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Corporate Communication &Investor Relations Department

1-34, Ochiai, Tama-shi, Tokyo 206-8686, JapanPhone: +81-42-356-0808Facsimile: +81-42-356-7301E-mail: [email protected]: http://www.benesse.co.jp/IR/english/index.html

STARTING A NEW JOURNEY

ANNUAL REPORT 2007For the Year Ended March 31, 2007

AN

NU

AL R

EP

OR

T 2007

©Chichu Art MuseumPhoto: Mitsumasa Fujitsuka

PROFILE

CONTENTS

The name Benesse derives from the Latin words “bene,”

meaning good or well, and “esse,” meaning to live or to

be. Together, they embody our corporate philosophy of

helping people live well. Benesse defines its business

activities as education, languages, lifestyle and welfare,

covering virtually all aspects of people’s lives—from

childbirth to childrearing, school and family life, through

to old age. In all these areas, we are striving to live up

to our name.

[ 1 ] AT A GLANCE

[ 2 ] FINANCIAL HIGHLIGHTS

[ 4 ] LETTER FROM THE CHAIRMAN

[ 6 ] DISCUSSION WITH EXECUTIVES

[15] REVIEW OF OPERATIONS[16] EDUCATION GROUP

[22] LIFETIME VALUE COMPANY

[24] SENIOR COMPANY

[26] LANGUAGE COMPANY

[28] AVIVA BUSINESS/OTHERS

[29] MARKETING STRATEGY

[31] RESEARCH AND DEVELOPMENT

[33] THE FOUNDATIONS FOR HELPING PEOPLELIVE WELL[34] CORPORATE GOVERNANCE

[38] COMPLIANCE AND THE INTERNAL CONTROL SYSTEM

[40] BOARD OF DIRECTORS AND CORPORATE AUDITORS,CORPORATE EXECUTIVE OFFICERS,AND GROUP EXECUTIVE OFFICERS

[42] COMMUNICATING WITH STAKEHOLDERS

[49] FINANCIAL SECTION[91] CONSOLIDATED SUBSIDIARIES

[92] THE HISTORY OF BENESSE CORPORATION

[93] INVESTOR INFORMATION

[94] CORPORATE DATA

[95] BENESSE GROUP CODE OF CONDUCT

ON THE COVER: NAOSHIMA ISLANDNaoshima Island in the picturesque Seto Inland Sea is an idyllic and tranquilhideaway. Developed and run by Benesse, it weds contemporary art, architec-ture, nature and culture to offer visitors an unforgettable experience.

The building in the foreground is Chichu Art Museum, managed byNaoshima Fukutake Art Museum Foundation.

AT A GLANCE

EDUCATIONGROUP

SENIORCOMPANY

AVIVABUSINESS

OTHERS

LIFETIMEVALUECOMPANY

LANGUAGECOMPANY

SEGMENT SALESTO TOTAL SALES

58.9%

9.0%

2.9%

5.9%

6.6%

16.7%

Annual Report 2007 [ 95 ]

BENESSE GROUP CODE OF CONDUCT

To support “Benesse = well-being” for each individual

To sustain the provision of value to society

Established on November 5, 2001Revised on January 28, 2005

As members of the Benesse Group, we will provide sustained support to the realization of “Benesse = well-being”

for all stakeholders.

By offering high-quality products and services, we will provide value to society and continue unremittingly in

advanced and innovative efforts to influence lifestyles and support the well-being of each individual.

By sustaining the provision of inimitable and distinctive value, we are committed to becoming an essential

presence for society today and tomorrow. The corporate social responsibility we aim to fulfill is to grow as a

company together with society. Being fully aware of the importance of contributing to the solution of social

issues, we will broadly invest management resources and specialized knowledge, particularly for research activity

in the educational field, to contribute to the solution of issues.

In the organization of business management, we will promote efforts in reforming corporate governance as well

as in compliance, risk management, human resources development, and the environment to become a company

worthy of the trust of customers, consumers, shareholders, employees, local communities, and society.

As a member of the Benesse Group, each one of us without exception must conduct ourselves appropriately

and fairly in order to sustain the provision of value to society and to be worthy of society’s trust. To achieve these

objectives, the “Benesse Group Code of Conduct” specifies in practical terms the nature of conduct, standards,

and regulations to be observed.

*Please visit http://www.benesse.co.jp/english/brand/declare

©Benesse Corporation All rights reserved.


02 03 04 05 06 070

60,000

120,000

180,000

240,000 40,000

20,000

30,000

10,000

0

208,833

30,612174,729162,835 164,780

183,443198,665

27,021

17,649

22,419

28,905 29,715

02 03 04 05 06 070

5,000

10,000

15,000

25,000

20,000

5,000

4,000

2,000

3,000

1,000

0

20,769

430

12,18313,609

16,241

19,91821,415

1,5451,851 1,870 1,743

1,350

02 03 04 05 06 07

0

5,000

10,000

15,000

20,000 8,000

6,000

2,000

4,000

0

–2,000

10,326

(1,183)

13,915

(1,564)

02 03 04 05 06 07

0

10,000

20,000

30,000

40,000 6,000

4,500

1,500

3,000

0

–1,500

32,054

2,540

7,145

12,149

16,761

22,813

27,402

(1,064)

463

1,7242,004 1,909

02 03 04 05 06 07

0

10,000

20,000

30,000 9,000

3,000

6,000

0

–3,000

23,450

1,373

10,946

14,75716,264

18,24720,834

(2,016)(2,811)

(1,199)287 132

02 03 04 05 06 07

0

20,000

40,000

60,000

80,000 8,000

6,000

2,000

4,000

0

–2,000

59,164

4,670

62,24754,939

46,096 46,98251,536

5841,016

450(783)

2,545

The Education Group boasts an extensive lineup that meets off-campus

education needs and provides support for schools and teachers. In the former,

Benesse focuses on correspondence courses for children of all ages with its

Shinkenzemi and Kodomo Challenge brands, while Shinken Simulated Exams—

mock university entrance exams for high school students—are the main

product in the school support field. Benesse is now reinforcing its product

and service lineup to respond to diversifying needs in the education market.

Centered on Benesse Style Care Co., Ltd., the Senior Company operates a

network of nursing homes for the elderly. It also provides home help ser-

vices, training courses for caregivers, and medical and nursing care human

resource services.

AVIVA Co., Ltd., created through the transfer of some operations from

AVIVA Japan Corporation on April 1, 2005, operates personal computer

(PC) schools.

This segment includes Telemarketing Japan, Inc., primarily focused on

telemarketing operations, and Synform Co., Ltd., which provides data pro-

cessing services. Other subsidiaries in this segment conduct logistics, personnel

services and other businesses.

The Lifetime Value (LTV) Company provides a whole host of information

and support for everyday life through its magazines, websites, mail-order

shopping, food delivery and other services. Targeting women with house-

work and parenting responsibilities who want to enjoy and be in control of

their lives as fully engaged members of society, the LTV Company supplies

information on anything from childbirth, parenting and family finances, to

food and health issues and pet ownership.

The Language Company offers language instruction, translation and interpre-

tation services, mainly through Berlitz International, Inc. and Simul Interna-

tional, Inc. It also provides an online evaluation test, the Global Test of EnglishCommunication (GTEC), which measures comprehensive English communica-

tion skills.

OVERVIEWNET SALES/OPERATING INCOME (LOSS) [Millions of Yen]

[ Years ended March 31 ]






■ Net Sales (left)■ Operating Income (right)

■ Net Sales (left)■ Operating Income (Loss)

(right)


(right)


(right)


(right)


Note: Segment sales are based on outside sales and intersegment sales are not included. Annual Report 2007 [ 1 ]

[ 2 ] Annual Report 2007 Annual Report 2007 [ 3 ]

02 03 04 05 06 07

267,250258,289 260,142

291,403

333,767

354,596

0

100,000

200,000

300,000

400,000

02 03 04 05 06 07

10,934

8,046

9,85111,116

20,504

11,80210,738

8,6667,821 7,511

9,775 9,929

0

6,000

12,000

18,000

24,000

02 03 04 05 06 070

10,000

20,000

30,000

40,000

24,589

16,317

20,702

26,178

28,412

31,317

9.2

6.3

8.0

9.0

8.5

8.8

02 03 04 05 06 07

0.2

0.1

4.1

2.5

5.5

3.3

8.3

4.8

8.9

5.0

9.5

5.4

0

10.0

7.5

5.0

2.5

02 03 04 05 06 07

327

6,973

9,394

14,297

16,039

18,244

0.1

2.73.6

4.9

4.8

5.1

0

5,000

10,000

15,000

20,000

02 03 04 05 06 07

2

65

89

138

156

178

0

50

100

150

200

02 03 04 05 06 07

171,826 169,428 170,781 174,711

186,292

197,302

59.0

61.5 58.5 56.8 56.4 56.4

0

50,000

100,000

150,000

200,000

944.6

45.0

45.1

43.5

47.9

47.8

02 03 04 05 06 07

29 29

40

60

75

85

0

25

50

75

100

02 03 04 05 06 07

9,051

8,0818,599

9,890

12,08112,753

0

4,000

8,000

12,000

16,000

FORWARD-LOOKING STATEMENTSThis annual report contains forward-looking statements concerning the future plans, strategies, beliefs and performance of Benesse Corporation and its subsidiaries.These forward-looking statements are not historical facts. They are expectations, estimates, forecasts and projections based on information currently available to the companyand are subject to a number of risks, uncertainties and assumptions, which, without limitation, include economic trends, competition in markets where the Company is active,personal consumption, market demand, the tax system and other legislation. As such, actual results may differ materially from those projected.

FINANCIAL HIGHLIGHTSBenesse Corporation and Consolidated SubsidiariesYears ended March 31, 2007 and 2006

NET SALES

[Millions of Yen]


OPERATING INCOME /OPERATING INCOME RATIO[Millions of Yen]


■ Operating IncomeOperating Income Ratio [%]

■ Net IncomeNet Income Ratio [%]

NET INCOME /NET INCOME RATIO[Millions of Yen]


NET INCOME PER SHARE

[Yen]


SHAREHOLDERS’ EQUITY /TOTAL EQUITY / EQUITY RATIO[Millions of Yen]

[ As of March 31 ]

■ Shareholders’ Equity / Total EquityEquity Ratio [%]

ROEROA

ROE / ROA

[%]


CAPITAL EXPENDITURES /DEPRECIATION AND AMORTIZATION[Millions of Yen]


CASH DIVIDENDS /DIVIDEND PAYOUT RATIO[Yen]


■ Capital Expenditures■ Depreciation and Amortization

NUMBER OF EMPLOYEES

[ As of March 31 ]

Thousands ofMillions of Yen U.S. Dollars

Years ended March 31 2007 2006 2007

FOR THE YEAR:

Net Sales ¥ 354,596 ¥ 333,767 6.2% $3,005,051

Cost of Sales 175,219 165,347 6.0 1,484,907

Selling, General and Administrative Expenses 148,060 140,008 5.8 1,254,746

Operating Income 31,317 28,412 10.2 265,398

Income Before Income Taxes and Minority Interests 32,339 27,746 16.6 274,059

Income Taxes 13,903 11,637 19.5 117,822

Net Income 18,244 16,039 13.7 154,610

Capital Expenditures 11,802 20,504 (42.4) 100,017

Depreciation and Amortization 9,929 9,775 1.6 84,144

AT YEAR-END:

Total Assets ¥ 349,099 ¥ 330,230 5.7% $2,958,466

Shareholders’ Equity / Total Equity 197,302 186,292 5.9 1,672,051

Yen U.S. Dollars

PER SHARE OF COMMON STOCK:

Net Income ¥ 177.86 ¥ 156.45 $ 1.51

Shareholders’ Equity / Total Equity 1,917.64 1,817.56 16.25

Cash Dividends 85.00 75.00 0.72

Dividend Payout Ratio 47.8% 47.9%Percentage

RATIOS:

Equity Ratio 56.4% 56.4%Return on Equity (ROE) 9.5 8.9Return on Assets (ROA) 5.4 5.0

Number of Employees 12,753 12,081

Notes: 1. U.S. dollar figures are translated, for convenience only, at the rate of ¥118 to U.S.$1, the effective rate of exchange prevailing on March 31, 2007.2. The computation of Net Income per Share of Common Stock is based on the weighted average number of shares of common stock outstanding during each year.3. Return on Equity (ROE) is calculated based on the average of total shareholders’ equity (/total equity) at the beginning and end of each fiscal year.4. Return on Assets (ROA) is calculated based on the average of total assets at the beginning and end of each fiscal year.

PercentageChange

■ Cash DividendsDividend Payout Ratio [%]


LETTER FROM THE CHAIRMAN

Benesse Corporation has embarked on a new journey. On April 27, 2007, we created a

senior management structure headed by three representative directors. While maintaining

Benesse’s transparent and rapid decision-making capabilities, this structure will reinforce

corporate governance for the entire Group and ensure more timely and accurate decisions

by sharing management roles among the three representative directors.

I believe we now have the optimal management team in place to realize a new period of

growth for Benesse.

Our New Management Policy

We have also announced a new management policy to take the Group forward to fiscal

2010. Guided by the keywords “strategic focus” and “reform,” we’re aiming for

operating income of ¥43 billion on net sales of ¥430 billion in fiscal 2010, and ROE of

12%. We have chosen these three performance benchmarks because sales are testament

to the trust customers put in the Benesse name, profits are proof of our hard work as a

company, and ROE shows shareholders how effectively we are using their investment.

We’re aiming to maximize the Group’s corporate value by achieving these targets.

I want to use this letter to also stress to shareholders the importance of our corporate

philosophy: helping others to live well, expressed in our company name “Benesse.” It is

vital that the value, products and services we provide to customers through our business

activities are entirely consistent with this corporate philosophy—which will not change

or be influenced by fashion—and with our mission and the message we want to

communicate to customers.

Our Corporate Philosophy

Our corporate philosophy is based on three unchanging objectives: develop and launch

the kind of high-quality services we’d be happy to use ourselves and offer our own

families; empower people to solve issues for themselves and enjoy life to the full at any

age; and provide services that help customers find even greater meaning and enjoyment

in life the older they become. In realizing these goals, we’re confident we can benefit

our shareholders and all other Benesse stakeholders over the medium to long term.

[ 4 ] Annual Report 2007

A Unique Business Model

Since the Benesse Group was founded in 1955, we have established unique business

models that have helped us to deliver consistent growth. This growth is underpinned by

many hard lessons learnt by Benesse’s founding president, Tetsuhiko Fukutake, who

discovered through the failure of earlier businesses to rely on cash flows not debt,

minimize inventories, and give customers continued backup for the products and

services they’ve purchased.

Developing New Business Models

The Benesse Group’s operating environment is undergoing massive change due to

Japan’s ageing society, globalization and the growing use of IT in everyday life. To

continue delivering growth in this context, it’s vital that we build new, groundbreaking

business models. The key to this will be a highly targeted, localized marketing structure

and specialist product and service production capabilities, both of which will become

stronger over time. By combining these new strengths with our existing assets, my aim

is to create new business models that are relevant regardless of time or place.

Going forward, everyone at Benesse will work to retain the trust of stakeholders by

continuing to drive growth and ensuring the Company has a vital role to play in local

communities and society as a whole. I hope we can count on your continued support in

this endeavor.

July 2007

SOICHIRO FUKUTAKE

Representative Director, Chairman and CEO

SOICHIRO FUKUTAKERepresentative Director,Chairman and CEO



SOICHIRO FUKUTAKEChairman and CEO

DISCUSSION WITH EXECUTIVES

On April 27, 2007, Benesse embarked on a new journey with the creation of asenior management structure headed by three representative directors: SoichiroFukutake, Chairman and CEO; Kenichi Fukuhara, Vice Chairman and Deputy CEO;and Tamotsu Fukushima, President and COO. This new start comes against thebackdrop of far-reaching changes in the Company’s operating environmentcharacterized by an aging Japanese society with fewer births and changes to thecountry’s school education and entrance exam systems.

In this section, we ask Benesse’s new senior management team how they planto guide the Group in this changing landscape.

TAMOTSU FUKUSHIMARepresentative Director,President and COO

Responsible for operational executionat Benesse Corporation (parent); candraw on extensive specialist knowl-edge and ability in the education fieldfrom marketing to the production ofeducation materials

[ BENESSE’S NEW MANAGEMENT TEAM ]

Q1 Since April this year you have had three representative directors.Won’t this mean less clarity in terms of management accountability?

Fukutake: With our new structure, management roles are now shared between each

of the three representative directors. This is designed to reinforce the corporate

governance framework for the entire Group and ensure more rapid and accurate

management decisions.

As Chairman and CEO, my role is to formulate the management vision and

policy for the Group. I also bear ultimate responsibility for achieving the Benesse

Group’s performance targets. Vice Chairman and Deputy CEO Kenichi Fukuhara is

responsible for overseeing the management of Group companies and also supports me

in my role as CEO. Tamotsu Fukushima, as President and COO, is mainly respon-

sible for operational execution at the parent company Benesse Corporation, which is

mainly focused on the education business.

SOICHIRO FUKUTAKERepresentative Director,Chairman and CEO

Responsible for management policyand formulating the corporate visionfor the entire Benesse Group;ultimately responsible for achievingthe commitments in Benesse’sMedium-Term Management Plan

KENICHI FUKUHARARepresentative Director,Vice Chairman and Deputy CEO

Assists CEO in decision-making;responsible for overseeing theexecution of operations at all majorGroup companies; supports CEObased on specialist knowledge of thesecurities market, experience incorporate management, and experi-ence living and working overseas; hisnetwork of personal contacts will alsoprove valuable.

[ Corporate governance structure overhauled ]

■ Governance of Group companies strengthened■ Executive accountability and authority clarified in each business

NEW MANAGEMENT STRUCTURE

EducationCompany

Chairman and CEO:SOICHIRO FUKUTAKE

Vice Chairman and Deputy CEO:KENICHI FUKUHARA

President and COO:TAMOTSU FUKUSHIMA

LTVCompany

BerlitzInternational

SimulInternational

BenesseStyleCare

AVIVA TelemarketingJapan

Strategic direction for the entire GroupCreation of long-term visionCommitment to goals of GroupMedium-term Management Plan

Support for CEO decision-makingMonitoring of business execution atmajor Group companies

Highest level of responsi-bility for operationalexecution at BenesseCorporation

Board of Directors

(from April 27, 2007)


0

1.00

2.00

3.00

4.00

4.20 4.103.87

3.703.83

4.01 4.053.91

TAMOTSU FUKUSHIMAPresident and COO

Mr. Fukuhara, in his previous post as President of consolidated subsidiary Benesse Style Care Co., Ltd.,

achieved success in expanding the nursing care business. Before joining Benesse he worked for Japan’s largest

securities firm where he acquired experience of living and working abroad and extensive knowledge of stock

markets. Accordingly, we judged him to be the ideal choice to oversee the wide and varied activities of Group

companies, stretching from nursing care and parenting to language education. These companies mainly use

physical business sites as opposed to correspondence or web-based operations.

Mr. Fukushima has many years of experience in Benesse’s education business, accumulating specialist

knowledge in areas ranging from marketing to the production of education materials. We therefore decided he

was the perfect person to become President and COO of Benesse Corporation since it is primarily involved in

the education business.

Together, the three of us will emphasize teamwork in the management of the Benesse Group. As one

example of this approach, we have early morning meetings every day to discuss key management and other

issues facing the Group.

In addition to the triumvirate of representative directors, we have appointed two new directors, and one

independent director. By expanding the Board of Directors with a mix of directors who have detailed knowledge

of the internal workings of Benesse’s operations and an independent director with a truly impartial perspective,

our aim is to energize board meeting discussions and thereby further reinforce corporate governance.

[ EDUCATION ]

Q2 Enrollment in mainstay Shinkenzemi correspondence courses in April 2007dipped for the first time in four fiscal years. What were the reasons behindthis drop and how do you plan to increase enrollment going forward?

Fukushima: Shinkenzemi enrollment in April fell 3.4% year on year to 3.91 million

students. There were particularly large declines in enrollment in Senior High School

Courses and Junior High School Courses of 8.8% and 7.1%, respectively. The main

reason for the drop in membership was weakness in the number of new junior and

senior high school students signing up to Shinkenzemi courses for the first time at the

start of the new school year in March and April. We believe this was primarily due to

the lack of impact in our mass-media marketing campaign launched in the previous

fiscal year using TV commercials and other advertising channels.

Although we had problems with new sign-ups, the percentage of students

re-signing remained high. This reflected high levels of satisfaction among Shinkenzemi

members, thanks mainly to our efforts to meet individual student needs by increasing

choice with greater variation in course materials.

In order to stem the decline in enrollment, we intend to relentlessly continue

improving our product range, and at the same time, review marketing initiatives and

enhance mass-media advertising. In

April 2007, we implemented far-

reaching reforms to our organiza-

tional structure that included

integrating Benesse’s marketing

functions in a newly established

Marketing Headquarters. This

headquarters will be responsible for

overhauling our marketing strategy,

including the allocation of budgets

and resources.

In terms of new course initia-

tives, in fiscal 2006, we launched a

new service that allows students

enrolled on Junior High School Courses to get their worked checked quickly via the internet, and added

new study subjects in Senior High School Courses (science and social studies courses for first-graders). In

fiscal 2007, we will continue to provide products and services tailored to customer needs. One example is a

new system whereby Red Pen Teachers (Shinkenzemi study support staff) for Junior High School Courses

are assigned to specific students to provide better one-to-one support. We are also planning to introduce

next-generation Shinkenzemi courses from fiscal 2007 that use PC- and web-based learning approaches. We

believe this kind of service will help to drive a recovery and then an increase in enrollment.

[ EDUCATION ]

Q3 How do you plan to grow your education business amid a falling birthratein Japan?

Fukushima: Japan’s birthrate began declining more than 20 years ago. Despite this, enrollment in our Kodomo

Challenge (preschool courses) and Shinkenzemi correspondence courses has grown. Moreover, the population

decline in the 1-18 age group is estimated to be around 1% annually, so we don’t expect a significant impact

on our operations.

However, around 20% of the target market for our Kodomo Challenge and Shinkenzemi products is already

enrolled in one of these courses. To achieve further growth in these mainstay businesses given this high market

penetration, our strategy will be to seek out new business opportunities and add value to our products and

services. At the same time, we plan to grow prep school operations into a second mainstay business to drive

overall growth in the education business.

As part of efforts to add more value to correspondence course materials, we have been using the internet

and classrooms to supplement monthly mailings of coursework to members. We are also supplying more

optional products such as workbooks. We are seeing the benefits of this approach with an increase in the

ENROLLMENT IN SHINKENZEMI COURSES AS OF APRIL/PENETRATION RATE

[Millions of members]

April 00 01 02 03 04 05 06 07

Penetration rate [%] 21.1 19.7 18.3 17.6 18.6 19.8 20.0 19.4

Senior HighSchool

Courses

Junior HighSchool

Courses

ElementarySchool

Courses

KodomoChallenge(Preschool

Courses)


Dispersed functions brought togetherin single Groupwide organization

Marketing Headquarters

INTEGRATION OF MARKETING FUNCTIONS

KENICHI FUKUHARAVice Chairman and Deputy CEO

Senior High School Courses

Junior High School Courses

Elementary School Courses

Kodomo Challenge

amount spent per customer. We continue to work on new initiatives across all our

Shinkenzemi courses. In Elementary School Courses and Junior High School Courses,

for example, we have been using a range of tools such as the internet to develop next-

generation learning styles.

Meanwhile, we have made two important acquisitions in the prep school market:

Ochanomizu Seminar Co., Ltd., a company mainly focused on helping senior high

school students pass university entrance exams, in October 2006, and Tokyo Individual-

ized Educational Institute, Inc. (popularly known by the Japanese acronym, TKG;

Code: 4745; First Section, Tokyo Stock Exchange), a prep school company providing

tailored learning programs for elementary through to senior high school students, in

June 2007. Going forward, we plan to continue actively using M&As to rapidly expand

our prep school operations. Our goal is to use these prep schools to attract more cus-

tomers by meeting the kind of children’s needs we can’t currently satisfy with correspondence courses, which

are mainly seen as tools in boosting student motivation and helping students overcome stumbling blocks in the

learning process.

Additionally, we plan to reinforce our student ability assessment services—already an area of strength for

Benesse—launch new open-market products (non-membership based products) such as learning software

compatible with the Nintendo DS handheld game console, and expand our overseas businesses. These and

other actions will drive further growth in the education business.

[ MARKETING ]

Q4 Benesse’s ratio of marketing expenses to sales is high.What will your strategy be going forward?

Fukushima: The ratio of marketing expenses to sales in fiscal 2006 was 14.1%, a drop of 0.8 of a percentage point

from a year earlier. To attract new members to our mainstay Shinkenzemi courses, we actively advertise in the

mass media and use direct mail as part of a marketing campaign

running from the end of each calendar year until the following March.

As a result, Benesse’s marketing costs are heavily weighted to the

second half of the fiscal year, with first and second half expenses for

fiscal 2006 divided roughly 30/70, respectively.

In marketing activities, Benesse has been moving away from a

reliance on direct mail to a media-mix marketing strategy that also

combines the mass media, the internet, local events and other

approaches. As a result, although we have seen a drop in direct mail

marketing costs in recent years, total marketing expenses have stayed

almost the same. Looking ahead, we intend to roll out a number of market-

ing reforms, including creating proposal-based marketing strategies tailored to

potential customer groups, expanding points of customer contact, and devel-

oping new media channels. We also plan to control total advertising expenses

by emphasizing efficiency.

On April 1, 2007, we integrated marketing functions previously dis-

persed among different education-related businesses in a new Marketing

Headquarters. This will allow us to conduct integrated Company-wide

marketing activities that transcend student age groups and product lines, and

also enable the optimal allocation of budgets and resources from a Company-

wide perspective to raise the efficiency of marketing activities.

[ GROUP COMPANIES ]

Q5 Please talk about the growth potential of Group companies.

Fukuhara: The Group companies I am responsible for are mainly involved in the

language education and nursing care businesses. PC school business also comes under

my remit. We have great hopes for the language education and nursing care businesses,

which we believe have the potential to deliver faster growth than our education busi-

ness during the period up to fiscal 2010.

The language education business mainly comprises the language products and

services supplied by Berlitz International, Inc. This company consistently reported weak

results after we acquired it in 1993. However, results in fiscal 2006 improved markedly

thanks to radical management reforms initiated in fiscal 2004. Berlitz International has

now entered a phase of earnings growth. As CEO of Berlitz International from April 1,

2007, I’m targeting even stronger results by, among other steps, expanding the range of

new products for corporate customers and other students and developing new customer

segments with web-based language lessons.

In the nursing care business, the number of nursing home residents is rising steadily in line with expansion in

our network. In fiscal 2006, we adopted an area-based marketing structure to create a more stable business model.

Moreover, as it becomes increasingly difficult to secure the nursing staff we need, we will implement bold reforms

to our personnel system from fiscal 2007, including better compensation packages, to increase our competitiveness

in the recruitment market. Going forward, we plan to launch a training foundation to significantly boost our

personnel training capabilities and enhance our ability to attract new recruits. Meanwhile, amid steps by local

governments to impose quantitative controls to limit the number of homes in their administrative areas, we

launched a new nursing home business model in March 2007 that falls outside these restrictions, as part of ongo-

ing efforts to respond to regulatory risk. Through these initiatives, we are aiming to drive steady business expan-

sion while further improving the quality of service provision.

[Millions of Yen]

0

10,000

20,000

30,000

40,000

Salespromotion

costs

Advertisingexpenses

Direct mailcosts

06 07 08[Forecast]


MARKETING EXPENSES

* Figures for parent company only

Learning Software for Nintendo DS

Lesson at TKG


STRATEGIC DIRECTION THROUGH TO FY2010

+

PERFORMANCE TARGETS

PerformanceTargets for FY2010

OperatingIncome 31.3 billion yen 43.0 billion yen

Net Sales 354.5 billion yen 430.0 billion yen

OperatingIncome Ratio 8.8 % 10 %

ROE 9.5 % 12 %

In the AVIVA business, we operate a network of PC schools through subsidiary AVIVA Co., Ltd., which

was acquired by Benesse in 2005. By closing or integrating unprofitable schools, we have downsized the

network from 325 schools at April 1, 2005 to 183 schools at March 31, 2007. Together with reductions in

advertising expenses, this has led to a significant drop in fixed costs. Despite this progress, we expect the

amortization of goodwill of ¥1.7 billion annually until fiscal 2009 to weigh heavily on earnings, illustrated by

an operating loss in the year under review of ¥1.1 billion. Looking ahead, in addition to reducing costs further,

we plan to tackle the issue of boosting top-line performance. Our strategy to grow sales will include expanding

new business and reinforcing marketing.

[ GROWTH STRATEGY ]

Q6 What are your medium-term business strategiesand targets up to fiscal 2010?

Fukutake: Let me give you our targets first. Our goals for fiscal 2010 are unchanged—operating income of

¥43 billion on net sales of ¥430 billion, and an operating income ratio and ROE of 10% and 12%, respectively.

Although some investors are concerned about a slowdown in profit growth due to a 3.4% dip in enrollment in

April 2007 in Shinkenzemi correspondence courses, our core education business, we are still confident of

meeting our existing targets.

There are two main elements to our medium-term growth strategies through fiscal 2010: seek new oppor-

tunities in existing businesses, and move into new business fields. See the accompanying chart for more details.

SEEK NEW OPPORTUNITIES IN EXISTING

BUSINESSES

In education, we plan to continue our efforts to build a more

powerful Benesse brand in the education field. The biggest issue

facing education in Japan today is the declining motivation of

students. At Benesse, our response will be to implement initia-

tives designed to help students rediscover a passion for study and

help them overcome stumbling blocks in the learning process.

Specifically, in order to drive innovation and access new

business opportunities in our Shinkenzemi correspondence

courses, we will work closely with two companies that are now

part of the Benesse Group: TKG, Japan’s leading prep school

company providing individualized learning programs, and

Ochanomizu Seminar, which boasts expertise in the operation of prep schools whose students have achieved

high pass rates on entrance exams to elite universities. By combining their capabilities with our own Benesse

Classrooms, we will focus on developing new products and services to offer more value for customers. We

plan to grow these classroom-based operations into a second pillar in our education business alongside

correspondence courses. Meanwhile, in student ability assessment, we plan to develop new ways of evaluat-

ing ability that don’t simply rely on test scores. With the integration of the School & Teacher Support

Company, which has strong links with schools, and the Shinkenzemi correspondence course business in April

2007, we have created more opportunities for assessment frameworks covering elementary through to senior

high school students. We also know it is important to devise new learning styles in addition to correspon-

dence courses. In June 2007, for example, we launched learning software for the Nintendo DS portable

game console, including training software to boost Japanese reading skills and our first English training

software. This is just one way we plan to encourage children to rediscover the joy of learning.

MOVE INTO NEW BUSINESS FIELDS

In new business fields, we plan to extend our existing mail-order business, which mainly provides lifestyle and

study support for families with infants and toddlers, to cover new age groups from elementary school students

up to adults regardless of age. Leveraging the know-how we have accumulated in correspondence courses in

the 0-18 age group, we intend to take on the challenge of providing correspondence learning services for

adults, too. And in lifestyle support, we have plans to begin offering housework support services to supplement

our existing home food delivery service. Japan’s large population of baby boomers aged between 55 and 60 also

offers the potential for growth through the provision of products and services for active seniors.

Benesse’s marketing structure will be key to developing these businesses across the Group to drive organic

business expansion and growth.

NEWBUSINESSDOMAINS

EXISTINGBUSINESSES

RealizeFurtherBusinessGrowth

Infants

Business

Elementary, Junior High andSenior High School StudentsToddlers University

StudentsWorking Adults/

Housewives Seniors Age

ParentingKodomo Challenge

Mail-order sales oflifestyle and studysupport products

Expansion of otherbusiness segments

Enhance assessment services

Expand classroom-basedbusiness

School & TeacherSupport Company

Develop and enhanceShinkenzemi

Berlitz/Simul

SeniorCompany

AVIVA PC School

Lifestyle support magazines

Mail-order sales of lifestyle and study support products

Correspondence courses forworking adults (women)

Lifestyle support magazines

Active seniors

Strength

en

Mark

eting

Functio

ns

Digita

l

Integrate

FY2006 Results


0 03 04 05 06 07 08(Forecast)

20

40

60

80

29

45.0% 45.1%

43.5%

47.9%47.8%

50.5%

40

60

75

8590

30

35

40

45

50

LANGUAGECOMPANY

[page 26]

REVIEW OF OPERATIONS

EDUCATIONGROUP

[page 16]

LIFETIMEVALUECOMPANY [page 22]

AVIVABUSINESS

[page 28]

OTHERS

[page 28]


Through the April 2007 integration of previously dispersed marketing functions, the focus of marketing

has shifted from independent activities in each business to an optimized approach for the entire Benesse Group.

Benesse relies on people, from infants to seniors, to support its businesses, and the abilities of employees in-

volved in these businesses are a crucial resource. With this integration, we will see more interaction between

employees from different parts of the Group who, until now, had little contact with each other. This will

energize the workforce and also help our people to improve their skills.

[ RETURNS FOR SHAREHOLDERS ]

Q7 Benesse has significant cash reserves. How do you plan to use thesefunds and what is your policy on returning profits to shareholders?

Fukutake: As the Company’s shareholder representative, I agree

with investors that deciding how to use our cash reserves, and as

an extension of that, our capital structure policy, are extremely

important aspects of management at Benesse. In terms of uses of

cash, we have earmarked ¥20-30 billion to invest in R&D and

M&A deals to support medium- and long-term business growth.

We have been particularly active in M&As, illustrated by our

acquisition of Ochanomizu Seminar in October 2006 and TKG

in June 2007. Our goal here is to invest in fields where we can

reinforce our core competences.

In terms of dividends, Benesse has clearly stated its goal of

achieving a dividend payout ratio of at least 35%. Based on this

policy, we have now raised the dividend for four consecutive

periods since fiscal 2003 and effectively maintained a dividend payout ratio of around 45%. In the year under

review, this ratio reached 47.8%, and we are projecting 50.5% for fiscal 2007. Although we didn’t buy back

any shares during the past fiscal year, as of March 31, 2007, Benesse had repurchased a cumulative total of

4,040,600 shares at a cost of ¥10,452 million, representing 3.8% of all issued and outstanding shares compared

to fiscal 2002 when the share buyback program started. The dividend-on-equity (DOE) ratio for fiscal 2006

was 4.6%. Meanwhile, having set a target for total shareholder return, an internal medium-term benchmark

that also factors in the benefits of share buybacks, of at least 5%, we have already purchased more of our shares in

fiscal 2007 and we plan to make additional purchases as necessary.

Cash Dividends[Yen]

■ Cash DividendsDividend Payout Ratio

CASH DIVIDENDS/DIVIDEND PAYOUT RATIO

DividendPayout Ratio

[%]

[Years ended March 31]

SHARE BUYBACK PROGRAMCumulative total: 4,040,600 shares

3.8% of all issued shares(as of March 31, 2007)

SENIORCOMPANY

[page 24]

DETAILS OF REPURCHASE• Type of shares: Common stock• Number of shares: Up to 992,000 shares

(0.9% of currently issued common stock)• Total purchase price: Up to 3,688 million yen• Period of repurchase: From June 26 to July 19, 2007

0

50,000

100,000

150,000

200,000

250,000

0

10,000

20,000

30,000

Total Market ¥1,541 billion

(FY05)

Preschool education (including English teaching material) 10%

Study guides/ Workbooks 7%

Cram school/Prep school 62%

Tutoring 8%Benesse90%

Gakken7%

Others 3%

0

500

1,000

1,500

2,000

330

800

1,610

5090120

Benesse74%

Gakken12%

Z-Kai 10%Others 4%

0

4,500

5,000

5,500

0

10,000

20,000

30,000

40,000

50,000

■ Senior High School Courses■ Junior High School Courses■ Elementary School Courses■ Kodomo Challenge (Preschool Courses)

CUMULATIVE ENROLLMENTS IN SHINKENZEMI OVER A FULL YEAR

[Thousands of students]

02 03 04 05 06 07[ Years ended March 31 ]

AMOUNT SPENT PER MONTH PER CUSTOMER

02 03 04 05 06 07

(Enrolled in Elementary, Junior High School or Senior High School Shinkenzemi Courses)

[ OVERVIEW ]

The Education Group boasts an extensive

lineup that meets off-campus education

needs and provides support for schools

and teachers. In the former, Benesse

focuses on correspondence courses for

children of all ages with its Shinkenzemi

and Kodomo Challenge brands, while

Shinken Simulated Exams—mock univer-

sity entrance exams for high school stu-

dents—are the main product in the

school support field. Benesse is now

reinforcing its product and service lineup

to respond to diversifying needs in the

education market.

[ REVIEW OF FISCAL 2006 ]

Rise in amount spent per customer

Net sales in the Education Group in-

creased 5.1%, to ¥208,833 million. This

growth was chiefly due to an increase in

the amount spent per customer in mem-

bership-based services and higher sales of

English-related products and optional

course materials.

In terms of products, we increased

the number of course subjects and

offered a larger number of optional

products, enhancing our ability to re-

spond to individual customer needs.

Specifically, in the year under review,

Benesse began offering science and social

studies courses for first-grade high school

students enrolled in Shinkenzemi Senior

High School Courses, and stepped up

sales of special correspondence courses

for students aiming to enter the universi-

ties of Tokyo or Kyoto.

In Shinkenzemi Junior High School

Courses, we updated courses in line with

revisions to school text books, offered a

wider choice of optional products and

rolled out a new service that allows stu-

dents to get their work checked and

marked quickly via the internet. A new

system was also created to propose learn-

ing approaches tailored to individual

student needs. We also made a wider

choice of optional products available in

Shinkenzemi Elementary School Courses.

Efficient marketing

On the marketing front, we implemented

an efficient strategy combining TV com-

mercials, newspaper adverts, the internet,

local events and other marketing methods

to augment our existing direct-mail

approach. In the infant and preschool

market, Benesse used its pregnancy, child-

birth and parenting magazines Tamago

Club and Hiyoko Club to rapidly identify

readers with an interest in preschool

education, and then developed specific

communication methods for different

customer segments. In fiscal 2006, these

included the opening in Kumamoto and

Shiga prefectures of Benesse Showrooms,

where parents and children can play and

learn together. We also ran a nationwide

bookstore promotion campaign featuring

Benesse learning materials, and continued

the active use of Asobication events (par-

ent-child playgroups). These initiatives

were part of a wider effort to increase

contact with customers.

Strong performance by English-

related products

In peripheral businesses, which exclude

Shinkenzemi correspondence courses,

Benesse reported higher sales. This re-

flected increased sales of BE-GO PC-

based English courses for elementary

school students, and Kodomo Challenge

English courses (formerly Oyako Eigo) for

preschoolers. We also expanded our range

of mail-order Sukku (formerly Kodomo

Challenge every) everyday products for

children, helping to boost sales. Other

developments during the year under

review included the June 2006 launch of

Pioneer Kids Courses—extra-curricular

courses featuring hands-on learning

materials and programs—and Benesse’s

advance into the prep school market in

the Tokyo metropolitan area with the

acquisition of Ochanomizu Seminar in

October 2006. This company has a repu-

tation for high pass rates for senior high

school students seeking to enter elite

private universities.

Firm demand for simulated exams

In support services for schools and teach-

ers, Shinken Simulated Exams, a core prod-

uct aimed at high school students; Study

Support, a learning assessment study aid;

Global Test of English Communication

(GTEC) for STUDENTS and other prod-

ucts performed well. Benesse also re-

corded an increase in sales in its learning

assessment business aimed at junior high

school students, and subsidiary Shinken-

AD Co., Ltd., which produces university

prospectuses and other products, posted

higher sales.

Despite expenses related to course

material revisions in Shinkenzemi Junior

High School Courses and upfront invest-

ments to start up new businesses in

China and South Korea, the Education

Group recorded a rise of 3.0% in operat-

ing income to ¥30,612 million. This

mainly reflected higher earnings from

increased sales in Shinkenzemi correspon-

dence courses.

EDUCATIONGROUP


REVIEW OF OPERATIONS OPERATING INCOME

[Millions of Yen]


NET SALES

[Millions of Yen]


[Thousands]

COMPARISON OF MEMBERSHIP

Source: Education Industry White Paper 2006, Yano Research Institute

Correspondence Coursefor Preschoolers

Correspondence Coursefor StudentsCorrespondence

course 13%

■ Benesse■ Z-kai

SeniorHigh

SchoolCourses

ElementarySchool

Courses

JuniorHigh

SchoolCourses

SUPPLEMENTARY EDUCATION MARKET IN JAPAN


COMPARISON OF MEMBERSHIP

BENESSE’S MAIN PRODUCTS AND SERVICES

Age

CorrespondenceCourses

Classrooms

Others

0-6

Kodomo Challenge(Preschool Courses)

7-12 13-15 16-18

Elementary School Courses Junior High School Courses Senior High School Courses

Courses for students at elite combined privatejunior and senior high schools

Benesse Science Classes

Classrooms for ChallengeLearning Programs

Tokyo IndividualizedEducational Institute

Ochanomizu Seminar

Kodomo Challenge English Nintendo DSSoftware

Pocket Challenge Shinken Simulated Exams

Benesse’s English Classes for Children

BE-GO

[Yen]

Courses for students at elitecombined private junior andsenior high schools

Kodomo ChallengeShinkenzemi

Ochanomizu Seminar

Classrooms

Web

Textbooks

Prevent stumbling blocks in learning/boost study motivation

Tokyo IndividualizedEducational Institute

THE VIEW FROM A RED PEN TEACHER*

“One-to-one communication is just as important whether we’re checking

work on paper or via PCs.”

I’ve been a Red Pen Teacher for Shinkenzemi Junior High School Courses for 18 years now. I’vecontinued to do this work because I enjoy the interaction with the kids, knowing that I’m helpingthem to grow and develop. When Benesse started a new service that allows students to get theirwork checked and marked via the internet, I was a bit concerned that I wouldn’t be able to com-municate with each of my students in a personal way, especially as my comments would now betyped rather than handwritten. But after actually using the system, I’ve found that I can reallyprovide support that matches the needs of individual students. Thanks to this service, students canget their checked work back in about three days when it’s still fresh in their minds, compared withnearly two weeks before. This undoubtedly helps their studies. Of course, human interaction is justas important in the age of the internet as it’s been in the age of paper and books, and I plan to keephold of this thought when I’m dealing with my students.

[ STRATEGY ]

We plan to focus on the following four

key areas:

Drive innovation and access

new business opportunities

in Shinkenzemi

Shinkenzemi is a range of textbook-based

correspondence courses. Going forward,

we plan to combine this existing textbook-

based approach with web- and classroom-

based learning styles to boost student

motivation and help them overcome stum-

bling blocks in the learning process. For

example, from fiscal 2008, we plan to

begin providing next-generation

Shinkenzemi Elementary School Courses

and Junior High School Courses based on

a totally new approach to correspondence

learning. Rather than just relying on

textbooks, we plan to utilize PCs,

Nintendo DS portable game consoles and

other means to tailor courses to individual

student needs.

Expand classroom-based operations

We have positioned classroom-based

operations as the second pillar in our

education business after Shinkenzemi

EDUCATION GROUP: DIRECTION OF BUSINESS GROWTH

correspondence courses. In October 2006,

we made our first move into the prep

school market in the Tokyo metropolitan

area with the acquisition of Ochanomizu

Seminar. This company has a reputation

for high pass rates, mainly for senior high

school students taking entrance exams for

elite private universities. In June 2007, we

also purchased TKG, Japan’s largest prep

school providing individualized learning

programs. Both of these companies are

now consolidated subsidiaries. By bring-

ing them into the Group, our aim is to

generate new synergies by using our own

learning programs at their prep schools

and channeling Shinkenzemi students to

their courses. In this way, we plan to

build a framework that will enable us to

respond to proliferating school and en-

trance exam formats in Japan, triggered

partly by the emergence of a tertiary

education market where there are enough

university places for every prospective

student due to Japan’s falling birthrate,

and illustrated by the growing popularity

of the recommendation and admission

office (AO) entrance exam systems, and

an increasing number of combined junior

and senior high schools. This new frame-

work will also allow Benesse to move into


TOPIC

Successful tender offer bid for Tokyo Individualized

Educational Institute, Inc. (TKG)Between May 23 and June 19, 2007, Benesse purchased 33 million shares of TKG commonstock, amounting to 51.89% of the company’s issued and outstanding shares. As a result,TKG became a consolidated subsidiary of Benesse on June 26, 2007.

Type of share and bid price: common stock, ¥380 per shareTotal payment for the tender offer: ¥12,772 million

TKG is Japan’s largest prep school providing individualized learning programs. The companyoperates directly managed learning centers for elementary, junior and senior high schoolstudents in Tokyo and other major cities nationwide. As of April 30, 2007, the company had192 schools serving 22,850 students. In the fiscal year ended May 31, 2006, TKG reportedoperating income of ¥2,341 million on net sales of ¥16,072 million.

new customer segments by meeting needs

that correspondence courses cannot satisfy

alone, namely, helping students redis-

cover a passion for study and helping

them overcome stumbling blocks in the

learning process.

Reinforce the study

assessment business

Student ability assessment is one of

Benesse’s strengths. In a nationwide sur-

vey of Japanese student abilities and learn-

ing habits commissioned by the Ministry

of Education, Culture, Sports, Science

and Technology (MEXT) in April 2007,

Benesse was awarded the contract to assess

the abilities of sixth-grade elementary

school students. The other target student

group in the survey was third-grade jun-

ior high school students. Moreover,

Benesse has student assessment contracts

with 5,103 of Japan’s 5,418 senior high

schools, representing a market share of

94.2% and illustrating our leading position

in the domestic field. Our main assess-

ment products are Shinken Simulated

Exams and Study Support, which are used

to measure the academic abilities of more

than 6 million students on a cumulative

basis this year, and GTEC, which

measures English communication skills

covering reading, listening, writing and

speaking and is used by 650 companies,

including some leading corporations. In a

recent development in the field, we have

started working with the Center for

Research on Educational Testing

(CRET), a non-profit organization estab-

lished in January 2007, and overseas

research bodies, to research and develop

new tests of academic ability that do not

simply rely on test scores.

Grow other businesses

One example of our efforts to provide

new products and services outside the

scope of traditional textbooks is software

for the hugely popular Nintendo DS

portable game console. We plan to de-

velop and offer more software going

forward. In overseas businesses, mean-

while, sales of courses for infants in

China, which were launched in June

2006, made a strong start. Provided

through local partner the China Welfare

Develop Kodomo Challengeand Shinkenzemi

Expand Classroom-basedBusiness

Enhance AssessmentServices Grow Other Businesses

Special courses for high schoolstudents aiming to enter theuniversities of Tokyo or Kyoto

Benesse English Classroomsfor ChildrenBrothers Grimm ClassesBenesse Science ClassesCreative Expression Classes

Shinken Simulated Exam

New assessment systems otherthan the deviation valueapproach used to measureacademic ability

Study Support

GTEC

Merge with School &Teacher Support Company

T K

Video streamingVideo streaming

Overseas education businesses

Shinken-AD/Career training

English education

Mail-order sales

Develop educational softwarefor the Nintendo DS

Institute, these courses had an enrollment

in March 2007 of more than 50,000

children. Together with our Shinkenzemi

and Kodomo Challenge correspondence

courses in Taiwan, which were launched

in 1989 and now have 220,000 members,

we will work to grow our operations in

East Asia.

*Shinkenzemi support staff that check and mark coursework submitted by students enrolled on Elementary, JuniorHigh School and Senior High School courses. Their name comes from the red marker pens they traditionallyused to mark coursework. There are around 14,000 Red Pen Teachers nationwide.

CHIAKI KONORed Pen Teacher

Four Key Areas

Lesson at TKG

Screen shot of RedPen Teacher’scorrections

■ Upper performance group ■ Middle performance group ■ Lower performance group

A LOOK AT EDUCATION TRENDS IN JAPAN—2007—Benesse Educational Research and Development Center (BERD)—


ELEMENTARY SCHOOL STUDENTS (BY SELF-EVALUATED PERFORMANCE*) [Minutes]

JUNIOR HIGH SCHOOL STUDENTS(BY SELF-EVALUATED PERFORMANCE*) [Minutes]

ANNUAL AMOUNT SPENT PER STUDENT ON EXTRACURRICULAR LEARNING

90 96 01 060

30

60

90

120

90 96 01 060

30

60

90

120

0

140,000

210,000

280,000

350,000

94 9896 0200 04

[ Figure 1 ]

[ Figure 2 ]

Education reform has become a major

political issue in Japan, heralding a period

of far-reaching change in the public edu-

cation system. The current Japanese ad-

ministration, which came to power in

2006, sees the rebuilding of Japan’s edu-

cation system as a key issue. For example,

the Basic Education Law, which had been

unchanged since it was enacted in 1947,

was revised at the end of 2006. This law

defines the fundamental principles for all

of Japan’s other education-related legisla-

tion. The revision of these principles is

expected to trigger changes to the actual

public education system. This in turn will

have a knock-on effect on the private

education sector. In this year’s mini fea-

ture on education trends in Japan, we

look at what impact the country’s shifting

school education landscape will have on

parents and children, and examine the

kind of education services Benesse is

planning to launch as a result.

Changes in School Education

The current national curriculum guide-

lines were implemented in 2002. The

main thrust of these guidelines was to cut

course content and reduce study time to

realize the government’s policy of a less

demanding education experience. How-

ever, at almost the same time as these

guidelines were adopted, the declining

academic abilities of Japanese children

emerged as a public issue. In response to

parental concerns, the Ministry of Educa-

tion, Culture, Sports, Science and Tech-

nology (MEXT) initiated a range of steps

designed to raise academic performance.

Meanwhile, the government’s Education

Rebuilding Council issued an interim

report recommending an increase in

lesson time of 10% and classes on Satur-

day. As illustrated by these proposals, the

latest round of education reforms is in-

tended to boost the academic abilities of

Japan’s children.

In April 2007, scholastic tests were

conducted for the first time in 43 years at

all elementary and junior high schools in

Japan. These tests were designed to assess

academic ability, with the results to be

used in new teaching approaches and

incorporated in new national curriculum

guidelines due to be announced sometime

in fiscal 2007. As highlighted by interna-

tional studies of academic ability like the

OECD’s Program for International

Student Assessment (PISA), the reading

literacy of Japanese children has been

declining in recent years. Initiatives to

remedy this issue are expected to be in-

cluded in the new guidelines. This succes-

sion of initiatives to boost academic

performance is also having an impact on

home-based study.

Changes in Student Motivation

A study conducted by the Benesse Educa-

tional Research and Development

(BERD) Center, called Basic Research on

Academic Performance, shows clear

progress in halting children’s declining

interest in study. The time children spent

learning had been declining across the

board since 1990. However, in the last

five years, this trend has been reversed

among elementary and junior high school

students. Although this is obviously good

news, a new problem has emerged—a

growing gap in academic performance

and motivation among students. Figure 1.

shows the average time spent studying at

home by academic ability of children

surveyed. It illustrates that, between 2001

and 2006, the biggest increase in study

time was by top-performing students.

Students with less ability, however, hardly

spent any more time studying, highlight-

ing a growing gap in motivation.

In the past, students in Japan were

highly motivated by fierce competition

for university places. Today though,

without the provision of education mate-

rials tailored to different academic abilities

and appropriate motivation, many stu-

dents find it hard to study. Consequently,

providing products and services that meet

individual student needs is now essential

in the private education service sector.

Changes in Parental Thinking

So how have parental attitudes and be-

havior changed? Due to concerns about

declining academic abilities arising from

revisions to the national curriculum

guidelines in 2002, there has been an

increase in the number of parents turning

to extracurricular learning for their chil-

dren. Based on the results of MEXT’s

Child Learning Costs Survey, Figure 2.

shows the annual amount spent by parents

of public elementary and junior high

school students on extracurricular educa-

tion. Spending for elementary school

children drifted downward in the 1990s,

but has been rising since 2000. Spending

for junior high school students reached an

all-time high in the 2004 survey. This

shows that over the last few years parents

have become increasingly enthusiastic

about investing in extracurricular learning

products and services for their children. In

Japan, where the birthrate is falling, pri-

vate education businesses have to increase

the amount spent per child by customers.

One of the keys to success will be accu-

rately identifying the needs of parents

who have a strong interest in education.

Benesse’s New Services

As this brief summary shows, education in

Japan is expected to undergo major

change due to growing efforts to boost

academic abilities and other initiatives. At

the same time, there is a widening gap in

ability and motivation among students,

while parental needs in extracurricular

education are also diversifying. Benesse

will have to rapidly read these trends to

tailor its services even more closely to the

learning needs of individual students and

win a high level of customer satisfaction.

Based on this perspective, we will offer a

wider choice of education materials for

different academic abilities and develop

new learning programs such as English

study courses for infants and elementary

school students. We will also have to

supplement our traditional domain of

correspondence courses with new and

improved learning approaches. This will

include expanding our classroom-based

learning business and using increasingly

commonplace ICT and mobile devices in

the learning environment.

We are also extending more support

to schools and teachers. One example is

the nationwide test of academic abilities,

mentioned earlier, implemented by

MEXT. Benesse was commissioned to

conduct part of the project for elementary

schools, which included sending out,

collecting and marking test papers. We

also tabulated the results and supplied

them to local boards of education and

schools. We forecast more such business

opportunities in the future as public edu-

cation services are increasingly outsourced

to private providers. In the last few years,

private education companies have been

attracting growing attention for their

potential to supply highly targeted ser-

vices that the public education system

struggles to offer. At Benesse, we will

work to satisfy these market needs, aware

that helping to educate children and

support learning is one of our important

social responsibilities.

* Self-evaluated performance is based onanswers to the questions, “How do yourgrades compare with those of your class-mates?” (Elementary school students), and“How do your overall grades compare withother pupils in your year?” (Junior high schoolstudents). On a scale of 1-7, studentsanswering “1-3” were put in the top group,“4” in the middle group, and “5-7” in thelower group.

Source: 4th Basic Research on AcademicPerformance, BERD

AVERAGE TIME SPENT STUDYING AT HOME ON WEEKDAYS (BY SELF-EVALUATED PERFORMANCE*)

■ Public junior high school students ■ Public elementary school students

* Based on data from MEXT's Child Learning Costs Survey

Haruo KimuraManagerEducational Research OfficeBenesse Educational Research and Development Center

[ Years ] [ Years ]

[ Yen ]

[ Years ]

0

200

400

600

03 0504 06 07 03 0504 06 070

300

600

900

0

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25,000

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-1,000

0

1,000

2,000

■ Tamago Club■ Hiyoko Club

■ Tamahiyo Kokko Club■ THANK YOU!

bon merci!Women’s Park

DOG’S HEARTCAT’S HEART

Hand & Heart

[ OVERVIEW ]

The Lifetime Value (LTV) Company

provides a whole host of information and

support for everyday life through its

magazines, websites, mail-order shopping,

food delivery and other services. Target-

ing women with housework and

parenting responsibilities who want to

enjoy and be in control of their lives as

fully engaged members of society, the

LTV Company supplies information on

anything from childbirth, parenting and

family finances, to food and health issues

and pet ownership.


Strong sales of direct-sales

magazines

Net sales in the LTV Company increased

12.6% to ¥23,450 million. Primary factors

driving sales higher included steady

growth in reader membership for Hand &

Heart, a direct-sales magazine focusing on

crafts and hobbies, and DOG’S HEART

and CAT’S HEART, direct-sales maga-

zines for families with pets. Meanwhile,

sales of mainstay pregnancy, childbirth

and childcare titles Tamago Club and

Hiyoko Club, were also firm, driven by

mail-order sales.

The LTV Company posted an in-

crease in operating income of 940.0% to

¥1,373 million, chiefly on the back of

higher sales.



REVIEW OF OPERATIONS OPERATING INCOME (LOSS)

[Millions of Yen]


NET SALES

[Millions of Yen]


[ STRATEGY ]

Drive development of new products

for active seniors

Until now, the LTV Company has prima-

rily provided products and services that

enhance value for women and families

over their lifetimes. Going forward,

however, the company will extend its

reach into new business fields to develop

and supply new products and services that

enhance lifetime value for all other types of

customers seeking a better quality of life.

The ultimate goal is to create new value.

In particular, from fiscal 2007, the LTV

Company will work on developing services

for active seniors. One example is “Do Your

Own Thing,” a website launched on June

1, 2007 designed to help active seniors get

the most out of life. Subsequently, our

efforts will be extended to cover correspon-

dence courses, lifestyle support and other

businesses for working adults.

Magazines related to pregnancy, childbirth and parenting

Circulation: 260,000/360,000/200,000

Magazines for pet owners

Tamago Club/Hiyoko Club/Tamahiyo Kokko Club

DOG’S HEART

Mail-order sales

bon merci!

Membership: 157,000CAT’S HEARTMembership: 113,000

Craft and hobby magazine Information magazine on healthy eating

Hand & HeartMembership: 97,000

Circulation: 520,000

Lifestyle magazine Website service

Women’s Park

Food delivery services

Benesse en-Famille


MEMBERSHIP OF DIRECT-SALES MAGAZINES AND WEBSITES


Membership: 262,000

THANK YOU! Do Your Own ThingLaunched on June 1, 2007

Tamahiyo Shop

Membership: 897,000(As of March 2007)

AVERAGE MONTHLY CIRCULATION BY MAGAZINE TITLE

[Thousands of magazines] [Thousands of members]

ALL EXISTING BUSINESSES NOW PROFITABLE

(Year ended March 2007)

0

10,000

20,000

30,000

40,000

-2,000

-1,000

0

1,000

2,000

3,000

0

30

60

90

120

47

61

73

92

106115

02 03 04 05 06 07

BENESSE’S NURSING HOMES


[ OVERVIEW ]

Centered on consolidated subsidiary

Benesse Style Care Co., Ltd., the Senior

Company operates a network of nursing

homes for the elderly. It also provides

home help services, training courses for

caregivers, and medical and nursing care

human resource services.


Steady increase in nursing home

residents

The Senior Company recorded a 17.0%

rise in net sales to ¥32,054 million. The

main factor driving this increase was

expansion in the nursing home network

operated by Benesse Style Care and a

related steady rise in the number of resi-

dents. During the year, this company

focused on ensuring stable and sustained

business expansion by further enhancing

service levels, implementing marketing

reforms through the introduction of an

area-based operating structure, and

strengthening infrastructure related to risk

management such as nursing home secu-

rity. The introduction of the area-based

operating structure in particular has en-

abled the Senior Company to use person-

nel resources more effectively across

different nursing homes, and at the same

time, fully leverage Benesse’s strength of

operating multiple nursing homes in the

same area. As a result, there was a signifi-

cant improvement in the average time it

takes to achieve 80% occupancy for new

nursing homes—6 months in fiscal 2006,

as opposed to 12 months in fiscal 2004.

By brand, the number of nursing

homes in the Benesse network as of

March 31, 2007 was as follows: Aria, 9;

Clara (including 1 care house), 37; Granny

& Granda, 43; and Madoka, 26. Compared

to March 31, 2006, this represented a

combined increase of 9 nursing homes to

a total of 115.

The Senior Company recorded an

increase of 33.0% in operating income to

¥2,540 million, mainly due to higher sales

and the absence of one-off charges booked

in the previous year related to efforts to

strengthen business infrastructure.

[ STRATEGY ]

Introduce a system to ensure

recruitment and retention of high-

quality personnel

Staff retention rates in the nursing care

sector have traditionally been low due to

the ease with which employees can

change jobs and the relatively poor pay

and tough working conditions compared

to other industries, yet recruiting and

retaining high-quality personnel is vital

to achieve growth in the field. In this

context, from fiscal 2007, the Senior

Company will begin implementing busi-

ness reforms designed to boost motiva-

tion through the provision of services

that our staff can be even more proud of,

and radical changes to personnel systems

from October 2007 that will include

better compensation packages. This will

initially lead to an increase in personnel

expenses, but significantly boost


SENIORCOMPANY

OPERATING INCOME (LOSS)

[Millions of Yen]


NET SALES

[Millions of Yen]


competitiveness over the medium to

long term. We also intend to launch a

training foundation to enhance employee

training programs and reinforce our

ability to recruit new people.

Mitigate regulatory risk by opening

new nursing home formats

Following revisions to the Long-term

Care Insurance Law in April 2006, sub-

stantial discretionary powers for certifying

new nursing homes specified by the law

were transferred to local governments. As

a result, due to financial difficulties faced

by some of these authorities, partly be-

cause they have to pay subsidies for nurs-

ing homes, there has been a growing

move to impose quantitative controls to

limit the number of rooms in their ad-

ministrative areas. Since April 2007, in

almost all Japan’s administrative regions

outside the Tokyo metropolitan area,

approval for new nursing homes is

becoming more difficult. In Tokyo, our

main area of operations, we expect quan-

titative controls to become more wide-

spread from fiscal 2008. Against this

backdrop, we opened our first new fee-

based nursing home that differs to existing

facilities specified by the Long-term Care

Insurance Law, and therefore falls outside

the scope of quantitative controls. This

new home, called Granda Nanzan and

opened in Nagoya, Aichi Prefecture in

March this year, differs to existing facili-

ties in that it also incorporates a facility

providing at-home nursing care. This

means that it can provide nursing care

services to fee-paying residents and to

individuals certified by the local govern-

ment as having long-term care needs.

Going forward, we plan to adopt this

approach in other administrative areas

where limits on nursing homes are im-

posed, allowing us to grow our business

while mitigating regulatory risk.

NUMBER OF NURSING HOMES BY BRAND

[ As of March 31 ]

■ Aria■ Clara■ Granny & Granda■ Madoka

Brand name No. of homes (Mar. 07)

Initial down payment (Thousands of yen)

Monthly fees (Thousands of yen)

Aria 9 25,000~30,000 280~

Clara 37 — 330~

Granny & Granda 43 8,000~9,000 200~

Madoka 26 — 230~

Total — —115

MASAYUKI TSUTSUMIManager, Granda Higashi-Koganei TokyoBenesse Style Care Co., Ltd.

THE VIEW FROM A NURSING HOME MANAGER

“Benesse’s unique approach is evident in its nursing home business, too.”

Benesse takes exactly the same approach in its nursing home business as it does in its mainstayeducation business. In the education field, Benesse’s well-known approach is to supply productsand services that boost student motivation by encouraging them to take on new challenges andacquire new skills. Based on the same ideal, our mission in the nursing care field is to providesupport for residents by encouraging a positive and active approach to life.

Over the last 17 years I’ve gained a wealth of experience in Benesse’s education business. In that time,I identified the needs of customers and created strong teams. Nursing homes are life in a nutshell, so

our employees face unexpected challenges every day. Our staffhave to determine how best to respond to the specific needs ofindividual residents. As well as the respective views of qualifiednurses and caregivers, we carefully take into account eachresident’s current and past situation to devise the best solution.I think this is the Benesse style.

0

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40,000

60,000

80,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

0

200

400

600

0

2,000

4,000

6,000

8,000

0

50,000

100,000

150,000

200,000

01 02 03 04 05 06[ Years ended December 31 ]

05 06[ Years ended December 31 ]

BERLITZ SALES BY REGION[Thousands of U.S. Dollars]

07 (Forecast)

■ Asia■ Americas■ Europe■ ELS

THE VIEW FROM A BERLITZ VIRTUAL CLASSROOM(BVC) STUDENT

“For motivated people with little free time, BVC is ideal.”

I’m too busy to find time after work to go to language school. Berlitz Virtual Classroom (BVC)though, is really convenient, because I can take classes whenever I want, even after getting homelate from work.

In a real classroom setting, you can often rely on visual cues like gestures or facial expressionsto get meaning. With BVC you don’t have that luxury, so you really have to work hard on yourlistening and speaking skills. BVC is therefore ideal for people who want to hone their communi-cation capabilities but don’t have the time because of work commitments.

Instructors come from around the world, so you also get the chance to learn about different

cultures and customs.Lesson at Berlitz

Simul International, Inc.

Berlitz, Paris Opéra Language Center


[ OVERVIEW ]

The Language Company mainly includes

U.S. subsidiary Berlitz International,

Inc., the world’s largest provider of

language education services, and Simul

International, Inc., which supplies trans-

lation and interpreting services. The

Language Company also provides an

online evaluation test, the Global Test of

English Communication (GTEC), which

measures comprehensive English com-

munication skills.

Berlitz International

Berlitz International operates a network

of 542 language centers in 68 countries

and regions, making it the largest provider

of language education services in the

world. In addition to its mainstay

language learning business, Berlitz Inter-

national also has a network of ELS Lan-

guage Centers, which provide intensive

language courses for students planning to

study in the U.S.

In fiscal 2004, Berlitz International

overhauled its management structure and

devolved authority previously concen-

trated at the company’s headquarters in

the U.S. to three main operating regions—

the Americas, Europe and Asia. In fiscal

2005, further steps were taken, including

closing or integrating unprofitable schools

and taking other steps to pare back fixed

costs, reinforcing the product lineup, and

enhancing marketing capabilities. As a

result, the Language Company reversed

its loss of fiscal 2004 with a substantial

improvement in operating income of

¥3.3 billion in fiscal 2005.

Simul International

Since its establishment in 1965, Simul

International has supported the interna-

tional communications of government

agencies, the financial world and corpora-

tions through the provision of high-

quality interpreting and translation

services. In addition, the company runs

the Simul Academy, which trains special-

ist interpreters and translators, and pro-

vides training courses for companies and

other organizations.


Rise in number of lessons taken

particularly in Japan and Germany

Net sales in the Language Company rose

14.8% to ¥59,164 million, reflecting a

number of factors. First, thanks to efforts

to provide products and implement


LANGUAGECOMPANY

OPERATING INCOME (LOSS)[Millions of Yen]


NET SALES[Millions of Yen]


marketing activities tailored to the needs

of customers in each of its operating

regions, Berlitz International reported a

rise in the number of lessons taken world-

wide, with notable increases in Japan and

Germany. The company’s ELS Language

Center operations also posted higher sales.

Overall, the number of lessons taken at

Berlitz International in fiscal 2006 totaled

6.9 million, an increase of 5.4% compared

to a year earlier. Sales in the Language

Company also benefited from the weaker

yen. Meanwhile, Simul International

posted higher sales in its core interpreting

and translation services business.

The Language Company recorded an

increase of 83.5% in operating income to

¥4,670 million. This rise was mainly

attributable to higher sales, as well as

improved profitability at Berlitz Interna-

tional thanks to reduced fixed expenses

and other items.

[ STRATEGY ]

Targeting new businesses and

customers

Berlitz International will focus on three

key areas going forward: boost the

amount spent per lesson by adding value;

rapidly expand new businesses such as

training courses for corporate customers;

and develop new customer segments

with Berlitz Virtual Classrooms and other

products.

In fiscal 2007, Berlitz International

will make upfront investments targeting

further growth through to fiscal 2010.

The company plans to enhance new

products and services, including training

courses for corporate customers that are

already being offered in some areas, and

Berlitz Virtual Classrooms. In addition, in

order to provide lessons that satisfy the

diverse needs of customers and ensure the

BERLITZ LANGUAGE CENTERSAND FRANCHISES

01 02 03 04 05 06[ As of December 31 ]

NUMBER OF BERLITZ LESSONS[Thousands of Lessons]

provision of a high-added-value learning

experience, Berlitz International will

strengthen its workforce, including lan-

guage instructors. The company also aims

to develop new markets with the opening

of language centers in Russia, China and

other countries. Through these initiatives,

Berlitz International aims to achieve

earnings growth in line with sales expan-

sion from fiscal 2008.

BVC STUDENT

*Berlitz Virtual Classroom (BVC)BVC lets you learn in real time with a native-fluent instructor through voice communication and visual tools viathe internet.

0

5,000

10,000

15,000

-2,000

-1,500

-1,000

-500

0

0

5,000

10,000

15,000

20,000

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500

1,000

1,500

2,000

[ OVERVIEW ]

On April 1, 2005, some of the operations

of AVIVA Japan Corporation, Japan’s

largest operator of personal computer

(PC) schools at the time, were transferred

by the Industrial Revitalization Corpora-

tion of Japan (IRCJ) to Benesse.


Profitable before

amortization of goodwill

The AVIVA Business posted net sales of

¥10,326 million, a decline of 25.8% year

on year. Although AVIVA reported

higher sales per school, sales fell overall

due to the management reforms initiated

in the previous fiscal year that led to the

integration or closure of schools.

Thanks to management reforms,

AVIVA was profitable before the amortiza-

tion of goodwill for the second straight

year (average annual amortization over five

years of ¥1,711 million). The operating

loss was ¥1,183 million, which was less

than the operating loss of ¥1,564 million

recorded in the previous fiscal year and

mainly reflected the contribution of new

businesses and reduced fixed expenses.

AVIVABUSINESS


OPERATING INCOME (LOSS)

[Millions of Yen]


NET SALES

[Millions of Yen]



[ STRATEGY ]

In fiscal 2007, AVIVA will focus on three main

areas:

■ Fine-tune core operations

Reinforce marketing aimed at corporate

customers and further raised the quality of

lessons to boost customer satisfaction

■ Develop new businesses

Actively work to create new business models

■ Strengthen the operating base

Create a new framework for communicating

with customers centered on CRM

[ OVERVIEW ]

This segment mainly includes specialist

subsidiaries operating on an independent

basis that provide vital business support to

the Benesse Group. They include

Telemarketing Japan, Inc. (TMJ), which

operates call centers, and Synform Co.,

Ltd., which develops and operates sys-

tems. As of March 31, 2007, this segment

comprised 10 subsidiaries.

Telemarketing Japan

This company was established in 1992 to

operate Benesse’s newly independent call

center division for Shinkenzemi members.

TMJ provides a wide range of services

including the creation of customer rela-

tionship management (CRM) strategies,

support for the planning and production

of actual sales promotions, and call center

development, design and operation. TMJ

also plans, designs and implements cus-

tomer communication strategies that use

PCs and mobile phones. In October

2006, TMJ transferred contact center

operations for the Benesse Group to

Benesse Corporation.

OTHERS

OPERATING INCOME

[Millions of Yen]


NET SALES

[Millions of Yen]




This segment reported a decrease in net

sales of 3.0% to ¥20,769 million. This was

attributable to efforts by TMJ to focus on

more profitable operations, which led to a

drop in sales to customers outside the

Benesse Group. Operating income fell

68.1% year on year to ¥430 million due

to the decline in sales and costs associated

with investments in new businesses.

Main Consolidated Subsidiaries■ Telemarketing Japan, Inc.■ Synform Co., Ltd.■ Persons Inc.

And seven other companies

MARKETING STRATEGY

Basic StrategyIn the past, Benesse put direct mail at the

heart of its marketing activities. In fiscal

2003, however, we began using a media-

mix strategy. Subsequently, in October

2005, we stopped using the basic resident

register access system, which we had

relied on to send out direct mail shots.

The following month we established a

new framework to speed up company-

wide decision-making related to market-

ing activities. This framework is headed

by the Chief Marketing Officer (CMO), a

newly created post. The CMO is cur-

rently overseeing a shift in marketing

methods away from large-volume direct

mail shots, to an integrated, open-market

approach that links the accurate identifi-

cation of customers with sales closing

strategies. We plan to use a diverse range

of marketing channels to attract customers

who have already shown an interest in

Benesse products and services.

Overhauling OurMarketing OrganizationOn April 1, 2007, we created a new

Marketing Headquarters that brought

together the separate marketing functions

in each of our education-related busi-

nesses. As a result, we can now imple-

ment integrated, company-wide

marketing activities that transcend cus-

tomer age groups and product lines. This

move will also allow us to raise the effi-

ciency of marketing through the optimal

allocation of budgets and resources from a

company-wide perspective. By marshal-

ling the capabilities of the entire Group,

we will accelerate the shift to a compre-

hensive marketing approach that com-

bines direct mail, mass media, the

internet, local events and other means.

We will also roll out reforms such as

developing proposal-based marketing for

specific potential customer segments and

creating more points of contact with

customers through different media.

Reinforcing Benesse’s web-based

marketing capabilities across the board

will be especially important. We also

recognize that we have to speed up the

development of new sales channels, and

we plan to do this in a number of ways,

including working closely with local

governments and other companies, and

holding local events. In particular, we

intend to actively develop highly focused

local marketing activities and word-of-

mouth approaches.

With advertising expenses, our aim

will be to hold down total costs and em-

phasize efficiency. Although direct mail

costs have been falling in recent years,

overall advertising expenses have re-

mained flat as we have actively developed

new marketing methods. With the estab-

lishment of our new Marketing Head-

quarters, we will go right back to basics

and review all our expenditures with the

goal of eliminating waste and implement-

ing efficient marketing initiatives that are

also effective.

DAISUKE OKADADirectorCorporate Executive Vice PresidentChief Marketing Officer (CMO)


Reinforce marketing functions

Integrate marketing functions (new MarketingHeadquarters established April 2007)Combined marketing functions previouslydispersed among different businesses into a singleorganization

Shift from individual business toCompanywide optimization

• Effective allocation ofmanagement resources

• Develop consistent marketinginitiatives regardless of student ageor product

• Review mass media marketing/reinforce web marketing

Implement efficientand effectivemarketing initiatives

0

10,000

20,000

30,000

40,000

* Figures for parent company only

Rebuild systems for optimal allocation of expenseswhile holding down total expenses

Press Conference, 4th Basic Research onAcademic Performance (National Survey)

StrategyShift from standardized mass

marketing to a high-quality

approach tailored to individual

customer segments

1. Identify potential customers

using open-market products

We plan to increase contact with poten-

tial customers through magazines and

learning materials sold via bookstores

and other outlets, as well as through

open-market, non-membership prod-

ucts and services and cooperation with

partner companies. This will allow us to

better reach customers who already

have an interest in Benesse. We can

focus direct marketing activities on

these individuals, thereby raising the

effectiveness of marketing.

2. Enhance marketing aimed at

individual customers

We intend to reinforce communication

with individual customers using the

internet and telemarketing as well as

direct mail and the mass media. The

standardized direct mail of the past will

also be replaced by content designed to

match the needs and circumstances of

individual prospective customers.

3. Reinforce customer relationship

management (CRM)

Instead of marketing focused on

short-term relationships with custom-

ers, we plan to shift to an approach

that puts greater emphasis on deepen-

ing communication with them over

time. With the creation of the new

Marketing Headquarters, we have put

RESEARCH AND DEVELOPMENT

Research Activities That Help

People to “Live Well”Benesse’s ThreeThink TanksBenesse has conducted surveys and re-

search into education for more than 20

years since establishing its in-house Edu-

cation Research Center in 1980. These

activities have supported the Company’s

business activities. As of 2006, Benesse

had three main think tanks—Benesse

Educational Research and Development

Center (BERD), Benesse Institute for

the Child Sciences, Parenting, and

Aging, and Benesse Shokuiku Institute,

which mainly conducts research into

dietary issues. Their remit is to help

Benesse innovate and strengthen its

business activities in response to changes

in the social environment.

in place a framework that will allow

us to conduct consistent marketing

activities for the same customer as

they move from our infant through to

our senior high school products and

services. In short, marketing that

emphasizes long-term relationships.

We also plan to focus on regional

marketing. Through Asobication

events (parent-child playgroups),

which we already run on a nationwide

basis, and other local events, we are

currently increasing contact with

customers. We will develop this ap-

proach further going forward by roll-

ing out highly targeted regional

marketing activities that rely on local

community networks.

REINFORCE MARKETING FUNCTIONS

Salespromotion

costs

Advertisingexpenses

Direct mailcosts

[Millions of Yen]

06 07 08[Forecast]

Parents

Strategic analysis of changes in education

Research related to education materials and tests

Survey-based solutions for education issues

Research related to educational theory

Research related to learning content

R&D into combining media and learning (mobile terminals, e-learning)

InfantsElementarySchoolStudents

Junior/SeniorHigh SchoolStudents

Schools

Benesse EducationalResearch andDevelopment Center(BERD)

Interdisciplinary research into child growth and developmentfrom pregnancy to infancy

Basic research and program development for child-parentrelationships and parenting

Long-term surveys and research related to the childhoodsocial environment

Benesse Institutefor the ChildSciences, Parenting,and Aging

Benesse ShokuikuInstitute

Gathering and analysis of data related to dietary education

Production and implementation of diet-related content

In addition to in-house staff, all these

think tanks draw on external experts to

conduct wide-ranging studies and re-

search. The cutting-edge insights gained

from these activities are channeled into

the development of new products and

services that ultimately help our custom-

ers to live better lives.

In the course of their activities, our

think tanks rely on the cooperation of a

large number of people in many positions

such as external experts, government

officials and education professionals to

generate research outcomes.

SUMMARY OF RESEARCH THEMES AND TARGET FIELDSMARKETING EXPENSES



RESEARCH WORK IN FISCAL 2006

Surveys and research into

English learning

Targeting all age groups from infants to

adults, BERD carries out research into

English language learning with a focus on

concepts, theories and curriculums. This

research is underpinned by surveys about

English education and study approaches. In

fiscal 2006, BERD conducted a number of

surveys in this field, including the Basic

Survey of English Language Learning at El-

ementary Schools, focused on teachers and

parents, the Survey of English Language Study

at Senior High Schools in East Asia, conducted

jointly with research teams in South Korea,

and the GTEC Can-do Statements Study.

BERD is also working with elementary

schools affiliated with state-run universities

to develop and assess the effectiveness of

new English study curriculums.

Research into new learning

materials and assessment tests

Benesse is working with research institutes

in Japan and overseas to develop new

learning methods and assessment tests

needed to foster the education skills for

today’s society. Key partners include the

Faculty of Education and the Learning

and Educational Development for Col-

leges and Schools Research Department,

College of Arts and Sciences, at the Uni-

versity of Tokyo; the Graduate School of

Global Environmental Studies and the

Primate Research Institute at Kyoto Uni-

versity; and Tokyo Gakugei University.

Research aimed at applying ICT

in education

Benesse is also conducting research de-

signed to find effective applications for

information and communications tech-

nology (ICT) in education. Benesse has

teamed up with the Graduate School of

Interdisciplinary Information Studies, the

University of Tokyo, and the National

Institute of Multimedia Education to

acquire advanced knowledge in this field.

Main Reports

■ Interim Report on Basic Survey onEnhancing Academic Abilities (2006)This report examines teacher guidance and theefforts parents are making in the home toimprove the reading ability of children. Howschools as a whole develop learning programs toenhance reading is also examined.

■ Basic Research on Working Conditionsfor Young People Aged 25 to 35

■ Basic Research on English Education inElementary Schools

■ Basic Research on Academic Perfor-mance (National Survey)

Benesse EducationalResearch and DevelopmentCenter (BERD)Seeking to fuse research with product and

service development, BERD conducts

extensive R&D activities covering all age

groups from infants and university stu-

dents through to working adults. Parents,

teachers, schools and other related groups

also come under the center’s research

remit. In its search for new learning ap-

proaches, BERD is aiming to be the most

trusted educational think tank in the

private sector by conducting high-quality

R&D that benefits society as a whole.

Educational surveys and research

Over the last 25 years, Benesse has carried

out roughly 400 surveys aimed at chil-

dren, parents and educators in an effort to

better understand educational issues facing

Japan. The results of these studies have

been used extensively after being pub-

lished in reports and released on the

internet. Lessons learned from the surveys

have been put into practice in both

home- and school-based learning, and

have helped drive forward additional

research. No area has been too challenging

for BERD, which also conducts long-term

studies and international surveys. The center

has also been commissioned to carry out

research on behalf of Japan’s Ministry of

Education, Culture, Sports, Science and

Technology (MEXT) and Ministry of Inter-

nal Affairs and Communications (MIC).

Main Reports

[34] CORPORATE GOVERNANCE




[42] TOGETHER WITH INVESTORS

[44] BENESSE’S APPROACH TO RECRUITMENT AND HUMAN RESOURCES

[46] TOGETHER WITH BUSINESS PARTNERS AND CUSTOMERS

[47] GIVING BACK TO THE COMMUNITY

[48] WORKING TO PROTECT THE ENVIRONMENT

THE FOUNDATIONS FOR HELPING PEOPLE LIVE WELL


CONTENTS

Yayoi Kusama “Pumpkin”Photo: Shigeo Anzai

Annual Report 2007 [ 35 ][ 34 ] Annual Report 2007

Benesse’s corporate governance system ensures management

decision-making is transparent and fast. Although Benesse has

adopted the corporate auditor corporate governance model, the

Company has also incorporated elements of the “company with

committees system” such as Nomination and Compensation

committees as advisory bodies to the Board of Directors. This has

resulted in a unique corporate governance system. In adopting a

new management structure, Benesse sought to preserve the

strengths of its existing system while reinforcing corporate

governance of the entire Group.

Management StructureBenesse uses the corporate auditor corpo-

rate governance model. Based on this

model, Benesse introduced the Corporate

Executive Officer System in April 2003.

The current management structure (as of

June 25, 2007) comprises nine Directors,

four of whom are Independent Directors;

four Corporate Auditors, including three

outside Corporate Auditors; and 20 Cor-

porate Executive Officers, three of whom

are also Directors. Benesse puts particular

emphasis on the role of Independent

Directors in the Board of Directors in an

effort to increase independence and en-

hance oversight functions. Benesse has also

selected six individuals from the managers

of key consolidated subsidiaries to act as

Group Executive Officers. These individu-

als are not only responsible for managing

subsidiaries, but also for increasing

Groupwide synergies based on the same

level of responsibility and authority for

Group business strategy as Corporate

Executive Officers.

Management Headed byThree RepresentativeDirectorsIn April 2007, Benesse appointed a new

senior management team comprising

three representative directors. By separat-

ing management roles between each

representative director, Benesse has fur-

ther reinforced corporate governance

while ensuring fast and accurate decision-

making. The Representative Director,

Chairman and CEO is responsible for

management policy and formulating the

medium- and long-term management

plan for the entire Benesse Group. He is

also ultimately responsible for achieving

Benesse’s performance targets. He is

assisted in these duties by the Representa-

tive Director, Vice Chairman and Deputy

CEO. The Representative Director,

President and COO, as Benesse

Corporation’s most senior manager in

terms of operational execution, is respon-

sible for formulating the parent company’s

business policy and medium- to long-

term plans—and achieving the targets of

those plans—in accordance with manage-

ment policy and plans for the entire

Group. Meanwhile, the Vice Chairman

and Deputy CEO is responsible for over-

seeing the execution of operations at

Group companies. Again, following

Group management policy and plans, he

must formulate business policy and

medium- to long-term plans for Group

companies, excluding Benesse Corpora-

tion, and ensure they attain plan targets.

Operational Execution andTransparent Decision-makingThe Headquarters Management Commit-

tee (HMC), which is chaired by the

President and COO, discusses important

operational execution matters for the

parent company and the Group as a

whole. In principle, this committee meets

twice a month. Benesse has also estab-

lished Division Management Committees

(DMCs) and Company Management

Committees (CMCs) as decision-making

bodies for important matters related to in-

house companies and major subsidiaries.

These committees, which in principle

meet monthly, are headed by business

division directors, in-house company

presidents (Corporate Executive Officers)

or presidents of subsidiaries. Any manager

or employee can sit in and observe the

meetings of all these committees, giving

everybody the chance to see how impor-

tant matters are decided. Since the basic

structure was introduced in 2003, this

system has become an established feature

of the Company, at times attended by

more than 50 employees. Another part of

Benesse’s management structure is the

Group Strategic Marketing Committee

headed by the Chief Marketing Officer

(CMO). This committee, which in prin-

ciple meets every month, is responsible

for studying and assessing Groupwide

marketing strategy, policy and initiatives.

Board of Directors andRelated CommitteesThe Board of Directors has a maximum

of ten members. Headed by the

Company’s Chairman and meeting in

principle every month, the Board of

Directors is responsible for management

decision-making on important matters

and monitoring business execution.

The board is advised by three com-

mittees: the Nomination Committee,

A Company Management Com-mittee (CMC) meeting whereordinary employees can observethe senior management decision-making process first-hand.

CORPORATE GOVERNANCE SYSTEM

General Meeting of Shareholders

Board of Directors(Headed by Chairman and CEO)Board of Corporate Auditors

Independent Auditors

Nomination Committee

Chairman and CEO

President and COOVice Chairman

and Deputy CEO

Division Management Committees,Company Management Committees, etc.

In-house Company Presidents (Corporate Executive Officers)

Headquarters ManagementCommittee

Major Group Companies

Company Management Committees

Compensation Committee

Takeover Response Committee

Internal Audit Department

Corporate Executive OfficerNomination, Developmentand Compensation Committee

Business Investment Committee

Health and Safety Committee

Privacy Protection Committee

Assist

Audit

Audit

Supervise

CORPORATE GOVERNANCE


Compensation Committee, and Takeover

Response Committee. The Nomination

Committee, which is headed by the Chair-

man and includes all Independent Direc-

tors, and one Corporate Auditor was

established to select candidates for the posts

of Director and President, and examine

proposals for dismissals.

The Compensation Committee,

chaired by the Company’s Chairman, was

set up to establish remuneration standards

and enhance transparency in setting pay.

Specifically, the committee formulates

remuneration systems and operational

policy and determines pay levels for

Directors. This committee has the same

members as the Nomination Committee.

Corporate auditors attend meetings of

these committees to ensure proper over-

sight, although they do not have any

voting rights.

The Takeover Response Committee

was established to examine the Company’s

response to any large-scale purchase of its

shares. All Independent Directors and

outside Corporate Auditors sit on this

committee, which can also access advice

from external specialists as needed.

Committees to SupportOperational ExecutionBenesse has established a Corporate Ex-

ecutive Officer Nomination, Develop-

ment and Compensation Committee,

Business Investment Committee, Health

and Safety Committee, Privacy Protection

Committee and Environmental Commit-

tee. All of these committees act as man-

agement advisory bodies.

The Corporate Executive Officer

Nomination, Development and Compen-

sation Committee is headed by the Vice

Chairman and Deputy CEO. As the name

suggests, the committee was set up to

make the selection, dismissal, evaluation,

training and remuneration of Corporate

Executive Officers and Corporate Vice

Presidents, as well as related processes,

more transparent. Full-time Corporate

Auditors also sit in on the meetings as

observers.

The Business Investment Committee is

chaired by the President and COO and

also comprises Independent Directors. The

committee examines key management

matters that may involve significant funds

or transfers of assets, new high-risk business

ventures, and investment, finance or other

matters that require input from outside the

Company. Again, Corporate Auditors

participate in meetings as observers.

The Health and Safety Committee is

headed by the Chief Human Officer

(CHO), who is responsible for all person-

nel initiatives for the entire Benesse

Group. This committee mainly formulates

policy related to employee health and

safety management and provides support

to business units to ensure policy is thor-

oughly implemented.

The Privacy Protection Committee is

chaired by the Chief Privacy Officer

(CPO), who is ultimately responsible for

protecting all personal information

handled by the Group. This committee’s

remit is to protect and manage personal

information and ensure this is conducted

rigorously across the Group.

The Environmental Committee,

headed by the Chief Environmental Of-

ficer, is also responsible for formulating and

implementing environmental initiatives.

Board of Corporate Auditorsand Audit SystemIn principle, the Board of Corporate Audi-

tors meets every month. In accordance

with audit guidelines set by the Board of

Corporate Auditors, and with an emphasis

on preventative audits, Benesse’s audit

policy is designed to ensure that the Board

of Corporate Auditors fulfills its responsi-

bility of creating a robust and trusted cor-

porate governance system based on a

shared understanding of key management

issues with senior management.

Based on this policy, Corporate Audi-

tors regularly exchange opinions with

senior management, participate in meet-

ings of the Board of Directors, HMC,

CMC and other important management

bodies, receive reports from Corporate

Executive Officers and actively conduct

surveys of actual business conditions

within the Group. Additionally, they

work closely and actively exchange opin-

ions with the independent auditor and

Internal Audit Department as part of

overall efforts to enhance management

oversight functions.

Benesse has established a dedicated

Internal Audit Department with a staff of

eight to conduct management audits. In

accordance with annual audit plans, the

department audits all business units, in-

cluding subsidiaries, and based on the

results, provides assessments and recom-

mendations. The Internal Audit Depart-

ment also reports the results of these

audits to senior management and the

Corporate Auditors.

For financial audits, Benesse has ap-

pointed independent auditor Deloitte

Touche Tohmatsu, which conducts regu-

lar audits of the Company’s accounts.

Corporate Auditors and representa-

tives of the Internal Audit Department

and independent auditor work to deepen

cooperation by exchanging information

as necessary, including regular joint

meetings where business and other re-

ports are presented.

Corporate Governance at Benesse—An Independent PerspectiveAnother standout feature of Benesse’s corporate governance structure is its distinguished team of

Directors and Corporate Auditors from both inside and outside the Company who offer their

extensive experience and insight. Dynamic and candid input from these individuals injects a sense of

urgency into Benesse’s management approach. In this year’s annual report, we speak to Yukako

Uchinaga, Technical Advisor at IBM Japan and recently appointed to the post of Independent

Director, and Corporate Auditor Kimie Sakuragi, who understands Benesse’s business intimately,

about management and corporate governance issues the Company faces today.

“We need to introduce more diverse values into

management.”Benesse’s corporate philosophy is more than just about pursuing profitsand growth—it’s also about enriching life for everybody. This is a trulyworthy goal.

Today, when we can readily gain access to any information we want,customer needs are becoming ever-more diverse, and at a much fasterpace than before. In order for Benesse to fully leverage its strengths inthese rapidly changing times, the Company must respond even morequickly to shifts in its operating environment. Developing new ideas anddriving innovation will be vital.

One of the issues Benesse must look at is its homogenous corporateculture at the senior management level. Approximately 60% of Benesse’semployees are women, so it’s only natural that more women shouldparticipate directly in management as Corporate Executive Officers andother senior managers. A homogenous corporate culture is not necessarilya bad thing, but introducing more diverse opinions, values and thinkingin discussions will lead to a blossoming of fresh and exciting ideas. At thesame time, a company can become a victim of its own success, as newapproaches are given less weight when things are going well. Conse-quently, a company can become hesitant about change and less enthusias-tic about trying new things.

Benesse needs to evaluate its existing approaches objectively andlogically, not just emotionally. By looking at where it stands today,Benesse can identify strengths to enhance further and weaknesses tocompensate. To achieve this, driving innovation inside the Company willbe crucial. I believe that by tapping the abilities of Benesse’s femaleemployees more effectively, Benesse can create a corporate culture offree-flowing diverse ideas and opinions from people with different values.

I worked for IBM for 35 years. During that time, I learned a lot bymeeting and talking with people from diverse backgrounds around theworld. Now I want to apply that experience to management at Benesse andplay my part in making Benesse’s worthy corporate philosophy a reality.

YUKAKO UCHINAGAIndependent Director

“Employees are ultimately responsible for making

corporate governance work.”I believe Benesse’s corporate governance system and mechanisms haveattained a certain level of sophistication. In particular, with managementmeetings such as the HMC and CMCs, the Company has opened up thedecision-making process and made itself more accountable to its closeststakeholders—Benesse employees. Despite this progress, however, inFebruary 2007 we were faced with an incident involving a former presi-dent that severely damaged the Benesse brand. This incident impressed onme again the importance of senior management and director discretionand ethical values in a functioning corporate governance system. Nomatter how advanced systems or mechanisms are, people are ultimatelyresponsible for making corporate governance work. As a result, we arenow putting a renewed and constant focus on the purpose and aims ofcorporate governance in our business activities.

After reviewing the fallout from the incident, we decided to rein-force our existing internal reporting system. One step we took was toestablish a Corporate Auditor Hotline. Independent of the Company’stop managers, this hotline provides a confidential means for employees toreport directly to Corporate Auditors any incident, or potential incident,involving members of senior management that could seriously damage theBenesse brand.

I believe that ensuring transparency by disclosing accurate informa-tion and being accountable to all stakeholders is the basic premise forbuilding an internal control system and realizing management focused onCSR. Being properly accountable to our employees is the first step in thisprocess. If we want to fulfill our responsibility to shareholders, localcommunities and business partners, we first have to provide accurateinformation and be answerable to our own employees. The incident inFebruary gave us a timely wakeup call on this point, and as a corporateauditor, this aspect of corporate governance will be of paramount impor-tance in my future audits.

KIMIE SAKURAGICorporate Auditor


As a Group with businesses in the education, language, lifestyle

and welfare fields, Benesse not only has to comply with all related

laws and regulations, it also has to achieve the highest standards

of corporate ethics. Accordingly, we believe it is vital that all of

our employees understand the importance of sincerity. To realize

this aim, we have formulated the Benesse Group Code of

Conduct, and we are striving to ensure the rules enshrined in the

code are established and instilled across the Group.

Raising Awarenessof the Benesse Group Codeof ConductIn January 2005, the Company’s 50th anni-

versary, we publicly announced the con-

tent of the new Benesse Group Code of

Conduct. This code combined and up-

dated two earlier documents formulated in

2001: the Benesse Code of Corporate

Conduct and the Benesse Standard of

Conduct. Benesse’s senior managers and

employees were widely consulted about

the content of the new code, resulting in a

document that expresses Benesse’s values

and the standards each employee should

use in making decisions in their work.

Putting clear emphasis on customers and

consumers, the Benesse Group Code of

Conduct explains in detail areas that our

people should focus on with respect to

stakeholders of the Benesse Group, pro-

tecting personal information, promoting

environmental management, and conduct-

ing business activities in general. We re-

quire every senior manager and employee

in the Benesse Group to strictly comply

with the code.

To ensure our employees comply

with, are aware of, and remain committed

to the Benesse Group Code of Conduct,

we conduct web-based training, provide

courses for new employees and mid-career

hires, and carry out additional training for

individuals who have been promoted. In

this way, we are striving to ensure thor-

ough compliance with the code.

Enhancing the InternalWhistleblower SystemThe Benesse Group Speak Up Line

and Corporate Auditor Hotline

Since 1999, the Benesse Group has oper-

ated an internal whistleblower system

called the Ethics Line. This line was set

up to give employees a means of anony-

mously and confidentially reporting viola-

tions of standards and codes of corporate

conduct—an obligation of all our em-

ployees—without any fear of reprisal. In

2005, we also launched a Group Ethics

Compliance Line via a third-party organi-

zation to provide a contact point for

employees at Group companies.

In May 2007, aiming to further en-

hance this framework, we combined the

existing Ethics Line and Group Ethics

Compliance Line into a single Benesse

Group Speak Up Line, and established a

new Corporate Auditor Hotline. Both are

similar in that any employee can use them

to report inappropriate behavior that

violates, or could potentially violate, the

Benesse Group Code of Conduct. How-

ever, the Corporate Auditor Hotline was

set up specifically for employees to

provide information that could relate to

Directors and other senior managers of

Benesse Corporation, and issues that

involve the management of the entire

Benesse Group.

In cases involving Group manage-

ment where the Benesse Group brand

could incur significant damage, this will

allow more effective and rapid responses

by ensuring information is reported di-

rectly to the Company’s Corporate Audi-

tors, who are independent of other senior

management.

Protecting PersonalInformationBenesse has established a dedicated Per-

sonal Data Protection Department under

the Chief Privacy Officer (CPO). This is

Benesse’s main body responsible for pro-

tecting personal information. Privacy

protection officers have also been ap-

pointed in each business unit to ensure

personal data is strictly controlled across

the entire Group. Following improve-

ments to our personal information protec-

tion measures, including stricter

monitoring of contractors, upgrades to

the internal control system and enhanced

training, Benesse acquired Privacy Mark

certification on January 17, 2006. Run by

the Japan Information Processing Devel-

opment Corporation (JIPDEC), the Pri-

vacy Mark System certifies companies that

handle personal information in an appro-

priate manner. We will continue to im-

prove our personal data protection system

going forward through further enhance-

ments and regular verification in accor-

dance with data protection regulations.

Strengthening the InternalControl SystemBenesse has established a dedicated

Management Process Control Department

to create a system that ensures the accurate

reporting of financial information and to

respond to other requirements stipulated

by Japan’s Financial Instruments and

Exchange Law. The department is also

working to build other internal control

mechanisms required by the Company

Law and other regulations, as well as the

Financial Instruments and Exchange Law.

COMPARISON OF PREVIOUS ETHICS LINE, BENESSE GROUP SPEAK UP LINE AND CORPORATE AUDITOR HOTLINE(REVISED ETHICS LINE)

Reasons for contact

Corporate Auditor Hotline

Department/individuals responsible

Individuals authorizedto know identity ofwhistleblower

Contact method

Cases that infringe, or potentiallyinfringe, the Benesse Group Codeof Conduct

Management Process Control Dept.,Benesse Corporation

Individual responsible for EthicsLine in Internal Control PromotionDepartment and CorporateExecutive Officer responsible forManagement Process Control Dept.

i) Direct contact with individualresponsible for Ethics Line

ii) Email via third-party organization

Previous Ethics Line Benesse Group Speak Up Line

Email via third-partyorganization

Same as previous Ethics Line(left)

EXCERPTS FROM BENESSE GROUP MANAGEMENT POLICY TOWARD 2010

Benesse Group Codeof Conduct Booklet

COMPLIANCE AND THE INTERNAL CONTROL SYSTEM

Cases that infringe, or potentiallyinfringe, the Benesse Group Codeof Conduct that include:i) Issues relating to directors and

other senior managers ofBenesse Corporation

ii) Issues relating to managementof the Benesse Group

Full-time Corporate Auditors ofBenesse Corporation

Corporate Auditors of BenesseCorporation or their appointees

Email via third-party organizationDirect email contact with full-time CorporateAuditors also possible

1. Pursuit of BenesseAlways think about and act in accordance with the idea of “live well” (Benesse).Make every effort to be a good citizen in harmony with your family, local community,society, and the global environment.

2. Customer Focus With Top Priority on TrustPlace the greatest weight on trust. Always conduct work sincerely, wholeheartedly, withyour focus on the customer. Work to offer products and services that win high levels ofcustomer satisfaction by making use of advanced technologies and close communication,while keeping in mind how the products and services are used.


Corporate Executive Vice PresidentsNAOTO SUGIYAMAChief Financial OfficerYOSHINORI MATSUMOTOIn charge of Executive Office, OkayamaHeadquarters, General Affairs Department andNaoshima DepartmentAKIRA KATAOKAManager, Brand Communications Department,President, Shinken-AD Co., Ltd.

Corporate Senior Vice PresidentsKIMIKO KUNIMASAChief Human OfficerHARUNA OKADAPresident, Parenting Business DivisionMASAAKI ITOPresident, Lifetime Value CompanyTAKASHI KOYAMAChief Information Officer, President, Synform Co., Ltd.KENICHI ARAIDirector, Education Research and DevelopmentDivision

KENJI NAKAJIMAChief Privacy Officer, Manager, Customer Relation-ship Promotion DepartmentSHINYA FUKUMOTOPresident, Senior High School & University Educa-tion DivisionYUMI NARUSHIMAVice President, Compulsory Education DivisionTOSHIKAZU OKUMURAChief Risk Management Officer, Manager, Manage-ment Process Control DepartmentNAOTO SAITOGroup ControllerIKUYO HORIGUCHIPresident, Merchandising & Marketing DivisionKAZUNARI MATOBAPresident, Digital Business Development Head-quartersHISATO HOSHIIn charge of Executive Office, external affairsKAZUKO TAKAICHIGeneral Manager, Shinken-AD Co., Ltd. (Specialpresident assignment)

HIROSHI MATSUMOTO*DIRECTORJoined Nihon Kokan K.K., a Japanese steel company,in 1976. In 1994, he was appointed Executive Direc-tor and Vice President of The National Steel Corpo-ration and President of its subsidiary ProCoilCorporation. After other appointments as Representa-tive Director, President and CEO of KVH TelecomCo., Ltd. in 1999, Representative Director, Presidentand CEO of AlphaPurchase Co., Ltd. in 2000, he wasappointed Director of Benesse in 2004. In 2006, hebecame a Managing Director, Japan Representative,of AlixPartners LLC. He is currently Japan Represen-tative at Advent International Corporation andDirector of AlphaPurchase.

SAKIE T. FUKUSHIMA*DIRECTORJoined Braxton International in 1980. Subsequently,she worked at Bain & Company and joined Korn/Ferry International in 1991. In 1995, she was elected amember of the worldwide Board of Directors at Korn/Ferry, and appointed Managing Director in Japan forthe same firm in 2000. She was promoted to RegionalManaging Director the following year. Ms. Fukushimawas appointed Director of Benesse in 2005.

BOARD OF DIRECTORS AND CORPORATE AUDITORS,CORPORATE EXECUTIVE OFFICERS,AND GROUP EXECUTIVE OFFICERS

BOARD OF DIRECTORS AND CORPORATE AUDITORS

CORPORATE EXECUTIVE OFFICERS GROUP EXECUTIVE OFFICERS

(As of July 1, 2007)

KENICHI FUKUHARAREPRESENTATIVE DIRECTORVICE CHAIRMAN AND DEPUTY CEO,CHAIRMAN AND CEO, BERLITZINTERNATIONAL INC.Following various appointments including Head ofEquity Sales, Nomura International, London, he wasappointed Director of Nomura Securities Co., Ltd. in2000. Other posts included Head of the Finance andResearch Center, Nomura Securities, and Representa-tive Director and President of Nomura Research andAdvisory Co., Ltd. He joined Benesse in 2004 andserved as Director and Corporate Senior Executive VicePresident of Benesse, and Representative Director andPresident of subsidiary Benesse Style Care Co., Ltd.before being appointed to his current post in April 2007.

TAMOTSU FUKUSHIMAREPRESENTATIVE DIRECTORPRESIDENT AND COO,PRESIDENT, EDUCATION COMPANYJoined Fukutake Publishing in 1971. After a number of roles,including Manager of the High School and Junior High SchoolCorrespondence Education departments, he was appointedDirector in 2000 and given a variety of roles, including Man-ager of the Corporate Planning Department. With the intro-duction of the Corporate Executive Officer System in 2003, hewas appointed Corporate Senior Vice President with responsi-bility for the Senior High School & Junior High SchoolEducation Company and the HQ Marketing Department. Hewas subsequently appointed Corporate Senior Executive VicePresident and Chief Marketing Officer (CMO) before movingto his current post in April 2007.

SOICHIRO FUKUTAKEREPRESENTATIVE DIRECTORCHAIRMAN AND CEOJoined Fukutake Publishing Co., Ltd. (now BenesseCorporation) in 1973 and appointed Director thefollowing year. In 1986, he was chosen as theCompany’s Representative Director and Presidentfollowing the sudden death of his father and FukutakePublishing President, Tetsuhiko Fukutake. He wassubsequently appointed Representative Director,Chairman and CEO in 2003, and variously served asChairman, President and CEO at different times priorto being appointed to his current post in April 2007.

TOICHIRO MIYAKAWA**CORPORATE AUDITORJoined Nomura Securities in 1958. He was appointedDirector of Nomura Research Institute, Ltd. in 1980.In 1985, he became Managing Director of NRI andHead of the Kamakura Research Center, followed bypromotion to Executive Managing Director in 1987,while retaining his position as Head of the KamakuraResearch Center. In 1989, he was appointed Execu-tive Director and Principal of the Nomura School ofAdvanced Management. Following his appointmentas Corporate Auditor of Benesse in 1994, he hasserved the Company as a Standing Corporate Auditorsince 1996.

KIMIE SAKURAGICORPORATE AUDITORJoined Benesse in 1981. She has worked at theCompany in a variety of roles in the Junior HighSchool Correspondence Education Department, thePublishing and Book Department, and the EthicsCommittee. In 2003, she was appointed Head of theCorporate Ethics and Compliance Office. Ms.Sakuragi has been in her current post since June 2003.

YUKAKO UCHINAGA*DIRECTORJoined IBM Japan in 1971 as a systems engineer. Ms.Uchinaga subsequently held several managementpositions in development and marketing, and she wasappointed Director of Asia Pacific Products in 1989and General Manager of AP Cross Industry in 1995.In 1999, she was named Vice President, YamatoSoftware Development Laboratory. Ms. Uchinaga waselected to the IBM Japan Board in 1995. In 2007, shewas appointed technical advisor at IBM, and Directorof Benesse.

* : Independent Directors**: Outside Corporate Auditors

YOJI SHIRAISHIPresident, AVIVA Co., Ltd.TAKAO MIYAZAWAPresident and CEO, Telemarketing Japan, Inc.MARK HARRISDirector, Executive Vice President, Berlitz Interna-tional, Inc.MIKE KASHANIChief Operating Officer of the Americas, BerlitzInternational Inc.HITOSHI KOBAYASHIPresident, Benesse Style Care Co., Ltd.TAKAYOSHI KOMATSUPresident, Berlitz Japan, Inc.

EIJI AKETADIRECTOR, CORPORATE EXECUTIVE VICEPRESIDENT, PRESIDENT, COMPULSORYEDUCATION DIVISIONJoined Fukutake Publishing in 1981. After variousposts, including Head of the Nagoya Office andPresident of the School & Teacher Support Com-pany, he was appointed Corporate Senior VicePresident in 2003, retaining his position as Presidentof the School & Teacher Support Company. He wassubsequently made Corporate Executive Vice Presi-dent in 2004 and appointed to his current post in June2007.

DAISUKE OKADADIRECTOR, CORPORATE EXECUTIVE VICEPRESIDENT AND CHIEF MARKETINGOFFICER, PRESIDENT, SALESHEADQUARTERSHas filled various posts since joining Fukutake Pub-lishing in 1983, including appointment as Head of theTaipei Office, Taiwan, in 1995 and President of theShinkenzemi (Elementary School Programs) Companyin 2002. He was subsequently appointed CorporateSenior Vice President and President of the ElementarySchool Education Company in 2003. After becomingCorporate Executive Vice President and CMO inApril 2007, he took up his current post in June 2007.

TAMOTSU ADACHI*DIRECTORJoined Mitsubishi Corporation in 1977. In 1988, hemoved to McKinsey & Company Inc. Japan and wasappointed a Principal in 1995. Subsequent appoint-ments included Representative Director and Presidentof Japan Auto Lease Co., Ltd. and RepresentativeDirector and President of GE Fleet Services Japan. Hehas been a Managing Director, Representative inJapan, of The Carlyle Group since 2003, the year hewas also appointed Director of Benesse.

TOMOJI WADA**CORPORATE AUDITORAppointed Assistant Judge of the Tokyo DistrictCourt in 1973. Subsequent appointments includedAssistant Judge in the Kure Division of the HiroshimaDistrict and Family Court, and Assistant Judge of theOsaka District Court. He has been an Attorney atLaw since qualifying in 1980. Additionally, he wasappointed Vice Chairman of the Okayama Local BarAssociation in 1990, and Chairman of the sameorganization in 2002, as well as Secretary General ofthe Japan Federation of Bar Associations the sameyear. Mr. Wada has been a Corporate Auditor atBenesse since 2003.

NOBUKO TAKAHASHI**CORPORATE AUDITORJoined SHUFUNOTOMO Co., Ltd., a Japanesepublishing firm, in 1976. Since 1986, she has been afreelance journalist focusing on household economicsissues. In 2006, she was appointed Outside Director ofthe Tokyo Stock Exchange, a post she still holdstoday. Ms. Takahashi was appointed CorporateAuditor at Benesse in 2007.


Benesse emphasizes communication with all its shareholders

and investors through investor relations activities that put a

face to the Company.

Information Disclosureand DialogBenesse actively discloses information to

all institutional and individual investors.

Besides annual reports, shareholder news-

letters, its website and a host of other

methods for disclosing IR information,

Benesse conducts investor relations activi-

ties that put a face to the Company by

emphasizing dialog with all investors.

At earnings presentations, the chair-

man, vice chairman and president all

personally explain the Company’s perfor-

mance and management strategy, while

the meetings are also streamed on the

corporate website. Benesse also holds

some 230 one-on-one meetings each year

with domestic and overseas institutional

investors and securities analysts, during

which frank discussions are held concern-

ing the Company’s results and the direc-

tion of its businesses.

Benesse makes a point of communi-

cating with overseas institutional inves-

tors. The president himself and the head

of corporate communications and IR

visited investors in Europe, the U.S. and

Asia on five occasions in fiscal 2006.

Benesse also takes part in various confer-

ences arranged by securities companies.

In terms of communication with

individual investors, in fiscal 2006, the

Company participated in two seminars for

individual investors held by major securi-

ties companies. The valuable feedback

received from direct dialogue with indi-

vidual investors and questionnaires is

constantly relayed to senior management

and used for improving management and

IR activities.

The Company is also making efforts

to enhance its website. Besides upgrad-

ing content for all investors, in fiscal

2005, Benesse established IR Café

(Japanese only), a section of its website

designed specifically for individual in-

vestors. Benesse has also launched an IR

email magazine (Japanese only), as it

works to promote timely disclosure of

corporate information.

Benesse’s IR activities have won

praise from outside the Company. In the

Fiscal 2006 Nikkei Annual Report

Awards, for example, our annual report

won a prize for the fifth year running.

The Company’s website was also ranked

fourth overall in a survey of the websites

of all publicly listed companies in Japan

conducted by Nikko Investor Relations

Co., Ltd.; Benesse ranked first in its in-

dustry category.

Status of Inclusion in SRIIndexes and FundsBenesse’s CSR activities have been highly

evaluated, leading to the Company’s inclu-

sion in various socially responsible invest-

ment (SRI) indexes and funds both in Japan

and overseas. The table on the following

page shows the status of its inclusion in

major indexes and funds in the previous

fiscal year.

Returning Profits toShareholdersBenesse regards its capital structure policy,

including the return of profits to share-

holders, as one of its most important

issues. Benesse has stated a goal of main-

taining a dividend payout ratio of at least

35% as it works to implement a capital

structure policy designed to boost corpo-

rate value. For four consecutive years

from fiscal 2002, Benesse has increased

the dividend. In fiscal 2006, the Company

achieved a payout ratio of 47.8% and the

annual dividend per share applicable to

the fiscal year was ¥85. Benesse plans to

pay an annual dividend of ¥90 per share

in fiscal 2007.

Moreover, Benesse continuously

repurchases its own shares. As of March

31, 2007, Benesse had bought back an

aggregate of 4.04 million shares at a cost

of ¥10,452 million, representing 3.8% of

all issued and outstanding shares compared

to fiscal 2002 when the share buyback

program started. Benesse intends to con-

tinue buying back its shares.

AGM and Other ShareholderMeetingsIn June 2005, Benesse began simultaneously

broadcasting its general shareholders’ meet-

ing via video link between its Okayama

Headquarters and the Tokyo venue at

Tama City, Tokyo. The aim is to promote

communication with an even larger number

of shareholders. Following the close of

general shareholders’ meetings, Benesse

holds an informal meeting for shareholders,

providing them with the opportunity to

exchange frank opinions concerning man-

agement and business policy of the Com-

pany. A total of more than 500 shareholders

attended the AGM in 2007 at the Okayama

and Tokyo venues.

0 03 04 05 06 07 08(Forecast)

20

40

60

80

29

45.0% 45.1%

43.5%

47.9%47.8%

50.5%

40

60

75

8590

30

35

40

45

50

Cash Dividends[Yen]

■ Cash DividendsDividend Payout Ratio

CASH DIVIDENDS/DIVIDEND PAYOUT RATIO

DividendPayout Ratio

[%]

[Years ended March 31]

The members of corporate communicationsand IR at Benesse talking to individual inves-tors at an IR seminar held by a securitiescompany—a valuable opportunity to gaindirect feedback from investors.

STATUS OF INCLUSION IN SRI INDEXES AND FUNDS

Areas Where Benesse Rated HighlyAssessing Organization

SAM (Switzerland)

EIRIS (United Kingdom)

Innovest Strategic Value Advisors(United States)Corporate Knights (Canada)

Center for Public ResourcesDevelopment (Japan)

Stock at Stake (Belgium)Center for Public ResourcesDevelopment (Japan)

IntegreX (Japan)

The Japan Research Institute(Japan)

Nomura Asset Management (Japan)

Index and Fund

Dow Jones Sustainability Indexes

FTSE4Good

Global 100

Morningstar SRI Index Open

Asahi Life SRI Social ContributionFund (Asunohane Fund)

Daiwa SRI Fund

Sumitomo Trust & Banking SRIJapan Open (Good Company Fund)

Employee Pension FundCorporate Governance Fund

URL: http://www.benesse.co.jp/IR/english/

COMMUNICATING WITH STAKEHOLDERS

TOGETHER WITH INVESTORS

Corporate sustainability based on balanced approach to economic,social and environmental performance

Approach to corporate governance and related initiatives; diversity,particularly opportunities for women in the workplace

Selected as one of the 100 most sustainable companies worldwide;excellent performance in terms of consideration for the environmentand society, corporate governance and risk management

Corporate governance, response to market needs, opportunities forwomen in the workplace and other initiatives

Corporate governance, response to market needs, opportunities forwomen in the workplace and other initiatives

Approach to compliance and related initiatives

Accountability and information disclosure, sincerity in dealing withcustomers, human resource training and support

Approach to corporate governance and related initiatives


Utilizing Human Resourcesand Creating Better WorkingEnvironments

Personnel system overview

Benesse follows three basic themes when

undertaking personnel initiatives. Firstly,

individual effort and results produce posi-

tive outcomes for the organization. Sec-

ondly, Benesse encourages proactive

personal growth and supports people

willing to take on challenges. Thirdly, we

give opportunities to motivated and ca-

pable people. Based on these themes,

Benesse actively utilizes human resources

by:

(1) linking remuneration with contribu-

tion to the Company,

(2) valuing people who work hard and

think about contributing to the team,

(3) supporting people who proactively

seek to improve themselves, and

(4) placing emphasis on welfare systems

that support the growth of people.

Setting employee goals and

measuring employee satisfaction

At Benesse, we use challenge sheets for all

employees as a way of objectively assess-

ing the status of individuals’ employment

contracts and evaluating performance

throughout the year. Challenge sheets are

uniformly managed as a tool for discus-

sions with supervisors and sharing results

during performance evaluations.

Benesse has carried out an annual

employee awareness survey called

GAMBA since 1992. GAMBA surveys

are used at major Group companies as

well as at Benesse.

These ongoing surveys are designed

to evaluate the health of Benesse’s corpo-

rate culture and organization. They are

also used as the basis for deciding the

organizational make-up and managing the

organization in the following fiscal year.

The results of GAMBA surveys are re-

ported to senior management, as well as

in-house company presidents and depart-

ment managers. Feedback is also given to

the respondents themselves—our employ-

ees—so that they have a shared awareness

of the issues raised by the surveys.

Emphasizing Work-LifeBalanceBenesse places emphasis on three basic

policies with its welfare system so that it

can accommodate workers with diverse

needs: (1) create a safety net, (2) promote

self-help, and (3) support parenting and

care-giving.

The proportion of female employees

at Benesse is high, roughly 60%, which

means there is an obvious need for

childcare support. However, recognizing

the role of men in parenting and the

increasingly diverse lifestyles of women,

Benesse gives greater weight to indi-

vidual needs and independence rather

than gender, as it strives to create a good

working environment.

Cafeteria plan system

In 1995, Benesse became the first company

in Japan to introduce a Cafeteria Plan. This

system offers a point-based menu of wel-

fare services which employees can choose

to suit their individual needs and circum-

stances. The menu covers the full spectrum

of lifestyle needs, with service categories

ranging from childcare, education, medical

services and nursing care to health promo-

tion, financial planning, risk management

and housing. In fiscal 2006, the menu

comprised a total of 27 welfare services

available to employees.

Child care and nursing care leave

systems (family friendly policies)

Benesse believes support that enables em-

ployees to reconcile work commitments

with their private lives helps it to consis-

tently retain key personnel and leads to even

better employee performance. Furthermore,

it underlines our “live well” corporate

philosophy and also allows our employees

to benefit from the childcare and nursing

care services we offer our customers.

This approach and related initiatives

have won recognition from outside the

Company. For example, Benesse was

awarded the Labour Minister’s Good

Company Award in 1999, recognizing

Benesse’s “numerous systems designed to

balance work with childcare and nursing

care commitments, and its efforts to give

employees the choice of a variety of

flexible working styles.”

Specific measures to assist employees

with childcare commitments include

shorter working hours, a Maternity

Leave System, assistance via the Cafete-

ria Plan and the use of in-house

childcare facilities.

Benesse also helps employees on ma-

ternity leave to rejoin the workforce.

Examples include providing information

via a website, distributing a Group news-

letter, returning employees on leave to

their former division, and providing indi-

vidual follow-up consultations for one year

after returning to work to monitor work

and health concerns. This support has

meant that, on average, approximately 90%

of people who have taken maternity leave

over the past five years have returned to

work. Following revisions to its Maternity

Leave System in December 2006, seven

male employees in fiscal 2006, and five

since the start of fiscal 2007 (as of June

2007), have taken paternity leave.

Supporting the participation of

women in the workplace

Around 60% of Benesse employees are

women. Benesse also has a long history of

actively promoting women to director

and managerial posts, with roughly 36%

of these positions now filled by women.

In addition, around 19% of female em-

ployees are working mothers.

Since the latter part of the 1970s,

even before laws were passed in Japan to

encourage equal opportunity in the work-

place, Benesse recruited female university

graduates, seeing this group as a key hu-

man resource. There are also no dispari-

ties between men and women in terms of

advancement and promotion at Benesse.

Furthermore, a welfare system that sup-

ports a variety of working styles, regard-

less of gender, and centered on childcare

support, helps women to play an active

role in the workplace at Benesse.

RECOGNITION FOR EFFORTS TO SUPPORT PARENTING

RATIO OF FEMALE MANAGERS

The Kurumin symbol

The Benesse Group Management Policy declares that “Employees are the Company’s greatest asset

and the source of its competitiveness.” Based on our belief that individual employee development and

the creation of working environments that allow diverse people to realize their full potential leads to

the growth of businesses and companies, we are channeling our energies into enhancing employee

skills, effectively using human resources and creating better working environments for our personnel.

Our efforts to respond to recommendations in the Law for Measures to Support the Developmentof the Next Generation were recognized in June 2007 with the award of 2007 certification as abusiness that supports parenting. Certification allows companies to use the “Kurumin” symbol.Benesse has created a range of systems that respect the different values of a diverse workforce andthat enable any employee to balance their work and family commitments. Based on these systems,we have provided support and promoted various initiatives.For example, our systems allow employees to take pater-nity/maternity leave even when their spouse is a full-timehomemaker, and extend the permissible period for shorterworking hours and nighttime work until children finishtheir third year at elementary school. We have also ex-tended systems such as maternity leave and shorter workinghours for childcare to staff employed on fixed-term con-tracts. The Kurumin certification was awarded based onthese and other measures we have implemented since fiscal2005 in response to the Law for Measures to Support the

Development of the Next Generation.

9695 97 98 99 00 01 02 03 04 05 06 07

17.520.3

24.326.5

28.1 28.128.8

30.8 31.3 32.7 32.332.4

35.8

0

10

20

30

40

BENESSE’S APPROACH TO RECRUITMENT AND HUMAN RESOURCES


[%]

[As of April]


Naoshima IslandLocated in the Seto Inland Sea, Naoshima

is an island lying approximately 13 km

north of Takamatsu City in Kagawa

Prefecture and about 2 km south of

Tamano City in Okayama Prefecture.

Naoshima and its surrounding islands

collectively form Naoshima Town, which

is part of Kagawa Prefecture. Naoshima

itself has a land area of 8.13 km2 and a

population of around 3,500. The island

has three settlement districts: Miyanoura,

a port village with ferry services;

Honmura, which was originally a coastal

castle town during the Sengoku (warring

states) period (1467-1568); and

Tsumuura, which has been a fishing port

from ancient times. On the northern end

of the island, copper has been smelted

since 1917 at Mitsubishi Materials’

Naoshima Refinery, which forms a large

industrial zone together with related firms

located nearby. The center of Naoshima

has an elementary school and a junior

high school. The southern part of the

island lies within the Seto Inland Sea

National Park, an area of outstanding

natural beauty. The island’s main industries

include aquaculture to raise nori (laver)

and young yellowtail tuna, as well as

those related to Mitsubishi Materials.

A Close Relationship WithBusiness PartnersBenesse relies on numerous business

partners to conduct its business activi-

ties. For example, in its mainstay

Shinkenzemi correspondence courses,

the Company can only create the learn-

ing materials it sends out to members

with the help of many partners, includ-

ing writers, illustrators and editors on

the production side, and printing firms.

We select appropriate suppliers through

fair and free competition, and then

work with them to build cooperative

relationships underpinned by fair and

acceptable contracts.

Based on information sharing with

our business partners, we encourage them

to constantly create products with the

ultimate user in mind. To ensure their full

commitment to helping our customers

resolve the issues they face everyday,

suppliers and other business partners take

part in joint planning meetings.

A Focus on CustomersProviding products and services to custom-

ers to help them live well is the essence of

Benesse’s business activities. As both

Benesse employees and consumers our-

selves, the starting point of our work ev-

eryday is to develop and launch the kind of

high-quality services we’d be happy to use

ourselves and offer our own families.

As part of product and service devel-

opment and production, we incorporate

processes that allow customers to actually

try out new products, providing us with

valuable feedback and input that we can

reflect in the final versions. Some business

divisions also use a monitor system

whereby customers are regularly invited

to Benesse offices to evaluate products.

Benesse Art Site NaoshimaWe created Benesse Art Site Naoshima as

a place for people to contemplate and

reflect on life. On Naoshima island, na-

ture and historical buildings that remind

us of days gone by coexist with modern

art that communicates a powerful message

about how we live our lives today.

Benesse, with a corporate philosophy

and ethos of helping others to “live well,”

envisioned Naoshima as a place for people

to take time out from their busy lives and

think more deeply about life. Using

Benesse Art Site Naoshima, Benesse also

seeks to influence accepted thought on

society and lifestyles by communicating its

ideas to the general public.

We also believe that leaving a legacy

for future generations through our artistic

and cultural activities on the island and

communicating new ideas about living to

the rest of world, is an appropriate way

for a company like Benesse, which works

to help improve the quality of life, to

contribute to society.

Benesse Art Site Naoshima continues

to attract growing interest. In fiscal 2006,

it was visited by around 80,000 people

from around the world.

Benesse organizes events forparents and children featuring itswell-known Shimajiro character.

Interacting withcustomers throughAsobication (parent-childplaygroups) events

Benesse Style Care speaksto its nursing homeresidents about the kindof daily care they receive,helping us to create betterservices that meet indi-vidual needs.

All of Benesse’s corporate activities are conducted with the goal of helping people to “live well,” reflecting

the Latin meaning of the Company’s name. Starting with Benesse Art Site Naoshima, which has been open

to the public since the mid-1980s, Benesse actively promotes a wide variety of activities that benefit

society. These include opening company facilities to the public and sponsoring and managing amateur

sports teams. Through these activities, we are aiming to become a vital partner to local communities.

Benesse Wins Grand Mecenat Award 2006

Grand Mecenat Award 2006

Naoshima Fukutake Art Museum Founda-tion and Benesse Corporation were jointlygiven the Grand Mecenat Award 2006 fortheir ongoing commitment to artistic activi-ties on Naoshima by the Association forCorporate Support of the Arts, Japan. Theaward, in its 16th year, is given to companiesor foundations that have made significantcontributions to culture and the arts.

Benesse HousePhoto: Tadasu Yamamoto

GIVING BACK TO THE COMMUNITY

Pumpkin, Yayoi KusamaPhoto: Koji Murakami

Through its business activities, Benesse aims to help customers live

well by giving them the tools to solve problems they face everyday.

Supplying even higher-quality products and services based on

constant dialog with business partners is part of this process.

TOGETHER WITH BUSINESS PARTNERS AND CUSTOMERS



Benesse’s EnvironmentalManagement System (EMS)

Business characteristics and

environmental policy

Benesse provides learning materials and

information magazines to around four

million Shinkenzemi members every

month. We also publish various maga-

zines, including parenting magazines

Tamago Club and Hiyoko Club and

THANK YOU!, a lifestyle magazine for

homemakers, with a combined monthly

circulation of close to two million copies.

Production of these products con-

sumes vast quantities of resources. Includ-

ing our direct mail activities, we use

around 120,000 tons of paper every year.

In addition, the production of various

learning aids, such as DVDs and videotape

audiovisual teaching aids, consumes re-

sources other than paper.

In this context, Benesse formulated an

Environmental Policy in December 2003

to guide its environmental activities, which

are actively promoted by each and every

employee on an ongoing basis. Examples

include: promoting environmentally con-

scious design, participating in Team Minus

6%, a government-led initiative to save

energy, reducing waste, promoting recy-

cling, actively adopting new technologies

that reduce environmental impact, com-

plying with relevant environmental rules

and regulations, and communicating our

environmental activities to stakeholders

inside and outside the Company.

Environmental management based

on ISO 14001

Benesse acquired ISO 14001 certification

on November 12, 2004. As the environ-

mental officer, the President has overall

responsibility for the EMS promotional

framework in accordance with this certifi-

cation. Under the President is the Envi-

ronmental Committee, an advisory body.

The ISO Promotion Secretariat is the

responsibility of the environmental team

in the Management Process Control

Department. In-house company presi-

dents and corporate executive officers are

responsible for promoting ISO-based

EMS as promotion officers, while depart-

ment and office managers are in charge of

executing policy as executive officers. All

employees, including temporary staff and

part-timers, participate in activities.

Information shared at meetings of the

Environmental Committee is fed back to

each business division through individuals

responsible for environmental activities,

helping to raise individual employee

awareness of environmental issues.

Benesse also conducts training for

employees and other related individuals

as part of its efforts to promote its envi-

ronmental activities. In addition to train-

ing courses for new recruits and

mid-career hires, Benesse also runs an-

nual web-based courses.

Providing environmental education

To make environmental activities a nor-

mal part of everyday life, wide-ranging

awareness activities are needed. Playing its

part, Benesse uses various media to pro-

vide environmental education.

Kodomo Challenge environment

page

In Kodomo Challenge, a correspondence

course business aimed at pre-school chil-

dren, teaching materials include environ-

mental feature pages to provide education

on environmental issues.

The February 2007 edition ofKodomo Challenge for five and sixyear olds included a feature sectionon recycling.

EMS PROMOTIONAL FRAMEWORK

President

Heads of BusinessOffices

Promotion Officers (Corporate Executive Officers)

IndividualsResponsible forEnvironmental

Activities

All Employees

Internal Audit Department

ISO Promotion Secretariat(Management Process Control Department)

Environmental Committee(Advisory Body)

EnvironmentalOfficer

Benesse Corporation has acquired ISO 14001 certification, an internationally

recognized environmental management standard. Based on this certification,

Benesse is working Company-wide to tackle environmental issues related to

its business activities, products and services.

WORKING TO PROTECT THE ENVIRONMENT


CONTENTS

[50] SIX-YEAR SUMMARY OF CONSOLIDATED FINANCIAL STATEMENTS

[52] MANAGEMENT’S DISCUSSION AND ANALYSIS

[64] CONSOLIDATED BALANCE SHEETS

[66] CONSOLIDATED STATEMENTS OF INCOME

[67] CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

[68] CONSOLIDATED STATEMENTS OF CASH FLOWS

[70] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[90] INDEPENDENT AUDITORS’ REPORT


FINANCIAL SECTION


SIX-YEAR SUMMARY OF CONSOLIDATEDFINANCIAL STATEMENTSBenesse Corporation and Consolidated Subsidiaries

Millions of Yen

Years ended March 31 2007 2006 2005 2004 2003 2002

FOR THE YEAR:Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 354,596 ¥ 333,767 ¥ 291,403 ¥ 260,142 ¥ 258,289 ¥ 267,250

Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,219 165,347 139,672 125,312 133,223 128,382Selling, General and Administrative Expenses . . . . . . 148,060 140,008 125,553 114,128 108,749 114,279Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . 31,317 28,412 26,178 20,702 16,317 24,589Income before Income Taxes and Minority Interests . . 32,339 27,746 25,799 17,251 14,446 24,195Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,903 11,637 11,439 7,628 7,553 11,693Impairment Loss on Goodwill . . . . . . . . . . . . . . . . . – – – – – 13,195Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,244 16,039 14,297 9,394 6,973 327

Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . ¥ 11,802 ¥ 20,504 ¥ 11,116 ¥ 9,851 ¥ 8,046 ¥ 10,934Depreciation and Amortization . . . . . . . . . . . . . . . . 9,929 9,775 7,511 7,821 8,666 10,738

Yen

PER SHARE OF COMMON STOCK:Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 178 ¥ 156 ¥ 138 ¥ 89 ¥ 65 ¥ 2Cash Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 75 60 40 29 29

Millions of Yen

AT YEAR-END:Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 349,099 ¥ 330,230 ¥ 307,668 ¥ 292,100 ¥ 275,516 ¥ 291,393Shareholders’ Equity/Total Equity . . . . . . . . . . . . . . 197,302 186,292 174,711 170,781 169,428 171,826

Yen

Shareholders’ Equity/Total Equityper Share of Common Stock . . . . . . . . . . . . . . . . . ¥ 1,918 ¥ 1,818 ¥ 1,701 ¥ 1,641 ¥ 1,612 ¥ 1,616

Number of Shares of Common Stock Issued(in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,353 106,353 106,353 106,353 106,353 106,353

Notes: 1. The computation of Net Income per Share of Common Stock is based on the weighted average number of shares of common stock outstanding during each year.2. Net Income per Share of Common Stock for the years ended March 31, 2002 to 2007 is computed in accordance with the new accounting standard for earnings per

share of common stock issued by the Accounting Standards Board of Japan.


02 03 04 05 06 070

10,000

30,000

20,000

40,000

50,00044,690

46,480

43,31041,440

43,30044,940


■ Senior High School Courses ■ Junior High School Courses■ Elementary School Courses■ Kodomo Challenge (Preschool Courses)

CUMULATIVE ENROLLMENTS INSHINKENZEMI OVER A FULL YEAR[Thousands of students]

%


PROFITABILITY:Operating Income Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8% 8.5% 9.0% 8.0% 6.3% 9.2%Net Income Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 4.8 4.9 3.6 2.7 0.1Return on Equity (ROE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 8.9 8.3 5.5 4.1 0.2Return on Assets (ROA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 5.0 4.8 3.3 2.5 0.1Operating Income per Employee (Thousands of Yen) . . . . . . . . . . . . . ¥ 2,456 ¥ 2,352 ¥ 2,647 ¥ 2,407 ¥ 2,019 ¥ 2,717Net Income per Employee (Thousands of Yen) . . . . . . . . . . . . . . . . . ¥ 1,431 ¥ 1,328 ¥ 1,446 ¥ 1,092 ¥ 863 ¥ 36

GROWTH TRENDS:Increase (Decrease) of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2% 14.5% 12.0% 0.7% (3.4)% 1.6%Increase (Decrease) of Operating Income . . . . . . . . . . . . . . . . . . . . . . 10.2 8.5 26.5 26.9 (33.6) (18.8)Increase (Decrease) of Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7 12.2 52.2 34.7 2,034.6 (98.0)

STABILITY:Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.0% 124.6% 141.3% 144.6% 141.5% 121.7%Fixed Assets Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88.9 96.3 85.6 84.5 90.7 103.5Equity Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56.4 56.4 56.8 58.5 61.5 59.0Liquidity (Months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 3.2 4.1 4.2 3.5 3.2Debt-to-Equity Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 3.0 3.8 3.6 5.5 9.9Interest Coverage (Times) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98.2 151.0 117.0 85.0 34.6 26.4

Notes: 1. ROE and ROA are calculated using the average amounts of shareholders’ equity/total equity and total assets at the beginning and end of each fiscal year.2. Liquidity = Cash and time deposits (yearly average) + marketable securities (yearly average) / average monthly sales3. Debt-to-Equity Ratio = Interest-bearing liabilities (yearly average) / shareholders’ equity/total equity (yearly average) X 1004. Interest Coverage = (Operating income + interest and dividend income) / interest expense

02 03 04 05 06 070

3

6

9

12

8.8

9.2

6.3

8.0

9.0

8.5


OPERATING INCOME RATIO

[%]

02 03 04 05 06 070

50

100

150

200

133.0

121.7

141.5 144.6141.3

124.6

[ As of March 31 ]

CURRENT RATIO

[%]

02 03 04 05 06 070

1,000

3,000

2,000

4,000

5,000

3,9103,870

3,7003,830

4,010 4,050

[ As of April ]

■ Senior High School Courses ■ Junior High School Courses■ Elementary School Courses■ Kodomo Challenge (Preschool Courses)

SHINKENZEMI ENROLLMENTSAS OF APRIL[Thousands of students]

02 03 04 05 06 070

2,000

4,000

6,000

8,000

6,180

5,370 5,5005,690

5,8606,050


NUMBER OF STUDENTS TAKING SHINKENSIMULATED EXAMS AND OTHER EXAMS[Thousands of students]

02 03 04 05 06 07–40

–20

0

20

40

10.2

26.926.5

8.5

(18.8)

(33.6)


INCREASE (DECREASE)OF OPERATING INCOME[%]


MANAGEMENT’S DISCUSSION AND ANALYSIS

1. MARKET ENVIRONMENTDuring the period, the Benesse Corporation Group faced significant changes in the education market, its core operatingfield. Specifically, private-sector education needs continued to shift against a backdrop of growing parental concern aboutdeclining student academic ability and motivation. There were also a raft of reforms to the entrance exam system, schoolsand other areas of education. The rapid pace of innovation in information and communication technology (ICT) is alsohaving an impact on the education market.

In the nursing care business field, the market continues to expand as Japan’s population ages and more people becomeaware of the Long-term Care Insurance System. Amid intensifying competition in the marketplace, the Long-term CareInsurance System was revised in April 2006, resulting in a greater emphasis on service quality by nursing home operators.

In the language education field, although competition is intensifying, globalization means there is a need to train peoplewho can operate on the world stage. This trend is underpinning strong demand for language education services.

2. OPERATING RESULTSFourth consecutive year of top- and bottom-line growthAgainst this backdrop, Benesse began implementing a three-year Medium-Term Management Plan in fiscal 2004, achieving itstarget for operating income of ¥26.0 billion two years early in the plan’s first year. Benesse subsequently raised the plan’s operatingincome target for fiscal 2006, the final year of the plan, to ¥30.5 billion. This target was achieved in the year under review.

In the education business field, we continued to strengthen our product and service lineup in response to increasinglydiverse customer needs. Benesse started offering science and social studies courses for first-grade high school students en-rolled in Shinkenzemi Senior High School Courses, and a wider choice of optional products such as study drills, learningmaterials and picture books in Shinkenzemi Elementary School Courses and Kodomo Challenge. In Shinkenzemi Junior HighSchool Courses, we continued to update courses in line with revisions to school text books, and began offering a range ofoptional products, including learning materials for different study themes, specialist creative expression courses, and specialistEnglish conversation courses that incorporate learning techniques from overseas. Other steps designed to satisfy customerneeds more accurately included the March 2006 launch of special correspondence courses for high school students aiming toenter the universities of Tokyo or Kyoto. In marketing, we reinforced steps to target customers who already have a stronginterest in Benesse through mass-media advertising, the internet, local events and other means.

In peripheral businesses, which exclude Shinkenzemi correspondence courses, we launched Benesse Science Classes forelementary school students in the Tokyo metropolitan area. These classrooms and new products like Pioneer Kids CourseWonder Boxes, hands-on extracurricular learning material packs, are examples of the products and services Benesse providedin new fields that fall outside the scope of the national curriculum guidelines. In October 2006, we made our first foray intothe prep school market with the acquisition of Ochanomizu Seminar Co., Ltd., an operator of prep schools aimed specifi-cally at senior high school students. Overseas, Benesse started preschool education services in South Korea in March 2006and in China the following June.

In the business field covered by the Lifetime Value (LTV) Company, Hand & Heart, a direct-sales magazine focusing oncrafts and hobbies, and DOG’S HEART and CAT’S HEART, direct-sales magazines for families with pets, all achieved anincrease in sales. Benesse’s mainstay Tamago Club and Hiyoko Club magazine titles related to pregnancy, childbirth andparenting, also performed strongly, supported by mail-order sales.

02 03 04 05 06 070

100,000

200,000

300,000

400,000

354,596

267,250258,289 260,142

291,403

333,767

02 03 04 05 06 070

10,000

20,000

30,000

40,000

31,317

24,589

16,317

20,702

26,178

28,412

[ Years ended March 31 ] [ Years ended March 31 ]

NET SALES

[Millions of Yen]

OPERATING INCOME

[Millions of Yen]


Net Sales by Segment

Millions of Yen


Net Sales . . . . . . . . . . . . . . . . . . . . ¥ 354,596 ¥ 333,767 ¥ 291,403 ¥ 260,142 ¥ 258,289 ¥ 267,250Education Group . . . . . . . . . . . . . 208,833 198,665 183,443 164,780 162,835 174,729Lifetime Value Company . . . . . . . 23,450 20,834 18,247 16,264 14,757 10,946Senior Company . . . . . . . . . . . . . 32,054 27,402 22,813 16,761 12,149 7,145Language Company . . . . . . . . . . . 59,164 51,536 46,982 46,096 54,939 62,247AVIVA Business . . . . . . . . . . . . . 10,326 13,915 – – – –Others . . . . . . . . . . . . . . . . . . . . 20,769 21,415 19,918 16,241 13,609 12,183

Notes: 1. Segment sales are based on outside sales and intersegment sales are not included.2. In the year ended March 31, 2003, the Children & Students (C&S) Company, mainly providing correspondence courses, and the

School & Teacher Support (S&TS) Company, offering simulated exams and other services to schools, were combined into a singlebusiness segment, the Education Group. Data for the year ended March 31, 2002 has been recalculated based on this newbusiness classification.

3. The Women & Family (W&F) Company was renamed the Lifetime Value Company in the year ended March 31, 2006. Accordingly,data for the W&F Company for the years ended March 31, 2002 to 2005 is shown under the Lifetime Value Company.

4. The Language Instruction and Translation segment was renamed the Language Company in the year ended March 31, 2003.Accordingly, data for the Language Instruction and Translation segment for the year ended March 31, 2002 is shown under theLanguage Company.

5. On April 1, 2005, AVIVA Co., Ltd., a consolidated Benesse subsidiary, began operating a network of PC schools after taking overpart of the operations of AVIVA Japan Corporation. The AVIVA Business segment was created to cover these operations.

In the nursing care business field, where major changes in the operating environment include stiffer competition andrevisions to the Long-term Care Insurance System, we focused on building a more distinct presence in the marketplace byoffering high-quality services and strengthening marketing capabilities through the introduction of an area-based operatingstructure. These and other steps led to a steady increase in nursing home residents. The number of homes at March 31, 2007stood at 115, an increase of 9 compared to the previous fiscal year-end.

In the language education business field, U.S. subsidiary Berlitz International, Inc. offered lessons tailored to the needs ofcustomers in Europe, the U.S., Japan and other markets. This approach, together with efforts to enhance sales capabilities,led to higher sales, mainly reflecting an increase in the number of lessons taken in Japan and Germany. ELS LanguageCenters also performed well.

In the AVIVA business field, the benefits of far-reaching reforms implemented in the previous fiscal year, including amanagement shakeup and the closure or integration of schools, paid off with the second consecutive year of operatingincome before the amortization of goodwill. The operating loss also declined.

As a result of the above, consolidated net sales for fiscal 2006 increased 6.2% from a year earlier, to ¥354,596 million.Operating income rose 10.2%, to ¥31,317 million and net income increased 13.7%, to ¥18,244 million. These resultsrepresent Benesse’s fourth consecutive period of higher sales and earnings.

(1) Net SalesConsolidated net sales rose by ¥20,829 million, or 6.2%, to ¥354,596.

A number of factors were behind the increase in consolidated net sales, including a year-on-year increase in the amountspent per customer in mainstay Shinkenzemi correspondence courses, higher sales of English-related products and optionalcourse materials, a rise in the number of lessons taken at U.S. subsidiary Berlitz International, and an increase in residents atnursing homes operated by subsidiary Benesse Style Care Co., Ltd.


(2) Cost of Sales and SG&A ExpensesCost of sales increased ¥9,872 million, or 6.0%, to ¥175,219 million. However, the cost of sales ratio edged down from49.5% in the previous fiscal year, to 49.4% in the year under review, due to growth in sales outstripping the increase in costof sales.

Cost of Sales Ratio and SG&A Ratio


Cost of Sales Ratio . . . . . . . . . . . . 49.4% 49.5% 47.9% 48.2% 51.6% 48.0%SG&A Ratio . . . . . . . . . . . . . . . . . 41.8 42.0 43.1 43.8 42.1 42.8

Selling, general and administrative (SG&A) expenses increased ¥8,053 million, or 5.8%, to ¥148,060 million. By empha-sizing greater efficiency in marketing activities, customer management expenses and advertising expenses were reduced by¥1,058 million and ¥1,015 million, respectively. Wages and salaries increased ¥4,101 million as personnel expenses rose atBenesse Corporation and subsidiaries such as Benesse Style Care. However, the SG&A ratio declined from 42.0% in fiscal2005, to 41.8% in the year under review, as the pace of increase in net sales exceeded that of SG&A expenses.

(3) Operating IncomeOperating income grew by ¥2,905 million, or 10.2%, to ¥31,317 million, while the operating income ratio rose from 8.5%to 8.8%.

The main factors behind the rise in operating income included stronger profits in the Education Group on higher sales inShinkenzemi correspondence courses, improved profitability at Berlitz International due to higher sales, reductions in fixedcosts and other factors, and higher earnings on sales growth at Benesse Style Care.

02 03 04 05 06 070

40

50

60

41.842.8

42.1

43.843.1

42.0


SG&A RATIO

[%]

02 03 04 05 06 070

40

50

60

49.4

48.0

51.6

48.2 47.9

49.5


COST OF SALES RATIO

[%]

02 03 04 05 06 070

60,000

120,000

180,000

240,000 40,000

20,000

30,000

10,000

0

208,833

30,612174,729

162,835 164,780

183,443

198,665

27,021

17,649

22,419

28,90529,715

02 03 04 05 06 07

0

10,000

20,000

30,000 9,000

3,000

6,000

0

–3,000

23,450

1,373

10,946

14,75716,264

18,247

20,834

(2,016)

(2,811)

(1,199)

287 132

02 03 04 05 06 07

0

10,000

20,000

30,000

40,000 6,000

4,500

1,500

3,000

0

–1,500

32,054

2,540

7,145

12,149

16,761

22,813

27,402

(1,064)

463

1,7242,004 1,909

[ Years ended March 31 ] [ Years ended March 31 ]

■ Net Sales (left)■ Operating Income (Loss) (right)




EDUCATION GROUP

[Millions of Yen]

LIFETIME VALUE COMPANY

[Millions of Yen]

SENIOR COMPANY

[Millions of Yen]


Operating Income (Loss) by Segment

Millions of Yen


Operating Income (Loss) . . . . . . . . . ¥ 31,317 ¥ 28,412 ¥ 26,178 ¥ 20,702 ¥ 16,317 ¥ 24,589Education Group . . . . . . . . . . . . . 30,612 29,715 28,905 22,419 17,649 27,021Lifetime Value Company . . . . . . . 1,373 132 287 (1,199) (2,811) (2,016)Senior Company . . . . . . . . . . . . . 2,540 1,909 2,004 1,724 463 (1,064)Language Company . . . . . . . . . . . 4,670 2,545 (783) 450 1,016 584AVIVA Business . . . . . . . . . . . . . (1,183) (1,564) – – – –Others . . . . . . . . . . . . . . . . . . . . 430 1,350 1,743 1,870 1,851 1,545Elimination/Corporate . . . . . . . . (7,125) (5,675) (5,978) (4,562) (1,851) (1,181)

Notes: 1. Operating Income (Loss) for each segment is before eliminations in consolidated totals.2. In the year ended March 31, 2003, the Children & Students (C&S) Company, mainly providing correspondence courses, and the

School & Teacher Support (S&TS) Company, offering simulated exams and other services to schools, were combined into a singlebusiness segment, the Education Group. Data for the year ended March 31, 2002 has been recalculated based on this new businessclassification.

3. In the year ended March 31, 2006, Benesse changed the method for allocating operating expenses. Data for the years ended March31, 2005 and 2004 has been recalculated based on the new method, while data for the years ended March 31, 2003 and 2002 isbased on the former method.

4. The Women & Family (W&F) Company was renamed the Lifetime Value Company in the year ended March 31, 2006. Accordingly,data for the W&F Company for the years ended March 31, 2002 to 2005 is shown under the Lifetime Value Company.

5. The Language Instruction and Translation segment was renamed the Language Company in the year ended March 31, 2003.Accordingly, data for the Language Instruction and Translation segment for the year ended March 31, 2002 is shown under theLanguage Company.

6. On April 1, 2005, AVIVA Co., Ltd., a consolidated Benesse subsidiary, began operating a network of PC schools after taking overpart of the operations of AVIVA Japan Corporation. The AVIVA Business segment was created to cover these operations.

(4) Other Income (Expenses)Other income increased ¥710 million, or 21.4%, to ¥4,028 million, while other expenses declined ¥979 million, or 24.6%,to ¥3,006 million, resulting in other income—net of ¥1,022 million.

The rise in other income mainly reflected income from leveraged lease assets of ¥1,281 million, and the absence of agovernment grant for rehire related to the restructuring of AVIVA.

(5) Income Before Income Taxes and Minority Interests Income before income taxes and minority interests rose ¥4,593 million, or 16.6%, to ¥32,339 million.

(6) Income TaxesIncome taxes rose ¥2,266 million, or 19.5%, to ¥13,903 million. The actual effective tax rate rose from 41.9% to 43.0%.

02 03 04 05 06 07

0

20,000

40,000

60,000

80,000 8,000

6,000

2,000

4,000

0

–2,000

59,164

4,670

62,247

54,939

46,096 46,98251,536

5841,016

450

(783)

2,545

02 03 04 05 06 07

0

5,000

10,000

15,000

20,000 8,000

6,000

2,000

4,000

0

–2,000

10,326

(1,183)

13,915

(1,564)

02 03 04 05 06 070

5,000

10,000

15,000

25,000

20,000

5,000

4,000

2,000

3,000

1,000

0

20,769

430

12,183

13,609

16,241

19,918

21,415

1,545

1,851 1,8701,743

1,350


[ Years ended March 31 ] [ Years ended March 31 ] [ Years ended March 31 ]



LANGUAGE COMPANY

[Millions of Yen]

AVIVA BUSINESS

[Millions of Yen]

OTHERS

[Millions of Yen]


(7) Net IncomeNet income increased ¥2,205 million, or 13.7%, to ¥18,244. The net income ratio rose from 4.8% to 5.1%. The Companyreported its fifth consecutive year of higher net income due to this sales-driven earnings growth, as well as the absence of aloss booked in the previous fiscal year on restructuring of business related to the integration and closure of unprofitableAVIVA schools.

Return on equity rose from 8.9% to 9.5%, while return on assets increased from 5.0% to 5.4%.

ROE and ROA


ROE . . . . . . . . . . . . . . . . . . . . . . 9.5% 8.9% 8.3% 5.5% 4.1% 0.2%ROA . . . . . . . . . . . . . . . . . . . . . . 5.4 5.0 4.8 3.3 2.5 0.1

3. SEGMENT INFORMATION(1) Education GroupIncrease in amount spent per customer and higher sales of English-related products and optional course materialsNet sales in the Education Group increased 5.1%, to ¥208,833 million. This growth was chiefly due to an increase in theamount spent per customer in the mainstay Shinkenzemi correspondence course business. Higher sales of English-relatedproducts and optional course materials for students enrolled on correspondence courses also helped to boost segment sales.

In terms of products, we increased the number of course subjects and offered a larger number of optional products,enhancing our ability to respond to individual customer needs. Specifically, in the year under review, Benesse began offeringscience and social studies courses for first-grade high school students enrolled in Shinkenzemi Senior High School Courses,and launched special correspondence courses for students aiming to enter the universities of Tokyo or Kyoto. In ShinkenzemiJunior High School Courses, we updated courses in line with revisions to school text books, offered a wider choice ofoptional products and rolled out a new service that allows students to get their work checked and marked quickly via theinternet. A new system was also created to propose learning approaches tailored to individual student needs. We also madea wider choice of optional products available in Shinkenzemi Elementary School Courses. On the marketing front, weimplemented an efficient strategy combining TV commercials, newspaper adverts, the internet, local events and othermarketing methods to augment our existing direct mail approach. In the infant and preschool market, Benesse used itspregnancy, childbirth and parenting magazines Tamago Club and Hiyoko Club to rapidly identify readers with an interest inpreschool education, and then developed specific communication methods for different customer segments. In fiscal 2006,these included the opening of Benesse Showrooms, where parents and children can play and learn together, in Kumamoto andShiga prefectures. We also ran a nationwide bookstore promotion campaign featuring Benesse learning materials, and con-tinued the active use of Asobication events (parent-child playgroups).

In peripheral businesses, which exclude Shinkenzemi correspondence courses, Benesse reported higher sales. This re-flected increased sales of BE-GO PC-based English courses for elementary school students, and Kodomo Challenge Englishcourses (formerly Oyako Eigo) for preschoolers. We also expanded our range of Sukku (formerly Kodomo Challenge every) mail-order everyday products for children, helping to boost sales. Other developments during the year under review included theJune 2006 launch of Pioneer Kids Courses, extra-curricular courses featuring hands-on learning materials and programs, and

02 03 04 05 06 070

5,000

10,000

15,000

25,000

20,00018,244

327

6,973

9,394

14,297

16,039


NET INCOME

[Millions of Yen]

02 03 04 05 06 070

2

4

6

8

10

0.2

4.1

5.5

8.3

8.9

9.5


ROE

[%]

02 03 04 05 06 070

2

4

65.4

0.1

2.5

3.3

4.85.0


ROA

[%]


Breakdown of Net Sales for the Education Group

Millions of YenPercentage

Years ended March 31 2007 2006 Change

Shinkenzemi:Senior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 26,627 ¥ 24,301 9.6%Junior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,025 41,990 0.1Elementary School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,023 59,162 1.5Kodomo Challenge (Preschool Courses) . . . . . . . . . . . . . . . . . . . . . . . . . . 24,509 24,656 (0.6)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,183 150,109 2.1

S&TS Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,367 31,635 8.6Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,284 16,921 25.8

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 208,833 ¥ 198,665 5.1%Note: Net sales by segment do not include internal sales.

(2) Lifetime Value CompanyStrong performance by direct-sales magazines and robust mail-order salesNet sales in the Lifetime Value (LTV) Company increased 12.6% to ¥23,450 million. Primary factors driving sales higherincluded steady growth in reader membership for Hand & Heart, a direct-sales magazine focusing on crafts and hobbies, andDOG’S HEART and CAT’S HEART, direct-sales magazines for families with pets. Meanwhile, sales of mainstay preg-nancy, childbirth and childcare titles Tamago Club and Hiyoko Club, were also firm, driven by mail-order sales.

The LTV Company posted an increase in operating income of 940.0% to ¥1,373 million, chiefly on the back of higher sales.

(3) Senior CompanySteady increase in nursing home network and dominant position secured in Tokyo areaThe Senior Company recorded a 17.0% rise in net sales to ¥32,054 million. The main factor driving this increase wasexpansion in the nursing home network operated by subsidiary Benesse Style Care and a related steady rise in the number ofresidents. During the year, this company focused on ensuring stable and sustained business expansion by further enhancingservice levels, implementing marketing reforms through the introduction of an area-based operating structure, and strength-ening infrastructure related to risk management.

By brand, the number of nursing homes in the Benesse network as of March 31, 2007 was as follows: Aria, 9; Clara(including 1 care house), 37; Granny & Granda, 43; and Madoka, 26. Compared to March 31, 2006, this represented acombined increase of 9 nursing homes to a total of 115.

The Senior Company recorded an increase of 33.0% in operating income to ¥2,540 million, mainly due to higher salesand the absence of charges booked in the previous year related to efforts to strengthen business infrastructure.

(4) Language CompanyIncrease in number of lessons taken, particularly in Japan and Germany, and strong performance by ELS Language CentersNet sales in the Language Company rose 14.8% to ¥59,164 million. A number of factors were behind this increase. AtU.S. subsidiary Berlitz International there was a rise in the number of lessons taken, especially in Japan and Germany, andELS Language Centers, which provide intensive language learning support for students thinking of studying abroad, per-formed strongly. Sales on a Japanese yen basis also benefited from the weaker yen against the U.S. dollar. Another subsidiary,Simul International, Inc., posted higher sales in its core interpreting and translation services business.

The Language Company recorded an increase of 83.5% in operating income to ¥4,670 million. The rise was mainlyattributable to Berlitz International, which posted higher earnings on sales growth, as well as improved profitability thanks toreduced fixed expenses and other items.

Benesse’s advance into the prep school market in the Tokyo metropolitan area with the acquisition of Ochanomizu Semi-nar. This company has a reputation for high pass rates for senior high school students seeking to enter elite universities.

In support services for schools and teachers, Shinken Simulated Exams, a core product aimed at high school students; StudySupport, a learning assessment study aid; Global Test of English Communication (GTEC) for STUDENTS and other productsperformed well. Benesse also recorded an increase in sales in its learning assessment business aimed at junior high schoolstudents, and subsidiary Shinken-AD Co., Ltd., which produces university prospectuses and other products, posted highersales.

Despite expenses related to course material revisions in Shinkenzemi Junior High School Courses and upfront investmentsto start up new businesses in China and South Korea, the Education Group recorded a rise of 3.0% in operating income to¥30,612 million. This mainly reflected higher earnings from increased sales in Shinkenzemi correspondence courses.


Breakdown of Net Sales for Berlitz International, Inc.

Thousands ofU.S. Dollars

Years ended December 31 2006 2005

Net Sales From External Customers:Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116,478 $107,979Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,861 144,440Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,568 118,528

Total Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,907 370,947ELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,648 48,476

Total Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460,555 419,423Worldwide Headquarters and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,368 4,066

Total External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464,923 423,489

Inter-company Net SalesAmericas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789 –Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 33Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 5Region Elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) –

Total Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 38ELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – –

Total Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 38Worldwide Headquarters and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (911) (38)

Total Inter-Segment Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – –

Total Consolidated Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $464,923 $423,489

(5) AVIVA BusinessSales decline due to closure or integration of unprofitable PC schools, but loss narrows due to benefits of ongoingmanagement reforms and related reductions in fixed costsThe AVIVA Business posted net sales of ¥10,326 million in fiscal 2006, a drop of 25.8% year on year. AVIVA Co., Ltd.,which operates PC schools, posted higher sales per school, but sales fell overall due to management reforms implementedfrom the previous fiscal year that led to the integration or closure of schools.

Thanks to radical management reforms, AVIVA was profitable before the amortization of goodwill for the secondstraight year. The operating loss was ¥1,183 million, which was less than the operating loss of ¥1,564 million recorded in theprevious fiscal year and reflected reduced fixed expenses.

01 02 03 04 05 060

150

300

450

600

542

483 494518

535 529

[ As of December 31 ]

BERLITZ LANGUAGE CENTERS ANDFRANCHISES

01 02 03 04 05 060

2,000

4,000

6,000

8,000

6,8736,564

6,147 6,221 6,3266,519

[ Years ended December 31 ]

NUMBER OF BERLITZ LESSONS

[Thousands of lessons]


(6) OthersSales to customers outside the Group decline at Telemarketing Japan due to increased emphasis on profitabilityThis segment reported a decrease in net sales of 3.0% to ¥20,769 million. This was attributable to efforts by subsidiaryTelemarketing Japan, Inc. to focus on more profitable operations, which led to a drop in sales to customers outside theBenesse Group. Operating income fell 68.1% year on year to ¥430 million due to the decline in sales and costs associatedwith investments in new businesses.

4. FINANCIAL POSITION AND LIQUIDITY(1) Assets, Liabilities and Shareholders’ Equity/Total EquityRetained earnings increase due to strong operating resultsTotal assets as of March 31, 2007 were ¥349,099 million, an increase of ¥18,869 million, or 5.7%, compared to the end ofthe previous fiscal year.

Total current assets increased ¥22,682 million, or 15.0%, to ¥173,567 million. This mainly reflected an increase in tradereceivables—other due to a rise in credit card settlements at Benesse Corporation, as well as an increase in funds undermanagement related to trust products and higher cash and time deposits.

Net property and equipment increased ¥664 million, or 0.9%, to ¥71,811 million. This was mainly attributable to theacquisition of Ochanomizu Seminar.

Investments and other assets decreased ¥4,478 million, or 4.1%, to ¥103,721 million. The main reason for this drop wasa decline in the balance of euroyen bonds.

Total liabilities increased ¥8,178 million, or 5.7%, to ¥151,797 million.Current liabilities rose ¥9,419 million, or 7.8%, to ¥130,525 million. This increase was mainly due to an increase in

income taxes payable and a rise in accrued liabilities related to higher wages and salaries as the workforce expanded. Long-term liabilities decreased ¥1,241 million, or 5.5%, to ¥21,272 million, mainly reflecting the repayment of long-term debtbefore maturity.

As of March 31, 2007, total equity was ¥197,302 million, an increase of ¥10,691 million, or 5.7%, compared to the endof the previous fiscal year. This was mainly due to higher retained earnings on the back of strong operating results. Totalequity per share was ¥1,918, a year-on-year increase of ¥100.

Financial Position

Millions of Yen

As of March 31 2007 2006 2005 2004 2003 2002

Total Assets . . . . . . . . . . . . . . . . . . . ¥ 349,099 ¥ 330,230 ¥ 307,668 ¥ 292,100 ¥ 275,516 ¥ 291,393Current Assets . . . . . . . . . . . . . . . 173,567 150,885 158,151 147,705 121,926 113,552Property and Equipment . . . . . . . 71,811 71,147 69,800 69,394 71,429 78,696Investments and Other Assets . . . . 103,721 108,198 79,717 75,001 82,161 99,145

Current Liabilities . . . . . . . . . . . . . . 130,525 121,106 111,941 102,158 86,192 93,313Long-term Liabilities . . . . . . . . . . . . 21,272 22,513 20,790 18,616 19,323 25,324Shareholders’ Equity/Total Equity . . 197,302 186,292 174,711 170,781 169,428 171,826Equity Ratio (%) . . . . . . . . . . . . . . . 56.4 56.4 56.8 58.5 61.5 59.0Shareholders’ Equity/Total Equityper Share of CommonStock (Yen) . . . . . . . . . . . . . . . . . 1,918 1,818 1,701 1,641 1,612 1,616

Note: The computation of Shareholders’ Equity/Total Equity per Share of Common Stock is based on the weighted average number of shares ofcommon stock outstanding during each year.

(2) Cash FlowsNet cash at the fiscal year-end was ¥6,949 million higher, reflecting an increase in income before income taxes and thenet effect of acquisitions and disposals of current assets and investment securitiesCash and cash equivalents at the end of the fiscal year stood at ¥73,366 million, an increase of ¥6,949 million, or 10.5%,compared to the previous fiscal year-end. Although investing activities and financing activities used cash of ¥11,223 million and¥10,629 million, respectively, these outflows were outweighed by cash provided by operating activities of ¥28,240 million.


Cash Flows

Millions of Yen


Net Cash Providedby Operating Activities . . . . . . . . . ¥ 28,240 ¥ 17,448 ¥ 28,427 ¥ 27,935 ¥ 17,505 ¥ 8,286

Net Cash (Used in) Providedby Investing Activities . . . . . . . . . . (11,223) (31,473) (22,523) (9,661) 16,778 (11,701)

Net Cash Usedin Financing Activities . . . . . . . . . . (10,629) (9,610) (10,733) (6,044) (13,530) (11,209)

Foreign Currency TranslationAdjustments on Cash andCash Equivalents . . . . . . . . . . . . . . 561 575 159 (617) (470) 727

Net Increase (Decrease)in Cash and Cash Equivalents . . . . . 6,949 (23,060) (4,670) 11,613 20,283 (13,897)

(3) Share Buyback ProgramBenesse plans to continue its share buyback program going forwardBenesse has an ongoing share buyback program aimed at improving capital efficiency and shareholder value. Although noshares were repurchased in fiscal 2006, in fiscal 2005, the Company repurchased 400,000 shares of Benesse common stockfor ¥1,457 million, representing an average price per share of ¥3,645. For fiscal 2004, these figures were: 1,317,300 shares,¥4,350 million, and ¥3,302. In fiscal 2003: 963,300 shares, ¥2,059 million, and ¥2,137. In fiscal 2002: 1,360,000 shares,¥2,586 million, and ¥1,901. Treasury stock at May 31, 2007 totaled 3,639,749 shares, representing 3.4% of all issued Benesseshares. Benesse plans to continue flexibly implementing its share buyback program, taking into account factors such as stockprice trends and capital efficiency.

(4) Capital Expenditures, Depreciation and AmortizationDrop in capital expenditures due to absence of AVIVA goodwill acquisition in previous fiscal yearCapital expenditures for fiscal 2006 totaled ¥11,802 million, a drop of ¥8,702 million, or 42.4%, compared to the previousfiscal year. The main reason for this decline was the absence of the acquisition of goodwill in fiscal 2005 related to the transferof operations from AVIVA Japan Corporation and the start of this business by consolidated subsidiary AVIVA Co., Ltd.

Depreciation and amortization totaled ¥9,929 million, an increase of ¥154 million, or 1.6%, year on year.

5. ISSUES AND POLICIES(1) Issues Facing the CompanySeek new opportunities in existing businesses and create new businessesIn fiscal 2004, the Benesse Corporation Group initiated a three-year Medium-Term Management Plan. As part of this plan,we strengthened our product lineup in mainstay Shinkenzemi correspondence courses through such measures as introducinglearning materials tailored to different academic abilities and optional products. We also promoted a media-mix marketingstrategy. As a result, we achieved the plan’s final-year operating income target of ¥26.0 billion two years early and achieveda turnaround in operating performance. Meanwhile, in April 2007, total enrollment in Shinkenzemi correspondence coursesstood at 3.91 million, a drop of 140,000 compared to April in the previous year and representing the first decline inenrollment for four fiscal periods. Going forward, it is vital that we seek further opportunities in existing businesses byincreasing added value in Shinkenzemi and other products, and create new businesses by optimally using Group-wide man-agement resources.

In this context, we implemented a number of organizational reforms on April 1, 2007. These reforms have threemain objectives.

Cash provided by operating activities increased 61.8% year on year to ¥28,240 million. Despite income taxes—paid of¥11,749 million, cash was mainly provided by income before income taxes and minority interests of ¥32,339 million anddepreciation and amortization, which is a non-cash expense, of ¥9,929 million.

Cash used in investing activities declined 64.3% to ¥11,223 million. The main uses of cash were ¥8,540 million forpurchases of investment securities and ¥5,520 million for purchases of property and equipment.

Cash used in financing activities increased 10.6% to ¥10,629 million. This mainly reflected ¥8,202 million in dividendspaid and ¥3,863 million for the repayment of long-term debt.


Education business

Firstly, we will reinforce marketing capabilities. Here we have combined marketing functions that were previously dispersedamong different education-related businesses into a single organization. This will allow us to conduct integrated company-wide marketing activities that transcend student age groups and product lines. By also optimally allocating budgets andresources from a company-wide perspective, we will raise the efficiency of marketing activities. In addition, we will use thenew organization to drive overall marketing reform. This will include increasingly shifting to a comprehensive marketingapproach that combines direct mail, mass media, the internet, local events and other means, developing proposal-basedmarketing for specific potential customer segments, and creating more contact points with customers through different media.

Secondly, we will enhance our proposal capabilities and strengthen the product and service offering. This will be achievedthrough the integration of the mainstay Shinkenzemi correspondence course business and the School & Teacher SupportCompany. This will bring together the Benesse Group’s content, expertise, media and information in a wide range of fieldsunder one organization. Specifically, it will fuse the ability of the Shinkenzemi correspondence course business to developlearning materials and content tailored to individual needs and the School & Teacher Support Company’s strengths instudent ability assessment. These combined resources will be channeled into seeking new opportunities in existing businessesand developing and launching new products and services.

Thirdly, we will offer more digital content. As ICT rapidly advances and becomes more widespread, we see increasingopportunities to extend the operational reach of our education business. Going forward, we will plan and produce moredigital educational content, centered on e-learning, as well as use the optimum media, whether it be the internet, mobilephones, TV, mobile terminals or other means, without confining ourselves to conventional print media, to supply newproducts and services.

In terms of other new initiatives, we will work to grow businesses that target new customer segments to supplement ourtraditional membership-based correspondence course businesses. This will mean offering services that use physical sites andother approaches, supplying open-market products, and taking other steps. In fiscal 2006, we expanded our network of BenesseEnglish Classrooms for Children and offered more Brothers Grimm Classes, which are designed to encourage reading, and otherproducts. We also launched Benesse Science Classes for elementary school students and acquired Ochanomizu Seminar, anoperator of prep schools for senior high school students. Looking ahead, we plan to take this approach further to generate newgrowth by supplying new products and services that go beyond existing customer segments and learning styles. Specific initia-tives will include Creative Expression Classes to help elementary school students acquire the skills to express themselves and thinkmore logically, and learning software for the Nintendo DS handheld game console.

Non-education business

In non-education business fields, we will work to drive continued expansion and generate earnings by seeking new oppor-tunities in existing businesses. In the Lifetime Value (LTV) Company business field, we have two main objectives: strengthenour existing lineup of products and services that enhance value for customers over their entire lifetimes, centered on womenand families, and develop services aimed at new customer segments. In the nursing care business field, amid steps by localgovernments to impose quantitative controls to limit the number of homes in their administrative areas, we will work todevelop trusted brands that offer an even higher level of service quality, and seek stable business growth centered on theTokyo metropolitan area—where demand is high—by emphasizing profitability. Moreover, we have begun work on a newfee-based nursing home business model that differs from existing facilities specified by the Long-term Care Insurance Sys-tem. In the language education field, specifically U.S. subsidiary Berlitz International, we aim to maintain high qualitystandards with lessons that match customer needs and the use of proprietary Berlitz learning materials. Supported by a solidoperating base, the company will enhance sales activities targeting corporate customers, as well as overall marketing capabili-ties at each of its schools. New products and services will also be launched to boost earnings. Meanwhile, AVIVA will aimto increase earnings by developing new products and reinforcing marketing capabilities, as well as by enhancing cooperationwith the Benesse Group and other companies.

Capital policyFinally, capital structure policy is a vital issue for the Benesse Group. Benesse has clearly stated a goal of achieving a dividendpayout ratio of at least 35%. For fiscal 2006, Benesse raised the dividend by ¥10 to ¥85 per share, the fourth consecutive yearof increases, and achieving a dividend payout ratio (consolidated) of 47.8%. In fiscal 2007, the Company plans to raise thedividend by a further ¥5 to ¥90 per share, for a projected payout ratio of 50.5%. Benesse also aims to continue implementingits share buyback program as needed. As of March 31, 2007, Benesse had repurchased a cumulative total of 4,041 thousandshares, at a cost of ¥10,452 million and representing 3.8% of all issued and outstanding shares. Meanwhile, the Companyplans to actively use cash reserves in the region of ¥20~30 billion to invest in R&D and M&A deals to support medium- andlong-term business growth. With M&As in particular, the objective is to actively target companies in areas that reinforceBenesse’s existing strengths, especially in the education business field.


(2) Outlook for the Fiscal Year Ending March 31, 2008Benesse projecting its fifth consecutive year of higher sales and a slight increase in profits due to lower marketing costsand other factorsThe Company is projecting an increase in consolidated net sales of 3.1% to ¥365,500 million. This reflects expected steadybusiness expansion, particularly in the Senior Company’s nursing home business and at Berlitz International in the LanguageCompany, as well as growth in Telemarketing Japan’s call center operations.

Despite a decline in earnings related to a drop in enrollment in the Shinkenzemi correspondence course business in April2007, Benesse is forecasting an increase in operating income of 0.6% to ¥31,500 million, mainly thanks to lower costs due tomore efficient marketing initiatives, improved profitability in businesses in East Asia, and a smaller loss in the AVIVA Business.Benesse is projecting a drop in ordinary income of 2.3% to ¥32,500 million due to the absence of income from leveraged leaseassets booked in fiscal 2006 and other factors. Net income is forecast to increase 0.3% to ¥18,300 million, mainly reflecting theabsence of valuation loss on investment securities and loss on impairment of long-lived assets booked in fiscal 2006.

(3) Dividend PolicyBenesse’s fundamental policy is to pay a stable and sustainable dividend to its shareholders, and is targeting a dividend payoutratio of at least 35% in the near term. In accordance with this policy, the Company paid an annual dividend of ¥85 percommon share applicable to the fiscal year under review, consisting of an interim dividend of ¥40 and a year-end dividendof ¥45 per common share. Accordingly, the Company’s annual dividend for fiscal 2006 is ¥10 higher than the previous fiscalyear and represents a consolidated dividend payout ratio of 47.8%. For the next fiscal year, ending March 31, 2008, Benesseplans to pay an annual dividend of ¥90 per common share, comprising an interim dividend and a year-end dividend of ¥45each, based on the aforementioned policy.

Benesse plans to effectively use retained earnings to boost future profits that it can return to shareholders by promotingnew businesses, upgrading products and services in existing businesses and developing new products.

Note: The above forecasts, plans and other forward-looking statements are based on information available to management as of June 24, 2007and contain potential risks and uncertainties. As such, forward-looking statements may differ to actual performance due to changes inthe economic environment and other unforeseen circumstances.

6. RISK FACTORS(1) Declining Birthrate (Effect on core business)The Benesse Group’s home study correspondence courses, its core business, have a membership ranging from infants tosenior high school students. As of April 2007, the number of members totaled 3.91 million. The Benesse Group aims toachieve further business growth by expanding its presence in peripheral businesses to satisfy increasingly individual anddiverse customer needs in the education market. Nevertheless, if Japan’s declining birthrate falls at a far greater pace thanprojected there may be a dramatic contraction in the overall size of the education market, and this could have an impact onthe Benesse Group’s results and financial position.

(2) Acquisition and Management of Personal InformationThe Benesse Group’s core business involves the provision of products and services to individual customers centered oncorrespondence courses such as Shinkenzemi and Kodomo Challenge. Customers are required to register personal information,such as their name, gender, birth date, address, telephone number, and name of guardian. This personal information isprocessed and stored in the Benesse Group’s database.(i) Acquisition of personal informationIn October 2005, Benesse ceased using the basic resident register access system and increased the direct acquisition ofpersonal information based on the consent of individuals. In tandem with this move, we reviewed our marketing strategyand worked to diversify our marketing methods. For example, in addition to using the existing direct mail method, weactively used TV commercials and the internet, further strengthened telemarketing, and promoted marketing activitiestailored to the specific characteristics of different regions. However, as the review of our marketing strategy is currently inprogress, this may have an impact on total enrollment in Shinkenzemi courses.(ii) Management of personal informationThe Benesse Group received Privacy Mark certification in 2006. The Group also formulated internal rules and offeredregular internal training on privacy protection, in parallel with actions to strengthen the security of its information systems,and takes sufficient care in managing its database and privacy protection. However, the Benesse Group’s results and financialposition could be affected by claims for damages, the loss of public trust and other factors that may result from the leak ofpersonal information due to unpredictable events such as unauthorized external access and other criminal acts.


(3) Regulations (Education system and nursing care insurance)(i) Education systemIn the education field, the launch of new curriculums for elementary and junior high schools from fiscal 2002 led to risingconcerns among parents about the academic abilities of their children. In response, regulations that had been designed toreduce course content by 30% were reviewed in December 2003. The result of this review was the decision to restore partsof the reduced curriculum to textbooks as “developmental coursework” in elementary schools from fiscal 2005, and injunior high schools from fiscal 2006. In fiscal 2007, the next school curriculums are slated to be publicly announced, andmeasures to improve the reading ability of Japanese children, which is regarded as weak, are also expected to be included.Recent initiatives have included nationwide tests implemented by the Ministry of Education, Culture, Sports, Science andTechnology, and the establishment of the Education Rebuilding Council by the government. As such, there is an ongoingmovement by the Japanese government to review educational content and the educational system. As part of this trend, astronger emphasis is being placed on distinctive styles of instruction and evaluation in individual regions and schools in orderto improve academic abilities. Amid these significant changes, the education needs of children and their parents are rapidlybecoming more individual and diverse. As a result, Benesse is providing new products and services that are carefully tailoredto these fragmenting needs. Nevertheless, the Benesse Group’s results and financial position may be affected by a decline inthe appeal of its core products and services and a decline in sales, given the high share of total sales accounted for by theShinkenzemi business, if its response is insufficient to cater for the rapid pace of change in the education environment and incustomer needs.(ii) Nursing careIn April 2006, the nursing care insurance system was radically revised for the first time since the enforcement of the Long-term Care Insurance Law in April 2000. Simultaneously, the results of a regular three-year review of nursing care benefitswere implemented. Despite stringent budget cutbacks overall by the government, the reduction in nursing care benefitsapplicable to nursing care provided by specified nursing homes, Benesse’s main business domain, were relatively small.

However, radical revision of the system included the introduction of a quantitative regulatory mechanism to control asurge in the number of specified facilities. As a result, the establishment of new facilities may be restricted at the discretion oflocal governments. In an environment where establishing specified facilities may be restricted overall, the Company aims tomaintain its relative dominance in terms of service quality and financial position and sustain the speed of business expansionas far as possible.

Other changes to nursing care in Japan are also anticipated with the next review of the nursing care insurance systemscheduled for fiscal 2009 and the elimination of all beds for long-term care in hospitals in fiscal 2011, which is driving a shiftfrom specified facilities to other forms of residential nursing care. Although Benesse has built a nursing care business modelwith a low degree of dependence on income from nursing care insurance, the Group’s results and financial position could beaffected by the need to review the nature of products and services, fee structures, and so on, due to revisions in regulationsrelated to the provision of nursing care services, standard reimbursement rates applicable to various nursing care services,payment limits commensurate with care requirements, and other factors.

(4) Accounting for Asset ImpairmentThe Benesse Group’s results and financial position may be affected by the necessity to record additional impairment losses onlandholdings and buildings in the event of a sharp decline in Group profitability in the future.

Furthermore, goodwill and other intangible assets of U.S. subsidiary Berlitz International are tested for impairment everyfiscal term in accordance with the Statement of Financial Accounting Standards No. 142, “Goodwill and Other IntangibleAssets.” On this basis, with regard to intangible fixed assets for which it is not possible to determine goodwill or useful life,the Company applies an asset-impairment test once a year without amortization and at the time when an event indicatingthe possibility of impairment occurs. As a result of these asset-impairment tests, if it is determined that an impairment lossshould be recognized on intangible fixed assets for which it is impossible to determine goodwill and useful life, the BenesseGroup’s results and financial position could be affected.

(5) Overseas BusinessBenesse operates a business providing preschool education services through its Taipei Office in Taiwan. In March 2006, theCompany started a business at its subsidiary in South Korea, and launched a jointly operated business with a local partner inChina the following June. In addition, Benesse oversees the manufacturing of education equipment and toys under theShinkenzemi and Kodomo Challenge brands through its consolidated subsidiary in Hong Kong. Consolidated subsidiary BerlitzInternational, Inc. also operates in excess of 500 schools in more than 60 countries and regions worldwide. Natural disasters,cultural and religious tension, political and economic instability, or the new establishment or amendment of laws or regula-tions in any of these countries and regions could have an adverse impact on the Benesse Group’s business.



Millions of Yen (Note 1)

ASSETS 2007 2006 2005 2007

CURRENT ASSETS:

Cash and time deposits (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 40,294 ¥ 35,844 ¥ 46,613 $ 341,475

Marketable securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,367 43,466 54,368 375,992

Trade receivables:Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,899 22,684 21,633 202,534

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,805 17,002 11,302 235,635

Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 11 4 59

Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . (1,946) (1,773) (1,565) (16,492)

Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,552 15,146 13,053 131,797

Deferred tax assets (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,137 4,802 2,770 43,534

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,452 13,703 9,973 156,372

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,567 150,885 158,151 1,470,906

PROPERTY AND EQUIPMENT:

Land (Notes 6 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,710 34,291 33,674 294,153

Buildings and leasehold improvements (Notes 6 and 9) . . . . . . . . . . . . . 67,471 63,431 61,803 571,788

Equipment, fixtures and other (Note 13) . . . . . . . . . . . . . . . . . . . . . . . 18,459 18,509 16,814 156,432

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,640 116,231 112,291 1,022,373

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,829) (45,084) (42,491) (413,805)

Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,811 71,147 69,800 608,568

INVESTMENTS AND OTHER ASSETS:Investment securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,063 34,773 18,165 237,822

Investments in unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . 506 437 405 4,288

Goodwill and other intangible assets (Notes 6 and 8) . . . . . . . . . . . . . . . 53,767 53,505 42,850 455,653

Prepaid pension expenses (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,012 3,684 3,543 34,000

Deferred tax assets (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236 527 2,187 10,475

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,137 15,272 12,567 136,754

Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . 103,721 108,198 79,717 878,992

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 349,099 ¥ 330,230 ¥ 307,668 $2,958,466

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETSBenesse Corporation and Consolidated SubsidiariesMarch 31, 2007, 2006 and 2005




LIABILITIES AND EQUITY 2007 2006 2005 2007

CURRENT LIABILITIES:

Short-term bank loans (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 796 ¥ 509 ¥ 1,100 $ 6,746

Current portion of long-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . 607 1,266 1,242 5,144

Trade payables:Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,137 30,478 30,015 280,822

Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575 539 559 4,873

Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,098 69,216 59,040 602,525

Income taxes payable (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,232 5,779 8,438 78,237

Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,080 13,319 11,547 127,797

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,525 121,106 111,941 1,106,144

LONG-TERM LIABILITIES:

Long-term debt, less current portion (Note 9) . . . . . . . . . . . . . . . . . . . . 740 2,964 3,593 6,271

Liability for retirement benefits (Note 10) . . . . . . . . . . . . . . . . . . . . . . . 3,839 3,711 3,593 32,534

Deferred tax liabilities (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554 574 318 4,695

Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,139 15,264 13,286 136,771

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,272 22,513 20,790 180,271

MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 226

COMMITMENT AND CONTINGENT LIABILITIES (Notes 7 and 16)

EQUITY (Notes 11, 16, 18 and 20):

Common stock—authorized, 405,282,040 shares in 2007, 2006and 2005; issued, 106,353,453 shares in 2007, 2006 and 2005 . . . . . . . 13,600 13,600 13,600 115,254

Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,358 29,358 29,359 248,797

Stock acquisition rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 703

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,005 154,155 145,535 1,389,873

Unrealized gain on available-for-sale securities . . . . . . . . . . . . . . . . . . . 786 879 618 6,661

Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . (1,352) (1,714) (5,375) (11,458)

Treasury stock—at cost—3,644,909 shares in 2007, 3,857,438 sharesin 2006 and 3,653,578 shares in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . (9,439) (9,986) (9,026) (79,992)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,041 186,292 174,711 1,669,838

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 2,213

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,302 186,292 174,711 1,672,051

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 349,099 ¥ 330,230 ¥ 307,668 $2,958,466


CONSOLIDATED STATEMENTS OF INCOMEBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2007, 2006 and 2005



2007 2006 2005 2007

NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 354,596 ¥ 333,767 ¥ 291,403 $3,005,051

COST OF SALES (Notes 7, 10 and 15) . . . . . . . . . . . . . . . . . . . . . . . . . 175,219 165,347 139,672 1,484,907

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,377 168,420 151,731 1,520,144

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(Notes 7, 10, 14 and 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,060 140,008 125,553 1,254,746

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,317 28,412 26,178 265,398

OTHER INCOME (EXPENSES):Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 59 43 593

Interest income—net (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426 197 41 3,610

Gain on investments—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,274 479 870 10,797

Equity in net earnings of unconsolidated subsidiaries and affiliates . . . . . 78 67 42 661

Loss on impairment of long-lived assets (Note 6) . . . . . . . . . . . . . . . . . . (246) (223) (334) (2,085)

Government grant for rehire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900Loss on restructuring of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (202) (1,705) (678) (1,712)

Other—net (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (378) (440) (363) (3,203)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 32,339 27,746 25,799 274,059

INCOME TAXES (Note 17):Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,830 11,697 12,335 125,678

Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (927) (60) (896) (7,856)

Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,903 11,637 11,439 117,822

MINORITY INTERESTS IN NET INCOME . . . . . . . . . . . . . . . . . . . . 192 70 63 1,627

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 18,244 ¥ 16,039 ¥ 14,297 $ 154,610

Yen U.S. Dollars

2007 2006 2005 2007

PER SHARE OF COMMON STOCK (Notes 2.t, 19 and 20):Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 177.86 ¥ 156.45 ¥ 138.05 $ 1.51

Diluted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177.23 155.92 137.66 1.50

Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . 85.00 75.00 60.00 0.72



Thousands Millions of Yen

Outstanding Unrealized ForeignNumber of Stock Gain on CurrencyShares of Common Capital Acquisition Retained Available-for-sale Translation Treasury Minority Total

Common Stock Stock Surplus Rights Earnings Securities Adjustments Stock Total Interests Equity

BALANCE, APRIL 1, 2004 . . 104,022 ¥ 13,600 ¥ 29,358 ¥ 136,608 ¥ 490 ¥ (4,615) ¥ (4,660) ¥ 170,781 ¥ 170,781Net income . . . . . . . . . . . . . 14,297 14,297 14,297Cash dividends, ¥50.5 per share (5,253) (5,253) (5,253)Bonuses to directors andcorporate auditors . . . . . . . . (124) (124) (124)

Unrealized pensionliabilities of foreignconsolidated subsidiaries . . . . 7 7 7

Gain on sales of treasury stock 1 1 1 2 2Purchases of treasury stock . . . (1,323) (4,367) (4,367) (4,367)Net change in the year . . . . . 128 (760) (632) (632)

BALANCE, MARCH 31, 2005 102,700 13,600 29,359 145,535 618 (5,375) (9,026) 174,711 174,711Net income . . . . . . . . . . . . . 16,039 16,039 16,039Cash dividends, ¥70 per share (7,179) (7,179) (7,179)Unrealized pension liabilitiesof foreign consolidatedsubsidiaries . . . . . . . . . . . . . (161) (161) (161)

Gain on sales of treasury stock 1 1 1 2 2Disposal of treasury stock dueto exercise of stock options . 198 (2) (79) 506 425 425

Purchases of treasury stock . . . (403) (1,467) (1,467) (1,467)Net change in the year . . . . . 261 3,661 3,922 3,922

BALANCE, MARCH 31, 2006 102,496 13,600 29,358 154,155 879 (1,714) (9,986) 186,292 186,292Reclassified balance as ofMarch 31, 2006 (Note 2.l) . . ¥ 319 319

Net income . . . . . . . . . . . . . 18,244 18,244 18,244Cash dividends, ¥80 per share (8,202) (8,202) (8,202)Purchases of treasury stock . . . (1) (8) (8) (8)Gain on sales of treasury stock 1 1 1 1Disposal of treasury stock dueto exercise of stock options . 213 (84) 554 470 470

Pension liability adjustmentsin the foreign consolidatedsubsidiary . . . . . . . . . . . . . . (108) (108) (108)

Net change in the year . . . . . ¥ 83 (93) 362 352 (58) 294

BALANCE, MARCH 31, 2007 102,709 ¥ 13,600 ¥ 29,358 ¥ 83 ¥ 164,005 ¥ 786 ¥ (1,352) ¥ (9,439) ¥ 197,041 ¥ 261 ¥ 197,302

Thousands of U.S. Dollars (Note 1)

Unrealized ForeignStock Gain on Currency

Common Capital Acquisition Retained Available-for-sale Translation Treasury Minority TotalStock Surplus Rights Earnings Securities Adjustments Stock Total Interests Equity

BALANCE, APRIL 1, 2006 . . $115,254 $248,797 $1,306,398 $7,449 $(14,525) $(84,627) $ 1,578,746 $1,578,746Reclassified balance as ofMarch 31, 2006 (Note 2.l) . . $2,704 2,704

Net income . . . . . . . . . . . . . 154,610 154,610 154,610Cash dividends, $0.68 per share (69,508) (69,508) (69,508)Purchases of treasury stock . . . (68) (68) (68)Gain on sales of treasury stock 8 8 8Disposal of treasury stock dueto exercise of stock options . (712) 4,695 3,983 3,983

Pension liability adjustmentsin the foreign consolidatedsubsidiary . . . . . . . . . . . . . . (915) (915) (915)

Net change in the year . . . . . $703 (788) 3,067 2,982 (491) 2,491

BALANCE, MARCH 31, 2007 $115,254 $248,797 $703 $1,389,873 $6,661 $(11,458) $(79,992) $1,669,838 $2,213 $1,672,051


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2007, 2006 and 2005


CONSOLIDATED STATEMENTS OF CASH FLOWSBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2007, 2006 and 2005



2007 2006 2005 2007

OPERATING ACTIVITIES:Income before income taxes and minority interests . . . . . . . . . . . . . . . . ¥ 32,339 ¥ 27,746 ¥ 25,799 $ 274,059

Adjustments for:Income taxes—paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,749) (14,896) (9,740) (99,568)Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,929 9,775 7,511 84,144Loss on impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . 246 223 334 2,085Loss on restructuring of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 1,705 678 1,712Increase in allowance for doubtful receivables,liability for retirement benefits and other reserves . . . . . . . . . . . . . . 1,134 502 999 9,610

Other non-cash expenses—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,484) (1,632) (578) (12,576)Changes in assets and liabilities, net of effects from newlyconsolidated subsidiaries:Increase in trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . (1,000) (817) (2,624) (8,475)Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (485) (1,983) (868) (4,110)Increase in trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 2,497 911 2,358 21,161Increase in advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,352 805 2,287 11,458

Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,741) (4,891) 2,271 (40,178)

Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,099) (10,298) 2,628 (34,737)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 28,240 17,448 28,427 239,322

INVESTING ACTIVITIES:Increase in time deposits—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (1,194) (594) (59)Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,706) (34,655) (23,457) (175,475)Proceeds from sales of marketable securities . . . . . . . . . . . . . . . . . . . . . 28,056 36,356 19,624 237,763Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . (5,520) (6,227) (6,687) (46,780)Proceeds from sales of property and equipment . . . . . . . . . . . . . . . . . . . 174 469 1,149 1,475Purchases of software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,680) (4,280) (3,299) (48,136)Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,540) (25,044) (10,783) (72,373)Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . 3,660 6,651 5,557 31,017Acquisition of shares of a consolidated subsidiary . . . . . . . . . . . . . . . . . . (128) (515) (1,085)Cash increased due to acquisition of controlling interest in a company . . 106 898Proceeds from acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . . . 432Proceeds from sale of investments of a consolidated subsidiary . . . . . . . . 25Cash decreased due to sale of controlling interest in a company . . . . . . . (14)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,638) (3,992) (3,518) (22,355)

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . (11,223) (31,473) (22,523) (95,110)

FINANCING ACTIVITIES:(Decrease) increase in short-term bank loans—net . . . . . . . . . . . . . . . . . (4) (781) 44 (34)Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,863) (1,308) (1,514) (32,737)Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,202) (7,179) (5,253) (69,508)Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . 471 425 3,992Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (1,467) (4,367) (68)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 977 700 357 8,279

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . (10,629) (9,610) (10,733) (90,076)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTSON CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . 561 575 159 4,754

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,949 (23,060) (4,670) 58,890

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . 66,417 89,477 94,147 562,856

CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . ¥ 73,366 ¥ 66,417 ¥ 89,477 $ 621,746




2007 2006 2005 2007

ADDITIONAL CASH FLOW INFORMATION:Acquisition of controlling interest in a company:

Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 136 $ 1,153Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512 4,339Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 3,212Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (520) (4,407)Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (497) (4,212)Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 85Cash and cash equivalents of newly consolidated subsidiary . . . . . . . . 116 983

Cash increased due to acquisition of controlling interest in a company ¥ 106 $ 898

Acquisition of a business:Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,278Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,644Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,555Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,028)Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (461)Cash and cash equivalents of consolidated subsidiary . . . . . . . . . . . . . 432

Proceeds from acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . ¥ 432

Sale of controlling interest in a company:Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 196Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (215)Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47)Gain on sales of shares of the consolidated subsidiary . . . . . . . . . . . . . 56Transfer expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10)Cash and cash equivalents of consolidated subsidiary . . . . . . . . . . . . . (4)

Cash decreased due to sale of controlling interest in a company . . . . . ¥ (14)



1. BASIS OFPRESENTINGCONSOLIDATEDFINANCIALSTATEMENTS

2. SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES

The accompanying consolidated financial statements of Benesse Corporation (the “Company”) have been prepared inaccordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations,and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as toapplication and disclosure requirements of International Financial Reporting Standards. The foreign consolidated subsidiar-ies maintain and prepare their financial statements in accordance with accounting principles generally accepted in the UnitedStates of America, where such subsidiaries are established.

On December 27, 2005, the Accounting Standards Board of Japan (the “ASBJ”) published a new accounting standard forthe statement of changes in equity, which is effective for fiscal years ending on or after May 1, 2006. The consolidatedstatement of shareholders’ equity, which was previously voluntarily prepared in line with the international accountingpractices, is now required under generally accepted accounting principles in Japan and has been renamed “the consolidatedstatement of changes in equity” in the current fiscal year.

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readersoutside Japan. In addition, certain reclassifications have been made in the 2006 and 2005 financial statements to conform tothe classifications used in 2007.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company isincorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥118 to U.S.$1, the approximate rate of exchangeat March 31, 2007. Such translations should not be construed as representations that the Japanese yen amounts could beconverted into U.S. dollars at that or any other rate.

a. Consolidation—The consolidated financial statements include the accounts of the Company and its 30 (30 in 2006 and 29in 2005) significant subsidiaries (collectively, the “Companies”). Consolidation of the remaining unconsolidated subsidiarieswould not have a material effect on the accompanying consolidated financial statements in 2007, 2006 and 2005.

Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercisecontrol over operations are fully consolidated, and those companies over which the Companies have the ability to exercisesignificant influence are accounted for by the equity method.

Investments in 2 affiliates and 1 unconsolidated subsidiary (2 affiliates and 1 unconsolidated subsidiary in 2006 and 2 affili-ates and 2 unconsolidated subsidiaries in 2005) are accounted for by the equity method.

All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealizedprofits included in assets resulting from transactions within the Companies are eliminated.

b. Business Combination—In October 2003, the Business Accounting Council (the “BAC”) issued a Statement of Opinion,“Accounting for Business Combinations,” and on December 27, 2005, the ASBJ issued ASBJ Statement No. 7, “Account-ing Standard for Business Separations” and ASBJ Guidance No. 10, “Guidance for Accounting Standard for Business Com-binations and Business Separations.” These new accounting pronouncements are effective for fiscal years beginning on orafter April 1, 2006.

The accounting standard for business combinations allows companies to apply the pooling of interests method of account-ing only when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests.

For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to bean acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combi-nations of entities under common control and for joint ventures.

c. Cash Equivalents—Cash equivalents on the consolidated statements of cash flows are defined as low-risk, highly liquid,short-term (maturity within three months of acquisition date) investments that are readily convertible to cash.

d. Inventories—Inventories of the Company and its domestic consolidated subsidiaries are stated at cost, determined by theaverage method, except for work in process which is stated at cost based on a specific-identification basis.

Inventories of foreign consolidated subsidiaries are stated at the lower of average cost or market. Cost is determined usingthe weighted average cost method.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2007, 2006 and 2005


e. Marketable and Investment Securities—Marketable and investment securities are classified and accounted for, dependingon management’s intent, as follows: (1) trading securities, which are held for the purpose of earning capital gains in the nearterm are reported at fair value, and the related unrealized gains and losses are included in earnings, (2) held-to-maturity debtsecurities, which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported atamortized cost and (3) available-for-sale securities, which are not classified as either of the aforementioned securities, arereported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity.

Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other thantemporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.

f. Property and Equipment—Property and equipment are stated at cost. Depreciation of property and equipment of theCompany and its domestic consolidated subsidiaries is computed substantially by the declining-balance method at rates basedon the estimated useful lives of the assets, while the straight-line method is applied to buildings acquired after April 1, 1998of the Company and its domestic consolidated subsidiaries, and all property and equipment of foreign consolidated subsid-iaries. The ranges of useful lives in the Company and its domestic consolidated subsidiaries are principally from 2 to 50 yearsfor buildings.

g. Long-lived Assets—In August 2002, the BAC issued a Statement of Opinion, “Accounting for Impairment of FixedAssets,” and in October 2003 the ASBJ issued ASBJ Guidance No. 6, “Guidance for Accounting Standard for Impairmentof Fixed Assets.” These new pronouncements are effective for fiscal years beginning on or after April 1, 2005 with earlyadoption permitted for fiscal years ending on or after March 31, 2004.

The Company and its domestic consolidated subsidiaries adopted the new accounting standard for impairment of fixedassets as of April 1, 2004. Long-lived assets of the Company and its domestic consolidated subsidiaries are reviewed forimpairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum ofthe undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or assetgroup. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds itsrecoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of theasset or the net selling price at disposition.

h. Goodwill and Other Intangible Assets—The differences between the cost and net equity in domestic consolidated subsid-iaries at acquisition (“Consolidation goodwill”) are amortized on a straight-line basis over 9 years and 20 years. Immaterialconsolidation goodwill which was incurred in the current period was charged to income.

Domestic consolidated subsidiaries’ goodwill are amortized on a straight-line basis over 5 years which was incurred underthe former Japanese Commercial Code (the “Code”).

Goodwill and other intangible assets associated with foreign consolidated subsidiaries are amortized on a straight-line basisprimarily over 40 years following the accounting practice in their respective countries. Effective January 1, 2002, BerlitzInternational, Inc. (“BI”) adopted an accounting standard for goodwill, Statement of Financial Accounting Standards (“SFAS”)No. 142, “Goodwill and Other Intangible Assets” in accordance with accounting principles generally accepted in theUnited States of America. Under SFAS No. 142, goodwill and other intangible assets that are determined to have anindefinite life will no longer be amortized, but rather will be tested for impairment on an annual basis and between annualtests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carryingamount. See Note 8, details of goodwill and other intangible assets. Intangible assets that are determined not to have anindefinite life primarily consist of publishing rights. Publishing rights are amortized on a straight-line basis over 25 years.

i. Leases—All leases are accounted for as operating leases by the Company and its domestic consolidated subsidiaries. UnderJapanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee areto be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain “as ifcapitalized” information is disclosed in the notes to the lessee’s financial statements.

j. Retirement and Pension Plans—The Company and certain domestic consolidated subsidiaries have severance payment plansfor employees, directors, corporate auditors and company officers. The Company and certain domestic consolidated subsidiar-ies have a non-contributory unfunded retirement benefit plan and a contributory funded defined pension plan.

The Company and its domestic consolidated subsidiaries accounted for the liability for retirement benefits based on theprojected benefit obligations and plan assets at the balance sheet date.

Retirement benefits to directors, corporate auditors and company officers of the Company and its 6 domestic consoli-dated subsidiaries in 2007 (6 in 2006 and 7 in 2005) are calculated to state the liability for directors, corporate auditors andcompany officers at the amount that would be required if all directors, corporate auditors and company officers retired ateach balance sheet date.

Foreign consolidated subsidiaries have defined contribution plans.


k. Stock Options—On December 27, 2005, the ASBJ issued ASBJ Statement No. 8, “Accounting Standard for Stock Op-tions” and related guidance. The new standard and guidance are applicable to stock options newly granted on and after May1, 2006. This standard requires companies to recognize compensation expense for employee stock options based on the fairvalue at the date of grant and over the vesting period as consideration for receiving goods or services. The standard alsorequires companies to account for stock options granted to non-employees based on the fair value of either the stock optionor the goods or services received. In the balance sheet, the stock option is presented as a stock acquisition right as a separatecomponent of equity until exercised. The standard covers equity-settled, share-based payment transactions, but does notcover cash-settled, share-based payment transactions. In addition, the standard allows unlisted companies to measure optionsat their intrinsic value if they cannot reliably estimate fair value.

The Company applied the new accounting standard for stock options to those granted on and after May 1, 2006. Theeffect of adoption of this accounting standard for the year ended March 31, 2007 was to decrease income before incometaxes and minority interests by ¥83 million ($703 thousand).

l. Presentation of Equity—On December 9, 2005, the ASBJ published a new accounting standard for presentation of equity.Under this accounting standard, certain items which were previously presented as liabilities are now presented as compo-nents of equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on derivativesaccounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, 2006. Theconsolidated balance sheet as of March 31, 2007 is presented in line with this new accounting standard.

m. Research and Development Costs—Research and development costs are charged to income as incurred.

n. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denominated in foreigncurrencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains andlosses from translation are recognized in the consolidated statements of income to the extent that they are not hedged byforward exchange contracts.

o. Foreign Currency Financial Statements—The balance sheet accounts of the foreign consolidated subsidiaries are translatedinto Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at thehistorical rate. Differences arising from such translation are shown as “Foreign currency translation adjustments” in aseparate component of equity. Revenue and expense accounts of foreign consolidated subsidiaries are translated into yen atthe average exchange rate.

p. Derivative Financial Instruments—The Companies use derivative financial instruments to manage their exposures tofluctuations in foreign exchange. Foreign exchange forward contracts and currency swap agreements are utilized by theCompanies to reduce foreign currency exchange risks. The Companies do not enter into derivatives for trading or specu-lative purposes.

The Company marks the foreign exchange forward contracts to fair value, and the unrealized gains/losses are recognizedin the consolidated statements of income.

A foreign consolidated subsidiary marks currency swap agreements to fair value. When these agreements are effective ashedges, realized and unrealized gains and losses are excluded from its consolidated statements of income, and included, netof deferred taxes, in the foreign currency translation adjustments account on the balance sheets.

q. Bonuses to Directors—Prior to the fiscal year ended March 31, 2005, bonuses to directors were accounted for as areduction of retained earnings after approval of appropriation of retained earnings at the general shareholders meeting in thefollowing year. The ASBJ has issued ASBJ Practical Issues Task Force (“PITF”) No. 13, “Accounting treatment for bonusesto directors and corporate auditors,” which encourages companies to record bonuses to directors and corporate auditors onthe accrual basis with a related charge to income, and still permits the direct reduction of such bonuses from retained earningsafter approval of appropriation of retained earnings. The Company accrued bonuses to directors as of March 31, 2005 andcharged them to income for the year then ended.

The ASBJ replaced the above accounting pronouncement by issuing a new accounting standard for bonuses to directorsand corporate auditors on November 29, 2005. Under the new accounting standard, bonuses to directors and corporateauditors must be expensed and are no longer allowed to be directly charged to retained earnings. This accounting standardis effective for fiscal years ending on or after May 1, 2006. The companies must accrue bonuses to directors and corporateauditors at the year-end to which such bonuses are attributable.


r. Income Taxes—The provision for income taxes is computed based on the pretax income included in the consolidatedstatements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expectedfuture tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.

s. Appropriations of Retained Earnings—Appropriations of retained earnings at each year-end are reflected in the consoli-dated financial statements for the following year upon shareholders’ approval.

t. Per Share Information—Basic net income per share is computed by dividing net income available to common sharehold-ers by the weighted-average number of common shares outstanding for the period.

Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted intocommon stock.

Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable tothe respective years including dividends to be paid after the end of the year.

u. New Accounting PronouncementsMeasurement of Inventories—Under generally accepted accounting principles in Japan (“Japanese GAAP”), inventories arecurrently measured either by the cost method, or at the lower of cost or market. On July 5, 2006, the ASBJ issued ASBJStatement No. 9, “Accounting Standard for Measurement of Inventories,” which is effective for fiscal years beginning on orafter April 1, 2008 with early adoption permitted. This standard requires that inventories held for sale in the ordinary courseof business be measured at the lower of cost or net selling value, which is defined as the selling price less additional estimatedmanufacturing costs and estimated direct selling expenses. The replacement cost may be used in place of the net sellingvalue, if appropriate. The standard also requires that inventories held for trading purposes be measured at the market price.Lease Accounting—On March 30, 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Trans-actions,” which revised the existing accounting standard for lease transactions issued on June 17, 1993.

Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lesseeare to be capitalized, however, other finance leases are permitted to be accounted for as operating lease transactions if certain“as if capitalized” information is disclosed in the note to the lessee’s financial statements.

The revised accounting standard requires that all finance lease transactions should be capitalized. The revised accountingstandard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted forfiscal years beginning on or after April 1, 2007.Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—Under Japa-nese GAAP, a company currently can use the financial statements of foreign subsidiaries which are prepared in accordancewith generally accepted accounting principles in their respective jurisdictions for its consolidation process unless they areclearly unreasonable. On May 17, 2006, the ASBJ issued ASBJ PITF No. 18, “Practical Solution on Unification of Ac-counting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements.” The new task force pre-scribes: (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactionsand events under similar circumstances should in principle be unified for the preparation of the consolidated financialstatements, (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Re-porting Standards or the generally accepted accounting principles in the United States tentatively may be used for theconsolidation process, (3) however, the following items should be adjusted in the consolidation process so that net incomeis accounted for in accordance with Japanese GAAP unless they are not material:

(1) Amortization of goodwill(2) Actuarial gains and losses of defined benefit plans recognized outside profit or loss(3) Capitalization of intangible assets arising from development phases(4) Fair value measurement of investment properties, and the revaluation model for property, plant and equipment, and

intangible assets(5) Retrospective application when accounting policies are changed(6) Accounting for net income attributable to a minority interest

The new task force is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted.


4. MARKETABLEANDINVESTMENTSECURITIES

3. CASH ANDCASHEQUIVALENTS

Cash and cash equivalents at March 31, 2007, 2006 and 2005, consisted of the following:


2007 2006 2005 2007

Cash and time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 40,294 ¥ 35,844 ¥ 46,613 $341,475Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,367 43,466 54,368 375,992Time deposits and short-term investments which mature orbecome due after more than three months from acquisition date . (11,277) (12,878) (11,489) (95,568)

Investment fund and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18) (15) (15) (153)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 73,366 ¥ 66,417 ¥ 89,477 $621,746

Marketable and investment securities as of March 31, 2007, 2006 and 2005, consisted of the following:


2007 2006 2005 2007

Current:Government and corporate bonds . . . . . . . . . . . . . . . . . . . . . ¥ 5,989 ¥ 4,998 ¥ 5,602 $ 50,754Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . 38,378 38,468 48,766 325,238

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 44,367 ¥ 43,466 ¥ 54,368 $375,992

Non-current:Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,851 ¥ 4,455 ¥ 4,027 $ 32,636Government and corporate bonds . . . . . . . . . . . . . . . . . . . . . 23,739 30,020 13,796 201,178Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . 473 298 342 4,008

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 28,063 ¥ 34,773 ¥ 18,165 $237,822

The carrying amounts and aggregate fair value of marketable and investment securities at March 31, 2007, 2006 and 2005,were as follows:

Millions of Yen

Unrealized Unrealized FairCost Gains Losses Value

March 31, 2007Securities classified as:

Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,656 ¥ 1,255 ¥ 26 ¥ 2,885Government and corporate bonds . . . . . . . . . . . . . . . . . . . . 22,749 29 50 22,728Trust fund investments and other . . . . . . . . . . . . . . . . . . . . 61 61

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 15 32 6,983


Millions of Yen



Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,475 ¥ 1,655 ¥ 25 ¥ 3,105Government and corporate bonds . . . . . . . . . . . . . . . . . . . . 28,208 35 225 28,018Trust fund investments and other . . . . . . . . . . . . . . . . . . . . 35 35

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 27 155 6,872


Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,728 1,008 29 2,707Government and corporate bonds . . . . . . . . . . . . . . . . . . . . 15,358 41 1 15,398Trust fund investments and other . . . . . . . . . . . . . . . . . . . . 62 3 59

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 38 1 4,037

Thousands of U.S. Dollars



Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,034 $10,636 $221 $ 24,449Government and corporate bonds . . . . . . . . . . . . . . . . . . . . 192,788 246 424 192,610Trust fund investments and other . . . . . . . . . . . . . . . . . . . . 517 517

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,322 127 271 59,178

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2007, 2006 and 2005, were as follows:

Carrying Amount


2007 2006 2005 2007

Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 966 ¥ 1,350 ¥ 1,320 $ 8,187Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . 38,790 38,731 49,049 328,729

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 39,756 ¥ 40,081 ¥ 50,369 $336,916

Proceeds from sales of available-for-sale securities and related gross realized gains and losses on these sales, computed onthe moving average cost basis for the years ended March 31, 2007, 2006 and 2005, were as follows:


2007 2006 2005 2007

Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,345 ¥ 1,030 ¥ 1,678 $53,771

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 10 ¥ 184 ¥ 260 $84Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80) (50) (30) (678)

Net realized (loss) gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (70) ¥ 134 ¥ 230 $ (594)


The carrying values of debt securities by contractual maturities for securities classified as available-for-sale and held-to-maturityat March 31, 2007, were as follows:


2007 2007

Available Held to Available Held tofor Sale Maturity for Sale Maturity

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 34,382 ¥ 1,000 $291,373 $ 8,475Due after one year through five years . . . . . . . . . . . . . . . . . . . . . 12,272 4,000 104,000 33,898Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . 2,997 2,000 25,398 16,949

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 49,651 ¥ 7,000 $420,771 $59,322

Inventories at March 31, 2007, 2006 and 2005, consisted of the following:


2007 2006 2005 2007

Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 11,142 ¥ 10,641 ¥ 9,266 $ 94,424Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,225 3,504 2,900 27,331Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185 1,001 887 10,042

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 15,552 ¥ 15,146 ¥ 13,053 $131,797

The Company and its domestic consolidated subsidiaries reviewed their long-lived assets for impairment as of the yearsended March 31, 2007, 2006 and 2005, and, as a result, recognized an impairment loss, as follows:

Millions Thousands of The RecoverableUse Type of Yen U.S. Dollars Amounts

Year ended March 31, 2007 Operation system of The assessed valuelanguage lesson Other intangible assets ¥ 217 $1,839 of fixed assets

Language lesson business The total amount offor children in Germany Goodwill 29 246 the book value

Total ¥ 246 $2,085

The assessed value Year ended March 31, 2006 Unused Land ¥ 180 of fixed assets

¥ 1 per oneUnused Rights of telephone 43 telephone right

Total ¥ 223

The assessed valueYear ended March 31, 2005 Unused Land and other ¥ 173 of fixed assets

Operation system ofthe mail-order business Other intangible assets 161 ¥ 0

Total ¥ 334

6. LONG-LIVEDASSETS

5. INVENTORIES


(1) LesseeTotal lease payments under finance lease arrangements that do not transfer ownership of the leased property to the Companyand its domestic subsidiaries were ¥1,985 million ($16,822 thousand), ¥2,031 million and ¥1,808 million for the years endedMarch 31, 2007, 2006 and 2005, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation and obligations under financeleases which included imputed interest of finance leases that do not transfer ownership of the leased property to the lessee onan “as if capitalized” basis for the years ended March 31, 2007, 2006 and 2005, were as follows:


Equipment and Fixtures and Other Assets 2007 2006 2005 2007

Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 9,291 ¥ 9,444 ¥ 8,169 $78,737Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,007 4,575 4,212 33,957

Net leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,284 ¥ 4,869 ¥ 3,957 $44,780

Obligations under finance leases:


2007 2006 2005 2007

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,820 ¥ 1,712 ¥ 1,516 $15,424Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,464 3,157 2,441 29,356

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,284 ¥ 4,869 ¥ 3,957 $44,780

Depreciation expenses, which are not reflected in the accompanying consolidated statements of income, were computedby the straight-line method for the years ended March 31, 2007, 2006 and 2005.

A foreign consolidated subsidiary leases certain equipment, office space and other assets, under noncancellable operatingleases. The Company and a domestic consolidated subsidiary have lease contracts of certain land, buildings and other assets,under noncancellable operating leases.

The minimum rental commitments under noncancellable operating leases at March 31, 2007, 2006 and 2005, were as follows:


2007 2006 2005 2007

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,441 ¥ 5,848 ¥ 4,715 $ 54,585Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,228 35,734 28,472 323,966

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 44,669 ¥ 41,582 ¥ 33,187 $378,551

(2) SubleasePro forma lease receivables under sublease arrangements that do not transfer ownership of the leased property to the lessee atMarch 31, 2007, 2006 and 2005, which included imputed interest, were as follows:


2007 2006 2005 2007

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3 ¥ 4 ¥ 7 $25Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 5 17

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5 ¥ 6 ¥ 12 $42

Pro forma obligations under sublease agreements that do not transfer ownership of the leased property to the lessee atMarch 31, 2007, 2006 and 2005, which included imputed interest, were as follows:


2007 2006 2005 2007

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2 ¥ 3 ¥ 6 $17Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 4 17

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4 ¥ 5 ¥ 10 $34

7. LEASES


9. SHORT-TERMBANK LOANSANDLONG-TERMDEBT

8. GOODWILLAND OTHERINTANGIBLEASSETS

Goodwill and other intangible assets at March 31, 2007, 2006 and 2005, consisted of the following:


2007 2006 2005 2007

Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,916 ¥ 2,752 ¥ 2,948 $ 24,712Goodwill associated with domestic consolidated subsidiaries . . . . 5,133 6,888 88 43,500Goodwill associated with a foreign consolidated subsidiary . . . . . 33,787 32,576 29,295 286,331Software associated with the Company andits certain domestic consolidated subsidiaries and others . . . . . . . 11,931 11,289 10,519 101,110

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 53,767 ¥ 53,505 ¥ 42,850 $455,653

Short-term bank loans at March 31, 2007, 2006 and 2005, consisted of notes to banks. The annual interest rates applicableto the short-term bank loans ranged from 0.99% to 5.265% at March 31, 2007, ranged from 0.5% to 2.875% at March 31,2006 and ranged from 0.55% to 1.875% at March 31, 2005.

Long-term debt at March 31, 2007, 2006 and 2005, consisted of the following:


2007 2006 2005 2007

Long-term debt, collateralized:Banks and others, in yen—with interest rates of 2.88% in 2005 . . ¥ 58Government-owned bank, in yen, maturing serially through 2013—with interest rates of 3.5% in 2007 and ranging from 3.5% to5.45% in 2006 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 59 ¥ 3,038 3,624 $ 500

Total long-term debt, collateralized . . . . . . . . . . . . . . . . . 59 3,038 3,682 500

Long-term debt, unsecured:Banks, in yen, maturing serially through 2011—with interest ratesranging from 0.79% to 3.125% in 2007, 0.79% to 2.875% in 2006,and 0.84% to 2.89% in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 1,227 1,070 930 10,398

Banks and others, in U.S. dollars—with interest at the average rateof 8.45% in 2007, 7.65% in 2006 and 7.45% in 2005 . . . . . . . 1 2 13 8

Bonds due 2008—with interest rates ranging from 0.31% to 0.51%in 2007, 2006 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 120 210 509

Total long-term debt, unsecured . . . . . . . . . . . . . . . . . . . 1,288 1,192 1,153 10,915

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,347 4,230 4,835 11,415

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (607) (1,266) (1,242) (5,144)

Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . ¥ 740 ¥ 2,964 ¥ 3,593 $ 6,271

Annual maturities of long-term debt at March 31, 2007, were as follows:

Thousands ofYear Ending March 31 Millions of Yen U.S. Dollars

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 607 $ 5,1442009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381 3,2292010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 8312011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 5342012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 4832013 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 1,194

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,347 $11,415


10. RETIREMENTAND PENSIONPLANS

At March 31, 2007, assets having the following carrying values were pledged as collateral for the long-term debt in yen inthe amount of ¥59 million ($500 thousand) by the Company and its domestic consolidated subsidiaries.


Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,900 $ 58,475Buildings—net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,084 110,881

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 19,984 $169,356

The Company and Its Certain Domestic Consolidated SubsidiariesRetirement benefits for employeesUnder most circumstances, employees terminating their employment are entitled to retirement benefits determined basedon the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made inthe form of a lump-sum severance payment from the Company or from certain domestic consolidated subsidiaries andannuity payments from a welfare annuity fund. Employees are entitled to larger payments if the termination is involuntary,by retirement at the mandatory retirement age.

The Company and its domestic consolidated subsidiaries have a contributory funded defined benefit pension plan. Theplan, which is established under the Japanese Welfare Pension Insurance Law, covers a substitutional portion of the govern-mental pension program by the Company on behalf of the government and a corporate portion established at the discretionof the Company. The pension fund is administered by a board of trustees composed of management and employee repre-sentatives as required by government regulations.

Effective from April 1, 2004 the Company and its certain domestic consolidated subsidiaries introduced a cash-balanceplan to reduce the Company’s future risk due to unexpected low returns from the pension fund.

The liability for employees’ retirement benefits at March 31, 2007, 2006 and 2005, consisted of the following:


2007 2006 2005 2007

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 9,879 ¥ 9,283 ¥ 8,913 $ 83,720Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,432) (11,687) (10,242) (105,356)Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 365 (813) 3,483Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . 502 607 710 4,255Prepaid pension expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,012 3,684 3,543 34,000

Net liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,372 ¥ 2,252 ¥ 2,111 $ 20,102

The components of net periodic benefit costs for the years ended March 31, 2007, 2006 and 2005, were as follows:


2007 2006 2005 2007

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,154 ¥ 1,076 ¥ 944 $ 9,780Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 172 159 1,525Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . (234) (204) (213) (1,983)Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 168 65 356Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . (105) (102) (102) (890)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (93)

Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,026 ¥ 1,110 ¥ 853 $ 8,695

Assumptions used for the years ended March 31, 2007, 2006 and 2005, were set forth as follows:

2007 2006 2005

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 2.0% 2.0%Expected rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 2.0% 2.1%Recognition period of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 years 8 years 8 years

Amortization period of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . 8 years 8 years 8 years


11. EQUITY

Retirement benefits for directors, corporate auditors and company officersThe liability for retirement benefits at March 31, 2007, 2006 and 2005 for directors, corporate auditors and company officerswas ¥1,467 million ($12,432 thousand), ¥1,459 million and ¥1,482 million, respectively. The retirement benefits for direc-tors and corporate auditors are paid subject to the approval of the shareholders.

A Foreign Consolidated Subsidiary—Berlitz International, Inc.Berlitz International, Inc. has a Supplemental Executive Retirement Plan (“SERP”) for the benefit of its Chairman of theBoard, certain designated executives and their designated beneficiaries. Information for the SERP at March 31, 2007, 2006and 2005, was set forth as follows:


2007 2006 2005 2007

Accrued benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,135 ¥ 2,222 ¥ 1,681 $18,093Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 174 225 1,797

On and after May 1, 2006, Japanese companies are subject to a new corporate law of Japan (the “Corporate Law”), whichreformed and replaced the Commercial Code with various revisions that are, for the most part, applicable to events ortransactions which occur on or after May 1, 2006 and for the fiscal years ending on or after May 1, 2006. The significantchanges in the Corporate Law that affect financial and accounting matters are summarized below:

a. DividendsUnder the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-enddividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as: (1) having theBoard of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of serviceof the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board ofDirectors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has pre-scribed so in its articles of incorporation. The Company meets all the above criteria.

Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

b. Increases/Decreases and Transfer of Common Stock, Reserve and SurplusThe Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a componentof retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity accountcharged upon the payment of such dividends until the total of the aggregate amount of legal reserve and additional paid-incapital equals 25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capital and legalreserve may be reversed without limitation. The Corporate Law also provides that common stock, legal reserve, additionalpaid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditionsupon resolution of the shareholders.

c. Treasury Stock and Treasury Stock Acquisition RightsThe Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolutionof the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution tothe shareholders which is determined by specific formula.

Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as aseparate component of equity.

The Corporate Law also provides that companies can purchase both treasury stock acquisition rights and treasury stock.Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stockacquisition rights.


Information about industry segments, geographic segments and sales to foreign customers of the Companies for the yearsended March 31, 2007, 2006 and 2005, was as follows:

a. Industry Segments(1) Sales and Operating Income

Millions of Yen

2007

Education Lifetime Value Senior Language AVIVA Eliminations/Group Company Company Company Business Others Corporate Consolidated

Sales to customers . . . . . ¥ 208,833 ¥ 23,450 ¥ 32,054 ¥ 59,164 ¥ 10,326 ¥ 20,769 ¥ 354,596

Intersegment sales . . . . . 11 5 1 75 5 22,406 ¥ (22,503)

Total sales . . . . . 208,844 23,455 32,055 59,239 10,331 43,175 (22,503) 354,596

Operating expenses . . . . 178,232 22,082 29,515 54,569 11,514 42,745 (15,378) 323,279

Operating income (loss) . ¥ 30,612 ¥ 1,373 ¥ 2,540 ¥ 4,670 ¥ (1,183) ¥ 430 ¥ (7,125) ¥ 31,317


2007


Sales to customers . . . . . $1,769,771 $198,729 $271,645 $501,389 $ 87,509 $176,008 $3,005,051

Intersegment sales . . . . . 93 42 8 636 42 189,882 $(190,703)

Total sales . . . . . 1,769,864 198,771 271,653 502,025 87,551 365,890 (190,703) 3,005,051

Operating expenses . . . . 1,510,440 187,135 250,128 462,449 97,576 362,246 (130,321) 2,739,653

Operating income (loss) . $ 259,424 $ 11,636 $ 21,525 $ 39,576 $(10,025) $ 3,644 $ (60,382) $ 265,398

Millions of Yen

2006


Sales to customers . . . . . ¥ 198,665 ¥ 20,834 ¥ 27,402 ¥ 51,536 ¥ 13,915 ¥ 21,415 ¥ 333,767

Intersegment sales . . . . . 79 15 118 26,646 ¥ (26,858)

Total sales . . . . . 198,744 20,849 27,402 51,654 13,915 48,061 (26,858) 333,767

Operating expenses . . . . 169,029 20,717 25,493 49,109 15,479 46,711 (21,183) 305,355

Operating income (loss) . ¥ 29,715 ¥ 132 ¥ 1,909 ¥ 2,545 ¥ (1,564) ¥ 1,350 ¥ (5,675) ¥ 28,412

Millions of Yen

2005

Education Lifetime Value Senior Language Eliminations/Group Company Company Company Others Corporate Consolidated

Sales to customers . . . . . . . . . . . . . . ¥ 183,443 ¥ 18,247 ¥ 22,813 ¥ 46,982 ¥ 19,918 ¥ 291,403

Intersegment sales . . . . . . . . . . . . . . 11 1 40 24,913 ¥ (24,965)

Total sales . . . . . . . . . . . . . . 183,454 18,248 22,813 47,022 44,831 (24,965) 291,403

Operating expenses . . . . . . . . . . . . . 154,549 17,961 20,809 47,805 43,088 (18,987) 265,225

Operating income (loss) . . . . . . . . . . ¥ 28,905 ¥ 287 ¥ 2,004 ¥ (783) ¥ 1,743 ¥ (5,978) ¥ 26,178

12. SEGMENTINFORMATION


(2) Assets, Depreciation and Amortization, and Capital Expenditures

Millions of Yen

2007


Assets . . . . . . . . . . . . . . . ¥ 96,544 ¥ 8,993 ¥ 36,147 ¥ 68,381 ¥ 7,677 ¥ 17,049 ¥ 114,308 ¥ 349,099

Depreciation and amortization . . 4,804 234 770 1,529 1,816 606 170 9,929

Capital expenditures . . . . 6,252 309 1,718 1,249 278 1,148 848 11,802


2007


Assets . . . . . . . . . . . . . . . $818,169 $76,212 $306,331 $579,500 $65,059 $144,483 $968,712 $2,958,466

Depreciation and amortization . . 40,712 1,983 6,525 12,958 15,390 5,136 1,440 84,144

Capital expenditures . . . . 52,983 2,619 14,559 10,585 2,356 9,729 7,186 100,017

Millions of Yen

2006


Assets . . . . . . . . . . . . . . . ¥ 87,605 ¥ 8,404 ¥ 28,385 ¥ 61,232 ¥ 9,303 ¥ 18,492 ¥ 116,809 ¥ 330,230

Depreciation and amortization . . 4,879 227 758 1,582 1,837 636 (144) 9,775

Capital expenditures . . . . 5,249 167 2,505 1,296 9,298 839 1,150 20,504

Millions of Yen

2005

Education Lifetime Value Senior Language Eliminations/Group Company Company Company Others Corporate Consolidated

Assets . . . . . . . . . . . . . . . . . . . . . . . ¥ 80,071 ¥ 8,387 ¥ 25,517 ¥ 53,748 ¥ 17,767 ¥ 122,178 ¥ 307,668

Depreciation and amortization . . . . . 4,700 254 644 1,460 619 (166) 7,511

Capital expenditures . . . . . . . . . . . . 4,315 155 4,338 1,925 621 (238) 11,116

b. Geographical SegmentsThe foreign operations of the Companies for the years ended March 31, 2007, 2006 and 2005, were summarized as follows:

Millions of Yen

2007

North Eliminations/Japan America Others Corporate Consolidated

Sales:To customers . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 307,630 ¥ 14,631 ¥ 32,335 ¥ 354,596Inter-area . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 2 1,800 ¥ (1,837)

Total sales . . . . . . . . . . . . . . . . . . . . . . . . 307,665 14,633 34,135 (1,837) 354,596Operating expenses . . . . . . . . . . . . . . . . . . . . . . . 277,354 11,177 36,585 (1,837) 323,279

Operating income (loss) . . . . . . . . . . . . . . . . . . . . ¥ 30,311 ¥ 3,456 ¥ (2,450) ¥ 31,317

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 169,327 ¥ 43,671 ¥ 14,023 ¥ 122,078 ¥ 349,099


Millions of Yen

2006


Sales:To customers . . . . . . . . . . . . . . . . . . . . . ¥ 294,626 ¥ 11,742 ¥ 27,399 ¥ 333,767Inter-area . . . . . . . . . . . . . . . . . . . . . . . . 8 16 2,704 ¥ (2,728)

Total sales . . . . . . . . . . . . . . . . . . . . 294,634 11,758 30,103 (2,728) 333,767Operating expenses . . . . . . . . . . . . . . . . . . . 266,579 10,199 31,305 (2,728) 305,355

Operating income (loss) . . . . . . . . . . . . . . . . ¥ 28,055 ¥ 1,559 ¥ (1,202) ¥ 28,412

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 146,549 ¥ 51,677 ¥ 11,324 ¥ 120,680 ¥ 330,230

Millions of Yen

2005


Sales:To customers . . . . . . . . . . . . . . . . . . . . . ¥ 256,723 ¥ 10,370 ¥ 24,310 ¥ 291,403Inter-area . . . . . . . . . . . . . . . . . . . . . . . . 26 36 1,093 ¥ (1,155)

Total sales . . . . . . . . . . . . . . . . . . . . 256,749 10,406 25,403 (1,155) 291,403Operating expenses . . . . . . . . . . . . . . . . . . . 230,741 8,704 26,935 (1,155) 265,225

Operating income (loss) . . . . . . . . . . . . . . . . ¥ 26,008 ¥ 1,702 ¥ (1,532) ¥ 26,178

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 127,279 ¥ 45,609 ¥ 8,701 ¥ 126,079 ¥ 307,668


2007


Sales:To customers . . . . . . . . . . . . . . . . . . . . . $2,607,034 $123,992 $274,025 $3,005,051Inter-area . . . . . . . . . . . . . . . . . . . . . . . . 297 16 15,255 $ (15,568)

Total sales . . . . . . . . . . . . . . . . . . . . 2,607,331 124,008 289,280 (15,568) 3,005,051Operating expenses . . . . . . . . . . . . . . . . . . . 2,350,458 94,720 310,043 (15,568) 2,739,653

Operating income (loss) . . . . . . . . . . . . . . . . $ 256,873 $ 29,288 $ (20,763) $ 265,398

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,434,975 $370,093 $118,839 $1,034,559 $2,958,466

c. Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2007, 2006 and 2005, were as follows:


2007 2007

North NorthAmerica Others Total America Others Total

Sales to foreign customers (A) . . . . . . . . . . ¥ 14,631 ¥ 32,379 ¥ 47,010 $123,992 $274,398 $ 398,390Consolidated sales (B) . . . . . . . . . . . . . . . . 354,596 3,005,051Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . . . . . . . . 4.1% 9.2% 13.3% 4.1% 9.2% 13.3%


16. DERIVATIVES

15. RESEARCHANDDEVELOPMENTCOSTS

14. ADVERTISINGCOSTS

13. RELATEDPARTYTRANSACTION

Millions of Yen

2006

NorthAmerica Others Total

Sales to foreign customers (A) . . . . . . . . . . ¥ 11,735 ¥ 27,413 ¥ 39,148Consolidated sales (B) . . . . . . . . . . . . . . . . 333,767Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . . . . . . . . 3.5% 8.2% 11.7%

Millions of Yen

2005

NorthAmerica Others Total

Sales to foreign customers (A) . . . . . . . . . . ¥ 10,370 ¥ 24,313 ¥ 34,683Consolidated sales (B) . . . . . . . . . . . . . . . . 291,403Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . . . . . . . . 3.6% 8.3% 11.9%

Notes: North America consists of the United States of America and Canada.Others consists of the United Kingdom, Germany, France and Asia except for Japan.

Major transactions of the Company with a director for the year ended March 31, 2005, were as follows:

Millions of Yen

2005

Sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . ¥ 54

Gain on sales of property and equipment was included in other—net in the amount of ¥5 million.

Advertising costs charged to income were ¥40,977 million ($347,263 thousand), ¥42,144 million and ¥37,081 million forthe years ended March 31, 2007, 2006 and 2005, respectively.

Research and development costs charged to income were ¥4,067 million ($34,466 thousand), ¥3,131 million and ¥2,533 mil-lion for the years ended March 31, 2007, 2006 and 2005, respectively.

The Company and its foreign consolidated subsidiary enter into foreign exchange contracts and currency swap agreementsto hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies.

It is the Company’s policy to use derivatives only for the purpose of reducing market risks associated with assets andliabilities. The Company and its foreign consolidated subsidiary do not hold or issue derivatives for trading purposes.

Derivatives are subject to market risk and credit risk. Market risk is the exposure created by potential fluctuations inmarket conditions, including foreign exchange rates. Credit risk is the possibility that a loss may result from a counterparty’sfailure to perform according to the terms and conditions of the contract.

Because the counterparties to these derivatives are limited to major international financial institutions, the Company andits foreign consolidated subsidiary do not anticipate any losses arising from credit risk.

The execution and control of derivatives are managed by the Company’s Finance Department applying internal controlpolicies which regulate the authorization and credit limit amount. Each derivative transaction is reported to the officer of theFinance Department daily, and reported to the Board of Directors quarterly. Prior to entering into its derivative contracts,a foreign consolidated subsidiary conferred with independent advisors to assess the reasonableness of the contracts andobtained Board of Directors’ approval, and each derivatives transaction is periodically reported to the Board of Directors.


Derivatives contracts outstanding at March 31, 2007, 2006 and 2005, consisted of the following:

Millions of Yen

2007 2006 2005

Contract or Contract or Contract orNotional Fair Unrealized Notional Fair Unrealized Notional Fair UnrealizedAmount Value Loss (Gain) Amount Value Loss (Gain) Amount Value Loss (Gain)

Foreign currency forwardcontracts:Payables—U.S. dollars . . . . ¥ 2,706 ¥ 2,706 ¥ 2,691 ¥ 2,691 ¥ 2,470 ¥ 2,470Payables—Korean won . . . 4,200 4,217 ¥ (17) 1,944 1,947 ¥ 3

Total . . . . . . . . . . . . . . . . . . ¥ 6,906 ¥ 6,923 ¥ (17) ¥ 4,635 ¥ 4,638 ¥ 3 ¥ 2,470 ¥ 2,470


2007

Contract orNotional Fair UnrealizedAmount Value Loss (Gain)

Foreign currency forwardcontracts:Payables—U.S. dollars . . . . $22,932 $22,932Payables—Korean won . . . 35,593 35,737 $144

Total . . . . . . . . . . . . . . . . . . $58,525 $58,669 $144

The contract or notional amounts of derivatives which are shown in the above table do not represent the amountsexchanged by the parties and do not measure the Company’s exposure to credit or market risk.

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate,resulted in a normal effective statutory tax rate of approximately 40.6% for the years ended March 31, 2007, 2006 and 2005.

The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities at March 31, 2007,2006 and 2005, were as follows:


2007 2006 2005 2007

Deferred tax assets:Provision for employees’ bonuses . . . . . . . . . . . . . . . . . . . . . . ¥ 1,769 ¥ 1,522 ¥ 1,548 $14,992Enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720 473 676 6,102Social insurance premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 180 186 2,008Liability for retirement benefits . . . . . . . . . . . . . . . . . . . . . . . 1,482 1,469 1,263 12,559Deferred tax assets of the foreign consolidated subsidiaries . . . . 2,561 2,250 1,616 21,703Unrealized profit of fixed asset . . . . . . . . . . . . . . . . . . . . . . . . 351 274 216 2,975Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,344 1,246 327 11,390Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,417 1,253 1,160 12,009Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,528) (1,476) (463) (12,949)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,353 7,191 6,529 70,789

Deferred tax liabilities:Unrealized gain on available-for-sale securities . . . . . . . . . . . . 537 599 470 4,551Prepaid pension expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,628 1,500 1,420 13,797Deferred tax assets of the foreign consolidated subsidiaries . . . . 70Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 267 3,127

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,534 2,436 1,890 21,475

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,819 ¥ 4,755 ¥ 4,639 $49,314

17. INCOMETAXES


Net deferred tax assets were included in the consolidated balance sheets as follows:


2007 2006 2005 2007

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,137 ¥ 4,802 ¥ 2,770 $43,534Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,236 527 2,187 10,475Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (554) (574) (318) (4,695)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,819 ¥ 4,755 ¥ 4,639 $49,314

* The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities of the foreign consolidated subsidiaries atMarch 31, 2007, 2006 and 2005, were as follows:


2007 2006 2005 2007

Deferred tax assets:Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,887 ¥ 1,717 ¥ 1,496 $ 15,992Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569 486 254 4,822Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,527 2,550 1,682 29,890Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 758Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524 959 769 12,915Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,667) (3,104) (2,465) (31,077)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,840 3,313 2,494 32,542

Deferred tax liabilities:Publishing right amortization . . . . . . . . . . . . . . . . . . . . . . . . . 498 539 512 4,220Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781 594 366 6,619

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,279 1,133 878 10,839

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,561 ¥ 2,180 ¥ 1,616 $ 21,703

Net deferred tax assets were included in the tax effects of significant temporary differences as follows:


2007 2006 2005 2007

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,561 ¥ 2,250 ¥ 1,616 $21,703Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,561 ¥ 2,180 ¥ 1,616 $21,703

A reconciliation between the normal effective statutory tax rate for the years ended March 31, 2007, 2006 and 2005, andthe actual effective tax rates reflected in the accompanying consolidated statements of income were as follows:

2007 2006 2005

Normal effective statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.6% 40.6% 40.6%Differences of income taxes with foreign consolidated subsidiaries . . . . . . . . . . . . . . (0.4) (0.1) 3.7Permanently non-deductible expenses of social expenses, etc. . . . . . . . . . . . . . . . . . 0.9 0.9 0.8Change in the valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.3 (0.6)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 (0.8) (0.2)

Actual effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.0% 41.9% 44.3%


The stock option outstanding as of March 31, 2007 is as follows:

Number ofPersons Options Date of Exercise

Stock Option Granted Granted Grant Price Exercise Period

2003 Stock Option 5 directors 3,000 July 25, ¥ 2,148 From July 1, 200515 officers 4,800 2003 to June 30, 20092 directors of subsidiaries 400

2004 Stock Option 6 directors 1,060 July 23 and ¥ 3,549 From July 1, 200612 officers 1,260 July 26, to June 30, 20104 directors of subsidiaries 80 2004

2005 Stock Option 8 directors 990 July 24, ¥ 3,780 From July 1, 200711 officers 960 2005 to June 30, 20114 corporate auditors 1,0005 selected employees 5009 directors of subsidiaries 7002 officers of subsidiaries 200

2006 Stock Option 7 directors 1,130 August 3, ¥ 4,389 From July 1, 200814 officers 940 2006 to June 30, 20124 corporate auditors 802 selected employees 2007 directors of subsidiaries 220

The stock option activity is as follows:

2003 2004 2005 2006Stock Stock Stock Stock

Option Option Option Option

(Shares)

For the Year Ended March 31, 2005Non-vested:

March 31, 2004—outstanding . . . . . . . . . . . . . . . . . . . . . . 8,200Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 31, 2005—outstanding . . . . . . . . . . . . . . . . . . . . . . 8,200 2,400Vested:March 31, 2004—outstanding

Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 31, 2005—outstanding . . . . . . . . . . . . . . . . . . . . . .


March 31, 2005—outstanding . . . . . . . . . . . . . . . . . . . . . . 8,200 2,400Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,350Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,200)

March 31, 2006—outstanding . . . . . . . . . . . . . . . . . . . . . . 2,400 4,350Vested:

March 31, 2005—outstanding . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,200Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,980)Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 31, 2006—outstanding . . . . . . . . . . . . . . . . . . . . . . 6,220

18. STOCKOPTIONPLAN


2003 2004 2005 2006Stock Stock Stock Stock

Option Option Option Option

(Shares)


March 31, 2006—outstanding . . . . . . . . . . . . . . . . . . . . . . . . 2,400 4,350Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,570CanceledVested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,400)

March 31, 2007—outstanding . . . . . . . . . . . . . . . . . . . . . . . . 4,350 2,570Vested:

March 31, 2006—outstandingVested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,220 2,400Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,065) (76)Canceled

March 31, 2007—outstanding . . . . . . . . . . . . . . . . . . . . . . . . 4,155 2,324Exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,148 ¥ 3,549 ¥ 3,780 ¥ 4,389

($18) ($30) ($32) ($37)Fair value price at grant date . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 991

($8)

The Assumptions Used to Measure Fair Value of the 2006 Stock OptionEstimate method: Black-Scholes option pricing modelVolatility of stock price: 32.38%Estimated remaining outstanding period: Two yearsEstimated dividend: ¥80 per shareRisk free interest rate: 1.184%

Reconciliation of differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2007,2006 and 2005, was as follows:

Millions Thousandsof Yen of Shares Yen U.S. Dollars

Net Weighted-averageIncome Shares EPS

Year Ended March 31, 2007

Basic EPS—Net income available to common shareholders . . ¥ 18,244 102,575 ¥ 177.86 $1.51

Effect of dilutive securities—Stock options . . . . . . . . . . . . . . 367

Diluted EPS—Net income for computation . . . . . . . . . . . . . ¥ 18,244 102,942 ¥ 177.23 $1.50


Basic EPS—Net income available to common shareholders . . . ¥ 16,039 102,519 ¥ 156.45

Effect of dilutive securities—Stock options . . . . . . . . . . . . . . . 347

Diluted EPS—Net income for computation . . . . . . . . . . . . . . ¥ 16,039 102,866 ¥ 155.92


Basic EPS—Net income available to common shareholders . . . ¥ 14,297 103,568 ¥ 138.05

Effect of dilutive securities—Stock options . . . . . . . . . . . . . . . 290

Diluted EPS—Net income for computation . . . . . . . . . . . . . . ¥ 14,297 103,858 ¥ 137.66

19. NET INCOMEPER SHARE


a. Stock Option PlanAt the general shareholders meeting held on June 24, 2007, the Company’s shareholders approved the stock option plan forthe directors, corporate auditors, company officers and selected employees of the Company and directors and companyofficers of subsidiaries to purchase up to 550,000 shares of the Company’s common stock in the period from June 25, 2007to June 30, 2013. The options will be granted at an exercise price of 105% of the higher of either the average market valueof the Company’s common stock in the month prior to the date the option grant occurs, or the fair market value of theCompany’s common stock at the previous date of option grant.

b. Appropriations of Retained EarningsThe following appropriations of retained earnings at March 31, 2007, were approved by the Company’s shareholders at ameeting held on June 24, 2007:


2007 2007

Year-end cash dividends, ¥45 ($0.38) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,622 $39,169

c. Acquisition of Shares of Tokyo Individualized Educational Institute, Inc.At a meeting of the Board of Directors held on May 18, 2007 the Company decided to acquire shares of common stock inTokyo Individualized Educational Institute, Inc. (“the Target Company”) via a tender offer bid. Based on this decision, theCompany conducted a tender offer bid from May 23, 2007 to June 19, 2007 and will acquire 33,610,800 shares (51.89% ofthe Target Company’s issued and outstanding shares) for ¥12,772 million ($108,237 thousand). As a result, on June 26, 2007the Target Company will become a subsidiary of the Company.

The paid-in capital of the Target Company on November 30, 2006 was ¥642 million ($5,422 thousand), and the out-standing number of shares was 65,269,500. Its main business is operation of learning centers focused on individual instruc-tion. Sales and net income of the Target Company for the year ended May 31, 2006 were ¥16,072 million ($136,207 thousand)and ¥1,347 million ($11,421 thousand), respectively.

d. Purchase of Treasury StockAt the extraordinary Board of Directors meeting held on June 21, 2007, it was resolved to repurchase up to 1,000,000 shares ofthe Company’s common stock (aggregate amount of ¥3,700 million ($31,355 thousand)) from June 26, 2007 to July 19, 2007.

20. SUBSEQUENTEVENTS


INDEPENDENT AUDITORS’ REPORT


CONSOLIDATED SUBSIDIARIESAs of March 31, 2007

Common Ratio of

Name of company stock shareholding Description of businessMillions of Yen %

Telemarketing Japan, Inc. 300 100.00 Telemarketing

AVIVA Co., Ltd. 250 95.00 Operation of PC schools

Ochanomizu Seminar Co., Ltd. 235 100.00 Operation of prep schools

Benesse Style Care Co., Ltd. 100 100.00 Operation of senior citizen welfare business

Synform Co., Ltd. 95 100.00 Computer information processing and systems development and sales

Benesse MCM Corp. 80 *1 100.00 Nursing-care business support and personnel services

Shinken-AD Co., Ltd. 65 76.35 Advertising services and creation of university information magazines

Okayama Language Center 50 75.00 Language instruction and translation services

Benesse en-Famille Inc. 50 66.00 Home food-delivery service

Benesse Business-mate, Inc. 50 *2 100.00 Office operational management, outsourcing and support services

Benesse Institute for 50 100.00 Conducts surveys and research primarily related to preschoolthe Child Sciences, Parenting, education, parenting and agingand Aging Inc.

Plandit Co., Ltd. 40 100.00 Planning and editing of study materials

Simul International, Inc. 40 100.00 Interpretation, translation and language instruction services

Naoshima Cultural Village Co., Ltd. 20 100.00 Hotel and campsite operation and management

Simul Business Communications, Inc. 20 *3 100.00 Personnel services

Persons Inc. 20 100.00 Personnel services

Benesse Base-Com, Inc. 20 100.00 Production, distribution and sales of study materials and software

Benesse Insurance Service, Inc. 20 *4 94.04 Insurance agency business

Benesse Music Publishing Co. 10 100.00 Rights management of music publications

Learn-S Co., Ltd. 10 100.00 Planning, editing, production and sales of study materials

Simul Technical Communications, Inc. 10 *3 100.00 Rental, sale and repair of simultaneous interpreting equipment

Thousands ofU.S. Dollars %

Berlitz International, Inc. 1,005 100.00 Language instruction

Value Communication Services 3,066 *5 100.00 Call center planning(Shanghai), Inc.

Thousands ofH.K. Dollars %

Benesse Hong Kong Co., Ltd. 3,600 100.00 General trading and quality assurance related to educationalequipment, toys and other items

Millions ofWon %

Benesse Korea Co., Ltd. 2,000 100.00 Correspondence-based education, production andsales of study materials

Thousands ofYuan %

Benesse Consulting for 1,119 *6 100.00 Sales of learning aids and toysEducational-Products Producing(Shenzhen) Co., Ltd.

Four other subsidiaries

*1 Indirectly held through Benesse Style Care Co., Ltd.*2 Including an indirect holding of 6.0% through subsidiaries*3 Indirectly held through Simul International, Inc.*4 Including an indirect holding of 64.04% through subsidiaries and affiliates*5 Indirectly held through Telemarketing Japan, Inc.*6 Indirectly held through Benesse Hong Kong Co., Ltd.


THE HISTORY OF BENESSE CORPORATION

Year History

1955 Fukutake Publishing Co., Ltd., is established in Minamigata, Okayama Prefecture, and begins publishing junior high schooleducational materials and student pocketbooks.

1962 The Company establishes Kansai School Entrance Research Association and begins offering Kansai Simulated Exams(now Shinken Simulated Exams) for senior high school students.

1969 Correspondence Education Seminar (now Shinkenzemi Senior High School Courses) is launched.Tokyo Office opens and begins offering Shinken Simulated Exams in eastern Japan.

1972 Correspondence Education Seminar Junior (now Shinkenzemi Junior High School Courses) is launched.

1973 Kansai Simulated Exams are renamed Shinken Simulated Exams.Correspondence Education Seminar is renamed Shinkenzemi.

1980 Shinkenzemi Elementary School Courses are introduced.

1988 Shinkenzemi Preschool Courses for ages 4 to 5 (now Kodomo Challenge) are introduced.

1990 The Company’s new corporate identity “Benesse” is announced.The Company invests in Berlitz Schools of Languages, Inc. (now Berlitz Japan, Inc.).

1993 The Company acquires Berlitz International, Inc. of the United States.The magazines Tamago Club and Hiyoko Club are launched.

1994 Shinkenzemi Preschool Courses for ages 2 to 3 (now Kodomo Challenge) are introduced.

1995 The Company’s name is changed to Benesse Corporation.Benesse lists on the Second Section of the Osaka Securities Exchange and the Hiroshima Stock Exchange.

1997 Benesse moves up to the First Section of the Osaka Securities Exchange.Benesse Home Clara opens in Okayama.

1998 Simul International, Inc. joins the Benesse Group.

2000 Benesse lists on the First Section of the Tokyo Stock Exchange.Benesse Care Corporation is established.Benesse acquires controlling stake in Shinkoukai Co., Ltd.

2001 Berlitz International, Inc. becomes the Company’s wholly owned subsidiary.Benesse en-Famille Inc. is established through joint capital investment with Taihei Co., Ltd. a home food-delivery company.

2003 Benesse introduces Corporate Executive Officer System and Group Executive Officer System.Shinken-AD Co., Ltd. becomes consolidated subsidiary.Benesse Style Care Co., Ltd. is established.Benesse Hong Kong Co., Ltd. is established.

2004 Benesse Korea Co., Ltd. is established.“Benesse Department of Educational Advanced Technology (BEAT)” set up at the interfaculty Initiative in Information Studies,University of Tokyo.

2005 Benesse Educational Research and Development Center (BERD) is established.AVIVA Co., Ltd. joins the Benesse Group.

2006 Benesse Institute for the Child Sciences, Parenting, and Aging Inc. is established.Benesse Shokuiku Institute is established.Kodomo Challenge courses are introduced into China.Benesse acquires Ochanomizu Seminar Co., Ltd.

2007 Announced new management team: Soichiro Fukutake as Chairman and CEO, Kenichi Fukuhara as Vice Chairman andDeputy CEO, and Tamotsu Fukushima as President and COO.Benesse acquires Tokyo Individualized Educational Institute, Inc.


INVESTOR INFORMATIONAs of March 31, 2007

Number of Shares Issued:106,353,453 shares

Listed Date:October 26, 1995

Securities Listings (Common Stock):Tokyo Stock Exchange, First SectionOsaka Securities Exchange, First Section

Ticker Code:9783

Unit of Trading:100 shares

Independent Auditors:Deloitte Touche Tohmatsu

Transfer Agent:Mitsubishi UFJ Trust and Banking Corporation

Number of Shareholders:38,280

Stock Splits:1:1.2 made on May 20, 19971:2.0 made on May 19, 2000

Stock Cancellation:1,334,000 shares on January 7, 1998

Top 10 Shareholders:

Shares Percentage(Thousands) (%)

Soichiro Fukutake 11,444 10.76

Japan Trustee Services Bank, Ltd. 9,002 8.46The Master Trust Bank of Japan, Ltd. 4,952 4.65

The Chugoku Bank, Ltd. 4,337 4.07

Reiko Fukutake 3,174 2.98

Nobuko Fukutake 2,769 2.60

Mitsuko Fukutake 2,675 2.51

Junko Fukutake 2,655 2.49

Fukutake Education Foundation 2,430 2.28

Trust & Custody Services Bank, Ltd. 2,330 2.19Note: The Company holds 3,644 thousand shares of treasury stock without voting rights not included in

the above table.

Stock Price Range & Trading Volume (Osaka Securities Exchange):

Shareholdings by Type of Shareholder (%):

Financial Institutions27.73%

Other Corporations9.12%

Foreign Companies—Other19.95% Individuals and

Other38.57%

Securities Companies1.20%

Stock Price Range (Yen)

5,000

4,000

3,000

2,000

1,000

0

04/6 04/8 04/10 04/12 05/2 05/4 05/6 05/8 05/10 05/12 06/2 06/4 06/6 06/8 06/10 06/12 07/2 07/4 07/6

04/6 04/8 04/10 04/12 05/2 05/4 05/6 05/8 05/10 05/12 06/2 06/4 06/6 06/8 06/10 06/12 07/2 07/4 07/6

Trading Volume (Shares)

12,000,000

9,000,000

6,000,000

3,000,000

0

Treasury Stock3.43%


CORPORATE DATA

Company Name: Benesse Corporation

Headquarters: 3-7-17 Minamigata, Okayama-shi, Okayama, Japan

Date established: January 28, 1955

Capital: ¥13.6 billion

Number of employees: 2,885 (Non-consolidated, as of April 1, 2007)

Website: http://www.benesse.co.jp/

ORGANIZATION CHART (As of July 2007)

Board of Auditors

Board of Directors

Chairman and CEO

Vice Chairmanand Deputy CEO

LanguageCompany

Telemarketing Japan, Inc.

AVIVA Co., Ltd.

Benesse Institute for theChild Sciences, Parentingand Aging, Inc.

Benesse Style Care Co., Ltd.

Corporate

Merchandising & MarketingDivision

Parenting Business Division

Compulsory EducationDivision

Senior High School &University Education Division

Digital Business DevelopmentHeadquarters

Marketing Headquarters

Education Research andDevelopment Division

Lifetime ValueCompany

EducationCompany

President andCOO

Berlitz International, Inc.

Simul International, Inc.

General Meeting of Shareholders

PROFILE

CONTENTS

The name Benesse derives from the Latin words “bene,”

meaning good or well, and “esse,” meaning to live or to

be. Together, they embody our corporate philosophy of

helping people live well. Benesse defines its business

activities as education, languages, lifestyle and welfare,

covering virtually all aspects of people’s lives—from

childbirth to childrearing, school and family life, through

to old age. In all these areas, we are striving to live up

to our name.

[ 1 ] AT A GLANCE

[ 2 ] FINANCIAL HIGHLIGHTS

[ 4 ] LETTER FROM THE CHAIRMAN

[ 6 ] DISCUSSION WITH EXECUTIVES

[15] REVIEW OF OPERATIONS[16] EDUCATION GROUP

[22] LIFETIME VALUE COMPANY

[24] SENIOR COMPANY

[26] LANGUAGE COMPANY

[28] AVIVA BUSINESS/OTHERS

[29] MARKETING STRATEGY

[31] RESEARCH AND DEVELOPMENT

[33] THE FOUNDATIONS FOR HELPING PEOPLELIVE WELL[34] CORPORATE GOVERNANCE




[49] FINANCIAL SECTION[91] CONSOLIDATED SUBSIDIARIES

[92] THE HISTORY OF BENESSE CORPORATION

[93] INVESTOR INFORMATION

[94] CORPORATE DATA

[95] BENESSE GROUP CODE OF CONDUCT

ON THE COVER: NAOSHIMA ISLANDNaoshima Island in the picturesque Seto Inland Sea is an idyllic and tranquilhideaway. Developed and run by Benesse, it weds contemporary art, architec-ture, nature and culture to offer visitors an unforgettable experience.

The building in the foreground is Chichu Art Museum, managed byNaoshima Fukutake Art Museum Foundation.

AT A GLANCE

EDUCATIONGROUP

SENIORCOMPANY

AVIVABUSINESS

OTHERS


LANGUAGECOMPANY

SEGMENT SALESTO TOTAL SALES

58.9%

9.0%

2.9%

5.9%

6.6%

16.7%


BENESSE GROUP CODE OF CONDUCT

To support “Benesse = well-being” for each individual

To sustain the provision of value to society

Established on November 5, 2001Revised on January 28, 2005

As members of the Benesse Group, we will provide sustained support to the realization of “Benesse = well-being”

for all stakeholders.

By offering high-quality products and services, we will provide value to society and continue unremittingly in

advanced and innovative efforts to influence lifestyles and support the well-being of each individual.

By sustaining the provision of inimitable and distinctive value, we are committed to becoming an essential

presence for society today and tomorrow. The corporate social responsibility we aim to fulfill is to grow as a

company together with society. Being fully aware of the importance of contributing to the solution of social

issues, we will broadly invest management resources and specialized knowledge, particularly for research activity

in the educational field, to contribute to the solution of issues.

In the organization of business management, we will promote efforts in reforming corporate governance as well

as in compliance, risk management, human resources development, and the environment to become a company

worthy of the trust of customers, consumers, shareholders, employees, local communities, and society.

As a member of the Benesse Group, each one of us without exception must conduct ourselves appropriately

and fairly in order to sustain the provision of value to society and to be worthy of society’s trust. To achieve these

objectives, the “Benesse Group Code of Conduct” specifies in practical terms the nature of conduct, standards,

and regulations to be observed.

*Please visit http://www.benesse.co.jp/english/brand/declare

©Benesse Corporation All rights reserved.

Printed on recycled paper in Japan

Corporate Communication &Investor Relations Department

1-34, Ochiai, Tama-shi, Tokyo 206-8686, JapanPhone: +81-42-356-0808Facsimile: +81-42-356-7301E-mail: [email protected]: http://www.benesse.co.jp/IR/english/index.html

STARTING A NEW JOURNEY

ANNUAL REPORT 2007For the Year Ended March 31, 2007

AN

NU

AL R

EP

OR

T 2007

©Chichu Art MuseumPhoto: Mitsumasa Fujitsuka

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