to which officers and certain key employees are 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 are granted by the Committee to each executive officer in its discretion. Criteria used to evaluate Company performance are earnings and sales figures. The weight assigned to the earnings component of Company performance is 60% and the weight assigned to the sales component of Company performance is 40%. For each performance unit granted by the Committee, each executive officer will 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 Long-Term Incentive Plan also contains provisions governing such awards in the event of a change of control of the Company or a "going private" transaction with Fukutake or its affiliates.
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 1994, the Compensation Committee determined that the Company would contribute 3.5% of eligible employees' respective base salary to the Pension Plan. During 1994, 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 salary increased to $444,800 effective January 1, 1995 from $404,320 effective January 1, 1994. Mr. Yokoi also earned a bonus of $161,700 for 1994 under the Short-Term Incentive Plan.
The Compensation Committee approved and ratified the compensation paid to Mr. Yokoi for fiscal year 1994 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 1994 performance was taken into consideration in determining Mr. Yokoi's 1994 compensation package. The Committee believes that Mr. Yokoi's 1994 compensation package was in line with compensation packages of chief executive officers of other companies with similar annual revenues.
Tax Legislation
During 1993, the U.S. Internal Revenue Code was amended to limit deductions for certain compensation in excess of $1 million annually paid to executive officers of public companies. The legislation imposing this change is unclear on a number of critical issues, and the ultimate effect of the change on the Company and other public companies will depend to a significant extent on the implementing regulations. Proposed regulations have been issued, but these regulations are not final and also are subject to a number of interpretations. The Committee intends to continue to evaluate this change during 1995. At this time, however, the Committee and the Board of Directors have not taken action in respect of the Company's compensation policy as result of the change.
Compensation Committee Membership
During 1994, the Compensation Committee consisted of Soichiro Fukutake, Edward G. Nelson, and Aritoshi Soejima. All of the views expressed by the Compensation Committee in 1994 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 1994
Soichiro Fukutake Edward G. Nelson Aritoshi Soejima
Compensation Committee Interlocks and Insider Participation
As discussed above, during 1994 and at March 31, 1995, the Compensation Committee consisted of Soichiro Fukutake, Edward G. Nelson, and Aritoshi Soejima. None of these committee members was an officer of the Company or any of its subsidiaries during 1994.
Mr. Fukutake serves as the Chairman of the Board of the Company. In addition to his role in presiding over board meetings, Mr. Fukutake is actively involved in creating and monitoring strategies for the Company's global growth. As a result, upon recommendation of management and after discussion, the Compensation Committee in 1993, with Mr. Fukutake absent, approved the inclusion of Mr. Fukutake as a participant in the Long-Term Incentive Plan, based upon the considerable time and effort spent by Mr. Fukutake in monitoring long-term strategies for the Company, apart from his duties as Chairman of the Board.
Aritoshi Soejima previously served as an advisor to Fukutake. He resigned such position prior to his appointment as a Disinterested Director and a member of the Compensation Committee.
Performance Graph
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 December 31, 1989, and ending December 31, 1994. In December 1989, the Company completed an initial public offering of approximately 8.4 million shares of common stock. See "Certain Relationships and Related Transactions" for further discussion. 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.
Comparison of Stock Prices Berlitz International, Inc., the S&P 400 Industrial Index and Selected Education Companies
1989 1990 1991 1992 1993 1994 Berlitz $ 100 $ 81 $ 119 $ 132 $ 83(1) $ 78 S & P 400 Index $ 100 $ 96 $ 122 $ 126 $ 134 $ 135 Education Companies $ 100 $ 81 $ 116 $ 94 $ 81 $ 72
Comparison of Stock Prices Berlitz International, Inc., the S & P 400 Industrial Index, and Selected Educational Publishing Companies
1989 1990 1991 1992 1993 1994 Berlitz $ 100 $ 81 $ 119 $ 132 $ 83 (1) $ 78 S & P 400 Index $ 100 $ 96 $ 122 $ 126 $ 134 $ 135 Educational Publishing Companies $ 100 $ 76 $ 85 $ 111 $ 137 $144
(1) As a result of the Merger, 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, 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. As of March 1, 1995, 10,032,935 shares of New Common were outstanding. Prior to the Merger, 19,075,584 shares of Old Common were outstanding.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Management Security Ownership The following table sets forth the number and percentage of outstanding shares of New Common beneficially owned by each director, nominee, all individuals serving as the Company's chief executive officer during the fiscal year ended December 31, 1994, the four most highly compensated executive officers of the Company at December 31, 1994 and all officers and directors serving at December 31, 1994 as a group, as of March 1, 1995. If not mentioned, the individual does not beneficially own any shares of New Common as of December 31, 1994. 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.
Amount and Nature of Beneficial Percent Title of Class Name Ownership of Class
New Common Manuel Fernandez 8,745 * New Common Robert Minsky 2,857 * New Common Edward G. Nelson 1,500 * New Common Henry D. James 7,672 *
All Officers and Directors as a Group New Common (15 in number) 40,408 *
* Less than 1%
To the best of registrant's knowledge, there are no events of delinquent filing requiring disclosure under Item 405 of Regulation S-K.
Other Security Ownership The following table sets forth the ownership by each person or group who owned of record, or was known by the Company to own beneficially more than 5% of New Common on March 1, 1995.
Percent Title of Class Beneficial Owner Ownership of Class -------------- -------------------------------- ---------- --------
New Common Fukutake Publishing Co., Ltd.(1) 6,735,338 67% 3-17-17 Minamigata Okayama-shi 700, Japan New Common Macmillan, Inc. 627,000 6% 55 Railroad Ave. Greenwich, CT 06830
(1) 6,722,138 shares of New Common are held by a wholly owned subsidiary of Fukutake and 13,200 shares of New Common are held directly by Fukutake.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
Prior to the Company's initial public offering in December 1989, the Company was a wholly owned subsidiary of Macmillan. On December 13, 1989, the Company sold 8.4 million shares of common stock to the public in an initial public offering and issued to Macmillan 200,000 shares of the Company's 7% non-cumulative preferred stock (the "Preferred Stock") (of which 20,000 shares were subsequently retired and cancelled and 180,000 shares remained outstanding) in exchange for the capital stock of its predecessor companies.
Mr. Yokoi was elected to the Board of Directors in January 1991 pursuant to Fukutake's acquisition of a 20% interest in The Berlitz Schools of Languages (Japan), Inc. ("Berlitz-Japan"), a subsidiary of the Company, for an aggregated consideration of $27.1 million. Pursuant to an agreement with Fukutake entered into in connection with such acquisition, Fukutake was entitled to nominate one director of the Company and had an option, under certain circumstances, to sell back such interest to the Company, including in the event that the Company should decide not to apply for public registration of its subsidiary in Japan. Pursuant to the Merger, Fukutake relinquished the above- mentioned option. Mr. Saburo Nagai currently serves as the Fukutake nominee on the Board of Directors of the Company pursuant to the acquisition by Fukutake in January 1991 of a 20% interest in Berlitz- Japan.
On December 9, 1992, the Company and Fukutake entered into the Merger Agreement pursuant to which Fukutake agreed to acquire, through a Merger of the Company with an indirect wholly owned U.S. subsidiary of Fukutake, approximately 67% of the New Common. The Company's shareholders received for each of their shares of common stock held prior to the Merger: (i) $19.50 cash, (ii) 0.165 share of New Common and (iii) $1.48, representing the net proceeds from the disposition of the Company's claims arising from the Maxwell Notes. In addition, at the time of the closing, the shareholders of record on February 17, 1992 received $.01 per share in consideration for the redemption of each Right granted pursuant to the terms of the Rights Agreement. Public shareholders of the Company hold the remaining approximately 33% of New Common.
The Merger Agreement and the transactions contemplated thereby were approved by the required holders of at least two-thirds of the Company's outstanding shares and were consummated on February 8, 1993.
In January 1993, the Company entered into agreements with Maxwell Communication and Macmillan (the "Disengagement Agreements") to disengage certain relationships. Pursuant to these agreements, among other things: (i) the Company redeemed from Macmillan all of the outstanding Preferred Stock of the Company; (ii) Maxwell Communication waived all claims that payments to the Company should be considered preferential and other claims of Maxwell Communication and its affiliates against the Company and its subsidiaries the Maxwell Communication may have as a result of Maxwell Communication's bankruptcy filing on December 16, 1991; and (iii) U.S. and U.K. Bankruptcy authorities allowed for all purposes a portion of the Maxwell Notes and a claim by the Company against Maxwell Communication as subrogee of Midland Bank plc in the Chapter 11 case (and any superseding Chapter 7 case) and in the Maxwell Communication administration pending in the High Court of Justice in the United Kingdom. In addition, the Company and its subsidiaries (a) sold to Macmillan a promissory note of Macmillan with a principal amount of $64.6 million and (b) reduced by $58 million the amount of their claims against Maxwell Communication in respect of the Maxwell
Notes.
The Company also entered into an agreement with Macmillan clarifying certain commercial relationships, including formally terminating the services agreement with Maxwell Communication and Macmillan as of December 31, 1991. Certain distribution agreements with Macmillan and its affiliates were terminated in 1994.
The Company was included in the consolidated tax returns of the affiliated group of which Macmillan was the parent (the "Macmillan Group") prior to the Company's initial public offering in December 1989 and, consequently, is severally liable for any federal income tax liabilities of the Macmillan Group arising prior to that date. Pursuant to the Disengagement Agreement, Macmillan agreed to pay all such Federal income tax liabilities pursuant to an amended and restated tax allocation agreement (the "Tax Allocation Agreement') and Maxwell Communication put into escrow $39.5 million to secure Macmillan's obligation under the Tax Allocation Agreement.
On November 10, 1993, Macmillan commenced a voluntary Chapter 11 case in the United States Bankruptcy Court for the Southern District of New York and filed a prepackaged plan of reorganization (the "Reorganization Plan"). The Reorganization Plan provides that the Tax Allocation Agreement, along with many other contracts between Macmillan and other parties, is to be assumed by Macmillan and assigned to a trust intended to have sufficient assets to satisfy the obligations being assumed and assigned. The Reorganization Plan also provides a cash reserve to pay tax claims that are entitled to priority, which may include tax liabilities covered by the Tax Allocation Agreement. On February 18, 1994, the Bankruptcy Court confirmed the Reorganization Plan. Any tax liability assessed against the Company that would otherwise be payable by Macmillan under the Tax Allocation Agreement (as described in the preceding paragraph) is likely to be paid either by the trust or from the cash reserve described above. Management believes that any such liability will not result in a material effect on the financial condition of the Company.
As part of the Merger, Fukutake established a $50.0 million irrevocable letter of credit to be used in the event that income tax liabilities are imposed on the Company that relate to the Macmillan Group. The Company was obligated to pay fees as may be charged in connection with such letter of credit and to reimburse Fukutake for amounts paid by Fukutake to the issuer of the letter of credit to the extent that it is drawn upon. This letter of credit was terminated in 1994.
In September 1994, the Company borrowed $20.0 million from a U.S. subsidiary of Fukutake, 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 $10.1 million) from Fukutake as evidenced by an interest-free subordinated promissory note (the "Japan Note"). A portion of the proceeds of these notes (collectively the "Fukutake Notes") were used to settle certain obligations under the Acquisition Debt Facilities.
The Fukutake Notes mature on the earlier of June 30, 2003 or twelve months from the date that all payment obligations under the Acquisition Debt Facilities have been satisfied. To the extent that interest payments on the U.S. Note are not permitted while any amounts remain outstanding under the Acquisition Debt Facilities, such accrued interest will roll over semiannually into the note principal.
The Fukutake Notes are subordinate in rights of payment to debt under the Acquisition Debt Facilities,
including the financial hedging instruments. Payment obligations under the U.S. Note are guaranteed by the Company and its significant U.S. subsidiaries, subject to senior guarantees of the Acquisition Debt Facilities. The Company and its significant U.S. subsidiaries have also executed a guarantee of payment obligations under the Japan Note, effective as of the day following the date upon which all payment obligations under the Acquisition Debt Facilities are satisfied.
The Fukutake Notes contain certain covenants, including prohibitions on the incurrence of other debt, liens, loans, mergers or consolidations and amendments to the Acquisition Debt Facilities without consent.
Berlitz-Japan had a contract (the "Development Agreement") with Fukutake, originally executed in 1992 and amended in 1993, for the development of English conversation video taped programs for elementary and junior high school students in Japan. The programs consist of printed study materials, video cassettes and audio cassettes, which are used as the basis of a correspondence course. Under this contract, Fukutake was to reimburse Berlitz-Japan for project-related production costs incurred, including employee salaries and outside production fees, and pay to Berlitz-Japan a one-time development fee and a coordination fee of 10% of project-related employee salaries. Development activities under the Development Agreement were completed during 1994.
Pursuant to the Development Agreement, the Company received reimbursement for production costs of approximately $2.3 million, $1.8 million and $296,000 during 1994, 1993 and 1992, respectively. In addition, the Company received the coordination fee and other project- related reimbursements of approximately $250,000 in 1994, and the development fee of approximately $420,000 in 1993. The Company had no receivables from Fukutake pursuant to the Development Agreement at December 31, 1994.
Fukutake and Berlitz-Japan also entered into an agreement, dated as of October 1, 1993, pursuant to which Berlitz-Japan would assist Fukutake in the development of an English correspondence course and related audio visual materials. Development was completed in March 1994, at which time Berlitz-Japan received a minimum guaranty usage fee of Yen 6,990,336 (approximately $68,000 based on the Yen/Dollar exchange rate at the close of business on March 30, 1994). Under the terms of the agreement, Fukutake will also pay Berlitz-Japan an additional royalty for all courses sold beyond the first 1,200 units.
The Company and Fukutake maintain a joint Directors and Officers ("D&O") insurance policy covering acts by directors and officers of both Fukutake and the Company. Consequently, the premium on the D&O policy is allocated 60% to Fukutake and 40% to the Company. Commencing in February 1995, the Company will maintain a stand-alone Employment Practices Liability ("EPL") insurance policy covering the Company, its officers and directors (including the Fukutake directors who are also directors of the Company). Consequently, the premium on the EPL policy will be allocated 30% to Fukutake and 70% to the Company.
The Company and Fukutake participated in certain other joint business arrangement in the ordinary course of business, as follows: i) Pursuant to a June 1, 1993 sublease agreement, the Company subleased space during 1994 in Fukutake's New York offices at an annual base rent of $79,000 plus operating expenses. The sublease expired in January 1995. ii) During 1994, Berlitz-Japan provided lessons to Fukutake under an extended industrial block contract, entered into in 1993 for a prepayment
of Yen 10.0 million, whereby Berlitz-Japan waived a one-time registration charge and provided Fukutake with an industrial lesson rate which is approximately 20% below the rate charged for individual instruction. iii) In 1994, the Company and Fukutake entered into a services agreement whereby Fukutake would offer its customers language and homestay programs arranged and operated by the Company's specialty instruction program, Berlitz Study Abroad (Trademark). During 1994, Fukutake also periodically offered its customers language study and homestay programs arranged and operated by L.I.F.E. (Registered Trademark), 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 a arms-length transaction with independent third parties. Each of the transactions with Fukutake entered into after the Merger was approved by the Disinterested Directors Committee.
Fukutake has advised the Company that it plans to change Fukutake's name to "Benesse Corporation" on April 1, 1995, upon approval of Fukutake's shareholders. Subject to receipt of all required Japanese approvals and prevailing market conditions, Fukutake plans to make an initial public offering of Fukutake securities no earlier than the later part of 1995. There is no assurance that such a public offering will be made, the timing of any such public offering, nor can the Company predict its possible impact on Berlitz.
PART IV
ITEM 14.
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 30.
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, 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.
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 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.
10.5 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.
10.6 Third Amendment, dated as of September 21, 1994, to the Senior Note Agreements, dated as of January 29, 1993 among the registrant and each institutional lender party thereto. Exhibit 99.11 to the Company's Form 8-K, dated September 21, 1994, is incorporated by reference herein.
10.7 Yen 1 billion (Japanese yen) Subordinated Non-Negotiable Promissory Note, dated as of September 21, 1994, between the Berlitz Schools of Languages (Japan), Inc. (as Borrower) and 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.
10.8 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.
10.9 Spring Guaranty Letter, dated as of September 21, 1994, from the registrant to Fukutake Publishing Co., Ltd. Exhibit 99.4 to the Company's Form 8-K, dated September 21, 1994, is incorporated by reference herein.
10.10 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.
10.11 Subordination Agreement, dated as of September 21, 1994, among 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.
10.12 First Amendment, dated as of September 21, 1994, to the Subordination Agreement, dated as of January 29, 1993, among Fukutake Publishing Co., Ltd, Fukutake Holdings (America), Inc., the registrant and Chemical Bank pursuant to the Master Collateral and Intercreditor Agreement, dated as of January 29, 1993. Exhibit 99.9 to the Company's Form 8-K, dated September 21, 1994, is incorporated by reference herein.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 $99.6 million Term Note pursuant to Term Loan Agreement between the registrant and Maxwell Communication Corporation plc dated November 27, 1989. Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 is incorporated by reference herein.
10.19 Yen 3 billion (Japanese yen) Receivable Note from Maxwell Communication Corporation plc dated December 4, 1989. Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 is incorporated by reference herein.
10.20 $64,568,000 Receivable Note from Macmillan, Inc. dated October 1, 1989. Exhibit 10.6 to the Company's Annual Report on Form 10- K for the fiscal year ended December 31, 1989 is incorporated by reference herein.
10.21 $3.3 million Receivable Note from MLL Holdings Limited dated October 1, 1989. Exhibit
10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 is incorporated by reference herein.
10.22 1989 Stock Option and Incentive Plan. Exhibit 10.13 to Registration Statement No. 33-31589 is incorporated by reference herein.
10.23 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.
10.24 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.
10.25 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.
10.26 Letter Agreement, dated October 19, 1990, with Robert Minsky. Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 is incorporated by reference herein.
10.27 Employment Agreement, dated April 27, 1992, between the registrant and Robert Minsky. Exhibit 10.18 to Registration Statement No. 33-56566 is incorporated by reference herein.
10.28 Employment Agreement, dated October 1, 1993, between the registrant and Robert Minsky.
10.29 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.
10.30 Shareholders' Agreement among Berlitz Languages, Inc., 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.
10.31 Amendment No. 1 to Shareholders' Agreement among Berlitz Languages, Inc., 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.
10.32 Stock Purchase Agreement, dated as of November 8, 1990, between Berlitz Languages, Inc., the registrant and 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.
10.33 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.
10.34 Form of Amended and Restated Indemnification Agreement between the registrant and each of Elio Boccitto, John Brademas, Rozanne L. Ridgway, Joe M. Rodgers, Robert Minsky and Rudy G. Perpich. Exhibit 10.24 to Registration Statement No. 33-56566 is incorporated by reference herein.
10.35 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.
10.36 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.
10.37 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.
10.38 Employment Agreement, dated as of December 23, 1991, between the registrant and Joe M. Rodgers with acknowledgement letter attached. Exhibit 10.24 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 is incorporated by reference herein.
10.39 Employment Agreement dated December 4, 1992 between the registrant and Lyle Beasley. Exhibit 10.29 to Registration Statement No. 33-56566 is incorporated by reference herein.
10.40 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.
10.41 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.
10.42 Letter Agreement, dated July 14, 1993, between the registrant and Elio Boccitto. Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 is incorporated by reference herein.
10.43 Employment Agreement, dated June 15, 1993, between the registrant and Anthony Tedesco. Exhibit 10.37 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 is incorporated by reference herein.
10.44 Employment Agreement, dated February 6, 1992, between the registrant & Manuel Fernandez. Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 is incorporated by reference herein.
10.45* Employment Agreement, dated February 6, 1992, between the registrant & Henry D. James.
11 Statement regarding computation of per share earnings. Exhibit 11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 is incorporated by reference herein.
21 List of principal subsidiaries of the registrant. Exhibit 22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 is incorporated by reference herein.
27* Financial Data Schedule.
*Filed herewith.
B. Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter ended December 31, 1994.
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.
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, 1995
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.
/s/ SOICHIRO FUKUTAKE Chairman of the Board March 31, 1995 Soichiro Fukutake
/s/ HIROMASA YOKOI Vice Chairman of the Board, March 31, 1995 Hiromasa Yokoi Chief Executive Officer, and President (Principal Executive Officer)
/s/ SUSUMU KOJIMA Executive Vice President, March 31, 1995 Susumu Kojima Corporate Planning and Director
/s/ ROBERT MINSKY Executive Vice President, Chief March 31, 1995 Robert Minsky Operating Officer-Translations and Publishing, and Director
/s/ MANUEL FERNANDEZ Executive Vice President, Chief March 31, 1995 Manuel Fernandez Operating Officer-Worldwide Language Instruction, and Director
/s/ HENRY D. JAMES Vice President and March 31, 1995 Henry D.James Chief Financial Officer (Principal Financial Officer)
/s/ SABURO NAGAI Director March 31, 1995 Saburo Nagai
/s/ EDWARD G. NELSON Director March 31, 1995 Edward G. Nelson
/s/ ROBERT L. PURDUM Director March 31, 1995 Robert L. Purdum
/s/ ARITOSHI SOEJIMA Director March 31, 1995 Aritoshi Soejima