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, 1998

                                       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 16, 1999, the aggregate market
value of the voting stock held by non-affiliates of the registrant was
$60,748,744.

The number of shares of the Registrant's common stock outstanding as of March
29, 1999 was 9,529,788.

                   DOCUMENTS INCORPORATED BY REFERENCE : None

                               Page 1 of [ ] Pages
                        Exhibit Index Appears on Page [ ]
<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 (formerly Fukutake Publishing Co., Ltd.) ("Benesse") has
beneficially owned a majority of the Company's common stock and it currently
holds approximately 7.0 million shares, or 73.3% 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. Through December 31, 1998, its operations were conducted
through three major business segments (Language Instruction, Translation
Services, and Publishing), each of which were organized geographically into five
operating divisions: North America, Western Europe, Central/Eastern Europe, Asia
and Latin America. Country and division managers determine pricing,
teacher/translator and administrative salaries, leasing of facilities, local
advertising and sales promotions, and other administrative matters, within
guidelines established at the Company's corporate headquarters. The country
managers are evaluated and provided incentives based on profit performance of
their particular areas while division managers are provided incentives based on
profit performance of both their particular areas and the Company as a whole.
Business segment and geographic area information is incorporated herein in the
Notes to Consolidated Financial Statements within Item 8, Financial Statements
and Supplementary Data, under Note 16.

As of January 1, 1999 the Company reorganized into two separate autonomous
business segments: Language Services, including Language Instruction and
Publishing, and Berlitz GlobalNET (formerly Translation Services). Language
Services will be organized geographically into four operating divisions (North
America, Asia, Latin America and Europe) while Berlitz GlobalNET will be
consolidated into three geographic divisions: Americas (North and Latin
Americas), Asia and Europe. The lines of business orientation will allow global
integration of the 21 Translation production centers, in 19 countries, to
increase operational efficiency on a global basis.

                                       2

<PAGE>

Language Instruction

General. As of December 31, 1998, the Company owned and operated 332 Berlitz
language centers in 40 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 centers were
wholly-owned, except for joint venture operations in Korea and Taiwan.
Approximately 5.8 million language lessons were given by these Berlitz language
centers in 1998, 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
through ELS Educational Services, Inc. ("ELS"), a wholly-owned subsidiary
acquired in August 1997, and through the Company's Berlitz on Campus ("BOC")
division. Together with an additional 79 franchised Berlitz and ELS language
center locations, the Company has a presence in 54 countries.

The following table sets forth, by geographic division, 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, 1998:

<TABLE>
<CAPTION>
                                      Berlitz                            ELS and BOC
                                     Language                             facilities
                                      Centers                              (Company
                                  (Company owned)       Berlitz             owned)             ELS
                                                      Franchises                           Franchises          Total
                                  ----------------   --------------    ---------------    --------------    ------------
<S>                                    <C>                  <C>             <C>         <C>                     <C>
North America
  United States                        63                   4               37                  -               104
  Canada                                8                   -                1                  1                10
                               ----------------    -------------    ---------------    --------------    ------------
         Subtotal                      71                   4               38                  1               114
                               ----------------    -------------    ---------------    --------------    ------------
Asia
  Australia                             -                   -                -                  2                 2
  China                                 1                   -                -                  1                 2
  Hong Kong                             1                   -                -                  -                 1
  Indonesia                             -                   1                -                  2                 3
  Japan                                46                   3                1                  2                52
  Korea                                 1                   -                -                  5                 6
  Malaysia                              1                   -                -                  4                 5
  Singapore                             1                   -                -                  -                 1
  Taiwan                                1                   -                -                 12                13
  Thailand                              2                   -                -                  2                 4
                               ----------------    -------------    ---------------    --------------    ------------
         Subtotal                      54                   4                1                 30                89
                               ----------------    -------------    ---------------    --------------    ------------
Latin America
  Argentina                             5                   1                -                  2                 8
  Brazil                               17                   1                -                  1                19
  Chile                                 5                   1                -                  1                 7
  Colombia                              7                   -                -                  4                11
  Costa Rica                            -                   1                -                  1                 2
  Dominican Republic                    -                   1                -                  -                 1
  Guatemala                             -                   1                -                  -                 1
  Mexico                               19                   2                -                  -                21
  Panama                                -                   -                -                  1                 1
  Peru                                  1                   -                -                  -                 1
  Puerto Rico                           4                   -                -                  -                 4
  Uruguay                               1                   -                -                  -                 1
  Venezuela                             8                   -                -                  -                 8
                               ----------------    -------------    ---------------    --------------    ------------
         Subtotal                      67                   8                -                 10                85
                               ----------------    -------------    ---------------    --------------    ------------

                                       3
<PAGE>

                                Berlitz                             ELS and BOC
                                Language                             facilities
                                Centers                               (Company
                                (Company           Berlitz             owned)             ELS
                                 owned)           Franchises                          Franchises           Total
                              -------------    ---------------    ---------------    --------------    --------------

Western Europe
    Belgium                          10                  -                 -                  -                10
    Denmark                           2                  -                 -                  -                 2
    Finland                           1                  -                 -                  -                 1
    France                           16                  1                 -                  -                17
    Holland                           2                  -                 -                  -                 2
    Ireland                           1                  -                 -                  -                 1
    Italy                             6                  -                 -                  -                 6
    Norway                            1                  -                 -                  -                 1
    Portugal                          1                  -                 -                  -                 1
    Spain                            10                  -                 -                  -                10
    Sweden                            1                  -                 -                  -                 1
    United Kingdom                    5                  1                 1                  -                 7
                           --------------    --------------    ---------------    ---------------   ---------------
          Subtotal                   56                  2                 1                  -                59
                           --------------    --------------    ---------------    ---------------   ---------------
Central/Eastern Europe
    Austria                          7                  2                 -                  -                 9
    Croatia                          -                  1                 -                  -                 1
    Czech Republic                   5                  -                 -                  -                 5
    Egypt                            -                  1                 -                  1                 2
    Germany                         47                  2                 -                  -                49
    Greece                           1                  -                 -                  -                 1
    Hungary                          3                  -                 -                  -                 3
    Israel                           4                  -                 -                  -                 4
    Kuwait                           -                  1                 -                  1                 2
    Malta                            -                  1                 -                  -                 1
    Poland                           7                  -                 -                  -                 7
    Qatar                            -                  -                 -                  1                 1
    Saudi Arabia                     -                  -                 -                  2                 2
    Slovak Republic                  1                  1                 -                  -                 2
    Slovenia                         1                  -                 -                  -                 1
    Switzerland                      8                  -                 -                  -                 8
    Turkey                           -                  1                 -                  -                 1
    United Arab Emirates             -                  2                 -                  3                 5
                             --------------    --------------    ---------------    ---------------   ---------------
         Subtotal                   84                 12                 -                  8               104
                             --------------    --------------    ---------------    ---------------   ---------------

    Total                          332                 30                40                 49               451
                             ==============    ==============    ===============    ===============   ===============
</TABLE>

                                       4

<PAGE>

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


                                      Number of Centers at December 31,
                                      ---------------------------------
                             1998        1997      1996      1995      1994
                             ----        ----      ----      ----      ----

    North America              71          71        70        72        72
    Western Europe             56          57        57        55        56
    Central/Eastern Europe     84          87        86        84        81
    Asia                       54          53        52        52        53
    Latin America              67          66        60        60        58
                              ---         ---       ---       ---       ---
       Total                  332         334       325       323       320
                              ===         ===       ===       ===       ===


                                      Number of Lessons (in thousands)
                                      --------------------------------
                             1998      1997       1996      1995      1994
                             ----      ----       ----      ----      ----
    North America           1,157       1,150     1,095     1,050     1,064
    Western Europe            981         924       896       897       835
    Central/Eastern Europe  1,347       1,251     1,160     1,084     1,017
    Asia                    1,040       1,040       939       935       946
    Latin America           1,301       1,183     1,049       981       911
                            -----       -----     -----     -----     -----
       Total                5,826       5,548     5,139     4,947     4,773
                            =====       =====     =====     =====     =====

In 1998, the United States, Japan, and Germany accounted for approximately 17%,
16% and 11% of lessons given and 34%, 17% and 11% of Language Instruction sales,
respectively. Revenues from Language Instruction accounted for approximately
77%, 75% and 75% of total Company revenues in 1998, 1997 and 1996, respectively.

                                       5
<PAGE>

Berlitz Method(R). At the heart of Language 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.

Language Instruction Programs. The Company offers several types of language
instruction programs, which vary in cost, length and intensity of study.
Approximately 41% of all tuition revenues in 1998 were from private lessons
(excluding Total Immersion(R)). Private instruction is typically provided in
blocks of three or more 45-minute lessons, with a short break after each lesson.
Total Immersion(R) courses, an intensive form of private instruction, accounted
for approximately 4% of tuition revenues in 1998. 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 55% of tuition revenues in 1998.

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

Included in the Language Instruction business are specialty areas that in the
aggregate accounted for approximately 17% of the Company's revenues in 1998.
Three such businesses, ELS, Berlitz on Campus(R) - Language Institute For
English and Berlitz Study Abroad(R), combine intensive language instruction with
first-hand exposure to the cultural environment of the country where the target
language is spoken. A fourth specialty program, Berlitz Jr.(R), provides
complete language instruction programs to children in public and private schools
throughout the world. A fifth business, Berlitz Cross Cultural, which typically
provides cross-cultural training on a fee basis to 

                                       6

<PAGE>

corporate employees, complements language study by providing expatriates with
detailed practical and cultural information about the countries to which they
are relocating.

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

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

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

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

Translation Services

Berlitz Translations Services helps customers prepare their products for the
world market faster and at less cost. Translations provides language-related
document management services, including project management, high quality
technical documentation translation, software localization (i.e. the translation
of software-related products), software quality assurance ("SQA") testing and
electronic publishing, and interpretation services. Translations Services
represented approximately 19%, 21% and 21% of total Company revenues in 1998,
1997 and 1996, respectively. Translations' contribution to corporate revenues is
expected to increase over the next few years through expansion of services, a
continued focus on key customer accounts, and as a result of growing demand for
software related services and technical documentation translation. In addition,
Translations plans to deploy the latest telecommunication technology, including
use of the Internet, to optimize internal operational efficiency and provide
real-time customer information. 

                                       7
<PAGE>

Berlitz Translations' sales focus is on large, complex projects in multiple
languages for global markets. Translations Services' customer base is primarily
in the following sectors: information technology, automotive / manufacturing,
telecommunications, and medical technology / pharmaceutical.

The Company has an international network of full-scale production and technology
centers. Materials are electronically transferred between locations to utilize
specialized in-country translations and production facilities in order to
produce the highest quality products and reduce costs. The Company has developed
an international network of contract translators who provide a broad range of
technical and linguistic resources, with an internal qualification program to
assure a high level of linguistic expertise. The Company has also developed a
production process that incorporates several editing phases designed to maximize
the accuracy of its translations. 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 are comprised of both full-time employees
and freelance workers. Freelance translators provide the specialized skills that
are necessary for technical translations at a more cost effective rate than that
of full-time employees.

Competition. In the translation services market, providers compete on the basis
of expertise, quality, price and job turnaround time. Although currently
fragmented, the market is consolidating and the Company believes that in the
near future, there will be fewer, but larger, competitors. The Company does not
believe that any one competitor accounts for a significant portion of the entire
commercial translation market.


Publishing

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%, 3% and 4% of total Company revenues in 1998, 1997 and 1996,
respectively. Approximately 41%, 35% and 43% of Publishing segment sales in
1998, 1997 and 1996, respectively, were in Europe.

Berlitz Books and Guides. Pocket-size, smaller format travel guides include
full-color pictures, maps, brief histories, points of interest, food and
shopping information and a practical A to Z section. There are a total of 92
titles in this format published in English, plus more than 175 titles in other
language editions. For titles published in multiple-languages, the Company
reduces manufacturing costs by employing techniques that use the same graphics
and layouts.

The Company's phrase books include common expressions, words, and phrases most
often used by travelers. These appear in color-coded sections covering such
topics as accommodations, eating, sightseeing, shopping, transportation and
medical reference. There are a total of 72 phrase books published in 5
languages, of which 36 are for English-speaking travelers. Additional
travel-related 

                                       8
<PAGE>

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 products 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 as the basis of electronic or software products (such as
hand-held electronic reference products and CD-ROM computer software) for which
the Company receives royalties.

The Company's Publishing segment plan includes the relaunching of existing
product lines and the creation of new products that will compete in today's
market place. For example, Berlitz publishes illustrated book and audiotape
language learning products for children under the brand name BERLITZ KIDS(TM).
In 1998, Berlitz began distribution of a new self-teaching language instruction
product that superceded the Company's THINK & TALK(R) series, under the names
BERLITZ TODAY and BERLITZ THINK & TALK(R).

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

Franchising Activities

In 1996, the Company began selling 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 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

                                       9
<PAGE>

two additional weeks of on-site teacher training. Franchisees participate in the
Berlitz Language Center Management System ("LCMS"), a management information
system tied to Berlitz's headquarters, and are subject to periodic financial
audit and quality inspection.

Employees

As of December 31, 1998, the Company employed 5,309 full-time employee and
employee equivalents. Due to the nature of its businesses, the Company retains a
large number of teachers and translators on a part-time or freelance basis.
Full-time employee equivalents are calculated by aggregating all part-time hours
(excluding freelance translators) and dividing these by the average number of
hours worked by a full-time employee.

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

Trademarks and Tradenames

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), L.I.F.E.(R), BERLITZ KIDS(TM), 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.

                                       10

<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 are
leased. Total annual rental expense for the twelve months ended December 31,
1998, principally for leased facilities, was $32.3 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, as of December 31, 1998, by geographic region,
the number of facilities maintained in each region, the primary use of the
Company's facility, whether owned or leased, and the aggregate square footage.
No properties are subject to material encumbrances.

<TABLE>
<CAPTION>
                                                  OWNED FACILITIES

                                                                         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
                        ---------- ---------     ---------- --------     ---------- ---------    ---------- ---------
Region
<S>                          <C>      <C>             <C>      <C>        <C>        <C>                <C>    <C>  
Western Europe               2        3,401             -          -            -          -            2      3,401
Central/Eastern Europe
                             2        4,392             1      3,638            -          -            3      8,030
Latin America                5       19,396             -          -            -          -            5     19,396
                        ========== =========     ========== ========     ========== =========    ========== =========
Total                        9       27,189             1      3,638            -          -           10     30,827
                        ========== =========     ========== ========     ========== =========    ========== =========


                                                  LEASED FACILITIES


                                                                           Other (principally
                                                 Translation Services       headquarters and
                     Language Instruction                                   administrative)                Total
                    ----------- ------------     ---------- ----------    ---------- ----------    ---------- ------------
                    Number                       Number                   Number                   Number
                    of            Square         of         Square        of         Square        of           Square
                    facilities    footage        facilities  footage      facilities  footage      facilities   footage
                    ----------- ------------     ---------- ----------    ---------- ----------    ---------- ------------
Region
North America           110        488,200             4       20,965           6     113,192          120       622,357
Western Europe
                         54        169,952            10       67,503           6      17,340           70       254,795
Central/Eastern
  Europe                 82        230,300             1        6,673           4       9,031           87       246,004
Asia                     54        144,699             2       14,559           4       5,952           60       165,210
Latin America            62        246,185             1        3,229           4      12,994           67       262,408
                    =========== ============     ========== ==========    ========== ==========    ========== ============
Total                   362      1,279,336            18      112,929          24     158,509          404     1,550,774
                    =========== ============     ========== ==========    ========== ==========    ========== ============
</TABLE>

                                       11
<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 or
results of operations of the Company.

ITEM 4.  Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of security holders during the fourth
quarter of 1998.


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, 1999.

Name, Age, Position with Registrant
                                           Business Experience


Soichiro Fukutake, 53                      Mr. Fukutake has served as Chairman 
Chairman of the Board;                     of the Board of the Company since   
Director (A) (E)                           February 1993. Mr. Fukutake joined  
                                           Benesse in 1973, and since May 1986 
                                           has served as its President and     
                                           Representative Director. He also    
                                           serves on the Board of Directors of 
                                           a number of companies, private      
                                           foundations and associations in     
                                           Japan. Mr. Fukutake became a        
                                           Director of the Company in February 
                                           1993. His term will expire in 1999. 

Hiromasa Yokoi, 59                         Mr. Yokoi was elected Vice Chairman 
Vice  Chairman  of the Board,  Chief       of the Board and Chief Executive    
Executive   Officer  and  President;       Officer of the Company in February  
Director (A) (E)                           1993 and additionally was elected   
                                           President effective on August 31,   
                                           1993. Mr. Yokoi has served as a     
                                           director of Benesse since June 1992 
                                           and Director for Berlitz and North  
                                           American Sector since April 1994.   
                                           Prior to that, he served as General 
                                           Manager of the Overseas Operations  
                                           Division (formerly the International
                                           Division) of Benesse from October   
                                           1990 to March 1994 and as General   
                                           Manager of the President's Office of
                                           Benesse from July 1990 to September 
                                           1990. Mr. Yokoi currently is also a 
                                           Director of La Petite Academy and   
                                           serves on its compensation          
                                           committee. Mr. Yokoi has served as a
                                           Director of the Company since       
                                           January 1991. His term will expire  
                                           in 2000.                            

                                       12

<PAGE>

Susumu Kojima, 56                          Since 1993, Mr. Kojima has served in
Vice President,                            several positions with Berlitz,     
Asia Language Services;                    including: Vice President, Asia     
                                           Language Services (since March 2,   
                                           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 has served as a Director of  
                                           the Company from February 1993 until
                                           his retirement from the Board on    
                                           March 2, 1999.                      

Robert Minsky, 54                          Mr. Minsky has served as Executive  
Executive Vice President,                  Vice President, Corporate Planning  
Corporate Planning and Marketing;          and Marketing of the Company since  
Director (A)                               August 1, 1997. Prior thereto, he   
                                           served as Executive Vice President  
                                           and Chief Operating Officer,        
                                           Translations and 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 1999.                     

Manuel Fernandez, 62                       Mr. Fernandez has served as         
Executive Vice President and               Executive Vice President and Chief  
Chief Operating Officer,                   Operating Officer-Worldwide Language
Worldwide Language                         Instruction of the Company since    
Instruction;                               January 1, 1995. Prior thereto, he  
Director                                   was Executive Vice President,       
                                           Language Services of the Company    
                                           from September 1993 to January 1995.
                                           He previously served as Vice        
                                           President, European Operations of   
                                           the Company and its predecessor,    
                                           Berlitz Languages, from January 1983
                                           to September 1993. Mr. Fernandez was
                                           first employed by Berlitz Languages 
                                           in 1963 and served in various       
                                           positions until becoming Vice       
                                           President in 1983. Mr. Fernandez    
                                           served as a Director of the Company 
                                           from July 1993 until his retirement 
                                           from the Board on March 2, 

                                       13
<PAGE>

                                           1999. Mr. Fernandez will retire from
                                           the Company effective March 31,     
                                           1999, and his successor will be Mr. 
                                           Mako Obara.                         
                                           
Mako Obara, 55                             Mr. Obara joined Berlitz            
Executive Vice President                   International, Inc. as Executive    
                                           Vice President on January 1, 1999,  
                                           and was elected Chief Operating     
                                           Officer, Worldwide Language Services
                                           (as successor to Mr. Fernandez)     
                                           effective March 31, 1999. From March
                                           1998 to January 1999, Mr. Obara     
                                           served as President and Chief       
                                           Executive Officer of 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. On March 2,     
                                           1999, Mr. Obara was elected to the  
                                           Company's Board of Directors as the 
                                           successor to Mr. Fernandez. His term
                                           will expire in 1999.

Henry D. James, 61                         Mr. James has served as Executive   
Executive Vice President and               Vice President and Chief Financial  
Chief Financial Officer;                   Officer of the Company since        
Director                                   November 21, 1995, and as its Vice  
                                           President and Chief Financial       
                                           Officer from January 1, 1995 to     
                                           November 1995. He previously served 
                                           as Vice President and Controller of 
                                           the Company and its predecessor,    
                                           Berlitz Languages, since 1981. Mr.  
                                           James joined Berlitz Languages in   
                                           1977 and served as Controller with  
                                           that company prior to 1981. Mr.     
                                           James has served as a Director of   
                                           the Company since November 21, 1995.
                                           His term will expire in 2000.       
                                           

James Lewis, 41                            Mr. Lewis has served as Executive   
Executive Vice President and Chief         Vice President and Chief Operating  
Operating Officer, Worldwide               Officer, Worldwide Translation      
Translation Services                       Services, since January 1, 1999,    
                                           prior to which he was Vice          
                                           President, Worldwide Translations   
                                           since September 1, 1997. Previously,
                                           Mr. Lewis most recently served in a 
                                           number of executive level positions 
                                           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 

                                       14
<PAGE>

                                           number of management positions with
                                           Ashton-Tate Corporation, and Peter 
                                           Norton Computing. On March 2, 1999,
                                           Mr. Lewis was elected to the       
                                           Company's Board of Directors as the
                                           successor to Mr. Kojima. His term  
                                           will expire in 1999.               

Takuro Isoda, 63                           Mr. Isoda has served as a Senior    
Director                                   Advisor for Nippon Investment &     
(B)(C)(D)                                  Finance Co. Ltd. since July 1998,   
                                           and previously served as 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 1988 to January 1990). Mr.
                                           Isoda currently serves on the boards
                                           of the New Business Conference,     
                                           Tokyo (as Director); Webster        
                                           Communications Corporation Plc.,    
                                           Wiltshire, UK (as an Advisor); and  
                                           Americans for Indian Opportunity,   
                                           New Mexico (as an International     
                                           Advisor). Mr. Isoda has served as a 
                                           Director of the Company since June  
                                           1998. His term will expire in 2000. 
                                           


Edward G. Nelson, 67                       Since January 1985, Mr. Nelson has  
Director                                   served as Chairman and President of 
(B)(C)(D)(E)                               Nelson Capital Corporation. From    
                                           1983 to 1985, he was Chairman and   
                                           Chief Executive Officer of Commerce 
                                           Union Corporation. He also serves on
                                           the Board of Directors of ClinTrials
                                           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, 63                       Mr. Purdum is the retired Chairman  
Director (B)(C)(D)(E)                      of the Board of Armco, Inc. and     
                                           currently is an independent         
                                           consultant and partner with American
                                           Industrial Partners, a private      
                                           investment company located in New   
                                           York and San Francisco. During his  
                                           Armco career, he served in various  
                                           positions since first joining Armco 
                                           in 1962, including Chairman and     
                                           Chief Executive Officer (November   
                                           1990 to December 1993), President   
                                           and Chief Executive Officer (April  
                                           1990 to November 1990), President   
                                           (October 1986 to April 1990), Chief 
                                           Operating Officer (February 1985 to 
                                           October 1986) and Chief Executive   
                                           Officer - Steel Group (November 1982
                                           to February 1985). Mr. Purdum has   
                                           also served on the Board of         
                                           Directors of Holophane Corporation  
                                           since 1994. 

                                       15
<PAGE>

                                           In addition, he is a member of the  
                                           Board of Trustees of Kettering      
                                           University. Mr. Purdum has served as
                                           a Director of the Company since     
                                           August 1994. His term will expire in
                                           2000.

Kazuo Yamakawa, 59                         Mr. Yamakawa has served as Director 
Director                                   of Benesse Corporation and has      
                                           supervised its General              
                                           Administration and Accounting       
                                           Departments since June 1995. He also
                                           has served as General Manager of    
                                           Benesse's Accounting Department     
                                           since January 1996. Since joining   
                                           Benesse in April 1995, he served as 
                                           Counselor until June 1995. Prior to 
                                           that, Mr. Yamakawa served in various
                                           positions with The Shokochukin Bank,
                                           including Director (April 1993 to   
                                           March 1995), General Manager of its 
                                           Tokyo Branch (April 1993 to March   
                                           1995), General Manager of the       
                                           International Department (October   
                                           1991 to March 1993) and General     
                                           Manager of its New York branch      
                                           (April 1988 to September 1991). Mr. 
                                           Yamakawa became a Director of the   
                                           Company in May 1996. Mr. Yamakawa   
                                           will retire from the Board effective
                                           upon the election of his successor  
                                           at the Annual Meeting of            
                                           Shareholders to be held on June 8,  
                                           1999.                               

Robert C. Hendon, Jr., 61                  Mr. Hendon has served as Vice       
Vice President,  General Counsel and       President, Legal Department of the  
Secretary                                  Company since January 1, 1995 and as
                                           Secretary and General Counsel of the
                                           Company since April 1992. Prior     
                                           thereto, he was first an associate  
                                           then a partner at the law firm of   
                                           Waller Lansden Dortch & Davis from  
                                           1964 until April 1992.              

Anthony Tedesco, 56                        Mr. Tedesco has served as Senior    
Senior Vice President,                     Vice President, Worldwide Language  
Worldwide Language Services                Services, since January 1, 1999,    
                                           prior to which he was Senior Vice   
                                           President, Worldwide Language       
                                           Instruction of the Company since    
                                           October 1, 1997. Prior thereto, he  
                                           served as Vice-President, North     
                                           American Division, from October 1994
                                           to October 1997, as Vice President, 
                                           East Asian Division of the Company, 
                                           from July 1993 to October 1994, and 
                                           as Vice President, North American   
                                           Division of the Company from October
                                           1989 to July 1993. Prior thereto,   
                                           Mr. Tedesco served as Vice          
                                           President, North American Division  
                                           of Berlitz Languages from his       
                                           initial employment in 1983.         

Ellen Adler, 43                            Ms. Adler has served as Vice        
Vice President, Worldwide Publishing       President, Worldwide Publishing of  
                                           the Company since October 1, 1997.  
                                           Prior thereto, she served in various
                                           positions with the Company 

                                       16
<PAGE>

                                           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, 59                          Mr. Alvarino has been Vice          
Vice President                             President, Latin America Languages  
                                           Services, 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, 45                            Mr. Harris has served as Vice       
Vice President                             President, North America Language   
                                           Services, 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, 51                            Mr. Kelly has served as Vice        
Vice President                             President, Europe Translations      
                                           Services since 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.          

Wolfgang Wiedeler, 53                      Mr. Wiedeler has been Vice          
Vice President                             President, Europe Language Services,
                                           since January 1, 1999, prior to     
                                           which he was Vice President,        
                                           Central/Eastern Europe Division of  
                                           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 

                                       17
<PAGE>

                                           Manager of German-speaking countries
                                           since October 1989. Prior thereto he
                                           served in the same capacity for     
                                           Berlitz Languages from his initial  
                                           employment in 1984.                 

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

Berlitz has expanded its Board of Directors on March 11, 1999 in connection with
the issuance of convertible debentures to two affiliates of Apollo Advisors,
L.P. ("Apollo"), and has selected Mr. Antony P. Ressler and Mr. Laurence M.
Berg, both partners of Apollo, to join the Company's Board.

Mr. Ressler, 38, is a senior partner at Apollo (and one of its founding
principals in 1990). Apollo, 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, and of Lim Advisors,
L.P., which acts as financial advisor to and representative for certain
institutional investors with respect to securities investments. Prior to 1990,
Mr. Ressler served as a Senior Vice President in the Investment Banking Division
of Drexel Burnham Lambert Incorporated. Mr. Ressler serves on several boards of
directors including: Allied Waste Industries, Inc.; Koo Koo Roo Enterprises,
Inc.; United International Holdings, Inc.; and Vail Resorts, Inc. Mr. Ressler is
also the Vice Chairman of LEARN (the Los Angeles Education Alliance for Reform
Now), the largest public school reform movement in the United States, and a
member of the Executive Committee of the board of directors of the Jonsson
Comprehensive Cancer Center at the UCLA Medical Center. Mr. Ressler has also
served on the board of the Los Angeles Chapter of Cities in Schools, a national
organization focused on dropout prevention and the Capital Campaign Committee
for the Los Angeles Child Guidance Clinic, a clinic for emotionally disturbed
children aged 18 months to 21 years. Mr. Ressler received his B.S.F.S. from
Georgetown University's School of Foreign Service and received his MBA from
Columbia University Graduate School of Business.

Mr. Berg, 32, has been associated with Apollo since 1992 and a partner since
1995. 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.; Mariner Post Acute Network, 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.

                                       18
<PAGE>

Significant Employees of the Registrant

The following table sets forth certain information concerning certain
significant employees of the Company as of March 1, 1999.

Frank Garton, 52                           Mr. Garton has served as Vice      
Vice President                             President, Franchising of the      
                                           Company since March 1995. Prior to 
                                           that, he was Director of Worldwide 
                                           Franchise Sales and Corporate      
                                           Development for King Bear          
                                           Enterprises from 1987 to 1995. From
                                           1978 to 1987, Mr. Garton was       
                                           President and Chief Executive      
                                           Officer of Regeneration, Inc., an  
                                           automotive components manufacturing
                                           company with internationally       
                                           franchised manufacturing processes.
                                                                              


                                     PART II

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

The Company's common stock ("Common Stock") is traded on the New York Stock
Exchange ("NYSE") under the symbol BTZ. Holders of shares of Common Stock are
entitled to receive such dividends as may from time to time be declared by the
Board of Directors; however, such dividends were subject to restrictions set
forth in the Company's August 28, 1997 credit agreement (the "Bank Facility").
As a result, the Company has not paid dividends during the term of such debt
facilities. On March 11, 1999, the Company terminated the Bank Facility in
connection with the issuance of convertible debentures both to Benesse Holdings,
Inc. ("BHI"), a wholly owned subsidiary of Benesse Corporation ("Benesse"), and
to Apollo Management IV, L.P. (See "Management's Discussion and Analysis -
Liquidity and Capital Resources"). The Company does not have any present
intention to commence paying dividends following this issuance of convertible
debentures. See Item 7, Management's Discussion and Analysis, Liquidity and
Capital Resources, for further discussion. Holders of Common Stock are entitled
to one vote per share on all matters submitted to the vote of such holders,
including the election of directors. There were [ ] holders of record of Common
Stock as of March 17, 1999.

                                       19
<PAGE>

The sales prices per share of Common Stock as reported by the NYSE for each
quarter during the period from January 1, 1997 until December 31, 1998 ranged as
follows:

                                                             Price per Share
                                                             ---------------
                                                              High     Low
                                                              ----     ---
         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

         First Quarter 1997                                   $22 3/8  $18 5/8
         Second Quarter 1997                                  $25 1/4  $22 3/8
         Third Quarter 1997                                   $26 3/4  $24 9/16
         Fourth Quarter 1997                                  $27 5/16 $25 1/2

No Common Stock dividends were declared or paid for 1997 or 1998.

On April 29, 1997, the Company and BHI (formerly Fukutake Holdings (America),
Inc), 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. Following this private placement, Benesse
beneficially owned 6,985,338 shares, which represented 73.3%, of the 9,529,788
shares of Common Stock outstanding at December 31, 1997 and 1998.

                                       20
<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,
                                             -------------------------------------------------------
                                             1998         1997          1996          1995       1994
                                             ----         ----          ----          ----       ----
<S>                                       <C>         <C>          <C>           <C>          <C>      
Income Statement Data:
Sales of services and
products sold                             $  436,303  $  397,209   $  369,622    $   354,509  $ 303,287
                                          ----------  ----------   ----------    -----------  ---------
Cost and expenses:
  Cost of services and
       products sold                         258,903     236,521      222,313        216,443    182,922
  Selling, general and
      administrative                         137,086     123,444      113,695        105,039     91,703
  Amortization of publishing rights,
      excess of cost over net assets
      acquired and other intangibles          17,265      14,183       12,746         13,425     12,750
   Other (income) expense, net                15,370      10,008        8,054          8,826      8,070
                                          ----------  ----------   ----------    -----------  ---------
     Total costs and expenses                428,624     384,156      356,808        343,733    295,445
                                          ----------  ----------   ----------    -----------  ---------
  Income (loss) before income taxes,
    minority interest,  and
    extraordinary item                    $    7,679   $  13,053   $   12,814    $    10,776  $   7,842
                                          ==========  ==========   ==========    ===========  =========
  Minority interest-income/(expense)      $       68   $    (613)  $   (1,503)   $    (1,106) $    (738)
                                          ==========  ==========   ==========    ===========  =========
  Extraordinary loss(1)                   $        -   $  (6,285)  $        -    $         -  $        -
                                          ==========  ==========   ==========    ===========  =========
  Net income (loss)                       $    2,082   $    (934)  $    3,803    $     2,270  $     909
                                          ==========  ==========   ==========    ===========  =========

Earnings (loss) per  share (both basic and diluted):
  Income (loss) before extraordinary
    item and cumulative effect of change
    in accounting  principle               $    0.22   $    0.56   $     0.40    $      0.23  $    0.09
  Extraordinary loss                               -       (0.66)           -              -          -
                                          ----------  ----------   ----------    -----------  ---------
  Earnings (loss) per  share              $     0.22   $   (0.10)   $    0.40    $      0.23  $    0.09
                                          ==========  ==========   ==========    ===========  =========

Average number of shares (000)                 9,530       9,550        9,569         10,033     10,033
                                          ==========  ==========   ==========    ===========  =========

Balance sheet data (at year end):
Total assets(1)                           $  663,461  $  661,515   $  561,245    $   576,930  $ 582,005
Long-term debt(1)                         $  129,387  $  142,369   $   56,353    $    67,081  $  78,420
Shareholders' equity                      $  354,986  $  346,978   $  357,407    $   370,416  $ 367,235

Other data:

Dividends declared                        $        -  $        -   $        -    $         -  $       -
                                          ==========  ==========   ==========    ===========  =========
Language lessons given
     during year (000)                         5,826       5,548        5,139          4,947      4,773
Company-operated language
     centers at year end                         332         334          325            323        320
Growth (decline) in same center
     sales from year to year(2)                  4.8%        7.5%         6.0%           3.0%       6.3%

</TABLE>
                                       21
<PAGE>

(1)  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 $95.0 million (the "ELS Acquisition"), subject
     to certain post-closing adjustments specified in the related stock purchase
     agreement. Such post-closing adjustments aggregated $1.3 million and were
     paid to the sellers in January 1998. The Company also incurred various
     transaction-related expenditures. Consequently, included in the increase in
     total assets from December 31, 1996 to December 31, 1997 was $103 million
     in intangibles related to the ELS acquisition.

     Financing for the transaction, 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") consisting of term loans and a revolving credit facility, as
     amended, aggregating $190 million. In connection with this refinancing, the
     Company incurred 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 the inclusion at December 31, 1997 of $160 million, including
     $17.7 million in current maturities, outstanding under the Bank Facility.

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

                                       22

<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

The Company's operations are conducted primarily through the following business
segments: Language Instruction, Translation Services, and Publishing. The
Company's sales grew from $369.6 million in 1996 to $436.3 million in 1998, a
compound annual growth rate of 8.6%. Its earnings per share (both basic and
diluted), before extraordinary items, dropped from $0.40 to $0.22 in the same
three-year period, favorably impacted by higher operating profits, but hurt by
additional interest expense associated with the financing of the Company's
August 1997 acquisition of ELS Educational Services, Inc., and by net foreign
exchange losses.

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

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                          -------------------------------------------
                                                                          1998               1997                1996
                                                                          ----               ----                ----

<S>                                                                      <C>                <C>                 <C>   
Sales of Services and Products                                           100.0%             100.0%              100.0%
                                                                         ------             ------              ------
Costs of services and products sold (1)                                   59.3               59.5                60.1
Selling, general and administrative (2)                                   31.4               31.1                30.8
Amortization of publishing rights
   excess of cost over net assets acquired,
   and other intangibles                                                   4.0                3.6                 3.4
Interest expense on long-term debt                                         2.5                2.1                 2.1
Interest expense to affiliate                                              0.5                0.5                 0.5
Other (income), net                                                        0.5               (0.1)               (0.3)
                                                                         ------             ------              ------
         Total costs and expenses                                         98.2               96.7                96.6
                                                                         ------             ------              ------

Income before income taxes, minority
   interest in earnings of subsidiary, and
   extraordinary item                                                      1.8                3.3                 3.4
Income tax expense                                                         1.3                1.8                 2.0
Minority interest                                                           --                0.2                 0.4
                                                                         ------             ------              ------

Income before extraordinary item                                           0.5                1.3                 1.0

Extraordinary loss from early extinguishment
  of debt, net of tax benefit                                               --               (1.6)                 --
                                                                         ------             ------              ------

Net (loss) income                                                          0.5%              (0.3)%               1.0%

</TABLE>

                                       23
<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 growth is attributable to a number of factors, including
the purchase of a significant new subsidiary. 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 $95.0 million (the "ELS
Acquisition"), subject to certain post-closing adjustments specified in the
related stock purchase agreement. Such post-closing adjustments aggregated $1.3
million and were paid to the sellers in January 1998. The Company also incurred
various transaction-related expenditures. Financing for the transaction, 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") consisting of term loans and a revolving credit
facility aggregating $165 million at the Closing Date. ELS contributed $53.4
million and $19.9 million, respectively, in post acquisition revenues for the
years ended December 31, 1998 and 1997.

The Company's operations have also benefited in recent years from a number of
global trends which have increased the demand for the Company's services. For
example, the opening of Central and Eastern Europe to capitalism and the
economic growth experienced in Latin America have contributed to increased
international business activity and the use of English worldwide as a business
language. Another example is the market for software localization and technical
translations services, an area in which the Company's Translations segment is a
global leader. This market has increased rapidly as software programs have
proliferated and have been translated into numerous language versions, and as
the Company's customers have increasingly outsourced the software localization
process.

Internal actions have also helped the Company grow. For example, in Language
Instruction, the Company continued to expand several niche programs, including
cross-cultural services, Berlitz Jr(R), Berlitz on Campus(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,
and has increased the number of Company-owned language center locations, adding
27 new Berlitz language centers and deleting 13 over the three-year period ended
December 31, 1998. To further increase its market presence, the Company has
utilized franchising and joint ventures in emerging and secondary markets. From
commencement of its operations through December 31, 1998, the Company's
franchising business segment has granted 50 Berlitz franchises, 30 of which have
opened as of December 1998.

In the Translations segment, there has been a continued focus on large corporate
accounts, development of new customers, superior customer satisfaction, and the
expansion of services, including a continuing commitment to the information
technology industry, software localization, 

                                       24
<PAGE>

and software testing services. As Translations Services grows, the Company will
seek to continue improving the profitability of the segment through (i) the
deployment of latest telecommunication technology, including the use of the
Internet, to optimize internal operational efficiency and provide real time
customer information; (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 industry talent available in the industry.

The publishing segment's recent performance has been disappointing, having been
hurt in 1996 and 1997 by a number of factors. These included: significant
transition problems related to the move of editorial and production functions
from the United Kingdom to the United States; the absence of new products and
out-of-stock situations for certain products; a challenging competitive
environment; and limitations of inventory management systems. However, certain
positive events beginning toward the end of 1997 have set the stage for a
turnaround. For example, a new Publishing organization structure has been
established with new executive and senior management. An integrated inventory
control and accounting system is now in place and new analytical tools are being
developed. Having articulated a new business plan to customers and partners in
all key markets, 1998 results show strong growth in traditional markets.

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, 1998, the percentage of total
revenues denominated in currencies other than U.S. dollars averaged 68%, in
foreign currencies 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 1996's, 1997's, and 1998's
financial results when the dollar generally strengthened. The following table
shows the impact of foreign currency rate fluctuations on the annual growth rate
of sales and EBITA(1) during the periods presented:

                                             Percentage Growth (Decline)
                                              Year Ended December 31,
                                              -----------------------
                                          1998          1997           1996
                                          ----          ----           ----
     Sales:
          Operations (2)                 14.2%          14.0%          9.0%
          Exchange                       (4.4)          (6.5)         (4.7)
                Total                     9.8%           7.5%          4.3%
     EBITA:
          Operations (2)                 14.9%          17.8           7.8%
          Exchange                       (7.2)          (7.0)         (6.0)
                Total                     7.7%          10.8%          1.8%

(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 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.

                                       25
<PAGE>

For the year ended December 31, 1998, Japan contributed $58.3 million, or 13.4%,
toward total Company revenues, while the rest of the Asia division contributed
$5.2 million, or 1.2%, towards sales. Furthermore, in the North America
division, approximately 40% of ELS/Berlitz on Campus' annual enrollments for the
year ended December 31, 1998 originated from the Far East. Due to this
geographic presence in Asia, the Company is exposed to the economic turmoil
affecting the Asian region, and management therefore continues to focus on
action steps designed to mitigate any future impact. These include implementing
cost control measures, maximizing economies of scale, and intensifying emphasis
on revenues generation from the Company's other geographic divisions.

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

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 same period in 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. Such increases were
partially offset by unfavorable exchange rate fluctuations of $17.5 million,
which 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). Excluding the results of ELS
and the effects of exchange rate fluctuations, sales increased from the prior
year by 6.1%.

Language Instruction sales for the year ended December 31, 1998 were $335.5
million, 12.5% above 1997. The year-to-date fluctuations primarily resulted from
increase volume and average revenue per lesson ("ARPL") and a full year of ELS'
results, partly offset by reduced intensive English program revenues originating
from Asia and unfavorable exchange rate fluctuations of $14.1 million. Excluding
the results of ELS and the effects of unfavorable exchange rate fluctuations,
revenues increased 6.4% from the prior year.

On a geographic basis, Language Instruction revenue increased in all divisions
except Asia. The increase in Latin American revenues ($3.3 million, or 6.7%) was
primarily attributable to volume and ARPL increases in Mexico, Brazil, Venezuela
and Colombia, partially offset by unfavorable exchange rate fluctuations of $5.5
million. Central/Eastern Europe's increase ($5.3 million, or 9.1%) primarily
reflects volume and ARPL increases in most countries, in particular Germany,
Poland, and Israel, partially offset by unfavorable exchange rate fluctuations
($2.0 million, principally versus the German mark, Polish zloty and Israeli
shekel). Western Europe sales increased by $1.7 million due mainly to volume
growth in France and Italy, which was partially offset by unfavorable exchange
rate fluctuations of $0.9 million, and volume decreases in England and Belgium.
Asia's revenues declined $4.3 million due to unfavorable exchange rate
fluctuations of $5.6 million. Revenues in North America 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, North America's sales declined by $2.6 million, primarily due to
reductions in business originating from the Far East, principally Korea and
Japan.

During the twelve-month period ended December 31, 1998, the number of lessons
given at 

                                       26
<PAGE>

language centers (exclusive of ELS/BOC programs) was approximately 5.8 million,
up 5.0% from 1997, reflecting increases in most divisions. Lesson volume in
North America increased 0.6% from the prior year, reflecting [ ].. Despite the
current economic recession, in Asia lesson volume remained flat with 1997,
[primarily reflecting the positive effects of special sales campaigns in Japan
and expansion in new Asian markets.] Lesson volume in Latin America increased by
9.9% from prior year, primarily reflecting strong growth in Mexico, Peru and
Venezuela. [ADD DISCUSSION ON THE ECONOMIC CONDITIONS IN BRAZIL             ] 
Lesson volume in Central/Eastern Europe increased 7.7% over the prior year,
primarily reflecting growth in Germany, Poland and Israel. Lesson volume in
Western Europe rose 6.2% from 1997, primarily due to 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.]

For the year ended December 31, 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 and Spain [ALSO DISCUSS ASIA]. 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.

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.

Translation segment sales were $84.8 million for the twelve-month period ended
December 31, 1998, an increase of $0.6 million, or 0.7%, from 1997. Excluding
the unfavorable effects of exchange rate fluctuations of $3.3 million, sales
grew $3.9 million, or 4.6%. 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.

Publishing segment sales were $14.8 million for the twelve months ended December
31, 1998, compared with $13.6 million in 1997. The increase is 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.

Other sales, consisting of franchising activity, were $1.3 million in 1998
compared with $1.0 million in the prior year. The Company opened 16 Berlitz
franchises during 1998 in Austria, Chile, Croatia, Egypt, France, Germany,
Guatemala, Kuwait, Malta, Mexico, Slovakia, Turkey, the United Arab Emirate, and
the U.S., and two ELS franchises in Costa Rica and Panama.

                                       27
<PAGE>

The Company's cost of service and products sold as a percentage of sales for the
twelve months ended December 31, 1998 was 59.3%, compared to 59.5% for 1997. The
change reflects the effect of improved margins in the Translations and
Publishing segments. Selling, general and administrative expenses as a
percentage of sales were 31.4% in 1998, compared with 31.0% in the comparable
prior year period. The increase reflects higher administrative salary
percentages.

EBITA for the twelve months ended December 31, 1998 was $40.3 million, or 9.2%
of sales, compared to $37.2 million, or 9.4% of sales, in the same prior year
period. A discussion by business segment follows.

Instruction segment EBITA for the twelve months ended December 31, 1998 was
$62.3 million, or 18.6% of segment sales, compared to $60.8 million, or 20.4% of
segment sales, in the comparable prior year period. The comparison to prior year
was impacted by unfavorable exchange rate fluctuations of $3.3 million, caused
mainly by Latin America and Japan. EBITA in 1998 included twelve months of ELS
results totaling $4.9 million, as compared to only post-acquisition EBITA of
$1.8 million for 1997. Excluding the results of ELS, the Instruction segment's
EBITA margin was 20.4% in 1998, compared with 21.2% in 1997.

Within the Instruction segment's North America division, both ELS and Berlitz on
Campus ("BOC") have 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. The Asian economy has also created
challenges for the Asia division, which despite flat lesson volume and a
relatively flat fourth quarter, exhibited a 1998 full year EBITA decline of $1.7
million (exclusive of unfavorable exchange rate fluctuations of $0.8 million).
This decline was largely due to higher administrative salaries and rent expense
in Japan. The Company continues to focus on measures designed to protect Asia's
Instruction EBITA.

Excluding the effects of exchange fluctuations, Latin America and
Central/Eastern Europe divisions had EBITA increases of $3.4 million and $3.3
million, respectively, over prior year. The increases are mainly attributable to
lesson and price increases in Germany, Mexico, Brazil and Venezuela. Excluding
exchange rate fluctuations, Western Europe's EBITA was $0.7 million higher than
prior year, primarily due to sale increases in Italy and France.

Translation segment EBITA for the twelve months ended December 31, 1998 was
$10.2 million, or 12.0% of segment sales, compared to $7.7 million, or 9.1% of
segment sales, in the prior year; this represented an increase of 31.6% over
1997. 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 the recent economic turmoil in Asia, the Translations segment's
North America division has experienced lower sales backorder on Asian projects
as existing clients delay and/or cancel production of certain Asian projects
until the uncertainty of the market is stabilized. Japan 

                                       28

<PAGE>

Translations also faces a weak market which has resulted in lower sales volume.
However, previous reorganization efforts have positioned Japan and Singapore for
growth and, despite the challenging economies, have improved the Asia division's
Translations segment EBITA over the prior year.

Publishing segment EBITA for 1998 was $1.3 million, compared to $0.6 million in
the prior year. The EBITA margin increased to 9.0% from 4.4% in the prior year.
The increase is due in part to the volume increase in the German market.

EBITA for franchising activity was breakeven in 1998, compared with an EBITA
loss of $0.7 million in the prior year. These results still reflect the start-up
nature of this operation, as the Company is not yet collecting significant
royalty income.

Non-segment related corporate expenses included in EBITA were $33.5 million for
the 1998 full year, compared with $31.1 million in the same prior year period.
This change was 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 $2.7 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 an income tax expense of $5.7 million, or an effective rate
of 73.8%, during the current period. This compared to an income tax expense of
$7.1 million, or an effective rate of 54.3%, in the prior year. 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.


Year ended December 31, 1997 vs. Year ended December 31, 1996
-------------------------------------------------------------

Sales for the twelve months ended December 31, 1997 were $397.2 million, 7.5%
above the same period in the prior year. This improvement was due to increases
from operating activity in the Instruction and Translation business segments,
including the post acquisition results of an acquired business, partially offset
by unfavorable exchange rate fluctuations of $24.4 million (largely the result
of a strengthened dollar against the Japanese yen, the German mark, and almost
all other European currencies.) Excluding the effect of exchange rate
fluctuations and new business acquisitions, revenues increased from the prior
year by 8.7%.

Language Instruction sales for the twelve months ended December 31, 1997 were
$298.3 million, 8.0% above the same period in 1996. This improvement was
primarily due to volume and ARPL increases in most countries and $19.9 million
in post-acquisition results for ELS, partially offset by unfavorable exchange
rate fluctuations of $20.7 million. Excluding the unfavorable exchange rate
fluctuations and ELS acquisition, revenues increased 8.3% from the prior year.

                                       29
<PAGE>

On a geographic basis, Language Instruction revenue increases in Latin America
and North America were partially offset by decreases in the other geographic
divisions. North America's sales growth, excluding ELS post-acquisition results
of $19.9 million, was $5.1 million, or 8.1%, and primarily resulted from volume
and ARPL improvements and the performance of Berlitz on Campus. The increase in
Latin American revenues ($6.9 million, or 16.7%) was primarily attributable to
volume increases in all countries and ARPL improvements in Mexico. Asia's sales
decline ($5.1 million, or 7.3%) reflected unfavorable exchange rate fluctuations
($6.9 million), partially offset by the positive effects of special sales
campaigns in Japan, the startup of operations in Singapore, and volume increases
in Hong Kong. Central/Eastern Europe's decrease ($2.9 million, or 4.7%) was also
due to unfavorable exchange rate fluctuations ($9.0 million, principally versus
the German mark, the Swiss franc, the Austrian schilling and Polish zloty). This
was partially offset by lesson volume increases in Germany and Poland, by ARPL
increases in most countries within the division, and by particularly strong
growth in Poland. The sales decline in Western Europe ($1.8 million, or 4.2%)
was attributable to unfavorable exchange fluctuations ($4.7 million), primarily
for France, Belgium and Spain, partially offset by volume improvements in most
countries within the division, particularly France, whose improvements reflected
increased volume from corporate clients.

During the twelve-month period ended December 31, 1997, the number of lessons
given was approximately 5.5 million, 7.9% above the same period in the prior
year, reflecting increases in all divisions. Lesson volume in North America
increased 5.0% from the prior year, resulting from improving economic conditions
and aggressive sales strategies. Lesson volume in Asia rose 10.7% from 1996,
mainly reflecting a 9.1% improvement in Japan due to special sales and
advertising campaigns, as well as the startup of operations in Singapore. Lesson
volume in Latin America increased by 12.7% from prior year, primarily reflecting
growth in all countries due to expanding economic conditions in most countries,
as well as the startup of operations in Peru. Lesson volume in Central/Eastern
Europe increased 7.8% over the prior year, primarily reflecting an increase in
Poland due to the opening of two new language centers toward the latter part of
1996, and a recovery by Germany from its 1997 first quarter lesson volume
shortfall. Lesson volume in Western Europe improved by 3.1% from 1996, primarily
due to increases in most countries, in particular France, which has shown an
increase in sales to certain corporate clients. These increases have more than
offset decreased volume in certain other countries within the division, such as
in Italy due to a stagnant economy.

In 1997, ARPL was $41.71 as compared to $44.91 in the comparable prior-year
period. The decline reflected the effect of unfavorable exchange rate
fluctuations of $3.33, as well as reduced pricing under special sales campaigns
in Japan. ARPL ranged from a high of approximately $60.86 in Brazil to a low of
$17.03 in Hungary, reflecting effects of foreign exchange rates and differences
in the economic value of the service.

During the twelve months ended December 31, 1997, the Company opened a center in
Taiwan and eleven wholly-owned Berlitz language centers in Brazil, Chile,
Colombia, France, Ireland, Israel, Mexico, Peru, Poland, the United States and
Uruguay. Additionally, twelve Berlitz franchises were opened in 1997 in Austria,
Brazil, Costa Rica, Indonesia, Japan (3), Mexico, the United Kingdom and the
United States (3). Same center sales (i.e. sales by centers which were operating
during the entirety of both years being compared) grew by 7.5% over 1996,
excluding the impact of foreign currency rate fluctuations.

                                       30
<PAGE>

Translation segment sales were $84.2 million for the twelve-month period ended
December 31, 1997, an increase of $7.2 million, or 9.4%, from the same period in
1996. Excluding the unfavorable effects of exchange rate fluctuations of $3.9
million, sales grew $11.1 million, or 14.4%. The operations growth was primarily
due to increases in Ireland, the U.S., Canada and Singapore. Ireland's sales
increase is the result of continued growing demand for software-related
services. The North America (U.S. and Canada) revenue increase resulted from the
continued expansion of business from the existing client base, the continued
development of documentation and translation and interpretation services, and
the acquisition of new accounts. Singapore's revenue increase is a direct result
of the expanding demand for Asian language services. These increases were
partially offset by a decrease in revenue in Germany and Japan resulting from
reorganization efforts, and by decreases in certain Western European countries
due to the cyclical effects of projects from a major customer.

Publishing segment sales were $13.6 million for the twelve months ended December
31, 1997, $1.8 million or 11.8% below 1996, primarily reflecting a decrease in
volume and a delay in the release of certain titles. Exchange rate fluctuations
were not significant.

The Company's cost of services and products sold as a percentage of sales was
59.5% for the year ended December 31, 1997, compared to 60.1% in the same prior
year period. This change from the prior year primarily reflected lower salary
expenses as a percentage of sales. Selling, general and administrative expenses
as a percentage of sales were 31.1% for the twelve months ended December 31,
1997, compared with 30.8% for 1996. This increase was affected primarily by
higher administrative salary percentages, due in part to changes in allocations
of responsibilities under matrix management, partially offset by lower
advertising expenses.

EBITA for the twelve month period ended December 31, 1997 was $37.2 million, or
9.4% of sales, compared to $33.6 million, or 9.1% of sales, in the same prior
year period, primarily reflecting EBITA improvements in the Instruction and
Translation business segments, partially offset by an increase in non-segment
related corporate expenses.

Instruction segment EBITA, excluding franchising activity, for the twelve months
ended December 31, 1997 was $60.8 million, or 20.4% of segment sales, compared
to $54.3 million, or 19.7% of segment sales, in the same prior year period. This
improvement was largely due to increased lesson volume, improvements in ARPL,
and general efforts to reduce expenses.

Translation segment EBITA for the twelve months ended December 31, 1997 was $7.7
million, or 9.2% of segment sales, compared to $5.1 million, or 6.6% of segment
sales, in the prior year. The 1997 EBITA results reflect the positive effects of
a favorable product mix, expansion of software-related services, continued
growth in traditional documentation translation and interpretation services, and
by the reduction of certain general office and administrative expenses. These
positive results were partially offset by weaknesses in certain Western European
countries and Japan. Thailand results were negatively impacted by certain
one-time charges. In addition, 1996 results were negatively impacted by certain
low margin contracts and non-recurring costs, primarily in Germany.

Publishing segment EBITA for the twelve months ended December 31, 1997 was $0.6
million, 

                                       31
<PAGE>

or 4.4% of segment sales, compared with $1.4 million, or 9.1% of segment sales,
in the prior year. The EBITA margin decline was due primarily to a decrease in
volume.

An EBITA loss of $0.7 million was recorded for franchising activity for the
twelve months ended December 31, 1997, compared with an EBITA loss of $0.8
million in the prior year. These results reflect the start-up nature of this
operation.

Non-segment related corporate expenses included in EBITA were $31.1 million for
the twelve months ended December 31, 1997, compared with $26.3 million in the
same prior year period. This increase was primarily due to higher expenses in
1997 for administrative salaries and related costs, including expenses
associated with the Company's New Long-Term Executive Incentive Compensation
Plan (the "New LTIP").

Amortization of intangibles increased $1.4 million, or 11.3%, over 1996, as a
result of higher intangible assets arising out of the acquisition of ELS.
Additionally, interest expense on long-term debt rose $0.9 million, or 11.5%,
due to higher borrowings outstanding under the Company's refinanced August 1997
credit facility. Other income, net for the twelve months ended December 31, 1997
decreased $0.8 million, or 57.3%, from the prior year due primarily to lower
foreign exchange gains and the absence of gains from the termination of a
currency coupon swap agreement that provided income in 1996.

The Company recorded an income tax expense of $7.1 million, or an effective rate
of 54.3%, during the current period. This compared to an income tax expense of
$7.5 million, or an effective rate of 58.6%, in the comparable prior year
period. The effective tax rates in both 1997 and 1996 were above the U.S.
Federal statutory tax rate largely as a result of nondeductible amortization
charges. In addition, 1997's tax provision benefited from a restructuring of the
Company's German subsidiaries.

Due to the early extinguishment of debt outstanding prior to the ELS
acquisition, the Company incurred an extraordinary charge, net of taxes, of $6.3
million for the twelve months ended December 31, 1997, consisting of prepayment
penalties on its Senior Notes and the write-off of unamortized deferred
financing costs. The Company's refinanced debt had an effective interest rate of
approximately 7.0% at December 31, 1997, compared with an effective interest
rate of 9.79% on the Senior Notes.

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 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.

Net cash provided by operating activities was $34.4 million, $13.5 million and
$25.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively. 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 

                                       32

<PAGE>

had been reduced by a $5.8 million prepayment penalty on the Company's Senior
Notes]. In comparing 1997 with 1996, the decline of $11.9 million was due to a
number of factors, including a $5.8 million prepayment penalty on the Company's
Senior Notes, higher accounts receivable primarily related to two Translations
segment major customers subject to special contractual arrangements, higher
income tax payments, including $2.5 million tax payment associated with the
October 1996 Internal Revenue Service ("IRS") deficiency notice, hereinafter
discussed, and higher interest payments on long-term debt. The decrease was
partially offset by the timing of payments for certain accrued liabilities, most
notably payrolls and commissions.

Net cash used in investing activities totaled $22.9 million, $105.5 million and
$13.1 million in 1998, 1997 and 1996, 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. The balance of net cash used
largely consisted of capital expenditures, aggregating $18.9 million, $14.6
million and $13.0 million in 1998, 1997 and 1996, 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 Instruction and
Translations segments.

Net cash used in financing activities totaled $13.6 million and $11.0 million,
respectively, in 1998 and 1996, compared with net cash provided by financing
activities of $94.9 million in 1997. 1997's results primarily reflected net
proceeds from the Company's refinancing of its long-term debt in conjunction
with the ELS acquisition, while the other years' activity primarily reflected
repayments of long-term debt.

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

o    In October 1996, the Internal Revenue Service ("IRS") issued a deficiency
     notice to the Company relating to its 1989, 1990, 1992 and 1993 Federal tax
     returns. Such notice proposed adjustments of approximately $9.3 million,
     plus accrued interest. The Company reached a final settlement of $2.1
     million plus interest with the IRS in August 1998. Such settlement had been
     fully paid by the Company at the time of settlement. The Company made a
     payment of $2.5 million to the IRS during the 1997 second quarter, and a
     payment of $0.7 million during the 1998 second quarter.

o    Reported within accrued expenses at December 31, 1998 were $1.9 million
     related to the ELS acquisition.

o    The Company's 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.

o    Pursuant to a covenant under the Bank Facility, the Company is party to
     currency coupon swap agreements with a financial institution to hedge the
     Company's net investments in certain foreign subsidiaries and to help
     manage the effect of foreign currency fluctuations on the Company's ability
     to repay its U.S. dollar debt. These agreements require the Company, in

                                       33
<PAGE>

     exchange for U.S. dollar receipts, to make semi-annual foreign currency
     payments, denominated in the Japanese yen, the Swiss franc, the Canadian
     dollar, the British pound, and the German mark. Credit loss from
     counterparty nonperformance is not anticipated. The estimated fair value of
     these swap agreements at December 31, 1998, representing the amount that
     could be settled based on estimates obtained from a dealer, was a net
     liability of approximately $3.1 million.

o    In connection with another covenant under the Bank Facility, the Company
     was party to a five-year interest rate swap agreement at December 31, 1998.
     This agreement provided for quarterly exchanges of interest on an
     amortizing "notional" (theoretical) amount, originally set at $66.0 million
     and amortized to $55.3 million at December 31, 1998. This notional amount
     amortizes proportionately with the scheduled principal payments under the
     Bank Facility. In exchange for U.S. dollar denominated interest receipts
     based on variable LIBOR, the Company must make U.S. dollar denominated
     interest payments based on a fixed rate of 6.30%. Credit loss from
     counterparty non-performance was not anticipated. The estimated fair value
     of this interest rate swap at December 31, 1998, representing the amount
     that could be settled based on estimates obtained from a dealer, was a net
     liability of approximately $1.7 million.

o    On March 11, 1999, after receiving approval from its shareholders, the
     Company issued $155 million aggregate principal amount of 12-year
     convertible debentures (the "Convertible Debentures") in a private
     placement with Apollo Management IV, L.P and Benesse Holdings
     International, Inc. ("BHI"). These issuances were made pursuant to
     definitive agreements entered into as of October 2, 1998. The Convertible
     Debentures bear interest at 5% per annum, payable semi-annually. Principal
     amounts outstanding under such debentures are not due until 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.

o    In a separate transaction also completed on March 11, 1999, BHI has 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.

o    The Company used the proceeds from the sale of the Convertible Debentures,
     as well as the proceeds from the BHI Note issuance, to repay in full all
     outstanding indebtedness pursuant to the Company's existing Bank Facility
     and existing notes payable to Benesse, to terminate the related interest
     rate swap agreement for a cash payment by the Company of $1.1 million, and
     for general corporate purposes. However, the Company does not expect to
     currently terminate its currency coupon swap agreements. Berlitz
     anticipates incurring approximately $3.5 million in transaction costs in
     connection with the issuance of the Convertible Debentures and BHI Note.

o    The Company does not have any present intention to commence paying
     dividends following the repayment of the Bank Facility.

                                       34
<PAGE>

At December 31, 1998, the Company's liquid assets of $25.3 million consisted of
cash and temporary investments. The Company does not currently have any material
commitments for capital expenditures, except as disclosed below under "The Year
2000 Issue". 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 Translations
segment, and technological expansion. The Company plans to meet its debt service
requirements and future working capital needs through funds generated from
operations.

The Year 2000 Issue

Introduction
The Year 2000 issue is the result of certain computerized systems' use of a two
rather than four digit year, e.g., 95 vs. 1995. As a result of the ambiguous
century in such systems, the introduction of twenty-first century dates may
cause systems to function abnormally or not at all.

Recognizing the need to ensure operations will not be adversely affected by Year
2000 failures, the Company established a committee to address any possible
exposure. This committee is responsible for carrying out the Company's awareness
program, assessing key financial and operational systems, for assessing external
relationships with customers and vendors, and for developing and implementing
detailed divisional action plans.

The Company has divided the Year 2000 issue into three areas: (i)
Infrastructure; (ii) Internal Use Financial and Operational Software; and (iii)
Key Third Party Customer and Vendor Relationships. For each area, the committee
is responsible for carrying out the following steps: Inventory, Assessment,
Remediation and Testing, and Contingency Plan Development and Implementation.

The infrastructure area contains all hardware, embedded systems, and software,
excepting financial and operational software. Non-compliant internal use
financial software is currently being replaced in conjunction with the global
deployment of PeopleSoft systems. Such PeopleSoft systems are warranted to be
Year 2000 compliant and have been successfully tested as such. Key third party
relationships include external interfaces between the Company and its suppliers,
service providers, and customers that are deemed material to the continued
operation of the Company.

State of Readiness
Overall, the Company's Year 2000 project is currently proceeding on schedule and
is expected to be fully completed according to the original schedule by
September 29, 1999.

As of April 1998, the committee had completed a worldwide systems inventory and
assessment for the infrastructure and internal use financial and operational
systems areas. To minimize complicating factors, the Company chose to replace
rather than upgrade most non-compliant systems without commercially available
remediation paths at the time of assessment. The Company is employing both
internal and external resources in its remediation efforts.

Remediation and testing of systems began in July 1998 and is scheduled to
continue through September 30, 1999. Testing is scheduled to occur in line with
remediation efforts; as systems are 

                                       35
<PAGE>

upgraded or replaced, compliance testing of the system will begin. Based on
current progress, the Company reasonably expects that all internal remediation
efforts in this area will be completed on or before the scheduled completion
date. Further, the Company believes it is unlikely that its efforts to remediate
non-compliant financial and operational software would extend beyond the
scheduled completion date.

The Company has conducted a formal communications program with all key vendors
and customers to identify and assess their states of readiness. Based on the
results of this process, the committee is assessing the likelihood of a failure
in a third party's own Year 2000 remediation program and the resulting impact to
the Company. Communications with key third parties are continuing to minimize
the exposure to the Company and its ability to conduct normal business. The
Company completed its initial assessment of external vendor relationships in
November 1998.

Due to the fact that many third parties' programs are not yet fully completed,
the Company expects communications to continue through September 1999. Third
parties that do not provide convincing evidence that they will successfully
achieve compliance by September 1999 will be subject to replacement.

Risk
The Company expects to achieve internal compliance and does not believe that any
reasonably likely risk of failure exists. Based on management estimates and the
uncertainty surrounding the Company's ability to guarantee the compliance of
third parties, the Company expects that the most likely worst case is that some
third parties fail to successfully and completely remediate all Year 2000
issues. Third party failures could range from the loss of a utility or service
such as electricity or telecommunications to a loss of revenue due to a
customer's inability to conduct normal business based on the failure of the
customer's or vendor's own systems or those of its own critical third party
relationships.

Third parties deemed material to the Company fall primarily into the following
categories: banks, accounting bureaus, telecommunications providers, utilities,
and customers. Although management estimates that it is reasonably likely that
some third parties may experience failures, the Company does not believe that
the aggregate effect of such failures will have a material effect on the
Company's consolidated future results. This estimate is based on the nature of
the Company's services, its widespread geographic dispersion, and the diversity
of its customer base.

Although third party failures are beyond the reasonable control of the Company,
the Company is making every effort to reduce any negative effect by closely
communicating with third parties to follow the progress of their remediation
programs and minimize the risks associated with a third party's failure to
achieve compliance.

Contingency Plans
To further minimize any risk associated with any internal or third party failure
to achieve compliance, the Company is currently in the process of developing
contingency plans for those critical systems and third party relationships that
have the potential to materially interrupt the Company's ability to conduct
normal business. Decisions regarding the implementation of specific 

                                       36
<PAGE>

contingency plans are expected to be made by the end of the first quarter of
1999 and, if deemed necessary, are expected to be fully implemented by the end
of the third quarter of 1999.

Costs to Address the Year 2000 Issue
The Company currently estimates the cost for Year 2000 compliance with respect
to its information and production systems to be 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.

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. The new standard is not expected to
have a material impact on the Company's financial position or results of
operations. SFAS 133 will be effective for the calendar year beginning January
1, 2000.

On September 28, 1998, the Securities and Exchange Commission ("SEC") issued a
press release stating that it "will formulate and augment new and existing
accounting rules and interpretations covering revenue recognition, restructuring
reserves, materiality and disclosure" for all publicly-traded companies. Until
such time as the SEC staff issues such interpretative guidelines, it is unclear
what, if any, impact such interpretative guidelines will have on the Company's
current accounting policy. However, the potential changes in accounting practice
being considered by the SEC staff could have a material impact on the manner in
which the Company recognizes revenue.

Special Note Regarding Forward Looking Statements

Certain statements in this Annual Report on Form 10-K, including information
appearing under the captions "Business", "Legal Proceedings", and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company desires
to take advantage of certain "Safe Harbor" provisions of the Reform Act and is
including this special note to enable the Company to do so. Forward-Looking
Statements involve known and unknown risks, uncertainties, and other factors
which could cause the Company's actual results, performance (financial or
operating) or achievements to differ materially from the future results,
performance (financial or operating) or achievements expressed or implied by
such Forward-Looking Statements. Such risks, uncertainties and other factors
include, among others: the Company's success in selling new franchises; the
economic conditions in the Asian region; the Year 2000 issues, including the
success with which the Company's customers and suppliers address their Year 2000
exposures; as well as more 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

                                       37
<PAGE>

factors (known or unknown) which may affect the Company. As a result, no
assurance can be given as to future results, levels of activity and
achievements.

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

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, 1998, the
percentage of total revenues denominated in currencies other than U.S. dollars
averaged 68%, 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,
1998 were as follows:
<TABLE>
<CAPTION>
                                                                               Interest Receipts from
                              Interest Payment to Financial Institution         Financial Institution
                              --------------------------------------------    --------------------------
                                                                                  Notional                  Fair Value
      Effective                                                Interest            Amount     Interest     at 12/31/98
        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%     $   (1,887)
       1/1/99     12/31/02    German Mark             99,546     6.12%        $    55,821      6.27%     $   (1,063)
       1/4/99     12/31/02    Swiss Franc             16,131     5.72%        $    11,164      6.27%     $      (64)
       1/4/99     12/31/02    British Pound            4,841     6.56%        $     7,974      6.27%     $      (84)
</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,
$17,000; Year 2, $19,000; Year 3, $20,000; Year 4, $22,000; Year 5, $22,000,
plus a balloon at maturity of $20,000. 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 

                                       38
<PAGE>

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 10 to
the Consolidated Financial Statements.

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 its
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.

                                       39
<PAGE>

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                                         [    ]

Statement of Management's Responsibility for Consolidated
    Financial Statements                                               [    ]

Consolidated Financial Statements:

    Consolidated Statements of Operations, years ended
         December 31, 1998, 1997 and 1996                              [    ]

    Consolidated Balance Sheets, December 31, 1998 and 1997            [    ]

    Consolidated Statements of Comprehensive Income (Loss), years
         ended December 31, 1998, 1997, and 1996                       [    ]

    Consolidated Statements of Shareholders' Equity, years ended
         December 31, 1998, 1997 and 1996                              [    ]

    Consolidated Statements of Cash Flows, years ended
         December 31, 1998, 1997 and 1996                              [    ]

    Notes to Consolidated Financial Statements                         [    ]

Financial Statement Schedule:

         Schedule II.  Valuation and Qualifying Accounts               [    ]

         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.

                                       40
<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, 1998 and 1997 and
the related consolidated statements of operations, comprehensive income,
shareholders' equity, and cash flows for the years ended December 31, 1998, 1997
and 1996. Our audits also included the financial statement schedule listed in
the Index at Item 8 for the years ended December 31, 1998, 1997 and 1996. 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, 1998 and 1997 and the results of their
operations and their cash flows for the years ended December 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule for the years ended December 31, 1998,
1997 and 1996, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.




/s/  DELOITTE & TOUCHE LLP
--------------------------
New York, New York
February 26, 1999

                                       41

<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

                                       42

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                           Year Ended December 31,
                                                                               ----------------------------------------------
                                                                               1998                 1997                 1996
                                                                               ----                 ----                 ----

<S>                                                                         <C>                  <C>                  <C>      
Sales of services and products                                              $ 436,303            $ 397,209            $ 369,622

Costs and expenses:
    Cost of services and products sold                                        258,903              236,521              222,313
    Selling, general and administrative                                       137,086              123,444              113,695
    Amortization of publishing rights, excess
       of cost over net assets acquired, and
       other intangibles                                                       17,265               14,183               12,746
    Interest expense on long-term debt                                         10,956                8,523                7,647
    Interest expense to affiliates                                              2,226                2,100                1,848
    Other expense (income), net                                                 2,188                 (615)              (1,441)
         Total costs and expenses                                             428,624              384,156              356,808

Income before income taxes, minority
    interest in earnings of subsidiary, and
    extraordinary item                                                          7,679               13,053               12,814

Income tax expense                                                              5,665                7,089                7,508
Minority interest in (loss) earnings
     of subsidiary                                                                (68)                 613                1,503

Income before extraordinary item                                                2,082                5,351                3,803

Extraordinary loss from early extinguishment
    of debt, net of income tax benefit of $1,949                                    -                6,285                    -

Net income (loss)                                                           $   2,082            $    (934)           $   3,803


Earnings (loss) per share - basic and diluted:
    Income before extraordinary item                                        $    0.22            $    0.56            $    0.40
    Extraordinary loss                                                              -                (0.66)                   -
    Earnings (loss) per share                                               $    0.22            $   (0.10)           $    0.40

Average number of shares (000)                                                  9,530                9,550                9,569

</TABLE>
  See accompanying notes to the consolidated financial statements.

                                       43
<PAGE>


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


<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                           -----------------------
                                                                                           1998               1997
                                                                                           ----               ----
<S>                                                                                     <C>                  <C>
Assets
Current assets:
Cash and temporary investments                                                          $  25,327            $  26,665
Accounts receivable, less allowance for doubtful accounts
 of  $2,295 and $2,415                                                                     46,650               50,622

Unbilled receivables                                                                        6,873                3,538

Inventories, net                                                                           11,606                9,159

Prepaid expenses and other current assets                                                   7,965                8,323
  Total current assets                                                                     98,421               98,307
Property and equipment, net                                                                41,144               32,098

Publishing rights, net of accumulated
 amortization of $5,203 and $4,324                                                         16,782               17,661
Excess of cost over net assets acquired and other intangibles, net of
  accumulated amortization of $75,573 and $57,893                                         486,232              498,506
Other assets                                                                               20,882               14,943
  Total assets                                                                          $ 663,461            $ 661,515

Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt                                                       $  20,135            $  17,712
Accounts payable                                                                           11,280                9,990

Deferred revenues                                                                          41,603               36,071

Payrolls and commissions                                                                   15,079               17,988

Income taxes payable                                                                          365                  573

Accrued expenses and other current liabilities                                             17,255               15,505
  Total current liabilities                                                               105,717               97,839

Long-term debt                                                                            129,387              142,369
Notes payable to affiliates                                                                42,755               39,423
Deferred taxes and other liabilities                                                       20,333               24,964
Minority interest                                                                          10,283                9,942
  Total liabilities                                                                       308,475              314,537

Shareholders' Equity:
Common stock
 $.10 par value - 40,000,000 shares authorized;
10,033,013 shares issued                                                                    1,003                1,003
Additional paid-in capital                                                                372,518              372,518
Retained earnings                                                                           4,574                2,492
Accumulated other comprehensive loss:
    Cumulative translation adjustment                                                     (16,748)             (22,674)
Treasury stock at cost; 503,225 and 503,225 shares                                         (6,361)              (6,361)
Total shareholders' equity                                                                354,986              346,978
  Total liabilities and shareholders' equity                                            $ 663,461            $ 661,515
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       44
<PAGE>

                           BERLITZ INTERNATIONAL, INC.
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                         ---------------------------------------------
                                                                         1998                1997                 1996
                                                                         ----                ----                 ----


<S>                                                                   <C>                 <C>                  <C>     
Net income (loss)                                                     $  2,082            $   (934)            $  3,803

Other comprehensive income (loss), net of tax:
   Foreign currency items, including translation
     adjustments, and the effects of certain
     hedges and intercompany transactions                                5,926             (12,637)             (11,159)

         Comprehensive income (loss)                                  $  8,008            $(13,571)            $ (7,366)


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

Foreign currency items                                                $   (889)           $    273             $    559
</TABLE>


See accompanying Notes to the Consolidated Financial Statements.

                                       45
<PAGE>

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

<TABLE>
<CAPTION>

                                            Additional      Retained     Cumulative                       Total
                                   Common      Paid-In      Earnings     Translation     Treasury   Shareholders'
                                    Stock      Capital     (Deficit)     Adjustment         Stock        Equity
                                    -----      -------     ---------     ----------         -----        ------


<S>                             <C>          <C>            <C>           <C>           <C>           <C>      
Balance at January 1, 1996     $   1,003    $ 368,658      $   (377)     $   1,132     $   -         $ 370,416

Net income                                                    3,803                                      3,803
Translation adjustment and other,
   including the effects of certain
    hedges and  intercompany
    transactions                                                           (10,266)                    (10,266)
Allocated income taxes                                                        (559)                       (559)
Transfers from CTA related to
    liquidation of foreign subsidiaries                                       (344)                       (344)
Purchase of treasury stock                                                                (5,643)       (5,643)
                               ---------    ---------      --------      ---------     ---------     ---------
Balance at December 31, 1996       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
                               =========   ==========     =========      =========     =========    ==========
</TABLE>


See accompanying notes to the consolidated financial statements.

                                       46
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                                      -------------------------------------------
                                                                      1998                1997               1996
                                                                      ----                ----               ----
<S>                                                          <C>                <C>                <C>           
Cash flows from operating activities:
Net (loss) income                                            $       2,082      $        (934)     $        3,803
Adjustments to reconcile net income to net cash 
provided by operating activities:
   Depreciation                                                      9,791               8,564              7,972
   Amortization of publishing rights, excess of cost over
     net assets acquired, and other intangibles                     17,265              14,183             12,746
   Minority interest in (loss) earnings of subsidiary                  (68)                613              1,503
   Deferred income tax provision (benefits)                            739                (442)              (172)
   Deferred tax benefit on extraordinary item                            -              (1,785)                 -
   Provision for bad debts                                             728               1,129              1,168
   Foreign exchange (gains) losses, net                              1,101                 (27)            (1,005)
   Gains on currency coupon swap agreements                              -                   -               (399)
   Equity in losses (gains) of joint ventures                          136                  50                187
   Losses on disposal of fixed assets                                  578                 100                 70
   Changes in operating assets and liabilities:
        (Increase) in accounts and unbilled receivables              2,258             (15,570)            (3,900)
        (Increase) decrease in inventories                          (2,449)                444             (1,039)
        (Increase) decrease in prepaid expenses and other assets    (5,598)                 97             (1,130)
        Increase (decrease) in deferred revenues                     2,829               2,225              1,732
        Increase (decrease) in accounts payable and
          other current liabilities                                 (2,246)              3,567               (772)
        Increase in due to affiliates                                2,177               2,102              1,862
        Increase (decrease) in income taxes payable                   (210)             (3,555)             2,178
        Increase (decrease) in other liabilities                     5,298               2,787                630
                                                             -------------      --------------     --------------
   Net cash provided by operating activities                        34,411              13,548             25,434
                                                             -------------      --------------     --------------

Cash flows from investing activities:
Capital expenditures                                               (18,949)            (14,617)           (13,034)
Acquisitions of businesses, net of cash acquired                    (3,905)            (90,868)                 -
Refunds from (investments in) joint ventures                             -                   -                (72)
                                                             -------------      --------------     --------------
   Net cash used in investing activities                           (22,854)           (105,485)           (13,106)
                                                             -------------      --------------     --------------

Cash flows from financing activities:
Proceeds of notes payable to affiliates                                  -                   -              6,000
Proceeds from bank long-term debt                                        -             120,000                  -
Payment of long-term debt                                          (17,713)            (70,978)           (11,366)
Payments to acquire treasury stock                                       -              (2,968)            (5,643)
Proceeds from sale of treasury stock                                     -               6,110                  -
Net borrowings under revolving credit facility                       4,000              44,000                  -
Proceeds from minority shareholder in joint venture                    361                   -                  -
Payment of deferred financing costs                                   (233)             (1,272)                 -
                                                             -------------      --------------     --------------
    Net cash provided by (used in) financing activities            (13,585)             94,892            (11,009)
                                                             -------------      --------------     --------------

Effect of exchange rate changes
   on cash and temporary investments                                   690              (2,071)              (940)
                                                             -------------      --------------     --------------
Net increase (decrease) in cash and
   temporary investments                                            (1,338)                884                379

Cash and temporary investments at beginning of period               26,665              25,781             25,402
                                                             -------------      --------------     --------------

Cash and temporary investments at end of period              $      25,327      $       26,665     $       25,781
                                                             =============      ==============     ==============

Supplemental disclosures of cash flow information:

   Cash payments for:
        Interest                                             $      10,525      $        7,877     $        6,835
                                                             =============      ==============     ==============
        Income taxes                                         $       8,345      $       10,834     $        6,640
                                                             =============      ==============     ==============
    Cash refunds of income taxes                             $         842      $          493     $        1,298
                                                             =============      ==============     ==============
    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.

                                       47
<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 three business segments:
          Language Instruction, Translation Services and Publishing.
          Approximately 63% of its 1998 revenues are denominated in currencies
          other than the U.S. dollar.

          In February 1993, Benesse Corporation (formerly Fukutake Publishing
          Co., Ltd.) ("Benesse") acquired, through a merger of the Company with
          an indirect wholly-owned U.S. subsidiary of Benesse (the "Merger"),
          approximately 6.7 million shares of the common stock, par value $.10
          per share ("Common") of the Company. Benesse, through its wholly owned
          subsidiary Benesse Holdings International, Inc. ("BHI") currently
          holds approximately 7.0 million shares, or 73.3%, 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, net". Revaluation gains and losses on
          intercompany balances for which settlement is not anticipated in the
          foreseeable future are included in the cumulative translation
          adjustment.

     d)   Revenue Recognition and Unbilled Receivables - Revenues are recognized
          in the Instruction and Publishing business segments when services are
          rendered to the customer or when products are shipped, as applicable.
          Translation Services contracts are accounted for under the percentage
          of completion method of accounting, whereby sales and costs are
          recognized as work on contracts 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. 

                                       48
<PAGE>

          Unbilled amounts will be invoiced in subsequent periods upon reaching
          certain milestones.

     e)   Inventories - Inventories, which consist primarily of finished goods,
          are valued at the lower of average cost or market.

     f)   Deferred Financing Costs - Direct costs relating to the indebtedness
          incurred in connection with the Merger, the Benesse borrowings, and
          the Bank Facility (see Notes 8 and 11) have been capitalized and are
          being amortized by the interest method over the terms of the related
          debt.

     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 and certain identifiable intangibles
          (excluding financial instruments and deferred tax assets) 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. 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.

          If a review for recoverability is necessary, the Company estimates the
          future cash flows expected to result from the use of the asset and its
          eventual disposition. 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.

     g)   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.

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

     i)   Excess of Cost Over Net Assets Acquired and Other Intangibles - Except
          as 

                                       49
<PAGE>

          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.

     j)   Deferred Revenues - Deferred revenues primarily arise from the
          prepayment of fees for classroom instruction and are recognized as
          income as lessons are given. The Company recognizes in income deferred
          revenues for lessons paid for and not expected to be taken based upon
          historical experience by country; refunds subsequently issued against
          such amounts are not material.

     k)   Income Taxes - The Company has adopted the provisions of Statement of
          Financial Accounting Standards No. 109, "Accounting for Income Taxes"
          ("SFAS 109"). SFAS 109 requires recognition of deferred tax
          liabilities and assets for the expected future tax consequences of
          events that have been included in the financial statements or tax
          returns. Under this method, deferred tax liabilities and assets are
          determined based on the difference between the financial statement and
          tax bases of assets and liabilities using enacted tax rates expected
          to apply to taxable income in the periods in which the differences are
          expected to reverse.

     l)   Cash and Temporary Investments - The Company considers all highly
          liquid instruments purchased with an original maturity of three months
          or less to be temporary investments.

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

     n)   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, accrued income taxes and
          short-term borrowings approximate fair value due to the short-term
          nature of these instruments.

     o)   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 investment. 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 

                                       50
<PAGE>

          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 "Foreign
          exchange (gains) losses, 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. The new standard not expected to have
          a material impact on the Company's financial position or results of
          operations. SFAS 133 will be effective for the calendar year beginning
          January 1, 2000.

     p)   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 SOP is effective
          for financial statements for fiscal years beginning after December 15,
          1998, with earlier application encouraged in fiscal years for which
          financial statements have not been issued. 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.

     q)   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. Direct (incremental)
          costs related to such deferred revenues are deferred until the revenue
          is recognized.

     r)   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.

     s)   Reclassifications - Certain reclassifications have been made in prior
          years' financial statements and notes to conform with the 1998
          presentation.

                                       51
<PAGE>

2.   Acquisition of Businesses

     In January 1998, in connection with its August 1997 acquisition of ELS
     Educational Services, Inc. ("ELS"), hereinafter discussed, the Company paid
     $1,340 related to certain post-closing purchase price adjustments. 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
     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.

     The ELS Acquisition was accounted for by the purchase method of accounting,
     which contemplates an allocation of the acquisition cost to the acquired
     company's assets and liabilities based upon their fair value. A summary of
     the purchase price allocation as of December 31, 1998 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 net assets and liabilities            (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 Statement 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.

                                       52
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Pro forma           Pro forma
                                                                                               Twelve Months       Twelve months
                                                                                               ended               ended
                                                                                               Dec. 31,1997        Dec. 31, 1996
                                                                                               ------------        -------------

<S>                                                                                             <C>                <C>
Sales of services and products                                                                  $ 446,373          $ 432,260
Income before income taxes, minority
  interest in earnings of subsidiary, and
  extraordinary item                                                                               11,846              9,694
Income before extraordinary item                                                                    4,566              1,775
Extraordinary loss                                                                                 (6,721)            (7,510)
Net loss                                                                                        $  (2,155)         $  (5,735)
                                                                                                ==========         ==========
Basic and Diluted earnings (loss) per share:
  Income before extraordinary loss                                                              $    0.48          $    0.18
  Extraordinary loss                                                                                (0.70)             (0.78)
                                                                                                ----------         ----------
  Loss per share                                                                                $   (0.22)         $   (0.60)
                                                                                                ==========         ==========

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

                                                                                               Pro forma           Pro forma
                                                                                               Twelve Months       Twelve months
                                                                                               ended               ended
                                                                                               Dec. 31,1997        Dec. 31, 1996
                                                                                               ------------        -------------

Pre-acquisition ELS revenues                                                                     $ 49,164          $ 62,638
Pre-acquisition ELS income before taxes                                                             2,524             2,567
Decrease in ELS administrative expenses
   not recurring after Berlitz acquisition                                                          2,413             3,000
Increase in amortization of intangibles and
   excess of cost over net assets acquired                                                         (3,333)           (5,000)
Increase in interest expense on
    long-term debt                                                                                 (2,811)           (3,687)
Decrease in income tax expense                                                                        422             1,092

Increase in extraordinary loss, net of tax                                                       $   (436)         $ (7,510)
                                                                                                ==========         ==========

</TABLE>

3.   Earnings Per Share

     The Company has adopted provisions of Statement of Financial Accounting
     Standards No. 128, "Earnings Per Share" ("SFAS 128"), which simplifies the
     standards for computing earnings per share ("EPS"). SFAS 128 replaces the
     standards for computing and presenting EPS found in Accounting Principles
     Board Opinion No. 15, "Earnings Per Share" ("APB 15"). SFAS 128 requires
     dual presentation of Basic (which replaces APB 15's Primary EPS) and
     Diluted EPS on the face of the income statement for all entities with
     complex capital structures, and provides guidance on other computational
     changes. SFAS 128 is effective for financial statements for the year ended
     December 31, 1997, including interim periods to be presented therein.

                                       53
<PAGE>

     A reconciliation between Basic and Diluted EPS computations for "income
     before extraordinary item" as of December 31, 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, 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


         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
                                                        =========           =========          =========
</TABLE>


         There is no difference between Basic and Diluted EPS computations for
         the year ended December 31, 1996 since no dilutive securities were
         outstanding prior to June 30, 1997.

4.       Property and Equipment, net
                                                             December 31,
                                                          -------------------
                                                          1998           1997
                                                          ----           ----

Buildings and leasehold improvements                   $ 26,727        $ 19,063
Furniture, fixtures and equipment                        35,494          28,347
Internal use software                                     3,101             689
Land                                                      1,352           1,364
                                                       --------        --------
                                                         66,674          49,463
Less: accumulated depreciation
    and amortization                                    (25,530)        (17,365)
                                                       --------        --------
         Total                                         $ 41,144        $ 32,098
                                                       ========        ========

                                       54
<PAGE>

5.        Excess of Cost over Net Assets
         Acquired, and Other Intangibles

                                                               December 31,
                                                         ---------------------
                                                         1998             1997
                                                         ----             ----

Excess of cost over net assets acquired               $ 225,315       $ 220,310
Tradenames and trademarks                               299,998         299,998
ELS sales agent network                                  31,700          31,700
Other                                                     4,792           4,391
                                                      ---------       ---------
                                                        561,805         556,399
Less: accumulated amortization                          (75,573)        (57,893)
                                                      ----------      ---------
         Total                                        $ 486,232       $ 498,506
                                                      ==========      =========


6.       Other Expense (Income), net
<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                             -------------------------------------------
                                                             1998                1997               1996
                                                             ----                ----               ----


<S>                                                 <C>                 <C>                <C>           
         Interest income on temporary investments   $        (750)      $        (875)     $        (728)
         Foreign exchange (gains) losses, net               1,101                 (27)            (1,005)

         Gains on currency coupon swap agreement                -                   -               (399)
         Equity in (gains) losses of joint ventures           136                  50                187

         Other non-operating taxes                            794                 415                586
         Term Loan administration fee                          35                  83                150
         Losses and other costs of disposal of fixed assets   826                 100                 70

         Other interest income, net                          (173)               (235)               (67)
         Other expense (income), net                          219                (126)              (235)
                                                    --------------     ---------------     --------------
             Total other expense (income), net      $       2,188      $         (615)     $      (1,441)
                                                    ==============     ===============     ==============
</TABLE>

                                       55
<PAGE>

7.   Income Taxes

     The components of the deferred tax asset (liability) at December 31, 1998
     and 1997 were as follows:

<TABLE>
<CAPTION>
                                                                              1998                      1997
                                                                              ----                      ----
<S>                                                                         <C>                         <C>
        Deferred tax assets:
          Inventory                                                   $         -                  $     67
          Property and equipment depreciation                                 262                         -
          Deferred revenue                                                  2,206                     1,702
          Unrealized hedging losses                                         1,084                       142
          Accrued expenses                                                  1,665                     1,970
          Foreign tax credits                                               3,105                     4,193
          Other tax credits                                                 1,216                         -
          Net operating losses                                              3,634                     6,000
           Total deferred tax assets                                       13,172                    14,074
        Deferred tax liabilities:
          Inventory                                                          (564)                        -
          Joint ventures                                                     (244)                     (320)
          Property and equipment depreciation                                   -                       (44)
          Unrealized hedging gains                                              -                      (252)
          Publishing rights amortization                                   (5,624)                   (5,882)
          Other intangibles amortization                                     (975)                      (46)
           Total deferred tax liabilities                                  (7,407)                   (6,544)

        Net deferred tax assets                                             5,766                     7,530
          Valuation allowance                                              (4,444)                   (8,141)
        Net deferred tax asset (liability)                               $  1,322                  $   (611)

</TABLE>

     As a result of the Merger, $1,712 of the valuation allowance will be
     allocated to reduce goodwill and other intangibles in future periods if
     realization of net operating losses or foreign tax credits becomes more
     likely than not.

     The Company's effective tax rate for 1998 was 73.8%, compared with 54.3%
     and 58.6% in 1997 and 1996, respectively.


<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, 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
                                               ========            =======             =======            =======

Year ended December 31, 1996:
    Current                                    $ 1,945             $ 5,364             $   371            $ 7,680
    Deferred                                      (182)                 (7)                 17               (172)
                                               --------            -------             -------            -------
        Total                                  $ 1,763             $ 5,357             $   388            $ 7,508
                                               ========            =======             =======            =======

</TABLE>

*    Pre-tax income from foreign operations of the Company was $17,451, $17,730,
     and $22,429 for the twelve months ended December 31, 1998, 1997 and 1996,
     respectively.

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

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                             -------------------------------------------
                                                             1998                1997               1996
                                                             ----                ----               ----

<S>                                                       <C>                 <C>                <C>    
Accrued liabilities                                       $ 1,340             $ 1,002            $    88
Foreign exchange                                             (351)                (46)               232
Benefit of net operating loss                                (672)               (248)              (313)

Amortization of intangibles                                   717              (1,971)              (199)
Inventory                                                     631                 760                 69
Tax credits                                                  (546)                  -                  -
Fixed assets                                                 (305)                  -                  -
Other, net                                                    (75)                 61                (49)
                                                          --------            -------            --------
    Total                                                 $   739             $  (442)           $  (172)
</TABLE>


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

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                           ------------------------------------------
                                                           1998               1997               1996
                                                           ----               ----               ----

<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                                   (9.7)             (17.6)             (34.5)
   U.S. state and local income taxes,
     net of Federal income taxes                            6.6                2.6                2.0
   Net domestic and foreign losses                          9.3                7.5               12.4
   Amortization and writeoff of intangibles                54.9               33.6               34.8
   Takedown of reserves                                   (22.7)               -                  -
   Other, net                                               0.4               (6.8)               8.9
                                                        --------            -------          --------
        Total                                              73.8%              54.3%            58.6 %
                                                        ========            =======          ========
</TABLE>

                                       57
<PAGE>

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

     At December 31, 1998, accumulated earnings of foreign subsidiaries of
     $47,297 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 $3,092 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:
                                                            December 31,
                                                            ------------
                                                    1998                 1997
                                                    ----                 ----
        Term Loan                          $       98,250       $      115,750
        Revolving credit facility                  48,000               44,000
        Other                                       3,272                  331
                                           --------------       --------------
           Total debt                             149,522              160,081
        Less current maturities                    20,135               17,712
                                           --------------       --------------
           Long-term debt                  $      129,387       $      142,369
                                           ==============       ==============

     Annual maturities of long-term debt outstanding as of December 31, 1998,
     other than the Term Loan and revolving credit facility, are as follows:
     1999, $885; 2000, $1,262; 2001, $1,125. As discussed in Note 15 (Subsequent
     Event), on March 11, 1999, after approval by its shareholders, the Company
     issued convertible debentures, as well as a note to BHI, and used the
     proceeds from the issuance of Convertible Debentures, as well as proceeds
     from the BHI Note issuance, to repay in full, among other things, all
     outstanding indebtedness under the Term Loan and revolving credit facility.

     On August 28, 1997, in connection with the ELS Acquisition, the Company
     refinanced its then existing indebtedness through borrowings under a new
     bank facility (the "Bank Facility"), consisting 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, $17,000;
     Year 2, $19,000; Year 3, $20,000; Year 4, $22,000; Year 5, $22,000, plus a
     balloon at maturity of $20,000. 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. The Bank
     Facility was secured by the capital stock of certain Company subsidiaries,
     and was subject to mandatory prepayment equal to a portion of the proceeds
     from certain asset sales or equity offerings in excess of specified
     amounts.

     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 

                                       58
<PAGE>

     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. The average interest rate on outstanding borrowings under the Bank
     Facility for the period ending December 31, 1998 was 6.72%.

     The Bank Facility contained certain covenants, including (i) limitations on
     the ability of the Company and its subsidiaries to incur indebtedness and
     guarantee obligations, to prepay indebtedness, to redeem or repurchase
     capital stock or subordinated debt, to enter into, grant or suffer to exist
     liens or sale-leaseback transactions, to make loans or investments, to
     enter into mergers, acquisitions or sales of assets, to change the nature
     of the business conducted, to amend material agreements, to enter into
     agreements restricting the ability of the Company and its subsidiaries to
     grant or to suffer to exist liens, to enter into transactions with
     affiliates or to limit the ability of subsidiaries to pay dividends or make
     loans to the Company, (ii) limitations on the payment of dividends by the
     Company on its capital stock, (iii) a requirement that the Company maintain
     foreign currency hedge agreements to fix the rate of exchange between the
     U.S. dollar and such foreign currencies, and (iv) a requirement that the
     Company maintain interest rate hedge agreements covering at least 25% of
     the outstanding borrowings. The Bank Facility also contained financial
     covenants requiring the Company to maintain certain levels of liquidity and
     net worth and imposes limitations on capital expenditures, cash flow and
     total debt. As of December 31, 1998, the Company was in compliance with all
     Bank Facility covenants.

     The Company used a portion of the proceeds from the Bank Facility to repay
     its pre-existing Term Loan and Senior Notes. As a result of this early
     extinguishment of debt, the Company incurred 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.

9.   Commitments and Contingencies

     Lease Commitments

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

     Rent expense, principally for language centers, amounted to $32,324,
     $27,066 and $26,020, for the years ended December 31, 1998, 1997 and 1996,
     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, 1998 are as follows:
     1999-$13,521; 2000-$11,365; 2001-$9,641; 2002-$7,677; 2003-$6,010; and an
     aggregate of $24,097 thereafter.

                                       59
<PAGE>

     Legal Proceedings

     The Company is party to several actions arising out of the ordinary course
     of its business. Management believes that none of these actions,
     individually or in the aggregate, will have a material adverse effect on
     the financial condition or results of operations of the Company.

     IRS Deficiency Notice

     In October 1996, the Internal Revenue Service ("IRS") issued a deficiency
     notice to the Company relating to its 1989, 1990, 1992 and 1993 U.S.
     Federal tax returns. The Company reached a final settlement with the IRS in
     August 1998 for $2,150 plus interest. Such settlement had been adequately
     provided for, and was fully paid by the Company through a payment of $2,500
     during the 1997 second quarter and a payment of $680 during the 1998 second
     quarter.

     Severance agreements

     The Company has severance agreements with five 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 $2,000.

10.  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.

                                       60
<PAGE>

     Significant terms of agreements outstanding during 1998 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>                   <C>  
           12/31/93  12/31/98        Japanese Yen    2,335,500        9.71%          $     22,500          9.79%
           12/31/93  12/31/98         Swiss Franc       11,475        9.89%          $      7,500          9.79%
           12/31/93  12/31/98       British Pound        5,133       10.43%          $      7,550          9.79%
           12/31/93  12/31/98     Canadian Dollar        5,596       10.43%          $      4,300          9.79%
            3/29/96  12/31/98         German Mark       60,165        4.78%          $     35,000          5.31%
           12/15/97  12/31/98        Japanese Yen    7,796,967        5.50%          $     60,606          6.27%
           12/15/97  12/31/98         German Mark       45,507        6.12%          $     25,518          6.27%
             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.

     During the second half of 1995, a German mark floating rate coupon swap
     agreement became ineffective as a hedge of the Company's net investment in
     its German subsidiaries. On January 23, 1996, the Company exchanged this
     swap for a fixed interest rate coupon-only currency swap of equal fair
     value. The Company recognized a gain of $399 during the first quarter of
     1996 in its Consolidated Statement of Operations within "Other income,
     net", representing the change in fair value of the original swap from
     December 31, 1995 to the date of the exchange.

     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 which provides for
     quarterly exchanges of interest on an amortizing "notional" (i.e.
     theoretical) amount, originally set at $66,000 and currently at $55,300 at
     December 31, 1998. In exchange for U.S. dollar denominated interest
     receipts based on variable LIBOR, the Company must make U.S. dollar
     denominated interest payments based on a fixed rate of 6.30%. The notional
     amount amortizes proportionately with the scheduled principal payments
     under the Bank Facility. Credit loss from counterparty non-performance is
     not anticipated. The Company accounts for these interest rate swap
     transactions under the accrual method of accounting, whereby: a) each net
     receipt/payment is recognized in earnings during the period to which the
     receipt/payment relates, as a yield adjustment to "Interest expense on
     long-term debt"; b) gains and losses on terminated agreements are amortized
     over the underlying debt obligations' remaining life as a yield adjustment;
     and c) there is no recognition on the balance sheet for the derivative's
     fair value.

                                       61
<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 1998 and 1997,
     balances in these accounts averaged 35% and 40% 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. In the Translations segment, 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 $[ ]
     million and $13.8 million at December 31, 1998 and 1997, respectively.
     Subsequent collections of these December 1997 balances have aggregated $8.1
     million through March 24, 1998. The Publishing segment also sells to a
     substantial client base, although several of its larger receivables are
     from its distributors. Such receivables from Publishing's distributors
     comprised approximately [ ]% and 5% of the Company's total accounts
     receivable balance before allowances at December 31, 1998 and 1997,
     respectively.

     d) Fair values of financial instruments

     The carrying amounts and estimated fair values of the Company's financial
     instruments at December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
                                                                 1998                                1997
                                                                 ----                                ----
                                                       Carrying         Estimated        Carrying         Estimated
                                                       Amount           Fair Value       Amount           Fair Value
                                                       ------           ----------       ------           ----------
     Assets:
<S>                                               <C>              <C>              <C>              <C>          
       Cash and temporary investments             $     25,327     $     25,327     $      26,665    $      26,665
       Currency coupon swap agreements                       -                -               719              719
     Liabilities:
       Long-term debt, including
         current maturities                            149,522          149,522           160,081          160,081
       Notes payable to affiliates                      42,755           35,623            39,423           34,101
       Currency coupon swap agreements                   3,098            3,098               406              406
       Interest rate swap agreement                          -            1,713                 -              680
</TABLE>

                                       62
<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 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.

11.  Related Party Transactions

     a)   Treasury shares

     On April 29, 1997, the Company and Benesse Holdings International, Inc.
     (formerly Fukutake Holdings (America), Inc.) ("BHI"), a wholly owned
     subsidiary of Benesse Corporation ("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. Following this
     private placement, Benesse beneficially owned 6,985,338 shares, which
     represented 73.3%, of the 9,529,788 shares of Common outstanding at
     December 31, 1997 and 1998.

     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) Long-term borrowings

     In September 1994, the Company borrowed $20,000 from a U.S. subsidiary of
     Benesse, as evidenced by a subordinated promissory note (the "U.S. Note")
     bearing interest at a rate of 6.93% per annum. Berlitz-Japan also borrowed
     (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. 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 6.81% at December 31,
     1997. These notes are collectively referred to as the Benesse Notes.

     The Benesse Notes rank pari passu with one another and are subordinate in
     rights of payment to debt under the Bank Facility, including the currency
     coupon swap agreements. They mature on the earlier of June 30, 2003 or
     twelve months from the date that all payment 

                                       63
<PAGE>

     obligations under the Bank Facility have been satisfied. To the extent that
     interest payments are not permitted while any amounts remain outstanding
     under the Bank Facility, such accrued interest will roll over semi-annually
     into the note principal.

     Payment obligations under the U.S. Note are guaranteed by the Company and
     its significant U.S. subsidiaries, subject to senior guarantees of the Bank
     Facility. The Company and its significant U.S. subsidiaries have also
     executed a guarantee of payment obligations under the Japan Note, effective
     as of the day following the date upon which all payment obligations under
     the Bank Facility are satisfied.

     The Benesse Notes contain certain covenants, including prohibitions on the
     incurrence of other debt, liens, loans, mergers or consolidations and
     amendments to the Bank Facility without consent.

     As discussed in Note 15 (Subsequent Event), the Benesse Notes were repaid
     in full on March 11, 1999, in connection with the issuance of convertible
     debentures and a new promissory note to BHI.

     c)   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. Since May 1995, the Company has maintained a stand-alone
     Employment Practices Liability ("EPL") insurance policy covering the
     Company, its officers and directors (including the Benesse directors who
     are also directors of the Company). Consequently, the premium on the EPL
     policy is allocated 30% to Benesse and 70% to the Company.

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

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

12.  Stock Option and Incentive Plans

     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 $1,590, $1,417 and $811 was paid for 1998, 1997 and 1996,
     respectively, pursuant to the Short-Term Plan.

                                       64
<PAGE>

     ELS' Executive Incentive Plan provides for cash awards to officers and key
     employees of ELS if certain financial goals are met. In addition, in 1997,
     this plan provided for a special bonus upon successful sale of ELS.
     Approximately $0 and $2,010 were paid for 1998 and 1997 in connection with
     the ELS Executive Incentive Plan.

     In September 1996, the Company adopted the New Long-Term Executive
     Incentive Compensation Plan (the "New LTIP") and, subject to shareholder
     approval which was received in 1997, the 1996 Stock Option Plan (the "1996
     Stock Option Plan") (collectively, the "Plans"). The Plans replaced the
     Company's then existing Long Term Executive Incentive Compensation Plan
     (the "Old LTIP"), which was initially adopted in 1994.

     The New LTIP provides for potential cash awards in 1999 to key executive
     employees and the Chairman of the Board of the Company if certain financial
     goals are met for the year ended December 31, 1998. Such awards may not
     exceed $5,000 in the aggregate. The Company is not required to establish
     any fund or segregate any assets for payments under the New LTIP. For the
     twelve months ended December 31, 1998, 1997 and 1996, the Company recorded
     expenses of $1,193, $1,289 and $318, respectively, related to the New LTIP.
     In March 1999, the Company paid $2,855 in awards under the New LTIP.

     The 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.

     Stock option activity is as follows:

<TABLE>
<CAPTION>

                                                               Number of shares            Exercise price
                                                               ----------------            --------------
<S>                                                                   <C>                    <C>     
     Options outstanding at December 31, 1996                               -                   -
     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:                                                          25,740                 $30.00
       December 4, 1998
     Exercised                                                              -                   -
                                                            ---------------------    -------------------------
     Options outstanding at December 31, 1998                         399,130          $24.9375 - $26.5625
                                                            =====================    =========================
     Options exercisable at December 31, 1998                               -                   -
                                                            =====================    =========================
     Options exercisable at December 31, 1997                               -                   -
                                                            =====================    =========================
</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 

                                       65
<PAGE>

     "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 may not be exercised prior
     to January 1, 1999. On such date, they become fully exercisable until their
     normal expiration on June 29, 2004, except for the Relinquishment Options,
     which expire 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, 1998 and 1997 would have been
     decreases of $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, 1998 and 1997 of $0.11 and $0.06, respectively.

     The fair value of each option grant during 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:

<TABLE>
<CAPTION>
                                         June 1997 Grant -
                                           Relinquishment    June 1997 Grant -    December 1997    December 1998
                                              Options        All other options        Grant            Grant    
                                              -------        -----------------        -----            -----    
<S>                                             <C>                <C>                <C>             <C>  
     Weighted average assumptions
     used to estimate fair value:
        Dividend yield                          0.00%              0.00%              0.00%           0.00%
        Expected volatility                    22.00%             22.00%             21.00%          20.00%
        Risk free interest rate                 5.79%              6.08%              5.88%           4.31%
        Expected lives in years                 1.5                4.25               5.0             5.0
     Fair value of each option                 $3.71              $7.37              $8.43           $8.29
     granted
</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 has been no activity related
     to these plans during 1996, 1997 or 1998, and there are no related
     incentives or shares outstanding at December 31, 1998.

                                       66
<PAGE>

13.  Thrift and Retirement Plans

     The Berlitz International, Inc. Retirement Savings Plan (the "Berlitz
     Plan") is a defined contribution benefit plan covering substantially all of
     the Company's full-time domestic employees (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 benefit 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 attainment of age 21
     and completion of 500 hours of service within a six-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, was
     $2,231, $1,399 and $1,632 for the years ended December 31, 1998, 1997, and
     1996, 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 12), 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.

     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 is 30%. For future participants, such percentage will
     be 2% (or such other percentage as the Board of Directors may determine)
     multiplied by years of service, not to exceed 30%. The Company will also
     provide each retired participant and their surviving spouse with medical
     coverage ("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-

                                       67
<PAGE>

     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 on the participants.

     In 1998, the Company established an irrevocable grantor trust (the
     "Trust"), within the meaning of the Internal Revenue Code of 1986, 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, 1998 is $2,502 held in the Trust.

     The following tables set forth certain information for the SERP:

<TABLE>
<CAPTION>
                                                                  Pension Benefits                      Medical Benefits
                                                                  ----------------                      ----------------
                                                          1998         1997         1996         1998         1997         1996
                                                          ----         ----         ----         ----         ----         ----
<S>                                                    <C>          <C>          <C>          <C>          <C>          <C>    
   Benefit obligation at beginning                     $ 3,575      $ 3,188      $ 2,682      $ 1,205      $ 1,435      $ 1,158
        of year
   Service cost                                            506          415          407           75          107          196
   Interest cost                                           290          220          188           57           72           81
   Net benefit payments                                      -            -            -          (16)         (13)           -
   Actuarial loss (gain)                                   698         (248)         (89)        (315)        (396)           -
                                                       --------     --------     --------     --------     --------     -------
   Benefit obligation at end of year                     5,069        3,575        3,188      $ 1,006        1,205        1,435
   Plan asset at fair value                                  -            -            -            -            -            -
                                                       --------     --------     --------     --------     --------     -------
   Funded status                                        (5,069)      (3,575)      (3,188)      (1,006)      (1,205)      (1,435)
   Unrecognized prior service cost                       2,146        2,324        2,503          681          840          999
   Unrecognized actuarial loss (gain)                      360         (337)         (89)        (610)        (361)           -
   Net amount recognized                               $(2,563)     $(1,588)     $  (774)     $  (935)     $  (726)     $  (436)
                                                       ========     ========     ========     ========     ========     ========

   Amounts recognized in the
    statement of financial position
    consist of:
   Accrued benefit liability                           $(4,177)     $(2,791)     $(2,370)     $  (935)     $  (726)     $  (436)
   Intangible asset                                      1,614        1,203        1,596            -            -            -
                                                       --------     --------     --------     --------     --------     -------
   Net amount recognized                               $(2,563)     $(1,588)     $  (774)     $  (935)     $  (726)     $  (436)
                                                       ========     ========     ========     ========     ========     ========

   Weighted average assumptions as
    of December 31:
   Discount rate                                           6.5%         7.0%         7.0%         6.5%         7.0%         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         12.9%        13.8%        14.0%
   Leveling to an ultimate rate of:                        n/a          n/a          n/a          5.0%         5.0%         6.0%
   Over:                                                   n/a          n/a          n/a      10 years     10 years     15 years

</TABLE>

                                       68
<PAGE>

     The components of net periodic benefit costs recognized for the years ended
     December 31, 1998, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                 Pension Benefits                    Medical Benefits
                                                 ----------------                    ----------------
                                            1998       1997      1996          1998      1997       1996
                                            ----       ----      ----          ----      ----       ----
<S>                                      <C>        <C>       <C>           <C>       <C>        <C>    
     Service cost                        $   506    $   415   $   407       $    75   $   107    $   196
     Interest cost                           290        220       188            57        72         81
     Amortization of prior service cost      179        179       179           159       159        159
     Actuarial gains                           -          -         -           (66)      (35)         -
                                         -------    -------   -------       --------  --------   -------
     Net periodic postretirement
          benefit cost                   $   975    $   814   $   774       $   225   $   303    $   436

</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       $25                  $(20)
           for the period  ending  December  31, 1998
      Effect on accumulated  postretirement benefit obligation      151                  (131)
           as of December 31, 1998
</TABLE>

14.  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.

     On April 4, 1996, the Company consummated the purchase of 627,000 shares of
     its common stock from Maxwell Communication Corporation plc (In
     Administration) at a price of $9 per share. Such shares were placed into
     treasury. As previously discussed, 250,000 of these shares were
     subsequently sold to BHI, 377,000 shares were subsequently reserved for use
     under the 1996 Stock Option Plan, and the balance are reserved for future
     uses.

15.  Subsequent Event

     On March 11, 1999 (the "Issue Date"), the Company's shareholders approved
     the issuance of, and the Company issued, $155,000 aggregate principal
     amount of 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) $100,000 aggregate principal (the "Apollo
     Debentures") to two affiliates of Apollo Management IV, L.P. ("Apollo"), a

                                       69
<PAGE>

     private investment firm; and b) $55,000 aggregate principal (the "Benesse
     Debentures") to 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.

     The Apollo and Benesse Debentures each independently provide for optional
     redemption by the Company, in whole but not in part, anytime after 3 years
     and 2 months. 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 receives 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 

                                       70
<PAGE>

     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 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.

     In a separate transaction, on March 11, 1999, BHI loaned $50,000 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
     would be payable semiannually in cash while principal repayment would be
     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 has 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 Company's existing bank
     credit agreement (see Note 8) and existing notes payable to affiliates (see
     Note 11(b)), and for general corporate purposes. The Company has also
     terminated its interest rate swap agreement, which hedged the floating rate
     bank indebtedness (see Note 10(b)), for a cash payment of approximately
     $1,100. In the 1999 

                                       71
<PAGE>

     first quarter, the Company will record an extraordinary loss, net of tax,
     of $[ ], consisting of the interest rate swap's fair market value and any
     unamortized deferred finance costs at the time of extinguishment of the
     underlying debt.

     The Company anticipates incurring approximately $3,500 in transaction costs
     in connection with the issuance of the Convertible Debentures and BHI Note.
     Such costs will be amortized over the 12-year life of the Convertible
     Debentures and BHI Note.

16.  Operating Segments

     The Company's operations are principally conducted through four reportable
     segments: Instruction, Translations, Publishing and Franchising. These are
     strategic business units that offer different products and services and
     that are managed separately by senior management due to different
     technology and marketing strategies. Through the use of proprietary methods
     and materials, the Instruction segment provides predominantly live language
     education in virtually all spoken languages, as well as cross-cultural
     training. The Translations segment provides high quality technical
     documentation translation, software localization (i.e. the translation of
     software-related products), software quality assurance testing,
     interpretation services, electronic publishing services, and other foreign
     language-related services. The Publishing 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 segment sells Berlitz language center franchises to independent
     franchisees in certain locations.

     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:

<TABLE>
<CAPTION>
                                                           Twelve Months ended December. 31,
                                                           ---------------------------------
                                                        1998             1997              1996
                                                        ----             ----              ----
<S>                                              <C>              <C>               <C>        
         Revenues:
           Revenues from external customers:
              Instruction                        $   335,452      $   298,300       $   276,167
              Translation                             84,794           84,192            76,991
              Publishing                              14,787           13,634            15,451
              Franchising                              1,270            1,039               559
                                                 -------------    -------------     -------------
                Total external revenues              436,303          397,165           369,168
                                                 -------------    -------------     -------------

           Intersegment revenues:
              Franchising                                516              908                 -
                                                 -------------    -------------     -------------
                Total  intersegment revenues             516              908                 -
                                                 -------------    -------------     -------------

           Total revenues for reportable  segments   436,819          398,073           369,168
            Other  revenues and  elimination of
             intersegment revenues                      (516)            (864)              454
                                                 -------------    -------------     -------------
              Total consolidated revenues        $   436,303      $   397,209       $   369,622
                                                 =============    =============     =============
</TABLE>

                                       72
<PAGE>

<TABLE>
<CAPTION>
                                                              Twelve Months ended December. 31,
                                                              ---------------------------------
                                                          1998             1997              1996
                                                          ----             ----              ----

<S>                                                <C>              <C>               <C>        
           Income before taxes and minority interest:
           Operating Profit:
             Segment EBITA:
                Instruction                        $    62,297      $    60,752       $    54,257
                Translation                             10,141            7,704             5,089
                Publishing                               1,334              600             1,409
                Franchising                                 37             (725)             (834)
                                                   -------------    -------------     -------------

             Total  EBITA for reportable segments       73,809           68,331            59,921
             General corporate and  nonsegment
                expenses                               (33,495)         (31,087)          (26,307)
                                                   -------------    -------------     -------------
              Total EBITA                               40,314           37,244            33,614
                                                   -------------    -------------     -------------
              Amortization of publishing rights, 
                excess of cost over net assets 
                acquired, and other intangibles:
                  Instruction                          (15,531)         (12,235)          (10,771)
                  Translation                           (1,336)          (1,546)           (1,581)
                  Publishing                              (398)            (402)             (394)
                                                   -------------    -------------     -------------
                Total intangible amortization          (17,265)         (14,183)          (12,746)
                                                   -------------    -------------     -------------

           Total operating profit                       23,049           23,061            20,868
           Interest expense on long-term debt          (10,956)          (8,523)           (7,647)
           Interest expense to affiliates               (2,226)          (2,100)           (1,848)
           Other income (expense), net                  (2,188)             615             1,441
                                                   =============    =============     =============
           Total consolidated income before
           taxes and minority interest             $     7,679      $    13,053       $    12,814
                                                   =============    =============     =============


  Assets:                                                             December 31,
                                                   ------------------------------------------------
                                                        1998              1997              1996
                                                   -------------    -------------     -------------
    Segment assets:
       Instruction                                 $   539,078      $   544,179       $   450,703
       Translation                                      84,804           82,420            78,030
       Publishing                                       23,982           21,410            22,374
       Franchising                                       6,633            4,649             2,668
                                                   -------------    -------------     -------------
                                                                    
    Total  assets for reportable segments              654,497          652,658           553,775
    General corporate and nonsegment assets             13,454            9,845             7,776
    Eliminations of intersegment receivables            (4,490)            (988)             (306)
                                                   =============    =============     =============
       Total consolidated assets                   $   663,461      $   661,515       $   561,245
                                                   =============    =============     =============


                                                              Twelve Months ended December. 31,
                                                              ---------------------------------
                                                          1998             1997              1996
                                                          ----             ----              ----
           Depreciation:
             Segment depreciation:
                Instruction                        $     5,403       $    4,615       $     4,610
                Translation                              2,148            2,049             1,810
                Publishing                               1,244              722             1,056
                Franchising                                 11                8                14
                                                  --------------    -------------    ----------------
             Total  depreciation for
                reportable segments                      8,806            7,394             7,490
             General corporate and divisional              985            1,170               483
                                                  ==============    =============    ================
                Total consolidated depreciation $        9,791       $    8,564       $     7,973
                                                  ==============    =============    ================

                                       73
<PAGE>

                                                              Twelve Months ended December. 31,
                                                              ---------------------------------
                                                          1998             1997              1996
                                                          ----             ----              ----
           Capital expenditures:
             Segment capital expenditures:
                Instruction                        $    11,396      $     9,095       $     5.693
                Translation                              3,125            2,167             3,903
                Publishing                               2,472            2,771             1,289
                Franchising                                  4                3                 -
                                                   -------------    -------------     -------------
             Total capital expenditures for
                reportable segments                     16,997           14,036            10,885
             General corporate and divisional            1,952              581             2,149
                                                   =============    =============     =============
                Total consolidated capital
                  expenditures                     $    18,949      $    14,617       $    13,034
                                                   =============    =============     =============

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

                                                              Twelve Months ended December. 31,
                                                              ---------------------------------
                                                          1998             1997              1996
                                                          ----             ----              ----
         Revenues from external customers:
           United States                           $   158,763      $   126,056       $    98,566
           Japan                                        58,289           61,892            68,764
             Germany                                    41,497           37,324            41,673
             Ireland                                    23,186           28,066            20,305
             Brazil                                     21,007           20,823            19,139
           Other foreign countries                     133,561          123,048           121,175
                                                   =============    =============     =============
              Total                                $   436,303      $   397,209       $   369,622
                                                   =============    =============     =============
                                                                  
         Operating profit:
           EBITA :
              United States                        $    20,733      $    18,398       $    14,905
              Japan                                      6,113            9,125             9,655
              Germany                                    5,195            2,894             1,834
              Ireland                                    2,068            3,321             3,040
              Brazil                                     3,205            3,118             2,921
              Other foreign countries                   20,049           17,116            15,463
              General corporate expenses               (17,049)         (16,728)          (14,204)
                                                   -------------    -------------     -------------
                Total EBITA                             40,314           37,244            33,614
                                                   -------------    -------------     -------------
                                                                  
           Amortization of publishing rights, 
            excess of cost over net
            assets acquired, and other intangibles:
              United States                            (14,352)         (10,891)           (9,223)
              Japan                                     (1,196)          (1,294)           (1,443)
              Germany                                     (259)            (269)             (307)
              Ireland                                      (74)            (347)             (364)
              Brazil                                       (64)             (64)              (63)
              Other foreign countries                   (1,320)          (1,318)           (1,346)
                                                    -------------    -------------     -------------
                Total  intangible amortization         (17,265)         (14,183)          (12,746)
                                                    -------------    -------------     -------------

           Intercompany royalties:
              United States                             17,280           17,449            11,841
              Japan                                     (4,248)          (5,684)                -
              Germany                                   (1,508)          (1,386)           (1,578)
              Ireland                                   (1,148)          (1,399)           (1,056)
              Other foreign countries                  (10,376)          (8,980)           (9,207)
                                                    -------------    -------------     -------------
                Total intercompany royalties                  -                -                -
                                                    -------------    -------------     -------------
                                                
         Total operating profit                     $   23,049      $    23,061       $    20,868
                                                    =============    =============     =============
</TABLE>

                                       74
<PAGE>

<TABLE>
<CAPTION>

Long lived assets:                       Property &
                                         Equipment           Other          Intangible
                                            net             Assets            Assets            Total
                                        -------------    --------------    -------------    --------------
December 31, 1998:
<S>                                     <C>              <C>               <C>              <C>        
  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
    Brazil                                    3,250                -             2,145            5,395
    Ireland                                   1,562              151             1,793            3,506
  Other foreign countries                    12,316              192            36,365           48,873
  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
  Brazil                                      2,219                -             2,208            4,427
  Ireland                                     2,003               33             1,796            3,832
  Other foreign countries                    10,988              216            35,856           47,060
  General corporate                           1,896            1,727             1,596            5,219
                                        =============    ==============    =============    ==============
     Total                              $    32,098      $     7,226       $   516,167      $   555,491
                                        =============    ==============    =============    ==============

December  31, 1996:
  United States                         $     4,568      $     1,584       $   325,285      $   331,437
  Japan                                       7,090               41            48,741           55,872
  Germany                                     2,869               29            10,833           13,731
  Brazil                                      1,536                -             2,271            3,807
  Ireland                                     1,793                -             2,452            4,245
  Other foreign countries                    12,182            1,361            45,297           58,840
  General corporate                           2,060            3,578             1,596            7,234
                                        =============    ==============    =============    ==============
     Total                              $    32,098      $     6,593       $   436,475      $   475,166
                                        =============    ==============    =============    ==============
</TABLE>

                                       75
<PAGE>



17.      Quarterly Financial Data (unaudited)

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                        -----------------------------------------------------------
                                        March 31          June 30           Sept 30           Dec 31            Year
                                        --------          -------           -------           ------            ----

1998:
<S>                                    <C>             <C>             <C>              <C>             <C>      
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
                                       =========       =========       =========        =========       =========

1997:
Sales of services and products         $  89,252       $  95,894       $ 104,436        $ 107,627       $ 397,209
Operating profit                           3,073           7,702           6,816            5,470          23,061
Income before income taxes,
 minority interest and extraordinary
 item                                        565           5,847           4,310            2,331          13,053
Net income before extraordinary
  item                                       168           1,949             828            2,406           5,351
Net income (loss)                            168           1,949          (5,457)           2,406            (934)
Basic and diluted earnings
  (loss) per share                     $    0.02       $    0.20       $   (0.57)       $    0.25       $   (0.10)
                                       =========       =========       =========        =========       =========

</TABLE>

                                       76
<PAGE>

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


                                   Schedule II

<TABLE>
<CAPTION>
                                   Balance at         Charged to                                          Balance
                                    Beginning           Cost and                                          at End of
                                      of Year           Expenses     Deductions (1)       Other (2)       of Year
                                      -------           --------     --------------       ---------       -------

Allowances for doubtful accounts:

<S>                                   <C>                <C>             <C>              <C>              <C>   
Year Ended December 31, 1998          $2,415             $  728          $ (899)          $   51           $2,295

Year Ended December 31, 1997          $1,914             $1,129          $ (465)          $ (163)          $2,415

Year Ended December 31, 1996          $1,468             $1,168          $ (698)          $  (24)          $1,914

</TABLE>


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

(2)  Principally represents foreign currency translation.

                                       77

<PAGE>

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

Not applicable.
                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

The information required by Item 401 of Regulation S-K with respect to Directors
and Executive Officers of the Company is set forth in Part I of this Form 10-K.
The information required by Item 405 of Regulation S-K with respect to Directors
and Executive Officers of the Company is set forth in Item 12 to this Form 10-K.

ITEM 11.  Executive Compensation

Summary of Cash and Certain Other Compensation

The following Summary Compensation Table sets forth the compensation awarded to,
earned by or paid to the Chief Executive Officer ("CEO") and certain executive
officers (collectively, the "Named Executive Officers") during the fiscal years
ended December 31, 1998, 1997 and 1996 for services rendered in all capacities
to the Company and its subsidiaries.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                                    Long-Term
                                               Annual Compensation              Compensation (3)
                                               -------------------              ----------------
                                                                     Other   Awards of
Name and                                                            Annual    Options/          LTIP      All Other
Principal Position                         Salary       Bonus Compensation        SARs       Payouts   Compensation
                                Year          ($)         ($)        ($)(2)        (#)           ($)         ($)(4)
                                ----          ---         ---        ------        ---           ---         ------


<S>                             <C>       <C>          <C>           <C>         <C>         <C>           <C>
Hiromasa Yokoi                  1998      523,912      186,700       65,724      None        530,000       10,400
Vice Chairman of the Board,     1997      499,052      202,200       65,730      46,220      None          10,390
CEO and President               1996      480,000       84,000       60,469      None        None           9,750
Manuel Fernandez                1998      259,512       55,500        1,165      None        200,000       10,400
Executive Vice President and    1997      251,908       65,000       23,671      20,300      None          10,400
Chief Operating Officer,        1996      240,000       40,900          990      None        None           9,750
Worldwide Language Instruction

Robert Minsky                   1998      247,117       52,800          979      None        200,000       10,400
Executive Vice President,       1997      240,000       35,000          926      20,300      None          10,400
Corporate Planning and          1996      240,000       10,000          874      None        None           9,750
Marketing

Henry D. James                  1998      234,809       69,800          894      None        186,000       10,400
Executive Vice President and    1997      218,335       75,300          826      20,300      None          10,334
Chief Financial Officer         1996      210,000       32,000          771      None        None           9,750

James Lewis (1)                 1998      229,449       82,600        9,677      10,000      None           4,281
Vice President,                 1997       72,692       33,800      124,911       5,120      None            None
Worldwide Translations          1996            -            -            -           -            -            -

</TABLE>

                                       78
<PAGE>

(1)  Mr. Lewis' employment with the Company commenced on September 2, 1997.

(2)  Other Annual Compensation for Mr. Yokoi primarily represents monthly
     housing allowances. For Mr. Fernandez, this column includes relocation
     expense reimbursements of $22,600 in 1997. For Mr. Lewis, this column
     represents relocation expense reimbursements.

(3)  The column designated by the SEC to report Restricted Stock Awards has been
     excluded because the Company made no awards of restricted stock to the
     Named Executive Officers during any portion of fiscal years 1996, 1997 or
     1998. There were no Common restricted shares outstanding at December 31,
     1998.

(4)  The amounts reported in this column for the fiscal year 1998 include a
     contribution of up to $4,800 made by the Company for the account of each
     Named Executive Officer pursuant to the thrift portion (the "401(k) Plan")
     of the Berlitz Retirement Savings Plan (the "Retirement Savings Plan"). The
     amounts reported also include a contribution of up to $5,600 made by the
     Company for the account of each Named Executive Officer pursuant to the
     retirement portion (the "Pension Plan") of the Retirement Savings Plan.

                                       79
<PAGE>

Pension Plan Table

The Company's Supplemental Executive Retirement Plan ("SERP"), effective January
1, 1996, is a defined benefit plan which provides retirement income/disability
retirement benefits, retiree medical benefits and death benefits to the Chairman
of the Board(1), certain designated executives and their designated
beneficiaries. The following table shows the estimated annual retirement
income/disability retirement benefits (assuming payments made on the normal life
annuity) payable upon retirement at age 60 to a participant in specified
compensation and years of service classifications.

                                             Years of Service
                                             ----------------
                        Initial
                        Participant
                        (hereinafter
                        defined)                 All Other Participants
                        --------                 ----------------------
     Compensation       5 or more           5           10         15 or more
     ------------       ---------       --------    ---------      ----------
     $100,000           $  30,000       $ 10,000    $  20,000     $  30,000
      150,000              45,000         15,000       30,000        45,000
      200,000              60,000         20,000       40,000        60,000
      250,000              75,000         25,000       50,000        75,000
      300,000              90,000         30,000       60,000        90,000
      400,000             120,000         40,000       80,000       120,000
      550,000             165,000         55,000      110,000       165,000
      750,000             225,000         75,000      150,000       225,000

Under the SERP, monthly benefits are available to any participant who retires at
age 60 or above, with at least 5 years of service with the Company. The
retirement income/disability retirement benefits are based on a percentage of an
average monthly salary (calculated on the base salary and short-term bonuses
paid over the last 36 months of employment(2)) and will be paid to the retired
participant for life, with 50% of such benefit paid to the participant's
surviving spouse for life upon the retired participant's death. Such percentage
for participants designated as of January 1, 1996 ("Initial Participants") is
30%. For future participants, such percentage will be 2% (or such other
percentage as the Board of Directors may determine) multiplied by years of
service, not to exceed 30%. The Company will also provide each retired
participant and their surviving spouse with medical coverage for both of their
lives. If a participant with at least 5 years of service dies before retirement,
the participant's designated beneficiary will receive, in lieu of the
above-mentioned benefits, a one-time payment equal to the participant's base
salary projected to age 65 at a 4% annual increase. Awards under the SERP are
not subject to deduction for Social Security or other offset amounts, except to
the extent of any disability benefits payable under the Company's long-term
disability insurance policy. The Company intends to fund the SERP through a
combination of funds generated from operations and life insurance policies on
the participants.



---------------
1    The Chairman relinquished all benefits under the SERP in exchange for the
     grant of 50,000 options on June 30, 1997 under the Company's 1996 Stock
     Option Plan.
2    In the case of the Chairman of the Board, who does not receive a salary
     from the Company, the SERP benefits were based on an imputed salary
     determined by the Company's Board of Directors.

                                       80
<PAGE>

In 1998, the Company established an irrevocable grantor trust (the "Trust"),
within the meaning of the Internal Revenue Code of 1986, 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, 1998 is
$2,502 held in the Trust.

The Named Executive Officers, all of whom are Initial Participants except for
Mr. Lewis, will each have at least 5 years of service at age 60. The
compensation covered under the SERP for each of the Named Executive Officers is
shown under the "Salary" and "Bonus" columns of the Summary Compensation Table.

Option/SAR Grants in Fiscal Year 1998

The following awards were made pursuant to the 1996 Stock Option Plan
(hereinafter defined). See the "Compensation Committee Report" for a further
description.

<TABLE>
<CAPTION>

                                 Grant       Number of     % of Total      Exercise      Expiration    Grant Date
                                  Date       Securities      Options     Price ($/Sh)       Date         Present
                                             Underlying    granted to                                   Value ($)
                                              Options     Employees in                                     (1)
                                              Granted      Fiscal Year
     Name                                       (#)
                              ------------- ------------- -------------- -------------- -------------- ------------
<S>                              <C>  <C>       <C>           <C>           <C>             <C>  <C>     <C>    
     James Lewis                 12/4/98        10,000        38.85%        $30.00          12/3/05      $82,900
</TABLE>


(1)  The fair value of each option grant during 1998, 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:

                 Weighted average assumptions used to estimate
                 fair value:
                    Dividend yield                            0.00%
                    Expected volatility                      20.00%
                    Risk free interest rate                   4.31%
                    Expected lives in years                   5.00
                 Fair value of each option                   $8.29
                 granted


1998 Board of Directors Meetings, Committees and Fees

During 1998, the Board of Directors of the Company met in person three times,
participated in one telephonic meeting and took action by unanimous consent
once.

                                       81
<PAGE>

In 1998, the Board of Directors had standing Executive, Audit, Disinterested
Directors, Compensation, and Nominating Committees.

The Executive Committee, during the intervals between meetings of the Board of
Directors, may, with certain exceptions, exercise the powers of the Board of
Directors. The Executive Committee did not meet during 1998.

The Audit Committee recommends to the Board of Directors the engagement of the
independent auditors of the Company and reviews with the independent auditors
the scope and results of the Company's audits. The Audit Committee reviews the
terms of all agreements between the Company and its affiliates. The Audit
Committee meets with management and with the Company's internal auditors and
independent auditors to review matters relating to the quality of financial
reporting and internal accounting control, including the nature, extent and
results of their audits, and otherwise maintains communications between the
Company's independent auditors and the Board of Directors. The Audit Committee
met three times during 1998.

The Disinterested Directors Committee reviews and monitors all matters affecting
the relationship between the Company and Benesse Corporation ("Benesse") and its
affiliates During 1998, the Disinterested Directors Committee met in person
once, and participated in two telephonic meeting and acted by unanimous consent
twice.

The Compensation Committee reviews performance of corporate officers,
establishes overall employee compensation policies and recommends to the Board
of Directors major compensation programs. The Compensation Committee also
reviews and approves salary arrangements and other remuneration for executive
officers of the Company and is responsible for review of certain employee
benefit plans. The Compensation Committee oversees and approves grants of stock
options and other stock-based awards pursuant to the 1989 and 1996 Stock Option
Plans (individually, the "1989 Stock Option Plan" and the "1996 Stock Option
Plan", and collectively, the "Stock Option Plans") and the Company's
Non-Employee Directors Stock Plan (the "Directors' Stock Plan"). The Committee
also administers the 1993 Short-Term Executive Incentive Compensation Plan (the
"Short-Term Incentive Plan"), and the 1996 New Long-Term Executive Incentive
Compensation Plan (the " New LTIP"), which replaced the 1993 Long-Term Executive
Incentive Compensation Plan (the "Old LTIP"), and approves awards and
discretionary bonuses under these plans. No member of the Compensation Committee
is eligible to participate in the Stock Option Plans or the Short-Term Incentive
Plan, except for a special grant on December 9, 1997 of 500 options to each
Director. During 1998, the Compensation Committee met two times.

The Nominating Committee nominates Directors and considers possible successors
to senior executives. During 1998, the Nominating Committee met once, and took
action by unanimous consent twice.

The Company's standard retainer payable to each director who is not an employee
of the Company or any of its affiliates is $35,000 per annum, plus expenses,
with an additional $2,000 for each Committee meeting attended in person and
$1,000 for each meeting participated in by telephone. No fees are paid for
actions taken by unanimous written consent. Only those directors who are also

                                       82
<PAGE>

full-time employees of the Company or any of its affiliates are eligible to
participate in the health benefit plan maintained by the Company. Directors
employed by the Company or any of its affiliates receive no compensation in
consideration of their duties as directors. The outside directors earned an
aggregate of approximately $155,000 as cash compensation for their services
during 1998.

The Company has entered into indemnification agreements with each director
pursuant to which the Company agreed to pay any amount such director becomes
obligated to pay as a result of any claims made against such director because of
any alleged act, omission, neglect or breach of duty which he commits while
acting in his capacity as a director and solely because of his being a director,
subject to limitations imposed by the New York Business Corporation Law
("NYBCL").

Employment Contracts and Termination of Employment and Change of Control
Arrangements

The Company has a severance agreement with Robert Minsky which provides that if
Mr. Minsky is terminated other than for cause, he is to be paid one year's
severance at his then current annual base salary plus a prorated amount of the
award under the Company's Short-Term Incentive Plan to which he would have been
entitled for such year and the continuation of certain other benefits.

The Company also has a severance agreement with James Lewis which provides that
if Mr. Lewis is terminated other than for cause, he is to be paid 15 months of
severance at his then current annual base salary plus a prorated amount of the
award under the Company's Short-Term Incentive Plan to which he would have been
entitled for such year. He also would receive a one-time relocation payment
equal to that which he received when joining the Company, which was
approximately $135,000.

The Company is a party to indemnification agreements with each director and
executive officer pursuant to which the Company agrees to pay, subject to
limitations imposed by the NYBCL, any amount such director or executive officer
becomes obligated to pay as a result of any claims made against such director or
executive officer because of any alleged act or omission or neglect or breach of
duty which he commits while acting in his capacity as a director or executive
officer, as the case may be.

               COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1998

The Compensation Committee of the Board of Directors reviews and determines the
compensation of the Company's executive officers. It also reviews and approves
any employment, severance or similar agreements for executive officers. The
Committee determines the amount, if any, of the Company's contributions pursuant
to the Retirement Savings Plan, and oversees and approves grants of stock
options and other stock-based awards pursuant to the Stock Option Plans and the
Directors' Stock Plan. The Committee also administers the Short-Term Incentive
Plan and the New LTIP (which has replaced the Old LTIP) and approves awards and
discretionary bonuses under each of such plans.

The Company seeks to compensate executive officers at levels competitive with
other companies with similar annual revenues and to provide incentives for
superior individual and corporate 

                                       83
<PAGE>

performance. Salaries are set to correspond to the mid-range of salaries paid by
competitive companies. In setting compensation, the Company compares itself with
companies with similar annual revenues rather than with industry peers because
the Company is the only publicly-held language instruction company.

The key components of executive officer compensation are base salary, cash
bonuses, and awards pursuant to incentive-based plans. The Committee attempts to
combine these components in such a way to attract, motivate and retain key
executives critical to the long-term success of the Company. A discussion of the
various components of executive compensation for the fiscal year 1998 follows.

Base Salary
Each executive officer receives a base salary, with the potential for annual
salary increases based largely on merit from prior annual performance.

The proposed annual compensation of Company employees for the 1998 and 1999
calendar years was discussed at Compensation Committee meetings held in 1997 and
1998. Base salary recommendations were made by management of the Company for the
Committee to approve. After review and consideration by the Committee of
management's recommendations, the Committee approved base salary adjustments for
executive officers considering individual and Company performance. Such
adjustments averaged 1.8% and 3.3% for 1999 and 1998, respectively. The criteria
used to evaluate Company performance were sales and earnings figures, and return
on equity. The Committee believes that all such criteria were accorded equal
weight.

Bonuses
In 1993, the Committee approved the Short-Term Incentive Plan, commencing with
the 1993 calendar year, pursuant to which each executive officer is eligible for
an annual bonus based upon the officer's present employment position, individual
performance, and, through 1994, the total Company's performance compared to
earnings goals. In 1995, the Committee amended the Short-Term Incentive Plan so
that Division Vice Presidents would receive 1995 and subsequent years' awards
based on 60% of divisional performance and 40% of total Company performance. The
Committee believes that individual performance and Company performance are given
approximately equal weight. The Short-Term Incentive Plan also permits the
Committee to award discretionary cash awards to employees, who may or may not be
participants under the Short-Term Incentive Plan, subject to those terms and
conditions as the Committee shall determine in its sole discretion.

At its March 1999 meeting, the Committee approved, after discussion, 1998
bonuses for executive officers under the Short-Term Incentive Plan. Such bonuses
that accrued for 1998 ranged up to 42% (and averaged 24%) of each executive
officer's base salary. The Committee also approved a discretionary special bonus
proposal for certain executive officers, recommended by management based upon
exceptional individual performance. Such special bonuses that accrued for 1998
were not material.

Stock Options and Restricted Stock
The 1989 Stock Option Plan provides for the award of stock options, restricted
stock and other stock-based awards to senior management of the Company. Grants
under this plan are intended to provide executives with the promise of
longer-term rewards which appreciate in value with favorable 

                                       84
<PAGE>

future performance of the Company. In determining grants of stock options and
restricted stock, the Compensation Committee reviews individual performance and
Company performance. The criteria used to evaluate Company performance include
sales and earnings figures, and return on equity. The Committee believes that
all such criteria are accorded equal weight. The Committee did not approve, and
the Company did not make, any grants of stock options, restricted stock, or any
other stock-based award under the 1989 Stock Option Plan in 1996, and there are
no outstanding option grants under this plan.

In September 1996, the Company adopted, subject to shareholder approval which
was obtained in 1997, the 1996 Stock Option Plan, which, together with the New
LTIP (hereinafter discussed), replaced the Company's then existing Old LTIP. The
1996 Stock Option Plan, as amended, authorizes the issuance of a maximum of
503,225 options to directors and key executive employees of the Company. The
Company granted 327,200 of these options on June 30, 1997 at an exercise price
of $24.9375, 46,190 options on December 9, 1997 at an exercise price of
$26.5625, and 25,740 options on December 4, 1998 at an exercise price of $30.00.
Such exercise prices were based on the closing market price of the Company's
Common on the New York Stock Exchange on the date of grant.

Long-Term Executive Incentive Compensation Plans
In 1993, the Committee approved the Old LTIP, effective January 1, 1994,
pursuant to which the Chairman of the Board, officers and certain key employees
were eligible to receive, for each performance unit granted to the individual by
the Committee, cash awards based on Company performance and common stock price
results over a five year period ending on December 31, 1998. The plan was
instituted to, among other things, provide executives with a direct economic
interest in meeting long-term business objectives. Performance units were
granted by the Committee to each participant in its discretion. Criteria used to
evaluate Company performance were earnings and sales figures. For each
performance unit granted by the Committee, each participant was to receive a
cash award based on Company performance during 1998 and the Company's common
stock price on December 31, 1998. The Old LTIP also contained provisions
governing such awards in the event of a change of control of the Company or a
"going private" transaction with Benesse or its affiliates.

In September 1996, the Committee adopted the New LTIP, which together with the
1996 Stock Option Plan, replaced the Old LTIP. The New LTIP provided for
potential cash awards in 1999 to key executive employees and the Chairman of the
Board of the Company if certain sales and earnings goals were met for the year
ended December 31, 1998. Common stock price did not impact potential awards,
which could not exceed $5.0 million in the aggregate. While the New LTIP's
minimum threshold for potential awards was lower than under the Old LTIP, the
Old LTIP did not contain a limitation on maximum awards.

At its March 1999 meeting, the Committee approved, after discussion, the
issuance of $2.9 million in awards under the New LTIP.

Other Compensation
The executive officers also are eligible to participate in the Pension Plan. The
Pension Plan provides for the Company to make regular contributions based on
salaries of eligible employees. During 1998, pursuant to the plan documents, the
Company continued to contribute 3.5% of eligible 

                                       85
<PAGE>

employees' respective base salary to the Pension Plan. During 1998, the Company
also continued to provide matching contributions under the 401(k) Plan to all
domestic employees up to a maximum of 3% of the employee's salary.

Chief Executive Officer Compensation
Mr. Hiromasa Yokoi's base salary for 1998 was approximately $524,000, and he
also earned a bonus of $186,700 for 1998 under the Short-Term Incentive Plan.
The Compensation Committee approved and ratified the compensation paid to Mr.
Yokoi for fiscal year 1998 based on Mr. Yokoi's business experience and
familiarity with the Company, and his responsibilities to guide, among other
things, the Company's daily affairs and the Company's long-term strategic plan
in a global marketplace. The Company's 1998 performance was taken into
consideration in determining Mr. Yokoi's 1998 compensation package. The
Committee believes that Mr. Yokoi's 1998 compensation package was in line with
compensation packages of chief executive officers of other companies with
similar annual revenues.

Tax Legislation
The Committee has reviewed regulations issued by the U.S. Internal Revenue
Service which limit deductions for certain compensation in excess of $1 million
annually paid to executive officers of public companies. Based on present levels
of compensation, the Company does not anticipate the loss of deductibility for
any compensation paid over the next year.

Compensation Committee Membership
During 1998, the Compensation Committee consisted of Edward G. Nelson, Robert L.
Purdum and, from June 2, 1998, Takuro Isoda. Mr. Isoda's predecessor, Aritoshi
Soejima, retired on June 2, 1998. All of the views expressed by the Compensation
Committee in 1998 may not have been the views of each member of the Compensation
Committee individually. However, all decisions affecting compensation were
approved by all of the members of the Compensation Committee.

                   Compensation Committee for Fiscal Year 1998

                                Edward G. Nelson
                                Robert L. Purdum
                                  Takuro Isoda

                                       86
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As discussed above, during 1998, the Compensation Committee consisted of Edward
G. Nelson, Robert L. Purdum and, from June 2, 1998, Takuro Isoda. Mr. Isoda's
predecessor, Aritoshi Soejima, retired on June 2, 1998. None of these committee
members were officers of the Company or any of its subsidiaries during 1998 or
any previous year.

Aritoshi Soejima previously served as an advisor to Benesse. He resigned such
position prior to his appointment as a Disinterested Director and a member of
the Compensation Committee.

PERFORMANCE GRAPHS

The following graphs set forth the Company's total shareholder return as
compared to the S&P 400 Industrial Index and a peer group index (described
below) over a five-year period, beginning on December 31, 1993, and ending on
December 31, 1998. The total shareholder return assumes $100 invested at the
beginning of the period in the Company's common stock, the S&P 400 Industrial
Index and the peer group index. It also assumes reinvestment of all dividends.

As the Company is the only publicly-held language instruction company, there are
no directly comparable companies. Therefore, the Company has created a peer
group index of selected publicly-held companies in the educational services and
educational publishing industries. The companies included in this peer group
are: ITT Educational Services, Inc. (a leading proprietary provider of technical
post secondary degree programs in the U.S.); Education Management Corporation
(among the largest providers of proprietary post-secondary education in the U.S.
offering degree and non-degree programs in the areas of design, media arts,
culinary arts, fashion and paralegal studies); and three educational publishing
companies: Houghton Mifflin, John Wiley & Sons and McGraw-Hill, Inc. While none
of these companies are directly comparable to the Company, the Company believes
they come under either the same broad rubric of education-related activities as
the Company.

ITT Educational Services, Inc. has been publicly traded since December 1994, and
Education Management Corporation has been publicly traded since October 1996.
For purposes of creating the peer group index, these two companies have been
given a market capitalization weighting of zero for those periods prior to their
initial public trading dates.

ITT Educational Services, Inc. and Education Management Corporation replace
Flightsafety International and National Education Corporation, two companies
which were formerly included in the Company's peer group, but which were no
longer publicly traded beginning in 1997.

                                       87
<PAGE>

                           COMPARISON OF STOCK PRICES
            BERLITZ INTERNATIONAL, INC., THE S&P 400 INDUSTRIAL INDEX
                              AND PEER GROUP INDEX

                               [Graphic Omitted]

<TABLE>
<CAPTION>
                              1993             1994             1995             1996              1997              1998
-----------------------  ---------------  ---------------  ---------------  ---------------  ----------------  -----------------
<S>                      <C>              <C>              <C>              <C>              <C>               <C>     
Berlitz                  $ 100            $    95          $    120         $    149         $    194          $    211
-----------------------  ---------------  ---------------  ---------------  ---------------  ----------------  -----------------
S & P 400 Index          $ 100            $    101         $    134         $    161         $    208          $    274
-----------------------  ---------------  ---------------  ---------------  ---------------  ----------------  -----------------
Peer Group Index         $ 100            $    107         $    128         $    221         $    273          $    406
-----------------------  ---------------  ---------------  ---------------  ---------------  ----------------  -----------------
</TABLE>

                                       88
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number and percentage of shares of Common
Stock beneficially owned as of March 12, 1999 by each director, nominee, the
Named Executive Officers, and all officers and directors as a group. If not
mentioned by name, no individual in the categories described above beneficially
owned any shares of Common as of March 12, 1999. No security set forth in the
third column of the following table reflects an amount as to which the
beneficial owner has joint voting or investment power.

                                                  AMOUNT AND
                                                  NATURE OF
                            NAME OF               BENEFICIAL       PERCENT
   TITLE OF CLASS      BENEFICIAL OWNER           OWNERSHIP        OF CLASS
   --------------      ----------------           ---------        --------

   Common              Soichiro Fukutake          8,749,733 (1)     60.15%(8)
   Common              Hiromasa Yokoi                46,220 (2)     *
   Common              Manuel Fernandez              28,545 (3)     *
   Common              Robert Minsky                 22,657 (4)     *
   Common              Henry D. James                25,492 (5)     *
   Common              James Lewis                    1,200         *
   Common              Edward G. Nelson               1,500 (6)     *
   Common              Robert L. Purdum               2,000         *
   Common              Antony Ressler                     - (7)     *
   Common              Laurence Berg                      - (7)     *

                       All Officers and
                       Directors as a Group
   Common              (21 in number)             8,983,546         61.76% (8)
   ------


(1)  This amount includes: a) 6,985,338 shares of outstanding Common Stock
     beneficially owned by Benesse and its subsidiary, Benesse Holdings
     International ("BHI"); b) 1,664,145 shares of Common Stock which would be
     issuable upon conversion of $55 million in convertible debentures (the
     "Benesse Debentures") held by BHI; and c) 100,250 shares of Common Stock
     which would be issuable under currently exercisable stock options held by
     Mr. Fukutake. Mr. Fukutake is the President, Representative Director and
     principal shareholder of Benesse. Consequently, he could be deemed to be in
     ultimate control of Benesse and the beneficial owner of shares that it
     beneficially owns. See "Security Ownership of Certain Beneficial Owners."
(2)  Includes options to purchase 45,270 shares which are currently exercisable.
(3)  Includes options to purchase 19,800 shares which are currently exercisable.
(4)  Includes options to purchase 19,800 shares which are currently exercisable.
(5)  Includes options to purchase 17,820 shares which are currently exercisable.
(6)  An additional 1,000 shares of Common, for which Mr. Nelson has disclaimed
     ownership, are owned by Mr. Nelson's wife.
(7)  Does not include 3,025,718 shares of Common Stock which would be issuable
     upon conversion of $100 million in convertible debentures (the "Apollo
     Debentures") held by two affiliates of Apollo Advisors, L.P. ("Apollo"),.
     The beneficial ownership of these shares is disclaimed by each of Mr.
     Ressler and Mr. Berg, whose relationships with Apollo are described under
     "Executive Officers and Directors of the Registrant".

                                       89
<PAGE>

(8)  Assumes conversion of all convertible debentures held by Apollo and
     Benesse. In the event that Apollo converted all of the Apollo Debentures
     but Benesse did not convert any Benesse Debentures, Apollo would own
     approximately 24% of the total Common Stock then outstanding.
     Alternatively, in the event that Benesse converted all Benesse Debentures
     but Apollo did not convert any Apollo Debentures, Benesse would own
     approximately 77% of the total Common Stock then outstanding.

*    Less than 1%

To the best of the Company's knowledge, there are no events of delinquent filing
requiring disclosure under Item 405 of Regulation S-K, except that Benesse
Holdings International, Inc. ("BHI") did not timely file a Form 4 with respect
to its acquisition of 250,000 shares of common stock in April 1997 (BHI has
since filed a Form 4 with respect to the acquisition of such shares.)

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth the ownership by each person or group known by
the Company to own beneficially more than 5% of Common:

                        NAME AND ADDRESS OF                          PERCENT
    TITLE OF CLASS       BENEFICIAL OWNER          OWNERSHIP         OF CLASS
    --------------       ----------------          ---------         --------

    Common              Benesse Corporation (1)    8,749,733         60.15% (3)
                        3-17-17 Minamigata
                        Okayama-shi 700, Japan

    Common              Apollo Advisors, L.P. (2)  3,025,718         20.80% (3)
                        1999 Avenue of the Stars
                        Los Angeles, CA 90067

(1)  Fukutake Publishing Co., Ltd. changed its name to Benesse Corporation on
     April 1, 1995. As of March 12, 1999, 6,972,138 shares of outstanding Common
     Stock are held by a BHI, a wholly owned subsidiary of Benesse, and 13,200
     shares of outstanding Common Stock are held directly by Benesse. In
     addition, 1,664,145 shares of Common Stock would be issuable upon
     conversion of $55 million in convertible debentures (the "Benesse
     Debentures") held by BHI. An additional 100,250 shares of Common Stock
     would be issuable under upon exercise of currently exercisable stock
     options held by Mr. Fukutake. Soichiro Fukutake is the President,
     Representative Director and principal shareholder of Benesse.

(2)  Represents 3,025,718 shares of Common Stock which would be issuable upon
     conversion of $100 million in convertible debentures (the "Apollo
     Debentures") held by two affiliates of Apollo Advisors, L.P. ("Apollo").

(3)  Assumes conversion of all convertible debentures held by Apollo and
     Benesse. In the event that Apollo converted all of the Apollo Debentures
     but Benesse did not convert any Benesse Debentures, Apollo would own
     approximately 24% of the total Common Stock then outstanding.
     Alternatively, in the event that Benesse converted all Benesse Debentures
     but Apollo did not convert any Apollo Debentures, Benesse would own
     approximately [77%] of the total Common Stock then outstanding.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Kazuo Yamakawa currently serves as the Benesse nominee on the Board of
Directors of the Company pursuant to the acquisition by Benesse in January 1991
of a 20% interest in Berlitz Japan, Inc. ("Berlitz-Japan"), a subsidiary of the
Company.

                                       90
<PAGE>

On December 9, 1992, the Company and Benesse entered into a merger agreement
pursuant to which Benesse agreed to acquire, through a merger of the Company
with an indirect wholly owned U.S. subsidiary of Benesse (the "Merger"),
approximately 6.7 million shares of the Common. Additionally, on April 29, 1997,
the Company agreed to sell to BHI (formerly Fukutake Holdings (America), Inc.)
("BHI"), a wholly owned subsidiary of Benesse, 250,000 shares of the Company's
Common at $24.44 per share, the average market price for the ten days ended on
April 29, 1997. This private placement exempt from registration under the
Securities Act of 1933 was closed on May 12, 1997. Following this private
placement, Benesse beneficially owned 6,985,338 shares, which represents 73.3%,
of the 9,529,788 shares of Common outstanding at December 31, 1998. Public
shareholders of the Company held the remaining outstanding Common. Mr. Soichiro
Fukutake is the President, Representative Director and principal shareholder of
Benesse.

In September 1994, the Company borrowed $20.0 million from a U.S. subsidiary of
Benesse, as evidenced by a subordinated promissory note (the "U.S. Note")
bearing interest at a rate of 6.93% per annum. Berlitz-Japan also borrowed
(Y)1.0 billion (approximately $10.1 million) from Benesse as evidenced by an
interest-free subordinated promissory note (the "Japan Note"). In March 1996,
the Company received the proceeds of an additional $6.0 million subordinated
promissory note payable to a U.S. subsidiary of Benesse (the "FHAI Note"),
bearing interest at a rate of the six month LIBOR plus 1% per annum, reset
semi-annually. Such notes, (collectively, the "Benesse Notes") provided for
maturity on the earlier of June 30, 2003 or twelve months from the date that all
payment obligations under the Company's August 28, 1997 credit agreement (the
"Bank Facility") had been satisfied. To the extent that interest payments on the
U.S. or FHAI Notes were not permitted while any amounts remained outstanding
under the Bank Facility, such accrued interest rolled over semiannually into the
note principal. The Company recorded $2.2 million in interest expense on the
Benesse Notes in 1998.

The Benesse Notes ranked PARI PASSU with one another and were subordinate in
rights of payment to debt under the Bank Facility, including the currency coupon
swap agreements. Payment obligations under the U.S. Note were guaranteed by the
Company and its significant U.S. subsidiaries, subject to senior guarantees of
the Bank Facility. The Company and its significant U.S. subsidiaries also
executed a guarantee of payment obligations under the Japan Note, effective as
of the day following the date upon which all payment obligations under the Bank
Facility are satisfied.

On March 11, 1999 (the "Issue Date"), the Company's shareholders approved the
issuance of, and the Company issued, $155 million aggregate principal amount of
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 (the "Apollo Debentures") to two
affiliates of Apollo Management IV, L.P. ("Apollo"), a private investment firm;
and b) $55 million aggregate principal (the "Benesse Debentures") to BHI. 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").
The Company has 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 Company's existing Bank 

                                       91
<PAGE>

Facility and Benesse Notes, and for general corporate purposes. Assuming
conversion of all of the debentures issued in the transaction, Apollo will own
approximately 20% of the outstanding common stock of Berlitz and BHI will own
approximately 60%.

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.

The Apollo and Benesse Debentures each independently provide for optional
redemption by the Company, in whole but not in part, anytime after 3 years and 2
months. 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 receives 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 

                                       92
<PAGE>

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 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 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 would be payable semiannually
in cash while principal repayment would be 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 and Benesse maintain a joint Directors and Officers ("D&O")
insurance policy covering acts by directors and officers of both Benesse and the
Company. Consequently, the premium on the D&O policy is allocated 60% to Benesse
and 40% to the Company, except for, in 1997, the premium for entity coverage
which benefited the Company only and was allocated 100% to the Company,
resulting in a total D&O allocation of 57% to Benesse and 43% to the Company for
1997. Since May 1995, the Company has also maintained a stand-alone Employment
Practices Liability ("EPL") insurance policy covering the Company, its officers
and directors (including the Benesse directors who are also directors of the
Company). The premium on the EPL policy is allocated 30% to Benesse and 70% to
the Company.

The Company and Benesse participated in certain other joint business
arrangements during 1998, in 

                                       93

the ordinary course of business, including the following:

o    Pursuant to extended industrial block contracts dated [July 24, 1997 and
     August 6, 1996], Berlitz-Japan provided lessons to Benesse at its standard
     rate for prepaid industrial lessons which was approximately 20% below the
     rate charged for individual instruction. Revenues under these contracts
     aggregated [ ] Yen (approximately $[ ] at an average 1997 exchange rate of
     (Y)121.13).

o    The Company's subsidiary, Berlitz Franchising Corporation, entered into a
     standard franchise agreement dated July 30, 1997 with the Okayama Language
     Center, Inc., a corporation formed by Benesse and the Okayama Institute of
     Languages, the latter being controlled by Mr. Fukutake's sister-in-law.

o    On June 30, 1997, the Company granted 100,250 stock options to Mr. Fukutake
     at an exercise price of $24.9375, equal to the closing price of the
     Company's common stock on the New York Stock Exchange on the date of grant.
     50,000 of these options had been granted in exchange for the complete
     relinquishment by Mr. Fukutake of all benefits under the Company's
     Supplemental Executive Retirement Plan ("SERP").

o    Pursuant to a services agreement, Benesse periodically offered its
     customers language and homestay programs arranged and operated by the
     Company's specialty instruction program, Berlitz Study Abroad(R). Benesse
     also periodically offered its customers language study and homestay
     programs arranged and operated by Berlitz on Campus(TM), another of the
     Company's specialty instruction programs. The Company and Benesse also
     participated in certain other joint business arrangements in the ordinary
     course of business, none of which had a material effect on the financial
     statements.

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

                                       94

<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 35.

     3.   EXHIBITS

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

EXHIBIT NO.

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

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

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

4.1  Specimen Certificate of Old Common Stock with Legend. Exhibit 4.3 to the
     Company's Form 10-K for the fiscal year ended December 31, 1991 is
     incorporated by reference herein.

4.2  Specimen Certificate of Common Stock. Exhibit 4.1 to Registration Statement
     No. 33-56566 is incorporated by reference herein.

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 

                                       95
<PAGE>

     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.

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.

                                       96
<PAGE>

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.

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),

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<PAGE>

      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.

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.

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<PAGE>

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.

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 

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<PAGE>

       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.

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 

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<PAGE>

       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.

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.

21*    List of subsidiaries of the registrant.

27*    Financial Data Schedule.


     *Filed herewith.

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<PAGE>

B.   Reports on Form 8-K:

     A Form 8-K was filed on October 6, 1998, to announce the Company's signing
     of definitive documents for the issuance of $155 million aggregate amount
     of convertible debentures to Benesse Holdings International and two
     affiliates of Apollo Advisors, L.P.

     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.

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<PAGE>

                                   SIGNATURES

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

                                 BERLITZ INTERNATIONAL, INC.

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

Dated:  March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


/s/  SOICHIRO FUKUTAKE       Chairman of the Board               March 31, 1999
------------------------
     Soichiro Fukutake

/s/  HIROMASA YOKOI          Vice Chairman of the Board,         March 31, 1999
------------------------     Chief Executive Officer,
     Hiromasa Yokoi          and President
                             (Principal Executive Officer)

/s/  JAMES LEWIS             Executive Vice President, Chief     March 31, 1999
------------------------     Operating Officer, Worldwide 
     James Lewis             Translations, and Director


/s/  ROBERT MINSKY           Executive Vice President, Corporate March 31, 1999
------------------------     Planning and Marketing, and 
     Robert Minsky           Director

/s/  MAKO OBARA              Executive Vice President,           March 31, 1999
------------------------     and Director
     Mako Obara

/s/  HENRY D. JAMES          Executive Vice President,           March 31, 1999
------------------------     Chief Financial Officer, and 
     Henry D. James          Director
                            (Principal Financial Officer)


/s/  LAURENCE BERG           Director                            March 31, 1999
------------------------
     Laurence Berg

/s/  TAKURO ISODA            Director                            March 31, 1999
------------------------
     Takuro Isoda

/s/  EDWARD G. NELSON        Director                            March 31, 1999
------------------------
     Edward G. Nelson

/s/  ROBERT L. PURDUM        Director                            March 31, 1999
------------------------
     Robert L. Purdum

/s/  ANTONY RESSLER          Director
------------------------                                         March 31, 1999
     Antony Ressler

/s/  KAZUO YAMAKAWA          Director                            March 31, 1999
------------------------
     Kazuo Yamakawa

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