UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                     For fiscal year ended December 31, 1999

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
             For the transition period from __________ to __________

                         Commission File Number 1-10390

                           BERLITZ INTERNATIONAL, INC.
               (Exact name of issuer as specified in its charter)

                   New York                           13-3550016
        -------------------------------             --------------
        (State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization)          Identification Number)

        400 Alexander Park, Princeton, New Jersey       08540
        -----------------------------------------      -------
        (Address of principal executive offices)      (Zip code)

       Registrant's telephone number, including area code: (609) 514-9650
                                                           --------------

           Securities registered pursuant to Section 12(b) of the Act:

      Title of each class             Name of each exchange on which registered:
      -------------------             ------------------------------------------
      Common Stock, $.10 par value    New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                                      None
                                      ----
                                (Title and class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period than the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X]  NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Based on the average bid and ask price at March 10, 2000, the aggregate market
value of the voting stock held by non-affiliates of the registrant was
$35,763,284.

The number of shares of the Registrant's common stock outstanding as of March
10, 2000 was 9,529,788.

                   DOCUMENTS INCORPORATED BY REFERENCE : None

                               Page 1 of 95 Pages
                        Exhibit Index Appears on Page 87
<PAGE>

                                     PART I

ITEM 1.  Business

Introduction

Berlitz International, Inc. (the "Company" or "Berlitz") is the world's premier
language services firm, with market leading positions in language instruction
and translation services. The Company also publishes the well-known Berlitz
travel guides, foreign language phrase books, dictionaries and a variety of
other related products. Since its founding, the Company has established a highly
recognized brand name and superior reputation throughout the world as a result
of the Company's tradition of teaching excellence.

The Company, through its predecessors, was founded over 120 years ago and
completed its initial public offering in 1989. Since February 1993, Benesse
Corporation ("Benesse") has beneficially owned a majority of the Company's
common stock and it currently holds approximately 7.2 million shares, or 75.7%
of the shares outstanding. Public shareholders of the Company hold the remaining
outstanding common stock. Since 1990, Benesse has also owned a 20% interest in
Berlitz Japan, Inc., ("Berlitz Japan"), the Company's Japanese subsidiary.

Berlitz is the only company to operate a language services business on a
worldwide basis. This worldwide presence enables Berlitz to provide a full range
of language services to multi-national customers and to take advantage of new
business opportunities. The Company is organized (effective as of January 1,
1999) into two separate business segments: Language Services (which consists of
the Instruction, ELS/BOC, Publishing, Franchising, and Cross Cultural
sub-segments) and Berlitz GlobalNET (formerly known as Translation Services).
Language Services is organized geographically into four operating divisions
(North America, Asia, Latin America and Europe) while Berlitz GlobalNET is
organized into three geographic divisions: Americas (North America and Latin
America), Asia, and Europe. Business segment and geographic area information is
provided in the Notes to Consolidated Financial Statements within Item 8,
Financial Statements and Supplementary Data, under Note 18.

                                        2
<PAGE>

Language Services

General.
As of December 31, 1999, the Company operated 338 Berlitz language centers in 39
countries and Puerto Rico using the Berlitz Method(R), hereinafter described,
and the Company's proprietary instruction material, to provide instruction in
virtually all spoken languages. All of these operations were wholly-owned by the
Company, except for Japan (which is subject to Benesse's 20% interest in Berlitz
Japan) and joint venture operations in Korea and Taiwan. Approximately 6.0
million Language Instruction lessons were given by these Berlitz language
centers in 1999, the most frequently taught languages being English, Spanish,
French and German. A lesson consists of a single 45-minute session (regardless
of the number of students).

In addition to lessons given at Berlitz language centers, the Company provides
intensive English language instruction programs at 40 additional locations,
primarily U.S. college campuses and similar educational settings, through ELS
Educational Services, Inc. ("ELS"), a wholly-owned subsidiary acquired in August
1997, and the Company's Berlitz on Campus ("BOC") division (which were merged in
January 2000). Together with an additional 89 franchised Berlitz and ELS
centers, the Company has a presence in 56 countries and Puerto Rico.

The following table sets forth the number of language facilities in each of the
countries in which the Company and its subsidiaries or franchisees operated
centers as of December 31, 1999:

<TABLE>
<CAPTION>
                                           Berlitz
                                          Language                              ELS/BOC
                                           Centers                             facilities
                                          (Company            Berlitz          (Company             ELS
                                          operated)          Franchises         operated)        Franchises          Total
                                       ----------------    -------------    ---------------    --------------    ------------
<S>                                    <C>                 <C>              <C>                <C>               <C>
      North America
      -------------
        United States                          61                   6               37                  -               104
        Canada                                  8                   -                -                  1                 9
                                       ----------------    -------------    ---------------    --------------    ------------
               Subtotal                        69                   6               37                  1               113
                                       ----------------    -------------    ---------------    --------------    ------------
      Asia
      ----
        Australia                               -                   -                -                  1                 1
        China                                   -                   -                -                  1                 1
        Hong Kong                               1                   -                -                  -                 1
        Indonesia                               -                   1                -                  3                 4
        Japan                                  47                   2                2                  1                52
        Korea                                   1                   -                -                  5                 6
        Malaysia                                1                   -                -                  4                 5
        Singapore                               1                   -                -                  -                 1
        Taiwan                                  1                   -                -                 16                17
        Thailand                                2                   -                -                  -                 2
                                       ----------------    -------------    ---------------    --------------    ------------
               Subtotal                        54                   3                2                 31                90
                                       ----------------    -------------    ---------------    --------------    ------------
      Latin America
      -------------
        Argentina                               5                   1                -                  -                 6
        Brazil                                 18                   1                -                  1                20
        Chile                                   5                   1                -                  -                 6
        Colombia                                9                   -                -                  5                14
        Costa Rica                              -                   2                -                  -                 2
        Dominican Republic                      -                   1                -                  -                 1
        Guatemala                               -                   1                -                  -                 1
        Mexico                                 20                   4                -                  -                24
        Panama                                  -                   -                -                  1                 1
        Peru                                    2                   -                -                  -                 2
        Puerto Rico                             4                   -                -                  -                 4
        Uruguay                                 1                   -                -                  -                 1
</TABLE>

                                        3
<PAGE>
<TABLE>
<CAPTION>
<S>                                    <C>                 <C>              <C>                <C>               <C>
        Venezuela                               8                   -                -                  -                 8
                                       ----------------    -------------    ---------------    --------------    ------------
               Subtotal                        72                  11                -                  7                90
                                       ----------------    -------------    ---------------    --------------    ------------
</TABLE>

                                        4
<PAGE>
<TABLE>
<CAPTION>
                                           Berlitz
                                          Language                              ELS/BOC
                                           Centers                             facilities
                                          (Company            Berlitz          (Company             ELS
                                          operated)          Franchises         operated)        Franchises          Total
                                       ----------------    -------------    ---------------    --------------    ------------
<S>                                    <C>                 <C>              <C>                <C>               <C>
      Europe
      ------
        Austria                                 7                  3                 -                  -                10
        Belgium                                10                  -                 -                  -                10
        Croatia                                 -                  1                 -                  -                 1
        Czech Republic                          5                  -                 -                  -                 5
        Denmark                                 2                  -                 -                  -                 2
        Egypt                                   -                  2                 -                  1                 3
        Finland                                 1                  -                 -                  -                 1
        France                                 17                  1                 -                  -                18
        Germany                                46                  2                 -                  -                48
        Greece                                  1                  -                 -                  -                 1
        Holland                                 2                  -                 -                  -                 2
        Hungary                                 3                  -                 -                  -                 3
        Ireland                                 1                                    -                  -                 1
        Israel                                  6                  -                 -                  -                 6
        Italy                                   6                  1                 -                  -                 7
        Jordan                                  -                  -                 -                  2                 2
        Kuwait                                  -                  1                 -                  1                 2
        Malta                                   -                  1                 -                  -                 1
        Norway                                  1                  -                 -                  -                 1
        Oman                                    -                  -                 -                  1                 1
        Poland                                  8                  -                 -                  -                 8
        Portugal                                1                  -                 -                  -                 1
        Qatar                                   -                  -                 -                  1                 1
        Saudi Arabia                            -                  1                 -                  3                 4
        Slovak Republic                         1                  1                 -                  -                 2
        Slovenia                                1                  -                 -                  -                 1
        Spain                                  10                  -                 -                  -                10
        Sweden                                  1                  -                 -                  -                 1
        Switzerland                             8                  -                 -                  -                 8
        Turkey                                  -                  1                 -                  -                 1
        United Arab Emirates                    -                  2                 -                  3                 5
        United Kingdom                          5                  1                 1                  -                 7
                                       ----------------    -------------    ---------------    --------------    ------------
              Subtotal                        143                 18                 1                 12               174
                                       ----------------    -------------    ---------------    --------------    ------------
         Total                                338                 38                40                 51               467
                                       ================    =============    ===============    ==============    ============
</TABLE>

                                        5
<PAGE>

Instruction Sub-segment
The following tables set forth, by geographic area, the number of
Company-operated Berlitz language centers and the number of lessons given by
these centers over the last five years:

<TABLE>
<CAPTION>
                                                       Number of Centers at December 31,
                                                1999      1998       1997      1996      1995
                                                ----      ----       ----      ----      ----
<S>                                          <C>       <C>        <C>       <C>       <C>
          North America                           69        71         71        70        72
          Asia                                    54        54         53        52        52
          Latin America                           72        67         66        60        60
          Europe                                 143       140        144       143       139
                                             -------   -------    -------   -------   -------
             Total                               338       332        334       325       323
                                             =======   =======    =======   =======   =======
</TABLE>
<TABLE>
<CAPTION>
                                                       Number of Lessons (in thousands)
                                                1999      1998       1997      1996      1995
                                                ----      ----       ----      ----      ----
<S>                                          <C>       <C>        <C>       <C>       <C>
          North America                        1,090     1,157      1,150     1,095     1,050
          Asia                                 1,107     1,040      1,040       939       935
          Latin America                        1,312     1,301      1,183     1,049       981
          Europe                               2,461     2,328      2,175     2,056     1,981
                                             -------   -------    -------   -------   -------
             Total                             5,970     5,826      5,548     5,139     4,947
                                             =======   =======    =======   =======   =======
</TABLE>

In 1999, the United States, Japan, and Germany accounted for approximately 16%,
15% and 12% of lessons given and 15%, 24% and 14% of Language Instruction sales,
respectively. Revenues from Language Instruction accounted for approximately
62%, 61% and 66% of total Company revenues in 1999, 1998 and 1997, respectively.

                                        6
<PAGE>

Berlitz Method(R). At the heart of Instruction is the Berlitz Method(R), a
proven technique that enables students to acquire a working knowledge of a
foreign language in a short period of time. Through the exclusive use of the
target language in the classroom, students learn to think and speak naturally in
the new language, without translation. With its primary objective to develop
conversational comprehension and speaking skills, the Berlitz Method(R) combines
the use of live instruction with proprietary written, audio-visual, and CD-ROM
support materials to ensure a fast, effective, and enjoyable learning
experience.

Berlitz instructors generally teach in their national language and are required
to complete a seven to ten-day initial training course in the Berlitz Method(R),
followed by periodic refresher courses. Upon successful completion of the
initial training course, instructors work either full-time or part-time. The
Berlitz Method(R) does not require that an instructor be proficient in any
language other than the language being taught. This feature of the Berlitz
Method(R) greatly increases the number of potential instructors and tends to
lower instructor costs.

The Company's centralized management and ownership of the majority of its
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.

Instruction Programs. The Company offers several types of language instruction
programs which vary in cost, length and intensity of study. Approximately 48% of
all tuition revenues in 1999 were from private lessons (excluding Total
Immersion(R) courses). Private instruction is typically provided in blocks of
three or more 45-minute lessons, with a short break after each lesson. Total
Immersion(R) courses, an intensive form of private instruction, accounted for
approximately 5% of tuition revenues in 1999. Total Immersion(R) programs last a
full day and generally continue for two to six weeks. The Company also offers
semi-private lessons designed for two to three clients, as well as group
instruction, where classes include four or more students. Group classes
generally meet over a period of weeks. Semi-private and group programs together
represented 47% of tuition revenues in 1999.

A majority of the Company's clients are from the corporate segment of the market
and are enrolled for business or professional reasons. Consequently, the
Company's business is influenced by the level of international trade and
economic activity. In addition to individuals seeking work-related language
skills, Berlitz clients also include travelers and high school and university
students developing course-related language skills.

The Instruction business subsegment also includes specialty areas that, in the
aggregate, accounted for approximately 1% of the Company's revenues in 1999. One
such business, Berlitz Study Abroad(R), combines intensive language instruction
with first-hand exposure to the cultural environment of the country where the
target language is spoken. Another specialty area, Berlitz Jr.(R), provides
complete language instruction programs to children in public and private schools
throughout the world.

                                        7
<PAGE>

Marketing and Pricing Policy. The Company markets its Berlitz language courses
to individuals, businesses and governments. The Company utilizes newspaper,
magazine and yellow page advertising, in addition to direct contacts, to promote
the Berlitz program and centers. Local marketing efforts are coordinated on a
divisional and country-by-country basis. Center directors, district managers and
regional managers are responsible for sales development with existing and new
clients. In addition, sales forces are maintained in the Company's major markets
to supplement other marketing methods.

Tuition, which is payable in advance by most individual clients and some
corporate clients, includes a registration fee, a charge for printed and
recorded course materials, and a per lesson fee. The per lesson fee varies
depending on the language being taught, type and quantity of lessons, and
country. Total Immersion(R) courses are more expensive than standard individual
instruction, while semi-private and group instruction are less expensive.

The Company generally negotiates fees with its corporate clients based on
anticipated volume. Concentration on the intensive, individualized segment of
the market has enabled the Company to maintain a pricing structure consistent
with a premium service.

Competition. The language instruction industry is fragmented, varying
significantly among different geographic locations. In addition to the Company,
providers of language instruction generally include individual tutors, small
language schools operated by individuals and public institutions, and
franchisees 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.

ELS/BOC Sub-segment
The ELS/BOC business sub-segment provides English language instruction through
intensive on-campus programs designed to appeal to international students and
professionals who require English proficiency for academic, personal or career
development purposes. These programs, which are offered under the ELS
Educational Services name (and, until January 2000, through the "Berlitz on
Campus" program), prepare students to take the Test of English as a Foreign
Language ("TOEFL") examination, and for other situations where an intensive,
extended course of study is required. Intensive instruction is typically
provided in blocks of twenty or thirty hours of instruction per week for a four
week period. The average student studies for approximately 2 1/2 months.

Approximately 89% of ELS/BOC revenues in 1999 were from intensive lessons and
related services. Approximately 10% of ELS/BOC revenues were derived from
programs such as summer youth programs for younger students that combine
language instruction with leisure and social activities; specially designed
programs for corporate clients; and private instruction. Royalties from ELS
franchises comprise approximately 1% of ELS/BOC revenue.

                                        8
<PAGE>

Marketing and Pricing Policy. ELS/BOC devotes significant resources toward
promoting its various programs to prospective students, both within the U.S. and
overseas. In-house sales and marketing personnel focus their efforts on
establishing and maintaining relationships with a worldwide network of external
sales agents that provide students to the ELS program. These agents in turn
receive commissions from ELS/BOC. Center personnel are responsible for sales
development with existing and new clients.

ELS uses a combination of brochure, cooperative advertising, professional
publications, trade shows, yellow pages and other promotional activities to
promote its services.

Tuition, accommodation fees and other related program fees are payable in
advance by most students. ELS offers a variety of discounted pricing options
based on the length of course that a student takes.

Competition. The intensive English instruction industry is fragmented and varies
significantly among geographic regions. In addition to the Company, providers of
intensive English instruction include individual tutors, language schools of
varying size that are operated by individuals, as well as those operated by
other companies and institutions such as colleges and universities.

Publishing Sub-segment
The Company publishes pocket-size travel guides, language phrase books,
bilingual dictionaries, children's language products, self-teaching language
audio and language reference products. It is also involved in several licensing
arrangements for products that use Berlitz content and trademarks and for which
the Company receives royalties. The Publishing business accounted for
approximately 3% of total Company revenues in each of 1999, 1998 and 1997.
Approximately 35%, 41% and 35% of Publishing sales in 1999, 1998 and 1997,
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. 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. 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 distributors appointed by Berlitz; by
independent sales representatives; and, increasingly, by direct selling efforts,
including e-commerce.

Berlitz Self-Teaching. The audio cassette and CD products produced by the
Company are intended for the self-instruction language market and draw on the
experience gained through operating language centers. In addition to a general
language instruction curriculum, these products include items for children and
courses for business people.

In addition to the audio cassette and CD products, the Company is presently
involved in several licensing arrangements for products that use published
Berlitz materials and/or Berlitz trademarks as the basis for publishing or
software products (such as CD-ROM computer software) for which

                                        9
<PAGE>

the Company receives royalties.

Competition. The market for the Company's publications and self-teaching
language products is sensitive to factors that influence the level of
international travel, tourism and business. There is intense competition in
nearly all markets in which the Company sells its published products. The
Company's market share and Berlitz brand name recognition vary considerably
depending on market and product line.

Franchising Sub-segment
In 1996, the Company began selling Berlitz language center franchises to
independent franchisees in certain countries to expand the reach of its language
services business.

Franchisees are granted franchises to operate Berlitz language centers in a
specific territory, the size of which depends on demographic and geographic
factors. Such sites are selected to improve the Company's geographic reach
beyond areas in which the Company and other franchisees operate. Franchisees
initially pay Berlitz an application fee of $5,000, and a franchise fee of
$25,000 ($45,000 in Asia). Thereafter, franchisees pay Berlitz 10% (7.5% in
Europe) of the language center's gross revenues in royalties, and 2% of gross
revenues for advertising participation. The Franchising business accounted for
approximately 0.3% of total Company revenues in each of 1999, 1998 and 1997.

The Company actively monitors the operations and lesson quality of its
franchisees, and has developed an extensive confidential operations manual
which, together with the Company's Berlitz Method(R), forms the core of the
Berlitz franchise system. All franchisees are required to complete a two-week
training program at the Company's Princeton headquarters and the Company also
offers two additional weeks of on-site teacher training. Franchisees participate
in the Berlitz Language Center Management System, a management information
system tied to Berlitz's headquarters, and are subject to periodic financial
audit and quality inspection.

Cross Cultural Sub-segment
Berlitz Cross Cultural, which typically provides cross-cultural training on a
fee basis to corporate employees, complements language study by providing
expatriates with detailed practical and cultural information about the countries
to which they are relocating. The cross cultural business accounted for
approximately 0.5% of total Company revenues in each of 1999, 1998 and 1997.


Berlitz GlobalNET

Berlitz GlobalNET (formerly Translations Services) helps customers prepare their
products and services for the world market faster and at less cost. Berlitz
GlobalNET provides high quality technical documentation translation,
interpreting and rapidly expanding offerings in eBusiness Globalization services
including Web localization and multilingual content management. Language-related
services are offered for the entire business cycle, from globalization strategy
and consulting, to creating and translating content, designing, implementing and
maintaining multilingual Websites. These services are based on the company's
skills in project management, high quality translation, software localization,
software quality assurance and testing, and electronic publishing.

                                       10
<PAGE>

Berlitz GlobalNET represented approximately 21%, 19% and 21% of total Company
revenues in 1999, 1998 and 1997, respectively. Berlitz GlobalNET's contribution
to corporate revenues is expected to increase over the next few years as
globalization and the Internet create an increased demand for multilingual
digital content, and the Company strengthens its services in this area. A
continued focus on key customer relationships, with new and expanded
document/content management and Internet-related services, will be supported
with full eBusiness capabilities to deliver integration between translation
services and customer systems. These technologies will optimize internal
operational efficiency as well as providing the fast, hands-off turnaround
customers require.

Berlitz GlobalNET's sales focus is on large, complex projects in multiple
languages for global markets, particularly, but not exclusively, where Web
publishing and eBusiness are the delivery media. Its customer base is primarily
in the following sectors: information technology, automotive, manufacturing,
engineering, telecommunications, medical technology, pharmaceuticals, and
publishing.

The Company has an international network of full-scale production and technology
centers. Materials are electronically transferred between locations to utilize
specialized in-country translation and production facilities in order to produce
the highest quality products and reduce costs. The Company has developed an
international network of contract translators who provide a broad range of
technical and linguistic resources, with an internal qualification program to
assure a high level of linguistic expertise, and a production process that
incorporates several editing phases designed to maximize the accuracy of its
translations. The Company has also developed a consulting and systems
integration capability, to deliver strategic planning and solutions to its
customers. The staff at dedicated production facilities generally consist of
production managers, project managers, translators, editors, desktop publishing
("DTP") specialists, software engineers, and software testers. Managers and
editors are generally full-time staff members, while the translator and DTP
staffs includes 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. The translation services industry is being transformed into a
Globalization Services sector, with suppliers increasing the value they add to
customer engagements. The historic fragmentation of the market is beginning to
disappear as a few large suppliers consolidate at the top of the market. In
addition, a number of technology-focused new entrants have recently appeared.
Berlitz GlobalNET has taken steps to build its technology base and services for
the new market environment, and expects to remain the largest company in the
sector.

Employees

As of December 31, 1999, the Company employed 5,718 full-time employee and
employee equivalents. Due to the nature of its businesses, the Company retains a
large number of teachers and translators on a part-time or freelance basis.
Full-time employee equivalents are calculated by aggregating all part-time hours
(excluding freelance translators) and dividing these by the average number of
hours worked by a full-time employee.

The Company is party to collective bargaining agreements in Canada, Denmark,
France, Austria, Germany, Italy and Japan. The Company believes it has
satisfactory employee relations in the countries in which it operates. Certain
countries in which the Company operates impose obligations on the Company with
respect to employee benefits. None of these obligations materially inhibits the
Company's ability to operate its business.

Trademarks and Tradenames

                                       11
<PAGE>

The material trademarks used by the Company and its subsidiaries are BERLITZ(R),
TOTAL IMMERSION(R) (including foreign language variations used in certain
foreign markets), BERLITZ METHOD(R), BERLITZ JR.(R), BERLITZ STUDY ABROAD(R),
BERLITZ ON CAMPUS(R), BERLITZ KIDS(TM), BERLITZITTM, ELS(R), ELS LANGUAGE
CENTERS(R), ELS INTERNATIONAL(R), and WE TEACH ENGLISH TO THE WORLD(R). The
Company or its subsidiaries hold registrations for these trademarks, where
possible, in all countries in which (i) material use is made of the trademarks
by the Company or its subsidiaries, and (ii) failure to hold such a registration
is reasonably likely to have a material adverse effect on the Company or its
subsidiaries. The duration of the registrations varies from country to country.
However, all registrations are renewable upon a showing of use. The effect of
the registrations is to enhance the Company's ability to prevent certain uses of
the trademarks by competitors and other third parties. In certain countries, the
registrations create a presumption of exclusive ownership of the trademarks.

Regulatory Issues

Although the Company is not generally regulated as an educational institution in
the jurisdictions in which it does business, it is subject to general business
regulation and taxation. The Company's foreign operations are subject to the
effects of changes in the economic and regulatory environments of the countries
in which the Company operates. In certain countries and states of the U.S., laws
and regulations restrict the operation of language schools.

The Uniform Offering Circular ("UFOC") of Berlitz Franchising Corporation and
ELS Educational Services, Inc., each a wholly owned subsidiary of the Company,
have been registered with various states as required. An "internationalized"
version of the UFOC has been prepared and has been modified to comply with
foreign law requirements where applicable.

                                       12
<PAGE>

ITEM 2.  Properties

The Company has its headquarters in Princeton, New Jersey and maintains
facilities throughout the world. The majority of the Company's facilities
(including the Company's headquarters) are leased. Total annual rental expense
for the twelve months ended December 31, 1999, principally for leased
facilities, was $35.1 million. No one facility is material to the operation of
the Company. A typical Berlitz language center has private classrooms designed
for individual instruction, as well as some larger rooms suitable for group
instruction. ELS and Berlitz on Campus locations typically consist of classroom
and administrative space that is rented at various colleges and universities.

The following tables set forth, the number of facilities maintained in each
geographic region, the primary use of the Company's facility, whether owned or
leased, and the aggregate square footage, all as of December 31, 1999. No
properties are subject to material encumbrances.

                                OWNED FACILITIES
<TABLE>
<CAPTION>
                                                                         Other (principally
                             Language               Translation           headquarters and
                            instruction               services             administrative)              Total
                        ---------- ---------     ---------- --------     ---------- ---------    ---------- ---------
                        Number                   Number                  Number                  Number
                        of         Square        of         Square       of         Square       of         Square
                        facilities footage       facilities footage      facilities footage      facilities footage
                        ---------- ---------     ---------- --------     ---------- ---------    ---------- ---------
<S>                     <C>        <C>           <C>        <C>          <C>        <C>          <C>        <C>
Region
------
Europe                       6       11,883             1      3,229            -          -            7     15,112
Latin America                5       19,396             -          -            -          -            5     19,396
                        ---------- ---------     ---------- --------     ---------- ---------    ---------- ---------
Total                       11       31,279             1      3,229            -          -           12     34,508
                        ========== =========     ========== ========     ========== =========    ========== =========
</TABLE>

                                LEASED FACILITIES

<TABLE>
<CAPTION>
                                                                         Other (principally
                             Language               Translation           headquarters and
                            instruction               services             administrative)              Total
                        ---------- ---------     ---------- --------     ---------- ---------    ---------- ---------
                        Number                   Number                  Number                  Number
                        of         Square        of         Square       of         Square       of         Square
                        facilities footage       facilities footage      facilities footage      facilities footage
                        ---------- ---------     ---------- --------     ---------- ---------    ---------- ---------
<S>                     <C>        <C>           <C>        <C>          <C>        <C>          <C>        <C>
Region
------
North America              107       462,394           15     43,157            5    108,192          127     613,743
Asia                        64       161,615            3     10,562            7     12,933           74     185,110
Latin America               69       289,124            3      5,533            4     16,441           76     311,098
Europe                     150       420,516           16     79,957           13     25,559          179     526,032
                        ---------- ---------     ---------- --------     ---------- ---------    ---------- ---------
Total                      390     1,333,649           37    139,209           29    163,125          456   1,635,983
                        ========== =========     ========== ========     ========== =========    ========== =========
</TABLE>

                                       13
<PAGE>

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,
results of operations, or cashflows of the Company.

ITEM 4.  Submission of Matters to a Vote of Security Holders

No matters have been submitted to a vote of security holders during the fourth
quarter of 1999.

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, 2000.

<TABLE>
<CAPTION>
Name, Age, Position with
Registrant                                 Business Experience
----------                                 -------------------
<S>                                        <C>
Soichiro Fukutake, 54                      Mr. Fukutake has served as Chairman of the Board of the Company since
Chairman of the Board;                     February 1993. Mr. Fukutake joined Benesse in 1973, and since May 1986
Director (A) (E)                           has served as its President and Representative Director. He also serves
                                           on the Board of Directors of a number of companies, private foundations
                                           and associations in Japan. Mr. Fukutake became a Director of the Company
                                           in February 1993.  His term will expire in 2001.

Hiromasa Yokoi, 60                         Mr. Yokoi was elected Vice Chairman of the Board and Chief Executive
Vice Chairman of the Board, Chief          Officer of the Company in February 1993 and additionally was elected
Executive Officer and President;           President effective on August 31, 1993. Mr. Yokoi has served as a
Director (A) (E)                           director of Benesse since June 1992 and its Director for Berlitz and
                                           North American Sector since April 1994. Prior to that, he served as
                                           General Manager of the Overseas Operations Division (formerly the
                                           International Division) of Benesse from October 1990 to March 1994 and as
                                           General Manager of the President's Office of Benesse from July 1990 to
                                           September 1990. Mr. Yokoi has served as a Director of the Company since
                                           January 1991. His term will expire in 2000.
</TABLE>

                                       14
<PAGE>
<TABLE>
<CAPTION>
<S>                                        <C>
James Lewis, 42                            Mr. Lewis has served as Executive Vice President and Chief Operating
Executive Vice President and Chief         Officer, Berlitz GlobalNET, since January 1, 1999, prior to which he was
Operating Officer, Berlitz                 Vice President, Worldwide Translations since September 1, 1997.
GlobalNET;                                 Previously, Mr. Lewis served in a number of executive level positions
Director                                   with Globalink, Inc., including President and Director (1995 to 1997) and
                                           Vice President, Worldwide Sales and Marketing (1995); Vice President,
                                           Marketing of MAXM Systems Corporation (1994 to 1995); and Vice President,
                                           International Operations, Landmark Systems Corporation (1992 to 1994).
                                           During the period of 1983 to 1992, Mr. Lewis held a number of management
                                           positions with Ashton-Tate Corporation, and Peter Norton Computing. Mr.
                                           Lewis has served as a Director of the Company since March 2, 1999. His
                                           term will expire in 2000.

Mako Obara, 55                             Mr. Obara joined Berlitz International, Inc. as Executive Vice President
Executive Vice President                   on January 1, 1999, and was elected Chief Operating Officer, Worldwide
and Chief Operating Officer,               Language Services effective March 31, 1999. From March 1998 to January
Worldwide Language Services;               1999, Mr. Obara served as President and Chief Executive Officer of
Director                                   Benesse Holdings International, Inc. From 1985 to February 1998, Mr.
                                           Obara served as Vice President of Citibank/Citicorp, Private Banking
                                           (1992 to 1998); Vice President and Senior Banker, Citicorp Venture
                                           Capital (1989 to 1991); Vice President and Senior Banker, World
                                           Corporation Group of Citibank/Citicorp (1987 to 1989); and Vice President
                                           and Executive Director, Citibank/Citicorp Mexico (1985 to 1987). From
                                           1978 to 1985, Mr. Obara held positions of Section Manager and Deputy
                                           General Manager with the Mitsubishi Corporation. He currently serves on
                                           the Board of Directors of Technology Educational Network, and Benesse
                                           Holdings International, Inc. Mr. Obara has served as a Director of the
                                           Company since March 2, 1999. His term will expire in 2001.

Henry D. James, 62                         Mr. James has served as Executive Vice President and Chief Financial
Executive Vice President and               Officer of the Company since November 21, 1995, and as its Vice President
Chief Financial Officer;                   and Chief Financial Officer from January 1, 1995 to November 1995. He
Director                                   previously served as Vice President and Controller of the Company and its
                                           predecessor, Berlitz Languages, since 1981. Mr. James joined Berlitz
                                           Languages in 1977 and served as Controller with that company prior to
                                           1981. Mr. James has served as a Director of
</TABLE>

                                       15
<PAGE>
<TABLE>
<CAPTION>
<S>                                        <C>
                                           the Company since November 21, 1995. His term will expire in 2000.

Robert Minsky, 55                          Mr. Minsky has served as Executive Vice President, Corporate Planning and
Executive Vice President,                  Marketing of the Company since August 1, 1997. Prior thereto, he served
Corporate Planning and Marketing;          as Executive Vice President and Chief Operating Officer, Translations and
Director (A)                               Publishing of the Company from January 1, 1995 to December 31, 1997, as
                                           Executive Vice President, Translations of the Company from October 1,
                                           1993 to January 1995, and as Chief Financial Officer of the Company from
                                           November 1990 to January 1995. From November 1990 to October 1993, he
                                           also served as Vice President. Mr. Minsky has served as a Director of the
                                           Company since April 1991. His term will expire in 2001.

Laurence M. Berg, 33;                      Mr. Berg has been associated with Apollo Advisors, L.P. ("Apollo") since
Director                                   1992 and a partner since 1995, which, together with its affiliates
                                           (including Apollo Management IV, L.P.), act as managing general partner
                                           of Apollo Investment Fund, L.P., AIF II, L.P., Apollo Investment Fund
                                           III, L.P. and Apollo Investment Fund IV, L.P. which are private
                                           securities investment funds. Prior thereto, Mr. Berg was a member of the
                                           Mergers and Acquisitions Department of Drexel Burnham Lambert
                                           Incorporated. Mr. Berg is a director of Continental Graphics Holdings,
                                           Inc.; and Rent-A-Center, Inc. Mr. Berg received his MBA from the Harvard
                                           Business School and received his BS in economics from the University of
                                           Pennsylvania's Wharton School of Business. Mr. Berg has served as a
                                           Director of the Company since March 11, 1999, in connection with the
                                           Company's issuance of convertible debentures to two affiliates of Apollo.
                                           His term will expire in 2001.

Takuro Isoda, 64                           Since July, 1999, Mr. Isoda has been the President of Isoda & Associates,
Director                                   Inc., of Tokyo and President of Rich Capital, Inc, of Osaka. He has been
(B)(C)(D)                                  a Senior Advisor for Nippon Investment & Finance Co. Ltd. since July
                                           1998, and was its Chairman from June 1994 and its President from January
                                           1990 to May 1994. Prior to that, Mr. Isoda served in various positions
                                           with Daiwa Securities since first joining the company in 1959, including,
                                           most recently, Chairman & CEO of Daiwa Securities of America, Inc., New
                                           York (January 1985 to January 1990), and Senior Managing Director of
                                           Daiwa Securities Co., Ltd., Tokyo (December
</TABLE>

                                       16
<PAGE>
<TABLE>
<CAPTION>
<S>                                        <C>
                                           1988 to January 1990). Mr. Isoda is Vice Chairman and a Director of the
                                           New Business Conference, Tokyo, and a Director of the Japan Academic
                                           Society for Ventures and Entrepreneurs, each of which is a non-profit
                                           governmental policy advisory and new venture support group. He also
                                           serves as a Director of atJapan.com Kabushiki Kaisha, Tokyo, VHC
                                           Kabushiki Kaisha, Tokyo, Inter.Office, Co., Ltd. Tokyo, Effetto Holding,
                                           Inc., Tokyo, and J-bridge.com. Mr. Isoda is an Advisor to Webster
                                           Communications Corporation Plc., Wiltshire, UK, ILC, Inc., Hiroshima,
                                           Liquid Audio Japan, Ltd., Tokyo, Harvey Labo, Inc., Tokyo,
                                           Imagawa-Misawaya Securities Co., Ltd., Tokyo, Rich Kabushiki Kaisha,
                                           Osaka and Big Sons, Ltd., Osaka. He also serves as an Advisor to
                                           Americans for Indian Opportunity, New Mexico, a non-profit organization.
                                           He is the Statutory Auditor for Just Co., of Omiya-shi, Saitama
                                           Prefecture, Japan and Asteric, Inc. of Tokyo. Mr. Isoda has served as a
                                           Director of the Company since June 1998. His term will expire in 2000.

Edward G. Nelson, 68                       Since January 1985, Mr. Nelson has served as Chairman and President of
Director                                   Nelson Capital  Corporation. From 1983 to 1985, he was Chairman and Chief
(B)(C)(D)(E)                               Executive Officer of Commerce Union Corporation. He also serves on the
                                           Board of Directors of ClinTrials Research, Inc., Central Parking System
                                           and Advocat, Inc. He is a trustee of Vanderbilt University. Mr. Nelson
                                           became a Director of the Company in February 1993. His term will expire
                                           in 2000.

Robert L. Purdum, 64                       Mr. Purdum is the retired Chairman of the Board of Armco, Inc. and
Director (B)(C)(D)(E)                      currently is a partner with American Industrial Partners, a private
                                           investment company located in New York and San Francisco. During his
                                           Armco career, he served in various positions since first joining Armco in
                                           1962, including Chairman and Chief Executive Officer (November 1990 to
                                           December 1993), President and Chief Executive Officer (April 1990 to
                                           November 1990), President (October 1986 to April 1990), Chief Operating
                                           Officer (February 1985 to October 1986) and Chief Executive Officer -
                                           Steel Group (November 1982 to February 1985). Mr. Purdum has also served
                                           on the Board of Directors of Holophane Corporation since 1994. Mr. Purdum
                                           has served as a Director of the Company since August 1994. His term will
                                           expire in 2000.
</TABLE>

                                       17
<PAGE>
<TABLE>
<CAPTION>
<S>                                        <C>
Antony P. Ressler, 39;                     Mr. Ressler co-founded Apollo Advisors, L.P. ("Apollo") in 1990. Mr.
Director                                   Ressler also founded Ares Management, L.P. in 1997, the general partner
                                           of the Ares Funds, including Ares Leveraged Investment Funds I, II and
                                           III private securities investment funds focused primarily on debt and
                                           mezzanine/equity investments. Prior to 1990, Mr. Ressler served as a
                                           Senior Vice President in the High Yield Bond Department of Drexel Burham
                                           Lambert Incorporated, with responsibility for the New Issue/Syndicate
                                           Desk. Mr. Ressler serves on several boards of directors including: Allied
                                           Waste Industries, Inc.; Prandium Inc.; and Vail Resorts, Inc., as well as
                                           on the Supervisory Board of Directors of Buhrmann NV. Mr. Ressler is on
                                           the Board of Directors of LAAMP/LEARN, one of the largest public school
                                           reform movements in the U.S., a member of the Board of Advisors of the
                                           UCLA Medical Center, a member of the Executive Committee of the Board of
                                           Directors of the Jonsson Comprehensive Cancer Center at UCLA and a member
                                           of the Board of Trustees of the Center for Early Education. Mr. Ressler
                                           is also one of the founding members of the Board of the Painted Turtle
                                           Camp, the Southern California chapter of The Hole in the Wall Gang Camps
                                           created to serve children dealing with chronic and life threatening
                                           illnesses by creating memorable, old-fashioned camping experiences. Mr.
                                           Ressler received his B.S.F.S. from Georgetown University's School of
                                           Foreign Service and received his MBA from Columbia University's Graduate
                                           School of Business. Mr. Ressler has served as a Director of the Company
                                           since March 11, 1999 in connection with the Company's issuance of
                                           convertible debentures to two affiliates of Apollo. His term will expire
                                           in 2000.

Naoto Sugiyama, 41                         Mr. Sugiyama has served as General Manager of Benesse's Finance
Director                                   Department since January 1998. He has served in various other positions
                                           with Benesse since first joining in January 1993, including Deputy
                                           General Manager of Account Department (January 1997 to December 1997),
                                           Senior Manager of Account Department (January 1995 to December 1996) and
                                           Manager of Account Department (January 1993 to December 1994). From 1981
                                           to 1992, Mr. Sugiyama served in various positions with The Sanwa Bank,
                                           Ltd., including Senior Manager of its Capital Market Department (April
                                           1992 to December 1992) and Senior Manager of its Brussels Branch (April
                                           1991 to March 1992). Mr. Sugiyama has served as a Director of the Company
</TABLE>

                                       18
<PAGE>
<TABLE>
<CAPTION>
<S>                                        <C>
                                           since June 1999, and will be retiring from the Board of the Company
                                           effective March 7, 2000.

Ellen Adler, 44                            Ms. Adler has served as Vice President, Worldwide Publishing of the
Vice President, Worldwide Publishing       Company since October 1, 1997. Prior thereto, she served in various
                                           positions with the Company including Managing Director, North America
                                           Publishing (January 1996 to September 1997), Publisher, North and South
                                           America (January 1994 to December 1995), Director of Berlitz Publishing,
                                           Inc. (July 1989 to December 1993), and Director of Operations, USA
                                           (November 1988 to July 1989)

Jose Alvarino, 60                          Mr. Alvarino has been Vice President, Latin America Languages Services,
Vice President                             since January 1, 1999, prior to which he was Vice President, Latin
                                           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.

Mark Harris, 46                            Mr. Harris has served as Vice President, North America Language Services,
Vice President                             since January 1, 1999, prior to which he was Vice President, North
                                           America Division of the Company since October 1, 1997. Prior thereto, he
                                           served in various positions with the Company, including Managing Director
                                           of Berlitz on Campus (September 1993 to September 1997) and Berlitz
                                           Regional Manager, New Business Development, Far East (May 1987 through
                                           August 1993). Mr. Harris was first employed by Berlitz Languages in 1978.

Brian Kelly, 53                            Mr. Kelly has served as Vice President, Berlitz GlobalNET Europe since
Vice President                             January 1, 1999 and as Vice President, Western Europe Division of the
                                           Company from January 1996 until January 1, 1999 and as General Manager,
                                           Translations Services Europe since January 1993. Prior to that he was
                                           Managing Director of Softrans International Ltd., of which the Company
                                           acquired a 51% ownership interest in December 1991 and the remaining 49%
                                           in 1994. Mr. Kelly founded Softrans in 1984 and prior to that held senior
                                           management positions with Apple Computer and Data General.

Susumu Kojima, 57                          Since 1993, Mr. Kojima has served in several positions with
</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>
<S>                                        <C>
Vice President,                            Berlitz, including: Vice President, Asia Language Services (since March 2,
Asia Language Services                     1999); Executive Vice President, Asia Division (January 1, 1996 to March 1,
                                           1999); Executive Vice President, Corporate Planning, (September 1993 to
                                           December 1995); and Senior Vice President, Corporate Planning (February
                                           1993 to September 1993). Mr. Kojima also served as a Director of Benesse
                                           from March 1993 until June 1998. Prior to March 1993, 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 served as a Director of the Company from
                                           February 1993 until his retirement from the Board on March 2, 1999.

Wolfgang Wiedeler, 55                      Mr. Wiedeler has been Vice President, Europe Language Services, since
Vice President                             January 1, 1999, prior to which he was Vice President, Central/Eastern
                                           Europe Division of the Company since January 1, 1995, and Vice President,
                                           Language Instruction, European Division of the Company from September
                                           1993 to December 1995. From May 1992 to September 1993 he was Vice
                                           President, Central/Eastern European Operations. Prior thereto, he served
                                           as Divisional Manager of German-speaking countries since October 1989.
                                           Prior thereto he served in the same capacity for Berlitz Languages from
                                           his initial employment in 1984.
</TABLE>

(A)      member of the Executive Committee of the Board of Directors
(B)      member of the Audit Committee
(C)      member of the Compensation Committee
(D)      member of the Disinterested Directors Committee
(E)      member of the Nominating Committee

The Company's Disinterested Directors Committee evaluates all significant
transactions between the Company and Benesse. There is no family relationship
between any of the Directors or Executive Officers of the Company.

James Kahl, 58, has been selected as Mr. Sugiyama's successor on the Company's
Board of Directors effective March 7, 2000. Mr. Kahl was Chairman of the Board,
Chief Executive Officer and President of La Petite Academy, a provider of
preschool and childcare services from 1993 until December 31, 1999. From 1991
until 1993, he was a Senior Vice President of Knott's Berry Farm. From 1983
until 1991, he held a number of senior executive positions at

                                       20
<PAGE>

Marriott Corporation, including Senior Vice President of Administration, Chief
Financial Officer, and Senior Vice President, Operations. From 1964 until 1982,
he held a variety of positions at Arthur Andersen & Co., including Managing
Partner. Mr. Kahl also serves on the board of Directors of La Petite Academy.

Robert C. Hendon, Jr., 62, who retired from the Company effective December 31,
1999, had served as Vice President, Legal Department of the Company from January
1, 1995 and as Secretary and General Counsel of the Company since April 1992.
Paul H. Weinstein, 49, was appointed as General Counsel and Secretary of the
Company effective January 1, 2000. Mr. Weinstein joined Berlitz as Associate
General Counsel in 1995, and was named Deputy General Counsel in January, 1999.
Before joining Berlitz, he practiced law privately (1994 to1995), served as
Counsel to the Motion Picture Association of America (1991 to 1994), as Vice
President of Legal and Business Affairs of LJN Toys, Ltd. (1987 to 1991) and as
Counsel at MGM/UA Home Entertainment Group, Inc. (1982 to1987).

On March 20, 2000, the Company announced the retirement of Mr. Yokoi as Vice
Chairman, Chief Executive Officer and President effective June 30, 2000. Mr.
Yokoi will continue to serve on the Company's Board of Directors for the next
two years. Also retiring at the same time as Mr. Yokoi will be Mr. James. Mr.
Kahl will assume the post of Vice Chairman effective July 1, 2000, while Mr.
Minsky will assume the responsibilities of Executive Vice President and Chief
Financial Officer. The Company also announced a restructuring into two
subsidiary companies effective July 1, 2000: Berlitz Language Services and
Berlitz GlobalNET. Mr. Obara will serve as President and Chief Executive Officer
for Berlitz Language Services, while Mr. Lewis will serve as President and Chief
Executive Officer for Berlitz GlobalNET.

Significant Employees of the Registrant

The following table sets forth certain information concerning certain
significant employees of the Company as of March 1, 2000.

<TABLE>
<CAPTION>
<S>                                        <C>
Frank Garton, 53                           Mr. Garton has served as Vice President, Franchising of the Company since
Vice President                             March 1995. Prior to that, he was Director of Worldwide Franchise Sales
                                           and Corporate Development for King Bear Enterprises from 1987 to 1995.
                                           From 1978 to 1987, Mr. Garton was President and Chief Executive Officer
                                           of Regeneration, Inc., an automotive components manufacturing company
                                           with internationally franchised manufacturing processes.
</TABLE>

                                     PART II

ITEM 5.  Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock ("Common Stock") is traded on the New York Stock
Exchange ("NYSE") under the symbol BTZ. Holders of shares of Common Stock are
entitled to receive such dividends as may from time to time be declared by the
Board of Directors; however, the Company does not have any present intention to
commence paying dividends. Holders of Common Stock are entitled to one vote per
share on all matters submitted to the vote of such holders, including the
election of directors. There were 66 holders of record of Common Stock as of
March 13, 2000 (one of which was Cede & Company, at which 1.9 million shares
were held by brokers in street name.)

                                       21
<PAGE>

The sales prices per share of Common Stock as reported by the NYSE for each
quarter during the period from January 1, 1998 until December 31, 1999 ranged as
follows:

                                                 Price per Share
                                                 ---------------
                                              High               Low
                                              ----               ---
         First Quarter 1999                 $29               $22 1/2
         Second Quarter 1999                $22 15/16         $17 13/16
         Third Quarter 1999                 $21 1/16          $18
         Fourth Quarter 1999                $21 1/8           $16 7/16

         First Quarter 1998                 $27 3/8           $25 1/2
         Second Quarter 1998                $28 7/16          $27
         Third Quarter 1998                 $28 1/8           $26 5/16
         Fourth Quarter 1998                $30 5/8           $25 1/2

No Common Stock dividends were declared or paid for 1999 or 1998.

On April 29, 1997, the Company and Benesse Holdings International, Inc. ("BHI"),
the Company's majority shareholder, signed a definitive contract whereby the
Company agreed to sell to BHI 250,000 shares of the Company's Common Stock for
$6,110,000, or $24.44 per share, the average market price for the ten days ended
on April 29, 1997. This transaction, which was approved by the Disinterested
Directors Committee of the Company's Board of Directors, was closed on May 12,
1997. The Company used 250,000 of its treasury shares to complete this
transaction. Since this offering was made to a single shareholder who is the
majority shareholder of the Company, the transaction was deemed to be a private
placement exempt from registration under Section 4(2) of the Securities Act of
1933. The proceeds of the sale were used for general corporate purposes.

On March 11, 1999, the Company issued $155 million aggregate principal amount
12-year convertible debentures (the "Convertible Debentures") in a private
placement to two affiliates of Apollo Management IV, L.P. ("Apollo"), a private
investment firm and to BHI. This transaction was deemed to be a private
placement exempt from registration under Section 4(2) of the Securities Act of
1933. Principal amounts outstanding under such debentures are not due until
March 2011. The Convertible Debentures are convertible at any time into shares
of the Company's common stock at a conversion price of $33.05 per share, subject
to anti-dilution related adjustments. The Company used the proceeds from the
sale of the Convertible Debentures to a) repay in full existing long term
indebtedness, and b) for general corporate purposes.

                                       22
<PAGE>

ITEM 6.  Selected Financial Data

                           BERLITZ INTERNATIONAL, INC.
                           FIVE-YEAR FINANCIAL SUMMARY
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                          ----------------------------------------------------------
                                                1999        1998        1997        1996        1995
                                          ----------  ----------  ----------  ----------  ----------
<S>                                       <C>         <C>         <C>         <C>         <C>
Income Statement Data:
---------------------
Sales of services and
products sold                             $  446,181  $  436,303  $  397,209  $  369,622  $  354,509
                                          ----------  ----------  ----------  ----------  ----------
Cost and expenses:
  Cost of services and
     products sold                           267,176     253,842     235,020     222,313     216,443
  Selling, general and
     administrative                          148,803     142,147     124,945     113,695     105,039
  Amortization of publishing rights,
     excess of cost over net assets
     acquired and other intangibles           18,024      17,265      14,183      12,746      13,425
  Other expense, net                          10,456      15,370      10,008       8,054       8,826
                                          ----------  ----------  ----------  ----------  ----------
     Total costs and expenses                444,459     428,624     384,156     356,808     343,733
                                          ----------  ----------  ----------  ----------  ----------
  Income before income taxes, minority
     interest, extraordinary item and
     cumulative effect of accounting
     change                               $    1,722  $    7,679  $   13,053  $   12,814  $   10,776
                                          ==========  ==========  ==========  ==========  ==========
  Minority interest income/(expense)      $      668  $       68  $     (613) $   (1,503) $   (1,106)
                                          ==========  ==========  ==========  ==========  ==========
 (Loss) income before extraordinary item
     and cumulative effect of accounting
     change                               $   (5,325) $    2,082  $    5,351  $    3,803  $    2,270
  Extraordinary loss (1)(2)                   (2,154)          -      (6,285)          -           -
  Cumulative effect of accounting change
     (3)                                      (5,605)          -           -           -           -
                                          ----------  ----------  ----------  ----------  ----------
  Net (loss) income                       $  (13,084) $    2,082  $     (934) $    3,803  $    2,270
                                          ==========  ==========  ==========  ==========  ==========

Earnings (loss) per share (both basic and
diluted):
 (Loss) income before extraordinary item
     and cumulative effect of accounting
     change                               $   (0.56)  $     0.22  $     0.56  $     0.40  $     0.23
  Extraordinary loss                          (0.22)           -       (0.66)          -           -
  Cumulative effect of accounting change      (0.59)           -           -           -           -
                                          ----------  ----------  ----------  ----------  ----------
  Earnings (loss) per share               $   (1.37)  $     0.22  $    (0.10) $     0.40  $     0.23
                                          ==========  ==========  ==========  ==========  ==========
Average number of shares (000)                 9,530       9,530       9,550       9,569      10,033
                                          ==========  ==========  ==========  ==========  ==========

Balance sheet data (at year end):
---------------------------------
Total assets(1)                           $  697,020  $  663,461  $  661,515  $  561,245  $  576,930
Long-term debt (including convertible
     debentures) (1)(2)                   $  156,887  $  129,387  $  142,369  $   56,353  $   67,081
Shareholders' equity                      $  338,687  $  354,986  $  346,978  $  357,407  $  370,416

Other data:
----------
Dividends declared                        $        -  $        -  $        -  $        -  $        -
                                          ==========  ==========  ==========  ==========  ==========
Language lessons given
     during year (000)                         5,992       5,826       5,548       5,139       4,947
Company-operated language
     centers at year end                         338         332         334         325         323
Growth in same center
     sales from year to year (4)                 0.0%        4.8%        7.5%        6.0%        3.0%
</TABLE>

                                       23
<PAGE>

(1)      Included in the increase in total assets from December 31, 1996 to
         December 31, 1997 was $103 million in intangibles related to the
         Company's August 28, 1997 acquisition of ELS Educational Services, Inc.
         ("ELS"), a privately held provider of intensive English language
         instruction. Financing for this acquisition, and simultaneous
         refinancing of the Company's existing Senior Notes, Term Loan, and
         related prepayment penalties and costs, was provided through a bank
         loan facility (the "Bank Facility"). In connection with this
         refinancing, the Company incurred in 1997 an extraordinary charge, net
         of taxes, of $6.3 million, consisting of prepayment penalties on the
         Senior Notes and the write-off of unamortized deferred financing costs.
         Long-term debt increased from 1996 to 1997 due to amounts outstanding
         under the Bank Facility at December 31, 1997.

(2)      On March 11, 1999, the Company issued $155 million aggregate principal
         amount 12-year convertible debentures (the "Convertible Debentures") in
         a private placement to two affiliates of Apollo Management IV, L.P.
         ("Apollo"), a private investment firm and to Benesse Holding
         International, Inc. ("BHI"), the Company's majority shareholder.
         Principal amounts outstanding under such debentures are not due until
         March 2011. The Convertible Debentures are convertible at any time into
         shares of the Company's common stock at a conversion price of $33.05
         per share, subject to anti-dilution related adjustments.

         Simultaneously with this transaction, the Company extinguished all
         outstanding indebtedness pursuant to the Bank Facility and terminated
         its interest rate swap agreement, which hedged the floating rate Bank
         Facility. Consequently, in 1999, the Company recorded an extraordinary
         loss, net of tax benefit, of approximately $2.2 million, consisting of
         the interest rate swap's fair market value and existing unamortized
         deferred finance costs at the time of extinguishment of the underlying
         debt.

(3)      On December 3, 1999, the Securities and Exchange Commission ("SEC")
         issued its Staff Accounting Bulletin No. 101, "Revenue Recognition in
         Financial Statements" ("SAB 101") to provide its views on applying
         generally accepted accounting principles to selected revenue
         recognition issues. The Company adopted the provisions of SAB 101
         effective January 1, 1999 and changed its method of recognizing income
         from deferred revenues on lessons paid for but not expected to be
         taken.

(4)      Indicates year-over-year increase, excluding the impact of foreign
         currency rate fluctuations, in sales by Language Instruction centers
         which were operating during the entirety of both years being compared.

                                       24
<PAGE>

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operation

The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and Notes thereto
contained elsewhere in this Annual Report on Form 10-K. Certain statements
contained within this discussion constitute forward-looking statements. See
"Special Note Regarding Forward Looking Statements."

General Overview

As of January 1, 1999, the Company reorganized into two separate autonomous
business segments: (i) Language Services, consisting of the Instruction, ELS/BOC
(i.e., ELS Educational Services, Inc. ("ELS") and Berlitz on Campus ("BOC"),
Publishing, Franchising, and Cross Cultural sub-segments; and (ii) Berlitz
GlobalNET (formerly known as Translation Services). These are strategic business
units that offer different products and services and are managed separately by
senior management due to different technology and marketing strategies.

Within Language Services, the Instruction sub-segment (through the use of
proprietary methods and materials) provides predominantly live language
education in virtually all spoken languages. The ELS/BOC sub-segment provides
intensive on-campus English education programs. The Publishing sub-segment
offers a wide range of publishing products such as dictionaries, phrase books,
travel guides and self-study language materials, including CD-ROMs and
audiocassettes. The Franchising sub-segment sells Berlitz language center
franchises to independent franchisees in certain locations. The Cross Cultural
sub-segment complements language study by providing expatriates with detailed
practical and cultural information about the countries to which they are
relocating.

Berlitz GlobalNET provides high quality technical documentation translation,
interpreting and rapidly expanding offerings in eBusiness Globalization services
including Web localization and multilingual content management. Language-related
services are offered for the entire business cycle, from globalization strategy
and consulting, to creating and translating content, designing, implementing and
maintaining multilingual Websites.

Language Services is organized geographically into four operating divisions
(North America, Asia, Latin America and Europe) while Berlitz GlobalNET is
organized into three geographic divisions: the Americas (North America and Latin
America), Asia and Europe.

The Company's sales grew from $397.2 million in 1997 to $446.2 million in 1999,
a compounded annual growth rate of 6.0%. This growth was primarily attributable
to a full period of revenues in 1999 for ELS (which was purchased in August
1997) and to increased volume in certain geographic regions, partially offset by
unfavorable exchange rate fluctuations. Earnings before extraordinary items and
the cumulative effect of an accounting change dropped from earnings of $5.4
million ($0.56 basic and diluted earnings per share) to a loss of $5.3 million
($0.56 basic and diluted loss per share) in the same three-year period. Earnings
were adversely affected by a number of factors, including: a) reduced margins
for ELS/BOC, whose sales were hurt by economic conditions in Asia and Latin
America as well as by certain organizational changes; b) lower operating profits
for Berlitz GlobalNET arising from tighter margins on interpretation services
with the U.S. government, investment in sales and technology resources, and
integration costs associated with 1999 acquisitions; c) increases in salary and
related costs and other administrative costs; and d) higher amortization of
goodwill arising from acquisitions. The factors impacting sales and earnings are
discussed in greater detail in the pages that follow.

The following table shows the Company's income and expense data as a percentage
of sales:

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                                    1999       1998       1997
                                                                                    ----       ----       ----
<S>                                                                                <C>        <C>        <C>
     Sales of Services and Products                                                100.0%     100.0%     100.0%
                                                                                 -------------------------------
     Costs of services and products sold (1)                                        59.9       58.1       59.2
     Selling, general and administrative (2)                                        33.4       32.6       31.5
     Amortization of publishing rights, excess of cost over net assets
     acquired, and other intangible assets and other intangibles                     4.0        4.0        3.6
     Interest expense on long-term debt                                              0.4        2.5        2.1
     Interest expense on convertible debentures                                      1.4        -          -
     Interest expense to affiliate                                                   0.6        0.5        0.5
     Other (income) expense, net                                                    (0.1)       0.5       (0.2)
                                                                                 -------------------------------
        Total costs and expenses                                                    99.6       98.2       96.7
                                                                                 -------------------------------
     Income before income taxes, minority interest in earnings of
     subsidiary, extraordinary item and the cumulative effect of                     0.4        1.8         3.3
     accounting change
     Income tax expense                                                             (1.7)      (1.3)       (1.8)
     Minority interest income (expense)                                              0.1        -          (0.2)
                                                                                 -------------------------------
     (Loss) income before extraordinary item and cumulative effect of
     accounting change                                                              (1.2)       0.5         1.3
     Extraordinary loss from extinguishment of debt, net of tax benefit             (0.5)       -          (1.6)
     Cumulative effect of accounting change                                         (1.2)       -           -
                                                                                 -------------------------------
     Net (loss) income                                                              (2.9)%      0.5%       (0.3)%
                                                                                 ===============================
     (Footnotes on next page)
</TABLE>

                                       25
<PAGE>

(1)      Consists primarily of teachers', translators', and certain
         administrative salaries, as well as cost of materials, rent,
         maintenance, depreciation and other center operating expenses.

(2)      Consists primarily of administrative salaries, marketing and
         advertising expenses, and other headquarters related expenses.

The Company's recent revenue growth has occurred through both expansion of
existing business and through acquisitions. For example, in August 1997, the
Company purchased ELS, a privately held provider of intensive English language
instruction, for $96.3 million plus various transaction-related expenses. ELS
contributed $43.2 million, $53.4 million and $19.9 million, respectively, in
post acquisition revenues for the years ended December 31, 1999, 1998 and 1997.
In 1998, the Company made two translation-related services acquisitions in
Europe and, in 1999, the Company acquired three translation services companies
which, among other things, strengthened Berlitz GlobalNET's presence in two new
geographical areas. The 1999 acquisitions were of: Language Management
International, Inc., which gives Berlitz skilled localization professionals and
managers in the United States, Latin America and Singapore; Astratec, the
leading translation/localization vendor in Brazil; and Multilingual Technology
Ltd in the United Kingdom. Through December 31, 1999, the Company's
cumulative-to-date cash used in investing activities in connection with these
five translations services acquisitions was approximately $12.3 million.

The Company's operations also benefit from a number of global trends: the
globalization of many sectors of the world economy, the rapid expansion of the
Internet, and the increasing number of Internet/Web users whose native language
is not English. Globalization increases the demand for cross-language
communication within and between companies, driving the market for corporate
language training, while the Company's Berlitz GlobalNET division is a leader in
the market for services to support the language aspects of globalization,
Internet publishing and eBusiness.


Internal actions over the three year period have also helped the Company grow.
For example, in Instruction, the Company continued to expand several niche
programs, including cross-cultural services, Berlitz Jr(R), and Berlitz Study
Abroad(R), enabling it to operate even more effectively as a "one-stop" language
service provider. To complement its live instruction, the Company has
increasingly used technology, such as CD-ROM, video and audio tools, to enhance
its traditional teaching programs while reducing teaching costs. The Company has
also increased its emphasis on more profitable semi-private and group lessons.
To further increase its market presence, the Company has utilized franchising
and joint ventures in emerging and secondary markets.

In the Berlitz GlobalNET segment, there has been a continued focus on large
corporate relationships, development of new customer accounts, superior customer
satisfaction, and the expansion of services, including rapidly expanding
offerings in eBusiness Globalization services including Web localization and
multilingual content management. Language-related services are offered for the
entire business cycle, from globalization strategy and consulting, to creating
and translating content, designing, implementing and maintaining multilingual

                                       26
<PAGE>

Websites. As Berlitz GlobalNET grows, the Company will seek to continue
improving the profitability of the segment through (i) the deployment of the
latest technology, including the use of the Internet, to optimize internal
operational efficiency; (ii) increasing productivity through the use of more
advanced computer-aided translation tools; (iii) continuing to centralize
certain non-linguistic functions, such as software engineering, software quality
assurance and desktop publishing; and (iv) hiring, training and retaining the
highest quality talent available in the industry.

Geographically, the majority of the Company's subsidiaries are located outside
the United States, with operations conducted in their respective local
currencies. For the three years ended December 31, 1999, the percentage of total
revenues denominated in currencies other than U.S. dollars averaged 65%,
including the Japanese yen, German mark, Irish punt, Brazilian real, Mexican
peso, British pound, and French and Swiss francs. As a result, changes in
exchange rates affected the comparisons of the Company's earnings from period to
period, adversely affecting 1997's through 1999's financial results when the
dollar generally strengthened. The following table shows the impact of foreign
currency rate fluctuations on the annual growth rate of sales and EBITA(1)
during the periods presented:

                                      Percentage Growth (Decline)
                                            From Prior Year
                                         Year Ended December 31,
                                     1999           1998          1997
                                ---------      ---------     ---------
         Sales:
            Operations (2)            4.2%          14.2%         14.0%
            Exchange                 (1.9)          (4.4)         (6.5)
                                ---------      ---------     ---------
                  Total               2.3%           9.8%          7.5%
                                =========      =========     =========
         EBITA:
            Operations (2)         (22.4)%          15.7%         17.8%
            Exchange                (2.7)           (7.5)         (7.0)
                                ---------      ---------     ---------
                  Total            (25.1)%           8.2%         10.8%
                                =========      =========     =========

(1)      EBITA as used herein is defined as sales less cost of services and
         products sold, and selling, general and administrative expenses. It is
         calculated using amounts determined in accordance with U.S. generally
         accepted accounting principles ("U.S. GAAP"). EBITA is not a defined
         term under U.S. GAAP and is not indicative of operating income or cash
         flows from operations as determined under U.S. GAAP.

(2)      Adjusted to eliminate fluctuations in foreign currency exchange rates
         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.

The year to year comparison of the results of operations are discussed in
further detail in the sections which follow.

Year ended December 31, 1999 vs. Year ended December 31, 1998

Sales for the twelve months ended December 31, 1999 were $446.2 million, 2.3%
above the prior year. The sales growth was primarily due to activity generated
from the Instruction and Berlitz GlobalNET business units, which was partially
offset by reduced sales volume from ELS/BOC programs, and unfavorable foreign
exchange rate fluctuations. Excluding the effects of unfavorable exchange rate
fluctuations of $8.4 million, sales increased

                                       27
<PAGE>

from the prior year by 4.2%. The following table compares revenues by business
segment.

                                       28
<PAGE>
<TABLE>
<CAPTION>
Business Segment Revenues:                                       (Dollars in millions)
-------------------------          ------------------------------------------------------------------------------
                                          December 31,                   Growth (Decline) from Prior Year
                                   ---------------------------    -----------------------------------------------
                                      1999            1998        Exchange (2)     Operations (1)        Total
                                   -----------     -----------    ------------     --------------    ------------
<S>                                <C>             <C>            <C>              <C>               <C>
Language Services:
   Instruction                     $     277.1     $     267.9    $      (6.5)     $        15.7     $       9.2
   ELS/BOC                                56.3            65.7            0.1               (9.5)           (9.4)
   Publishing                             12.9            14.8           (0.1)              (1.8)           (1.9)
   Franchising                             1.8             1.8            -                  -               -
   Other                                   2.7             1.9           (0.1)               0.9             0.8
                                   -----------     -----------    ------------     --------------    ------------
Total Language Services                  350.8           352.1           (6.6)               5.3            (1.3)
Berlitz GlobalNET                         95.4            84.3           (1.8)              12.9            11.1
Eliminations                               -              (0.1)           -                  0.1             0.1
                                   -----------     -----------    ------------     --------------    ------------
Total                              $     446.2     $     436.3    $      (8.4)     $        18.3     $       9.9
                                   ===========     ===========    ============     ==============    ============
</TABLE>

----------------------------------
(1) Adjusted to eliminate fluctuations in foreign currency exchange rates from
    year-to-year by assuming a constant exchange rate over two years, using as
    the base the first year of the periods being presented.
(2) The unfavorable exchange rate fluctuation ($8.4 million) primarily resulted
    from a strengthened dollar against the Latin American currencies (most
    significantly the Brazilian real) and all European currencies, offset by a
    weaker dollar against the Japanese yen.

Within Language Services, Instruction sales for 1999 rose 3.4% from the prior
year and, excluding unfavorable exchange rate fluctuations, were 5.8% higher
than in 1998. This improvement was primarily due to volume and average revenue
per lesson ("ARPL") increases in most countries. Total Instruction lesson volume
increased 2.5% from the prior year, primarily as strength in Mexico, Germany,
Israel, and France was offset by weakness in the USA, Venezuela and Argentina.

Geographically, Instruction revenue and lesson volume were dispersed as follows:

<TABLE>
<CAPTION>
Instruction Revenue:                                            (Dollars in millions)
-------------------                ------------------------------------------------------------------------------
                                          December 31,                   Growth (Decline) from Prior Year
                                   ---------------------------    -----------------------------------------------
                                      1999            1998          Exchange         Operations          Total
                                   -----------     -----------    ------------     --------------    ------------
<S>                                <C>             <C>            <C>              <C>               <C>
   North America                   $      47.9     $      49.9    $        -       $         (2.0)   $       (2.0) (1)
   Asia                                   73.1            59.9             9.3                3.9            13.2  (2)
   Latin America                          45.8            52.3           (10.3)               3.8            (6.5) (3)
   Europe                                110.3           105.8            (5.5)              10.0             4.5  (4)
                                   -----------     -----------    ------------     --------------    ------------
   Total revenue                   $     277.1     $     267.9    $       (6.5)    $         15.7    $        9.2
                                   ===========     ===========    ============     ==============    ============

(Footnotes on next page)
</TABLE>

                                       29
<PAGE>

(1) Decline was due to lesson volume shortfalls in the USA.
(2) Primarily reflected the effect of a weaker US dollar against the Japanese
    yen, and increased volume from Korea and Japan.
(3) Primarily reflected the effect of a stronger dollar against all Latin
    America currencies (primarily the Brazilian real), partially offset by
    volume and ARPL increases in Mexico.
(4) Primarily reflected improved volume and ARPL in most countries (in
    particular Belgium, France, Germany, Israel, and Poland), as well as
    unfavorable exchange rate fluctuations in France, Germany, Israel and
    Poland.

<TABLE>
<CAPTION>

Instruction Lesson Volume:                                        (Lessons in thousands)
-------------------------             --------------------------------------------------------------------------
                                                December 31,                  Growth (Decline) from Prior Year
                                      ----------------------------------    ------------------------------------
                                                                              Number of
                                           1999               1998             lessons            Percentage
                                      ---------------    ---------------    --------------     -----------------
<S>                                   <C>                <C>                <C>                <C>
   North America                         1,090.3            1,157.0             (66.7)              (5.8)% (1)
   Asia                                  1,106.9            1,039.8              67.1                6.5%  (2)
   Latin America                         1,311.5            1,300.6              10.9                0.8%  (3)
   Europe                                2,460.9            2,328.9             132.0                5.7%  (4)
                                      ---------------    ---------------    --------------     -----------------
   Total lesson volume                   5,969.6            5,826.3             143.3                2.5%
                                      ===============    ===============    ==============     =================
</TABLE>

-------------------------------------
(1) North America's volume decline primarily reflected reduced institutional
    training volume due to mergers and acquisitions in the petroleum and
    financial service sectors, resulting in reduced lesson demand due to
    downsizing, a decrease in expatriations, and the freezing of training
    budgets by these companies.
(2) Almost two thirds of Asia's increase is due to the inclusion in 1999 data of
    volume from the Korea joint venture, which in 1998 was not consolidated into
    operating results due to a minority interest ownership at that time. The
    remaining increase is attributable to special program promotions in Japan
    and growth in Malaysia.
(3) Overall lesson volume increased in Latin America primarily due to strong
    sales and growth in Mexico and Peru. However, lesson volume was down in
    Venezuela, Argentina, Chile and Colombia due to uncertain economies in these
    countries.
(4) Europe's volume improvement reflected continued growth in the region, with
    the largest increases generated by Germany, Israel, France, and Poland. Two
    new school openings in Israel and one in France and Poland helped contribute
    to the improved volume in those countries.


In 1999, ARPL was $40.84, as compared to $40.87 in 1998. The decrease reflected
the effects of unfavorable exchange rate fluctuations (i.e., $1.08), partially
offset by the favorable impact of product mix and price increases (i.e., $1.05).
ARPL ranged from a high of approximately $62.58 in Japan to a low of $15.08 in
Thailand, reflecting the effects of foreign exchange rates and differences in
the economic value of the services provided.

Within Language Services, ELS/BOC revenues declined 14.3% from the prior year.
ELS/BOC
                                       30
<PAGE>

was affected by weakened Asian student enrollments due to the economic
conditions in the Far East. Enrollments from Latin America were also down due to
economic instability in Venezuela and Brazil, and the increased strength of the
dollar over the currencies in these countries. Aggressive pricing and agent
commission structures by competitors also adversely affected results. In
addition, due to organization changes and the relocation of the ELS headquarters
from Los Angeles to Princeton in the latter part of 1998, many overseas sales
agents did not sell the ELS programs aggressively in the latter months of 1998
and early part of 1999 due to perceived uncertainties about the future of ELS
programs. This adversely affected student arrivals during 1999. ELS/BOC has
taken actions to address these matters, including filling vacant sales positions
and articulating its new business plan to its agents, monitoring and reducing
overhead expenses, undertaking significant sales and promotional activities to
inform new and existing sales agents about the new consolidated ELS Language
Centers network and initiating a website project to support agent sales, direct
marketing and relationship marketing efforts.

Publishing revenues declined $1.9 million, or 12.5%, from the prior year due to
the cancellation of direct response sale programs in the second half of 1999,
and a large sale to a German distributor in 1998 which benefited the 1998
results. Franchising revenues were flat with the prior year. ELS added a net of
2 franchises and Berlitz added 9 franchises during 1999.

Berlitz GlobalNET sales increased 13.2% over 1998, and, excluding the
unfavorable effects of exchange rate fluctuations, rose 15.4% from 1998.
Geographically, sales were above prior year in all regions. The following table
compares Berlitz GlobalNET revenues by region:

<TABLE>
<CAPTION>

Berlitz GlobalNET Revenue:                                        (Dollars in millions)
--------------------------           --------------------------------------------------------------------------
                                           December 31,                 Growth (Decline) from Prior Year
                                     --------------------------    --------------------------------------------
                                         1999           1998        Exchange       Operations         Total
                                     -----------    -----------    -----------    -------------    ------------
<S>                                  <C>            <C>            <C>            <C>              <C>
     Americas                        $    43.7      $    40.8      $    (0.1)     $     3.0        $     2.9 (1)
     Asia                                  6.0            4.3            0.5            1.2              1.7 (2)
     Europe                               50.6           43.5           (2.4)           9.5              7.1 (3)
     Inter-company eliminations           (4.9)          (4.3)           0.2           (0.8)            (0.6)
                                     -----------    -----------    -----------    -------------    ------------
     Total revenue                   $    95.4      $    84.3      $    (1.8)     $    12.9        $    11.1
                                     ===========    ===========    ===========    =============    ============
</TABLE>

(1) Sales were higher than prior year in the Americas due to results from
    businesses acquired in June and August of 1999, and continued strength in
    traditional business.
(2) The sales increase in Asia reflected volume increases in Japan, and an
    acquired business in Singapore.
(3) The sales increase in Europe reflected volume increases in Norway, Ireland
    and Denmark, and sales from acquisitions made in France and Poland in the
    second and fourth quarters of 1998, respectively.

The total Company's cost of services and products sold as a percentage of sales
was 59.9% in

                                       31
<PAGE>

1999, compared to 58.1% in the prior period. The higher percentage was mainly
attributable to a decline in GlobalNET production margins, higher teacher
salaries, and higher rent expense. Selling, general and administrative expenses
as a percentage of sales were 33.4% in 1999, compared with 32.6% in the prior
year. The increase was due primarily to higher administrative salaries.

The total Company's EBITA for 1999 was $30.2 million, or 6.8% of sales, compared
to $40.3 million, or 9.2% of sales, in the prior year . The following table
displays the comparative EBITA by business segment:

<TABLE>
<CAPTION>

Business Segment EBITA:                                          (Dollars in millions)
-----------------------               ---------------------------------------------------------------------------
                                            December 31,                  Growth (Decline) from Prior Year
                                      --------------------------    ---------------------------------------------
                                         1999           1998         Exchange       Operations         Total
                                      -----------    -----------    -----------     ------------    -------------
<S>                                   <C>            <C>            <C>             <C>             <C>
   Language Services:
      Instruction                     $    55.0      $    56.7      $    (1.3)      $    (0.4) (2)  $    (1.7)
      ELS/BOC                               2.3            6.2            -              (3.9) (3)       (3.9)
      Publishing                            0.7            1.3            -              (0.6) (4)       (0.6)
      Franchising                           0.4            -              -               0.4             0.4
      Overhead & Other                    (20.1)         (18.7)           0.5            (1.9) (5)       (1.4)
                                      -----------    -----------    -----------     ------------    -------------
   Total Language Services                 38.3           45.5           (0.8)           (6.4)           (7.2)
   Berlitz GlobalNET                        6.0            8.3           (0.3)           (2.0) (6)       (2.3)
   Corporate and other                    (14.1)         (13.5)           -              (0.6) (7)       (0.6)
                                      -----------    -----------    -----------     ------------    -------------
   Total                              $    30.2      $    40.3      $    (1.1) (1)  $    (9.0)      $   (10.1)
                                      ===========    ===========    ===========     ============    =============
</TABLE>
<TABLE>
<CAPTION>

                           EBITA Margin %:                            December 31,
                           ---------------                     -------------------------
                                                                  1999           1998
                                                               ----------     ----------
<S>                                                            <C>            <C>
                           Language Services:
                              Instruction (8)                      19.8%          21.2%
                              ELS/BOC (3)                           4.1%           9.5%
                              Publishing (4)                        5.3%           9.0%
                              Franchising                          25.5%           2.1%
                           Total Language Services                 10.9%          12.9%
                           Berlitz GlobalNET (6)                    6.3%           9.8%
                           Total                                    6.8%           9.2%
                           ---------------
</TABLE>

(1) The net unfavorable foreign exchange impact was attributable mainly to the
    Latin American countries.

    (Footnotes continued on next page)

                                       32
<PAGE>

(2) The decline in Instruction operating EBITA was due mainly to weakness in the
    U.S., Poland, and certain Latin American countries. In the U.S., growth in
    teacher salaries, rent and certain other fixed costs, coupled with a lesson
    volume decline, led to lower EBITA and EBITA margins. In Latin America,
    economic uncertainty in Argentina, Brazil, Colombia and Venezuela led to
    EBITA declines in these countries. In Poland, the EBITA was negatively
    affected by new legislation on teachers' social security. The decreases in
    these countries were partially offset by EBITA increases primarily in
    Mexico, Japan and most European countries; notably, France, UK, Denmark, and
    Spain.
(3) Despite reductions in its overall costs from the prior year, ELS/BOC's EBITA
    and EBITA margin decreased because the percentage decline in ELS' revenues
    outpaced the percentage decline of certain costs (most notably teachers'
    salaries, advertising and certain fixed expenses). In addition, an ELS joint
    venture in Japan, which commenced operations in October 1998 and opened a
    second center in April of 1999, generated an EBITA loss of $1.1 million in
    1999 due to its start-up nature.
(4) Publishing's 1998 EBITA and EBITA margin benefited from certain items
    (including a large sale to a German distributor and a bad debt recovery)
    which were absent in 1999. Increases in amortization of prepublication costs
    also negatively impacted 1999 EBITA.
(5) Language Services' overhead cost increase over prior year was attributable
    to fixed employee costs, advertising and travel expenses.
(6) The decline in EBITA for Berlitz GlobalNET was due mainly to decreases in
    the Americas, Ireland and UK, arising from tighter margins on interpretation
    services with U.S. government, investment in sales and technology resources,
    and integration costs associated with current year acquisitions. These
    declines were partially offset by increased production in Norway, and
    increased activity in France and Poland from acquisitions made in the second
    and fourth quarters of 1998, respectively.
(7) Corporate expenses rose due to increases in salary and related costs, and
    other sundry expenses.
(8) The reduction in Instruction's 1999 EBITA Margin occurred primarily as
    teacher costs, rent and salary related costs grew faster than revenues.

As a result of the March 1999 issuance of Convertible Debentures and an
affiliate note, and the related extinguishment of existing long-term debt, the
Company's combined interest expense on long-term debt and convertible debentures
for 1999 decreased $2.5 million from the prior year. This decrease was due
principally to a reduced effective interest rate.

"Other income, net" for 1999 increased by $2.7 million over the prior year,
primarily due to foreign exchange gains.

The Company recorded income tax expense of $7.7 million and $5.7 million in 1999
and 1998, respectively. The effective tax rates in both 1999 and 1998 were above
the U.S. Federal statutory tax rate, primarily as a result of nondeductible
amortization charges.

In connection with March 1999 extinguishment of long-term debt, the Company also
terminated its interest rate swap agreement, which hedged the floating rate Bank
Facility, for a cash payment of approximately $1.1 million. Consequently, in
1999, the Company has recorded an extraordinary loss, net of tax benefit, of
approximately $2.2 million, consisting of the interest rate swap's fair market
value and existing unamortized deferred finance costs at the time of
extinguishment of the underlying debt.

                                       33
<PAGE>

On December 3, 1999, the Securities and Exchange Commission ("SEC") issued its
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which provided its views on applying generally accepted accounting
principles to selected revenue recognition issues. The Company adopted the
provisions of SAB 101 effective January 1, 1999, and, as a result, changed its
method of accounting for deferred revenues on lessons paid for but not expected
to be taken. Through December 1998, such amounts had been recognized in income
based on historical experience by country; refunds subsequently issued were not
material. Beginning in 1999, deferred revenues on lessons paid for but not
expected to be taken were recognized in income when the obligation to issue a
refund has constructively expired. The cumulative effect of the accounting
change resulted in a charge to 1999 earnings of $5.6 million (net of income tax
benefit of $2.9 million and minority interest expense of $0.2 million).


Year Ended December 31, 1998 vs. Year Ended December 31, 1997

Sales for the twelve months ended December 31, 1998 were $436.3 million, 9.8%
above the prior year. This improvement was due to increases from operating
activity in all business segments, as well as a full year of results for ELS
(which was purchased on August 28, 1997), partially offset by unfavorable
exchange rate fluctuations. Excluding the results of ELS and the effects of
exchange rate fluctuations, sales increased from the prior year by 6.1%. The
following table compares revenues by business segment.

<TABLE>
<CAPTION>
Business Segment Revenues:                                     (Dollars in millions)
--------------------------         ------------------------------------------------------------------------------
                                          December 31,                   Growth (Decline) from Prior Year
                                   ---------------------------    -----------------------------------------------
                                      1998            1997        Exchange (2)     Operations (1)       Total
                                   -----------     -----------    ------------     --------------    ------------
<S>                                <C>             <C>            <C>              <C>               <C>
Language Services:
   Instruction                     $   267.9       $   260.4      $   (14.1)       $    21.6         $     7.5
   ELS/BOC                              65.7            36.4            -               29.3              29.3
   Publishing                           14.8            13.6           (0.1)             1.3               1.2
   Franchising                           1.8             1.0            -                0.8               0.8
   Other                                 1.9             2.0            -               (0.1)             (0.1)
                                   -----------     -----------    ------------     --------------    ------------
Total Language Services                352.1           313.4          (14.2)            52.9              38.7
Berlitz GlobalNET                       84.3            83.8           (3.3)             3.8               0.5
Eliminations                            (0.1)            -              -               (0.1)             (0.1)
                                   -----------     -----------    ------------     --------------    ------------
Total                              $   436.3       $   397.2      $   (17.5)       $    56.6         $    39.1
                                   ===========     ===========    ============     ==============    ============
</TABLE>

---------------------------------
(1) Adjusted to eliminate fluctuations in foreign currency exchange rates from
    year-to-year by assuming a constant exchange rate over two years, using as
    the base the first year of the periods being presented.

(2) The unfavorable exchange rate fluctuation ($17.5 million) primarily resulted
    from a strengthened dollar against virtually all foreign currencies (most
    significantly the Japanese yen, Mexican peso, Irish punt, Brazilian real,
    Colombian peso and German mark).

Within Language Services, Instruction sales for 1998 rose 2.9% from the prior
year and, excluding unfavorable exchange rate fluctuations, were 8.3% higher
than in 1998. This improvement was primarily due to volume and ARPL increases.
Total lesson volume increased 5.0% from the prior year.

                                       34
<PAGE>

Geographically, Instruction revenue and lesson volume were dispersed as follows:

<TABLE>
<CAPTION>
Instruction Revenue:                                             (Dollars in millions)
-------------------                   --------------------------------------------------------------------------
                                            December 31,                 Growth (Decline) from Prior Year
                                      --------------------------    --------------------------------------------
                                         1998           1997         Exchange       Operations         Total
                                      -----------    -----------    -----------    -------------    ------------
<S>                                   <C>            <C>            <C>            <C>              <C>
   North America                      $    49.9      $    48.4      $    (0.4)     $     1.9        $     1.5
   Asia                                    59.9           64.2           (5.3)           1.0             (4.3)(1)
   Latin America                           52.3           49.0           (5.5)           8.8              3.3 (2)
   Europe                                 105.8           98.8           (2.9)           9.9              7.0 (3)
                                      -----------    -----------    -----------    -------------    ------------
   Total revenue                      $   267.9      $   260.4      $   (14.1)     $    21.6        $     7.5
                                      ===========    ===========    ===========    =============    ============
</TABLE>

-------------------------------------
(1) Primarily reflected the effect of a stronger US dollar against the Japanese
    yen.
(2) Primarily reflected volume and ARPL increases in Mexico, Brazil, Venezuela
    and Colombia, partially offset by the effect of a stronger dollar against
    all Latin America currencies.
(3) Primarily reflected improved volume and ARPL in most countries in
    central/eastern Europe (in particular Germany, Poland and Israel) and volume
    increases in France and Italy, partially offset by unfavorable exchange rate
    fluctuations in Germany, Israel and Poland and by volume decreases in
    England and Belgium.

<TABLE>
<CAPTION>
Instruction Lesson Volume:                                          (Lessons in thousands)
-------------------------             --------------------------------------------------------------------------
                                                December 31,                 Growth (Decline) from Prior Year
                                      ----------------------------------    ------------------------------------
                                                                              Number of
                                           1998               1997             lessons             Percentage
                                      ---------------    ---------------    --------------     -----------------
<S>                                   <C>                <C>                <C>                <C>
   North America                         1,157.0            1,150.0               7.0                0.6%
   Asia                                  1,039.8            1,039.8               -                  0.0% (1)
   Latin America                         1,300.6            1,183.4             117.2                9.9% (2)
   Europe                                2,328.9            2,174.5             154.4                7.1% (3)
                                      ---------------    ---------------    --------------
   Total lesson volume                   5,826.3            5,547.7             278.6                5.0%
                                      ===============    ===============    ==============
</TABLE>

-------------------------------------
(1) Asia's volume remained flat despite the current economic recession,
    primarily reflecting the positive effects of special sales campaigns in
    Japan and expansion in new Asian markets.
(2) Lesson volume increased in Latin America primarily due to strong growth in
    Mexico, Peru and Venezuela. Brazil's lesson volume for 1998 rose 4% from
    1997, although volume slowed in the fourth quarter of 1998 due to local
    economic conditions.
(3) Europe's volume improvement reflected growth in Germany, Poland, and Israel,
    as well as increases in lessons given to corporate clients in France and
    Italy. The increase is partially offset by a 24.1% decrease in lesson volume
    in England due in part to a decline in activity from overseas students
    applying for the Berlitz Study Abroad program.

                                       35
<PAGE>

In 1998, ARPL was $40.87, as compared to $41.71 in 1997. The decline reflected
the effects of unfavorable exchange rate fluctuations of $2.17, and was
negatively affected by changes in the client and lesson product mix in France,
Singapore, Hong Kong and Spain. Excluding the effects of exchange rate
fluctuations, the ARPL increased 3.2% over prior year. ARPL ranged from a high
of approximately $58.89 in Brazil to a low of $13.77 in Thailand, reflecting
effects of foreign exchange rates and differences in the economic value of the
service.

Within Language Services, ELS/BOC revenues in 1998 included twelve months of ELS
results totaling $53.4 million, as compared to only post-acquisition revenues of
$19.9 million for ELS in 1997. Excluding the results of ELS, sales declined,
primarily due to reductions in business originating from the Far East
(principally Korea and Japan).

Publishing revenues for 1998 increased $1.2 million, or 8.5%, from 1997. The
increase was due to a large sale of German market versions of Think and Talk(R).
Additionally, strong increases in trade bookstore sales in several key markets
were offset by a decline in the direct response business in North America.
Exchange rate fluctuations were not significant.

During the twelve months ended December 31, 1998, the Company opened a branch in
China and six Company-owned language centers in Italy, Japan, Malaysia, Mexico
and the United States. Same center sales (i.e., sales by centers which were
operating during the entirety of both years being compared) grew by 4.8% over
1997, excluding the impact of foreign currency rate fluctuations. In addition,
the Company opened 16 Berlitz franchises during 1998 in Austria, Chile, Croatia,
Egypt, France, Germany, Guatemala, Kuwait, Malta, Mexico, Slovakia, Turkey, the
United Arab Emirates, and the U.S., and two ELS franchises in Costa Rica and
Panama.

Berlitz GlobalNET sales, excluding the unfavorable effects of exchange rate
fluctuations, rose 4.5% from 1997. The Asia crisis impacted revenue on certain
key accounts as customers changed product release decisions away from the Asian
languages. This shortfall, estimated at approximately $10.0 million, was offset
by increased volume from new accounts in the U.S., new business in certain
emerging markets, and increased volume as a result of an acquisition in France
consummated in June 1998. The following table compares Berlitz GlobalNET
revenues by region:

<TABLE>
<CAPTION>
Berlitz GlobalNET Revenue:                                     (Dollars in millions)
--------------------------           --------------------------------------------------------------------------
                                           December 31,                 Growth (Decline) from Prior Year
                                     --------------------------    --------------------------------------------
                                        1998           1997         Exchange       Operations         Total
                                     -----------    -----------    -----------    -------------    ------------
<S>                                  <C>            <C>            <C>            <C>              <C>
     America                         $    40.8      $    38.6      $    (0.3)     $     2.5        $     2.2
     Asia                                  4.3            4.8           (0.5)           -               (0.5)
     Europe                               43.5           44.6           (2.5)           1.4             (1.1)
     Inter-company eliminations           (4.3)          (4.2)           -             (0.1)            (0.1)
                                     -----------    -----------    -----------    -------------    ------------
     Total revenue                   $    84.3      $    83.8      $    (3.3)     $     3.8        $     0.5
                                     ===========    ===========    ===========    =============    ============
</TABLE>

The total Company's cost of service and products sold as a percentage of sales
for the twelve months ended December 31, 1998 was 58.1%, compared to 59.2% for
1997. The change

                                       36
<PAGE>

reflects the effects of improved margins in Berlitz GlobalNET and Publishing.
Selling, general and administrative expenses as a percentage of sales were 32.6%
in 1998, compared with 31.5% in the prior year. The increase reflects higher
administrative salary percentages.

The total Company's EBITA for 1998 was $40.3 million, or 9.2% of sales, compared
to $37.2 million, or 9.4% of sales, in the prior year. The following table
displays the comparative EBITA by business segment:

<TABLE>
<CAPTION>
Business Segment EBITA:                                         (Dollars in millions)
-----------------------               ---------------------------------------------------------------------------
                                            December 31,                  Growth (Decline) from Prior Year
                                      --------------------------    ---------------------------------------------
                                         1998           1997          Exchange        Operations        Total
                                      -----------    -----------    -------------    ------------    ------------
<S>                                   <C>            <C>            <C>              <C>             <C>
   Language Services:
      Instruction                     $    56.7      $    56.0      $    (3.3)       $     4.0 (2)   $     0.7
      ELS/BOC                               6.2            5.1            -                1.1 (3)         1.1
      Publishing                            1.3            0.6            -                0.7 (4)         0.7
      Franchising                           -             (0.7)           -                0.7 (5)         0.7
      Overhead & Other                    (18.7)         (18.6)           0.8             (0.9) (7)       (0.1)
                                      -----------    -----------    -------------    ------------    ------------
   Total Language Services                 45.5           42.4           (2.5)             5.6             3.1
   Berlitz GlobalNET                        8.3            7.7           (0.3)             0.9 (6)         0.6
   Corporate and other                    (13.5)         (12.9)           -               (0.6) (7)       (0.6)
                                      -----------    -----------    -------------    ------------    ------------
   Total                              $    40.3      $    37.2      $    (2.8) (1)   $     5.9       $     3.1
                                      ===========    ===========    =============    ============    ============
</TABLE>
<TABLE>
<CAPTION>
                           EBITA Margin %:                            December 31,
                           ---------------                     -------------------------
                                                                  1999           1998
                                                               ----------     ----------
<S>                                                            <C>            <C>
                           Language Services:
                              Instruction                          21.2%          21.5%
                              ELS/BOC                               9.5%          14.0%
                              Publishing                            9.0%           4.4%
                              Franchising                           2.1%           N/A
                           Total Language Services                 12.9%          13.5%
                           Berlitz GlobalNET                        9.8%           9.2%
                           Total                                    9.2%           9.4%
                           ---------------
</TABLE>

(1) The net unfavorable foreign exchange impact was attributable mainly to the
    Latin American countries and Japan.
(2) The increase in Instruction operating EBITA was primarily due to activity in
    Latin America and Europe, which exhibited operating EBITA increases of $3.4
    million and $3.7 million, respectively, mainly due to lesson and price
    increases in Germany, Mexico, Brazil and Venezuela, and sales increases in
    Italy and France. However, the local economies created challenges for Asia,
    which, despite flat lesson volume, exhibited a 1998 full year operating
    EBITA decline of $2.4 million. This decline was largely due to higher
    administrative salaries and rent expense in Japan.

                                       37
(Footnotes continued on next page)
<PAGE>

(3) EBITA in 1998 included twelve months of ELS results totaling $4.7 million,
    as compared to only post-acquisition EBITA for ELS of $1.8 million in 1997.
    Both ELS and Berlitz on Campus ("BOC") experienced reduced enrollments in
    1998 of approximately 27%, primarily due to the economic turmoil in Asia.
    Consequently, the Company reported EBITA for BOC in 1998 which was $1.8
    million lower than in 1997. The Company has implemented certain
    restructuring and cost control measures designed to position ELS/BOC for
    improved margins.
(4) Publishing segment EBITA and EBITA margins for 1998 increased from 1997 due
    in part to the volume increase in the German market.
(5) EBITA for franchising activity was breakeven in 1998, compared with an EBITA
    loss of $0.7 million in the prior year. These results still reflected the
    start-up nature of this operation, as the Company was not yet collecting
    significant royalty income.
(6) Despite the Asian economic situation, a significant portion of the EBITA
    improvement was recognized in the Asian countries due to reorganization
    efforts and improved production efficiencies. In addition, Germany, the U.S.
    and certain western European countries experienced improved operating
    margins. These positive results were partially offset by lower margins and
    sales volume in Ireland.
         As a result of economic turmoil in Asia, GlobalNET experienced lower
    sales backorder in North America on Asian projects, as existing clients
    delayed and/or cancelled production of certain Asian projects until the
    uncertainty of the market stabilized. Japan also faced a weak market which
    resulted in lower sales volume. However, previous reorganization efforts
    positioned Japan and Singapore for growth and, despite the challenging
    economies, improved Asia's GlobalNET EBITA over the prior year.
(7) Corporate expenses rose primarily due to increases in administrative
    salaries.

Amortization of intangibles increased $3.1 million, or 21.7%, over 1997, as a
result of higher intangible assets arising from the acquisition of ELS.
Additionally, interest expense on long-term debt in 1998 rose $2.4 million, or
28.5%, from 1997, due to higher borrowings outstanding under the Company's
refinanced August 1997 credit facility. "Other expense, net" for the twelve
months ended December 31, 1998 increased by $2.8 million over the prior year,
due largely to higher foreign exchange losses, losses on disposal of fixed
assets, and non-operating taxes.

The Company recorded income tax expense of $5.7 million, or an effective rate of
73.8%, in 1998, compared with income tax expense of $7.1 million, or an
effective rate of 54.3%, in 1997. The effective tax rates in both 1998 and 1997
were above the U.S. Federal statutory tax rate, primarily as a result of
nondeductible amortization charges.

Liquidity and Capital Resources

Historically, the primary source of the Company's liquidity has been the cash
provided by operations, and capital expenditures, working capital requirements
and acquisitions (except the acquisition of ELS) have been funded from
internally generated cash. Although each geographic area exhibits different
patterns of lesson volume over the course of the year, the Company's sales are
generally not seasonal in the aggregate.

                                       38
<PAGE>

Net cash provided by operating activities was $24.3 million, $34.4 million and
$13.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. In comparing 1999 with 1998, the decline of $10.1 million resulted
from a reduced EBITA; an increase in accounts receivable; payments made pursuant
to the long-term incentive plan; a payment to terminate the Company's interest
rate swap; the payment of $4 million to Children's Television Workshop,
discussed below. In comparing 1998 with 1997, the increase of $20.9 million
primarily resulted from increased receivable collections, offset by higher
inventory expenditures, and higher payment of year-end bonuses. In addition,
cash-flow in 1997 was reduced by a $5.8 million prepayment penalty on the
Company's Senior Notes.

Net cash used in investing activities totaled $31.5 million, $22.9 million and
$105.5 million in 1999, 1998 and 1997, respectively. Included in 1997 were ELS
acquisition-related payments of $90.9 million, including various transaction
costs and net of cash acquired of $6.1 million. Included in 1999 and 1998 were
acquisitions of businesses of $11.1 million and $3.9 million, respectively,
which relate mainly to worldwide acquisitions made for the GlobalNET segment.
The balance of net cash used largely consisted of capital expenditures,
aggregating $20.3 million, $18.9 million and $14.6 million in 1999, 1998 and
1997, respectively. Such capital expenditures were primarily for the opening of
new facilities and the refurbishing of existing facilities. Capital expenditures
have increased over the three-year period due to growth related expansion in the
Language Service and GlobalNET segments.

Net cash provided by financing activities totaled $17.3 million and $94.9
million, respectively, in 1999 and 1997, compared with net cash used in
financing activities of $13.6 million in 1998. The change in 1999 primarily
reflected the excess of the net proceeds from the issuance of convertible
debentures and notes payable to an affiliate over the related extinguished debt.
The activity for 1998 primarily reflected repayments of long-term debt. The
results in 1997 primarily reflected net proceeds from the Company's refinancing
of its long-term debt in conjunction with the ELS acquisition.

Other items impacting the Company's liquidity and capital resources are as
follows:

o    $1.2 million of "Accrued expenses and other current liabilities" at
     December 31, 1999 related to the ELS acquisition.

o    On July 1, 1999, Berlitz entered into a license agreement with Children's
     Television Workshop ("CTW"). CTW will create and produce, at its expense, a
     television series, entitled "Sesame English", which will initially consist
     of 52 15-minute episodes and which will be complemented by instruction
     curricula and materials developed by Berlitz. Berlitz was also granted
     certain rights by CTW, including the exclusive right to use certain Sesame
     Street and Sesame English names, logos and characters in connection with
     language instructional products, services and schools.

     The license agreement with CTW, covers an initial term of five years, and
     provides for payments to CTW of $4 million at inception and an aggregate of
     $6 million in minimum guaranteed royalties paid in installments over the
     initial term of the agreement. The $4 million paid at inception may be
     applied against future royalties due in excess of the minimum guarantee.

                                       39
<PAGE>

     Furthermore, in the event that Berlitz enters into any sublicenses or other
     third-party arrangements with a sublicensee for language instruction
     services in Japan, the minimum guaranteed royalties will be reduced dollar
     for dollar, up to a maximum of $2 million from CTW's share of payments from
     such Japanese sublicensees. If certain conditions are met, Berlitz may
     extend the license agreement for another five years in exchange for annual
     minimum guaranteed royalties equal to the greater of $2 million, or an
     amount equal to 80% of the royalties earned by CTW under the license
     agreement during the fifth year of the initial term.

o    As part of its CTW and general marketing efforts, Berlitz is in the process
     of pursuing opportunities to expand the use of the Internet for the
     marketing and distribution of its products and services.

o    In June 1999, the Company acquired certain assets, operating subsidiaries
     and key personnel of Language Management International, Inc., a
     translations services company. The purchase price was $8.0 million, plus a
     contingent payment based on gross revenues for the twelve months ending
     June 30, 2000. The Company also incurred various transaction-related
     expenditures and accrued expenses. At December 31, 1999, in connection with
     this acquisition, the Company recorded $11.6 million of goodwill and
     accrued $3.5 million in current liabilities for transaction-related
     expenses and contingencies.

o    On June 8, 1999, the Company's shareholders approved the Company's 1999
     Long-Term Executive Incentive Compensation Plan (the "1999 LTIP"). The 1999
     LTIP provides for potential cash awards to be paid to senior management in
     2002 if certain revenue, earnings and cash flow targets are achieved for
     the three year period from 1999 to 2001. The 1999 LTIP is intended to be an
     unfunded plan, and the Company is not required to establish any fund or
     segregate any assets. Based on limitations contained within the 1999 LTIP,
     total awards are currently expected to range from a minimum of $0.7 million
     to a maximum of $5.0 million.

o    On March 31, 1999, the Company entered into a new $25 million revolving
     credit facility which expires in February 2002. At the option of the
     Company, outstanding borrowings under the revolving credit facility bear
     interest at variable rates equal to either (i) a base rate approximating
     the U.S. prime rate or (ii) the rate offered by certain reference banks to
     prime banks in the interbank Eurodollar market, fully adjusted for reserves
     plus a margin ranging from 0.375% to 0.5%; such margin is dependent on a
     specified leverage ratio of the Company. In addition, a commitment fee
     ranging from 0.125% to 0.20% will be charged on the available but unused
     amounts under the revolving credit facility, depending on a specified
     leverage ratio. There were $4.0 million of outstanding borrowings under the
     revolving credit facility at December 31, 1999. On January 24, 2000, the
     total outstanding balance of $4 million was paid in full.

o    The Company's Supplemental Executive Retirement Plan ("SERP") provides
     retirement income/disability retirement benefits, retiree medical benefits
     and death benefits to certain designated executives and their designated
     beneficiaries. The Company intends to fund the SERP through a combination
     of funds generated from operations and life insurance policies on the
     participants.

                                       40
<PAGE>

o    The Company is party to currency coupon swap agreements with a financial
     institution to hedge the Company's net investments in certain foreign
     subsidiaries. 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 British pound, and
     the German mark. Credit loss from counterparty nonperformance is not
     anticipated. The estimated fair value of these swap agreements at December
     31, 1999, representing the amount that could be settled based on estimates
     obtained from a dealer, was a net liability of approximately $2.8 million.

o    On March 11, 1999, the Company's shareholders approved the issuance of, and
     the Company issued, $155 million aggregate principal amount 12-year
     convertible debentures (the "Convertible Debentures") in a private
     placement, pursuant to definitive investment agreements (the "Investment
     Agreements") dated as of October 2, 1998. Such debentures were issued as
     follows: a) $100 million aggregate principal amount (the "Apollo
     Debentures") to two affiliates of Apollo Management IV, L.P. ("Apollo"), a
     private investment firm; and b) $55 million aggregate principal amount (the
     "Benesse Debentures") to Benesse Holding International, Inc. ("BHI"), the
     Company's majority shareholder. The Convertible Debentures bear interest at
     5% per annum, payable semi-annually. Principal amounts outstanding under
     such debentures are not due until March 2011, and the Company is not
     required to establish a bond sinking fund for repayment of this principal.
     The Convertible Debentures are convertible at any time into shares of the
     Company's common stock at a conversion price of $33.05 per share, subject
     to anti-dilution related adjustments.

     In a separate transaction on March 11, 1999, BHI loaned $50 million to the
     Company, evidenced by a 12-year fixed rate subordinated promissory note
     (the "BHI Note"). Such note bears interest for the first five years at 5.2%
     per annum, and, thereafter, at a renegotiated fixed rate approximating
     LIBOR plus a margin based on the Company's then existing leverage. Interest
     is payable semiannually in cash while principal repayment is deferred until
     maturity. In the event of a change in control, the BHI Note provides for
     redemption by the Company, at the option of BHI, at price equal to 101% of
     the note's principal amount.

     The Company used the proceeds from the sale of the Convertible Debentures,
     as well as proceeds from the BHI Note issuance, to repay in full all
     outstanding indebtedness pursuant to the Bank Facility and existing notes
     payable to Benesse, and for general corporate purposes. The Company
     incurred approximately $2.8 million in deferred finance costs associated
     with the issuance of the Convertible Debentures and BHI Note.

At December 31, 1999, the Company's liquid assets of $34.4 million consisted of
cash and temporary investments. The Company does not currently have any material
commitments for capital expenditures. In the future, the Company anticipates
capital expenditures to continue to be in line with recent historical trends due
to the refurbishment of the Company's language centers, the expansion of the
Company's GlobalNET segment, and technological expansion. The Company plans to
meet its debt service requirements and future working capital needs through
funds generated from operations.

                                       41
<PAGE>

Impact of Year 2000

In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The cost for Year
2000 compliance with respect to the Company's information and production systems
was approximately $4.9 million, consisting of: $3.6 million for replacements of
financial accounting and operational systems with the remainder dedicated to
infrastructure and third party relationship remediation. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products and services, its internal systems, or the products and services of
third parties. The Company will continue to monitor its mission critical
computer applications and those of its suppliers and vendors throughout the year
2000 to ensure that any latent Year 2000 matters that may arise are addressed
promptly.

Recent Accounting Pronouncements
During June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. The accounting for gains or losses resulting from changes in the
values of those derivatives would depend on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 will be effective for the
calendar year beginning January 1, 2001. Based on the Company's current
activities, the new standard is not expected to have a material impact on the
Company's financial position or results of operations.

                                       43
<PAGE>

Inflation
Historically, inflation has not had a material effect on the Company's overall
business. Management believes this is due to the fact that the Company's
business is a service business which is not capital intensive. The Company has
historically adjusted prices to compensate for inflation.

Special Note Regarding Forward Looking Statements

Certain statements in this Annual Report on Form 10-K, including information
appearing under the captions "Business", "Legal Proceedings", and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company desires
to take advantage of certain "Safe Harbor" provisions of the Reform Act and is
including this special note to enable the Company to do so. Forward-Looking
Statements involve known and unknown risks, uncertainties, and other factors
which could cause the Company's actual results, performance (financial or
operating) or achievements to differ materially from the future results,
performance (financial or operating) or achievements expressed or implied by
such Forward-Looking Statements. Such risks, uncertainties and other factors
include, among others, general factors affecting future cashflows and their
effects on the Company's ability to meet its debt service requirements and
future working capital needs, including fluctuations in foreign currency
exchange rates; demand for the Company's products and services; the impact of
competition; the effect of changing economic and political conditions; the level
of success and timing in implementing corporate strategies and new technologies;
changes in governmental and tax laws and regulations, tax audits and other
factors (known or unknown) which may affect the Company. As a result, no
assurance can be given as to future results, levels of activity and
achievements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company's major market risk exposure is foreign currency fluctuations.
Geographically, the majority of the Company's subsidiaries are located outside
the United States, with operations conducted in their respective local
currencies. For example, for the three years ended December 31, 1999, the
percentage of total revenues denominated in currencies other than U.S. dollars
averaged 65%, in foreign currencies including the Japanese yen, German mark,
Irish punt, Brazilian real, Mexican peso, British pound and French and Swiss
francs. As discussed under "Management's Discussion and Analysis - Liquidity and
Capital Resources", the Company maintains currency coupon swap agreements with a
financial institution to hedge the Company's net investments in certain foreign
subsidiaries and to help manage the effect of foreign currency fluctuations on
the Company's ability to repay its U.S. dollar debt. These agreements require
the Company to exchange foreign currency-denominated interest payments for U.S.
dollar-denominated interest receipts on a semi-annual basis. Significant terms
of currency swap agreements continuing to remain outstanding after December 31,
1999 were as follows:

                                       44
<PAGE>
<TABLE>
<CAPTION>

                                                                               Interest Receipts from
                              Interest Payment to Financial Institution         Financial Institution
                              --------------------------------------------    --------------------------
                                                                                Notional                 Fair Value
     Effective                                                 Interest          Amount      Interest    at 12/31/99
       Date       Maturity       Notional Amount (000's)         Rate            (000's)       Rate        (000's)
       ----       --------    ------------------------------     ----           --------       ----        -------
<S>   <C>         <C>         <C>                 <C>          <C>            <C>            <C>         <C>
      1/1/99      12/30/02    Japanese Yen        12,311,005     5.50%        $    95,694      6.27%     $   (3,620)
      1/1/99      12/31/02    German Mark             99,546     6.12%        $    55,821      6.27%     $       614
      1/4/99      12/31/02    Swiss Franc             16,131     5.72%        $    11,164      6.27%     $       215
      1/4/99      12/31/02    British Pound            4,841     6.56%        $     7,974      6.27%     $      (34)
</TABLE>

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.

Throughout fiscal 1998 and until March 11, 1999, another major market risk
exposure of the Company was the impact of changing interest rates on its
variable rate Bank Facility, which at its August 28, 1997 inception, consisted
of term loans of $120 million and a revolving credit facility, as amended, of
$70 million. The term loans provided for quarterly amortization, beginning
December 31, 1997 and ending September 30, 2002, and matured as follows: Year 1,
$17 million; Year 2, $19 million; Year 3, $20 million; Year 4, $22 million; Year
5, $22 million, plus a balloon at maturity of $20 million. There were no
scheduled repayments required under the revolving credit facility prior to its
expiration on September 30, 2002, at which time all outstanding balances were
due.

Outstanding borrowings under the Bank Facility bore interest at variable rates
based on, at the option of the Company, (i) NationsBank's alternate base rate
(essentially equivalent to the prime rate) or (ii) the rate offered by certain
reference banks to prime banks in the interbank Eurodollar market, fully
adjusted for reserves plus a margin ranging from .375% to .875%; such margin was
dependent on a specified leverage ratio of the Company. In addition, a
commitment fee ranging from .125% to .25% was charged on the available but
unused amounts under the revolving credit facility, depending on a specified
leverage ratio. Pursuant to a covenant under the Bank Facility, the Company
entered into an interest rate swap agreement which fixed the base interest rate
for a portion of the Bank Facility at 6.30% (see Management's Discussion and
Analysis - Liquidity and Capital Resources). The average interest rate on
outstanding borrowings under the Bank Facility for the period ending December
31, 1998 was 6.72%. The carrying value of the Bank Facility approximated its
estimated fair value, based on interest rates currently available for borrowings
with similar terms and maturities.

On March 11, 1999, in connection with the Company's issuance of convertible
debentures (see Management's Discussion and Analysis - Liquidity and Capital
Resources), the Company terminated the Bank Facility and repaid all outstanding
amounts in full. The Company also terminated the related interest rate swap
agreement through a cash payment by the Company of $1.1 million, representing
the swap agreement's fair value at the time of termination based on quotes
obtained from a dealer.

For additional information relating to the financial instruments, see Note 13 to
the Consolidated Financial Statements.

                                       45
<PAGE>

The Company's derivatives are for non-trading purposes. The Company historically
has only entered into derivative contracts as required by its lenders and it has
no present intentions to change this policy. Furthermore, the Company employed
the following procedures to monitor and minimize the market and credit risk
associated with its current derivative contracts entered into pursuant to the
Bank Facility:

a)   bids and proposals were obtained from only major financial institutions;

b)   prior to entering into its derivative contracts, the Company conferred with
     independent advisors to assess the reasonableness of the contracts and
     obtained Board of Director approval;

c)   the Company entered into simple agreements; and

d)   the Company provides status updates regarding its derivatives, including
     market value updates, to its Board of Directors on a regular basis.

ITEM 8.  Financial Statements and Supplementary Data

The following Consolidated Financial Statements, Supplementary Data and
Financial Statement Schedule are filed as part of this Annual Report on Form
10-K:

                                                                      Page
                                                                      ----
Report of Independent Auditors                                         47

Statement of Management's Responsibility for Consolidated
    Financial Statements                                               48

Consolidated Financial Statements:

    Consolidated Statements of Operations, years ended
         December 31, 1999, 1998 and 1997                              49

    Consolidated Balance Sheets, December 31, 1999 and 1998            50

    Consolidated Statements of Comprehensive (Loss) Income, years
         ended December 31, 1999, 1998, and 1997                       51

    Consolidated Statements of Shareholders' Equity, years ended
         December 31, 1999, 1998 and 1997                              52

    Consolidated Statements of Cash Flows, years ended
         December 31, 1999, 1998 and 1997                              53

    Notes to Consolidated Financial Statements                         54

Financial Statement Schedule:

         Schedule II.  Valuation and Qualifying Accounts               85

         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.

                                       46
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
of Berlitz International, Inc.:

We have audited the accompanying consolidated balance sheets of Berlitz
International, Inc. and its subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, comprehensive (loss) income,
shareholders' equity, and cash flows for the years ended December 31, 1999, 1998
and 1997. Our audits also included the financial statement schedule listed in
the Index at Item 8 for the years ended December 31, 1999, 1998 and 1997. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Berlitz International, Inc. and its
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the years ended December 31, 1999, 1998 and
1997, in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule for the years ended December 31, 1999,
1998 and 1997, 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 1(k) to the consolidated financial statements, effective
January 1, 1999 the Company changed its method of accounting for the recognition
in income of deferred revenues in accordance with Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements".


/s/ DELOITTE & TOUCHE LLP
-------------------------
New York, New York
February 28, 2000

                                       47
<PAGE>

                    STATEMENT OF MANAGEMENT'S RESPONSIBILITY
                      FOR CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders of Berlitz International, Inc.:

Management of Berlitz International, Inc. has prepared and is responsible for
the accompanying Consolidated Financial Statements and related information.
These financial statements, which include amounts based on judgments of
management, have been prepared in conformity with generally accepted accounting
principles. Financial data included in other sections of this Annual Report on
Form 10-K are consistent with that in the Consolidated Financial Statements.

Management believes that the Company's internal control systems are designed to
provide reasonable assurance, at reasonable cost, that the financial records are
reliable for preparing financial statements and maintaining accountability for
assets and that, in all material respects, assets are safeguarded against loss
from unauthorized use or disposition. These systems are augmented by written
policies, an organizational structure providing division of responsibilities,
qualified personnel throughout the organization, and a program of internal
audits.

The Board of Directors, through its Audit Committee consisting of outside
Directors of the Company, is responsible for reviewing and monitoring the
Company's financial reporting and accounting practices. Deloitte & Touche LLP
and the Company's internal auditors each have full and free access to the Audit
Committee, and meet with it regularly, with and without management.


/s/ HENRY D. JAMES
------------------
Henry D. James
Executive Vice President and Chief Financial Officer

                                       48
<PAGE>

                           BERLITZ INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                    ---------------------------------------------------
                                                              1999               1998              1997
                                                    --------------     --------------     -------------
<S>                                                 <C>                <C>                <C>
Sales of services and products                      $      446,181     $      436,303     $     397,209
                                                    --------------     --------------     -------------
Costs and expenses:
    Cost of services and products sold                     267,176            253,842           235,020
    Selling, general and administrative                    148,803            142,147           124,945
    Amortization of publishing rights, excess
       of cost over net assets acquired, and
       other intangibles                                    18,024             17,265            14,183
    Interest expense on long-term debt                       2,005             10,956             8,523
    Interest expense on Convertible Debentures
       with related parties                                  6,424                  -                 -
    Interest expense on notes to affiliates                  2,547              2,226             2,100
    Other (income) expense, net                              (520)              2,188             (615)
                                                    --------------     --------------     -------------
         Total costs and expenses                          444,459            428,624           384,156
                                                    --------------     --------------     -------------

Income before income taxes, minority interest in
    loss (earnings) of subsidiary, extraordinary
    item, and cumulative effect of accounting
    change                                                   1,722              7,679            13,053

Income tax (expense)                                        (7,715)            (5,665)           (7,089)
Minority interest in loss (earnings)
    of subsidiary                                              668                 68              (613)
                                                    --------------     --------------     -------------

(Loss) income before extraordinary item and
    cumulative effect of accounting change                  (5,325)             2,082             5,351

Extraordinary loss from extinguishment of debt,
    net of income tax benefits of $44 and $1,949            (2,154)                 -            (6,285)

Cumulative effect of accounting change, net of
    income tax benefit of $2,900
    and minority interest expense of $189                   (5,605)                 -                 -
                                                    --------------     --------------     -------------
Net (loss) income                                   $      (13,084)    $        2,082     $        (934)
                                                    ==============     ==============     =============

(Loss) earnings per share - basic and diluted:
    (Loss) income before extraordinary item
       and cumulative effect of accounting change   $        (0.56)    $         0.22     $        0.56
    Extraordinary loss                                       (0.22)                 -             (0.66)
    Cumulative effect of accounting change                   (0.59)                 -                 -
                                                    --------------     --------------     -------------
    (Loss) earnings per share                       $        (1.37)    $         0.22     $       (0.10)
                                                    ==============     ==============     =============
Average number of shares (000)                               9,530              9,530             9,550
                                                    ==============     ==============     =============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       49
<PAGE>

                           BERLITZ INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                ---------------------------------
                                                                                        1999                 1998
                                                                                ------------         ------------
<S>                                                                             <C>                  <C>
Assets
Current assets:
Cash and temporary investments                                                  $     34,426         $     25,327
Accounts receivable, less allowance for doubtful accounts
  of $3,102 and $2,295                                                                54,185               46,650
Unbilled receivables                                                                   7,514                6,873
Inventories, net                                                                      10,405               11,606
Prepaid expenses and other current assets                                              8,628                7,965
                                                                                ------------         ------------
  Total current assets                                                               115,158               98,421
Property and equipment, net                                                           47,749               41,144
Publishing rights, net of accumulated
  amortization of $6,083 and $5,203                                                   15,902               16,782
Excess of cost over net assets acquired and other intangibles, net of
  accumulated amortization of $92,936 and $75,573                                    480,967              486,232
Other assets                                                                          37,244               20,882
                                                                                ------------         ------------
  Total assets                                                                  $    697,020         $    663,461
                                                                                ============         ============

Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt                                               $      5,118         $     20,135
Accounts payable                                                                      12,026               11,280
Deferred revenues                                                                     57,266               41,603
Payrolls and commissions                                                              16,458               15,079
Income taxes payable                                                                     971                  365
Interest payable on convertible debentures                                             1,938                    -
Accrued expenses and other current liabilities                                        19,495               17,255
                                                                                ------------         ------------
  Total current liabilities                                                          113,272              105,717

Long-term debt                                                                         1,887              129,387
Convertible Debentures with related parties                                          155,000                    -
Notes payable to affiliates                                                           50,000               42,755
Other liabilities                                                                     28,399               20,333
Minority interest                                                                      9,775               10,283
                                                                                ------------         ------------
  Total liabilities                                                                  358,333              308,475
                                                                                ------------         ------------
Commitments and Contingencies (Note 12)

Shareholders' Equity:

Common stock
  $.10 par value - 40,000,000 shares authorized;
10,049,761 shares issued                                                               1,003                1,003
Additional paid-in capital                                                           372,518              372,518
(Accumulated deficit) retained earnings                                               (8,510)               4,574
Accumulated other comprehensive loss:
  Cumulative translation adjustment                                                  (19,963)             (16,748)
Treasury stock at cost; 503,225 shares                                                (6,361)              (6,361)
                                                                                ------------         ------------
Total shareholders' equity                                                           338,687              354,986
                                                                                ------------         ------------
  Total liabilities and shareholders' equity                                    $    697,020         $    663,461
                                                                                ============         ============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       50
<PAGE>

                           BERLITZ INTERNATIONAL, INC.
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                    ---------------------------------------------------
                                                              1999               1998              1997
                                                    --------------     --------------     -------------
<S>                                                 <C>                <C>                <C>
Net (loss) income                                   $      (13,084)    $        2,082     $        (934)

Other comprehensive (loss) income, net of tax:
   Foreign currency items, including translation
     adjustments, and the effects of certain
     hedges and intercompany transactions                   (3,215)             5,926           (12,637)
                                                    --------------     --------------     -------------
         Comprehensive (loss) income                $      (16,299)    $        8,008     $     (13,571)
                                                    ==============     ==============     =============

The tax (expense) benefit allocated to each component of other comprehensive
income (loss) is as follows:

Foreign currency items                              $          (12)    $          889     $        (273)
                                                    ==============     ==============     =============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       51
<PAGE>

                           BERLITZ INTERNATIONAL, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                         Accumulated
                                                                            Other
                                                                        Comprehensive
                                                                            Loss:
                                            Additional      Retained     Cumulative                     Total
                                 Common      Paid-In        Earnings     Translation    Treasury     Shareholders'
                                  Stock      Capital       (Deficit)     Adjustment       Stock         Equity
                               ----------   ----------     ---------     ----------    ----------     ----------
<S>                            <C>          <C>            <C>           <C>           <C>            <C>
Balance at January 1, 1997     $    1,003   $  368,658     $   3,426     $  (10,037)   $   (5,643)    $  357,407

Net loss                                                        (934)                                       (934)
Translation adjustment and other,
   including the effects of certain
    hedges and intercompany
    transactions                                                            (12,364)                     (12,364)
Allocated income taxes                                                         (273)                        (273)
Sale of treasury stock                           3,860                                      2,250          6,110
Purchase of treasury stock                                                                 (2,968)        (2,968)
                               ----------   ----------     ---------     ----------    ----------     ----------
Balance at December 31, 1997        1,003      372,518         2,492        (22,674)       (6,361)       346,978

Net income                                                     2,082                                       2,082
Translation adjustment and other,
   including the effects of certain
    hedges and intercompany
    transactions                                                              5,037                        5,037
Allocated income taxes                                                          889                          889
                               ----------   ----------     ---------     ----------    ----------     ----------
Balance at December 31, 1998        1,003      372,518         4,574        (16,748)       (6,361)       354,986

Net loss                                                     (13,084)                                    (13,084)
Translation adjustment and other,
   including the effects of certain
    hedges and intercompany
    transactions                                                             (3,203)                      (3,203)
Allocated income taxes                                                          (12)                         (12)
                               ----------   ----------     ---------     ----------    ----------     ----------
Balance at December 31, 1999   $    1,003   $  372,518     $  (8,510)    $  (19,963)   $   (6,361)   $   338,687
                               ==========   ==========     =========     ==========    ==========    ===========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       52
<PAGE>

                           BERLITZ INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                             ---------------------------------------------------
                                                                  1999               1998              1997
                                                             --------------     --------------     -------------
<S>                                                          <C>                <C>                <C>
Cash flows from operating activities:
Net (loss) income                                            $      (13,084)    $        2,082     $        (934)
Adjustments to reconcile net (loss) income to net cash
  provided by operating activities:
   Depreciation                                                      11,396              9,791             8,564
   Amortization of publishing rights, excess of cost over
     net assets acquired, and other intangibles                      18,024             17,265            14,183
   Cumulative effect of accounting change, net                        5,605                  -                 -
   Extraordinary items, net                                           1,072                  -               595
   Minority interest in (loss) earnings of subsidiary                  (668)               (68)              613
   Deferred income tax provision (benefits)                           1,594                739              (442)
   Provision for bad debts                                            1,828                728             1,129
   Foreign exchange (gains) losses, net                              (1,225)             1,101               (27)
   Equity in losses of joint ventures                                    65                136                50
   Losses on disposal of fixed assets                                   371                578               100
   Changes in operating assets and liabilities:
        (Increase) decrease in accounts and unbilled
          receivables                                               (12,545)             2,393           (15,570)
        Decrease (increase) in inventories                              592             (2,401)              444
        (Increase) decrease in prepaid expenses and
          other assets                                              (14,984)              (202)           (2,283)
        Increase in deferred revenues                                 7,368              2,842             2,225
        Increase (decrease) in accounts payable and
          other current liabilities                                   7,281             (2,231)            3,567
        Increase in due to affiliates                                    25              2,177             2,102
        Increase (decrease) in income taxes payable                   3,502               (190)           (3,555)
        Increase (decrease) in other liabilities                      8,071               (329)            2,787
                                                             --------------     --------------     -------------
   Net cash provided by operating activities                         24,288             34,411            13,548
                                                             --------------     --------------     -------------
Cash flows from investing activities:
Capital expenditures                                                (20,334)           (18,949)          (14,617)
Acquisitions of businesses, net of cash acquired                    (11,127)            (3,905)          (90,868)
                                                             --------------     --------------     -------------
   Net cash used in investing activities                            (31,461)           (22,854)         (105,485)
                                                             --------------     --------------     -------------

Cash flows from financing activities:
Proceeds from issuance of convertible debentures                    155,000
Proceeds of notes payable to affiliates                              50,000                  -                 -
Repayment of notes payable to affiliates                            (42,366)
Proceeds from bank long-term debt                                       905                  -           120,000
Payment of long-term debt                                          (147,477)           (17,713)          (70,978)
Payments to acquire treasury stock                                        -                  -            (2,968)
Proceeds from sale of treasury stock                                      -                  -             6,110
Net borrowings under revolving credit facility                        4,000              4,000            44,000
Proceeds from minority shareholder in joint venture                       -                361                 -
Payment of deferred financing costs                                  (2,782)              (233)           (1,272)
                                                             --------------     --------------     -------------
   Net cash provide by (used in) financing activities                17,280            (13,585)           94,892
                                                             --------------     --------------     -------------

Effect of exchange rate changes
   on cash and temporary investments                                 (1,008)               690            (2,071)
                                                             --------------     --------------     -------------
Net increase (decrease) in cash and
   temporary investments                                              9,099             (1,338)              884
Cash and temporary investments at beginning of period                25,327             26,665            25,781
                                                             --------------     --------------     -------------
Cash and temporary investments at end of period              $       34,426     $       25,327     $      26,665
                                                             ==============     ==============     =============

Supplemental disclosures of cash flow information:
    Cash payments for:
        Interest                                             $        8,393     $       10,525     $       7,877
                                                             ==============     ==============     =============
        Income taxes                                         $        7,007     $        8,345     $      10,834
                                                             ==============     ==============     =============
    Cash refunds of income taxes                             $          998     $          842     $         493
                                                             ==============     ==============     =============
    Noncash activities:
        Installment agreement payable for internal use
          software:
             Operating activity (prepaid maintenance
               contract)                                     $            -     $        1,455     $           -
                                                             ==============     ==============     =============
             Investing activity (capitalized software)       $            -     $        1,014     $           -
                                                             ==============     ==============     =============
        Obligation under capital lease (investing activity)  $            -     $          127     $           -
                                                             ==============     ==============     =============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       53
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share amounts)


1.       Nature of Operations and Summary of Significant Accounting Policies

         a)       Nature of Operations - Berlitz International, Inc. (the
                  "Company" or "Berlitz") is a New York corporation organized in
                  1989. Its operations are conducted on a worldwide basis
                  through two business segments: Language Services (which
                  includes the Instruction, ELS/BOC, Publishing, Franchising,
                  Cross Cultural and Berlitz Kids sub-segments) and Berlitz
                  GlobalNET (formerly known as Translation Services).
                  Approximately 66% of its 1999 revenues are denominated in
                  currencies other than the U.S. dollar.

                  In February 1993, Benesse Corporation ("Benesse") acquired,
                  through a merger of the Company with an indirect wholly-owned
                  U.S. subsidiary of Benesse (the "Merger"), approximately 6.7
                  million shares of the common stock, par value $.10 per share
                  ("Common") of the Company. Benesse currently beneficially owns
                  7,213,138, or 75.7%, of the outstanding Common. Public
                  shareholders of the Company hold the remaining outstanding
                  Common.

                  Since 1990, Benesse has also owned a 20% minority interest in
                  the equity of the Company's Japanese subsidiary, Berlitz
                  Japan, Inc. ("Berlitz-Japan").

         b)       Principles of Consolidation - The Consolidated Financial
                  Statements include those of the Company and its subsidiaries.
                  The effects of all significant intercompany transactions have
                  been eliminated.

         c)       Foreign Currency Translation - Generally, balance sheet
                  amounts have been translated using exchange rates in effect at
                  the balance sheet dates and the translation adjustment has
                  been included in the cumulative translation adjustment, a
                  separate component of shareholders' equity, with the exception
                  of hyperinflationary countries. Income statement amounts have
                  been translated using the average exchange rates in effect for
                  each period. Revaluation gains and losses on certain
                  intercompany accounts in all countries and translation gains
                  and losses in hyperinflationary countries have been included
                  in "Other (income) expense, net". Revaluation gains and losses
                  on intercompany balances for which settlement is not
                  anticipated in the foreseeable future are included in the
                  cumulative translation adjustment.

         d)       Revenue Recognition and Unbilled Receivables - Revenues are
                  generally recognized in the Instruction and Publishing
                  business segments when services are rendered to the customer
                  or when products are shipped, as applicable. Berlitz GlobalNET
                  contracts are accounted for under the percentage of completion

                                       54
<PAGE>

                  method of accounting, whereby sales and costs are recognized
                  as work on contracts progresses. Changes in estimates for
                  sales, costs and profits are recognized in the period in which
                  they are determinable. Unbilled receivables represent the
                  difference between revenue recognized for financial reporting
                  purposes and amounts contractually permitted to be billed to
                  customers. Unbilled amounts will be invoiced in subsequent
                  periods upon reaching certain milestones.

         e)       Inventories - Inventories, which consist primarily of finished
                  goods, are valued at the lower of average cost or market. Cost
                  is determined using the weighted average cost method.

         f)       Deferred Financing Costs - Direct costs relating to
                  indebtedness are capitalized and amortized by the interest
                  method over the terms of the related debt. In 1999, the
                  Company incurred approximately $2,800 in deferred financing
                  costs associated with the issuance of the Convertible
                  Debentures and BHI Note (see Notes 9 and 10). Such costs will
                  be amortized over the 12-year life of the Convertible
                  Debentures and BHI Note.

         g)       Long-lived Assets - In accordance with Statement of Financial
                  Accounting Standards No. 121, "Accounting for the Impairment
                  of Long-lived Assets and for Long-lived Assets to be Disposed
                  Of" ("SFAS 121"), long-lived assets (excluding financial
                  instruments and deferred tax assets) and certain identifiable
                  intangibles to be held and used are reviewed by the Company
                  for impairment whenever events or changes in circumstances
                  indicate that the carrying amount of an asset may not be
                  recoverable. Such circumstances include, but are not limited
                  to, a significant decrease in the market value of an asset, a
                  significant change in the extent or manner in which an asset
                  is used or a significant physical change in an asset, a
                  significant adverse change in legal factors or in the business
                  climate that could affect the value of an asset or an adverse
                  action or assessment by a regulator, and the impact of
                  expected future revision dates on publishing rights.

                  If a review for recoverability is necessary, the Company
                  estimates the future cash flows expected to result from the
                  use of the asset. In performing these estimates, the Company
                  groups its assets at the lowest level for which there are
                  identifiable cashflows. If the sum of the expected future cash
                  flows (undiscounted and without interest charges) is less than
                  the carrying amount of the asset, an impairment loss is
                  recognized. Otherwise, an impairment loss is not recognized.
                  Any impairment loss recognized is measured as excess of
                  carrying amount of the asset over the fair value of the asset.
                  The fair value of an asset is the amount at which the asset
                  could be bought or sold in a current transaction between
                  willing parties, that is, other than in a forced or
                  liquidation sale.

                  Along with other long-lived assets, the Company applies the
                  standards of SFAS 121 to its publishing rights, excess of cost
                  over net assets acquired, and other intangibles.

                                       55
<PAGE>

         h)       Property and Equipment - Property and equipment is stated at
                  cost and depreciated over its estimated useful life or the
                  life of any applicable leases (whichever is shorter), using
                  principally straight-line methods.

         i)       Publishing Rights - Publishing rights are associated with the
                  Company's proprietary language instruction print materials and
                  travel related titles. They are being amortized on a
                  straight-line basis over 25 years.

         j)       Excess of Cost Over Net Assets Acquired and Other Intangibles
                  - Except as disclosed in Note 2, the 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.

         k)       Deferred Revenues - Deferred revenues primarily arise from the
                  prepayment of fees for classroom instruction and are
                  recognized in income as lessons are given.

                  On December 3, 1999, the Securities and Exchange Commission
                  ("SEC") issued its Staff Accounting Bulletin No. 101, "Revenue
                  Recognition in Financial Statements" ("SAB 101"), which
                  provides its views on applying generally accepted accounting
                  principles to selected revenue recognition issues. The Company
                  adopted the provisions of SAB 101 effective January 1, 1999,
                  and, as a result, changed its method of accounting for
                  deferred revenues on lessons paid for but not expected to be
                  taken due to a period of student inactivity. Through December
                  1998, such amounts had been recognized in income based on
                  historical experience by country, generally after a student
                  had not attended a class for at least 60 days (or six months
                  in the case of a corporate contract). Refunds subsequently
                  issued were not material. Beginning in 1999, deferred revenues
                  on lessons paid for but not expected to be taken due to
                  student inactivity (generally at least 60 days or six months,
                  as applicable) are recognized in income when the obligation to
                  issue a refund has expired. In certain countries where the
                  refund obligation effectively never expires under local law,
                  such deferred revenues are recognized into income after one
                  year of student inactivity. The cumulative effect of the
                  accounting change resulted in a charge to 1999 earnings of
                  $5,605 (net of income tax benefit of $2,900and minority
                  interest expense of $189). On a proforma basis, the Company's
                  reported net income for 1998 and 1997 would have been reduced
                  by $100 ($0.01 per diluted share) and $0 ($0.00 per diluted
                  share), respectively.

         l)       Income Taxes - The Company recognizes 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.

                                       56
<PAGE>

         m)       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.

         n)       Investment in Joint Ventures - Investments in joint ventures
                  are carried on the equity basis of accounting and the
                  Company's share of the net profits and losses of such
                  investments is reflected in "Other (income) expense, net" in
                  the Consolidated Statements of Operations.

         o)       Financial Instruments - The fair values of the Company's
                  long-term debt and notes payable to affiliates are estimated
                  based on the interest rates currently available for borrowings
                  with similar terms and maturities. The fair values of the
                  Company's currency coupon swap agreements represent the
                  amounts that could be settled based on estimates obtained from
                  a dealer.

                  The carrying amounts reported in the balance sheets for cash
                  and temporary investments, accounts receivable and payable,
                  accrued expenses and other current liabilities, and income
                  taxes payable approximate fair value due to the short-term
                  nature of these instruments.

         p)       Derivative Financial Instruments - Those currency coupon swap
                  agreements which have been designated by the Company as hedges
                  of its investments in certain foreign subsidiaries are
                  considered effective as hedges to the extent that quarterly
                  changes in the fair value of the agreements offset, but do not
                  exceed, the quarterly effect of exchange rate changes on the
                  underlying net investments. When these agreements are
                  effective, realized and unrealized gains and losses (including
                  realized gains and losses on terminations of effective hedges)
                  are excluded from the Company's Consolidated Statements of
                  Operations, and included, net of deferred taxes, in the
                  cumulative translation adjustment of shareholders' equity. If
                  the change in any fiscal quarter in an agreement's fair value
                  exceeds the exchange rate fluctuation's effect on the
                  underlying investment, such excess is recognized in the
                  Consolidated Statement of Operations within the "Foreign
                  exchange (gains) losses, net" component of "Other (income)
                  expense, net". If, as a result of the Company's periodic
                  evaluation, it can no longer be established that an agreement
                  will prospectively be effective, the hedge accounting
                  described above is discontinued and all subsequent changes in
                  the agreement's fair value (as well as realized gains and
                  losses on subsequent terminations of such ineffective hedges)
                  are recognized within the Consolidated Statement of
                  Operations.

                  During June 1998, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 133,
                  "Accounting for Derivative Instruments and Hedging Activities"
                  ("SFAS 133"). The new standard requires companies to record
                  derivatives on the balance sheet as assets or liabilities,
                  measured at fair value. Gains or losses resulting from changes
                  in the values of those derivatives would be accounted for
                  depending on the use of the derivative and whether it
                  qualifies for hedge accounting. SFAS 133 will be effective for
                  the calendar year beginning January 1, 2001. Based on the
                  Company's current activities, the new standard is not expected
                  to have a material impact on the Company's financial position
                  or results of operations.

                                       57
<PAGE>

         q)       Internal-Use Software - On March 4, 1998, the American
                  Institute of Certified Public Accountants issued its Statement
                  of Position ("SOP") 98-1, which provides guidance on
                  accounting for the costs of computer software developed or
                  obtained for internal use. The Company has elected to apply
                  this SOP to all costs incurred on and after January 1, 1998.
                  Consequently, $330 of incremental internal-use software costs
                  had been capitalized for the twelve months ended December 31,
                  1998.

         r)       Franchises - Revenue from sales of franchises is recognized
                  when all material services and conditions relating to the sale
                  have been substantially performed, which may occur prior to
                  commencement of operations. Payments received on franchise
                  sales that have not been recognized as revenue are treated as
                  deferred revenues in the consolidated balance sheet. Direct
                  (incremental) costs related to such deferred revenues are
                  deferred until the revenue is recognized.

         s)       Use of Estimates - The preparation of financial statements in
                  conformity with generally accepted accounting principles
                  requires management to make estimates and assumptions that
                  affect the reported amounts of assets and liabilities and
                  disclosure of contingent assets and liabilities at the date of
                  the financial statements and the reported amounts of revenues
                  and expenses during the reporting period. Actual results could
                  differ from those estimates.

         t)       Reclassifications - Certain reclassifications have been made
                  in prior years' financial statements and notes to conform with
                  the 1999 presentation.

2.       Acquisition of Businesses

         The Company records acquisitions under the purchase method of
         accounting, which contemplates an allocation of the acquisition cost to
         the acquired company's assets and liabilities based on their estimated
         fair values. The results of operations of the acquired companies are
         included in the consolidated results of Berlitz from their respective
         acquisition dates.

         In June 1999, the Company acquired certain assets and operating
         subsidiaries of Language Management International, Inc., a translations
         services company. The purchase price was $8,000, plus a contingent
         payment based on gross revenues for the twelve months ending June 30,
         2000. The Company also incurred various transaction-related
         expenditures and accrued expenses. Through December 31, 1999, the
         Company's cumulative cash used in investing activities in connection
         with this acquisition was approximately $9,100. In addition, at
         December 31, 1999, the Company's accounts reflected $11,600 in excess
         cost over net assets acquired (amortizable over 20 years) and $3,500 of
         accrued current liabilities for transaction-related expenses and
         contingencies.

         The Company made several other acquisitions during 1999, none of which
         were material.

         In June 1998, the Company paid $2,007 to purchase the assets of a major
         corporation's translations division in France, and recorded $1,519 in
         excess cost over net assets acquired. In October 1998, the Company
         purchased DeltaSoft, a software translations company in Poland, for
         $558 (net of cash acquired), plus future payments (not to exceed $500)
         that are contingent upon achieving certain revenue targets. In
         connection with its

                                       58
<PAGE>

         acquisition of DeltaSoft, the Company recorded $780 in excess cost over
         net assets acquired.

         On August 28, 1997 (the "Closing Date"), the Company completed its
         acquisition of ELS Educational Services, Inc. ("ELS"), a privately held
         provider of intensive English language instruction, in a stock
         acquisition for a cash purchase price of $95,000 (the "ELS
         Acquisition"), subject to certain post-closing adjustments specified in
         the related stock purchase agreement. The Company also incurred various
         transaction-related expenditures and accrued expenses. In January 1998,
         in connection with the ELS Acquisition, the Company paid $1,340 related
         to certain post-closing purchase price adjustments.

         A summary of the purchase price allocation for the ELS acquisition
         follows:

              Acquisition cost (including post-closing cash
                adjustment of $1,340 paid in January 1998,
                and transaction expenditures)                         $  98,200
              Net assets and liabilities acquired:
                Cash                                        $   6,099
                Intangible asset - tradenames                   3,000
                Intangible asset - sales agent network         31,700
                Other assets and (liabilities), net            (9,402)
                                                            ---------
                   Total net assets acquired                             31,397
                                                                      ---------
              Excess of cost over net assets acquired                 $  66,803
                                                                      =========

         The ELS tradename and sales-agent-network intangible assets are being
         amortized on a straight-line basis over their estimated useful lives of
         5 years and 14 years, respectively. The excess of ELS purchase price
         over net assets acquired is being amortized on a straight-line basis
         over 30 years.

         The results of operations of ELS subsequent to the Closing Date are
         included in the Company's Consolidated Statements of Operations. The
         following table presents selected unaudited pro forma information
         assuming that the ELS Acquisition (and the simultaneous refinancing of
         the Company's long-term debt; see Note 8) had occurred on January 1 of
         each period presented, and is not indicative of the results of
         operations which would actually have occurred had the transaction taken
         place on the dates indicated or of the results which may occur in the
         future.

                                                            Pro forma
                                                        Twelve Months
                                                                ended
                                                         Dec. 31,1997
                                                   ------------------
         Sales of services and products            $          446,373
         Income before income taxes, minority
           interest in earnings of subsidiary, and
           extraordinary item                                  11,846
         Income before extraordinary item                       4,566
         Extraordinary loss                                    (6,721)
         Net loss                                  $           (2,155)
                                                   ==================

         Basic and Diluted earnings (loss) per
         share:
           Income before extraordinary loss        $             0.48
           Extraordinary loss                                   (0.70)
                                                   ------------------
           Loss per share                          $            (0.22)
                                                   ==================

                                       59
<PAGE>

         The primary differences between the unaudited pro forma income
         statement data and the amounts as reported are as follows:

                                                              Pro forma
                                                          Twelve Months
                                                                  ended
                                                          Dec. 31, 1997
                                                     ------------------
         Pre-acquisition ELS revenues                $           49,164
         Pre-acquisition ELS income before taxes                  2,524
         Decrease in ELS administrative expenses
            not recurring after Berlitz acquisition               2,413
         Increase in amortization of intangibles and
            excess of cost over net assets acquired              (3,333)
         Increase in interest expense on
            long-term debt                                       (2,811)
         Decrease in income tax expense                             422
         Increase in extraordinary loss, net of tax  $             (436)
                                                     ==================

3.       Earnings Per Share

         A reconciliation between Basic and Diluted earnings per share ("EPS")
         computations for "(loss) income before extraordinary item and
         cumulative effect of accounting change" as of December 31, 1999, 1998
         and 1997 is as follows:
<TABLE>
<CAPTION>
                                                                             Weighted
                                                                              average
                                                                               number
                                                                            of shares            Per-share
                                                           Income         outstanding               amount
                                                    -------------       -------------        -------------
<S>                                                 <C>                 <C>                  <C>
         Year ended December 31, 1999:
         -----------------------------
         Basic EPS:
           Loss before extraordinary item
             and cumulative effect of accounting
             change                                 $      (5,325)              9,530        $       (0.56)

         Effect of dilutive securities:                         -                   -                    -
                                                    -------------       -------------        -------------

         Diluted EPS:
           Loss before extraordinary item
             and cumulative effect of accounting
             change                                 $      (5,325)              9,530        $       (0.56)
                                                    =============       =============        =============

         Year ended December 31, 1998:
         Basic EPS:
           Income before extraordinary item         $       2,082               9,530        $        0.22

         Effect of dilutive securities:
           Stock options                                        -                  32                    -

         Diluted EPS:
           Income before extraordinary item         $       2,082               9,562        $        0.22
                                                    =============      ==============        =============
</TABLE>

                                       60
<PAGE>
<TABLE>
<CAPTION>
                                                                             Weighted
                                                                              average
                                                                               number
                                                                            of shares            Per-share
                                                           Income         outstanding               amount
                                                    -------------       -------------        -------------
<S>                                                 <C>                 <C>                  <C>
         Year ended December 31, 1997:
         Basic EPS:
           Income before extraordinary item         $       5,351               9,550        $        0.56

         Effect of dilutive securities:
           Stock options                                        -                  14                    -
                                                    -------------       -------------        -------------
         Diluted EPS:
           Income before extraordinary item         $       5,351               9,564        $        0.56
                                                    =============      ==============        =============

<CAPTION>

4.       Property and Equipment, net
                                                                                                 December 31,
                                                                                      ---------------------------------
                                                            Useful Lives                   1999                1998
                                                            ------------              -------------       -------------
                                                              (Years)
<S>                                                         <C>                       <C>                 <C>
         Buildings and leasehold improvements                  7 to 30                $      30,243       $      26,727
         Furniture, fixtures and equipment                     5 to 7                        36,380              35,494
         Internal use software                                   3                            5,879               3,101
         Land                                                                                 1,347               1,352
                                                                                      -------------       -------------
                                                                                             73,849              66,674
         Less: accumulated depreciation
           and amortization                                                                 (26,100)            (25,530)
                                                                                      -------------       -------------
                  Total                                                               $      47,749       $      41,144
                                                                                      =============       =============

5.       Excess of Cost over Net Assets
         Acquired, and Other Intangibles
                                                                                                 December 31,
                                                                                      ---------------------------------
                                                                                               1999                1998
                                                                                      -------------       -------------
<S>                                                                                   <C>                 <C>
         Excess of cost over net assets acquired                                      $     238,727       $     225,315
         Tradenames and trademarks                                                          300,018             299,998
         ELS sales agent network                                                             31,700              31,700
         Other                                                                                3,458               4,792
                                                                                      -------------       -------------
                                                                                            573,903             561,805
         Less: accumulated amortization                                                     (92,936)            (75,573)
                                                                                      -------------       -------------
                  Total                                                               $     480,967       $     486,232
                                                                                      =============       =============
</TABLE>

                                       61
<PAGE>
6.       Other (Income) Expense, net

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                             1999               1998               1997
                                                    -------------      -------------      -------------
<S>                                                 <C>                <C>                <C>
         Interest income on temporary investments   $        (624)     $        (750)     $        (875)
         Foreign exchange (gains) losses, net              (1,225)             1,101                (27)
         Equity in losses of joint ventures                    65                136                 50
         Other non-operating taxes                            730                794                415
         Term Loan administration fee                           -                 35                 83
         Losses and other costs of disposal of fixed
           assets                                             371                826                100
         Other interest expense (income), net                  47               (173)              (235)
         Other expense (income), net                          116                219               (126)
                                                    -------------      -------------      -------------
             Total other (income) expense, net      $        (520)     $       2,188      $        (615)
                                                    =============      =============      =============
</TABLE>

7.       Income Taxes

         The components of the deferred tax asset at December 31, 1999 and 1998
         were as follows:

<TABLE>
<CAPTION>
                                                                            1999                1998
                                                                   -------------       -------------
<S>                                                                <C>                 <C>
         Deferred tax assets:
              Property and equipment depreciation                  $         405       $         262
              Deferred revenue                                             2,305               2,206
              Unrealized hedging losses                                    1,279               1,084
              Accrued expenses                                             6,022               1,665
              Foreign tax credits                                            303               3,105
              Other tax credits                                            1,385               1,216
              Net operating losses                                         3,130               3,635
                                                                   -------------       -------------
                Total deferred tax assets                                 14,829              13,173
                                                                   -------------       -------------
         Deferred tax liabilities:
              Inventory                                                     (768)               (564)
              Joint ventures                                                (100)               (244)
              Unrealized hedging gains                                      (313)                  -
              Publishing rights amortization                              (5,371)             (5,624)
              Other intangibles amortization                              (1,598)               (975)
                                                                   -------------       -------------
                Total deferred tax liabilities                            (8,150)             (7,407)
                                                                   -------------       -------------

         Net deferred tax assets                                           6,679               5,766
           Valuation allowance                                            (3,690)             (4,444)
                                                                   -------------       -------------
         Net deferred tax asset                                    $       2,989       $       1,322
                                                                   =============       =============
</TABLE>

         The valuation allowance relates primarily to tax benefits for net
         operating losses, foreign tax credits, and accrued expenses for which
         the realization of such benefits is considered unlikely.

         The Company's effective tax rate for 1999 was 447.8%, compared with
         73.8% and 54.3% in 1998 and 1997, respectively.

                                       62
<PAGE>

         The provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>
                                              U.S.                                U.S. State
                                            Federal            Foreign*           and Local          Total
                                        --------------      --------------      --------------   -------------
<S>                                     <C>                 <C>                 <C>              <C>
         Year ended December 31, 1999:
             Current                    $         (427)     $        6,334      $          214   $       6,121
             Deferred                              818                 999                (223)          1,594
                                        --------------      --------------      --------------   -------------
                 Total                  $          391      $        7,333      $           (9)  $       7,715
                                        ==============      ==============      ==============   =============

         Year ended December 31, 1998:
             Current                    $       (1,594)     $        5,833      $          687   $       4,926
             Deferred                              495                 145                  99             739
                                        --------------      --------------      --------------   -------------
                 Total                  $       (1,099)     $        5,978      $          786   $       5,665
                                        ==============      ==============      ==============   =============

         Year ended December 31, 1997:
             Current                    $        1,016      $        6,123      $          392   $       7,531
             Deferred                              (57)               (512)                127            (442)
                                        --------------      --------------      --------------   -------------
                 Total                  $          959      $        5,611      $          519   $       7,089
                                        ==============      ==============      ==============   =============
</TABLE>

      *  Pre-tax income from foreign operations of the Company was $17,163,
         $17,451, and $17,730 for the years ended December 31, 1999, 1998 and
         1997, respectively.


         The provision (benefit) for deferred taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                             1999               1998               1997
                                                    -------------      -------------      -------------
<S>                                                 <C>                <C>                <C>
         Accrued liabilities                        $      (1,012)     $       1,340      $       1,002
         Foreign exchange                                      24               (351)               (46)
         Benefit of net operating loss                      1,432               (672)              (248)
         Amortization of intangibles                          369                717             (1,971)
         Inventory                                            204                631                760
         Tax credits                                          946               (546)                 -
         Fixed assets                                        (223)              (305)                 -
         Other, net                                          (146)               (75)                61
                                                    -------------      -------------      -------------
             Total                                  $       1,594      $         739      $        (442)
                                                    =============      =============      =============
</TABLE>

                                       63
<PAGE>

         The difference between the effective income tax and the U.S. Federal
         statutory tax rate is explained as follows:

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                             1999               1998               1997
                                                    -------------      -------------      -------------
<S>                                                 <C>                <C>                <C>
           U.S. Federal statutory  tax rate                  35.0%              35.0%              35.0%
           Foreign income taxes, net of Federal
             income tax benefits                              3.0               (9.7)             (17.6)
           U.S. state and local income taxes,
             net of Federal income taxes                      4.2                6.6                2.6
           Net domestic and foreign losses                  129.7                9.3                7.5
           Amortization of intangibles                      262.5               54.9               33.6
           Takedown of reserves                             (29.0)             (22.7)                 -
           Other, net                                        42.4                0.4               (6.8)
                                                    -------------      -------------      -------------
                   Total                                    447.8%              73.8%              54.3%
                                                    =============      =============      =============
</TABLE>

         The Company has net operating loss carryforwards that relate to a
         number of foreign and state jurisdictions that will generally expire on
         various dates.

         At December 31, 1999, accumulated earnings of foreign subsidiaries of
         $36,835 are intended to be permanently reinvested outside the U.S. and
         no tax has been provided for the remittance of these earnings. However,
         it is estimated that foreign withholding taxes of $2,008 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.

8.       Long-Term Debt

         Long-Term Debt consists of the following:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                              -----------------------------------
                                                                        1999                 1998
                                                              --------------       --------------
<S>                                                           <C>                  <C>
         Term Loan                                            $            -       $       98,250
         Revolving credit facility                                     4,000               48,000
         Other                                                         3,005                3,272
                                                              --------------       --------------
            Total debt                                                 7,005              149,522
         Less current maturities                                      (5,118)             (20,135)
                                                              --------------       --------------
            Long-term debt                                    $        1,887       $      129,387
                                                              ==============       ==============
</TABLE>

         Annual maturities of long-term debt outstanding as of December 31, 1999
         are as follows: 2000, $5,118; 2001, $1,112; 2002, $147; 2003, $107: and
         2004, $521.

         As discussed in Notes 9 and 10, on March 11, 1999, the Company issued
         Convertible Debentures, as well as a promissory note to Benesse
         Holdings International, Inc. ("BHI"), and used a portion of the
         resulting proceeds to repay in full all outstanding indebtedness under
         the Term Loan and revolving credit facility (collectively, the "Bank
         Facility"). The existing Bank Facility was then terminated.

                                       64
<PAGE>

         On March 31, 1999, the Company entered into a new $25,000 revolving
         credit facility (the "Revolving Facility"), which expires in February
         2002. At the option of the Company, outstanding borrowings under the
         Revolving Facility bear interest at variable rates equal to either (i)
         a base rate approximating the U.S. prime rate; or (ii) the rate offered
         by certain reference banks to prime banks in the interbank Eurodollar
         market, fully adjusted for reserves plus a margin ranging from 0.375%
         to 0.5%; (such margin is dependent on a specified leverage ratio of the
         Company.) In addition, a commitment fee ranging from .125% to .20% will
         be charged on the available but unused amounts under the revolving
         credit facility, depending on a specified leverage ratio. There were
         $4,000 in outstanding borrowings under the Revolving Facility at
         December 31, 1999. The average interest rate on outstanding borrowings
         under the revolving facility for the period ending December 31, 1999
         was approximately 5.9%.

         The Revolving Facility is subject to standard affirmative covenants,
         including financial and other informational reporting, compliance with
         laws, maintenance of insurance, maintenance of properties, payment of
         taxes, and preservation of corporate existence. The Revolving Facility
         also includes limitations on the ability of the Company and its
         subsidiaries to: (i) enter into mergers, acquisitions or sales of
         assets; (ii) incur, create or permit to exist liens; (iii) incur
         indebtedness and guarantee obligations; (iv) make loans or investments;
         (v) enter into transactions with affiliates; (vi) prepay subordinated
         indebtedness; and (vii) change the nature of the business conducted.
         Financial covenants included within the Revolving Facility require the
         Company to maintain certain levels of cash flow and impose limitations
         on total and senior debt.

9.       Convertible Debentures with Related Parties

         On March 11, 1999 (the "Issue Date"), the Company's shareholders
         approved the issuance of, and the Company issued, $155,000 aggregate
         principal amount 12-year convertible debentures (the "Convertible
         Debentures") in a private placement, pursuant to definitive investment
         agreements (the "Investment Agreements") dated as of October 2, 1998.
         The Convertible Debentures were issued as follows: a) $100,000
         aggregate principal amount (the "Apollo Debentures") to two affiliates
         of Apollo Management IV, L.P. ("Apollo"), a private investment firm;
         and b) $55,000 aggregate principal amount (the "Benesse Debentures") to
         Benesse Holdings International, Inc ("BHI"), the Company's majority
         shareholder. The Convertible Debentures bear interest at 5% per annum,
         payable semi-annually. Principal amounts outstanding under such
         debentures are not due until March 2011, and the Company is not
         required to establish a bond sinking fund for repayment of this
         principal.

         The Convertible Debentures are convertible at any time into shares of
         the Company's common stock at a conversion price of $33.05 per share,
         subject to anti-dilution related adjustments to offset the effects of
         stock dividends and other changes in equity. The Company will, at all
         times, reserve out of its authorized but unissued common stock the full
         number of shares then issuable upon conversion of all outstanding
         Convertible Debentures.

                                       65
<PAGE>

         The Apollo and Benesse Debentures each independently provide for
         optional redemption by the Company, in whole but not in part, anytime
         following 60 trading days after the third anniversary of the Issue
         Date. If the average closing price of the Company's common stock for
         the 30 trading days following the third anniversary of the Issue Date
         exceeds $39.66 per share, the Company may redeem at par. Otherwise, if
         the Convertible Debentures are redeemed, the Company shall pay a
         redemption premium, expressed as a percentage of outstanding principal,
         as follows: a) 4% for redemptions occurring in the fourth year after
         issue; b) 2% for redemptions occurring in the fifth year after issue;
         and c) 0% for redemptions occurring thereafter. All such redemptions
         are subject to the holders' rights to first convert into common stock
         of the Company.

         The Convertible Debentures also allow Apollo and BHI to elect to
         exchange their convertible debentures, in whole, into non-convertible,
         7-year fixed rate debt (the "Fixed Rate Debentures"). Such election may
         only be made if the average closing price of the Company's common stock
         during the 30 trading days immediately preceding the third anniversary
         of the Issue Date does not exceed $33.05. Furthermore, BHI may only
         effect an exchange if Apollo does so. Upon the determination, by an
         independent financial institution, of fixed interest rates that
         accurately price the Fixed Rate Debentures at par under specified
         circumstances at the time of the exchange, Apollo and BHI shall
         irrevocably decide whether to proceed with their exchanges. If only
         Apollo proceeds with such an exchange, the Company, no later than 150
         days from the third anniversary of the Issue Date, must either a)
         redeem all of the Apollo Debentures at par; or b) deliver the Fixed
         Rate Debentures to Apollo. If both Apollo and BHI proceed with their
         exchanges, the Company, within the same 150 day period, shall either a)
         redeem both the Apollo and Benesse Debentures; or b) deliver the Fixed
         Rate Debentures to both Apollo and BHI.

         Principal amounts outstanding under the Fixed Rate Debentures would not
         be payable until maturity, while interest payments would be made
         semi-annually. The Fixed Rate Debentures' interest rate is subject to a
         cap of a) the applicable U.S. treasury rate + 5% (not to exceed 13%) if
         only Apollo receives Fixed Rate Debentures, or b) the applicable U.S.
         treasury rate + 7% (not to exceed 14%) if both Apollo and BHI receive
         Fixed Rate Debentures. The Fixed Rate Debentures may be redeemed by the
         Company after the third anniversary of their issue upon payment of
         principal amounts of the Fixed Rate Debentures and the following
         redemption premiums, expressed as a percentage of the outstanding
         principal amount: a) one half of the per annum interest rate for
         redemptions occurring in the fourth year after issue; b) one quarter of
         the per annum interest rate for redemptions occurring in the fifth year
         after issue; and c) no premium for redemptions occurring thereafter.

         Prior to the third anniversary of the Issue Date, if Benesse sells 80%
         or more of the shares of Berlitz common stock owned directly or
         indirectly by it on the Issue Date, the Company shall be required to
         make an offer to repurchase for cash: i) the Apollo Debentures at a
         value equal to 110% of the principal amount then outstanding; and ii)
         the Benesse Debentures at a value equal to 101% of the principal amount
         then outstanding. In addition, if at any time on or after the Issue
         Date, a change of control, as defined in the Investment Agreements,
         occurs but Benesse sells less than 80% of its shares, or if Benesse
         sells 80% of its shares on or after the third anniversary of the Issue
         Date, the Company shall be required to make an offer to repurchase for
         cash the Convertible Debentures (but not the

                                       66
<PAGE>

         Fixed Rate Debentures) at a value equal to 101% of the principal amount
         of the Convertible Debentures.

         The Convertible Debentures are subject to standard affirmative
         covenants, including financial and other informational reporting,
         compliance with laws, maintenance of insurance, maintenance of
         properties, payment of taxes, and preservation of corporate existence.
         Negative covenants that the Convertible Debentures are subject to
         include: prohibitions on certain mergers, consolidations and asset
         transfers; forbearance from restrictions on rights of holders to
         convert or exchange the Convertible Debentures; and, in the case of the
         Apollo Debentures, forbearance from amending certain understandings
         between the Company, Berlitz Japan, Inc. and Benesse.

         The Investment Agreements include a number of other provisions,
         including: a) the granting of certain demand and piggyback registration
         rights to the holders of the Convertible Debentures; b) the granting of
         a certain number of board seats to Apollo on the Company's Board of
         Directors; c) the granting of approval rights to Apollo, at the
         Company's Board level, over certain transactions; and d) certain
         restrictions on the transferability of the Apollo Debentures. The
         Company expanded its Board of Directors from 10 seats to 12 seats
         effective March 11, 1999 and appointed two representatives of Apollo to
         the Board.

10.      Notes Payable to Affiliates

         On March 11, 1999, BHI loaned $50,000 to the Company, evidenced by a
         12-year fixed rate subordinated promissory note (the "BHI Note"). The
         BHI Note bears interest for the first five years at 5.2% per annum,
         and, thereafter, at a renegotiated fixed rate approximating LIBOR plus
         a margin based on the Company's then existing leverage. Interest is
         payable semiannually in cash, while principal repayment is deferred
         until maturity. The BHI Note includes standard covenants similar to
         those included in the Benesse Debentures. In the event of a change in
         control, the BHI Note provides for redemption by the Company, at the
         option of BHI, at a price equal to 101% of the note's principal amount.

         The Company used a portion of the proceeds from the issuance of the BHI
         Note and Convertible Debentures to repay in full its existing notes
         payable to affiliates, which had arisen as follows:

         o   In September 1994, the Company borrowed $20,000 from a U.S.
             subsidiary of Benesse, as evidenced by a subordinated promissory
             note (the "U.S. Note") bearing interest at a

                                       67
<PAGE>

             rate of 6.93% per annum. Berlitz-Japan also borrowed (Y)1.0 billion
             (approximately $10,145 at inception) from Benesse as evidenced by
             an interest-free subordinated promissory note (the "Japan Note"). A
             portion of the proceeds of these notes were used to settle certain
             long-term debt obligations arising from the Merger.

         o   In March 1996, the Company received the proceeds of an additional
             $6,000 subordinated promissory note payable to a U.S. subsidiary of
             Benesse and bearing interest at a rate of the six-month LIBOR plus
             1% per annum, adjusted semi-annually. The effective rate on this
             note was 6.34% at December 31, 1998.

11.      Extraordinary Losses

         On March 11, 1999, in connection with the issuance of the Convertible
         Debentures and BHI Notes and the extinguishment of the Bank Facility,
         the Company terminated its interest rate swap agreement, which hedged
         the floating rate Bank Facility, for a cash payment of approximately
         $1,100. As a consequence of the debt extinguishment, the Company has
         recorded an extraordinary loss, net of tax benefit, of $2,154,
         consisting primarily of the interest rate swap's fair market value and
         existing unamortized deferred finance costs at the time of
         extinguishment of the underlying debt.

         In August 1997, in connection with the ELS Acquisition, the Company
         refinanced and repaid its then existing indebtedness through borrowings
         under a new bank facility. As a result of this early extinguishment of
         debt, the Company incurred an extraordinary charge, net of taxes, of
         $6,285 during 1997, consisting of prepayment penalties on the senior
         notes and the write-off of unamortized deferred financing costs.

12.      Commitments and Contingencies

         Lease Commitments

         The Company's operations are primarily conducted from leased
         facilities, many of which are less than 2,500 square feet, which are
         under operating leases that generally expire within five years.

         Rent expense, principally for language centers, amounted to $35,100,
         $32,324 and $27,066, for the years ended December 31, 1999, 1998 and
         1997, 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, 1999 are as
         follows: 2000-$16,654; 2001-$13,979; 2002-$11,137; 2003-$10,767;
         2004-$9,727; and an aggregate of $22,825 thereafter.

         Legal Proceedings

                                       68
<PAGE>

         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, results of operations, or cashflows of the
         Company.

         Severance Agreements

         The Company has severance agreements with four key employees which
         generally provide for termination payments of one times annual base
         salary, plus a portion of the Company's bonus plan awards. The
         agreements also provide for the continuation of certain benefits. The
         maximum contingent liability under such agreements is approximately
         $1,600.

         Consulting agreements

         The Company has consulting agreements with two officers who retired
         from the Company in 1999. In the aggregate, the future liability under
         these agreements at December 31, 1999 is approximately $225, which will
         be amortized over the remaining lives of the related agreements.

         License agreement

         On July 1, 1999, Berlitz entered into a license agreement (the
         "Agreement") with Children's Television Workshop ("CTW"). Pursuant to
         this license agreement, CTW has agreed to create and produce, at its
         expense, a television series, entitled "Sesame English", which will
         initially consist of 52 15-minute episodes which will be complemented
         by instruction curricula and materials developed by Berlitz. In
         addition, Berlitz was granted certain rights by CTW, including the
         exclusive right to use certain Sesame Street and Sesame English names,
         logos and characters in connection with language instructional
         products, services and schools.

         The Agreement, covering an initial term of five years, provides for
         payments to CTW of $4,000 at inception and an aggregate of $6,000 in
         minimum guaranteed royalties paid in installments over the initial term
         of the agreement. The $4,000 payment at inception may be applied
         against future royalties due in excess of the minimum guarantee. In the
         event that Berlitz enters into any sublicenses or other third-party
         arrangements with a sublicensee for language instruction services in
         Japan, such minimum guaranteed royalties shall be reduced dollar for
         dollar, up to a maximum of $2,000, from CTW's share of payments from
         such Japanese sublicensees. If certain conditions are met, Berlitz may
         extend the Agreement for another five years in exchange for annual
         minimum guaranteed royalties equal to the greater of $2,000, or an
         amount equal to 80% of the royalties earned by CTW during the fifth
         year of the initial term. Berlitz has recorded the commitment of $6,000
         within "Other liabilities", and a deferred asset of $10,000 within
         "Other assets".

         As part of its CTW and general marketing efforts, Berlitz is in the
         process of pursuing opportunities to expand the use of the Internet for
         the marketing and distribution of its products and services.

                                       69
<PAGE>

13.      Financial Instruments and Related Disclosures

         a) Currency coupon swap agreements

         Pursuant to covenants in its various long-term debt agreements, the
         Company maintains currency coupon swap agreements with a financial
         institution to hedge the Company's net investments in certain foreign
         subsidiaries and to help manage the effect of foreign currency
         fluctuations on the Company's ability to repay its U.S. dollar debt.
         These agreements require the Company to periodically exchange foreign
         currency-denominated interest payments for U.S. dollar-denominated
         interest receipts. Credit loss from counterparty nonperformance is not
         anticipated.

         Significant terms of agreements outstanding during 1999 were as
         follows:

<TABLE>
<CAPTION>
                                              Interest Payments to                        Interest Receipts from
                                              Financial Institution                       Financial Institution
                                      ----------------------------------------        -----------------------------
           Effective                            Notional              Interest           Notional          Interest
              Date     Maturity              Amount (000's)             Rate          Amount (000's)         Rate
           ---------   --------       --------------------------      --------        --------------       --------
<S>        <C>         <C>            <C>                             <C>             <C>                  <C>
             1/1/99    12/30/02        Japanese Yen   12,311,005        5.50%          $     95,694          6.27%
             1/1/99    12/31/02         German Mark       99,546        6.12%          $     55,821          6.27%
             1/4/99    12/31/02         Swiss Franc       16,131        5.72%          $     11,164          6.27%
             1/4/99    12/31/02       British Pound        4,841        6.56%          $      7,974          6.27%
</TABLE>

         The Company marks coupon swaps to fair value. When these agreements are
         effective as hedges, realized and unrealized gains and losses are
         excluded from the Company's Consolidated Statements of Operations and
         included, net of deferred taxes, in the cumulative translation
         adjustment of shareholders' equity.

         b) Interest rate swap agreement

         Pursuant to a covenant requirement under the Bank Facility, the Company
         entered into a five-year interest rate swap agreement in 1997 which
         provided for quarterly exchanges of interest on an amortizing
         "notional" (i.e., theoretical) amount originally set at $66,000. In
         exchange for U.S. dollar denominated interest receipts based on
         variable LIBOR, the Company would make U.S. dollar denominated interest
         payments based on a fixed rate of 6.30%. The notional amount amortized
         proportionately with the scheduled principal payments under the Bank
         Facility. This interest rate swap agreement was terminated on March 11,
         1999 (see Note 11).

         The Company accounted for these interest rate swap transactions under
         the accrual method of accounting, whereby: a) each net receipt/payment
         was recognized in earnings during the period to which the
         receipt/payment related, as a yield adjustment to "Interest expense on
         long-term debt"; and b) there was no recognition on the balance sheet
         for the derivative's fair value.

                                       70
<PAGE>

         c) Concentration of credit risk

         Financial instruments which potentially subject the Company to
         concentrations of credit risk consist principally of cash and temporary
         investments and accounts receivable.

         The Company maintains cash and temporary investments with various high
         credit qualified financial institutions. The majority of these
         financial institutions are located outside of the U.S. and the
         Company's policy is designed to limit exposure to any one of these
         foreign institutions. The Company maintains U.S. concentration
         accounts, consisting of overnight investments, with up to three major
         U.S. banks. During 1999 and 1998, balances in these accounts averaged
         28% and 35% 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 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. For Berlitz GlobalNET, receivables are
         generally spread among a diversified client base, except for a
         concentration of receivables with two major customers subject to
         special contractual arrangements. One of these is a U.S. governmental
         agency and the other a corporation with whom the Company has been doing
         business for over 10 years. Receivables from these two major customers
         aggregated $6,500 and $9,500 at December 31, 1999 and 1998,
         respectively. Subsequent collections of the December 1999 balances have
         aggregated $5,000 through March 15, 2000. Publishing 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 4% and 6% of the Company's total accounts
         receivable balance before allowances at December 31, 1999 and 1998,
         respectively.

         d) Fair values of financial instruments

         The carrying amounts and estimated fair values of the Company's
         financial instruments at December 31, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                                   1999                                1998
                                                      -----------------------------       -----------------------------
                                                      Carrying            Estimated       Carrying            Estimated
                                                      Amount             Fair Value       Amount             Fair Value
                                                      -----------------------------       -----------------------------
<S>                                                   <C>              <C>                <C>             <C>
         Assets:
           Cash and temporary investments             $     34,426     $     34,426       $      25,327   $      25,327
           Currency coupon swap agreements                     829              829                   -               -
         Liabilities:
           Long-term debt, including
             current maturities                              7,005            7,005             149,522         149,522
           Convertible Debentures                          155,000          145,235                   -               -
           Notes payable to affiliates                      50,000           30,505              42,755          35,623
           Currency coupon swap agreements                   3,654            3,654               3,098           3,098
           Interest rate swap agreement                          -                -                   -           1,713
</TABLE>

                                       71
<PAGE>

         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
         Convertible Debentures are estimated based on current interest rates
         and the Company's stock price volatility. The fair values of the coupon
         swap agreements and the interest rate swap agreement 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.

14.      Other Related Party Transactions

         a) Treasury shares

         On April 29, 1997, the Company and BHI, a wholly owned subsidiary of
         Benesse , signed a definitive contract whereby the Company agreed to
         sell to BHI 250,000 shares of the Company's Common for $6,110, or
         $24.44 per share, the average market price for the ten days ended on
         April 29, 1997. This transaction, which was approved by the
         Disinterested Directors Committee of the Company's Board of Directors,
         was closed on May 12, 1997. The Company used 250,000 of its treasury
         shares to complete this transaction, which was a private placement
         exempt from registration under Section 4(2) of the Securities Act of
         1933. The proceeds of the sale were used for general corporate
         purposes.

         The issuance of the treasury shares under this private placement was
         accounted for using the cost method, whereby the excess sale price per
         share over the $9 cost per share was allocated to additional
         paid-in-capital.

         b) Other

         The Company and Benesse maintain a joint Directors and Officers ("D&O")
         insurance policy covering acts by directors and officers of both
         Benesse and the Company. The premiums on the D&O policy are allocated
         60% to Benesse and 40% to the Company. However, for 1997, the premium
         for entity coverage benefited Berlitz only and was allocated 100% to
         Berlitz, resulting in a total D&O allocation of 57% to Benesse and 43%
         to the Company. The Company maintains a stand-alone Employment
         Practices Liability ("EPL") insurance policy covering the Company, its
         officers and directors (including the Benesse directors who are also
         directors of the Company). Consequently, the premium on the EPL policy
         is allocated 30% to Benesse and 70% to the Company.

         The Company and Benesse participated in certain other joint business
         arrangements in the ordinary course of business, none of which had a
         material effect on the financial statements.

                                       72
<PAGE>

         Management believes that the Company has entered into all such
         agreements on terms no less favorable than it would have received in
         arms-length transactions with independent third parties. Each of the
         transactions with Benesse entered into after the Merger was approved by
         the Disinterested Directors Committee of the Company's Board of
         Directors.

15.      Stock Option and Incentive Plans

         The Company's 1993 Short-Term Executive Incentive Compensation Plan
         (the "Short-Term Plan"), provides for potential cash awards to officers
         and other key employees if certain financial goals and individual
         discretionary performance measures are met for the applicable calendar
         year. Approximately $320, $1,590 and $1,417 was paid for 1999, 1998 and
         1997, respectively, pursuant to the Short-Term Plan.

         The Company's 1996 New Long-Term Executive Incentive Compensation Plan
         (the "1996 LTIP") provided for potential cash awards in 1999 to key
         executive employees and the Chairman of the Board of the Company if
         certain financial goals were met for the year ended December 31, 1998.
         For the twelve months ended December 31, 1999, 1998 and 1997, the
         Company recorded expenses of $55, $1,193 and $1,289, respectively,
         related to the 1996 LTIP. In March 1999, the Company paid $2,855 in
         awards under the 1996 LTIP.

         In June 1999, the Company's shareholders approved the adoption of the
         Berlitz 1999 Long-Term Executive Incentive Compensation Plan (the "1999
         LTIP"). The 1999 LTIP provides for potential cash awards (currently
         expected to range from $695 to $5,000 in the aggregate) to be paid to
         senior management in 2002 if certain revenue, earnings and cash flow
         targets are achieved for the three-year period from 1999 to 2001. The
         1999 LTIP is intended to be an unfunded plan, and the Company is not
         required to establish any fund or segregate any assets for payments
         under it. In 1999, the Company recorded $695 in expense related to the
         1999 LTIP.

         The Company's 1996 Stock Option Plan, as amended (the "Plan")
         authorizes the issuance of options to directors and key employees of
         the Company. The total number of shares for which options may be
         granted is 503,225. The Company has reserved 503,225 of its treasury
         shares for use under the Plan.

<TABLE>
<CAPTION>

         Stock option activity is as follows:
                                                              Number of shares         Exercise price
                                                              ----------------         --------------
<S>                                                           <C>                      <C>
         Options outstanding at January 1, 1997                          -                       -
         Granted:
           June 30, 1997 (the "June 1997 Options")                 327,200                $24.9375
           December 9, 1997                                         46,190                $26.5625
         Exercised                                                       -                       -
                                                              ----------------         --------------
         Options outstanding at December 31, 1997                  373,390           $24.9375 - $26.5625
         Granted:
           December 4, 1998                                         25,740                 $30.00
         Withdrawals                                                (1,200)               $26.5625
         Exercised                                                       -                   -
                                                              ----------------         --------------
         Options outstanding at December 31, 1998                  397,930           $24.9375 - $30.00
         Granted: January 11, 1999                                  20,000                $28.3125
         Expired Relinquishment Options                            (50,000)               $24.9375
         Exercised
                                                              ----------------         --------------
         Options outstanding at December 31, 1999                  367,930           $24.9375 - $30.00
                                                              ================         ==============
</TABLE>

                                       73
<PAGE>
<TABLE>
<CAPTION>
<S>                                                           <C>                      <C>
         Options exercisable at December 31, 1999                  288,000          $24.9375 - $26.5625
                                                              ================         ==============
         Options exercisable at December 31, 1998                   10,800                $26.5625
                                                              ================         ==============
         Options exercisable at December 31, 1997                   12,000                $26.5625
                                                              ================         ==============
</TABLE>

         In general, options granted under the Plan expire on the seventh
         anniversary of the grant date and may not be exercised prior to the
         third anniversary of the grant date, at which time they become fully
         exercisable. Unexercised options, for a majority of the grants, expire
         earlier upon the grantee's termination of service with the Company,
         unless a grantee's service terminates by reason of death, disability,
         retirement after age 60, or termination by the Company other than for
         cause.

         Included within the June 1997 Options are 100,250 options for Soichiro
         Fukutake, Chairman of the Board of Directors, of which 50,000 have been
         granted (the "Relinquishment Options") in exchange for the complete
         relinquishment by Mr. Fukutake of all benefits under the Company's
         Supplemental Executive Retirement Plan ("SERP"). The June 1997 Options
         were not exercisableprior to January 1, 1999. On such date, they became
         fully exercisable until their normal expiration on June 29, 2004,
         except for the Relinquishment Options, which expired on December 31,
         1999.

         Statement of Financial Accounting Standards No. 123, "Accounting for
         Stock-Based Compensation", ("SFAS 123"), issued in October 1995,
         establishes financial accounting and reporting standards for
         stock-based employee compensation plans. As permitted by SFAS 123, the
         Company continues to apply APB Opinion No. 25, "Accounting for Stock
         Issued to Employees", and related Interpretations in accounting for its
         stock-based employee compensation plans. Accordingly, no compensation
         expense has been recognized for the grants under the Plan since their
         exercise prices have been equal to the closing price of the Company's
         common stock on the New York Stock Exchange on the date of grant. Had
         compensation expense been determined based on the fair value of awards
         at their grant date, as contemplated by SFAS 123, the pro forma effects
         on net income for the year-to-date periods ended December 31, 1999,
         1998 and 1997 would have been decreases of $142, $1,032 and $554,
         respectively. This would have resulted in pro forma decreases in
         earnings per share for the year-to-date periods ended December 31,
         1999, 1998 and 1997 of $0.01, $0.11 and $0.06, respectively.

         The fair value of each option grant during 1999, 1998 and 1997, as set
         forth in the following table, is estimated on the date of grant using
         the Black-Scholes option pricing model, with the following assumptions:

                                       74
<PAGE>
<TABLE>
<CAPTION>
                                                   June 1997     June 1997      December     December   January 1999
                                                    Grant -       Grant -      1997 Grant   1998 Grant      Grant
                                                  Relinquish-    All other
                                                     ment         options
                                                    Options
                                                   ---------     ---------      --------     --------   ------------
<S>                                                <C>           <C>            <C>          <C>        <C>
         Weighted average assumptions used to
         estimate fair value:
              Dividend yield                         0.00%          0.00%          0.00%        0.00%        0.00%
              Expected volatility                   22.00%         22.00%         21.00%       20.00%       20.00%
              Risk free interest rate                5.79%          6.08%          5.88%        4.31%        4.76%
              Expected lives in years                1.5            4.25           5.0          5.0          5.0
         Fair value of each option granted          $3.71          $7.37          $8.43        $8.29        $8.11
</TABLE>

         The Company has two other stock plans: the 1989 Stock Option and
         Incentive Plan (the "1989 Plan") and the Non-Employee Directors' Stock
         Plan (the "Directors' Plan"). The 1989 Plan authorizes the issuance of
         various stock incentives to officers and key employees and the related
         issuance of up to 2,000,000 shares of common stock. The Directors' Plan
         provides non-employee Directors of the Company the opportunity to elect
         to receive a portion of their annual retainer fees in the form of
         common stock of the Company, or to defer receipt of a portion of such
         fees and have the deferred amounts treated as if invested in common
         stock. There was no activity related to these plans during 1997, 1998
         or 1999, and there are no related incentives or shares outstanding at
         December 31, 1999.

16.      Thrift and Retirement Plans

         The Berlitz International, Inc. Retirement Savings Plan (the "Berlitz
         Plan") is a defined contribution plan covering substantially all of the
         Company's full-time domestic employees (except ELS 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 plans.

         ELS maintains a separate retirement savings plan (which includes a
         Contributory 401(k) provision). All full-time ELS employees are
         eligible to participate in this plan on January 1 or July 1 upon
         reaching age 21 and completing of 1000 hours of service within a
         twelve-month period. Contributions to the profit sharing portion of
         this plan are made in such amounts, if any, as determined by executive
         management of ELS. The Contributory 401(k) provision for ELS employees
         is in an amount equal to the lesser of (a) 50% of the employee's salary
         reduction contributions or (b) 3% of the employee's annual
         compensation.

         Total expense with respect to all benefit plans, excluding the SERP and
         a defined benefit plan for Berlitz-Japan, was $1,812, $1,521 and $978
         for the years ended December 31, 1999, 1998, and 1997, respectively.

         Effective January 1, 1996, the Company established the SERP, a defined
         benefit plan which provides retirement income / disability retirement
         benefits, retiree medical benefits and death benefits to certain
         designated executives and their designated beneficiaries. As previously
         discussed (see Note 15), the Chairman of the Board of Directors
         relinquished rights to all benefits under the SERP in exchange for the
         Relinquishment Options. Monthly benefits will be available to any
         participant who retires at age 60 or above, with at least 5 years of
         service with the Company.

                                       75
<PAGE>

         The retirement income/disability retirement benefits ("Pension
         Benefits") are based on a percentage of an average monthly salary
         (calculated on the base salary and short-term bonuses paid over the
         last 36 months of employment) and will be paid to the retired
         participant for life, with 50% of such benefit paid to the
         participant's surviving spouse for life upon the retired participant's
         death. Such percentage for initial participants as of January 1, 1996,
         generally is 30%. For future participants, such percentage will be 2%
         (or such other percentage as the Board of Directors may determine)
         multiplied by years of service, generally not to exceed 30%. The
         Company will also provide each retired participant and their surviving
         spouse with medical coverage ("Medical Benefits") for both of their
         lives. If a participant with at least 5 years of service dies before
         retirement, the participant's designated beneficiary will receive, in
         lieu of the above-mentioned benefits, a one-time payment equal to the
         participant's base salary projected to age 65 at a 4% annual increase.

         Awards under the SERP are not subject to deduction for Social Security
         or other offset amounts, except to the extent of any disability
         benefits payable under the Company's long-term disability insurance
         policy. In the case of Chairman of the Board, who does not receive a
         salary from the Company, the SERP benefits had been based on an imputed
         salary determined by the Company's Board of Directors. The Company
         intends to fund the SERP through a combination of funds generated from
         operations and life insurance policies maintained on the participants.

         In 1999, the Company's Board of Directors approved increases in the
         retirement benefit percentage to 40% for certain participants based on
         current market factors.

         In 1998, the Company established an irrevocable grantor trust (the
         "Trust") and contributed life insurance policies and annuity contracts
         on the SERP participants to the Trust. Subject to the claims of the
         Company's general creditors in the event of the Company's insolvency,
         the Trust's principal and income shall be held therein until paid to
         the SERP participants in such manner and at such times as specified in
         the SERP. It is the intention of the Company that the Trust constitutes
         an unfunded arrangement and does not affect the status of the SERP as
         an unfunded plan. Included within "Other assets" at December 31, 1999
         is $3,395 held in the Trust.

         The following tables set forth certain information for the SERP:

<TABLE>
<CAPTION>
                                                         Pension Benefits                     Medical Benefits
                                                         ----------------                     ----------------
                                                  1999         1998        1997          1999       1998       1997
                                                  ----         ----        ----          ----       ----       ----
<S>                                            <C>          <C>         <C>           <C>        <C>        <C>
         Benefit obligation at beginning of    $  5,069     $  3,575    $  3,188      $  1,006   $  1,205   $  1,435
           year
         Service cost                               552          506         415           118         75        107
         Interest cost                              324          290         220            76         57         72
         Net benefit payments                       (93)           -           -           (26)       (16)       (13)
         Actuarial loss (gain)                     (115)         698        (248)           38       (315)      (396)
                                               --------     --------    --------      --------   --------   --------
         Benefit obligation at end of year        5,737        5,069       3,575         1,212      1,006      1,205
         Plan asset at fair value                     -            -           -             -          -          -
                                               --------     --------    --------      --------   --------   --------
         Funded status                           (5,737)      (5,069)     (3,575)       (1,212)    (1,006)    (1,205)
         Unrecognized prior service cost          1,967        2,146       2,324           522        681        840
         Unrecognized actuarial loss (gain)         245          360        (337)         (536)      (610)      (361)
                                               --------     --------    --------      --------   --------   --------
         Net amount recognized                 $ (3,525)    $ (2,563)   $ (1,588)     $ (1,226)  $   (935)  $   (726)
                                               ========     ========    ========      ========   ========   ========
</TABLE>

                                       76
<PAGE>
<TABLE>
<CAPTION>
                                                         Pension Benefits                     Medical Benefits
                                                         ----------------                     ----------------
                                                  1999         1998        1997          1999       1998       1997
                                                  ----         ----        ----          ----       ----       ----
<S>                                            <C>          <C>         <C>           <C>        <C>         <C>
         Amounts recognized in the
           consolidated balance sheet:
         Accrued benefit liability             $ (4,981)    $ (4,177)   $ (2,791)     $ (1,226)  $   (935)   $   (726)
         Intangible asset                         1,456        1,614       1,203             -          -           -
                                               --------     --------    --------      --------   --------    --------
         Net amount recognized                 $ (3,525)    $ (2,563)   $ (1,588)     $ (1,226)  $   (935)   $   (726)
                                               ========     ========    ========      ========   ========    ========

         Weighted average assumptions as
           of December 31:
         Discount rate                              7.5%         6.5%        7.0%          7.5%       6.5%        7.0%
         Rate of compensation increases             4.0%         4.0%        4.0%          n/a        n/a         n/a

         Assumed health care cost trend used
           in measuring the accumulated
           postretirement benefit obligation:
         Beginning rate:                            n/a          n/a         n/a          12.0%      12.9%      13.8%
         Leveling to an ultimate rate of:           n/a          n/a         n/a           5.0%       5.0%       5.0%
         Over:                                      n/a          n/a         n/a       9 Years   10 years   10 years
</TABLE>

         The components of net periodic benefit costs recognized for the years
         ended December 31, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                         Pension Benefits                     Medical Benefits
                                                         ----------------                     ----------------
                                                  1999         1998        1997          1999       1998       1997
                                                  ----         ----        ----          ----       ----       ----
<S>                                            <C>          <C>         <C>           <C>        <C>         <C>
         Service cost                          $    552     $    506    $    415      $    118   $     75    $    107
         Interest cost                              324          290         220            76         57          72
         Amortization of prior service cost         179          179         179           159        159         159
         Actuarial gains                              -            -           -           (35)       (66)        (35)
                                               --------     --------    --------      --------   --------    --------
         Net periodic postretirement
           benefit cost                        $  1,055     $    975    $    814      $    318   $    225    $    303
                                               ========     ========    ========      ========   ========    ========
</TABLE>

         Assumed health care cost trends rates can have a significant effect on
         amounts reported for the Medical Plan. A one-percentage-point change in
         the assumed health care cost trend rates would have the following
         effects:

<TABLE>
<CAPTION>
                                                                           1% Point             1% Point
                                                                           Increase             Decrease
                                                                       -----------------    -----------------
<S>                                                                    <C>                  <C>
             Effect on total of service and interest cost components         $30                  $(25)
                  for the period ending December 31, 1999
             Effect on accumulated postretirement benefit obligation         188                  (158)
                  as of December 31, 1999
</TABLE>

                                       77
<PAGE>

<TABLE>
<CAPTION>

         Berlitz-Japan also maintains a defined benefit plan, for which certain
         information is set forth in the following tables:

                                                                               1999        1998        1997
                                                                               ----        ----        ----
<S>                                                                         <C>         <C>         <C>
         Benefit obligation at beginning of year                            $  8,745    $  7,552    $  7,866
         Service cost                                                            819         745         816
         Interest cost                                                           338         276         291
         Net benefit payments                                                   (463)       (974)       (490)
         Actuarial (gain)                                                       (330)          -           -
         Foreign currency exchange rate changes                                1,009       1,146        (931)
                                                                            --------    --------    --------
         Benefit obligation at end of year                                    10,118       8,745       7,552
         Plan asset at fair value                                              7,060       5,895       5,167
                                                                            --------    --------    --------
         Funded status                                                        (3,058)     (2,850)     (2,385)
         Unrecognized prior service cost                                       2,250       2,210       2,080
         Unrecognized actuarial (gain)                                          (412)       (234)       (203)
                                                                            --------    --------    --------
         Net amount recognized                                              $ (1,220)   $   (874)   $   (508)
                                                                            ========    ========    ========

         Reconciliation of fair value of plan assets:
         Balance at beginning of period                                     $  5,895    $  5,167    $  4,685
         Return on plan assets                                                   124         184         208
         Employer contributions                                                  801         745         802
         Benefits paid                                                          (463)       (974)       (490)
         Foreign currency exchange rate changes                                  703         773         (38)
                                                                            --------    --------    --------
         Balance at end of period                                           $  7,060    $  5,895    $  5,167
                                                                            ========    ========    ========

         Amounts recognized in the consolidated balance sheet:
         Accrued benefit liability                                          $ (2,208)   $ (3,034)   $ (2,385)
         Intangible asset                                                        988       2,160       1,877
                                                                            --------    --------    --------
         Net amount recognized                                              $ (1,220)   $   (874)   $   (508)
                                                                            ========    ========    ========

         Weighted average assumptions as of December 31:
         Discount rate                                                           4.5%        4.0%        4.0%
         Expected long-term rate of return on plan assets                        3.4%        3.6%        4.0%
         Rate of compensation increases                                          0.0%        0.0%        0.0%
</TABLE>

         The components of net periodic benefit costs recognized for the years
         ended December 31, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                               1999        1998        1997
                                                                               ----        ----        ----
<S>                                                                         <C>         <C>         <C>
         Service cost                                                       $    819    $    745    $    816
         Interest cost                                                           338         276         291
         Expected return on assets                                              (207)       (184)       (208)
         Amortization of prior service cost                                      185         160         172
                                                                            --------    --------    --------
         Net periodic postretirement benefit cost                           $  1,135    $    997    $  1,071
                                                                            ========    ========    ========
</TABLE>

17.      Treasury Stock

         On November 14, 1997, the Company acquired 126,225 shares of its Common
         from MCC Proceeds, Inc., as Trustee for the Maxwell Macmillan
         Realization Trust. The negotiated purchase price was $23.5125 per
         share, or $3.0 million, which was below the market price at the date of
         negotiation. The transaction was funded from cash generated by
         operations. The repurchased shares were placed into treasury and
         reserved for future uses permitted under the Bank Facility.

                                       78
<PAGE>

18.      Operating Segments

         Effective January 1, 1999, the Company's operations are principally
         conducted through two segments: Language Services (consisting of the
         Instruction, ELS/BOC (i.e., ELS Educational Services, Inc. ("ELS") and
         Berlitz on Campus ("BOC")), Publishing, Franchising, and Cross Cultural
         sub-segments), and Berlitz GlobalNET (formerly Translation Services).
         These are strategic business units that offer different products and
         services and are managed separately by senior management due to
         different technology and marketing strategies.

         Within Language Services, the Instruction sub-segment (through the use
         of proprietary methods and materials) provides predominantly live
         language education in virtually all spoken languages. The ELS/BOC
         sub-segment provides intensive English education programs. The
         Publishing sub-segment offers a wide range of publishing products such
         as dictionaries, phrase books, travel guides and self-study language
         materials, including CD-ROMs and audiocassettes. The Franchising
         sub-segment sells Berlitz language center franchises to independent
         franchisees in certain locations. The Cross Cultural sub-segment
         complements language study by providing expatriates with detailed
         practical and cultural information about the countries to which they
         are relocating.

         Berlitz GlobalNET provides high quality technical documentation
         translation, interpreting and rapidly expanding offerings in eBusiness
         Globalization services including Web localization and multilingual
         content management. Language-related services are offered for the
         entire business cycle, from globalization strategy and consulting, to
         creating and translating content, designing, implementing and
         maintaining multilingual Websites.

         The Company evaluates operating segment performance based on EBITA,
         defined as sales of services and products, less costs of services and
         products sold and selling, general and administrative expenses. EBITA
         includes depreciation and similar non-cash charges, but excludes
         amortization of publishing rights, excess of cost over net assets
         acquired, and other intangibles.

         The following tables present information about reported segment profit
         or loss and segment assets, and reconcile reportable segment revenues,
         profit or loss, and assets to the Company's consolidated totals. The
         prior years information in these tables has been restated to reflect
         the change to two operating segments, effective January 1, 1999.

                                       79
<PAGE>
<TABLE>
<CAPTION>
                                                                           Twelve Months ended December 31,
                                                                   ------------------------------------------------
                                                                       1999              1998             1997
                                                                       ----              ----             ----
<S>                                                                <C>               <C>              <C>
          Revenues:
            Revenues from external customers:
               Language Services:
                 Instruction                                       $   277,081       $   267,923      $   260,389
                 ELS/BOC                                                56,285            65,683           36,367
                 Publishing                                             12,936            14,787           13,634
                 Franchising                                             1,439             1,270            1,039
                 Cross Cultural                                          2,470             2,404            1,959
                 Other                                                     620                 -               49
                                                                   -------------     -------------    -------------
               Total Language Services                                 350,831           352,067          313,437
               Berlitz GlobalNET                                        95,350            84,236           83,772
                                                                   -------------     -------------    -------------
                 Total external revenues                               446,181           436,303          397,209
                                                                   -------------     -------------    -------------
            Intersegment revenues:
               Language Services:
                 Instruction                                                (2)               19                6
                 Franchising                                               319               516              908
                                                                   -------------     -------------    -------------
               Total Language Services                                     317               535              914
               Berlitz GlobalNET                                            11                20                3
                                                                   -------------     -------------    -------------
                 Total intersegment revenues                               328               555              917
                                                                   -------------     -------------    -------------
            Total revenues for reportable segments                     446,509           436,858          398,126
            Elimination of intersegment revenues                          (328)             (555)            (917)
                                                                   -------------     -------------    -------------
               Total consolidated revenues                         $   446,181       $   436,303      $   397,209
                                                                   =============     =============    =============

          Income before taxes, minority interest,
          extraordinary item, and cumulative effect change:
          Operating Profit:
            Segment EBITA:
               Language Services:
                 Instruction                                       $    54,950       $    56,732      $    56,024
                 ELS/BOC                                                 2,300             6,229            5,096
                 Publishing                                                681             1,334              600
                 Franchising                                               449                37            (725)
                 Cross Cultural                                            523               574              465
                 Language Service overhead expenses and other          (20,594)          (19,381)         (19,005)
                                                                   -------------     -------------    -------------
               Total Language Services                                  38,309            45,525           42,455
               Berlitz GlobalNET                                         6,022             8,260            7,660
               General corporate HQ expenses                           (14,129)          (13,471)         (12,871)
                                                                   -------------     -------------    -------------
            Total EBITA                                                 30,202            40,314           37,244
                                                                   -------------     -------------    -------------

            Amortization of publishing rights, excess of cost over
            net assets acquired, and other intangibles:
               Language Services:
                 Instruction                                           (10,236)          (10,127)         (10,289)
                 ELS/BOC                                                (5,417)           (5,393)          (1,935)
                 Publishing                                               (399)             (398)            (402)
                 Cross Cultural                                            (11)              (11)             (11)
                                                                   -------------     -------------    -------------
               Total Language Services                                 (16,063)          (15,929)         (12,637)
               Berlitz GlobalNET                                        (1,961)           (1,336)          (1,546)
                                                                   -------------     -------------    -------------
               Total intangible amortization                           (18,024)          (17,265)         (14,183)
                                                                   -------------     -------------    -------------
          Total operating profit                                        12,178            23,049           23,061
          Interest expense on long-term debt                            (2,005)          (10,956)          (8,523)
          Interest expense on Convertible Debentures                    (6,424                 -                -
          Interest expense to affiliates                                (2,547)           (2,226)          (2,100)
          Other income (expense), net                                      520            (2,188)             615
                                                                   -------------     -------------    -------------
          Total consolidated income before taxes,
          minority interest, extraordinary item, and
          cumulative effect change                                 $     1,722       $     7,679      $    13,053
                                                                   =============     =============    =============
</TABLE>

                                       80
<PAGE>
<TABLE>
<CAPTION>

          Assets:                                                                    December 31,
                                                                   ------------------------------------------------
                                                                       1999              1998             1997
                                                                       ----              ----             ----
<S>                                                                <C>               <C>              <C>
               Language Services:
                 Instruction                                       $   433,526       $   409,613      $   423,183
                 ELS/BOC                                               106,210           111,980          120,694
                 Publishing                                             23,122            23,982           21,410
                 Franchising                                             8,031             6,553            4,649
                 Other                                                   1,509            18,092            1,023
                                                                   -------------     -------------    -------------
               Total Language Services                                 572,398           570,220          570,959
               Berlitz GlobalNET                                       102,684            85,183           82,256
               General corporate                                        27,365            12,556            9,288
               Eliminations of intersegment receivables                (5,427)           (4,498)            (988)
                                                                   -------------     -------------    -------------
                 Total consolidated assets                         $   697,020       $   663,461      $   661,515
                                                                   =============     =============    =============


                                                                           Twelve Months ended December 31,
                                                                   ------------------------------------------------
                                                                       1999              1998             1997
                                                                       ----              ----             ----
          Depreciation:
            Language Services:
               Instruction                                         $     5,005       $     4,431      $     4,032
               ELS/BOC                                                   1,032               958              577
               Publishing                                                1,855             1,244              722
               Franchising                                                  19                11                8
               Language Service overhead and other                         476               469              670
                                                                   -------------     -------------    -------------
            Total Language Services                                      8,387             7,113            6,009
            Berlitz GlobalNET                                            2,014             2,141            2,044
            General corporate                                              995               537              511
                                                                   -------------     -------------    -------------
               Total consolidated depreciation                     $    11,396       $     9,791      $     8,564
                                                                   =============     =============    =============

          Capital expenditures:
            Language Services:
               Instruction                                         $    14,249       $    10,492      $     8,689
               ELS/BOC                                                     935               904              406
               Publishing                                                2,135             2,472            2,771
               Franchising                                                  32                 4                3
                                                                   -------------     -------------    -------------
            Total Language Services                                     17,351            13,872           11,869
            Berlitz GlobalNET                                            1,859             3,125            2,167
            General corporate                                            1,124             1,952              581
                                                                   -------------     -------------    -------------
               Total consolidated capital expenditures             $    20,334       $    18,949      $    14,617
                                                                   =============     =============    =============
</TABLE>

         The following tables present certain information about the geographic
areas in which the Company operates:

<TABLE>
<CAPTION>
                                                                             Twelve Months ended December
                                                                   ------------------------------------------------
                                                                       1999              1998             1997
                                                                       ----              ----             ----
<S>                                                                <C>               <C>              <C>
          Revenues from external customers:
            United States                                          $   144,153       $   158,676      $   126,172
            Japan                                                       72,256            58,290           61,892
              Germany                                                   41,982            41,497           37,324
              Ireland                                                   23,307            23,186           28,066
            France                                                      20,788            17,754           14,459
              Brazil                                                    14,264            21,007           20,823
            Other foreign countries                                    129,431           115,893          108,473
                                                                   -------------     -------------    -------------
               Total                                               $   446,181       $   436,303      $   397,209
                                                                   =============     =============    =============
</TABLE>

                                       81
<PAGE>
<TABLE>
<CAPTION>
                                                                             Twelve Months ended December
                                                                   ------------------------------------------------
                                                                       1999              1998             1998
                                                                       ----              ----             ----
<S>                                                                <C>               <C>              <C>
          Operating profit:
            EBITA :
               United States                                       $    13,092       $    20,676      $    18,356
               Japan                                                     8,127             6,105            8,943
               Germany                                                   4,918             5,738            3,488
               Ireland                                                   1,162             1,955            2,989
               France                                                    2,154             1,296            1,090
               Brazil                                                    1,433             3,192            3,121
               Other foreign countries                                  17,645            18,401           15,984
               General corporate expenses                              (18,329)          (17,049)         (16,727)
                                                                   -------------     -------------    -------------
                 Total EBITA                                            30,202            40,314           37,244
                                                                   -------------     -------------    -------------

            Amortization of publishing rights, excess of cost over
             net assets acquired, and other intangibles:
               United States                                           (15,072)          (14,352)         (10,891)
               Japan                                                    (1,411)           (1,196)          (1,294)
               Germany                                                    (259)             (259)            (269)
               Ireland                                                     (47)              (74)            (347)
               France                                                     (282)             (221)            (159)
               Brazil                                                      (64)              (64)             (64)
               Other foreign countries                                    (889)           (1,099)          (1,159)
                                                                   -------------     -------------    -------------
                 Total intangible amortization                         (18,024)          (17,265)         (14,183)
                                                                   -------------     -------------    -------------

            Intercompany royalties:
               United States                                            19,189            17,285           17,449
               Japan                                                    (6,618)           (4,253)          (5,684)
               Germany                                                  (1,579)           (1,508)          (1,386)
               Ireland                                                  (1,163)           (1,148)          (1,399)
               France                                                   (1,022)           (1,184)            (919)
               Other foreign countries                                  (8,807)           (9,192)          (8,061)
                                                                   -------------     -------------    -------------
                 Total intercompany royalties                                -                 -                -
                                                                   -------------     -------------    -------------
          Total operating profit                                   $    12,178       $    23,049      $    23,061
                                                                   =============     =============    =============

                                       82
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

          Long lived assets:                       Property &
                                                   Equipment           Other          Intangible
                                                      net             Assets*           Assets            Total
                                                  -------------    -------------     -------------    -------------
<S>                                               <C>              <C>               <C>              <C>
          December 31, 1999:
            United States                         $    10,202      $     7,801       $   397,674      $   415,677
            Japan                                      11,186              152            51,989           63,327
            Germany                                     3,448                -             8,089           11,537
            France                                      1,853                -             5,949            7,802
            Brazil                                      2,843                -             2,492            5,335
            Ireland                                     1,276                1             1,510            2,787
            Other foreign countries                    12,362              529            27,710           40,601
            General corporate and HQ                    4,579           13,910             1,456           19,945
                                                  -------------    -------------     -------------    -------------
               Total                              $    47,749      $    22,393       $   496,869      $   567,011
                                                  =============    =============     =============    =============

          December 31, 1998:
            United States                         $     8,414      $     7,335       $   402,507      $   418,256
            Japan                                       8,685               97            49,165           57,947
            Germany                                     3,008                -             9,443           12,451
            France                                      1,783                -             7,192            8,975
            Brazil                                      3,250                -             2,145            5,395
            Ireland                                     1,562              151             1,793            3,506
            Other foreign countries                    10,533              192            29,173           39,898
            General corporate                           3,909            2,557             1,596            8,062
                                                  -------------    -------------     -------------    -------------
               Total                              $    41,144      $    10,332       $   503,014      $   554,490
                                                  =============    =============     =============    =============

          December 31, 1997:
            United States                         $     6,363      $     5,250       $   421,766      $   433,379
            Japan                                       5,806                -            43,925           49,731
            Germany                                     2,823                -             9,020           11,843
            France                                      1,511                -             5,385            6,896
            Brazil                                      2,219                -             2,208            4,427
            Ireland                                     2,003               33             1,796            3,832
            Other foreign countries                     9,477              216            30,471           40,164
            General corporate                           1,896            1,727             1,596            5,219
                                                  -------------    -------------     -------------    -------------
               Total                              $    32,098      $     7,226       $   516,167      $   555,491
                                                  =============    =============     =============    =============
</TABLE>

            *Excludes financial instruments and deferred tax assets.

                                       83
<PAGE>

19.      Quarterly Financial Data (unaudited)

<TABLE>
<CAPTION>
                                                   Three Months Ended
                                    -----------------------------------------------------------------
                                         March 31          June 30           Sept 30           Dec 31              Year
                                    -------------    -------------     -------------    -------------     -------------
<S>                                 <C>              <C>               <C>              <C>               <C>
1999:
Sales of services and products      $     104,447    $     111,194     $     119,357    $     111,183     $     446,181
Operating profit (loss)                      (654)           4,197             5,685            2,950            12,178
(Loss) income before income taxes,
  minority interest, extraordinary
  item and cumulative effect change        (2,561)           1,445             2,496              342             1,722
Extraordinary item                         (2,140)              (4)               (9)              (1)           (2,154)
Cumulative effect change                   (5,605)               -                 -                             (5,605)
Net (loss)                                (10,349)            (310)           (1,103)          (1,322)          (13,084)
Basic and diluted loss
  per share                         $       (1.08)   $       (0.03)    $       (0.12)    $      (0.14)     $      (1.37)
                                    =============    =============     =============     ============      ============

1998:
Sales of services and products      $     104,656    $     107,509     $     114,396     $    109,742      $    436,303
Operating profit                            3,250            6,322             8,246            5,231            23,049
Income before income taxes,
  and minority interest                       297            2,216             4,461              705             7,679
Net income                                     23              700               923              436             2,082
Basic and diluted earnings
  per share                         $        0.00    $        0.07     $        0.10     $       0.05      $       0.22
                                    =============    =============     =============     ============      ============
</TABLE>

                                       84
<PAGE>

                           BERLITZ INTERNATIONAL, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

                                   Schedule II

<TABLE>
<CAPTION>
                                      Balance at       Charged to                                            Balance
                                       Beginning         Cost and                                          at End of
                                         of Year         Expenses    Deductions (1)       Other (2)          of Year
                                    ------------  ---------------  ----------------  ---------------   -------------
<S>                                 <C>           <C>              <C>               <C>               <C>
Allowances for doubtful accounts:

Year Ended December 31, 1999        $      2,295  $         1,828  $           (884) $          (137)  $       3,102
                                    ============  ===============  ================  ===============   =============
Year Ended December 31, 1998        $      2,415  $           728  $          (888)  $            40   $       2,295
                                    ============  ===============  ================  ===============   =============
Year Ended December 31, 1997        $      1,914  $         1,129  $          (465)  $         (163)   $       2,415
                                    ============  ===============  ================  ===============   =============
</TABLE>

(1) Principally represents net losses incurred in the ordinary course of
    business and chargeable against the allowance.

(2) Principally represents foreign currency translation.

                                       85
<PAGE>

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

Not applicable.

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

The information required by Item 401 of Regulation S-K with respect to Directors
and Executive Officers of the Company is set forth in Part I of this Form 10-K.
The information required by Item 405 of Regulation S-K with respect to Directors
and Executive Officers of the Company is incorporated herein by reference to the
section entitled "Security Ownership of Management and Others" in the 2000 Proxy
Statement.

ITEM 11. Executive Compensation

The information required by this item is incorporated herein by reference to the
section entitled "Executive Compensation and Related Information" in the 2000
Proxy Statement.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated herein by reference to the
section "Security Ownership of Management and Others" in the 2000 Proxy
Statement.

ITEM 13. Certain Relationships and Related Transactions

The information required by this item is incorporated herein by reference to the
section entitled "Certain Relationships and Related Transactions" in the 2000
Proxy Statement.

                                       86
<PAGE>

                                     PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports On Form 8-K


A.  Index to Financial Statements and Financial Statement Schedules

    1.  Financial Statements

    2.  Financial Statement Schedules

         The Financial Statements and the Financial Statement Schedules included
         in the Annual Report on Form 10-K are listed in Item 8 on page 44.

    3.  Exhibits

         All Exhibits listed below are filed with this Annual Report on Form
         10-K unless specifically stated to be incorporated by reference to
         other documents previously filed with the Commission.

    Exhibit No.
    -----------

    2.1       Amended and Restated Agreement and Plan of Merger, dated as of
              December 9, 1992, among the registrant, Benesse Corporation
              (formerly Fukutake Publishing Co., Ltd.) and BAC, Inc. Exhibit 1
              to the registrant's Form 8-K, dated December 9, 1992, is
              incorporated by reference herein.

    3.1       Restated Certificate of Incorporation of the registrant filed with
              the State of New York on December 11, 1989. Exhibit 3.4 to
              Registration Statement No. 33-31589 is incorporated by reference
              herein.

    3.2       Certificate of Merger of BAC, Inc. into the registrant (including
              amendments to the registrant's Certificate of Incorporation),
              filed with the State of New York on February 8, 1993. Exhibit 3.2
              to the Company's Annual Report on Form 10-K for the fiscal year
              ended December 31, 1992 is incorporated by reference herein.

    3.3       Amended and Restated By-laws of the registrant, adopted May 11,
              1993. Exhibit 1 to the Company's Quarterly Report on Form 10-Q for
              the quarter ended March 31, 1993 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.

                                       87
<PAGE>

    10.1      Credit Agreement, dated as of January 29, 1993, among the
              registrant, the several lenders from time to time party thereto
              and Chemical Bank as Agent. Exhibit 10.1 to the Company's Annual
              Report on Form 10-K for the fiscal year ended December 31, 1992 is
              incorporated by reference herein.

    10.2      First Amendment, dated as of September 21, 1994, to the Credit
              Agreement, dated as of January 29, 1993, among the registrant, the
              several lenders from time to time parties thereto and Chemical
              Bank as Agent. Exhibit 99.6 to the Company's Form 8-K, dated
              September 21, 1994, is incorporated by reference herein.

    10.3      Second Amendment and Consent, dated as of September 21, 1994, to
              the Credit Agreement, dated as of January 29, 1993, among the
              registrant, the lenders from time to time parties thereto and
              Chemical Bank. Exhibit 99.7 to the Company's Form 8-K, dated
              September 21, 1994, is incorporated by reference herein.

    10.4      Form of Third Amendment, dated as of April 28, 1995, to the Credit
              Agreement, dated as of January 29, 1993, among the registrant, the
              lenders from time to time parties thereto and Chemical Bank.
              Exhibit 10.4 to the Company's Form 10-K for the fiscal year ended
              December 31, 1995 is incorporated by reference herein.

    10.5      Form of Consent, dated as of April 28, 1995, to the Credit
              Agreement, dated as of January 29, 1993, among the registrant, the
              lenders from time to time parties thereto and Chemical Bank.
              Exhibit 10.5 to the Company's Form 10-K for the fiscal year ended
              December 31, 1995 is incorporated by reference herein.

    10.6      Form of Fourth Amendment, dated as of March 18, 1996, to the
              Credit Agreement, dated as of January 29, 1993, among the
              registrant, the lenders from time to time parties thereto and
              Chemical Bank. Exhibit 10.6 to the Company's Form 10-K for the
              fiscal year ended December 31, 1995 is incorporated by reference
              herein.

    10.7      Form of Senior Note Agreement, dated as of January 29, 1993, among
              the registrant and each institutional lender party thereto.
              Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
              fiscal year ended December 31, 1992 is incorporated by reference
              herein.

    10.8      Second Amendment, dated as of September 21, 1994, to the Senior
              Note Agreements, dated as of January 29, 1993, among the
              registrant and each institutional lender party thereto. Exhibit
              99.10 to the Company's Form 8-K, dated September 21, 1994, is
              incorporated by reference herein.

    10.9      Third Amendment, dated as of September 21, 1994, to the Senior
              Note Agreements, dated as of January 29, 1993 among the registrant
              and each institutional lender party thereto. Exhibit 99.11 to the
              Company's Form 8-K, dated September 21, 1994, is incorporated by
              reference herein.

                                       88
<PAGE>

    10.10     Form of Fourth Amendment, dated as of April 28, 1995, to the
              Senior Note Agreements, dated as of January 29, 1993 among the
              registrant and each institutional lender party thereto. Exhibit
              10.10 to the Company's Form 10-K for the fiscal year ended
              December 31, 1995 is incorporated by reference herein.

    10.11     Form of Consent, dated as of April 28, 1995, to the Senior Note
              Agreements, dated as of January 29, 1993 among the registrant and
              each institutional lender party thereto. Exhibit 10.11 to the
              Company's Form 10-K for the fiscal year ended December 31, 1995 is
              incorporated by reference herein.

    10.12     Form of Fifth Amendment, dated as of March 18, 1996, to the Senior
              Note Agreements, dated as of January 29, 1993, among the
              registrant and each institutional lender party thereto. Exhibit
              10.12 to the Company's Form 10-K for the fiscal year ended
              December 31, 1995 is incorporated by reference herein.

    10.13     (Y)1 billion (Japanese yen) Subordinated Non-Negotiable Promissory
              Note, dated as of September 21, 1994, between the Berlitz Schools
              of Languages (Japan), Inc. (as Borrower) and Benesse Corporation
              (formerly Fukutake Publishing Co., Ltd.) (as Lender). Exhibit 99.2
              to the Company's Form 8-K, dated September 21, 1994, is
              incorporated by reference herein.

    10.14     US$20,000,000 Subordinated Non-Negotiable Promissory Note, dated
              as of September 21, 1994, among the registrant (as Borrower) and
              Fukutake Holdings (America) (as Lender). Exhibit 99.3 to the
              Company's Form 8-K, dated September 21, 1994, is incorporated by
              reference herein.

    10.15     Spring Guaranty Letter, dated as of September 21, 1994, from the
              registrant to Benesse Corporation (formerly Fukutake Publishing
              Co., Ltd). Exhibit 99.4 to the Company's Form 8-K, dated September
              21, 1994, is incorporated by reference herein.

    10.16     Subsidiaries Guaranty, dated as of September 21, 1994, by Berlitz
              Financial Corporation, Berlitz Investment Corporation, Berlitz
              Languages, Inc. and Berlitz Publishing Company, Inc. in favor of
              Fukutake Holdings (America), Inc. Exhibit 99.5 to the Company's
              Form 8-K, dated September 21, 1994, is incorporated by reference
              herein.

    10.17     Subordination Agreement, dated as of September 21, 1994, among
              Benesse Corporation (formerly Fukutake Publishing Co., Ltd.), The
              Berlitz Schools of Languages (Japan), Inc. and Chemical Bank.
              Exhibit 99.8 to the Company's Form 8-K, dated September 21, 1994,
              is incorporated by reference herein.

                                       89
<PAGE>

    10.18     First Amendment, dated as of September 21, 1994, to the
              Subordination Agreement, dated as of January 29, 1993, among
              Benesse Corporation (formerly Fukutake Publishing Co., Ltd.),
              Fukutake Holdings (America), Inc., the registrant and Chemical
              Bank pursuant to the Master Collateral and Intercreditor
              Agreement, dated as of January 29, 1993. Exhibit 99.9 to the
              Company's Form 8-K, dated September 21, 1994, is incorporated by
              reference herein.

    10.19     Form of US$6,000,000 Subordinated Non-Negotiable Promissory Note,
              dated as of March 25, 1996, among the registrant (as Borrower) and
              Fukutake Holdings (America), Inc. (as Lender). Exhibit 10.19 to
              the Company's Form 10-K for the fiscal year ended December 31,
              1995 is incorporated by reference herein.

    10.20     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.

    10.21     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.

    10.22     1989 Stock Option and Incentive Plan. Exhibit 10.13 to
              Registration Statement No. 33-31589 is incorporated by reference
              herein.

    10.23     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.

    10.24     Form of Berlitz International, Inc. 1996 Stock Option Plan.
              Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
              the nine months ended September 30, 1996 is incorporated by
              reference herein.

    10.25     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.

    10.26     1996 New Long-Term Executive Incentive Compensation Plan. Exhibit
              10.2 to the Company's Quarterly Report on Form 10-Q for the nine
              months ended September 30, 1996 is incorporated by reference
              herein.

    10.27     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.

    10.28     Supplemental Executive Retirement Plan, effective as of January 1,
              1996. Exhibit 10.33 to the Company's Annual Report on Form 10-K
              for the year ended December 31, 1996 is incorporated by reference
              herein.

                                       90
<PAGE>

    10.29     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.

    10.30     Shareholders' Agreement among Berlitz Languages, Inc., Benesse
              Corporation (formerly Fukutake Publishing Co., Ltd.) and the
              registrant, dated as of November 8, 1990. Exhibit 10.18 to the
              Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 1990 is incorporated by reference herein.

    10.31     Amendment No. 1 to Shareholders' Agreement among Berlitz
              Languages, Inc., Benesse Corporation (formerly Fukutake Publishing
              Co., Ltd.) and the registrant, dated as of November 8, 1990.
              Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
              fiscal year ended December 31, 1990 is incorporated by reference
              herein. Exhibit 10.21 to the Company's Annual Report on Form 10-K
              for the fiscal year ended December 31, 1992 is incorporated by
              reference herein.

    10.32     Stock Purchase Agreement, dated as of November 8, 1990, between
              Berlitz Languages, Inc., the registrant and Benesse Corporation
              (formerly Fukutake Publishing Co., Ltd.) Exhibit 10.19 to the
              Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 1990 is incorporated by reference herein.

    10.33     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.

                                       91
<PAGE>

    10.38     Indemnification Agreement between the Company and each of Ellen
              Adler, Perry Akins, Mark Harris, Brian Kelly, James Lewis, Lionel
              Mellet and Kazuo Yamakawa. Exhibit 10.38 to the Company's Annual
              Report on Form 10-K for the fiscal year ended December 31, 1997 is
              incorporated by reference herein.

    10.39     Employment Agreement dated April 1, 1992 between the registrant
              and Robert C. Hendon, Jr. Exhibit 10.30 to Registration Statement
              No. 33-56566 is incorporated by reference herein.

    10.40     Employment Agreement, dated October 1, 1993, between the
              registrant and Robert Minsky. Exhibit 10.21 to the Company's
              Annual Report on Form 10-K for the year ended December 31, 1993 is
              incorporated by reference herein.

    10.41     Employment Agreement, dated March 13, 1995, between the Company
              and Frank Garton. Exhibit 10.41 to the Company's Annual Report on
              Form 10-K for the year ended December 31, 1997 is incorporated by
              reference herein.

    10.42     Employment Agreement, dated June 25, 1997, between the Company and
              James Lewis. Exhibit 10.42 to the Company's Annual Report on Form
              10-K for the year ended December 31, 1997 is incorporated by
              reference herein.

    10.43     Amended and Restated Employment Agreement, dated November 1, 1986,
              and Amendment No. 1 thereto, dated October 1, 1988, between the
              Company (as successor to ELS Educational Services, Inc.) and Perry
              S. Akins. Exhibit 10.43 to the Company's Annual Report on Form
              10-K for the year ended December 31, 1997 is incorporated by
              reference herein.

    10.44     Stock Purchase Agreement between Fukutake Holdings (America), Inc.
              and Berlitz International, Inc., dated April 29, 1997. Exhibit
              10.1 to the Company's Quarterly Report on Form 10-Q for the
              quarter ended March 31, 1997 is incorporated by reference herein.

    10.45     1996 Stock Option Plan, as amended. Exhibit 10.2 to the Company's
              Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
              is incorporated by reference herein.

    10.46     Credit Agreement, dated as of August 28, 1997, among Berlitz
              International, Inc., NationsBank N.A. (as Agent and as Lender) and
              the Lenders party thereto from time to time. Exhibit 2 to the
              Company's Current Report on Form 8-K dated August 28, 1997 is
              incorporated by reference herein.

                                       92
<PAGE>

    10.47     Amendment No. 1, dated September 12, 1997, to Credit Agreement,
              dated as of August 28, 1997 among Berlitz, NationsBank N.A. (as
              Agent and as Lender) and the Lenders party thereto from time to
              time. Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
              for the quarter ended September 30, 1997 is incorporated by
              reference herein.

    10.48     Amendment No. 2, dated October 28, 1997, to Credit Agreement,
              dated as of August 28, 1997 among Berlitz, NationsBank N.A. (as
              Agent and as Lender) and the Lenders party thereto from time to
              time. Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
              for the quarter ended September 30, 1997 is incorporated by
              reference herein.

    10.49     Amendment No. 3, dated March 23, 1998, to Credit Agreement, dated
              as of August 28, 1997 among Berlitz, NationsBank N.A. (as Agent
              and as Lender) and the Lenders party thereto from time to time.
              Exhibit 10.49 to the Company's Annual Report on Form 10-K for the
              year ended December 31, 1997 is incorporated by reference herein.

    10.50     Stock Purchase Agreement, dated November 14, 1997, between MCC
              Proceeds, Inc. and Berlitz International, Inc. Exhibit 10.3 to the
              Company's Quarterly Report on Form 10-Q for the quarter ended
              September 30, 1997 is incorporated by reference herein.

    10.51     Stock Purchase Agreement, dated as of July 23, 1997, between ELS
              Educational Services, Inc., Roger O. Walther S.P. Trust, Wendy
              Walther, Christine Walther Tripp, Edward Walther, Anne Dunning,
              John Dunning, and Berlitz International, Inc. Exhibit 1 to the
              Company's Current Report on Form 8-K dated July 23, 1997 is
              incorporated by reference herein.

    10.52     Form of Purchase Agreement (for $100 million 5% Convertible
              Exchangeable Subordinated Debentures due 2010, Series A), dated as
              of October 2, 1998, between Berlitz International, Inc., Apollo
              Investment Fund IV, L.P. and Apollo Overseas Partners, IV, L.P..
              Exhibit 1 of the Company's Form 8-K dated October 6, 1998 is
              incorporated by reference herein.

    10.53     Form of Purchase Agreement (for $55 million 5% Convertible
              Exchangeable Subordinated Debentures due 2010, Series B), dated as
              of October 2, 1998, between Berlitz International, Inc., and
              Benesse Holdings International, Inc. Exhibit 2 of the Company's
              Form 8-K dated October 6, 1998 is incorporated by reference
              herein.

    10.54     Form of Registration Rights Agreement, dated as of October 2,
              1998, between Berlitz International, Inc., and Apollo Management
              IV, L.P. on behalf of Apollo Investment Fund IV, L.P. and Apollo
              Overseas Partners, IV, L.P. Exhibit 3 of the Company's Form 8-K
              dated October 6, 1998 is incorporated by reference herein.

    10.55     Form of Registration Rights Agreement, dated as of October 2,
              1998, between Berlitz International, Inc., and Benesse Holdings
              International, Inc. Exhibit 4 of the Company's Form 8-K dated
              October 6, 1998 is incorporated by reference herein.

                                       93
<PAGE>

    10.56     Form of Investors Agreement between Berlitz International, Inc.,
              and Apollo Management IV, L.P. on behalf of Apollo Investment Fund
              IV, L.P. and Apollo Overseas Partners, IV, L.P. Exhibit 5 of the
              Company's Form 8-K dated October 6, 1998 is incorporated by
              reference herein.

    10.57     Form of Voting Agreement, dated as of October 2, 1998, between
              Benesse Corporation, and Apollo Management IV, L.P. on behalf of
              Apollo Investment Fund IV, L.P. and Apollo Overseas Partners, IV,
              L.P. Exhibit 6 of the Company's Form 8-K dated October 6, 1998 is
              incorporated by reference herein.

    10.58     Form of $50 million Subordinated Promissory Note from Berlitz
              International, Inc. to Benesse Holdings International, Inc.
              Exhibit 8 of the Company's Form 8-K dated October 6, 1998 is
              incorporated by reference herein, except that initial interest
              rate, as defined in that Exhibit, has changed to 5.2% per annum
              from 5.9% per annum.

    10.59     Form of Indemnification Agreement between the Company and each of
              Laurence Berg, Takuro Isoda, Mako Obara, and Antony Ressler.
              Exhibit 10.59 of the Company's Form 10-K for the year ended
              December 31, 1998 is incorporated by reference herein.

    10.60*    Amendment No. 1 to Berlitz International, Inc. Supplemental
              Executive Retirement Plan.

    10.61*    Form of Amendment No. 1 to the Credit Agreement dated as of March
              31, 1999 between the registrant, Bank of America, N.A., and the
              Lenders party thereto from time to time.

    21*       List of subsidiaries of the registrant.

    23*       Consent of Independent Auditors.

    27*       Financial Data Schedule.

    *Filed herewith.

B.  Reports on Form 8-K:

    No reports on Form 8-K were filed during the quarter ended December 31,
    1999.

    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.

                                       94
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Berlitz International, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                         BERLITZ INTERNATIONAL, INC.


                                         By: /s/ HIROMASA YOKOI
                                         ----------------------
                                         Hiromasa Yokoi
                                         Vice Chairman of the Board,
                                         Chief Executive Officer and President

Dated:  March 27, 2000

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 27, 2000
----------------------
     Soichiro Fukutake

/s/  HIROMASA YOKOI      Vice Chairman of the Board,              March 27, 2000
----------------------   Chief Executive Officer,
     Hiromasa Yokoi      and President
                         (Principal Executive Officer)

/s/  JAMES LEWIS         Executive Vice President, Chief          March 27, 2000
----------------------   Operating Officer, Berlitz GlobalNET,
     James Lewis         and Director


/s/  MAKO OBARA          Executive Vice President, Chief          March 27, 2000
----------------------   Operating Officer, Worldwide Language
     Mako Obara          Services, and Director

/s/  ROBERT MINSKY       Executive Vice President, Corporate      March 27, 2000
----------------------   Planning and Marketing, and Director
     Robert Minsky

/s/  HENRY D. JAMES      Executive Vice President,                March 27, 2000
----------------------   Chief Financial Officer, and Director
     Henry D. James      (Principal Financial Officer)

/s/  LAURENCE BERG       Director                                 March 27, 2000
----------------------
     Laurence Berg

/s/  TAKURO ISODA        Director                                 March 27, 2000
----------------------
     Takuro Isoda

/s/  JAMES KAHL          Director                                 March 27, 2000
----------------------
     James Kahl

/s/  EDWARD G. NELSON    Director                                 March 27, 2000
----------------------
     Edward G. Nelson

/s/  ROBERT L. PURDUM    Director                                 March 27, 2000
----------------------
     Robert L. Purdum

/s/  ANTONY RESSLER      Director                                 March 27, 2000
----------------------
     Antony Ressler