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, 1997

                                       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 23, 1998, the aggregate market
value of the voting stock held by non-affiliates of the registrant was
$69,336,263.

The number of shares of the Registrant's common stock outstanding as of March
23, 1998 was 9,529,788.

                   DOCUMENTS INCORPORATED BY REFERENCE : None

                               Page 1 of 90 Pages
                        Exhibit Index Appears on Page 82

<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 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. Its operations are conducted through three business
segments (Language Instruction, Translation Services, and Publishing), each of
which is currently organized geographically into five operating divisions: North
America, Western Europe, Central/Eastern Europe, Asia and Latin America. At
least 88% of total Asia sales, operating profits, assets and employees in 1997
are attributable to the operations in Japan. Country and division managers
determine pricing, teacher/translator and administrative salaries, leasing of
facilities, local advertising and sales promotions, and other administrative
matters, within guidelines established at the Company's corporate headquarters.
The country managers are evaluated and provided incentives based on profit
performance of their particular areas while division managers are provided
incentives based on profit performance of both their particular areas and the
Company as a whole. Business segment and geographic area information is
incorporated herein in the Notes to Consolidated Financial Statements within
Item 8, Financial Statements and Supplementary Data, under Note 15.

                                       2

<PAGE>

LANGUAGE INSTRUCTION

As of December 31, 1997, the Company owned and operated 334 Berlitz language
centers in 39 countries using the Berlitz Method(R), hereinafter described, and
the Company's proprietary instruction material, to provide instruction in
virtually all spoken languages. With an additional 14 franchised Berlitz
language center locations, the Company has a presence in 42 countries.
Approximately 5.5 million language lessons were given by Company-owned centers
in 1997, the most frequently taught languages being English, Spanish, French and
German. Revenues from Language Instruction accounted for approximately 75%, 75%
and 77% of total Company revenues in 1997, 1996 and 1995, respectively.

The following tables set forth, by geographic division, the number of Berlitz
language centers and the number of lessons given over the last five years
(excluding franchised locations):


NUMBER OF CENTERS AT DECEMBER 31,
--------------------------------
                              1997      1996       1995      1994      1993
                              ----      ----       ----      ----      ----

  North America                 71        70         72        72        72
  Western Europe                57        57         55        56        60
  Central/Eastern Europe        87        86         84        81        76
  Asia                          53        52         52        53        57
  Latin America                 66        60         60        58        57
                                --        --         --        --        --

     Total                     334       325        323       320       322
                               ===       ===        ===       ===       ===



NUMBER OF LESSONS (IN THOUSANDS)
--------------------------------
                              1997      1996       1995      1994      1993
                              ----      ----       ----      ----      ----

  North America              1,150     1,095      1,050     1,064     1,091
  Western Europe               924       896        897       835       876
  Central/Eastern Europe     1,251     1,160      1,084     1,017       920
  Asia                       1,040       939        935       946       844
  Latin America              1,183     1,049        981       911       857
                             -----     -----        ---       ---       ---

     Total                   5,548     5,139      4,947     4,773     4,588
                             =====     =====      =====     =====     =====

A lesson consists of a single 45-minute session (regardless of the number of
students). In 1997, the United States, Japan, and Germany accounted for
approximately 18%, 16% and 11% of lessons given and 27%, 20% and 11% of Language
Instruction sales, respectively.

                                       3

<PAGE>

At December 31, 1997, all of the Berlitz language centers operated by the
Company and its subsidiaries were wholly-owned, except for joint venture
operations in Korea and Taiwan. The following table sets forth, by geographic
division, the number of Berlitz language centers in each of the countries in
which the Company and its subsidiaries owned and operated centers as of December
31, 1997:


NORTH AMERICA                                       WESTERN EUROPE
-------------                                       --------------
                                                    Belgium        11
  United States         63                          Denmark         2
  Canada                 8                          Finland         1
         Total          71                          France         16
                        ==                          Holland         2
                                                    Ireland         1
LATIN AMERICA                                       Italy           5
-------------                                       Norway          1
  Argentina              5                          Portugal        1
  Brazil                17                          Spain          11
  Chile                  5                          Sweden          1
  Colombia               7                          United Kingdom  5
  Mexico                18                          Total          57
  Peru                   1                                         ==
  Puerto Rico            4
  Uruguay                1
  Venezuela              8
         Total          66                          CENTRAL/EASTERN
                        ==                          ---------------
                                                    EUROPE
                                                    ------
                                                    Austria         7
                                                    Czech Republic  5
                                                    Germany        49
                                                    Greece          1
                                                    Hungary         3
  ASIA                                              Israel          4
  ----                                              Poland          7
  Hong Kong              1                          Slovak Republic 1
  Japan                 47                          Slovenia        1
  Korea                  1                          Switzerland     9
  Singapore              1                          Total          87
  Taiwan                 1                                         ==
  Thailand               2
         Total          53
                        ==

                                       4

<PAGE>

In 1997, excluding franchises, 12 Berlitz language centers were added and 3 were
removed, bringing the worldwide total to 334. Capital expenditures incurred in
connection with opening a new language center in 1997 ranged from $60,000 to
$363,000.

On August 28, 1997, the Company completed its acquisition of ELS Educational
Services, Inc. ("ELS"), a privately held provider of intensive English language
instruction. At December 31, 1997, ELS operated 25 ELS-owned language centers in
the U.S. and one in the United Kingdom. In addition, there were 50 ELS
franchises in Asia, the Middle East, Latin America and Canada. These ELS centers
are in addition to the Berlitz locations noted in the tables above and under
Franchising Activities on page 9.


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 45% of all tuition revenues in 1997 were from private lessons
(excluding Total Immersion(R)). Private instruction is typically provided in
blocks of three or more 45-minute lessons, with a short break after each lesson.
Total Immersion(R) courses, an intensive form of private instruction, accounted
for approximately 5% of tuition revenues in 1997. 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 50% of tuition revenues in 1997.

                                       5

<PAGE>

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 11% of the Company's revenues in 1997.
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 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 franchises
of large language instruction companies. The smaller operations typically offer
large group instruction and self-teaching materials for home study. Rather than
compete with these smaller operators, the Company concentrates on its leading
position in the higher-priced, business-oriented segment of the language
instruction market through its offering of intensive and individualized
instruction. No competitors in this market offer language instruction through
wholly-owned operations on a worldwide basis. However, the Company does have a
number of competitors organized on a franchise basis which, although not as
geographically diverse as the Company, compete with it internationally. The
Company also faces significant competition in a number of local

                                       6

<PAGE>

markets.

TRANSLATION SERVICES

Berlitz Translations Services provides high quality technical documentation
translation, software localization (i.e. the translation of software-related
products), software quality assurance ("SQA") testing, interpretation,
electronic publishing, and other foreign language-related services. Translations
Services represented approximately 21%, 21% and 18% of total Company revenues in
1997, 1996 and 1995, respectively, and is expected to contribute favorably to
corporate revenues over the next few years as a result of growing demand for
software related services and technical documentation translation, and a
continued focus on larger customer accounts. The Translations Services' recent
growth has been fueled by software localization, which combines Berlitz's
translations and project management expertise with the technological ability to
provide software engineering. In addition, the Company has increased its product
offerings to include software testing of localized products, multimedia
localizations (CD-ROM) and Internet related offerings such as web site
localization.

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

                                       7

<PAGE>

involved in several licensing arrangements for products that use Berlitz
materials and for which the Company receives royalties. The Company has recently
instituted a new prototype language center that is designed, in part, to create
an attractive retail store that the Company expects will facilitate greater
sales of Company-published materials. The Publishing business accounted for
approximately 3%, 4% and 5% of total Company revenues in 1997, 1996 and 1995,
respectively. Approximately 35%, 43% and 48% of Publishing segment sales in
1997, 1996 and 1995, respectively, were in Europe.

In 1996, the Company initiated the relocation of most of its U.S. publishing
operations and all editorial and production functions of its U.K. Publishing
operations to the Company's new Princeton headquarters. Such relocation was
completed in 1997.

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 94
titles in this format published in English, plus more than 200 titles in more
than 11 other languages. For these multiple-language titles, the Company employs
manufacturing techniques utilizing the same graphics and layouts to reduce
manufacturing costs.

The Company's phrase books include common expressions, words and phrases most
often used by travelers. These appear in color-coded sections covering such
topics as accommodations, eating, sightseeing, shopping, transportation and
medical reference. There are a total of 115 phrase books published in 14
languages, of which 31 are for English-speaking travelers. Additional
travel-related language products include Cassette Packs and Compact Disc Packs,
which consist of a 90-minute cassette tape or a 75-minute compact disc ("CD")
and phrase book packaged and sold together. Retail distribution for the books
and audio products is generally handled by an exclusive distribution agreement
with an established book trade distributor for each major country in which the
products are sold (e.g., the U.K., France, Germany, U.S. and Canada).

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

In the U.S., the high-end audio cassette and CD products are marketed through
in-flight airline magazine space advertising, as well as through credit card and
travel club statement inserts. In addition to the audio cassette and CD
products, the Company is presently involved in several licensing arrangements
for products that use published Berlitz materials as the basis of alternate
media products (such as hand-held electronic reference products and CD-ROM
computer software) for which the Company receives royalties.

The Company's Publishing segment plan includes the relaunching of existing
product lines and the creation of new products that will compete in today's
market place. For example, Berlitz publishes illustrated book and audiotape
language learning products for children under the brand name BERLITZ KIDS(TM).
In 1998, Berlitz will begin distribution of an all-new series of technologically
and pedagogically advanced self-teaching language instruction products that will
supercede the

                                       8

<PAGE>

Company's current THINK & TALK(R) series, under the names BERLITZ TODAY and
BERLITZ THINK & TALK(R). In addition, the Company plans to take advantage of
Asian and Latin American markets for distribution of its products.

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

FRANCHISING ACTIVITIES

In 1996, the Company began selling Berlitz language center franchises to
independent franchisees in certain countries to expand the reach of its language
services business. The following tables show the number and location by country
of Berlitz franchise units operating at December 31, 1997, as well as locations
for which franchise units have been granted as of December 31, 1997 but which
have not yet opened:

                               FRANCHISE UNITS OPEN        FRANCHISE UNITS
                               --------------------        ---------------
                                                            NOT YET OPENED
                                                            --------------

        Argentina                         1
        Austria                           1
        Brazil                            1
        Chile                                                        1
        Costa Rica                        1
        Dominican Republic                1                          1
        Egypt                                                        2
        France                                                       1
        Germany                                                      2
        Guatemala                                                    1
        Indonesia                         1                          2
        Japan                             3
        Kuwait                                                       1
        Mexico                            1                          1
        United Arab Emirates                                         2
        United Kingdom                    1
        USA                               3
                Total                    14                         14
                                         ==                         ==

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

                                       9

<PAGE>

The Company actively monitors the operations and lesson quality of its
franchisees, and has developed an extensive confidential operations manual,
which together with the Company's Berlitz Method(R), forms the core of the
Berlitz franchise system. All franchisees are required to complete a two-week
training program at the Company's Princeton headquarters and the Company also
offers two additional weeks of on-site teacher training. Franchisees participate
in the Berlitz Language Center Management System ("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, 1997, the Company employed 5,884 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, a
wholly owned subsidiary of the Company, has 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. The
Company intends to have ELS apply for registration as a franchisor under the
California Franchise Investment Law.

                                       10

<PAGE>

ITEM 2.  PROPERTIES

The Company has its headquarters in Princeton, New Jersey and maintains
facilities throughout the world. Except for nine facilities in Brazil, Chile,
France, Hungary, Mexico, Spain and Venezuela, all of the Company's facilities
are leased. Total annual rental expense for the twelve months ended December 31,
1997, principally for leased facilities, was $27,066,000. No one facility is
material to the operation of the Company. A typical Berlitz language center has
private classrooms designed for individual instruction, as well as some larger
rooms suitable for group instruction.

The following tables set forth, as of December 31, 1997, by geographic region,
the number of facilities maintained in each region, the use of the Company's
facility, whether owned or leased, and the aggregate square footage:

                                OWNED FACILITIES
                                ----------------

                                  Number of                        Aggregate
   Region                         Facilities          Use       Square Footage
   ------                         ----------          ---       --------------

   Western Europe                      2              Center               3,397
   Central/Eastern Europe              2              Center               4,387
   Latin America                       5              Center              17,451
                                       -                        ----------------
   Total                               9              Total               25,235
                                       =                        ================

                                LEASED FACILITIES
                                -----------------

                                  Number of                        Aggregate
   Region                         Facilities          Use       Square Footage
   ------                         ----------          ---       --------------

   North America (1)                 110              (2)                522,823
   Western Europe                     70              (2)                256,853
   Central/Eastern Europe             90              (2)                245,087
   Asia                               60              (2)                162,059
   Latin America                      65              (2)                258,077
                                  ------                                 -------
   Total                             395                               1,444,899
                                     ===                               =========

(1) The acquisition of ELS Educational Services, Inc. in August 1997 added 28
    additional facilities with an aggregate square footage of 236,740.
(2) Principally language centers. Also includes administrative offices and
    Translations Services production and technology centers.

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters have been submitted to a vote of security holders during the fourth
quarter of 1997.

                                       11

<PAGE>

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, 1998.


NAME, AGE, POSITION WITH
REGISTRANT

Soichiro Fukutake, 52
Chairman of the Board;
Director (A) (E)

Mr. Fukutake has served as Chairman of the Board of the Company since 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, 58
Vice Chairman of the Board,
Chief Executive Officer and
President; Director (A) (E)

Mr. Yokoi was elected Vice Chairman of the Board and Chief Executive Officer of
the Company in February 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 1998.


Susumu Kojima, 55
Executive Vice President,
Asia Division;
Director (A)

Mr. Kojima has served as Executive Vice President, Asia Division of the Company
since January 1, 1996. Prior thereto, he served as Executive Vice President,
Corporate Planning from September 1993 to December 1995, and as Senior Vice
President, Corporate Planning of the Company from February 1993 to September
1993. Mr. Kojima has served as a Director of Benesse since March 1993. Prior to
that, he was Joint General Manager of the Business Development Department of The
Industrial Bank of Japan, Limited ("I.B.J.") from June 1991

                                       12

<PAGE>

to February 1993. Between November 1987 and June 1991, he served as Senior
Deputy General Manager, Industrial Research Department of I.B.J. after having
served as Chief Representative of I.B.J.'s Washington Representative Office from
September 1983. Mr. Kojima was elected as a Director of the Company in February
1993. His term will expire in 1999.


Robert Minsky, 53
Executive Vice President,
Corporate Planning and
Marketing;
Director (A)

Mr. Minsky has served as Executive Vice President, Corporate Planning and
Marketing of the Company since 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, 61
Executive Vice President and
Chief Operating Officer,
Worldwide Language
Instruction;
Director (A)

Mr. Fernandez has served as Executive Vice President and Chief Operating
Officer, Worldwide Language Instruction of the Company since January 1, 1995.
Prior thereto, he was Executive Vice President, Language Services of the Company
from September 1993 to January 1995, and Vice President, European Operations of
the Company from October 1989 to September 1993. He previously served as Vice
President, European Operations for Berlitz Languages from January 1983 to
October 1989. Mr. Fernandez was first employed by Berlitz Languages in 1963 and
served in various positions until becoming Vice President in 1983. Mr. Fernandez
has served as a Director of the Company since July 1993. His term will expire in
1999.


Henry D. James, 60
Executive Vice President and
Chief Financial Officer;
Director

Mr. James has served as Executive Vice President and Chief Financial Officer of
the Company since 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 1998.


Edward G. Nelson, 66
Director (B)(C)(D)(E)

Since January 1985, Mr. Nelson has served as Chairman and President of Nelson
Capital Corporation. From 1983 to 1985, he

                                       13

<PAGE>

was Chairman and Chief Executive Officer of Commerce Union Corporation. He also
serves on the Board of Directors of ClinTrials, Inc., Osborn Communications
Corporation, Central Parking System and Advocat, Inc. He is a trustee of
Vanderbilt University. Mr. Nelson became a Director of the Company in February
1993. His term will expire in 1998.


Robert L. Purdum, 62
Director (B)(C)(D)(E)

Mr. Purdum is the retired Chairman 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 also serves on the Board of Directors of Holophane Corporation since
1994. 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 1998.


Aritoshi Soejima, 71
Director (B)(C)(D)

Mr. Soejima served as Senior Counselor of Benesse from December 1980 until his
appointment as a member of the Disinterested Directors and Compensation
Committees of the Company. From 1950 to 1981, Mr. Soejima served in various
positions with the Japanese government (including the Ministry of Finance) and
multilateral financial institutions (including the World Bank and International
Monetary Fund). Mr. Soejima also currently serves as Director and Counselor of
Capital International Company, Ltd. and as special advisor to the Board of
Directors of the Nippon Fire & Marine Insurance Company, Ltd.. In addition, he
serves, until his retirement on March 24, 1998, as Chairman of Osaka, Tokyo Bay,
Nagoya Hilton Company, Ltd. Further, Mr. Soejima serves on the Board of
Directors of a number of companies, private foundations and associations in
Japan. Mr. Soejima became a Director of the Company in February 1993. Mr.
Soejima will retire from the Board effective upon the election of his successor
at the Annual Meeting of Shareholders to be held June 2, 1998.


Kazuo Yamakawa, 58
Director

Mr. Yamakawa has served as a Director of Benesse and has supervised its General
Administration and Accounting

                                       14

<PAGE>

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 its International Department (October 1991 to March 1993) and
General Manager of its New York Branch (April 1988 to September 1991). Mr.
Yamakawa became a Director of the Company in May 1996. His term will expire in
1998.


Robert C. Hendon, Jr., 60
Vice President, General
Counsel and Secretary

Mr. Hendon has served as Vice President, Legal Department of the 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, 55
Senior Vice President,
Worldwide Language
Instruction

Mr. Tedesco has served as Senior Vice President, Worldwide Language Instruction
of the Company since October 1, 1997. Prior thereto, he served as Vice
President, North American Division of the Company 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 since his initial employment in
1983.


Ellen Adler, 42
Vice President, Worldwide
Publishing

Ms. Adler's appointment as Vice President, Worldwide Publishing of the Company
on October 1, 1997 was approved by the Company's Board of Directors effective
January 1, 1998. Prior thereto, she served in various positions with the Company
including Managing Director, North America Publishing (January 1996 to September
1997), Publisher, North and South America (January 1994 to December 1995),
Director of Berlitz Publishing, Inc. (July 1989 to December 1993), and Director
of Operations, USA (November 1988 to July 1989).


Jose Alvarino, 58
Vice President

Mr. Alvarino has been 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

                                       15

<PAGE>

Languages in 1970 and served in various positions from that time until being
appointed Vice President in 1985.


Mark Harris, 44
Vice President

Mr. Harris' appointment as Vice President, North America Division of the Company
on October 1, 1997 was approved by the Company's Board of Directors effective
January 1, 1998. Prior thereto, he served as 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, 50
Vice President

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


James Lewis, 40
Vice President, Worldwide
Translations

Mr. Lewis has served as Vice President, Worldwide Translations of the Company
since September, 1, 1997. Previously, he most recently served as in a number of
executive-level positions with Globalink, Inc. (including President and Director
(September 1995 to August 1997), and Vice President, Worldwide Sales and
Marketing (July 1995 to September 1995)), MAXM Systems Corporation (Vice
President, Marketing from 1994 to 1995), and Landmark Systems Corporation (Vice
President, International Operations, from 1992 to 1994). Prior thereto, Mr.
Lewis held positions with Peter Norton Computing, Inc. Ashton-Tate, Corp. and
PSS, Inc.


Wolfgang Wiedeler, 52
Vice President

Mr. Wiedeler has served as Vice President, Central/Eastern Europe Division of
the Company since January 1, 1996 and as Vice President, Language Instruction
European Division of the Company from September 1993 to December 1995. From May
1992 to September 1993 he was Vice President, Central/Eastern European
Operations. Prior thereto, he served as Divisional Manager of German-speaking
countries since October 1989. Prior thereto he served in the same capacity for
Berlitz Languages from his initial employment in 1984.

                                       16

<PAGE>

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

Mr. Takuro Isoda has been nominated by the Nominating Committee of the Board of
Directors to succeed Mr. Soejima as a Director of the Company. Mr. Isoda has
served as Chairman of Nippon Investment & Finance Co. Ltd. since June 1994, and
previously served as its President from January 1990 to May 1994. Prior thereto,
Mr. Isoda served in various positions with Daiwa Securities since first joining
that 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 and Chairman of the International Business Committee); The
Japan Academic Society for Venture and Entrepreneur, Tokyo; and Americans for
Indian Opportunity, New Mexico (as International Advisor).

SIGNIFICANT EMPLOYEES OF THE REGISTRANT

The following table sets forth certain information concerning certain
significant employees of the Company as of March 1, 1998.


Perry Akins, 57
President, ELS Educational
Services, Inc.

Mr. Akins has served as President of ELS Educational Services, Inc. and its
predecessor from 1977 through the present, and has been associated with ELS
since 1966.


Frank Garton, 51
Vice President

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


Isao Hisai, 45
Executive Vice President of
Berlitz Japan

Mr. Hisai has served as Executive Vice President of Berlitz Japan since
September 1996. He previously served as Vice President, Finance of the Company
from February 1993 until September 1996. From October 1992 until February 1993,
Mr. Hisai was employed in Benesse's Overseas Operation

                                       17

<PAGE>

Department, and from April 1988 until October 1992, he served as Manager,
Finance and Accounting Department of Benesse.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock ("Common Stock") is traded on the New York Stock
Exchange ("NYSE") under the symbol BTZ. Holders of shares of Common Stock are
entitled to receive such dividends as may from time to time be declared by the
Board of Directors; however, such dividends are subject to restrictions set
forth in the Company's August 28, 1997 credit agreement (the "Bank Facility").
As a result, the Company does not expect to pay dividends during the term of
such debt facilities. See Item 7, Management's Discussion and Analysis,
Liquidity and Capital Resources, for further discussion. Holders of Common Stock
are entitled to one vote per share on all matters submitted to the vote of such
holders, including the election of directors. There were 84 holders of record of
Common Stock as of March 17, 1998.

The sales prices per share of Common Stock as reported by the NYSE for each
quarter during the period from January 1, 1996 until December 31, 1997 ranged as
follows:

                                          PRICE PER SHARE
                                          ---------------
                                      HIGH               LOW
                                      ----               ---

         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

         First Quarter 1996          $17 1/8           $15 3/4
         Second Quarter 1996         $21 3/4           $15 7/8
         Third Quarter 1996          $23 5/8           $20 3/8
         Fourth Quarter 1996         $22 3/4           $18 7/8


No common stock dividends for 1996 or 1997 were declared or paid.

                                       18

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA


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

<TABLE>
<CAPTION>



                                                                                                                          Pre-
                                                              Post-Merger                                 Post-Merger(1)  Merger (1)
                                                              -----------                                 -------------  -----------
                                                                                                           Period from   Period from
                                                                                                           February 1,   January 1,
                                                                                              Year Ended      1993 to    1993 to
                                                         Year Ended December 31,                           December 31,  Dec. 31,
                                                         -----------------------
       Jan. 31,
                                                   1997        1996        1995        1994     1993 (2)        1993       1993
                                                   ----        ----        ----        ----     --------        ----       ----
<S>                                           <C>         <C>         <C>         <C>          <C>         <C>         <C>
Income Statement Data:
----------------------
Sales of services and
products sold (3)                             $ 397,209   $ 369,622   $ 354,509   $ 303,287    $ 274,508   $ 254,728   $ 19,780
                                              ---------   ---------   ---------   ---------    ---------   ---------   --------
Cost and expenses:
  Cost of services and
      products sold (3)                         236,521     222,313     216,443     182,922      171,933     158,282     13,651
  Selling, general and
      administrative (3)                        123,444     113,695     105,039      91,703       83,500      76,781      6,719
  Amortization of publishing rights,
      excess of cost over net assets
      acquired and other intangibles             14,183      12,746      13,425      12,750       12,423      11,551        872
  Merger-related restructuring
      costs (4)                                       -           -           -           -        4,808       4,808          -
  Other (income) expense, net                    10,008       8,054       8,826       8,070        5,630       5,925       (295)
                                                 ------       -----       -----       -----        -----       -----       ----

      Total costs and expenses                  384,156     356,808     343,733     295,445      278,294     257,347     20,947
                                                -------     -------     -------     -------      -------     -------     ------
  Income (loss) before income taxes,
      minority interest, extraordinary item
      and cumulative effect of change
      in accounting principle                 $  13,053   $ 12,814    $  10,776   $   7,842     $ (3,786)  $  (2,619)   $(1,167)
                                              =========   ========    =========   =========     ========   =========    =======


  Minority interest-income/(expense)          $    (613)  $ (1,503)   $  (1,106)  $    (738)    $  3,860   $   3,692    $   168
                                              =========   ========    =========   =========     ========   =========    =======
  Extraordinary loss(5)                       $  (6,285)  $      -    $       -   $       -     $      -   $       -    $     -
                                              =========   ========    =========   =========     ========   =========    =======

  Cumulative effect of change in
    accounting principle                      $       -   $      -    $       -   $       -     $  3,172   $       -    $ 3,172
                                              =========   ========    =========   =========     ========   =========    =======

Net income (loss)                             $   (934)   $  3,803    $   2,270   $     909     $ (2,018)  $  (3,556)   $ 1,538
                                              ========    ========    =========   =========     ========   =========    =======


Earnings (loss) per  share (both basic and diluted):
  Income (loss) before extraordinary
    item and cumulative effect of change
    in accounting  principle                  $   0.56    $   0.40    $    0.23   $    0.09                $   (0.35)   $ (0.09)
  Extraordinary loss                             (0.66)          -            -           -                        -          -
  Cumulative effect of change in
    accounting principle                             -           -            -           -                        -       0.17

Earnings (loss) per share                     $  (0.10)   $   0.40    $    0.23   $    0.09                $   (0.35)  $   0.08
                                              ========    ========    =========   =========                =========   ========

Average number of shares (000)                   9,550       9,569       10,033      10,033                   10,031     19,024
                                                 =====       =====       ======      ======                   ======     ======

Balance sheet data (at year end):
--------------------------------
Total assets(5)                               $ 661,515   $ 561,245   $ 576,930   $ 582,005     $570,472
Long-term debt(5)                             $ 142,369   $  56,353   $  67,081   $  78,420     $105,775
Shareholders' equity                          $ 346,978   $ 357,407   $ 370,416   $ 367,235     $364,953

Other data:
  Language lessons given
    during year (000)                             5,548       5,139       4,947       4,773        4,588
  Company-operated language
    centers at year end                             334         325         323         320          322
 Growth (decline) in same center
    sales from year to year (6)                    7.5%        6.0%        3.0%        6.3%       (5.9)%

</TABLE>

                                       19

<PAGE>

(1)      In February 1993, Benesse Corporation (formerly Fukutake Publishing
         Co., Ltd.) ("Benesse") acquired, through a merger of the Company with
         an indirect wholly-owned U.S. subsidiary of Benesse (the "Merger"),
         approximately 6.7 million shares of the common stock, par value $.10
         per share ("Common") of the Company. Benesse currently owns
         approximately 7.0 million shares of Common, while public shareholders
         hold the remaining 2.5 million outstanding Common shares.

(2)      Income statement data give effect to the combination of the results of
         the Company for the 1993 Pre-Merger and Post-Merger periods.

(3)      In 1993, under the purchase method of accounting, the Post-Merger sales
         and expenses of facilities closed in connection with the Merger were
         reclassified to "Merger-related restructuring costs" on the income
         statement (33%) and "Excess of cost over net assets acquired" on the
         balance sheet (67%).

(4)      Principally represents 33% of severance payments, language center
         closing costs, and costs of reorganizing Translations and certain
         Language Instruction divisions.

(5)      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, total assets at December 31, 1997 includes $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.
         At December 31, 1997, $160 million, including $17.7 million in current
         maturities, was outstanding under the Bank Facility.

(6)      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.

                                       20

<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 $354.5 million in 1995 to $397.2 million in 1997, a
compound annual growth rate of 5.9%, and its earnings per share (both basic and
diluted), before extraordinary items, rose from $0.23 to $0.56 in the same
three-year period, favorably impacted by higher operating profits.

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

                                                    YEAR ENDED DECEMBER 31,
                                                    -----------------------

                                                 1997        1996        1995
                                                 ----        ----        ----

Sales of Services and Products                  100.0%      100.0%      100.0%
                                                -----       -----       -----

Costs of services and products sold (1)          59.5        60.1        61.1
Selling, general and administrative (2)          31.1        30.8        29.6
Amortization of publishing rights
   excess of cost over net assets acquired,
   and other intangibles                          3.6         3.4         3.8
Interest expense on long-term debt                2.1         2.1         2.4
Interest expense to affiliate                     0.5         0.5         0.4
Other (income), net                              (0.1)       (0.3)       (0.3)
                                                 ----        ----        ----
         Total costs and expenses                96.7        96.6        97.0
                                                 ----        ----        ----

Income before income taxes, minority
   interest in earnings of subsidiary, and
   extraordinary item                             3.3         3.4         3.0
Income tax expense                                1.8         2.0         2.1
Minority interest                                 0.2         0.4         0.3
                                                  ---         ---         ---

Income before extraordinary item                  1.3         1.0         0.6


Extraordinary loss from early extinguishment
   of debt, net of tax benefit                   (1.6)          -           -
                                                 ----         ---         ---
   Net (loss) income                             (0.3)%       1.0%        0.6%
                                                 =====        ===         ===

                                       21
<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 $19.9
million in post acquisition revenues for the year ended December 31, 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 recent
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, 1997. 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, 1997, the Company's
franchising business segment has granted 28 Berlitz franchises, 14 of which have
opened as of December 1997.

                                       22

<PAGE>

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, and software testing services. As
Translations Services grows, the Company will seek to continue improving the
profitability of the segment through (i) increasing productivity through the use
of more advanced computer-aided translation tools and communications technology;
(ii) continuing to centralize certain non-linguistic functions, such as software
engineering, software quality assurance and desktop publishing; (iii) increasing
the percentage of multi-year projects which reduce the Company's project
start-up costs; (iv) expanding on-line translation capabilities to customers;
and (iv) hiring, training and retaining the highest quality industry talent
available in the industry.

The publishing segment's recent performance has been lackluster, having been
hurt in 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 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 system is
expected to go live in early 1998. New analytical tools have been developed and
a new business plan has been articulated to customers and partners in all key
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, 1997, the percentage of total
revenues denominated in currencies other than U.S. dollars averaged 72%, in
foreign currencies including the Japanese yen, the German mark, the Irish punt,
the British pound and the French and Swiss francs. As a result, changes in
exchange rates affected the comparisons of the Company's earnings from period to
period, benefiting 1995's financial results when the U.S. dollar weakened
against most foreign currencies, while adversely affecting 1996's and 1997'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,

                                   1997           1996           1995
                                   ----           ----           ----

         Sales:
            Operations (2)         14.0%           9.0%          10.3%
            Exchange               (6.5)          (4.7)           6.6
                                   -----          -----           ---
                  Total             7.5%           4.3%          16.9%
                                    ====           ====          =====

         EBITA:
            Operations (2)         17.8%           7.8%          10.6%
            Exchange               (7.0)          (6.0)           4.6
                                   -----          -----           ---
                  Total            10.8%           1.8%          15.2%
                                   =====           ====          =====


                                       23

<PAGE>

(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.

For the year ended December 31, 1997, Japan contributed $61.9 million, or 15.6%,
toward total Company revenues, while the rest of the Asia division contributed
$5.4 million, or 1.4%, towards sales. Furthermore, in the North America
division, approximately half of ELS/Berlitz on Campus' annual proforma revenue
for the year ended December 31, 1997 originated from the Far East. Due to this
geographic presence in Asia, the Company is exposed to the economic turmoil
affecting the Asian region at the end of 1997, and management is therefore
proactively focusing 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. Furthermore, to combat the effects of the Asian turmoil on
its sales of franchises in Asia's emerging markets, the Company is focusing its
franchise efforts in 1998 on what it believes to be strong emerging markets in
the Middle East, Central/Eastern Europe, Western Europe and Russia.

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

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 average revenue per lesson ("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.

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

                                       24

<PAGE>

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.

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

                                       25

<PAGE>

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 $50.5 million, or 16.9% of segment sales, compared
to $45.1 million, or 16.3% 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, 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

                                       26
<PAGE>

December 31, 1997, compared with an EBITA loss $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 $20.8 million for
the twelve months ended December 31, 1997, compared with $17.2 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.

YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995

Sales for the twelve months ended December 31, 1996 were $369.6 million, 4.3%
above the same period in the prior year. This improvement was due to increases
from operating activity in the Instruction and Translation business segments,
partially offset by unfavorable exchange rate fluctuations of $16.8 million
(largely the result of a strengthened dollar against the Japanese yen, the
German mark, and certain other European currencies.) Excluding the effect of
exchange rate fluctuations, revenues increased from the prior year by 9.0%.

Language Instruction sales for the twelve months ended December 31, 1996 were
$276.2 million, 1.2% above the same period in 1995, reflecting volume and ARPL
increases, partially offset by unfavorable exchange rate fluctuations of $15.1
million. Excluding such unfavorable exchange rate fluctuations, revenues
increased 6.8 % from the prior year.

Geographically, all divisions exhibited increases except Asia. North America's
sales increase ($5.1

                                       27

<PAGE>

million, or 8.9%) was primarily due to volume increases and strong performance
from specialty programs such as Berlitz on Campus(R) and cross cultural
programs. The increase in Latin American revenues ($4.5 million, or 12.3%) was
primarily attributable to volume increases in Brazil and a higher ARPL in
Mexico, which more than offset weakness in Venezuela. The improvement in
Central/Eastern European revenues ($2.7 million, or 4.6%) mainly reflects
increases in lesson volume and ARPL, experienced in most countries in the
division, partially offset by the unfavorable effects of exchange rate
fluctuations ($3.5 million, or 5.9%), more than half of which is due to the
strengthening of the U.S. dollar against the German mark. Asia's sales decline
($9.0 million, or 11.5%) resulted primarily when favorable volume and price
fluctuations were more than offset by unfavorable exchange rate fluctuations
($10.9 million) due to a stronger dollar versus the Japanese yen. Western
Europe's results increased $0.1 million from the prior year, reflecting a number
of factors, including volume increases in Denmark and Belgium and an improved
ARPL in France and Italy, all of which were partially offset by volume declines
in France and unfavorable exchange rate fluctuations ($0.8 million, or 1.9%)
arising primarily from the strengthening of the U.S. dollar against the French
and Belgium francs.

During the twelve-month period ended December 31, 1996, the number of lessons
given was approximately 5.1 million, 3.9% above the same period in the prior
year. Lesson volume in North America improved by 4.3% over the prior year.
Lesson volume in Asia rose only 0.4% from 1995, reflecting the negative effects
of a continuing flat economy in Japan, and declines in Thailand. Lesson volume
in Latin America rose by 7.0% from prior year, primarily due to increases in
Brazil and Colombia (reflecting strong economic conditions), and increases in
Venezuela despite economic turmoil, offset by a 4.2% drop in Mexico, which is
recovering from the 1994/1995 devaluation of the Mexican peso. Central/Eastern
Europe lesson volume increased by 7.0% over 1995, reflecting strong demand for
the Company's services in Poland, Israel, and Slovenia. Lesson volume in Western
Europe remained flat with 1995, primarily as improvements in Denmark and Belgium
were offset by declines in France.

For the twelve months ended December 31, 1996, ARPL was $44.91 as compared to
$46.70 in the comparable prior-year period. The decline reflected the effect of
unfavorable exchange rate fluctuations. ARPL ranged from a high of approximately
$70.75 in Japan to a low of $16.61 in the Slovak Republic, reflecting effects of
foreign exchange rates and differences in the economic value of the service.

The Company opened new wholly-owned language centers during 1996 in Korea,
Singapore, Colombia, the Czech Republic, Greece and Poland. In addition, two
franchises were opened in Argentina and the Dominican Republic. Same center
sales (i.e. sales by centers which were operating during the entirety of both
years being compared) grew by 6.0% over 1995, excluding the impact of foreign
currency rate fluctuations.

Translation segment sales were $77.0 million for the twelve-month period ended
December 31, 1996, an increase of $13.0 million, or 20.3%, from the same period
in 1995. Most of this growth occurred in Ireland and the United States. The U.S.
sales increase was attributed primarily to increased volume from certain key
clients and to the success of new services. Ireland's revenue increase resulted
from the development of new customers and the expansion of software related
services to new and existing

                                       28

<PAGE>

clients. In addition, sales increases in certain Western European countries also
reflected the expansion of software-related services. Revenue growth is expected
to continue since the Company has established a foundation as a world leader in
documentation translation and software related services.

Publishing segment sales were $15.4 million for the twelve months ended December
31, 1996, $1.7 million or 10.1% below 1995, reflecting a reduction in revenues
from licensing activities and a general slowdown in the travel publishing
segment.

Other sales, consisting of franchising activity for 1996 and revenues from a
tradename license contract for 1996 and 1995, were $1.0 million in 1996 compared
with $0.5 million in the prior year.

The Company's cost of services and products sold as a percentage of sales was
60.1% for the year ended December 31,1996, compared to 61.1% in the same prior
year period. This decline was primarily due to a) a continued percentage
reduction in teacher costs; b) a decline in Publishing's cost of materials; and
c) an overall percentage decrease in rent and premises upkeep due to
renegotiated language center leases, partially offset by expanded translation
facilities.

Selling, general and administrative expenses as a percentage of sales were 30.8%
for the twelve months ended December 31, 1996, compared with 29.6% for 1995.
This increase was affected primarily by higher franchise related expenses and a
percentage increase in administrative salaries, including the impact in 1996 of
$1.6 million expense related to the Company's Supplemental Executive Retirement
Plan ("SERP") and New LTIP.

EBITA for the year was $33.6 million, or 9.1% of sales in 1996, compared to
$33.0 million, or 9.3% of sales, in the same prior year period. The percentage
decline in 1996 primarily reflected margin decreases in the Translation and
Publishing segments, as well as the impact of SERP related expense.

Instruction segment EBITA, excluding franchising activity, for the twelve months
ended December 31, 1996 was $45.1 million, or 16.3% of segment sales, compared
to $39.9 million, or 14.6% of segment sales, in the comparable prior year
period. This improvement was largely due to percentage reductions in teacher
costs, rent and premises upkeep, and advertising, partially offset by higher
franchise related expenses and administrative salaries.

Translation segment EBITA for the twelve-month period ended December 31, 1996
was $5.1 million, or 6.6% of segment sales, compared to $5.5 million, or 8.6% of
segment sales, in the prior year. The 1996 results were hurt by costs associated
with the significant expansion of Asian production resources, certain lower
margin contracts and certain non-recurring costs. Exchange rate fluctuations
were not material.

Publishing segment EBITA was $1.4 million in 1996, compared to EBITA of $1.9
million in the prior year. Results in 1996 were negatively impacted by costs
associated with the relocation of Publishing's editorial and production
functions from the United Kingdom to the United States, as well as by the loss
of licensing revenues. Exchange rate fluctuations were not material.

An EBITA loss from franchising activity of $0.8 million was recorded for 1996,
due to the

                                       29

<PAGE>

developmental stage nature of these operations.

Included in total EBITA were net non-segment related corporate and divisional
expenses of $17.2 million for the twelve months ended December 31, 1996,
compared with $14.3 million in the same prior year period. This increase was
primarily attributable to a reallocation of resources under the new matrix
management structure in 1996, and to expenses associated with the SERP and
corporate training programs.

Amortization of publishing rights, excess of cost over net assets acquired and
other intangibles decreased by $0.7 million, or 5.1%, from the prior twelve
month period, primarily due to the effects of translating into U.S. dollars the
excess of cost over net assets acquired related to the Company's foreign
subsidiaries.

Interest expense on long-term debt for the twelve months ended December 31, 1996
decreased by $1.0 million, or 11.7%, from the comparable prior year period,
primarily due to scheduled principal repayments and a lower average interest
rate on a portion of the Company's long-term debt.

Interest expense to affiliates for the year ended December 31, 1996 increased by
$0.4 million, or 28.6%, from the prior twelve month period, due to a $6.0
million increase in notes payable to the Company's majority shareholder (see
"Liquidity and Capital Resources").

Other income, net for the twelve months ended December 31, 1996 increased by
$0.2 million, or 13.6%, from the prior year, primarily as a favorable $2.1
million fluctuation in foreign exchange gains (principally reflecting the
impacts of certain Japanese yen, Swiss franc, U.S. dollar and British pound
denominated intercompany transactions) more than offset: a) a decline in
interest income on temporary investments due to lower average cash balances, b)
a lower gain on the Company's German mark floating rate coupon swap which was
settled in January 1996; c) the absence of non-recurring joint venture-related
income, which reduced expenses in 1995, and d) a favorable fluctuation in losses
on disposal of fixed assets, which was significantly increased in 1995 due to
certain Japanese language centers relocations.

Minority interest in subsidiary earnings increased $0.4 million, or 35.9%, from
the prior year due to higher net income in the Company's Japanese subsidiary.

The Company recorded an income tax expense of $7.5 million, or an effective rate
of 58.6%, during the current twelve-month period. This compared to an income tax
expense of $7.4 million, or an effective rate of 68.7%, in the prior year's
period. The effective tax rates in both 1996 and 1995 were above the U.S.
Federal statutory tax rate primarily as a result of nondeductible amortization
charges.

Net income for the twelve months ended December 31, 1996 was $3.8 million, or
$0.40 per share, compared to net income of $2.3 million, or $0.23 per share, in
the comparable prior year's period. This improvement of $1.5 million resulted
primarily from a higher operating profit and a reduced effective tax rate in
1996.

                                       30

<PAGE>

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 $13.5 million, $25.4 million and
$16.6 million for the years ended December 31, 1997, 1996 and 1995,
respectively. 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. In comparing 1996 with 1995,
the increase of $8.9 million was primarily attributable to a number of factors,
including increased receivables collections, an increase in the prepayment of
fees by the Company's customers, and lower interest payments on long-term debt.

Net cash used in investing activities totaled $105.5 million, $13.1 million and
$7.9 million in 1997, 1996 and 1995, 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 $14.6 million, $13.0
million and $8.0 million in 1997, 1996 and 1995, respectively. Such capital
expenditures were primarily for the opening of new facilities and the
refurbishing of existing facilities, and, in 1995, for the relocation and
consolidation of certain centers in Japan. Capital expenditures have increased
over the three-year period due to growth related expansion in the Instruction
and Translations segments and the inclusion in 1996 of $3.2 million related to
the April 1996 relocation of the Company's corporate headquarters to its new
facility in Princeton, New Jersey.

Net cash provided by financing activities totaled $94.9 million in 1997,
compared with net cash used of $11.0 million and $9.4 million in 1996 and 1995,
respectively. 1997's results primarily reflected net proceeds from the Company's
refinancing of its long-term debt in conjunction with the ELS acquisition, while
prior years' activity primarily reflected repayments of long-term debt.

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

*    In October 1996, the 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. In
     connection with this notice, the Company made a payment of $2.5 million to
     the IRS during the 1997 second quarter. The Company is contesting the
     deficiency notice and intends to fund any remaining deficiency that may
     ultimately result through its cash resources. The Company believes that it
     has adequate cash resources to pay any such deficiency and to pursue its
     business plan.

                                       31

<PAGE>

*    Reported within accrued expenses at December 31, 1997 were $4.3 million
     related to the ELS acquisition, including a $1.3 million post-closing
     purchase price adjustment. The purchase price adjustment was paid on
     January 13, 1998.

*    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. This
     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.

*    The revolving credit commitment under the Bank Facility was increased from
     $45 million to $55 million, via amendment, on October 28, 1997, and to $70
     million, via amendment, on March 23, 1998. At March 23, 1998, the Company
     had $44 million outstanding under this revolving credit facility.

*    On March 28, 1997, the Company signed a nationwide interpreter service
     contract with the Department of Justice, Executive Office for Immigration
     Review ("EOIR") for the next two years, with three annual renewal options
     at the election of EOIR. The contract award is subject to applicable
     government procurement laws, including EOIR's right to initiate
     recompetition for a portion (less than 5%) of the EOIR contract; to elect
     not to exercise its annual renewal rights under the EOIR contract for the
     contract year beginning May 1, 1999; and any contract Protest rights of
     third persons.

*    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.

*    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
     exchange for U.S. dollar receipts, to periodically make foreign currency
     payments, denominated in the Japanese yen, the Swiss franc, the Canadian
     dollar, the British pound, and the German mark. Credit loss from
     counterparty nonperformance is not anticipated. The estimated fair value of
     these swap agreements at December 31, 1997, representing the amount that
     could be settled based on estimates obtained from a dealer, was a net asset
     of approximately $0.3 million.

*    In connection with another covenant under the Bank Facility, the Company is
     party to a five-year interest rate swap agreement which provides for
     quarterly exchanges of interest on an amortizing "notional" (theoretical)
     amount, originally set at $66.0 million and currently at $62.3 million at
     December 31, 1997. 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

                                       32

<PAGE>

*    on a fixed rate of 6.30%. Credit loss from counterparty non-performance is
     not anticipated. The estimated fair value of this interest rate swap at
     December 31, 1997, representing the amount that could be settled based on
     estimates obtained from a dealer, was a net liability of approximately $0.7
     million.

*    Certain financial covenants contained in the Bank Facility restrict the
     ability of the Company to pay dividends and the Company does not expect to
     pay dividends during the term of the Bank Facility. Further pursuant to the
     Bank Facility, principal and interest repayment of indebtedness to Benesse,
     having a balance at December 31, 1997 of $39.4 million, are deferred until
     all obligations under the Bank Facility are satisfied.

*    Included within cash and temporary investments at December 31, 1997 are
     $3.5 million in restricted funds set aside in a escrow account pursuant to
     the Bank Facility. Such funds may be used to pay rent, interest, taxes,
     dividends or long-term debt principal at any time after January 1, 1998.

At December 31, 1997, the Company's liquid assets of $26.7 million consisted of
cash and temporary investments. The Company does not currently have any material
commitments for capital expenditures. In the future, the Company anticipates
capital expenditures to continue to increase compared with historical trends in
connection with 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

Recognizing the need to ensure operations will not be adversely affected by Year
2000 software failures, the Company has started a comprehensive process to
address any possible exposure. Two committees have been formed to assess key
financial and operational systems and to develop a detailed action strategy.
These committees are currently in the process of gathering worldwide hardware
and software inventories and vendor compliance standards. It is anticipated that
such information gathering will be completed by the end of April 1998, at which
time detailed divisional implementation plans will be initiated. The Company
expects to be Year 2000 compliant by September 29, 1999.

Since it is in the midst of its information gathering stage, the Company is not
yet able to estimate the cost for Year 2000 compliance with respect to its
information systems, production systems, products, customers and suppliers.
However, management does not currently believe that such incremental costs will
have material adverse effect on the Company's future consolidated results, due
to the nature of the Company's services, the diversity of its customer base and
due to normally planned hardware and software upgrades/replacements with Year
2000 compliant products in the ordinary course of business.


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

                                       33

<PAGE>

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 future continuation of the EOIR contract; the outcome
of future negotiations and/or litigation pertaining to the deficiency assessed
by the IRS; 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 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.

                                       34

<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                                         36

STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED
    FINANCIAL STATEMENTS                                               37

CONSOLIDATED FINANCIAL STATEMENTS:

    Consolidated Statements of Operations, years ended
         December 31, 1997, 1996 and 1995                              38

    Consolidated Balance Sheets, December 31, 1997 and 1996            39

    Consolidated Statements of Shareholders' Equity, years ended
         December 31, 1997, 1996 and 1995                              40

    Consolidated Statements of Cash Flows, years ended
         December 31, 1997, 1996 and 1995                              41

    Notes to Consolidated Financial Statements                         42

FINANCIAL STATEMENT SCHEDULE:

         Schedule II.  Valuation and Qualifying Accounts               66

         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.

                                       35

<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, 1997 and 1996 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years ended December 31, 1997, 1996 and 1995. Our audits also
included the financial statement schedule listed in the Index at Item 8 for the
years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996 and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule for the years ended December 31, 1997,
1996 and 1995, 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 25, 1998

                                       36

<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

                                       37

<PAGE>

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


<TABLE>
<CAPTION>

                                                                      YEAR ENDED DECEMBER 31,
                                                                      -----------------------
                                                              1997             1996              1995
                                                              ----             ----              ----
<S>                                                  <C>               <C>               <C>
Sales of services and products                       $     397,209     $    369,622      $    354,509
                                                     -------------     ------------      ------------

Costs and expenses:

    Cost of services and products sold                     236,521          222,313           216,443
    Selling, general and administrative                    123,444          113,695           105,039
    Amortization of publishing rights, excess
       of cost over net assets acquired, and
       other intangibles                                    14,183           12,746            13,425
    Interest expense on long-term debt                       8,523            7,647             8,658
    Interest expense to affiliates                           2,100            1,848             1,437
    Other income, net                                         (615)          (1,441)           (1,269)
                                                             -----          -------           -------
       Total costs and expenses                            384,156          356,808           343,733
                                                           -------          -------           -------

Income before income taxes, minority
    interest in earnings of subsidiary, and
    extraordinary item                                      13,053           12,814            10,776

Income tax expense                                           7,089            7,508             7,400
Minority interest in earnings
    of subsidiary                                              613            1,503             1,106
                                                               ---            -----             -----

Income before extraordinary item                             5,351            3,803             2,270

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

Net (loss) income                                    $        (934)    $      3,803      $      2,270
                                                     =============     ============      ============

(Loss) earnings per share - basic and diluted:
    Income before extraordinary item                 $        0.56     $       0.40      $       0.23
    Extraordinary loss                                       (0.66)               -                 -
                                                             -----            -----             -----
    (Loss) earnings per share                        $       (0.10)    $       0.40      $       0.23
                                                     =============     ============      ============

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

</TABLE>

 See accompanying notes to the consolidated financial statements.

                                       38

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                           DECEMBER 31,
                                                                                           ------------
                                                                                    1997                1996
                                                                                    ----                ----
<S>                                                                             <C>                 <C>
ASSETS
Current assets:
Cash and temporary investments                                                  $     26,665        $    25,781
Accounts receivable, less allowance for doubtful accounts
 of  $2,415 and $1,914                                                                50,622             36,048
Unbilled receivables                                                                   3,538              3,807
Inventories, net                                                                       9,159             10,260
Prepaid expenses and other current assets                                              8,323              6,815
                                                                                       -----              -----
  Total current assets                                                                98,307             82,711
Property and equipment, net                                                           32,098             29,363
Publishing rights, net of accumulated
 amortization of $4,324 and $3,504                                                    17,661             18,864
Excess of cost over net assets acquired and other intangibles, net of
  accumulated amortization of $57,893 and $46,049                                    498,506            417,611
Other assets                                                                          14,943             12,696
                                                                                      ------             ------
  Total assets                                                                  $    661,515        $   561,245
                                                                                ============        ===========


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt                                               $     17,712        $    10,741
Accounts payable                                                                       9,990              5,943
Deferred revenues                                                                     36,071             34,748
Payrolls and commissions                                                              17,988             10,227
Income taxes payable                                                                     573              4,207
Accrued expenses and other current liabilities                                        15,505             11,713
                                                                                      ------             ------
  Total current liabilities                                                           97,839             77,579

Long-term debt                                                                       142,369             56,353
Notes payable to affiliates                                                           39,423             38,294
Deferred taxes and other liabilities                                                  24,964             22,348
Minority interest                                                                      9,942              9,264
                                                                                       -----              -----
  Total liabilities                                                                  314,537            203,838
                                                                                     -------            -------

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            368,658
Retained earnings                                                                      2,492              3,426
Cumulative translation adjustment                                                    (22,674)           (10,037)
Treasury stock at cost; 503,225 and 627,000 shares                                    (6,361)            (5,643)
                                                                                     -------            -------
Total shareholders' equity                                                           346,978            357,407
                                                                                     -------            -------
Total liabilities and shareholders' equity                                      $    661,515         $  561,245
                                                                                ============         ==========

</TABLE>

See accompanying notes to the consolidated financial statements.

                                       39



<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, 1995           $    1,003     $  368,658    $  (2,647)       $     221     $       -        367,235

Net income                                                            2,270                                         2,270
Translation adjustment and other,
   including the effects of certain
   hedges and intercompany
   transactions                                                                          414                          414
Allocated income taxes                                                                   497                          497
                                         -------       -------      -------          -------       -------        -------
Balance at December 31, 1995              1,003        368,658         (377)           1,132             -        370,416

Net income                                                            3,803                                         3,803

Translation adjustment and other,
   including the effects of certain
   hedges and intercompany
   transactions                                                                      (10,266)                     (10,266)
Allocated income taxes                                                                  (559)                        (559)
Transfers from CTA related to
   liquidation of foreign subsidiaries                                                  (344)                        (344)
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
                                     ==========     ==========    =========        =========     =========     ==========

</TABLE>

See accompanying notes to the consolidated financial statements.

                                       40

<PAGE>

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


<TABLE>
<CAPTION>


                                                                                            YEAR ENDED DECEMBER 31,

                                                                     1997               1996                1995
                                                                     ----               ----                ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                            <C>               <C>                 <C>
 Net (loss) income                                             $     (934)       $     3,803         $     2,270

 Adjustments to reconcile net income to net cash
 provided by operating activities:
 Depreciation                                                       8,564              7,972               7,099

 Amortization of publishing rights, excess of cost over
   net assets acquired, and other intangibles                      14,183             12,746              13,425

 Minority interest in earnings of subsidiary                          613              1,503               1,106

 Deferred income tax benefits                                        (442)              (172)             (1,405)

 Deferred tax benefit on extraordinary items                       (1,785)                 -                   -

 Provision for bad debts                                            1,129              1,168                 349

 Foreign exchange (gains) losses, net                                 (27)            (1,005)              1,131

 Gains on currency coupon swap agreements                               -               (399)             (1,151)
 Equity in losses (gains) of joint ventures                            50                187                 (13)
 Losses on disposal of fixed assets                                   100                 70                 622
 Changes in operating assets and liabilities:
       (Increase) in accounts and unbilled receivables            (15,570)            (3,900)            (10,504)
       (Increase) decrease in inventories                             444             (1,039)               (154)

       (Increase) decrease in prepaid expenses and other assets        97             (1,130)             (1,256)

       Increase (decrease) in deferred revenues                     2,225              1,732                (650)

       Increase (decrease) in accounts payable and
         other current liabilities                                  3,567               (772)              1,125

       Increase in due to affiliates                                2,102              1,862               1,416

       Increase (decrease) in income taxes payable                 (3,555)             2,178               3,893

       Increase (decrease) in other liabilities                     2,787                630                (752)
                                                                    -----                ---                ----

 Net cash provided by operating activities                         13,548             25,434              16,551
                                                                   ------             ------              ------


CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                             (14,617)           (13,034)             (8,035)

 Acquisitions of businesses, net of cash acquired                 (90,868)                 -                 (15)

 Refunds from (investments in) joint ventures                           -                (72)                177
                                                                 --------            -------              ------

 Net cash used in investing activities                           (105,485)           (13,106)             (7,873)
                                                                 --------            -------              ------

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                                        (70,978)           (11,366)             (9,325)
 Payments to acquire treasury stock                                (2,968)            (5,643)                  -
 Proceeds from sale of treasury stock                               6,110                  -                   -

 Net borrowings under revolving credit facility                    44,000                  -                   -

 Payment of deferred financing costs                               (1,272)                 -                (107)
                                                                   ------             ------                ----

   Net cash provided by (used in) financing activities             94,892            (11,009)             (9,432)
                                                                   ------            -------              ------
</TABLE>



<PAGE>

<TABLE>
<CAPTION>

<S>                                                            <C>               <C>                 <C>
 Effect of exchange rate changes
  on cash and temporary investments                                (2,071)              (940)                 (9)
                                                                   ------               ----                  --

 Net increase (decrease) in cash and
  temporary investments                                               884                379                (763)


 Cash and temporary investments at beginning of period             25,781             25,402              26,165
                                                                   ------             ------              ------


 Cash and temporary investments at end of period               $   26,665     $       25,781       $      25,402
                                                               ==========     ==============       =============


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash payments for:
       Interest                                                $    7,877     $        6,835       $       7,736
                                                               ==========     ==============       =============


       Income taxes                                            $   10,834     $        6,640       $       6,556
                                                               ==========     ==============       =============


   Cash refunds of income taxes                                $      493     $        1,298       $       1,371
                                                               ==========     ==============       =============

   Noncash investing activities:
       Accounts payable for capital expenditures in Japan      $        -     $            -       $         456
                                                               ==========     ==============       =============

</TABLE>

See accompanying notes to the consolidated financial statements.


                                       41

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


1.       NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a)       Nature of Operations - Berlitz International, Inc. (the
                  "Company") is a New York corporation organized in 1989. Its
                  operations are conducted on a worldwide basis through three
                  business segments: Language Instruction, Translation Services
                  and Publishing. Approximately 68% of its 1997 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 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.

                                       42

<PAGE>

                  Unbilled receivables represent the difference between revenue
                  recognized for financial reporting purposes and amounts
                  contractually permitted to be billed to customers. Unbilled
                  amounts will be invoiced in subsequent periods upon reaching
                  certain milestones.

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

         f)       Deferred Financing Costs - Direct costs relating to the
                  indebtedness incurred in connection with the Merger, 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)       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 accelerated methods.

         h)       Publishing Rights - Publishing rights are associated with the
                  Company's proprietary language instruction print materials and
                  travel related titles. They are being amortized on a
                  straight-line basis over 25 years. The carrying value of
                  publishing rights is evaluated periodically to determine if
                  there has been a loss in value by considering the impacts of
                  expected future revision dates. Publishing rights will be
                  written off if and when it has been determined that an
                  impairment in value has occurred.

         i)       Excess of Cost Over Net Assets Acquired and Other Intangibles
                  - Except as disclosed in Note 2, the excess of cost over net
                  assets acquired is being amortized on a straight- line basis
                  over 40 years, while other intangibles are being amortized
                  primarily on a straight-line basis over 40 years. Their
                  carrying values are evaluated periodically to determine if
                  there has been a loss in value, by reviewing current and
                  estimated future revenues and cash flows, and the interrelated
                  impact on the values of the Company's trademark and franchise
                  rights. The excess of cost over net assets acquired and other
                  intangibles will be written off if and when it has been
                  determined that an impairment in value has occurred.

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

         k)       Income Taxes - The Company has adopted the provisions of
                  Statement of Financial Accounting Standards No. 109,
                  "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
                  recognition of deferred tax liabilities and assets for the
                  expected future tax consequences of events that have been
                  included in the financial statements or tax returns. Under
                  this method, deferred tax liabilities and assets are
                  determined based on

                                       43

<PAGE>

                  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.

                  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.

                  Included within cash and temporary investments at December 31,
                  1997 are $3.5 million in restricted funds set aside in a
                  escrow account pursuant to the Bank Facility (see Note 8).
                  Such funds may be used to pay rent, interest, taxes, dividends
                  or long-term debt principal at any time after January 1, 1998.

         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 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 are excluded from the
                  Company's Consolidated Statements of Operations, and included,
                  net of deferred taxes, in the cumulative translation
                  adjustment of shareholders' equity. If the change in any
                  fiscal quarter in an agreement's fair value exceeds the
                  exchange rate fluctuation's effect on the underlying
                  investment, such excess is recognized in the Consolidated
                  Statement of Operations within "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 are recognized within the
                  Consolidated Statement of Operations.

                                       44

<PAGE>

         p)       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.

         q)       Reclassifications - Certain reclassifications have been made
                  in prior years' financial statements and notes to conform with
                  the 1997 presentation.


2.       ELS ACQUISITION

         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. 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, 1997 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                 (10,890)
                                                       -------
         Total net assets acquired                                       29,909
                                                                         ------
    Excess of cost over net assets acquired                  $           68,291
                                                             =           ======

         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.

                                       45

<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)
                                                   =            =====          =            =====

</TABLE>

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

<TABLE>
<CAPTION>

                                                              PRO FORMA                 PRO FORMA
                                                          TWELVE MONTHS             TWELVE MONTHS
                                                                  ENDED                     ENDED
                                                          DEC. 31, 1997             DEC. 31, 1996
                                                          -------------             -------------
<S>                                                  <C>                       <C>
         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.

                                       46

<PAGE>

     A reconciliation between Basic and Diluted EPS computations for "income
before extraordinary item" as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
                                                                             WEIGHTED
                                                                              AVERAGE
                                                                               NUMBER
                                                                            OF SHARES          PER-SHARE
                                                           INCOME         OUTSTANDING             AMOUNT
                                                           ------         -----------             ------
<S>                                                 <C>                         <C>       <C>
         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 years
ended December 31, 1996 and 1995 since no dilutive securities were outstanding
prior to June 30, 1997.


4    PROPERTY AND EQUIPMENT, NET

<TABLE>
<CAPTION>

                                                                            DECEMBER 31,
                                                                       1997             1996
                                                                       ----             ----
<S>                                                           <C>               <C>
         Buildings and leasehold improvements                 $      19,063     $     17,938
         Furniture, fixtures and equipment                           29,036           25,318
         Land                                                         1,364            1,382
                                                                      -----            -----
                                                                     49,463           44,638
         Less: accumulated depreciation
               and amortization                                      17,365           15,275
                                                                     ------           ------
                  Total                                       $      32,098     $     29,363
                                                              =============     ============

</TABLE>
EXCESS OF COST OVER NET ASSETS
         ACQUIRED, AND OTHER INTANGIBLES
<TABLE>
<CAPTION>

                                                                            DECEMBER 31,
                                                                       1997             1996
                                                                       ----             ----
<S>                                                           <C>               <C>
         Excess of cost over net assets acquired              $     220,310     $    164,149
         Tradenames and trademarks                                  299,998          296,847
         ELS sales agent network                                     31,700                -
         Other                                                        4,391            2,664
                                                                      -----            -----
                                                                    556,399          463,660
         Less: accumulated amortization                             (57,893)         (46,049)
                                                              -------------     ------------
                  Total                                       $     498,506     $    417,611
                                                              =============     ============

</TABLE>

                                       47

<PAGE>
<TABLE>
<CAPTION>

6.       OTHER INCOME, NET
                                                                        YEAR ENDED DECEMBER 31,
                                                            1997                1996               1995
                                                            ----                ----               ----
<S>                                                 <C>                <C>                <C>
         Interest income on temporary investments   $       (875)      $        (728)     $      (1,278)
         Foreign exchange (gains) losses, net                (27)             (1,005)             1,131
         Gains on currency coupon swap agreement                -               (399)            (1,151)
         Equity in (gains) losses of joint ventures            50               187                 (13)
         Joint venture-related income                           -                -               (1,299)
         Other non-operating taxes                            415                586                669
         Term Loan administration fee                          83                150                150
         Losses on disposal of fixed assets                   100                 70                622
         Other interest income, net                         (235)                (67)              (242)
         Other (income) expense, net                        (126)               (235)               142
                                                            -----               -----               ---
             Total other income, net                $       (615)      $      (1,441)     $      (1,269)
                                                    ============       =============      =============


</TABLE>

7.       INCOME TAXES

         The components of the deferred tax liability at December 31, 1997 and
1996 were as follows:

<TABLE>
<CAPTION>
                                                                   1997                    1996
                                                                   ----                    ----
<S>                                                         <C>                 <C>
 Deferred tax assets:
      Inventory                                             $        67         $           827
      Property and equipment depreciation                             -                     122
      Deferred revenue                                            1,702                   1,836
      Unrealized hedging losses                                     142                     243
      Accrued expenses                                            1,970                   2,871
      Foreign tax credits                                         4,193                       -
      Net operating losses                                        6,000                  12,965
                                                                  -----                  ------
        Total deferred tax assets                                14,074                  18,864
                                                                 ------                  ------

 Deferred tax liabilities:
      Joint ventures                                               (320)                   (368)
      Property and equipment depreciation                           (44)                      -
      Unrealized hedging gains                                     (252)                    (80)
      Publishing rights amortization                             (5,882)                 (7,853)
      Other intangibles amortization                                (46)                    (92)
                                                                 ------                  ------
        Total deferred tax liabilities                           (6,544)                 (8,393)
                                                                 ------                  ------

 Net deferred tax assets                                          7,530                  10,471
   Valuation allowance                                           (8,141)                (13,036)
                                                                 ------                  ------
 Net deferred tax liability                                 $      (611)         $       (2,565)
                                                            ===========          ==============

</TABLE>

                                       48

<PAGE>

         As a result of the Merger, $2,186 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 1997 was 54.3%, compared with
         58.6% and 68.7% in 1996 and 1995, respectively.

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

<TABLE>
<CAPTION>

                                                 U.S.                               U.S. STATE
                                               FEDERAL            FOREIGN*           AND LOCAL            TOTAL
                                               -------            --------           ---------            -----
<S>                                      <C>                 <C>                  <C>               <C>
         Year ended December 31, 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
                                         =============       =============        ============      ===========

         Year ended December 31, 1995:
           Current                       $         272       $       8,062        $        471      $      8,805
           Deferred                             (1,180)                116                (341)           (1,405)
                                                ------                 ---                ----            ------
           Total                         $        (908)      $       8,178        $        130      $      7,400
                                         =============       =============        ============      ============


      *  Pre-tax income from foreign operations of the Company was $17,730, $22,429, and $20,232 for the twelve months ended
         December 31, 1997, 1996 and 1995, respectively.

</TABLE>

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

<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31,
                                                             1997                1996               1995
                                                             ----                ----               ----
<S>                                                  <C>                   <C>                 <C>
         Accrued liabilities                         $      1,002          $       88          $     (76)
         Foreign exchange                                     (46)                232                410
         Benefit of net operating loss                       (248)               (313)              (228)
         Amortization of intangibles                       (1,971)               (199)            (1,536)
         Inventory                                            760                  69                  -
         Other, net                                            61                 (49)                25
                                                     ------------          ----------          ---------
           Total                                     $       (442)         $     (172)         $  (1,405)
                                                     ============          ==========          =========

</TABLE>

                                       49

<PAGE>

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

<TABLE>
<CAPTION>

                                                                 YEAR ENDED DECEMBER 31,
                                                         1997             1996            1995
                                                         ----             ----            ----
<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                           (17.6)           (34.5)            3.3
        U.S. state and local income taxes,
          net of Federal income taxes                     2.6              2.0             3.0
        Net domestic and foreign losses                   7.5             12.4             3.9
        Amortization and writeoff of intangibles         33.6             34.8            30.5
        Other, net                                       (6.8)             8.9            (7.0)
                                                         ----              ---            ----
             Total                                       54.3%            58.6%           68.7%
                                                         ====             ====            ====

</TABLE>

         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, 1997, accumulated earnings of foreign subsidiaries of
         $38,731 are intended to be permanently reinvested outside the U.S. and
         no tax has been provided for the remittance of these earnings. However,
         it is estimated that foreign withholding taxes of $2,216 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,
                                                     1997                 1996
                                                     ----                 ----
             Term Loan                     $      115,750       $       10,500
             Revolving Credit Facility             44,000                    -
             Senior Notes                               -               56,000
             Other                                    331                  594
                                                      ---                  ---
                Total Debt                        160,081               67,094
             Less current maturities               17,712               10,741
                                                   ------               ------
                Long-term Debt             $      142,369       $       56,353
                                           ==============       ==============


         Annual maturities of long-term debt outstanding as of December 31, 1997
         are as follows: 1998, $17,712; 1999, $19,369; 2000, $20,500; 2001,
         $22,000; 2002, $80,500.


                                       50

<PAGE>

         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 of $45 million. The
         revolving credit facility (against which the Company borrowed $44
         million during 1997) was subsequently increased to $55 million on
         October 28, 1997 and to $70 million on March 23, 1998. The term loans
         provide for quarterly amortization, beginning December 31, 1997 and
         ending September 30, 2002, and mature 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 are no scheduled repayments
         required under the revolving credit facility prior to its expiration on
         September 30, 2002, at which time all outstanding balances are due. The
         Bank Facility is secured by the capital stock of certain Company
         subsidiaries, and is 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 bear interest at
         variable rates based on, at the option of the Company, (i)
         NationsBank's alternate base rate (essentially equivalent to the prime
         rate) or (ii) the rate offered by certain reference banks to prime
         banks in the interbank Eurodollar market, fully adjusted for reserves
         plus a margin ranging from .375% to .875%; such margin is dependent on
         a specified leverage ratio of the Company. In addition, a commitment
         fee ranging from .125% to .25% is 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, 1997 was
         6.99%. The average interest rates on the Term Loan and Senior Notes for
         the eight months ended August 28, 1997 (the date of refinancing) were
         7.7% and 9.79%, respectively.

         The Bank Facility contains 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 contains
         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, 1997, the
         Company was in compliance with all Bank Facility covenants.

                                       51

<PAGE>

         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 $27,066,
         $26,020 and $25,443, for the years ended December 31, 1997, 1996 and
         1995, 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, 1997 are as
         follows: 1998-$13,547; 1999-$10,012; 2000-$7,803; 2001-$6,737;
         2002-$5,433 and an aggregate of $23,812 thereafter.

         LEGAL PROCEEDINGS

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

         IRS DEFICIENCY NOTICE

         In October 1996, the Internal Revenue Service issued a deficiency
         notice to the Company relating to its 1989, 1990, 1992 and 1993 U.S.
         Federal tax returns. The Company is contesting the deficiency notice
         and believes that any liability that may ultimately result is
         adequately provided for at December 31, 1997. During the twelve months
         ended December 31, 1997, the Company made a payment of $2.5 million to
         the IRS in connection with this notice.

         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
         $1,900.

                                       52

<PAGE>

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.

         Significant terms of agreements outstanding during 1997 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 market. When these agreements are
         effective as hedges, realized and unrealized gains and losses are
         excluded from the Company's Consolidated

                                       53

<PAGE>

         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, and consequently the Company recognized a
         foreign exchange gain of $1,151 in its Consolidated Statement of
         Operations within "Other income, net". On January 23, 1996, the Company
         exchanged this swap for a fixed interest rate coupon-only currency swap
         of equal fair value. The Company recognized a gain of $399 during the
         first quarter of 1996, representing the change in fair value of the
         original swap from December 31, 1995 to the date of the exchange.

         b) 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 $66.0 million and currently at
         $62.3 million at December 31, 1997. 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.

         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 1997 and 1996, balances in these accounts averaged
         40% and 31% 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 $13.8 million and $3.8 million at December 31, 1997 and
         1996, 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 5%
         and 8% of the Company's total accounts receivable balance before
         allowances at December 31, 1997 and 1996, respectively.

         d) Fair values of financial instruments

         The carrying amounts and estimated fair values of the Company's
         financial instruments at December 31, 1997 and 1996 were as follows:

                                       54

<PAGE>

<TABLE>
<CAPTION>
                                                                  1997                               1996
                                                                  ----                               ----
                                                      CARRYING         ESTIMATED        CARRYING         ESTIMATED
                                                      AMOUNT           FAIR VALUE       AMOUNT           FAIR VALUE
                                                      ------           ----------       ------           ----------
<S>                                                   <C>              <C>              <C>              <C>
         Assets:
           Cash and temporary investments             $     26,665     $     26,665     $      25,781    $      25,781
           Currency coupon swap agreements                     719              719               228              228
         Liabilities:
           Long-term debt, including
             current maturities                            160,081          160,081            67,094           71,652
           Notes payable to affiliates                      39,423           34,101            38,294           32,926
           Currency coupon swap agreements                     406              406               694              694
           Interest rate swap agreement                          -              680                 -                -

</TABLE>

         For cash and temporary investments and short-term borrowings, the
         carrying amount approximates fair value due to their short maturities.
         The fair values of long-term debt and notes payable to affiliates are
         estimated based on the interest rates currently available for
         borrowings with similar terms and maturities. The fair values of the
         coupon swap agreements 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 Fukutake Holdings (America), Inc.
         ("FHAI"), a wholly owned subsidiary of Benesse Corporation ("Benesse"),
         signed a definitive contract whereby the Company agreed to sell to FHAI
         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
         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 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 represents 73.3%, of the 9,529,788 shares of Common
         outstanding at December 31, 1997.

         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.

                                       55

<PAGE>

         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 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.

         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. Consequently, the premiums on the D&O policy
         are allocated 60% to Benesse and 40% to the Company, except

                                       56

<PAGE>

         for, in 1997, the premium for entity coverage which 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 for 1997. 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 $1,417, $811 and $1,328 was paid for 1997, 1996 and
         1995, respectively, pursuant to the Short-Term Plan.

         ELS' 1997 Executive Incentive Plan provided for cash awards to officers
         and key employees of ELS if certain financial goals have been met, as
         well as a special bonus upon successful sale of ELS. Approximately
         $2,010 was paid for 1997 in connection with this 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 $5.0 million in the aggregate. The Company
         is not required to establish any fund or segregate any assets for
         payments under the New LTIP. For the twelve months ended December 31,
         1997 and 1996, the Company recorded expenses of $1,289 and $318,
         respectively, related to 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 377,000. The
         Company has reserved 377,000 of its treasury shares for use under the
         Plan, which was approved by the Company's shareholders on June 3, 1997.

                                       57

<PAGE>

         The Company granted 327,200 options under the Plan on June 30, 1997
         (the "June 1997 Options") 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. Included within the 327,200 options are
         100,250 options for Soichiro Fukutake, Chairman of the Board of
         Directors, of which 50,000 have been granted (the "Relinquishment
         Options") in exchange for the complete relinquishment by Mr. Fukutake
         of all benefits under the Company's Supplemental Executive Retirement
         Plan ("SERP"). The Company granted an additional 46,120 options under
         the Plan on December 9, 1997 (the "December 1997 Options") at an
         exercise price of $26.5625, equal to the closing price of the Company's
         common stock on the New York Stock Exchange on the date of grant.

         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. Unexercised June 1997 Options 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.

         The December 1997 Options may not be exercised prior to December 9,
         2000. On such date, they become fully exercisable until their normal
         expiration on December 9, 2004. Unexercised December 1997 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.

         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. 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 and earnings per share for the year-to-date period ended
         December 31, 1997 would have been a decrease of $554 and $0.06,
         respectively.

         The fair value of each option grant during 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 -       JUNE 1997 GRANT           DECEMBER 1997
                                              RELINQUISHMENT OPTIONS       - ALL OTHER                  GRANT
                                              ----------------------          OPTIONS                   -----
                                                                              -------
<S>                                                    <C>                        <C>                     <C>
           Weighted average assumptions
           used to estimate fair value:
              Dividend yield                            0.00%                      0.00%                   0.00%
              Expected volatility                      22.00%                     22.00%                  21.00%
              Risk free interest rate                   5.79%                      6.08%                   5.88%
              Expected lives in years                   1.5                        4.25                    5.0
           Fair value of each option                   $3.71                      $7.37                   $8.43
           granted

</TABLE>

                                       58

<PAGE>

         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 1995,
         1996 or 1997, and there are no related incentives or shares outstanding
         at December 31, 1997.

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 $1,399, $1,632 and $1,704 for the years ended December 31, 1997,
         1996, and 1995, 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

                                       59

<PAGE>

         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) and
         will be paid to the retired participant for life, with 50% of such
         benefit paid to the participant's surviving spouse for life upon the
         retired participant's death. Such percentage for initial participants
         as of January 1, 1996 is 30%. For future participants, such percentage
         will be 2% (or such other percentage as the Board of Directors may
         determine) multiplied by years of service, not to exceed 30%. The
         Company will also provide each retired participant and their surviving
         spouse with medical coverage for both of their lives. If a participant
         with at least 5 years of service dies before retirement, the
         participant's designated beneficiary will receive, in lieu of the
         above-mentioned benefits, a one-time payment equal to the participant's
         base salary projected to age 65 at a 4% annual increase.

         Awards under the SERP are not subject to deduction for Social Security
         or other offset amounts, except to the extent of any disability
         benefits payable under the Company's long-term disability insurance
         policy. In the case of Chairman of the Board, who does not receive a
         salary from the Company, the SERP benefits 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.

         The following table sets forth the funded status of the medical
         coverage portion of the SERP, reconciled with amounts recognized in the
         Company's financial statements at December 31.

<TABLE>
<CAPTION>
                                                                           1997                 1996
                                                                           ----                 ----
<S>                                                                 <C>                  <C>
         Accumulated postretirement benefit obligation:
                  Retirees                                          $         -          $         -
                  Active plan participants                                1,205                1,435
                                                                          -----                -----
                                                                          1,205                1,435
         Plan assets at fair value                                            -                    -
                                                                          -----                -----
         Accumulated postretirement benefit obligation
            in excess of plan assets                                      1,205                1,435
         Prior service cost not yet recognized in net
            periodic postretirement benefit cost                           (840)                (999)
         Unrecognized actuarial gain                                        374                    -
                                                                            ---                  ---
         Accrued postretirement benefit cost                        $       739          $       436
                                                                    ===========          ===========
</TABLE>


         Net periodic postretirement benefit cost for the year ended December
         31, 1997 and 1996 included the following components:

<TABLE>
<CAPTION>

                                                                           1997                 1996
                                                                           ----                 ----
<S>                                                                 <C>                  <C>
         Service cost - benefits earned during the period           $       107          $       196
         Interest cost on accumulated postretirement
          benefit obligation                                                 72                   81
         Amortization of prior service cost                                 159                  159
         Actuarial gains                                                   (35)                    -
                                                                           ----                    -
         Net periodic postretirement benefit cost                   $       303          $       436
                                                                    ===========          ===========

</TABLE>
                                       60

<PAGE>

         The assumed health care cost trend rate used in measuring the
         accumulated postretirement benefit obligation for 1996 was a beginning
         rate of 14% leveling to an ultimate rate of 6% over 15 years. For 1997,
         a beginning rate of 13.8% leveling to an ultimate rate of 5% over 10
         years was used. The weighted average discount rate used in determining
         the accumulated postretirement benefit obligation for both years was
         7%. If the health care cost trend rate assumption were increased by 1%,
         the accumulated postretirement benefit obligation as of January 1, 1997
         would increase by $168 and the service cost for benefits earned during
         the period ending December 31, 1997 would increase by $20.

         Net periodic pension cost of the retirement income portion of the SERP
         is as follows:

<TABLE>
<CAPTION>
                                                                           1997                 1996
                                                                           ----                 ----
<S>                                                                 <C>                  <C>
         Service cost on benefits earned during the period          $       415          $       407
         Interest cost on projected benefit obligation                      220                  188
         Net amortization and deferral                                      179                  179
                                                                            ---                  ---
         Net periodic pension cost                                  $       814          $       774
                                                                    ===========          ===========

</TABLE>

         The actuarial present value of benefit obligations and funded status
         for the SERP at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>

                                                                           1997                 1996
                                                                           ----                 ----
<S>                                                                 <C>                  <C>
         Benefit obligations:
                 Vested benefits                                    $     2,726          $     1,767
                 Nonvested benefits                                          66                  603
                                                                             --                  ---
                 Accumulated benefit obligation                           2,792                2,370
         Projected compensation increases                                   783                  818
                                                                            ---                  ---
         Projected benefit obligation                                     3,575                3,188
         Plan assets at fair value                                            -                    -
                                                                          -----                -----
         Projected benefit obligation in excess of plan assets            3,575                3,188
         Unrecognized prior service cost                                 (2,324)              (2,503)
         Unrecognized actuarial gain                                        338                   89
         Adjustment required to recognize minimum liability               1,203                1,596
                                                                          -----                -----
         Net pension liability                                      $     2,792          $     2,370
                                                                    ===========          ===========

</TABLE>


         Assumptions used in developing the projected benefit obligation as of
         December 31, 1997 and 1996 were as follows:

         Discount rate (annual compounding)                                 7.0%

         Annual rate of increase in compensation                            4.0%

         The assumed interest rate at the beginning of each year is the same as
         the discount rate at the end of each prior year. Net pension income is
         determined using assumptions as of the beginning of each year. Funded
         status is determined using assumptions as of the end of each period.

                                       61

<PAGE>

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 FHAI, 377,000 shares were subsequently reserved
         for use under the 1996 Stock Option Plan, and the balance are reserved
         for future uses.

15.      BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

         The Company's operations principally are conducted through the
         following business segments: Language Instruction, Translation
         Services, and Publishing. Franchising activity in 1997 and 1996 and
         general corporate licensing activity in 1996 and 1995 are included
         within Other sales in the following presentation. Intersegment and
         intergeographical sales are not significant.

         Capital expenditures and depreciation and amortization for franchising
         are not significant.

         General corporate identifiable assets consist of, as applicable,
         deferred finance costs, an intangible required to recognize minimum
         liability under the retirement portion of the SERP, currency coupon
         swap agreements, cash values of officer life insurance and annuity
         contracts, and property and equipment. Depreciation and amortization
         relates to property and equipment, excess of cost over net assets
         acquired, other intangibles and publishing rights.

                                       62

<PAGE>

<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31,
                                                                     -----------------------
         BUSINESS SEGMENTS                                   1997                1996               1995
         -----------------                                   ----                ----               ----
<S>                                                 <C>                <C>                <C>
         Sales of services and products:
          Language Instruction                      $     298,348      $      276,167     $      272,764
          Translation Services                             84,192              76,991             64,036
          Publishing                                       13,634              15,451             17,180
          Other                                             1,035               1,013                529
                                                            -----               -----                ---
            Total                                   $     397,209      $      369,622     $      354,509
                                                    =============      ==============     ==============


         Operating profit (loss):
          Language Instruction                      $      38,273      $       34,330     $       28,577
          Translation Services                              6,158               3,508              3,836
          Publishing                                          197               1,014              1,499
          Franchising activity                               (725)               (834)                 -
          Divisional expenses                              (7,969)             (6,713)            (4,556)
                                                          -------             -------            -------
            Total operating segments                       35,934              31,305             29,356
          General corporate                               (12,873)            (10,437)            (9,754)
                                                         --------            --------            -------
            Total                                   $      23,061      $       20,868     $       19,602
                                                    =============      ==============     ==============

         Capital expenditures:
          Language Instruction                      $       9,098      $        5,693     $        5,188
          Translation Services                              2,167               3,903              1,659
          Publishing                                        2,771               1,289                853
                                                            -----               -----                ---
            Subtotal                                       14,036              10,885              7,700
          General corporate and divisional                    581               2,149                335
                                                              ---               -----                ---
            Total                                   $      14,617      $       13,034     $        8,035
                                                    =============      ==============     ==============

         Depreciation and amortization:
          Language Instruction                      $      16,869      $       15,395     $       15,900
          Translation Services                              3,595               3,391              2,826
          Publishing                                        1,124               1,450              1,551
                                                            -----               -----              -----
            Subtotal                                       21,588              20,236             20,277
          General corporate and divisional                  1,159                 482                247
                                                            -----                 ---                ---
            Total                                   $      22,747      $       20,718     $       20,524
                                                    =============      ==============     ==============



                                                                             DECEMBER 31,
                                                                             -----------
                                                             1997                1996               1995
                                                             ----                ----               ----
         Identifiable assets:
          Language Instruction                      $     547,740      $      451,178     $      473,432
          Translation Services                             82,563              77,945             76,368
          Publishing                                       20,916              22,415             22,717
          Franchising                                       3,637               2,974                  -
                                                            -----               -----              -----
            Subtotal                                      654,856             554,512            572,517
          General corporate                                 6,659               6,733              4,413
                                                            -----               -----              -----
            Total                                   $     661,515      $      561,245     $      576,930
                                                    =============      ==============     ==============

</TABLE>

                                       63

<PAGE>

<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31,
                                                                     -----------------------
                                                             1997                1996               1995
                                                             ----                ----               ----
         GEOGRAPHIC AREAS
         ----------------
<S>                                                 <C>                <C>                <C>
         Sales of services and products:
          North America                             $     133,843      $      105,476     $       96,191
          Western Europe                                   84,371              82,869             76,198
          Central/Eastern Europe                           61,999              66,037             63,000
          Asia                                             67,291              72,922             81,652
          Latin America                                    49,705              42,318             37,468
                                                           ------              ------             ------
            Total                                   $     397,209      $      369,622     $      354,509
                                                    =============      ==============     ==============

         Operating profit (loss):
          North America                             $      16,553      $       11,362     $       13,121
          Western Europe                                    4,106               5,974              6,031
          Central/Eastern Europe                            4,519               3,329              3,071
          Asia                                              4,951               6,254              4,265
          Latin America                                     9,753               8,013              6,901
          Business segment corporate expenses              (3,948)             (3,627)            (4,033)
                                                          -------             -------            -------
            Total operating segments                       35,934              31,305             29,356
          General corporate expenses                      (12,873)            (10,437)            (9,754)
                                                          -------             -------            -------
            Total                                   $      23,061      $       20,868     $       19,602
                                                    =============      ==============     ==============
</TABLE>

         Amortization of publishing rights, excess of cost over net assets
         acquired and other intangibles, included in operating profit (loss) in
         the years ended December 31, 1997, 1996 and 1995 amounted to $11,171,
         $9,282, and $9,344 for North America; $857, $1,148, and $1,196 for
         Western Europe; $482, $484, and $688 for Central/Eastern Europe;
         $1,296, $1,446, and $1,762 for Asia; and $377, $387, and $435 for Latin
         America.

         Profit (expense), resulting from an intersegment allocation to
         compensate North America for use of its intangibles, and included in
         operating profit (loss) in each of the years ended December 31, 1997,
         1996 and 1995 amounted to $6,071 for North America; $(1,505) for
         Western Europe; $(1,408) for Central/Eastern Europe; $(2,188) for Asia;
         and $(970) for Latin America.

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                                   ------------
                                                                    1997               1996              1995
                                                                    ----               ----              ----
<S>                                                        <C>                <C>               <C>
         Identifiable assets:
          North America                                    $     491,872      $     374,540     $     377,254
          Western Europe                                          45,856             57,699            56,985
          Central/Eastern Europe                                  30,124             34,392            39,319
          Asia                                                    66,348             68,680            78,458
          Latin America                                           27,315             25,934            24,914
                                                                  ------             ------            ------
            Total                                          $     661,515      $     561,245     $     576,930
                                                           =============      =============     =============

</TABLE>

                                       64

<PAGE>



16.      QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

                                                                  THREE MONTHS ENDED
                                                                  ------------------

                                       MARCH 31          JUNE 30           SEPT 30           DEC 31            YEAR
                                       --------          -------           -------           ------            ----
<S>                                  <C>            <C>               <C>              <C>               <C>
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)
                                     ==========     ============      ============     ============      ==========

1996:
Sales of services and products       $   90,076     $     92,130      $     94,373     $     93,043      $  369,622
Operating profit                          3,910            5,876             5,022            6,060          20,868
Income before income taxes
 and minority interest                    1,476            3,404             2,670            5,264          12,814
Net income                                  204            1,006               439            2,154           3,803
Basic and diluted earnings per share $     0.02     $       0.11      $       0.05     $       0.23      $     0.40
                                     ==========     ============      ============     ============      ==========

</TABLE>

                                       65

<PAGE>

BERLITZ INTERNATIONAL, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)



                                   SCHEDULE II


<TABLE>
<CAPTION>
                                      BALANCE AT       CHARGED TO                                          BALANCE
                                       BEGINNING         COST AND                                         AT END OF
                                         OF YEAR         EXPENSES   DEDUCTIONS (1)      OTHER (2)          OF YEAR
                                         -------         --------   --------------      ----------         -------
<S>                                 <C>           <C>              <C>               <C>               <C>
Allowances for doubtful accounts:


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

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

Year Ended December 31, 1995        $      1,912  $           349  $          (814)  $           21    $       1,468
                                    ============  ===============  ===============   ==============    =============

</TABLE>


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

(2)      Principally represents foreign currency translation.


                                       66

<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, 1997, 1996 and 1995 for services rendered in all capacities
to the Company and its subsidiaries.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                       LONG-TERM
                                                                                    COMPENSATION
                                                       ANNUAL COMPENSATION                   (3)
                                             --------------------------------------
                                                                              OTHER    AWARDS OF
NAME AND                                                                     ANNUAL     OPTIONS/       ALL OTHER
PRINCIPAL POSITION              YEAR          SALARY            BONUS  COMPENSATION         SARS    COMPENSATION
                                                 ($)              ($)       ($) (2)          (#)          ($)(4)
------------------              ----          ------            -----  ------------         ----    ------------
<S>                             <C>          <C>              <C>            <C>          <C>             <C>
Hiromasa Yokoi                  1997         499,052          202,200        65,730       46,220          10,390
Vice Chairman of the Board,     1996         480,000           84,000        60,469         None           9,750
CEO and President               1995         444,800          180,000        55,200         None           9,750

Manuel Fernandez                1997         251,908           65,000        23,671       20,300          10,400
Executive Vice President and    1996         240,000           40,900           990         None           9,750
Chief Operating Officer,        1995         224,800           51,000         1,312         None           9,750
Worldwide Language Instruction

Robert Minsky                   1997         240,000           35,000           926       20,300          10,400
Executive Vice President and    1996         240,000           10,000           874         None           9,750
Chief Operating Officer,        1995         227,900           80,000          None         None           9,750
Translations and Publishing

Susumu Kojima                   1997         229,500                -        65,000       18,320            None
Executive Vice President,       1996         225,000            8,700        65,000         None            None
Asia Division                   1995         210,000           25,200        42,000         None           9,750

Henry D. James (1)              1997         218,335           75,300           826       20,300          10,334
Executive Vice President and    1996         210,000           32,000           771         None           9,750
Chief Financial Officer         1995         182,300           51,000          None         None           9,750

</TABLE>

                                       67

<PAGE>

(1)      Mr. James' 1996 percentage increase in base salary was due in part to
         the additional responsibilities he assumed as a result of his promotion
         to Executive Vice President.

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

(3)      The column designated by the SEC to report Long-Term Incentive Plan
         Payouts has been excluded because no payouts have been made in 1995,
         1996 or 1997 under the Company's long-term incentive plans, as
         discussed in the Compensation Committee report under "Long- Term
         Executive Incentive Compensation Plan".

         The column designated by the SEC to report Restricted Stock Awards has
         been excluded because the Company made no awards of restricted stock to
         the Named Executive Officers during any portion of fiscal years 1995,
         1996 or 1997. There were no Common restricted shares outstanding at
         December 31, 1997.

(4)      The amounts reported in this column for the fiscal year 1996 include a
         contribution of $4,500 made by the Company for the account of each
         Named Executive Officer pursuant to the thrift portion (the "401(k)
         Plan") of the Berlitz Retirement Savings Plan (the "Retirement Savings
         Plan"). The amounts reported also include a contribution of $5,250 made
         by the Company for the account of each Named Executive Officer pursuant
         to the retirement portion (the "Pension Plan") of the Retirement
         Savings Plan.

                                       68

<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.

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

---------------
1  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

                                       69

<PAGE>

on an imputed salary determined by the Company's Board of Directors.

OPTION/SAR GRANTS IN FISCAL YEAR 1997

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>

               Name               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
                                                (#)
                              ------------- ------------- -------------- -------------- -------------- ------------
<S>                              <C>            <C>           <C>           <C>             <C>         <C>
     Hiromasa Yokoi              6/30/97        45,720        12.24%        $24.9375        6/29/04     $336,956
                                12/31/97           500         0.13          26.5625       12/29/04        4,215
     Manuel Fernandez            6/30/97        19,800         5.30          24.9375        6/29/04      145,926
                                12/31/97           500         0.13          26.5625       12/29/04        4,215
     Robert Minsky               6/30/97        19,800         5.30          24.9375        6/29/04      145,926
                                12/31/97           500         0.13          26.5625       12/29/04        4,215
     Susumu Kojima               6/30/97        17,820         4.77          24.9375        6/29/04      131,333
                                12/31/97           500         0.13          26.5625       12/29/04        4,215
     Henry D. James              6/30/97        17,820         4.77          24.9375        6/29/04      131,333
                                12/31/97         2,480         0.66          26.5625       12/29/04       20,906

</TABLE>

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

                                    June 1997 Grant        December 1997 Grant
                                    ---------------        -------------------
   Weighted average assumptions
   used to estimate fair value:
      Dividend yield                     0.00%                    0.00%
      Expected volatility               22.00%                   21.00%
      Risk free interest rate            6.08%                    5.88%
      Expected lives in years            4.25                     5.0
   Fair value of each option            $7.37                    $8.43
   granted


1997 BOARD OF DIRECTORS MEETINGS, COMMITTEES AND FEES

During 1997, the Board of Directors of the Company met in person four times,
participated in two telephonic meetings and took two actions by unanimous
written consent.

In 1997, the Board of Directors had standing Executive, Audit, Disinterested
Directors, and Compensation Committees, as well as a Special ELS Acquisition
Committee. Effective December 9, 1997, the Company created a standing Nominating
Committee.

The Executive Committee, during the intervals between meetings of the Board of
Directors, may, with certain exceptions, exercise the powers of the Board of
Directors. The Executive Committee did not meet during 1997.

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 1997.

                                       70
<PAGE>

The Disinterested Directors Committee reviews and monitors all matters affecting
the relationship between the Company and Benesse Corporation ("Benesse") and its
affiliates. During 1997, the Disinterested Directors Committee met in person two
times, participated in one telephonic meeting, and took action by unanimous
written consent 2 times.

The Compensation Committee reviews performance of corporate officers,
establishes overall employee compensation policies and recommends to the Board
of Directors major compensation programs. The Compensation Committee also
reviews and approves salary arrangements and other remuneration for executive
officers of the Company and is responsible for review of certain employee
benefit plans. The Compensation Committee oversees and approves grants of stock
options and other stock-based awards pursuant to the 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 1997, the Compensation Committee met two times and participated
in telephonic meetings one time.

The Special ELS Acquisition Committee was formed for the purpose of
independently reviewing and monitoring all matters related to the acquisition of
ELS Educational Services, Inc. and the related refinancing of the Company's
long-term debt. During 1997, the Special ELS Acquisition Committee participated
in two telephonic meetings.

The Nominating Committee was formed to nominate Directors and to consider
possible successors to senior executives.

The Company's standard retainer payable to each director who is not an employee
of the Company or any of its affiliates was increased from $30,000 per annum in
1997 to $35,000 per annum in 1998, plus expenses, with an additional $2,000 for
each Committee meeting attended in person and $1,000 for each meeting
participated in by telephone. No fees are paid for actions taken by unanimous
written consent. Only those directors who are also full-time employees of the
Company or any of its affiliates are eligible to participate in the health
benefit plan maintained by the Company. Directors employed by the Company or any
of its affiliates receive no compensation in consideration of their duties as
directors. The outside directors earned an aggregate of approximately $143,000
as cash compensation for their services during 1997.

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").

                                       71

<PAGE>

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS

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

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

               COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1997

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

The Company seeks to compensate executive officers at levels competitive with
other companies with similar annual revenues and to provide incentives for
superior individual and corporate performance. Salaries are set to correspond to
the mid-range of salaries paid by competitive companies. In setting
compensation, the Company compares itself with companies with similar annual
revenues rather

                                       72
<PAGE>

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 1997 follows.

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

The proposed annual compensation of Company employees was discussed at
Compensation Committee meetings held in 1997 and 1996. 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 3.3% for each of 1997 and 1998. 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 February 1998 meeting, the Committee approved, after discussion, 1997
bonuses for executive officers under the Short-Term Incentive Plan. Such bonuses
that accrued for 1997 ranged up to 41% 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 1997 for such executive
officers ranged from 2.6% to 10% of their total salary.

                                       73

<PAGE>

STOCK OPTIONS AND RESTRICTED STOCK

The 1989 Stock Option Plan provides for the award of stock options, restricted
stock and other stock-based awards to senior management of the Company. Grants
under this plan are intended to provide executives with the promise of
longer-term rewards which appreciate in value with favorable future performance
of the Company. In determining grants of stock options and restricted stock, the
Compensation Committee reviews individual performance and Company performance.
The criteria used to evaluate Company performance include sales and earnings
figures, and return on equity. The Committee believes that all such criteria are
accorded equal weight. The Committee did not approve, and the Company did not
make, any grants of stock options, restricted stock, or any other stock-based
award under the 1989 Stock Option Plan in 1996, and there are no outstanding
option grants under this plan.

In September 1996, the Company adopted, subject to shareholder approval 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 authorizes the issuance of options to directors and key
executive employees of the Company. The total number of shares for which options
may be granted is 377,000. The Company granted 327,200 of these options on June
30, 1997 at an exercise price of $24.9375 and 49,120 options on December 9, 1997
at an exercise price of $26.5625. 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 provides for
potential cash awards in 1999 to key executive employees and the Chairman of the
Board of the Company if certain sales and earnings goals are met for the year
ended December 31, 1998. Common stock price does not impact potential awards,
which may not exceed $5.0 million in the aggregate. While the New LTIP's minimum
threshold for potential awards is lower than under the Old LTIP, the Old LTIP
did not contain a limitation on maximum awards.

OTHER COMPENSATION

The executive officers also are eligible to participate in the Pension Plan. The
Pension Plan provides for the Company to make regular contributions based on
salaries of eligible employees. During 1997, pursuant to the plan documents, the
Company continued to contribute 3.5% of eligible employees' respective base
salary to the Pension Plan. During 1997, 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.

                                       74

<PAGE>

CHIEF EXECUTIVE OFFICER COMPENSATION

Mr. Hiromasa Yokoi's base salary for 1997 was $499,000, and he also earned a
bonus of $202,200 for 1997 under the Short-Term Incentive Plan. The Compensation
Committee approved and ratified the compensation paid to Mr. Yokoi for fiscal
year 1997 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 1997 performance was taken into consideration in
determining Mr. Yokoi's 1997 compensation package. The Committee believes that
Mr. Yokoi's 1997 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 1997, the Compensation Committee consisted of Edward G. Nelson, Robert L.
Purdum and Aritoshi Soejima. All of the views expressed by the Compensation
Committee in 1997 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 1997

                                Edward G. Nelson
                                Robert L. Purdum
                                Aritoshi Soejima

                                       75

<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As discussed above, during 1997 and at March 1, 1998, the Compensation Committee
consisted of Edward G. Nelson, Robert L. Purdum and Aritoshi Soejima. None of
these committee members were officers of the Company or any of its subsidiaries
during 1997 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, 1992, and ending on
December 31, 1997. 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 included in the Company's peer group in prior years, but which are no
longer publicly traded in 1997.

<PAGE>


                   1992       1993       1994       1995       1996       1997

Berlitz           $ 100      $  63(1)   $  59      $  75      $  93      $ 121
S & P 400 Index   $ 100      $ 106      $ 108      $ 142      $ 171      $ 221
Peer Group Index  $ 100      $ 111      $ 107      $ 137      $ 141      $ 225

(1) As a result of the Merger (hereinafter defined), each share of the Company's
common stock outstanding prior to the Merger ("Old Common") was converted into
the right to receive i) $19.50, ii) 0.165 share of new common stock of the
Company ("Common"), iii) $1.48, representing the net proceeds from the
disposition of the Company's claims on promissory notes from Maxwell
Communications and certain of its affiliates (the "Maxwell Notes"), and iv)
$0.01, representing consideration paid for the redemption of each right under a
shareholders rights agreement (the "Rights Agreement"). Immediately following
the Merger, 10,033,013 shares of Common were outstanding. Prior to the Merger,
19,075,584 shares of Old Common were outstanding.

                                       77

<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the number and percentage of outstanding shares
of Common beneficially owned as of March 2, 1998 by each director, nominee, the
Company's chief executive officer during the fiscal year ended December 31,
1997, the four most highly compensated executive officers of the Company at
December 31, 1997 and all officers and directors as a group who served at
December 31, 1997. If not mentioned by name, no individual in the categories
described above beneficially owned any shares of Common as of March 2, 1998. 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.

                                     UPDATE

                                            AMOUNT AND
                                             NATURE OF
                   NAME OF                  BENEFICIAL       PERCENT
  TITLE OF CLASS   BENEFICIAL OWNER          OWNERSHIP       OF CLASS
  --------------   ----------------          ---------       --------
  Common           Soichiro Fukutake         6,985,338(1)      73.30%
  Common           Manuel Fernandez              8,745             *
  Common           Robert Minsky                 2,857             *
  Common           Henry D. James                7,672             *
  Common           Edward G. Nelson              1,500(2)          *
  Common           Robert L. Purdum              2,000             *

                   All Officers and
                   Directors as a Group
  Common           (15 in number)            7,027,746         73.75%

To the best of registrant's knowledge, there are no events of delinquent filing
requiring disclosure under Item 405 of Regulation S-K.


(1)      Soichiro Fukutake is the President, Representative Director and
         principal shareholder of Benesse Corporation, which is the beneficial
         owner of 6,985,338 shares of Common. See "Security Ownership of Certain
         Beneficial Owners."
(2)      An additional 1,000 shares of Common, for which Mr. Nelson has
         disclaimed ownership, are owned by Mr. Nelson's wife.
*        Less than 1%

                                       78

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

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

                       NAME AND ADDRESS OF                             PERCENT
   TITLE OF CLASS       BENEFICIAL OWNER                 OWNERSHIP     OF CLASS
   --------------       ----------------                 ---------     --------
   Common           Benesse Corporation (1)              6,985,338      73.30%
                     3-17-17 Minamigata
                     Okayama-shi 700, Japan

   Common           Dimensional Fund Advisors, Inc (2)     508,672       5.34%
                     1299 Ocean Avenue, 11th Floor
                     Santa Monica, CA 90401

(1)      Fukutake Publishing Co., Ltd. changed its name to Benesse Corporation
         on April 1, 1995. As of March 2, 1998, 6,972,138 shares of Common are
         held by a wholly owned subsidiary of Benesse and 13,200 shares of
         Common are held directly by Benesse. Soichiro Fukutake is the
         President, Representative Director and principal shareholder of
         Benesse.

(2)      This information is taken from the Schedule 13G, dated February 9,
         1998, filed by Dimensional Fund Advisors, Inc. ("Dimensional") with the
         Securities and Exchange Commission. Dimensional, a registered
         investment advisor, is deemed to have beneficial ownership of these
         508,672 shares of Common at December 31, 1997, all of which are held in
         portfolios of DFA Investment Dimensions Group, Inc., a registered
         open-end investment company, or in series of the DFA Investment Trust
         Company, a Delaware business trust, or the DFA Group Trust and DFA
         Participation Group Trust, investment vehicles for qualified employee
         benefit plans, all of which Dimensional serves as investment manager.
         Dimensional disclaims beneficial ownership of all such shares.


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.

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 Fukutake Holdings (America), Inc., 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

                                       79

<PAGE>

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, 1997. 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") mature 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") have been satisfied. To the extent that interest payments on the U.S.
or FHAI Notes are not permitted while any amounts remain outstanding under the
Bank Facility, such accrued interest will roll over semiannually into the note
principal. The Company recorded $2.1 million in interest expense on the Benesse
Notes in 1997.

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. 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 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 1997, in the ordinary course of business, including the
following:

(a)  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 27,950,000 Yen (approximately $231,000 at an average 1997
     exchange rate of (Y)121.13).

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(b)  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.

(c)  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").

(d)  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.

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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

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<PAGE>

              from time to time party thereto and Chemical Bank as Agent.
              Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
              fiscal year ended December 31, 1992 is incorporated by reference
              herein.

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

    10.18     First Amendment, dated as of September 21, 1994, to the
              Subordination Agreement, dated as of January 29, 1993, among
              Benesse Corporation (formerly Fukutake Publishing Co., Ltd.),
              Fukutake Holdings (America), Inc., the registrant and Chemical
              Bank pursuant to the Master Collateral and Intercreditor
              Agreement, dated as of January 29, 1993. Exhibit

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<PAGE>

              99.9 to the Company's Form 8-K, dated September 21, 1994, is
              incorporated by reference herein.

    10.19     Form of US$6,000,000 Subordinated Non-Negotiable Promissory Note,
              dated as of March 25, 1996, among the registrant (as Borrower) and
              Fukutake Holdings (America), Inc. (as Lender). Exhibit 10.19 to
              the Company's Form 10K 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, 1997 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

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<PAGE>

              reference herein.

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

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

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

    10.33     Form of Indemnification Agreement between the registrant and each
              of Robert Maxwell, Kevin Maxwell, Martin E. Maleska and David H.
              Shaffer. Exhibit 10.20 to the Company's Annual Report on Form 10-K
              for the fiscal year ended December 31, 1990 is incorporated by
              reference herein.

    10.34     Form of Amended and Restated Indemnification Agreement between the
              registrant and each of Elio Boccitto, John Brademas, Rozanne L.
              Ridgway, Joe M. Rodgers, Robert Minsky and Rudy G. Perpich.
              Exhibit 10.24 to Registration Statement No. 33-56566 is
              incorporated by reference herein.

    10.35     Amended and Restated Indemnification Agreement between the
              registrant and Hiromasa Yokoi. Exhibit 10.25 to the Company's
              Annual Report on Form 10-K for the fiscal year ended December 31,
              1992 is incorporated by reference herein.

    10.36     Form of Indemnification Agreement between the registrant and each
              of Soichiro Fukutake, Owen Bradford Butler, Susumu Kojima, Saburo
              Nagai, Edward G. Nelson, Makoto Sato and Aritoshi Soejima. Exhibit
              10.26 to the Company's Annual Report on Form 10-K for the fiscal
              year ended December 31, 1992 is incorporated by reference herein.

    10.37     Form of Indemnification Agreement between the registrant and each
              of Jose Alvarino, Manuel Fernandez, Paul Gendler, Robert C.
              Hendon, Jr., Henry James, Jacques Meon, Michael Mulligan, Kim
              Sonne, Anthony Tedesco and Wolfgang Wiedeler. Exhibit 10.24 to
              Registration Statement No. 33-56566 is incorporated by reference
              herein.

    10.38*    Indemnification Agreement between the Company and each of Ellen
              Adler, Perry Akins,

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<PAGE>

              Mark Harris, Brian Kelly, James Lewis, Lionel Mellet and Kazuo
              Yamakawa.

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

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

    10.41*    Employment Agreement, dated March 13, 1995, between the Company
              and Frank Garton.

    10.42*    Employment Agreement, dated June 25, 1997, between the Company and
              James Lewis.

    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.

    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

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<PAGE>

              thereto from time to time.

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

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

    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/A was filed on November 12, 1997, amending the Form 8-K filed on
    September 11, 1997 to provide financial statements of the business acquired
    and certain pro forma financial information.

    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, 1998

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, 1998
----------------------
     Soichiro Fukutake

/s/  HIROMASA YOKOI         Vice Chairman of the Board,           March 31, 1998
-------------------
     Hiromasa Yokoi         Chief Executive Officer,
                            and President
                            (Principal Executive Officer)

/s/  SUSUMU KOJIMA          Executive Vice President,             March 31, 1998
------------------          and Director
     Susumu Kojima

/s/  ROBERT MINSKY          Executive Vice President, Corporate   March 31, 1998
------------------          Planning and Marketing, and Director
     Robert Minsky

/s/  MANUEL FERNANDEZ       Executive Vice President, Chief       March 31, 1998
---------------------       Operating Officer-Worldwide Language
     Manuel Fernandez       Instruction, and Director


/s/  HENRY D. JAMES         Executive Vice President,             March 31, 1998
-------------------         Chief Financial Officer, and Director
     Henry D. James         (Principal Financial Officer)


/s/  EDWARD G. NELSON       Director                              March 31, 1998
---------------------
     Edward G. Nelson

/s/  ROBERT L. PURDUM       Director                              March 31, 1998
---------------------
     Robert L. Purdum

/s/  ARITOSHI SOEJIMA       Director                              March 31, 1998
---------------------
     Aritoshi Soejima

/s/  KAZUO YAMAKAWA         Director                              March 31, 1998
-------------------
     Kazuo Yamakawa


                                       90