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ANN

UAL

REPO

RT

2006

ANNUAL REPORT 2006for the Year Ended March 31, 2006

A CHANGE LEADER

PROFILEThe 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 helpingpeople live well. Benesse defines its business activities as education, languages, lifestyle and

AT A GLANCE

OTHERS

EDUCATIONGROUP

LIFETIMEVALUECOMPANY

SENIORCOMPANY

LANGUAGECOMPANY

AVIVABUSINESS

1 At a Glance2 Financial Highlights4 A Message From the CEO and Chairman6 A Conversation With the CEO

14 Benesse’s Vision for 2010:New Products and Services OfferingEven More Value

16 1. Round Table Discussion: Responding toChanges in Education

Parenting Company/Elementary SchoolEducation Company 19

Junior High School Education Company/Senior High School Education Company 20

School & Teacher Support Company 21A Look at Education Trends in Japan—2006 22

24 2. Round Table Discussion: A ChangingApproach to Marketing

28 3. Enhancing Our Presence in New FieldsLifetime Value Company 28Language Company 29Senior Company 30AVIVA Business 31

32 Corporate Governance38 Contributing to Society41 Financial Section82 Consolidated Subsidiaries83 The History of Benesse Corporation84 Investor Information85 Benesse Group Code of Conduct

CONTENTS

welfare, covering virtually all aspects of people’s lives—from childbirthto childrearing, school and family life, through to old age. In all theseareas, we are striving to live up to our name.

FORWARD-LOOKING STATEMENTSThis annual report contains forward-looking statements concerning the future plans,strategies, beliefs and performance of Benesse Corporation and its subsidiaries. Theseforward-looking statements are not historical facts. They are expectations, estimates,forecasts and projections based on information currently available to the company andare subject to a number of risks, uncertainties and assumptions, which, without limita-tion, 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.

1 Annual Report 2006

SEGMENT SALESTO TOTAL SALES

OVERVIEW MAIN PRODUCTS & SERVICES

This segment includes Telemarketing Japan, Inc., primarily focused ontelemarketing operations, and Synform Co., Ltd., which provides data processingservices. Other subsidiaries in this segment conduct logistics, personnelservices and other businesses.

The Education Group boasts an extensive lineup that meets off-campuseducation needs and provides support for schools and teachers. In the former,Benesse focuses on correspondence courses for children of all ages with itsShinkenzemi and Kodomo Challenge brands, while Shinken SimulatedExams—mock university entrance exams for high school students—are themain product in the school support field. Benesse is now reinforcing its productand service lineup to respond to diversifying needs in the education market.

The Lifetime Value (LTV) Company provides a whole host of information andsupport for everyday life through its magazines, websites, mail-order shop-ping, food delivery and other services. Targeting women with housework andparenting responsibilities who want to enjoy and be in control of their lives asfully engaged members of society, the LTV Company supplies information onanything from childbirth, parenting and family finances, to food and healthissues and pet ownership.

Centered on consolidated subsidiary Benesse Style Care Co., Ltd., the SeniorCompany operates a network of nursing homes for the elderly. It also provideshome help services, training courses for caregivers, and medical and nursingcare human resource services.

The Language Company offers language instruction, translation and interpreta-tion services, mainly through two consolidated subsidiaries, Berlitz Interna-tional, Inc. and Simul International, Inc. It also provides an online evaluationtest, the Global Test of English Communication (GTEC), which measurescomprehensive English communication skills.

Subsidiary AVIVA Co., Ltd., created through the transfer of some operationsfrom AVIVA Japan Corporation on April 1, 2005, operates personal computer(PC) schools.

! Correspondence courses: Shinkenzemi andKodomo Challenge

! School and teacher support: Shinken SimulatedExams

! English learning: BE-GO and Benesse EnglishClassrooms for Children

! Pregnancy, childbirth and parenting magazines:Tamago Club, Hiyoko Club and TamahiyoKokko Club

! Lifestyle magazines: THANK YOU!! Direct-sales magazines: bon merci!, DOG’S

HEART and CAT’S HEART! Benesse food delivery services

! Nursing homes: Aria, Clara, Granny & Grandaand Madoka

! Home help services! Caregiver training

! Language instruction! Translation and interpretation! English ability evaluation test (GTEC)

! AVIVA PC Schools

! Telemarketing! Data processing and system development

services and sales

60%

6%

8%

16%

4%

6%


Thousands ofMillions of Yen U.S. Dollars

Years ended March 31 2006 2005 2006

FOR THE YEAR:Net Sales ¥ 333,767 ¥ 291,403 14.5% $2,852,709

Cost of Sales 165,347 139,672 18.4 1,413,222Selling, General and Administrative Expenses 140,008 125,553 11.5 1,196,649Operating Income 28,412 26,178 8.5 242,838Income Before Income Taxes and Minority Interests 27,746 25,799 7.5 237,145Income Taxes 11,637 11,439 1.7 99,462Net Income 16,039 14,297 12.2 137,085

Capital Expenditures 20,504 11,116 84.4 175,248Depreciation and Amortization 9,775 7,511 30.1 83,547

AT YEAR-END:Total Assets ¥ 330,230 ¥ 307,668 7.3% $2,822,479Shareholders’ Equity 186,292 174,711 6.6 1,592,239

Yen U.S. Dollars

PER SHARE OF COMMON STOCK:Net Income ¥ 156.45 ¥ 138.05 $ 1.3372Shareholders’ Equity 1,817.56 1,701.18 15.53Cash Dividends Applicable to the Year 75.00 60.00 0.64

Percentage

RATIOS:Equity Ratio 56.4% 56.8%Return on Equity (ROE) 8.9 8.3Return on Assets (ROA) 5.0 4.8

Number of Employees 12,081 9,890

Notes: 1. U.S. dollar figures are translated, for convenience only, at the rate of ¥117 to U.S.$1, the effective rate of exchange prevailing on March 31, 2006.2. 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 is calculated based on the average of total shareholders’ equity at the beginning and end of each fiscal year.4. Return on Assets is calculated based on the average of total assets at the beginning and end of each fiscal year.

FINANCIAL HIGHLIGHTSBenesse Corporation and Consolidated SubsidiariesYears ended March 31, 2006 and 2005

PercentageChange


0

100,000

200,000

300,000

400,000

333,767

291,403

260,142258,289267,250262,948

01 02 03 04 05 06Years ended March 31

0

10,000

20,000

30,000

40,000

28,41226,178

20,702

16,317

24,589

30,278

01 02 03 04 05 06

11.5

9.2

6.38.0

9.0 8.5

Years ended March 31

0

5,000

10,000

15,000

20,000

16,039

14,297

9,394

6,973

327

16,498

01 02 03 04 05 06

6.3

0.1

2.7

3.6

4.9 4.8


0

50

100

150

200

156

138

89

64

2

153


0

50,000

100,000

150,000

200,000186,292

174,711170,781169,428171,826170,011

01 02 03 04 05 06

55.059.0 61.5 58.5 56.8 56.4

As of March 31

0

3

6

9

12

8.98.3

5.5

4.1

0.2

10.0

01 02 03 04 05 06

5.4

0.1

2.5

3.3

4.8 5.0


9,775

7,5117,8208,5728,046 9,851

11,116

20,504

10,7009,609

11,27510,934

01 02 03 04 05 060

5,000

10,000

15,000

20,000

25,000


0

25

50

75

100

75

60

40

292929


12,081

9,890

8,5998,081

9,0519,081

01 02 03 04 05 060

2,500

5,000

7,500

10,000

12,500

As of March 31

OPERATING INCOME /OPERATING INCOME RATIO(Millions of Yen)

NET INCOME /NET INCOME RATIO(Millions of Yen)

NET INCOME PER SHARE

(Yen)

SHAREHOLDERS’ EQUITY /EQUITY RATIO(Millions of Yen)

ROE / ROA

(%)

CASH DIVIDENDS APPLICABLE TOTHE YEAR(Yen)

NUMBER OF EMPLOYEES

! Operating IncomeOperating Income Ratio (%)

! Net IncomeNet Income Ratio (%)

! Shareholders’ EquityEquity Ratio (%)

ROEROA

! Capital Expenditures! Depreciation and Amortization

NET SALES

(Millions of Yen)

CAPITAL EXPENDITURES /DEPRECIATION AND AMORTIZATION(Millions of Yen)

4 Annual Report 20064 Annual Report 2006

A MESSAGE FROM THE CEO AND CHAIRMAN

In the previous fiscal year, we launched a three-year Medium-Term Management Plan with the goal of ¥26.0

billion in operating income in the plan’s final year, ending March 31, 2007. To achieve this goal, we’ve taken

bold steps to overhaul our product lineup and marketing system, aiming to create an operating structure

capable of delivering consistent earnings. These efforts quickly paid off—we achieved our target for operating

income in the plan’s first year. Aiming for further growth, we’ve now set ourselves a higher goal of ¥30.5 billion

in operating income in fiscal 2006.

Our business environment continues to undergo major change, particularly in the core education operat-

ing field, where the kinds of learning and skills people need for life are changing dramatically. As illustrated by

international tests of academic ability like the OECD’s Program for International Student Assessment (PISA),

reading and mathematical literacy are being given greater currency in education. At the same time, customer

needs are becoming ever more diverse due to new entrance exams for the increasing number of combined

junior and senior high schools, changes to school curricula and university entrance exam systems, and striking

developments in IT. It’s crucial that Benesse develops a wide range of new products and services to satisfy

these needs.

MASAYOSHI ‘MIKE’ MORIMOTOPresident and CEO

SOICHIRO FUKUTAKEChairman


In May 2006, we announced a new management policy for the Benesse Group to take us forward to

2010. The strategic objective of this policy is to grow our business by first convincing the public of the need

for educational reforms to help Japan regain competitiveness in the global economy—then provide education

materials to support these reforms. Guided by this mindset, we are creating a roadmap for the kind of com-

pany we want Benesse to be in 2010, anticipating an even more challenging operating environment in the

years ahead. During the period up to 2010, we’re targeting a compound annual growth rate for net sales and

operating income of around 5.2% and 8.6%, respectively. Over the last few years, our prime management

objective has been to increase the number of members enrolling in our correspondence courses. Now, in

line with our new management policy, our aim will be to deliver a whole new multiple of growth and business

expansion across all areas of the education sector. In parallel, we will offer new products and services in the

language, welfare and publishing fields that help people to live well, helping to drive sustained Group-wide

business expansion and generate earnings.

To close, we’d like to take this opportunity to announce some changes to the senior management team.

Three years ago, Masayoshi ‘Mike’ Morimoto was appointed President and COO, and Soichiro Fukutake took

the posts of Chairman and CEO. Now, as we work toward our goals for 2010, we’ve adopted a new manage-

ment structure that sees Mr. Morimoto head Benesse in both name and practice as President and CEO, and

Mr. Fukutake remain as Chairman. His role will be more focused on actively overseeing operations from the

standpoint of shareholders. These changes came into effect on June 25, 2006.

Going forward, our overarching objective will be to secure the trust of shareholders, customers, employees

and all our other stakeholders by becoming a company capable of delivering sustained growth. I hope we can

continue to count on your support as we tackle the exciting challenges that lie ahead.

July 2006

SOICHIRO FUKUTAKE MASAYOSHI ‘MIKE’ MORIMOTO

Chairman President and CEO

Efforts to enhance the performance of existing businesses throughinitiatives in our Medium-Term Management Plan havepaid off with a significant increase in earnings. Now,aiming to sustain this growth, we have formulated anew management policy to take us through to2010. In line with this policy, we will work todeliver a whole new multiple of growth and busi-ness expansion by becoming a more powerfulplayer across the entire education sector and byhelping people to live well in an array of otherbusiness fields.

A CONVERSATION WITH THE CEO

MASAYOSHI ‘MIKE’ MORIMOTOPresident and CEO


Fiscal 2006 is the final year of your current management plan. How isthe plan progressing?

Benesse achieved the plan’s final-year target of ¥26.0 billion in operating income two years early. Aiming for

further growth, we’ve set ourselves a new, higher target of ¥30.5 billion in fiscal 2006. Progress has been very

good so far, underpinned by three major areas of reform we’ve focused on since I was appointed President in

fiscal 2003.

First is corporate governance. In fiscal 2003, we adopted the Corporate Executive Officer System and

began actively appointing Independent Directors. Our Board of Directors now includes three external

appointments. We also made improvements to our decision-making framework with the creation of a

Headquarters Management Committee (HMC), a company-wide management discussion forum, and Company

Management Committees (CMC), similar bodies at each of Benesse’s business units. By allowing employees to

participate in meetings of these committees and disclosing details about discussions and decisions to the rest

of the Company, we’ve created a more transparent decision-making process. Taken together, these initiatives

have made management at Benesse more accountable.

The second area of reform has involved enhancing our product and service lineup and strengthening our

marketing framework. In the education business, where the operating environment is ever-more challenging

due to the falling birthrate in Japan, we’ve achieved three

successive years of enrollment growth in our mainstay

Shinkenzemi correspondence course business. In

particular, in Elementary School Courses, enrollment

reached all-time highs in fiscal 2004 and fiscal 2005, while

Junior High School Courses captured their highest ever

share of the market in fiscal 2005. This success was due

to a number of specific initiatives, such as expanding our

menu of education materials to give customers more

choice and respond to growing individual needs, and

active marketing activities based on a media-mix strategy.

Our efforts haven’t been confined to Shinkenzemi

correspondence courses though. Since fiscal 2003, we’ve

upgraded our range of peripheral products such as

English learning materials and optional course materials

that help students to apply their learning and enhance

Net Sales (left scale)! Operating Income (right scale)

10

20

30

40

300

250

200

150

100

50

0

350

400

Net Sales (¥ billion)

Operating Income (¥ billion)

FY02

16

258 260291

333

20

2628

30350

3.87 million 3.70 million 3.83 million 4.01 million 4.05 million

FY03 FY04

Start of management reforms

Target achieved two years early

Period of current Medium-Term Management Plan

FY05 FY06 (Forecast)

Cumulative enrollment in

Shinkenzemi as of April

Current Medium-Term Management Plan—Progress Report


their potential. We also started offering services that integrate a range of learning approaches like PCs, the

Internet and classrooms. I’m pleased to say that these steps haven’t just increased enrollment in our courses;

they’ve also helped us to boost sales per customer.

The third area of reform was business restructuring, and specifically, at Berlitz International, Inc. At the

outset of our management plan, performance at this company was deteriorating, so we resolved to take steps to

turn it round as quickly as possible. In fiscal 2004, we downsized Berlitz International’s head office in the U.S.

by transferring functions to three global operating regions. Then, in fiscal 2005, we tackled the weak

performance at the company’s business in Japan by implementing radical reforms that included shutting or

integrating unprofitable language centers. These efforts paid off with a significant ¥3.3 billion improvement in

profitability in fiscal 2005, reversing the previous year’s loss. Another target for business restructuring was

AVIVA Co., Ltd. This company is Japan’s largest operator of PC schools and a wholly owned Benesse subsidiary

that was created through the transfer of some operations from AVIVA Japan Corporation in April 2005.

Business restructuring is ongoing and is mainly focused on a major overhaul of the company’s cost

structure. We believe AVIVA will be back on track and turning a profit in fiscal 2006.

I have great expectations for both Berlitz International and AVIVA. I’m confident they

will make an even greater contribution to the Benesse Group’s operating results in

the years ahead.

Could you elaborate on the marketingreforms you just mentioned?

Until recently, direct mail was at the center of Benesse’s marketing approach. Then, in fiscal 2003, we decided

to adopt a media-mix strategy that used a more diverse range of marketing channels. In parallel, we

implemented a number of reforms to our existing marketing structure. This included the creation of a

Headquarters Marketing Division and a Regional Sales Strategy Division in April 2004, putting the framework in

place for company-wide marketing and brand strategies, and marketing activities tailored to each region in

Japan. Subsequently, in October 2005, we stopped using the basic resident register access system, which

we’d relied on to send out direct mail shots. The following month, in a related development, we established a

new framework to speed up company-wide decision-making related to marketing activities. This framework is

headed by the Chief Marketing Officer (CMO), a newly created post, who also chairs a new Customer

Relationship Management (CRM) Committee. The CMO will oversee a shift in marketing methods away from

large-volume direct mail shots, to an integrated, open-market approach that links the accurate identification 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.


Please tell us about Benesse’s business strategy for fiscal 2006 and 2007.

For fiscal 2006, we’re forecasting operating income of ¥30.5

billion, up 7.4% from the year under review, on net sales of

¥350.0 billion, an increase of 4.9%. Forecasts for fiscal 2007 are

for operating income of ¥33.5 billion, up 9.8% year on year, on net

sales of ¥367.0 billion, an increase of 4.9%. Next, I’d like to talk

about how we plan to reach these targets.

Over the last three years, our approach has been to overhaul and

improve specific businesses in the Group to drive a recovery in their

earnings. Going forward, our focus will shift from optimizing individual

businesses to enhancing the capabilities of the entire Group to boost earnings growth. Fiscal 2006 and 2007 will

therefore be years when we create a roadmap to help us realize our vision for the Company in 2010.

In the education business, we will naturally continue to augment our Shinkenzemi correspondence course

operations, but this will be supplemented by measures to grow peripheral businesses, too. In Shinkenzemi

peripheral businesses, we will shift to an open-market approach—actively offering products and services

through sales channels outside the existing membership format—and seek to attract customers by leveraging

the high quality of Benesse’s product lineup. New examples of this approach include study desks and growth

support chairs, two high-quality products sold exclusively through the Kodomo Challenge every brand that we

began offering in 2005 based on feedback from customers, and extra-curricular science and other classes as

part of what we call “Future Courses,” one of our new businesses. We are also actively investing in businesses

in China, South Korea and other parts of East Asia. In fact, the seeds we’ve been sowing in peripheral

education businesses since fiscal 2003 are now finally starting to show some promising signs of growth, so I

expect them to contribute to our growth in the years ahead.

In the senior care business, the key to success is now much clearer in our minds. Instead of a simple

focus on quantitative growth, we will put greater emphasis on quality by creating even more comfortable

lifestyles for residents. This will ensure a more sustainable level of growth. Initiatives at Berlitz International will

include the opening of the Berlitz Business School, while our focus at AVIVA will be on offering a wider choice

of approved materials for PC skill certification and generating synergies with other products and services in the

Benesse lineup.


Benesse raised its dividend to ¥75 per share for fiscal 2005, the thirdsuccessive year of increases, and you plan to pay adividend of ¥80 in fiscal 2006. What are your otherplanned uses of cash?

The benefits of our management reforms continue to feed through

to results, with fiscal 2005 marking the third successive year of top-

and bottom-line growth. We also increased the dividend for the third

year running. Capital structure policy, including the return of profits

to shareholders, is a vital issue for the Benesse Group. Our policy on

dividends is to maintain a dividend payout ratio of at least 35%. In line with this policy, we’ve actively been

working to pay consistent dividends to shareholders. Taking into account the expected dividend payout ratio of

47.9% for fiscal 2005, we’ve achieved a ratio of 45.0% or above in real terms for the last four fiscal years.

Moreover, as of March 31, 2006, the ratio of total returns to shareholders, which takes into account dividends

and share buybacks, was 5.06%, in line with the internal medium-term target of 5.0% or greater.

Benesse has also been implementing an ongoing share buyback program to boost capital efficiency and

raise shareholder value. As of March 31, 2006, we had repurchased a cumulative total of 4.04 million shares at

a cost of ¥10,452 million, representing 3.7% of all issued and outstanding shares compared to fiscal 2002

when the share buyback program started.

Meanwhile, we plan to actively use cash reserves in the region of ¥20 to ¥30 billion to invest for medium-

and long-term business growth. Possible uses of cash include M&As in fields that could generate synergies

with existing businesses, and R&D centered on the education field.


Benesse has announced its management policy for the period up to2010. Please give us a summary of the policy.

In May 2006, against the backdrop of a radically shifting operating environment, we announced a new

management policy for the Benesse Group to take us forward to 2010. The strategic objective of this policy is to

grow our business by first convincing the public of the need for educational reforms to help Japan regain

competitiveness in the global economy—then provide education materials to support these reforms. At the

same time, to boost earnings, we plan to offer a wider choice of products and services in the language, welfare

and publishing fields that help people to live well. Guided by this thinking, we’re currently creating a roadmap

for the kind of company we want Benesse to be in 2010.

Our growth strategy for the Group up to 2010 predicts a compound annual growth rate for net sales and

operating income of around 5.2% and 8.6%, respectively.

We’ve distributed handy cards to all our employees summarizing the main points of this new management

policy. These cards are updated versions of the first cards we handed out to employees after I became

president in fiscal 2003. I believe they have an

important role to play in ensuring senior management

and ordinary employees are on the same page when it

comes to our corporate vision and culture. The content

of the first cards was created by myself to

communicate my thinking as the new head of the

Benesse Group. This time, I decided to open up the

debate about what to include on the new cards, using

discussions and email to get constructive opinions from

Benesse associates. Consequently, the latest versions

have garnered strong support from people across the

Benesse Group.

We have distributed cards to all ouremployees summarizing the mainpoints of our new management policy:core values and benchmarks fordecision-making, Benesse’s newstrategic direction, and the kind ofcorporate culture we want to develop.


We’ve included a variety of information in the cards. For example, we’ve clarified exit strategy criteria

related to new businesses—the best path for the entire Benesse Group has to be taken into account when

making business decisions. Also, taking on board the opinions of our corporate auditors, we’ve included advice

that employees should never be afraid to speak up about business ethics violations despite reticence in their

peer group. As a company seeking to put in place the best systems to prevent business impropriety, I think

using the cards in this way communicates senior management’s stance on the issue.

At Benesse, we’re well aware that a company’s greatest asset is its people. I’m very proud of the fact that

Benesse has attracted many very talented people. I want these employees to take a “soccer team” approach to

their work—to interact and communicate with others inside and outside their own area of operations and make

business judgments that take into account the bigger picture of related personnel and departments.

Next, I’d like to talk about business strategy. Our main goal is to transform Benesse from a company

primarily focused on correspondence course learning to one active in all areas of the education field by 2010.

Until recently, Benesse’s primary management objective has been to boost enrollment in correspondence

courses. Now, in line with our new management policy, our aim will be to deliver a whole new multiple of

growth and business expansion across all areas of the education sector. We have three specific aims:

Reinforce our core Shinkenzemi business

There is still room for growth in Shinkenzemi enrollment and the amount spent per customer. To tap these

opportunities, we’re currently developing the next generation of Shinkenzemi products and services to enhance

the lineup. In fiscal 2006, already under way, we launched a new service whereby Red Pen Teachers—

Shinkenzemi study support staff—can send back

marked answer sheets to students via the

Internet. This is just one example of how we plan

to leverage developments in technology to offer

new learning styles. And by combining

correspondence learning with other study tools

such as classroom-based teaching for science

and English, we aim to offer more choice for

individual customers and satisfy diversifying

needs in the marketplace.

Fiscal 2010 TargetsFiscal 2005 Results

Net Sales

Operating Income

Operating Income Ratio

ROE

¥333 billionCAGR*: Target growth of around 5.2%

*CAGR: Compound Annual Growth Rate

¥28 billion

8.5%

8.9%

¥430 billion

¥43 billion

10% or greater

10% or greater

CAGR*: Target growth of around 8.6%

Targets for Fiscal 2010


Set up and develop new education businesses

We plan to develop new businesses that don’t rely on existing

models, allowing us to provide new products and services with a

whole new perspective. Currently, new sectors are emerging in

the education field that our existing education business will

struggle to tap. Examples include the rising number of combined

elementary and junior high schools, and more opportunities for

learning English and other subjects where school age is no

longer relevant. English education is a good case in point: there

are growing moves in Japan toward compulsory English language learning at the elementary school level. We

have to decide whether we want to focus on developing products and services for this relatively narrow market,

or extend the scope of the business to include English skills for vocational training that children might need

when they leave school. This kind of issue, which has to be tackled from a total perspective, is increasingly

emerging in our operations. Consequently, we will have to create project teams that cover a variety of different

fields to support the development of new businesses. In the case of English learning, we’ve already established

the “All Benesse English Project,” which is working on the provision of education services designed to help

Japanese become leaders on the international stage.

Build a bigger presence outside the education sector

Finally, I’d like to turn to businesses outside our traditional education field. As you know, Benesse is also

involved in language learning, elderly care and support services, PC learning, and publishing. By 2010, we’re

aiming to become a company capable of supplying a broad array of products and services that enhance value

for customers over their entire lifetimes. Over the last few years, we’ve built the foundations for growth in these

non-education businesses. This phase is complete, and we now plan to generate synergies among these

businesses, which have been run separately under different business models, by sharing content, expertise

and personnel to take them to the next stage of development.


Resolving Issues in:

SOCIAL TRAINING

Resolving Issues in:

HOME-BASED LEARNINGResolving Issues in:

SCHOOL-BASED LEARNING

! Strong ! Weak

Values friends

Tokyo Seoul Beijing Shanghai Taipei

Does not cause trouble for others

Values family

Should aim to be a leader

Realizes potential in the workplace

74.5%

6.1%

20.1%

71.0%

69.7%

14.3%

24.7%

21.2% 46.9%

15.5%

71.8%

39.0%

25.6% 22.4%

75.7%

4.9%

14.2%

25.1%

13.9%

46.8%

69.2%

4.6%

11.3%

48.9%

84.1%

! Highest figure of five cities ! Lowest figure of five cities

BENESSE’S VISION FOR 2010: NE W PRODUCTS ANDSERVICES OFFER ING EVEN MORE VALUE

A CHANGE LEADERAt Benesse, we see education in Japan in 2010 as playing a central role in helpingJapan to regain competitiveness in the global economy. To realize this vision, we needto create an education system that intelligently combines three elements: school-basedlearning, home-based learning and social training. We believe students who benefit fromthis approach will develop into fully-rounded, independent members of society. Ourrole will be to supply learning materials and services that offer even greater value,helping to drive business growth through to 2010.

Junior High School Students:Strength and Weakness

GTEC for STUDENTS ScoresFY2004

Strength: Memorizing rather thanthinking

Weakness: Thinking logically

Benesse’s Aim:Help students acquirecomprehension skills ofan international standard.

Students in Japan are relatively poorat English compared to their counter-parts in South Korea and China,where English is compulsory forelementary school students.

Benesse’s Aim:Boost English ability to givestudents the skills to becomeleaders on the international stage.

Students increasingly lack purpose asthey move up grades

Benesse’s Aim:Build a stronger link betweenschool-based learning andsocial training.

Today’s Japanese parents:• Emphasis on relationships with others rather than leadership• Increasingly worried about education, leading to greater

participation in child’s learning

Benesse’s Aim:Realize a sea change in the mindset of Japanese parents.

Ability to memorize Think logically

55.1%66.9%

32.6%44.2%

Capabilities of today’s junior high school students:1st Basic Survey of Child Lifestyles, August 2005, BERD

Achievements & Issues in English Language Learning: LessonsFrom High School Student Attitudes and Behavior, July 2005,Benesse Corporation

408.0448.6 453.5

Japan South Korea China

Students With Clear Goals for the Future

80.7%

Source: Career Path Survey—University Students, Oct. 2005, Benesse Corporation; 6,463 valid responses.

University

74.1%

64.3%

56.4% 40.1%

3rdgrade high school

Elementary/junior high school

Comparative Parental Survey in Five Asian Cities: Parent Aspirations for Children

Source: Infant Lifestyle Questionnaire, carried out between March and June 2005 in five Asian cities by BERD; 6,134 valid responses

2ndgrade high school

1stgrade high school


1. ROUND TABLE DISCUSSION: RESPONDING TO CHANGESIN EDUCATION

Since fiscal 2003, Benesse has moved back on track to solid business expansion byaccurately reading major changes in Japan’s education environment. Now, over theyears up to 2010, we plan to relentlessly seek out new challenges.

Successes and Challenges of theLast Three YearsOkada (Daisuke): The biggest change in

the education environment over the last

three years has been in customer thinking

regarding home-based learning. Before

the introduction of the government’s less

demanding education policy*, when

schools had more authority over educa-

tion, many parents saw home-based

learning as a way of supplementing

education provided by schools. Since

then, however, schools have lost some

control, and the stance of parents has

changed. I think the drop in

Shinkenzemi enrollment coincided with

this change in mindset.

When we carefully analyzed attitudes to

education, we found that a growing num-

ber of parents were unsatisfied with

home-based learning that simply rein-

forced what schools taught. Our response

was to move away from existing one-size-

fits-all correspondence course materials.

We began offering more choice and

optional course materials tailored to

academic ability and other individual

requirements. This new lineup of highly

targeted products and services designed

to address diversifying customer needs

led to a steady turnaround in enrollment

in Shinkenzemi, helping us to post

record enrollment figures in fiscal 2005.

Narushima: Enrollment in Shinkenzemi

Junior High School Courses was also hit

by the government’s less demanding

education policy. In response, we imple-

mented a number of initiatives to try to

reverse the decline. We had to create new

educational content that matched the

lighter school curriculum. This actually

represented a backward step in terms of

the level of content. I was very concerned

about this—and I knew students and

parents were, too. After thinking long and

hard, our solution was to retain some

elements omitted from the school curricu-

lum on the grounds of necessity. We

chose to focus more on supporting school

drop-outs, and unfazed by the changes in

school-based education, took steps firmly

rooted in our own ideas about learning.

The result was a V-shaped recovery in

enrollment in fiscal 2003.*Primarily targeted at the compulsory educationsystem—elementary and junior high schools inJapan—the government’s less demanding educa-tion policy was intended to resolve some of theissues associated with Japan’s “force-fed educa-tion system.” The government’s national curricu-lum guidelines were revised in fiscal 1999, andthe changes implemented in fiscal 2002. Themain thrust of reform was to cut course contentand lesson time to create a full five-day schoolsystem. Instead, time for so-called integrated studyperiods was established in the curriculum.

Fukumoto: Adopting specific approaches

for each customer segment has had some

success in Shinkenzemi Senior High

School Courses, underpinning the recov-

ery in enrollment from fiscal 2003

onward. These courses primarily target

students who see them as extra study to

pass university entrance exams. This is a

highly competitive market, where we go

head to head with cram schools. The key

to success is therefore to accurately iden-

tify customer needs.

In fiscal 2002, when enrollment in

Senior High School Courses began declin-

ing, we realized our product no longer

matched customer needs. We responded

by reenergizing the Shinkenzemi brand

by reinforcing its suitability for entrance

exam study. We were aware that our

existing approach of providing materials

that closely followed school textbook and

learning materials, as well as the pace of

classwork and how this linked with the

learning materials, was no longer up to

the job. So, we revised our course materi-

als to put greater emphasis on two areas:

inquiry, to enhance student understand-

ing of school lesson content; and motiva-

tion, to encourage students to prepare

more diligently for university entrance

exams. We also adopted an approach

matched to the specific characteristics of

each region in Japan.

Aketa: The School & Teacher Support

Company has expanded steadily over the

last three years. Specifically, in two

areas—new types of solutions and a wider

operational reach. In our school support

solutions, we now offer services that

measure the study performance of lower-

grade high school students and assess

their suitability for specific university

entrance exams. These services supple-

ment our existing mock entrance exams

and exam performance assessment ser-

vices for high school students. We’ve also

widened our operational reach from a

certain pool of high schools that students

graduate from and head to university, to

include schools that don’t necessarily

have strong academic records. We’ve also

seen some success in the provision of IT-

based learning services to elementary and

junior high schools.

Going forward, we will not only work to

expand our existing business but also seek

opportunities in new areas. One issue for us

will be examining the viability of creating a

B2B2C business model that puts more

emphasis on students as the end-users to

augment our existing B2B business model

where we deal solely with schools.

Okada (Haruna): In Kodomo Challenge

correspondence courses for

preschoolers, we’ve emphasized lateral

business development through efforts to

boost brand power.

Kodomo Challenge already has a high

penetration rate in Japan, reaching

more than 25% of the target population

in 2000. But we realized that we might

not be able to deliver further growth by

relying solely on correspondence

courses. So we decided to extend the

Kodomo Challenge brand into periph-

eral areas. Over the past few years,

we’ve rolled out a new range of prod-

ucts and services targeted at children

and parents that are a departure from

our traditional activities as the biggest

provider of correspondence courses for

preschoolers in Japan.

Our Initiatives in the EducationField up to 2010Okada (Haruna): In preschool education,

we plan to allay parental concerns about

education by providing products and

services that put greater emphasis on

enjoying experiences today that also

enhance child development for tomorrow.

Returning to the topic of the

government’s less demanding education

policy, my impression is that there is

Participants (from left to right):Haruna Okada President, Parenting Company, Corporate Senior Vice PresidentDaisuke Okada President, Elementary School Education Company, Corporate Senior Vice PresidentShinya Fukumoto President, Senior High School Education Company, Corporate Senior Vice PresidentYumi Narushima President, Junior High School Education Company, Corporate Senior Vice PresidentEiji Aketa President, School & Teacher Support Company, Corporate Executive Vice President

Benesse Corporation 18 Annual Report 2006

! Build stronger links with Tamahiyomagazine titles covering pregnancy,childbirth and parenting, and KodomoChallenge correspondence courses.

! Raise visibility of revamped KodomoChallenge courses.

HARUNA OKADAPresident, Parenting Company (IncludesPreschool Education Company)President, Benesse Institute for the ChildSciences, Parenting, and Aging Inc.

Kodomo ChallengeStudy materials offered through theKodomo Challenge brand areaimed at preschoolers aged 0~6years old. Benesse revamped coursecontent in April 2006 to createlearning programs that help kidsacquire the skills they need to makedecisions for themselves.

In April 2005, Benesse created the in-

house Parenting Company by combining

the business division responsible for

mainstay pregnancy, childbirth and

childcare titles Tamago Club and Hiyoko

Club, with the business division providing

Kodomo Challenge correspondence

courses for preschoolers. In April this

year, we fully revamped Kodomo Chal-

lenge study materials, putting greater

emphasis on giving kids the ability to

think and solve problems for themselves.

Going forward, the Parenting Company

will work to reinforce its total support

framework for parents covering everything

from pregnancy and childbirth to

parenting and preschool education.

PARENTINGCOMPANY

ELEMENTARYSCHOOL

EDUCATIONCOMPANY

! Create new extra-curricular programs like“Future Courses.”

! Develop the classroom-based teachingbusiness with Classrooms for ChallengeLearning Programs and Brothers GrimmClasses designed to boost readingcomprehension and creative expression.

DAISUKE OKADAPresident, Elementary SchoolEducation Company

Science ClassesOne element of Benesse’s“Future Courses” programdesigned to give elementaryschool students other skillsnot nurtured at school.Science experiments arepart of these classes.

Against the backdrop of strong enrollment

in Shinkenzemi Elementary School

Courses, the Elementary School Educa-

tion Company is now aiming to expand its

presence in areas outside correspon-

dence courses. In addition to actively

developing the classroom-based business

with products like Classrooms for Chal-

lenge Learning Programs, Brothers

Grimm Classes and Benesse’s English

Classes for Children, we launched a

program of “Future Courses” from fiscal

2006. Aimed at elementary school stu-

dents, these courses offer the chance to

go on camps, take part in science experi-

ments and experience other activities. By

channeling our efforts into the non-

correspondence course business, we

plan to offer kids a wider choice of differ-

ent learning styles.

now a greater underlying sense of

unease among parents about the educa-

tion their children receive. To alleviate

these concerns, we will stress the impor-

tance of giving children the capacity to

solve problems on their own so they have

the confidence to plot and follow their

own paths through life. Our job will be to

convince parents that Kodomo Challenge

products should be at the heart of their

child’s education to ensure this outcome.

We’re planning to put greater focus on

support for pregnancy and childbirth, too,

as illustrated by the creation of our new

Parenting Company. Our aim is to provide

more information to help young and

expectant mothers tackle the kind of

problems they face everyday. This sort of

support hasn’t always been available. The

Benesse Institute for the Child Sciences,

Parenting and Aging, Inc., which I head,

will supply surveys and research to the

Parenting Company to help it develop this

kind of information.

Aketa: “Assessment” will be one of the

key words in the School & Teacher Sup-

port Company going forward. Education,

whether at school or at home, naturally

has to incorporate elements of evaluation.

That’s why we think offering more assess-

ment services will be crucial to increasing

the quality of our B2B services for schools

and teachers.

We also see a need for mechanisms

that motivate children in the education

environment. It’s still unclear how far

private education providers like Benesse

will be allowed to go in this area, but

we’re very interested in leading the way

in creating mechanisms to introduce

into schools.

Narushima: Our approach in the educa-

tion field will need to be more inclusive.

Naturally, we already do this internally at

Benesse on a daily basis, but we need to

take it to the next level. For example, in

terms of collaboration with the School &

Teacher Support Company, we have to

make the sharing of information and

expertise between business divisions more

dynamic. We also need to seriously look

at alliances with other companies that

intelligently combine our respective con-

tent libraries.

Okada (Daisuke): The Program for Inter-

national Student Assessment (PISA)

administered by the OECD and other tests

show the comprehension skills of Japa-

nese children are on the decline.

Initiatives to arrest this decline will be

especially important in our education

business in the years ahead. Some uni-

versity entrance exams are already shift-

ing away from questions that simply elicit

knowledge, to ones that ask candidates to

use the knowledge they have to solve

problems. The education front line will

also have to accurately reflect the chang-

ing skills people need in society. How we

deal with these changes at Benesse will

have a major say in our ability to stay

competitive in the years ahead.

Fukumoto: The issues raised by PISA are

certainly important. I believe that in order

to solve them we ultimately need to think

about how to boost student motivation.

Keywords in this process will therefore be

“global standard” and “individual ability.”

In Japan, the emphasis in education

until now has been on raising the “Japa-

nese standard.” Now though, we have to

understand and become leaders in the

global standard. Unfortunately, at the

moment, Japan’s education system is not

where it should be, so Japanese children

are struggling to realize their full potential.

Research will have a key role to play in

raising the motivation of students. By

accurately understanding what stimulates

and interests individual children, we’re

halfway to winning the battle of motivat-

ing them. Research in this area could

also be applied in a range of fields.


In Japan, the emphasis in education until now has been onraising the ‘Japanese standard.’ Now though, we have tounderstand and become leaders in the ‘global standard.’”

“

Growth in new businesses up to 2010

Parenting*1 Elementary School Junior High School Senior High School School & Teacher Support

Age (years) 6 12 15 18

Preschool/elementary school-related

Help the Japanese to acquire the leadership skills they need for the global stage (All-Benesse English Project) Lifelong learning

Research into assessment tools

“Benesse Channel”

Create rich content and related platform*3

Offer services to encourage self-confidence and foresight (For parents and children)

Senior high school market (B2B2C)

Integrate services for elementary/junior high schools

Research into education for gifted children

University student market

NEET*2 and part-time jobber measures/vocational training

Establish “Benesse Junior Community”

• Junior high school entrance exams

• Integration of Shinkenzemi and classroom-based services

• Future Courses—provide extra-curricular learning opportunities

• NEW Shinkenzemi (Web + text + CRM)

• Products to meet customer needs (new assessment systems, creative writing courses, etc.)

• Comprehensive support services to help students chose next school/study path

• Products/navigation marketing for each customer segment

• Offer next-generation learning using ICT

• Develop assessment products—PISA, reading comprehension programs, etc.

• Develop parenting business in multiple areas/extend operational reach

• Expansion centered on English education

Operational focus in education companies

*1 Including Preschool Education Company *2 Not in Education, Employment or Training *3 Area where feasibility studies are under way


! Offer courses to meet diversifying needs suchas courses for students at elite combinedprivate junior and senior high schools.

! Develop next-generation Shinkenzemiproducts that take advantage of the Internet.

YUMI NARUSHIMAPresident, Junior High SchoolEducation Company

Shinkenzemi JuniorHigh School CoursesThe company launched anew service in April 2006whereby Red Pen Teachers—Shinkenzemi studysupport staff—can returnmarked answer sheets tostudents via the Internet.

The Junior High School Education Com-

pany is working to respond to the increas-

ingly diverse needs of its customers. One

example is the courses for students at

elite combined private junior and senior

high schools that we began offering in

April 2005. In April this year, we also

started a new service that uses the

JUNIOR HIGHSCHOOL

EDUCATIONCOMPANY

! Create a new lineup of products aimed at thehigh-end market.

! Develop a comprehensive range of services tohelp students choose career and study paths.

SHINYA FUKUMOTOPresident, Senior High SchoolEducation Company

Special Courses for theUniversity of Tokyo andthe University of KyotoIn March 2006, we beganoffering special courses forhigh school students aimingto enter the universities ofTokyo and Kyoto.

SENIOR HIGHSCHOOL

EDUCATIONCOMPANY

Over the past few years, the Senior High

School Education Company has strength-

ened its ability to satisfy individual student

needs by offering course materials for

different academic abilities and introduc-

ing on-demand courses. In March 2006,

we also started special courses for high

school students seeking to enter Tokyo

and Kyoto universities—part of a new

lineup of products aimed at the high-end

market. These courses aren’t just

designed to help students simply learn

the ins and outs of entrance exams,

they’re also meant to equip them with the

skills needed to think more deeply about

the world around them.

! Create new assessment materials thatrespond to the diversifying needs of studentsof all ages.

! Develop a next-generation careertraining business.

EIJI AKETAPresident, School & TeacherSupport Company

Shinken Simulated ExamsOur mock university entranceexams for high school stu-dents are used in 71.1% ofJapan’s high schools (as ofMarch 2006).

The School & Teacher Support Company

offers school support services, primarily

mock university entrance exams under

the Shinken Simulated Exams name and

career path information for students. To

respond to the growing divergence in

student ability, we’re now developing

assessment materials based on interna-

tional academic test standards and

English ability tests for senior high school

students to supplement our existing mock

university entrance exams. We’re also

channeling our efforts into the university

support business to provide students with

innovative methods of career training. Our

current operational focus is on B2B rela-

tionships with senior high schools, but we

also plan to expand our reach by offering

more services to elementary and junior

high schools and universities.

SCHOOL&TEACHERSUPPORTCOMPANY

Looking Ahead to 2010: Direction in the Education BusinessMake optimal decisions for the Company as a whole as well as each business• “Reform” rather than just “Improve” • Target year of 2010 and beyond • Put in place a flexible system for the Group

Internet to get marked work back to stu-

dents on Shinkenzemi Junior High School

Courses as quickly as possible. Going

forward, we plan to develop a new gen-

eration of Shinkenzemi products that take

advantage of the Internet while leveraging

the strengths of our existing correspon-

dence courses.

Benesse Corporation 22 Annual Report 2006 Benesse Corporation 23 Annual Report 200623 Annual Report 200622 Annual Report 2006

0 80604020 100

(%)

Provide English learning from elementary school

Provide supplementary lessons for children after school, on Saturdays or during school holidays

Increase lesson time duringthe school year

Allow students more choicein the curriculum

Offer more lessons for different academic levels

Instructors at elementary and junior high schools Parents Source: Compulsory Education Public Perception Study (2005), Benesse Corporation, commissioned by MEXT.

14.1

61.4

29.4

66.8

36.4

67.0

24.4

51.0

48.0

57.7

0 80604020 100

(%)

Ages: 1

Ages: 2

Ages: 4

Ages: 5

Ages: 6

Ages: 3

2000 2005Source: 3rd Infant Lifestyle Questionnaire (2005), BERD.

23.3

25.1

26.8

37.3

42.0

50.9

47.2

54.9

68.6

75.1

75.7

85.5

A LOOK AT EDUCATION TRENDS IN JAPAN—2006

Figure 1: Opinion on Reforms to Lessons and Educational Guidance(“Endorse” and “Partially Endorse” answers combined)

Figure 2: Ratio of Children Involved inStructured Learning

In Japan, the Minister of Education, Cul-

ture, Sports, Science and Technology

(MEXT) consults with the Central Educa-

tion Council on education policy matters.

The framework for Japan’s education

policy is then created based on the

council’s recommendations. In 2005, a

special committee was set up within the

council to intensively focus on compul-

sory education, and specifically, the kind

of system Japan should adopt for the

future. Discussions centered on the mea-

sures needed to create a compulsory

education system run by municipal gov-

ernments or schools themselves. This

represented the first experimental foray

into reforming Japan’s existing centralized

education system based on a unified

curriculum for schools across the country.

This kind of change, if enacted, will also

impact the private education service field.

In this year’s mini feature on education

trends in Japan, we look at the kind of

services Benesse is planning to launch in

response to the country’s shifting school

education landscape and new thinking

among students and parents.

The Changing Approach ofJapanese SchoolingIn its conclusions on creating a new com-

pulsory education system, the Central

Education Council proposed a policy

whereby the state would set parameters

for education and evaluate school perfor-

mance, and schools or municipal govern-

ments would be responsible for actual

education policy. This approach, which

would see authority shift from the center

to the regions, is the basic stance of the

current government. In fact, as a test of

the government’s financial and adminis-

trative reforms, regulations have already

been relaxed in certain areas to allow

local governments more say over educa-

tion. Efforts have been under way in these

regions since 2002 to examine the suc-

cess of this approach. As a result, we are

seeing a whole host of new ideas in the

education sector with a rising number of

local governments and schools imple-

menting their own initiatives. If the trans-

fer of authority to the regions becomes

more pronounced, we can expect more

and more schools to begin offering edu-

cation services that match local condi-

tions based on the needs of students,

parents and residents. However, many

schools may have difficulty in sufficiently

meeting these needs due to limited

resources in terms of instructors, teaching

time, learning programs and budgets.

That’s where we believe Benesse can play

a role by supporting school education—

English language courses for elementary

school students, for example, or learning

using the latest ICT devices.

The Changing Stance of JapaneseParentsReforms to the education system in Japan

are therefore progressing apace. How-

ever, it’s true to say that teachers and

parents, who have very high expectations

of schools, are split on education reforms.

For example, Figure 1 (page 23) shows

the results of a survey that the Benesse

Educational Research and Development

Center (BERD) was commissioned to

carry out by MEXT for use by the Central

Education Council in its deliberations. The

survey revealed that parents want reforms

that give more guidance to students in the

classroom, while teachers seemed to

show little appetite for this. This suggests

that schools aren’t sufficiently satisfying

parental needs, and we expect these

needs to be increasingly fulfilled by pri-

vate education providers.

Parents are also more likely to start the

education of their kids from early child-

hood, well before they even enter the

compulsory education system. Figure 2

(page 23) shows the results of a BERD

survey of parents with young children. As

you can see, regardless of age group,

more children are beginning their learning

at an earlier stage. In fact, the data

reveals that half of all three-year-olds are

involved in some sort of structured learn-

ing. In particular, the number of children

learning English is on the rise.

The Changing Abilities ofJapanese ChildrenChildren are changing. In Japan, the

declining academic abilities of children is

well-publicized. As illustrated by the

OECD’s Program for International Student

Assessment (PISA), the number of Japa-

nese students with weak academic skills

is increasing, leading to a drop in Japan’s

international ranking. This kind of interna-

tional comparative survey has also high-

lighted the declining motivation of

Japanese students. In the past, Japanese

children were held up as the world’s most

hardworking students, but on the other

hand, they generally can only study within

a fixed learning framework with clear

steps and appropriate motivation. Against

this backdrop, there are rising calls for

school education tailored to the

individual abilities of each student.

Private education providers are also

being asked to provide services that

meet the same unique needs—this will

be the key to success in Benesse’s

education business.

The Changing Face of JapaneseSocietyIn addition to education issues, Japan is

faced with other challenges that are

impacting the whole of society. The

country’s declining birthrate is accelerat-

ing, with average birthrates for Japanese

women dropping to historic lows for the

past five years running. In 2005, the

figure reached 1.25 babies per woman.

Related issues include the lack of support

for working mothers to raise children, and

insufficient participation in parenting by

fathers due to long working hours. The

lack of daycare facilities in Japan is also a

problem. Creating an environment that

makes it easier to raise children is there-

fore of paramount importance in arresting

this trend. Companies in the private sec-

tor also have a role to play by providing

support services to young parents.

Benesse’s New ServicesAs this brief summary shows, education

in Japan has seen major change over the

last few years, including a shift of power

to the regions and a variety of new educa-

tion approaches. In parallel, the needs of

parents and children are diversifying.

Meanwhile, parents also have to deal with

an environment that is not conducive to

raising children. Based on rapid identifi-

cation of these trends and challenges, we

must respond even more accurately to

individual issues to offer services that give

customers a higher level of satisfaction.

This thinking already underpins our

efforts to create learning materials tailored

to individual needs and the development

of new learning programs. Concrete

examples include English language

courses for infants through to elementary

school students, dietary education, and

other learning services that we’ve already

launched outside the traditional scope of

the curriculum in Japan. Other important

themes for Benesse include creating

individualized learning programs and

enhancing learning efficiency by utilizing

classroom settings, ICT devices and

other tools.

In the last few years, private educa-

tion providers have been attracting

growing attention for their potential to

supply highly targeted services 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 learn-

ing is one of our important social

responsibilities.


2. ROUND TABLE DISCUSSION: A CHANGING APPROACHTO MARKETING

Since fiscal 2003, marketing activities have revolved around a media-mix strategy thathas successfully raised awareness of the Benesse name. The focus going forward will beon reinforcing customer relationship management (CRM) to build an even morepowerful customer base.

Participants (from left to right):Keiji Yasuda General Manager, Web Marketing DepartmentHirofumi Fukui Deputy General Manager, Brand & Marketing DepartmentKazuko Takaichi Corporate Senior Vice President, In charge of Contact Center OperationDivision, Vice President & Representative Director, Telemarketing Japan, Inc.Tamotsu Fukushima Director and Chief Marketing Officer; Corporate Senior ExecutiveVice President

Media-mix Strategy Since Fiscal2003 and the Challenges AheadFukushima: Three years ago, Benesse’s

marketing strategy simply wasn’t capable

of reacting fast enough to rapid changes

in the operating environment. Downturns

in enrollment in Junior High School and

Senior High School courses were particu-

larly noticeable, and I think this was

related to Benesse’s declining recognition

and brand power in the market at the

time. Because of this, we decided to

introduce a media-mix strategy combining

a return to advertising in the mass media,

effective use of online advertising,

telemarketing through upgraded contact

centers and a host of other initiatives.

This approach resulted in a clearer image

of Benesse in the minds of consumers

and helped us to overcome the bumpy

patch we experienced between 2003

and 2005.

Yasuda: Over the last three years, we’ve

made significant progress in creating a

web-based marketing framework. We

basically target two groups online: one is

female customers through the Women’s

Park website, and the other is customers

using our education products. In the

education field, the Benesse Education

Information website and a joint marketing

site for all Shinkenzemi products are our

principal online marketing channels.

Women’s Park, a community website

exclusively for female members, has done

well since its launch in 2000. In fact,

registered users recently reached 650,000

as of March, 2006. Women’s Park is also

open to non-members, and including

these users the site is accessed by roughly

1.2 million people each month. Through

this site, many users gain a better under-

standing of who we are and what we do.

They also see that Benesse is working to

tackle a range of issues that they encoun-

ter in their daily lives.

At Benesse, we use the web in three

ways: for marketing, as a communication

tool, and to provide products and ser-

vices. Kazuko Takaichi’s contact centers

also play an important role in communi-

cation with customers, but there is an

increasing shift away from phone- and

fax-based contact to the Internet and the

mobile web. Looking at last year’s statis-

tics, around 60% of requests for informa-

tion about our products and services were

over the Internet. In a similar vein, we are

now actively targeting customers who are

more likely to use the mobile web, such

as expectant mums, parents with young

children and high school students. Going

forward, we plan to more effectively lever-

age the respective advantages of the

Internet and the mobile web by tailoring

content and communication methods to

each customer segment.

Takaichi: In the past, contact centers

were viewed as cost centers. As such,

one of the main roles of these facilities

was to efficiently curb costs. Today, as

Benesse seeks to reinforce CRM, we see

contact centers more as profit centers—

marketing organizations that can generate

added value. Staff are highly motivated

and committed to assisting customers.

Keiji Yasuda just mentioned how more

and more customers are using the

Internet and mobile web to access infor-

mation about Benesse’s product and

service lineup. On the face of it, you

would think this would lead to a drop in

the number of phone inquires. In fact, the

opposite is true. I think the phone will

continue to be an extremely important

tool in providing clear, no-nonsense

explanations to customers when they

need them. With Benesse’s product

menu becoming more diverse, complex

and visible, we expect customers to

express interest in a variety of ways. This

is where the phone comes into its own; it

allows our personnel to expand dialog—

and relationships—with potential custom-

ers. For example, somebody calling to ask

about enrolling their child in one of

Benesse’s courses may end up talking

about the concerns they have about their

child’s current school. By lending an

understanding ear and going some way to

helping callers deal with these and other

concerns, Benesse can put the building

blocks in place for effective CRM. As

Benesse develops its classroom-based

education services and seeks to create

synergies with other Group companies,

customers will increasingly come into

contact with a wider range of Benesse

products and services. As a result, we will

need to enhance communication with all

our customers, not just Shinkenzemi

users. Formulating a strategy that intelli-

gently combines the phone, Internet and

marketing events in interacting with these

customers will be especially important

going forward.

Fukui: Benesse has also had to reassess

its branding strategy, and specifically,

how to create stronger links between the

Benesse corporate brand and individual

products like Shinkenzemi correspon-

dence courses and Tamahiyo magazine

titles. Because each product was commu-

nicated to the public independently, it

was very difficult for us to generate syner-

gies across the product lineup.

Recognizing this issue, we initiated a

debate about the long-term development

of Benesse’s businesses over the next 30

to 50 years, asking ourselves what kind of

value we should retain and cultivate. Two

areas that we couldn’t alter were immedi-

ately clear: the Benesse corporate phi-

losophy, based on the Latin meaning of

the company’s name, of helping people to

live well, and our ethos of creating prod-

ucts and services that we’d be happy to

use ourselves or offer our own families.

Based on these fundamental ideals, we

decided to make the Benesse brand one

of the key elements of our corporate

activities. By rolling out a branding strat-

egy centered on the Benesse name, in

conjunction with the media-mix strategy

we talked about earlier, we have success-

fully raised awareness of Benesse in the

marketplace by linking the corporate

brand with the individual brands of our

mainstay products.

Moving ahead, the Benesse brand will

take a front-seat role in everything we do.

So, whenever we move into new fields or

launch new products and services, we’ll

be able to tap into the positive image

consumers already have of Benesse.

Benesse Corporation 26 Annual Report 2006 27 Annual Report 200626 Annual Report 2006

Pushing Forward Marketing ReformsSince fiscal 2003, we have shifted away from an exclusive focus on direct mail advertising to a more diverse media-mix strategy. Addi-

tionally, as part of our efforts to protect personal information, we decided to halt the use of the basic resident register access system in

October 2005, which we had been using to send out direct mail. Supported by the creation of a CRM Committee in November 2005,

we are now implementing a range of Company-wide marketing activities.

Tamotsu FukushimaDirector and Chief MarketingOfficerCorporate Senior ExecutiveVice PresidentChairman, CRM Committee

Kazuko TakaichiCorporate Senior VicePresident, In charge ofContact Center OperationDivision, Vice President &Representative Director,Telemarketing Japan, Inc.

Keiji YasudaGeneral Manager,Web Marketing Department

Hirofumi FukuiDeputy General Manager,Brand & MarketingDepartment

CRM CommitteeA marketing organization chaired by the CMOResponsible for overseeing all the Company’smarketing activities, including making decisionsand implementing strategy related to the media-mix approach and the allocation of resources;through these activities, the committee works torevolutionize Benesse’s marketing methods, fromidentifying target customers to closing sales.

Contact Center Operations HeadquartersResponsible for managing in-house call centeroperations through consolidated subsidiaryTelemarketing Japan; overseeing all aspects ofstrategy related to customer service.

Web Marketing DepartmentResponsible for online marketing activities;generating synergies between Women’s Park,Japan’s largest community website for womenwith 650,000 registered users, and BenesseGroup businesses

Brand PlanningResponsible for Company-wide advertising andmarketing activities aimed at raising Benessebrand value; formulating and implementing acorporate identity strategy.

CRM Committee

Key Marketing Functions

Our Marketing Approach up to2010 in an IncreasinglyChallenging Business ClimateFukushima: Japan’s falling birthrate and

our decision to stop using the basic resi-

dent register access system for marketing

purposes are two challenges we have to

overcome. In response, we are strength-

ening CRM to locate and bring together

customer information dispersed across

our operating divisions, and to maintain

and develop the points of contact we have

with customers.

In November 2005, we established a

CRM Committee. There were two reasons

for this step: first, because we stopped

using the basic resident register access

system we decided it was necessary to

build our own framework to collect cus-

tomer data. Second, we realized that we

had to create a system covering all in-

house companies to support information

sharing and joint product development.

This was prompted by the emergence of

combined elementary and junior high

schools, junior and senior high schools

and other changes heralding the start

of radical change in Japan’s existing

so-called “6-3-3” schooling system*. The

CRM Committee is responsible for dis-

cussing how best to respond to these

challenges. Specifically, it looks at how to

tackle the biggest issue we face today—

identifying and attracting potential cus-

tomers to support the future development

of the business now that we no longer use

the basic resident register access system.

I believe this committee has already sig-

nificantly lowered barriers between each

in-house company. Now, instead of inde-

pendent and disconnected conversations

on how best to tackle issues related to the

same products, in-house companies are

increasingly on the same page. We now

have a shared belief that any other

approach in a drastically changing educa-

tion environment won’t hold water.*Elementary school, six years; junior high school,three years; senior high school, three years.

Yasuda: The role of online marketing in

Benesse’s overall CRM strategy grows

more important by the day. I mentioned

the 650,000 registered users of Women’s

Park earlier. Well, roughly 30% to 40% of

these members also read one of our

Tamahiyo magazine titles or have enrolled

their kids in Kodomo Challenge corre-

spondence courses. Our approach is to

create more points of contact with online

members, such as parent-child support

services offered via Women’s Park, to

encourage customer migration to other

Benesse products and services. In this

way, registered users who haven’t

enrolled their children in Kodomo Chal-

lenge courses might purchase mail-order

Kodomo Challenge-branded products.

Fukushima: Going forward, we plan to

upgrade the CRM system and provide a

wider choice of products and services to

customers. We envisage, for example,

being able to provide an extensive selec-

tion of products for every need for babies

through to 18 year olds as a kind of one-

stop education department store. Based

on this approach, we are aiming to build

and sustain long-term relationships with

customers over many years. The ultimate

aim of our efforts to strengthen CRM will

be to create an even more distinct pres-

ence for Benesse in the marketplace.

”“In the years up to 2010, we plan to reinforce CRM to gather the kind of information

we need to develop a whole new range of products and services. This will support ourefforts to become a kind of one-stop education department store.


3. ENHANCING OUR PRESENCE IN NEW FIELDS

! Develop new products and reinforce theexisting product menu to enhance value forcustomers over their entire lifetimes.

! Achieve profitability across all product lines.

MASAAKI ITOPresident, Lifetime Value CompanyPresident, Benesse Shokuiku Institute

bon merci!First published in 2001, bonmerci! is a specialist magazinefor families with kids focusingon healthy eating. Results fromreader surveys are used inresearch conducted by theBenesse Shokuiku Institute.

! Deliver steady growth emphasizingbusiness profitability

! Build a new business model to underpinfuture growth

TORU NODAPresident, Language Company

Berlitz Language CenterBerlitz International isthe world’s largest lan-guage education companywith 529 schools in 68countries (as of December31, 2005).

LIFETIMEVALUE

COMPANY

LANGUAGECOMPANY

New Magazine CAT’S HEARTDrives Sales and EarningsThe in-house Women & Family Company

was renamed the Lifetime Value (LTV)

Company in fiscal 2005, reflecting its shift

in operational focus to enhancing value

over the lifetime of all customers, not just

existing core customers—women and

families. Restructuring unprofitable busi-

nesses and rapidly establishing new

businesses has helped keep operations in

the black since fiscal 2004. In fiscal

2005, the company published CAT’S

HEART, a direct-sales magazine for cat-

owning families. This new title helped to

drive sales and earnings during the year.

Benesse ShokuikuInstitute EstablishedIn fiscal 2006, the LTV Company will

continue focusing on developing new

products and reinforcing its existing prod-

uct menu to enhance value for customers

over their entire lifetimes. In April 2006,

Benesse set up the Benesse Shokuiku

Institute, an in-house think tank dedi-

Completed Turnaround atBerlitz InternationalBenesse appointed a new president to

head U.S. subsidiary Berlitz International

in July 2003. Since then, the company

has rolled out a raft of radical restructur-

ing measures designed to raise profitabil-

ity and growth. In fiscal 2004, Berlitz

International’s global operations were

divided into three regions: the Americas,

Europe and Asia. Functions at the U.S.

head office were downsized substantially

and authority transferred to these operat-

ing regions. In fiscal 2005, the company

targeted the weak performance of its

operations in Japan. Specific initiatives

included overhauling the cost structure

by closing or integrating unprofitable

language centers, as well as augmenting

the product and service menu and en-

hancing marketing capabilities. This

resulted in a significant improvement in

performance in Japan. As a result,

Berlitz International posted an improve-

ment of ¥3.3 billion in operating income

in the year under review, reversing its

loss of fiscal 2004. This marked turn-

around in profitability was underpinned

by stronger sales in all three operating

regions, but particularly the Americas.

Aim to Further Boost Sales andProfitability WorldwideGoing forward, Berlitz International will

implement the following concrete mea-

sures to drive an increase in sales and

raise profitability worldwide:

• Raise brand value and boost spending

per customer

• Offer more choice in lessons and

learning materials to respond to diver-

sifying student needs

• Develop untapped markets by introduc-

ing the Berlitz Virtual Classroom dis-

tance learning system

• Expand the lineup of value-added

services such as skills training for

corporate customers

cated to dietary education issues. The

results of research and surveys

conducted by this think tank will be

used to develop new products and

services and reinforce the existing prod-

uct lineup, as well as give back some-

thing to the community.

In the year under review, the LTV Com-

pany had two unprofitable product lines.

The goal is to have all product lines oper-

ating at a profit in fiscal 2006.


! Posted profits before the amortization ofgoodwill in fiscal 2005 thanks to businessrestructuring initiatives

! Targeting profitability on an operatingincome basis from fiscal 2006

! Introduce an area-based sales and marketingstructure to create marketing approachestailored to specific residential areas.

! Forge links with medical providers andenhance preventative care exercise programs.

KENICHI FUKUHARADirector and CorporateSenior ExecutiveVice PresidentPresident, Benesse StyleCare Co., Ltd.

Aria TetsugakudoOpened in February 2006,this nursing home provides24-hour care and has linkswith medical institutions.

SENIORCOMPANY

AVIVABUSINESS

An AVIVA classroomAVIVA is Japan’s largest PCschool with 203 classroomsnationwide

YOJI SHIRAISHIPresident, AVIVA Co., Ltd.

Efforts to Strengthen Facilitiesand Boost Service QualityThe Senior Company is working to deliver

stable, sustained business growth by

putting greater emphasis on service qual-

ity and profitability at each home rather

than network expansion. In fiscal 2005,

we stopped using tray food services

based on central kitchens at some

homes, aiming to offer meals more suited

to each home. We also enhanced safety

and security measures to create homes

that give residents greater peace of mind.

These moves reflected overall efforts to

strengthen facilities at each home. Addi-

tionally, at some homes, we enhanced

links with medical providers and began

offering preventative care exercise pro-

grams jointly developed with fitness spe-

cialist Renaissance Inc.

Our Strategy for the Road AheadThe Benesse Group will leverage its

reservoir of expertise in nursing home

management to continue providing high-

quality services, and work to create a

Benesse brand synonymous with trusted

nursing care services. Our approach

Progress WithBusiness RestructuringOn April 1, 2005, Benesse took over part

of the operations of AVIVA Japan Corpora-

tion, a company running Japan’s largest

network of PC classrooms but receiving

support from the Industrial Revitalization

Corporation of Japan. During fiscal 2005,

Benesse closed or integrated 122 class-

rooms, equivalent to around one-third of

the existing network of 325. Other radical

business reforms were implemented,

including a year-on-year cut in advertising

expenses of 60%. This helped AVIVA to

post profits before the amortization of

goodwill for the year under review.

Targeting Profitability on anOperating Income BasisIn fiscal 2006, AVIVA will aim to generate

operating income by developing new

products and leveraging greater synergies

with Benesse’s existing operations. In

terms of new products, AVIVA will develop

approved PC skill certification materials

and offer a broader choice of services to

help students enhance their ICT capabili-

ties and acquire related qualifications.

until now has been to market four differ-

ent nursing home brands in four specific

types of residential area. Now, however,

we plan to offer all four brands in the

same area—a unique strategy in the field

that will give us a competitive advantage.

By adopting an area-based sales and

marketing structure, individual sales

representatives will be able to build up a

better understanding of local needs and

local government trends, allowing us to

create optimal homes specifically

designed for certain communities.

Offerings will include Microsoft Office

Specialist certification, system administra-

tion and CAD courses for corporate cus-

tomers. In terms of synergies, AVIVA will

provide PC learning software for elemen-

tary and junior high school students to

Benesse, and begin offering Benesse

Study Loans to help students pay for their

courses. AVIVA classrooms may also be

used as GTEC examination centers.

These and other initiatives will underpin

AVIVA’s efforts to boost top-line perfor-

mance in the fiscal year ahead.


Management Structure

Benesse introduced the Corporate Execu-

tive Officer System in April 2003. The cur-

rent management structure comprises

seven Directors, three of whom are Inde-

pendent Directors; 17 Corporate Executive

Officers, three of whom are also Directors;

nine Group Executive Officers; and four

Corporate Auditors, three of whom are

outside Corporate Auditors.

Decision-making Organization

The Headquarters Management Commit-

tee (HMC), which is chaired by the Presi-

dent and CEO, determines Company-wide

management policy and important man-

agement issues. This committee meets

twice every month. Benesse also has

Company Management Committees

(CMC) as decision-making bodies for in-

house companies and major subsidiaries.

Chaired by in-house company presidents

(Corporate Executive Officers) and presi-

dents of subsidiaries (Group Executive

Officers), these committees convene

monthly in each company. Based on the

agreement of all participants, the chair-

persons of these committees have final

decision-making authority. Because any

executive or employee can participate in

HMC or CMC committee meetings, sub-

ject to the approval of the chairperson,

the discussion and deliberation process is

open. This makes the management

decision-making process transparent and

ensures there is shared understanding of

any decisions made.

The Board of Directors, which meets in

principle on a monthly basis, is chaired by

the Company’s Chairman and is respon-

sible for management decision-making and

monitoring business execution. By main-

taining a small board, we are aiming to

improve the quality of discussions and

accelerate the decision-making process.

Furthermore, the appointment of Indepen-

dent Directors ensures management objec-

tivity and transparency.

In addition to the above, three com-

mittees, mainly comprised of Indepen-

dent Directors, advise the Board of

Directors—a Nomination Committee,

Compensation Committee, and Takeover

Response Committee. The latter was

established to respond to any large-scale

purchases of the Company’s shares. A

Privacy Protection Committee and a

Health and Safety Committee also advise

the President and CEO.

Audit System

The four Corporate Auditors, including

three outside Corporate Auditors, carry

out internal audits from an autonomous

standpoint in accordance with audit

guidelines set by the Board of Corporate

Auditors. These audits are based on a

shared understanding of issues related to

business execution gained from atten-

dance at meetings of the Board of

Directors, HMC and other important

committees, as well as business reports

from Corporate Executive Officers and

surveys of operations.

Benesse has also established an

Internal Audit Department as an internal

audit body. The department conducts

audits at each division, including subsid-

iaries, then provides evaluations and

guidance based on the results. Internal

audit reports are regularly submitted to

the Board of Directors.

By establishing highly transparent decision-making processes, Benesse is aiming todeliver healthy, sustained growth and ensure society retains its trust in the Company.

CORPORATE GOVERNANCE

General Meeting of Shareholders

Audit

Oversight

Execution

Board of Corporate Auditors

• 4 Corporate Auditors (Including 3 outside appointments)

Board of Directors

Chairman

• 7 Directors (Including 3 outside appointments)

President and CEO

Internal Audit Department

• 17 Corporate Executive Officers• 9 Group Executive Officers

Independent Auditors

Nomination Committee

Corporate Executive Officer Nomination, Development and Compensation Committee

Business Investment Committee

Health and Safety Committee

Privacy Protection Committee

Audit

Compensation Committee

Takeover Response Committee

Corporate Governance System


BENESSE CORPORATION ORGANIZATION OF 2006As of June 25, 2006

Business OfficesOkayama HeadquartersTokyo Head OfficeHokkaido OfficeTohoku OfficeMorioka OfficeKanto OfficeSaitama OfficeTokyo OfficeChiba OfficeShizuoka OfficeNagoya OfficeHokuriku OfficeOsaka OfficeKyoto OfficeNara OfficeMatsue OfficeChugoku-Shikoku OfficeKyushu OfficeKumamoto OfficeNaha OfficeTaipei Office

Education Research &Development Headquarters

Corporate Organization

Elementary School Education Company

Parenting Company

Lifetime Value Company(formerly Women & Family Company)

Berlitz International, Inc.

Telemarketing Japan, Inc.

AVIVA Co., Ltd.

Benesse Style Care Co., Ltd.

Benesse Korea Co., Ltd.

School & Teacher Support Company

Senior High School Education Company

Company Organization

Human Capital Department

General Affairs Department

Benesse Group Controller’s Office

Personal Data Protection Department

Legal & Compliance Department

Finance Department

Card Business Development Department

Procurement & Logistics Department

Educational Toys & Learning ActivitiesDevelopment Department

IT Strategy Department

Board of Corporate Auditors

Chairman

President & CEO

Board of Directors

General Meeting of Shareholders

CRMCommittee

Naoshima Cultural Activities Department

External AffairsDepartment

Benesse Institute for the Child Sciences,Parenting, and Aging Inc.

Junior High School Education Company

Regional Sales Strategy Division

Corporate Communication &Investor Relations Department

Marketing & BrandManagement Department

Internal Audit Department

Web Marketing Department

Secretarial Office

Contact CenterOperation Division


BENESSE’S CORPORATE GOVERNANCE SYSTEM—THE VIEW FROM OUTSIDE

Benesse’s unique corporate governance system is supported by Independent Directorsand outside Corporate Auditors who have a strong awareness of corporate governance.

“Benesse’s Corporate Auditorsare primarily focused onpreventative audits”Benesse has adopted the auditor gover-

nance model. However, the Company has

also established a Nomination Committee,

Compensation Committee and Takeover

TOICHIRO MIYAKAWAOutside Corporate Auditor

Response Committee. Although these

committees have no decision-making

power, unlike those in companies with the

committee governance model, Benesse’s

Board of Directors still respects their

views. I believe this unique corporate

governance system works very effectively.

A corporate governance system can

only function properly under the supervi-

sion of senior managers with a high sensi-

tivity to risk. I am completely in

agreement with Masayoshi Morimoto,

Benesse’s President and CEO, that the

focus of our audits must be preventative.

Three factors are crucial to ensuring

preventative audits are conducted effec-

tively. First, Corporate Auditors must be

on the same page as senior managers

with respect to key management issues

(business risk). Second, rather than an

after-the-fact approach, Corporate Audi-

tors have to monitor the decision-making

process personally by participating in key

meetings. And finally, Corporate Auditors

must monitor the state and effectiveness

of the internal control system. An open

and transparent corporate culture also

helps increase the effectiveness of these

preventative audits.

In a sense, this kind of approach goes

beyond the conventional duties of Corpo-

rate Auditors, but actively monitoring the

Company’s activities based on a shared

sense of purpose with senior manage-

ment will ultimately help to prevent any

misconduct at Benesse.

Nomination Committee Compensation Committee Takeover Response CommitteeCommittee

Main Activities

Committee Members

RoleSelect candidates for Director and submit proposals for dismissal

Set clear standards and ensure transparency with respect to Director compensation

Respond to large acquisitions of the Company’s shares

• Select candidates for Director and President• Submit proposals for the dismissal of Directors

or the President to the Board of Directors• Disclose clear reasons for appointment or

dismissal and evaluate senior management performance

• Independent Directors: all• Chairman• Outside Corporate Auditors: 1 (without voting rights)

• Formulate the system and operating policy for Director compensation and provide related guidance

• Determine compensation packages for individual Directors

• Independent Directors: all• Chairman• Outside Corporate Auditors: 1 (without voting rights)

• Evaluate management policy andbusiness plan proposals submitted by companies/individuals intending to acquire significant amounts of the Company’s shares, and compare alternative proposals prepared by Benesse’s senior management team

• Ensure the appropriate decision-making process is taken, whereby the Board of Directors responds to the proposal only after receiving the committee’s evaluation report

• Independent Directors: all• Outside Corporate Auditors: all• Advice from independent experts


TAMOTSU ADACHIIndependent DirectorManaging Director, Japan Representative,The Carlyle Group

“The separation of supervisoryand executive functions isworking effectively at the heartof Benesse”Benesse used Masayoshi Morimoto’s

appointment as President and CEO as an

opportunity to actively advance the sepa-

SAKIE T. FUKUSHIMAIndependent DirectorRegional Managing Director-Japan & SeniorClient Partner, Korn/Ferry International

ration of management’s supervisory and

executive roles. This was both timely and

appropriate. Looking at the actual work-

ings of management at Benesse, both

the Directors, who oversee operations,

and the Corporate Executive Officers,

who actually implement strategy, are

clearly aware of their respective roles in

the organization. It’s easy to see the

sense of urgency both groups have in

fulfilling their duties. Saying that,

Benesse’s corporate governance system

isn’t perfect and there’s still room for

improvement. For example, I think

Benesse needs to create a highly spe-

cialist team to carry out more in-depth

discussions about business investment

to drive growth, including M&A options.

That’s because, in order to take the

Company forward, Benesse will need to

intelligently balance steady expansion in

its existing business portfolio with growth

in new businesses. To ensure this

approach bears fruit, Benesse will have

to effectively use resources both inside

and outside the Group.

To make this sort of discussion

effective, Independent Directors must

also have a shared sense of purpose. As

a member of the senior management

team who shares this commitment to

the firm, I plan to actively offer advice

and oversee the process from my

independent standpoint.

“Benesse is one of only a handfulof Japanese companies to haveskillfully implemented amanagement succession plan.”In my experience, companies

transitioning from a Board of Directors

centered on internal appointments to

one mainly comprising outside directors

encounter management difficulties.

Similarly, companies with strong owner-

leadership structures developing into

publicly owned firms sometimes have

problems adopting a management suc-

cession plan. I have experienced both

these kinds of issues during my career,

and I believe this helps me to fulfill my

role as an Independent Director.

Not long ago, Benesse’s owner had a

significant say in the running of the Com-

pany. Things are different today, however,

and in my knowledge, Benesse is only

one of a handful of Japanese firms to

have skillfully implemented a manage-

ment succession plan to a non-owner

leadership structure. The reason for this

successful transition is undoubtedly the

strong relationship of trust between

Benesse’s Chairman, Soichiro Fukutake,

and its President, Masayoshi Morimoto.

The mutual respect these men have for

each other, on both an individual and

professional level, also plays an

extremely important role in the effective

operation of the Company’s corporate

governance system.

Personally, I define the role of corpo-

rate governance as making sure the com-

pany is run properly for its stakeholders.

Based on this perspective and my own

experiences, I seek to offer advice and

monitor management actions in my role

as an Independent Director, ultimately

aiming to ensure Benesse’s corporate

governance system functions effectively.


BOARD OF DIRECTORS AND CORPORATE AUDITORS, CORPORATEEXECUTIVE OFFICERS, AND GROUP EXECUTIVE OFFICERSAs of June 25, 2006

BOARD OF DIRECTORS AND CORPORATE AUDITORS *: Independent Directors **: Outside Corporate Auditors CORPORATE EXECUTIVE OFFICERS

Director and Corporate SeniorExecutive Vice PresidentKenichi FukuharaPresident, Benesse Style CareCo., Ltd.

ChairmanSoichiro Fukutake

Director and Corporate SeniorExecutive Vice PresidentTamotsu FukushimaCMO (Chief Marketing Officer)

Corporate Executive Vice PresidentNaoto SugiyamaCFO in charge of Card BusinessDevelopment Department, EducationalToys & Learning Activities DevelopmentDepartment

Director*Hiroshi MatsumotoManaging Director, JapanRepresentative,Alix Partners LLC

Director*Sakie T. FukushimaRegional Managing Director-Japan & Senior Client Partner,Korn/Ferry International

Corporate Executive VicePresidentEiji AketaPresident, School & TeacherSupport Company

Corporate Auditor**Toichiro Miyakawa

Corporate AuditorKimie Sakuragi

Corporate Auditor**Kazuo Ichikawa

Corporate Senior VicePresidentMasaaki ItoPresident, Lifetime Value CompanyPresident, Benesse Shokuiku Institute

Corporate Auditor**Tomoji WadaLawyer

Corporate Senior Vice PresidentKenji NakajimaCPO (Chief Privacy Officer)in charge of Personal DataProtection Department

Corporate Senior Vice PresidentKazuko TakaichiIn charge of Contact Center OperationDivision, Vice President & RepresentativeDirector, Telemarketing Japan, Inc.

President and CEOMasayoshi Morimoto

Director*Tamotsu AdachiManaging Director, JapanRepresentative,The Carlyle Group


Corporate Executive Vice PresidentYoshinori MatsumotoIn charge of Secretarial Office, HumanCapital Department, General AffairsDepartment, Legal & ComplianceDepartment, and Naoshima CulturalActivities Department

Group Executive OfficerYoji ShiraishiPresident, AVIVA Co., Ltd.

Group Executive OfficerTakao MiyazawaPresident, Telemarketing Japan, Inc.

Corporate Executive VicePresidentAkira KataokaDirector, Regional Sales StrategyDivision and GTEC Department

Corporate Senior VicePresidentDaisuke OkadaPresident, Elementary SchoolEducation Company

Group Executive OfficerToru NodaPresident and CEO, BerlitzInternational, Inc., and President,Berlitz Japan, Inc.

Group Executive OfficerKimiko KunimasaDirector, Benesse Style Care Co., Ltd.

Corporate Senior Vice PresidentHaruna OkadaPresident, Parenting CompanyPresident, Benesse Institute for the ChildSciences, Parenting, and Aging Inc.

Corporate Senior VicePresidentKenichi AraiDirector, Education Research &Development Headquarters

Group Executive OfficerTakaharu KobayashiVice Chairman, Synform Co., Ltd.

Group Executive OfficerMark HarrisDirector, Executive Vice President,Berlitz International, Inc.

Corporate Senior Vice PresidentTakashi KoyamaCIO (Chief Information Officer)in charge of IT Strategy Department,Chairman & President, Synform Co., Ltd.

Group Executive OfficerChung Sang-KonPresident, Benesse Korea Co., Ltd.

Group Executive OfficerMike KashaniCOO of the Americas, BerlitzInternational, Inc.

GROUP EXECUTIVE OFFICERS

Corporate Senior VicePresidentYumi NarushimaPresident, Junior High SchoolEducation Company

Corporate Senior VicePresidentShinya FukumotoPresident, Senior High SchoolEducation Company

Corporate Senior Vice PresidentHisato HoshiIn charge of External AffairsDepartment and CorporateCommunications

Group Executive OfficerKenjiro KaneshiroPresident, Shinken-AD Co., Ltd.


CONTRIBUTING TO SOCIETY

Business Ethics and ComplianceIn 1998, Benesse established a dedicated

department to focus on business ethics

and began implementing a range of mea-

sures related to this subject. Detailed

below are some of the steps taken so far.

Creating a system to promote compliance

Benesse established a specialist Risk

Management & Compliance Promotion

Section within its Legal & Compliance

Department. This office works to promote

compliance, including drawing up Busi-

ness Ethics and Compliance Rules.

Formulating ethical standards

In November 2001, Benesse drafted the

“Benesse Code of Corporate Conduct” and

“Benesse Standard of Conduct.” In order

to respond to changes in society, typified

by demands for improved consumer

protection, and shifts in the business

landscape, both documents were revised

in January 2005 and republished as one

document, the “Benesse Group Code of

Conduct.” This new document extends the

application of these standards to Group

companies and thereby reinforces the

Group’s compliance system.

Ethics Line established

In 1999, Benesse set up an Ethics Line to

give employees the means to provide

information anonymously to the Company.

Aware that the confidence of employees in

the system was vital, Benesse drew up

strict guidelines for related departments

regarding privacy and investigation

accountability, investigation authority, and

procedures for discontinuation orders or

remedial measures based on investigation

findings. These guidelines were created to

protect the anonymity and privacy of

whistleblowers and to shield them from

any negative consequences. Benesse has

also established a Group Ethics Compli-

ance Line via a third-party organization to

provide a contact point for employees at

Group companies.

Upgrading internal and external monitoring

Benesse has carried out an annual

employee awareness survey called

GAMBA since 1992. The aim of GAMBA is

to regularly measure the level of awareness

of management polices, evaluate the

management situation in each in-house

company and division, and gauge

employee satisfaction.

Benesse’s internal and external moni-

toring framework is rounded out by inter-

nal audits and business partner

questionnaires to ensure its business

ethics standards are being met.

Promoting Protection of Personal InformationIn 1999, Benesse stipulated its own poli-

cies regarding the protection of personal

information. These polices provided the

framework for the start of comprehensive

steps to protect personal information,

including the establishment of a dedi-

cated division responsible for personal

information protection issues.

We followed up on this commitment to

personal information protection by

appointing a Chief Privacy Officer (CPO)

and establishing a specialist Personal

Data Protection Department in 2004.

Furthermore, coinciding with the enforce-

ment of a new law to protect personal

information in Japan, we revised the

Benesse Corporation Privacy Policy and

formulated a new Benesse Privacy State-

ment. Other rigorous measures taken to

protect personal information have

included the creation of Regulations for

the Protection of Personal Information, the

appointment of Company CPOs as indi-

viduals responsible for protecting personal

information at in-house companies and the

formulation of related regulations.

Privacy Mark certification acquired

After reassessing and strengthening its

personal information protection

bene[well] [live]

esse


initiatives, Benesse was awarded Privacy

Mark certification (JIS Q 15001) in

January 2006.

Run by the Japan Information

Processing Development Corporation

(JIPDEC), the Privacy Mark System certi-

fies companies that handle personal

information in an appropriate manner.

Benesse is using this certification to con-

tinue to promote greater awareness

across the company of how to handle

personal information.

Basic resident register access system

In its education and other businesses,

Benesse uses direct mail to send cus-

tomers information about products and

services related to parenting and learn-

ing, as well as news about the education

field in general.

To tailor this information to specific

customers, we use questionnaires,

requests for information about Benesse’s

products and services and other methods

to gather information directly from cus-

tomers. We also used the basic resident

register access system—a record of resi-

dents used by local government bodies to

manage details of citizens living within

their boundaries.

However, with public awareness rising

about personal privacy, Benesse decided

to stop using the basic resident register

access system from October 2005.

Additionally, respecting the wishes of our

customers, we now ask for permission to

use their personal information prior to

sending them direct mail. As a company

that handles large amounts of personal

information, we will continue to seek ways

to enhance our data protection systems.

Personnel Systems Designed toSupport Diverse and FlexibleEmployee Work StylesWe have adopted a range of different

personnel systems since 1990. Benesse

was the first company in Japan to intro-

duce a Cafeteria Plan System, offering a

menu of welfare services from which

employees can choose to suit their

lifestyles. We have also introduced a

range of other employee benefits and

services. Programs include the Maternity

Leave System; Nursing Care Leave

System; a Blue Paper System, a system

enabling employees to request transfers;

and the Professional Development Point

System, a financial support plan to aid

professional development.

In 1999, Benesse was awarded the

first Family-Friendly Company Prize, a

Ministry of Health, Labour and Welfare

award that recognizes corporate efforts to

offer various welfare plans to employees

that enable them to reconcile work com-

mitments with child-rearing and caring for

elderly relatives, thereby achieving more

diverse and flexible lifestyles.

Actively Promoting theParticipation of Women in theWorkplaceAs of April 2005, around 60% of

Benesse’s approximately 2,200 employ-

ees were women. Benesse also actively

promotes women to director and manage-

rial posts, with more than 30% of these

positions now filled by women.

From the latter part of the 1970s, even

before laws were passed in Japan to

encourage equal opportunity in the work-

place, Benesse realized that attracting

female university graduates was crucial to

securing the best personnel. There are no

longer disparities between men and

women in terms of employment condi-

tions and promotion at Benesse.

In addition, with its Maternity Leave

System, Nursing Care Leave System,

Cafeteria Plan System and other sys-

tems, Benesse has created a personnel

framework that supports a variety of

working styles, regardless of gender,

helping women to play an active role in

the workplace.

Corporate Citizenship InitiativesCentered on its operating fields of educa-

tion and culture, Benesse carries out a

range of corporate citizenship initiatives,

some of which are outlined below.

Wide-ranging surveys and research about

children and the future of education

1. BERD

The Benesse Educational Research and

Development Center (BERD) is an in-

house think tank. In order to improve

analysis of issues today in Japan’s rapidly

changing education environment and look

for solutions, BERD began publishing a

magazine of the same name in July 2005.

The main objective of the magazine is to

link cutting-edge research with actual

practice in the field.Publications by the Benesse Educational Researchand Development Center (BERD)

The BERD website


2. Benesse Institute for the Child

Sciences, Parenting, and Aging, Inc.

This institute was established in January

2006. In response to the diversifying val-

ues and needs of Japanese society, it will

conduct survey and research activities that

emphasize helping children and families

“live well,” while putting importance on

individual and family lifestyles. The insti-

tute will also examine and make proposals

on the creation of a social system that

passes on social, intellectual, and material

assets to future generations from the per-

spective of groups such as senior citizens,

parents, and people thinking of having and

raising children.

3. Benesse Shokuiku Institute

In April 2006, Benesse set up the

Benesse Shokuiku Institute, an in-house

think tank dedicated to dietary education

issues. Against the backdrop of rising

interest in healthy eating nationwide, the

institute will strengthen the utilization of

data already accumulated by Benesse,

including information gathered from

readers of bon merci!—a specialist maga-

zine for families with kids focusing on

dietary issues—in existing businesses and

actively satisfy growing demand for infor-

mation about diet in all parts of society.

Endowments for research courses and

departments at the University of Tokyo

At Benesse, we believe we have a key role

to play in developing new products and

services in response to radical change in

the education operating environment.

Based on this thinking, we have estab-

lished a total of three endowed research

courses and departments at the Univer-

sity of Tokyo, the first in fiscal 2004 and

the remaining two in fiscal 2005, to

promote joint research between busi-

ness and academia. We plan to use

results gleaned from this research to

benefit society.

Support for organizations studying issues

related to children

We provide financial support for the

Child Research Net

(http://www.childresearch.net/),

an organization engaged in research into

child-related issues on an interdisciplinary

and international scale.

Development and management of Benesse

Art Site Naoshima

Benesse operates an art site on Naoshima, a

small island in Japan’s Inland Sea. The

project is based on the concept of integrat-

ing lifestyles with modern art, architecture

and nature. The site includes an integrated

art museum and hotel called Benesse House,

as well as the Naoshima International Camp-

ing Ground, and the Art House Project in

Naoshima, which fuses modern art with the

traditional style of Naoshima’s historic

houses. As many as 60,000 people from

Japan and around the world visit this small

island each year.

Measures to Protect theEnvironmentIn December 2003, Benesse formulated the

Environmental Policy shown below. From

April 2004, we also began building an envi-

ronmental management system and

launched company-wide environmental

activities toward obtaining ISO 14001 certifi-

cation, an internationally recognized envi-

ronmental management standard. These

efforts paid off when Benesse obtained ISO

14001 certification in November 2004.

Environmental Policy

1. Work to design products that contain no

harmful substances and are easy to

recycle; promote green procurement cen-

tered on sourcing recyclable materials.

2. In conjunction with implementing energy

conservation measures, reduce the

volume of waste generated by the com-

pany and boost the recycling rate.

3. Actively work to adopt new technologies

and other means that reduce the impact

of operations on the environment.

4. Taking compliance with environmental

laws and regulations as the bare mini-

mum, conduct business activities in

accordance with internal environmental

regulations, review work processes where

needed and adopt methods that have

less impact on the environment.

5. Disclose the status of environmental

activities internally and externally.

Building on our recent ISO 14001

certification, we plan to reduce the impact

of our operations on the environment by

further enhancing our environmental

activities. We will particularly focus on

promoting eco-friendly design, reducing

waste and promoting recycling. As a com-

pany involved in the education of children,

we will also fulfill our social responsibility

by educating them on the importance of

protecting the environment.

The Child Research Net website Benesse House©Tadasu Yamamoto

Benesse Corporation 41 Annual Report 2006

FINANCIAL SECTION

42 Six-year Summary of Consolidated Financial Statements

44 Management’s Discussion and Analysis

56 Consolidated Balance Sheets

58 Consolidated Statements of Income

59 Consolidated Statements of Shareholders’ Equity

60 Consolidated Statements of Cash Flows

61 Notes to Consolidated Financial Statements

81 Independent Auditors’ Report

CONTENTS



SIX-YEAR SUMMARY OF CONSOLIDATEDFINANCIAL STATEMENTSBenesse Corporation and Consolidated Subsidiaries

Millions of Yen

Years ended March 31 2006 2005 2004 2003 2002 2001

FOR THE YEAR:Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥333,767 ¥291,403 ¥260,142 ¥258,289 ¥267,250 ¥262,948

Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,347 139,672 125,312 133,223 128,382 123,766Selling, General and Administrative Expenses . . . . . . 140,008 125,553 114,128 108,749 114,279 108,904Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,412 26,178 20,702 16,317 24,589 30,278Income before Income Taxes and Minority Interests . . 27,746 25,799 17,251 14,446 24,195 29,985Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,637 11,439 7,628 7,553 11,693 13,940Impairment Loss on Goodwill . . . . . . . . . . . . . . . . . . – – – – 13,195 –Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,039 14,297 9,394 6,973 327 16,498

Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 20,504 ¥ 11,116 ¥ 9,851 ¥ 8,046 ¥ 10,934 ¥ 11,275Depreciation and Amortization . . . . . . . . . . . . . . . . . 9,775 7,511 7,820 8,572 10,700 9,609

Yen

PER SHARE OF COMMON STOCK:Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 156 ¥ 138 ¥ 89 ¥ 64 ¥ 2 ¥ 153

Diluted Net Income . . . . . . . . . . . . . . . . . . . . . . . . 156 138 89 64 2 153Cash Dividends Applicable to the Year . . . . . . . . . . . 75 60 40 29 29 29

Millions of Yen

AT YEAR-END:Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥330,230 ¥307,668 ¥292,100 ¥275,516 ¥291,393 ¥309,261Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . 186,292 174,711 170,781 169,428 171,826 170,011

Yen

Shareholders’ Equityper Share of Common Stock . . . . . . . . . . . . . . . . . . ¥ 1,817 ¥ 1,701 ¥ 1,641 ¥ 1,612 ¥ 1,616 ¥ 1,599Retroactively Adjusted . . . . . . . . . . . . . . . . . . . . . . 1,817 1,701 1,641 1,612 1,616 1,599

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. The computation of the weighted average number of shares of common stock outstanding during each year and the number of shares outstanding at the fis-

cal year-end is retroactively adjusted for the effect of a 1:2 stock split made on May 19, 2000.


%


PROFITABILITY:Operating Income Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5% 9.0% 8.0% 6.3% 9.2% 11.5%Net Income Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 4.9 3.6 2.7 0.1 6.3Return on Equity (ROE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 8.3 5.5 4.1 0.2 10.0Return on Assets (ROA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 4.8 3.3 2.5 0.1 5.4Operating Income per Employee (Thousands of Yen) . . . . . . . . . . . . . . . ¥2,352 ¥2,647 ¥2,407 ¥2,019 ¥2,717 ¥3,334Net Income per Employee (Thousands of Yen) . . . . . . . . . . . . . . . . . . . ¥1,328 ¥1,446 ¥1,092 ¥ 863 ¥ 36 ¥1,817

GROWTH TRENDS:Increase (Decrease) in Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5% 12.0% 0.7% (3.4)% 1.6% 0.8%Increase (Decrease) in Operating Income . . . . . . . . . . . . . . . . . . . . . . . 8.5 26.5 26.9 (33.6) (18.8) (8.1)Increase (Decrease) in Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 52.2 34.7 2,034.6 (98.0) 0.5

STABILITY:Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124.6% 141.3% 144.6% 141.5% 121.7% 114.0%Fixed Assets Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96.3 85.6 84.5 90.7 103.5 113.6Equity Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56.4 56.8 58.5 61.5 59.0 55.0Liquidity (Months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 4.1 4.2 3.5 3.2 3.6Debt-to-Equity Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 3.8 3.6 5.5 9.9 12.4Interest Coverage (Times) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156.0 117.0 85.0 34.6 26.4 31.9

Notes: 1. ROE and ROA are calculated using the average amounts of shareholders’ 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 (yearly average) X 1004. Interest Coverage = (Operating income + interest and dividend income) / interest expense

8.5


0

5

10

15

11.5

9.2 8.0

9.0

6.3

Operating Income Ratio(%)

8.5


–40

–20

0

20

40

(8.1)

(18.8)

26.9 26.5

(33.6)

Increase (Decrease) in Operating Income(%)

124.6

01 02 03 04 05 06As of March 31

0

50

100

150

200

114.0121.7

144.6141.3141.5

Current Ratio(%)

4,050

01 02 03 04 05 06As of April

4,1003,870 3,830 4,010

3,700

0

1,000

2,000

3,000

4,000

5,000

44,940


49,69046,480

41,44043,30043,310

0

15,000

30,000

45,000

60,000 5,880


5,1805,370

5,6305,780

5,500

0

2,000

4,000

6,000

Senior High School Courses Junior High School Courses Elementary School Courses Kodomo Challenge

Senior High School Courses Junior High School Courses Elementary School Courses Kodomo Challenge

Shinkenzemi Enrollment

(Thousands of students)

Enrollment in Shinkenzemi

(Thousands of students)

Number of Students Taking Shinken SimulatedExams and Other Exams(Thousands)


MANAGEMENT’S DISCUSSION AND ANALYSIS

333,767


0

100,000

200,000

300,000

400,000

262,948 267,250 260,142

291,403

258,289

28,412


0

10,000

20,000

30,000

40,000

30,278

24,589

20,702

26,178

16,317

1. MARKET ENVIRONMENTDuring fiscal 2005, ended March 31, 2006, the Benesse Corporation Group continued to face challenges associated withJapan’s declining birthrate and aging society. In the company’s core education field, private-sector education needs contin-ued to diversify against a backdrop of growing parental concern about declining student academic ability and motivation anda raft of reforms to the entrance exam system, schools and other areas of education. In this environment, Benesse imple-mented a major shift in marketing strategy, including a decision to halt the use of the basic resident register access systemin October 2005, which the company had used to send out direct mail.

In the nursing care business field, demand for a diverse range of nursing care services is rising amid growing awarenessof the Long-term Care Insurance System. This is helping to drive sustained growth in the market. Although new entrantsfrom different sectors and other factors are fanning more intense competition, revisions to the nursing care system mean thequality of services provided by operators is increasingly under the spotlight.

In the language education business field, despite stiffer competition from rival providers, globalization means there is stillstrong demand for language education services.

2. OPERATING RESULTSThird consecutive year of top- and bottom-line growthBenesse began implementing a three-year Medium-Term Management Plan in fiscal 2004 and achieved its target foroperating income of ¥26.0 billion two years early in the plan’s first year. As a result, Benesse raised its operating incometarget for fiscal 2005 to ¥27.5 billion and subsequently to ¥30.5 billion for fiscal 2006. The company is currently implement-ing initiatives to achieve this new goal.

In the education business field, Benesse has implemented a number of initiatives since fiscal 2003 in its core Shinkenzemicorrespondence courses to satisfy individual needs. One initiative included increasing the variety of course materials to givecustomers more choice. Additionally, Benesse has actively implemented marketing campaigns that draw on a diverse rangeof media. As a result of these and other efforts, enrollment in Shinkenzemi courses as of April 2005 stood at 4.01 million, anincrease of 180,000 from April 2004 and the second straight year of growth. Enrollment in Elementary School Courses wasparticularly strong, reaching a record high of 1.56 million members. Benesse also posted a rise in cumulative enrollment of1.64 million, or 3.8% year on year, to 44.94 million students, thanks to firm enrollment throughout fiscal 2005. Initiatives inthe period under review focused on further enhancing Benesse’s ability to meet individual needs with its product and servicemenu. One newly launched service allows students enrolled in Junior High School Courses to get their work checked andmarked quickly by fax. The range of course materials for all these courses was also expanded. In another move, Benesseestablished a new post, Chief Marketing Officer (CMO), to oversee marketing strategy and initiatives for the entire company.The CMO also chairs a newly established Customer Relationship Management (CRM) Committee. Despite a difficult envi-ronment characterized by the impact of Japan’s declining birthrate and the decision to stop using the basic resident registeraccess system, the above initiatives helped Benesse to achieve another firm year of enrollment, with members totaling 4.05million as of April 2006.

In the business field covered by the Lifetime Value (LTV) Company (formerly the Women & Family Company), newsubscribers signing up to CAT’S HEART, a direct-sales magazine first published in May 2005 and providing a host ofinformation for cat lovers, got off to a steady start. The magazine was profitable in its first year. Another direct-sales maga-zine, bon merci!, featuring food and health issues for families with toddlers, was also profitable thanks to an increase insubscribers. In April 2005, Benesse created the Parenting Company by combining the business division responsible for

Net Sales(Millions of Yen)

Operating Income(Millions of Yen)


mainstay pregnancy, childbirth and childcare titles Tamago Club and Hiyoko Club, with the business division providingKodomo Challenge correspondence courses for preschoolers. This step was taken for two main reasons: to create a smoothermigration of customers from these magazines to Kodomo Challenge, and to build an integrated parent support frameworkfrom pregnancy, childbirth and childcare through to infant education. Meanwhile, the Benesse Institute for the Child Sci-ences, Parenting, and Aging Inc. was established in January 2006 to carry out surveys and research related to pregnancy,childbirth, parenting, childcare and education.

In the nursing care business field, Benesse incurred a number of one-off expenses related to efforts to strengthenbusiness infrastructure with a view to enhancing service quality. On an operational level, Benesse emphasized the profitabil-ity of individual nursing homes. As of March 31, 2006, there were 106 nursing homes in the Benesse network, an increaseof 14 from the previous fiscal year-end.

In the language education business field, US subsidiary Berlitz International, Inc. posted higher sales centered onEurope and the Americas and took a number of steps to turn round its underperforming Japanese operations. In Japan,Berlitz rolled out fundamental management reforms, overhauled the cost structure and strengthened product and salescapabilities. As a result, operations in the country returned to profitability in the year under review.

AVIVA Co., Ltd., Japan’s largest operator of PC schools and a wholly owned Benesse subsidiary that was created throughthe transfer of some operations from AVIVA Japan Corporation in April 2005, implemented a number of far-reaching re-forms. These reforms, including steps to reenergize the management system and close or integrate schools, helped AVIVAto post profits before the amortization of goodwill.

As a result of the above, consolidated net sales for fiscal 2005 increased 14.5% from a year earlier, to ¥333,767 million.operating income rose 8.5%, to ¥28,412 million and net income increased 12.2%, to ¥16,039 million. These figures repre-sent Benesse’s third consecutive period of higher sales and earnings.

Note: The above forecasts, plans and other forward-looking statements are based on information available to management as of June 26,2006 and contain potential risks and uncertainties. As such, forward-looking statements may differ to actual performance due tochanges in the economic environment and other unforeseen circumstances.

(1) Net SalesConsolidated net sales rose by ¥42,364 million, or 14.5%, to ¥333,767 million.

A number of factors were behind the increase in consolidated net sales, including a year-on-year increase in cumulativeenrollment in the Education Group’s mainstay Shinkenzemi courses, the inclusion of sales from AVIVA from the periodunder review, and an increase in residents at nursing homes operated by subsidiary Benesse Style Care Co., Ltd. Highersales by Berlitz International, centered on Europe and the Americas, also supported the rise in net sales.

Net Sales by Segment

Millions of Yen


Net Sales . . . . . . . . . . . . . . . . . . . . ¥333,767 ¥291,403 ¥260,142 ¥258,289 ¥267,250 ¥262,948Education Group . . . . . . . . . . . . . 198,665 183,443 164,780 162,835 174,729 184,154Lifetime Value Company . . . . . . . 20,834 18,247 16,264 14,757 10,946 9,182Senior Company . . . . . . . . . . . . . 27,402 22,813 16,761 12,149 7,145 3,861Language Company . . . . . . . . . . 51,536 46,982 46,096 54,939 62,247 55,258AVIVA Business . . . . . . . . . . . . . 13,915 – – – – –Others . . . . . . . . . . . . . . . . . . . . 21,415 19,918 16,241 13,609 12,183 10,493

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 asingle business segment, the Education Group. Data for the years ended March 31, 2002 and 2001, has been recalculatedbased on this new business classification.

3. The Women & Family (W&F) Company was renamed the Lifetime Value Company in the period under review.4. On April 1, 2005, AVIVA Co., Ltd., a consolidated Benesse subsidiary, began operating a network of PC schools after taking over

part of the operations of AVIVA Japan Corporation. The AVIVA Business segment was created to cover these operations.


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

20,834

01 02 03 04 05 06

132

Years ended March 31–3,000

0

3,000

6,000

9,000

–10,000

0

10,000

20,000

30,000

9,18210,946

16,26418,247

14,757

(1,192)

(2,016)

(1,199)287

(2,811)

Lifetime Value Company(Millions of Yen)

198,665

01 02 03 04 05 06

29,715


32,789

27,021

22,419

28,905

17,649

0

10,000

20,000

30,000

40,000

50,000

184,154174,729

164,780

183,443

162,835

0

50,000

100,000

150,000

200,000

250,000

Net Sales (left) Operating Income (right)

Education Group(Millions of Yen)

27,402

01 02 03 04 05 06

1,909


0

10,000

20,000

30,000

3,861

7,145

16,761

22,813

12,149

(2,149)

(1,064)

1,724 2,004

463

–3,000

0

3,000

6,000

9,000

Senior Company(Millions of Yen)


(2) Cost of Sales and SG&A ExpensesCost of sales increased ¥25,675 million, or 18.4%, to ¥165,347 million, while the cost of sales ratio rose from 47.9% to 49.5%mainly due to an increase in expenses associated with the revision of text books for Shinkenzemi correspondence courses.

Cost of Sales Ratio and SG&A Ratio


Cost of Sales Ratio . . . . . . . . . . . . . 49.5% 47.9% 48.2% 51.6% 48.0% 47.1%SG&A Ratio . . . . . . . . . . . . . . . . . . 41.9 43.1 43.8 42.1 42.8 41.4

Selling, general and administrative (SG&A) expenses rose by ¥14,455 million, or 11.5%, to ¥140,008 million. Thisreflected year-on-year increases of ¥1,742 million and ¥3,374 million in direct mail and advertising expenses, respectively,as spending on direct mail and TV advertisements was boosted to attract more customers to correspondence courses. Otherfactors behind this rise included an increase in wages and salaries of ¥2,805 million, due to higher personnel expenses atBenesse Corporation and subsidiaries such as Benesse Style Care, and an increase in transportation and mailing expensesof ¥1,573 million related to the rise in enrollment in Shinkenzemi correspondence courses. Owing to the rise in net sales, theSG&A ratio declined from 43.1% to 41.9%.

(3) Operating IncomeOperating income grew by ¥2,234 million, or 8.5%, to ¥28,412 million, while the operating income ratio slipped from 9.0%to 8.5%. The main factors behind this rise were increased operating income in the Education Group as higher enrollment inShinkenzemi courses pushed up sales, and profit growth at Berlitz International stemming from higher sales in Europe andthe Americas and the benefits of management reforms in Japan.

The decline in the operating income ratio was due in part to an operating loss at AVIVA which took over some businessoperations in fiscal 2005.

49.5


51.6

0

40

50

60

47.148.0 48.2

47.9

41.9


0

40

50

60

41.442.8

43.8 43.142.1

Cost of Sales Ratio(%)

SG&A Ratio(%)

*The Women & Family (W&F) Companywas renamed the Lifetime Value Companyin the period under review.


Net Sales (left) Operating Income (right)

21,415

01 02 03 04 05 06

1,350


5,000

10,000

15,000

20,000

25,000

0

1,000

2,000

3,000

4,000

5,000

10,493

12,183

16,241

19,918

13,609

763

1,545

1,8701,7431,851

Others(Millions of Yen)


51,536

01 02 03 04 05 06

2,545


0

20,000

40,000

60,000

80,000

–1,500

0

1,500

3,000

4,500

6,000

55,258

62,247

46,096 46,982

54,939

1,602

584 450

(783)

1,016

Language Company(Millions of Yen)

13,915

01 02 03 04 05 06

(1,564)


0

5,000

10,000

15,000

20,000

–2,000

0

2,000

4,000

6,000

8,000


AVIVA Business(Millions of Yen)

Operating Income (Loss) by Segment

Millions of Yen


Operating Income (Loss) . . . . . . . . . ¥28,412 ¥26,178 ¥20,702 ¥16,317 ¥24,589 ¥30,278Education Group . . . . . . . . . . . . . 29,715 28,905 22,419 17,649 27,021 32,789Lifetime Value Company . . . . . . . 132 287 (1,199) (2,811) (2,016) (1,192)Senior Company . . . . . . . . . . . . . 1,909 2,004 1,724 463 (1,064) (2,149)Language Company . . . . . . . . . . 2,545 (783) 450 1,016 584 1,602AVIVA Business . . . . . . . . . . . . . (1,564) – – – – –Others . . . . . . . . . . . . . . . . . . . . 1,350 1,743 1,870 1,851 1,545 763

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 asingle business segment, the Education Group. Data for the years ended March 31, 2002 and 2001, has been recalculatedbased on this new business classification.

3. In the year ended March 31, 2006, Benesse changed the method for allocating operating expenses. Data for the years endedMarch 31, 2005 and 2004 has been recalculated based on the new method, while data for the years ended March 31, 2003,2002 and 2001 is based on the former method.

4. The Women & Family (W&F) Company was renamed the Lifetime Value Company in the period under review.5. On April 1, 2005, AVIVA Co., Ltd., a consolidated Benesse subsidiary, began operating a network of PC schools after taking over

part of the operations of AVIVA Japan Corporation. The AVIVA Business segment was created to cover these operations.

(4) Other Income (Expenses)Other income increased ¥1,141 million, or 52.4%, to ¥3,319 million, while other expenses, rose ¥1,427 million, or 55.8%,to ¥3,985 million, resulting in other expenses, net of ¥666 million, an increase of ¥287 million compared to a year earlier.

The increase in other income mainly reflected a government grant for rehire of ¥900 million related to the restructuringof AVIVA, while other expenses rose chiefly due to the increase of ¥1,027 million in loss on restructuring of business relatedto AVIVA, Berlitz International and other companies.

(5) Income Before Income Taxes and Minority InterestsIncome before income taxes and minority interests rose ¥1,947 million, or 7.5%, to ¥27,746 million.

(6) Income TaxesIncome taxes rose ¥198 million, or 1.7%, to ¥11,637 million. The actual effective tax rate declined from 44.3% to 41.9%.


16,039


0

5,000

10,000

15,000

20,000

16,498

327

9,394

14,297

6,973

Net Income(Millions of Yen)

8.9


0

5

10

15

10.0

0.2

5.5

8.3

4.1

ROE(%)

5.0


0

2

4

65.4

0.1

3.3

4.8

2.5

ROA(%)

(7) Net IncomeNet income increased ¥1,742 million, or 12.2%, to ¥16,039 million. The net income ratio was 4.8%, remaining almostunchanged from 4.9% in the previous year. Net income rose despite a loss on restructuring of business related to theintegration and closure of unprofitable AVIVA schools and other actions, which was offset by the higher operating incomeand other factors.

Return on equity rose from 8.3% to 8.9%, while return on assets increased from 4.8% to 5.0%.

ROE and ROA


ROE . . . . . . . . . . . . . . . . . . . . . . . . 8.9% 8.3% 5.5% 4.1% 0.2% 10.0%ROA . . . . . . . . . . . . . . . . . . . . . . . . 5.0 4.8 3.3 2.5 0.1 5.4

3. SEGMENT INFORMATION(1) Education GroupSteady sales growth in Shinkenzemi and peripheral businessesNet sales in the Education Group increased 8.3%, to ¥198,744 million. This growth was chiefly due to stronger membershipfigures in mainstay Shinkenzemi correspondence courses compared to a year earlier.

In Shinkenzemi correspondence courses, cumulative enrollment rose 3.8% to 44.94 million students. The Elementary,Junior High School and Senior High School courses were the main drivers of this enrollment growth, outweighing a declinein Kodomo Challenge correspondence courses. Elementary School Courses recorded particularly strong membership fig-ures to reach an all-time high. Steadily emerging benefits from steps to strengthen the product lineup and boost marketingcapabilities was one reason behind this strong overall performance. In terms of products, Benesse has launched newproducts and services to give customers more choice. Specifically, since fiscal 2003, the company has worked to offer morecourse materials for different academic levels, launched optional courses such as kanji character and arithmetic drills,offered creative expression courses for higher grade students enrolled on Elementary School Courses, and provided web-based study support. One new service launched during the year under review lets students on Junior High School Coursessend work to be checked and marked via fax, with replies sent back in as little as three days. On the marketing front,Benesse created the new post of CMO in November 2005 to oversee company-wide marketing activities. The CMO is backedby a new marketing promotion framework that covers the entire company and includes a CRM Committee headed by theCMO. Supported by this framework, Benesse enhanced efforts to attract potential customers who already have a stronginterest in the company using TV commercials, newspaper advertisements, the Internet, local events and other marketingmethods to supplement the existing direct mail approach.

In peripheral businesses, which exclude Shinkenzemi and Kodomo Challenge correspondence courses, Benesse in-creased enrollment in BE-GO English courses aimed at elementary school students. This was attributable to the launch of anew course in November 2005 called BE-GO First Friends. Aimed at elementary school students in the lower years, thiscourse was developed to tap rising demand for English language study. Benesse also expanded the lineup of KodomoChallenge every products for children, helping to boost sales.

In support services for schools and teachers, Shinken Simulated Exams, a core product aimed at high school students;Study Support, a learning assessment study aid; and other products performed well. Products such as Global Test of EnglishCommunication (GTEC) for STUDENTS, a comprehensive English ability assessment test for senior high school and univer-sity students, also posted higher sales.


The Education Group posted a 2.8% rise in operating income to ¥29,715 million, mainly due to higher earnings fromincreased sales of Shinkenzemi correspondence courses. This was despite higher expenses for textbook revisions, R&Dexpenses related to new learning services, and marketing.

Breakdown of Net Sales for the Education Group

Millions of Yen PercentageYears ended March 31 2006 2005 Change

Shinkenzemi:Senior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 24,301 ¥ 21,868 11.1%Junior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,990 37,982 10.6Elementary School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,024 53,364 8.7Preschool Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,656 25,462 (3.2)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,971 138,676 7.4

S&TS Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,635 29,926 5.7Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,059 14,841 21.7

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥198,665 ¥183,443 8.3%Notes: 1. Net sales by segment do not include internal sales.

2. In the past, Benesse used three sub-classifications along internal administrative lines for its Elementary School Courses: Upper,Middle, and Lower. However, as strategy for the entire Elementary School Course Business becomes more connected, and inorder to expedite the start-up of new businesses in the elementary school sector, Benesse has decided to integrate these threesub-classifications into one category, Elementary School Courses. This new classification applies from the period under review.Consequently, net sales for the previous fiscal year have been restated to reflect this new classification.

(2) Lifetime Value CompanyDirect-sales magazine CAT’S HEART records steady enrollment growthNet sales in the Lifetime Value (LTV) Company (formerly the Women & Family Company) increased 14.2% to ¥20,849 million.

Primary factors driving sales higher included steady growth in reader membership for the new direct-sales magazinetargeting cat lovers called CAT’S HEART, launched in May 2005; stronger sales at food delivery service subsidiary Benesseen-Famille Inc. thanks to an increase in both users and sales per customer; and higher sales of two direct-sales magazines:bon merci!, featuring food and health issues for families with toddlers, and Hand & Heart, focusing on crafts and hobbies.Sales of mainstay pregnancy, childbirth and childcare titles Tamago Club and Hiyoko Club, which were revamped in October2005, were also firm, driven by mail-order sales.

The LTV Company posted a decrease in operating income of 54.0% to ¥132 million, chiefly due to an increase in salespromotion costs related to a revamp of the Tamago Club and Hiyoko Club titles.

(3) Senior CompanyEarnings decline due to infrastructure development expenses, despite emphasis on profitability at each home andsales growthThe Senior Company recorded a 20.1% rise in net sales to ¥27,402 million.

The main factor driving this increase was the ongoing expansion of the company’s nursing home network by subsidiaryBenesse Style Care and a related steady rise in the number of residents. During the year, the focus was on further enhancingservice levels by overhauling facilities at each home. Additionally, Benesse Style Care worked to ensure stable and sustainedbusiness expansion by emphasizing profitability at each home. New initiatives during fiscal 2005 included tie-ups withmedical care providers and the provision of preventative care exercise programs to residents at some homes.

By brand, the number of nursing homes in the Benesse network as of March 31, 2006 was as follows: Aria, 9; Clara, 35;Granny & Granda, 39; and Madoka, 23. Compared to the previous fiscal year-end, this represented a combined increase of14 nursing homes to a total of 106.

The Senior Company recorded a 4.7% decline in operating income to ¥1,909 million, due mainly to one-off costs relatedto efforts to strengthen business infrastructure with a view to enhancing service quality.

(4) Language CompanyReorganization of Berlitz Japan completedNet sales in the Language Company rose 9.9% to ¥51,654 million.

U.S. subsidiary Berlitz International recorded higher sales on a U.S. dollar basis thanks to an increase in lessons taken atlanguage centers in the Americas and Asia, as well as stronger sales at its ELS Language Centers, which provide intensivelanguage learning support for students thinking of studying abroad. Sales on a Japanese yen basis also benefited from theweaker yen against the U.S. dollar. Another subsidiary, Simul International, Inc., posted higher sales on the back of a strong


performance in its core interpreting and translation services business. Meanwhile, unit sales of GTEC, a comprehensiveEnglish ability assessment test, rose steadily centered on corporate users.

The Language Company returned to profitability in the period under review, posting operating income of ¥2,545 million,compared to an operating loss of ¥783 million a year earlier. This improvement was mainly attributable to Berlitz Interna-tional, which posted higher earnings on sales growth and reduced fixed expenses such as rent expenses by closing andintegrating schools in its Japanese operations.

Breakdown of Net Sales for Berlitz International, Inc.

Thousands ofU.S. Dollars

Years ended December 31 2005 2004

Net Sales From External Customers:Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $107,979 $ 92,191Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,440 139,906Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,528 118,166

Total Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,947 350,263ELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,476 40,732

Total Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419,423 390,995Worldwide Headquarters and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,066 4,265

Total External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423,489 395,260

Inter-company Net SalesAmericas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 17Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 32Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 –

Total Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 49ELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – –

Total Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 49Worldwide Headquarters and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) (49)

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

Total Consolidated Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $423,489 $395,260

(5) AVIVA BusinessProfitable before amortization of goodwill thanks to management reformsThe AVIVA Business posted net sales of ¥13,915 million in fiscal 2005.

On April 1, 2005, Benesse took over part of the operations of AVIVA Japan Corporation, which was being supported bythe Industrial Revitalization Corporation of Japan. Benesse began running these operations as consolidated subsidiaryAVIVA Co., Ltd. During the period, Benesse worked to turn round the business by closing or integrating unprofitable schools,reviewing advertising expenses and taking other actions.

Thanks to these reforms, AVIVA posted profits before the amortization of goodwill, but an operating loss of ¥1,564 millionafter goodwill amortization of ¥1,711 million and other costs.

529

01 02 03 04 05 06As of December 31

476 483

518535

494

0

150

300

450

600

6,519

01 02 03 04 05 06Years ended December 31

0

2,000

4,000

6,000

8,000

6,438 6,5646,221 6,3266,147

Berlitz Language Centers and Franchises Number of Berlitz Lessons(Thousands of lessons)

Americas Asia Europe Americas Asia Europe


(6) OthersEarnings decline due to costs related to construction of new call center, despite order growth at Telemarketing JapanThis segment reported a rise in net sales of 7.2% to ¥48,061 million.

Driving this increase was consolidated subsidiary Telemarketing Japan, Inc., which saw sales increase to customersoutside the Benesse Group due to strong orders in the IT and telecommunications sectors.

However, operating income declined 22.6% to ¥1,350 million, mainly reflecting costs related to the construction of a newcall center and other factors.

4. FINANCIAL POSITION AND LIQUIDITY(1) Assets, Liabilities and Shareholders’ EquityTotal assets rise due to strong resultsTotal assets as of March 31, 2006 were ¥330,230 million, an increase of ¥22,562 million, or 7.3%, compared to the end ofthe previous fiscal year.

Total current assets decreased by ¥7,266 million, or 4.6%, to ¥150,885 million. Although there was an increase inaccounts receivable—other and money trusts, this was outweighed by a decrease in cash and time deposits related to thepurchase of investment securities (mainly euroyen bonds) and money trusts.

Property and equipment increased ¥1,347 million, or 1.9%, to ¥71,147 million. This rise was mainly due to the acquisi-tion of real estate for nursing care facilities by consolidated subsidiary Benesse Style Care.

Investments and other assets rose ¥28,481 million, or 35.7%, to ¥108,198 million. This increase is due to investmentsecurities associated with the purchase of euroyen bonds.

Total liabilities rose ¥10,888 million, or 8.2%, to ¥143,619 million at March 31, 2006.Current liabilities increased ¥9,165 million, or 8.2%, to ¥121,106 million. This rise was mainly due to an increase in

advances received associated with the transfer of business to consolidated subsidiary AVIVA and higher enrollment inShinkenzemi courses at Benesse Corporation. Long-term liabilities rose ¥1,723 million, or 8.3%, to ¥22,513 million.

As of March 31, 2006, total shareholders’ equity totaled ¥186,292 million, an increase of ¥11,581 million, or 6.6% froma year earlier. This chiefly reflected higher retained earnings due to strong fiscal 2005 results, and a drop in foreign currencytranslation adjustments due to changes in foreign exchange rates. Shareholders’ equity per share was ¥1,817.56, a year-on-year increase of ¥116.38.

Financial Position

Millions of Yen

As of March 31 2006 2005 2004 2003 2002 2001

Total Assets . . . . . . . . . . . . . . . . . . ¥330,230 ¥307,668 ¥292,100 ¥275,516 ¥291,393 ¥309,261Current Assets . . . . . . . . . . . . . . 150,885 158,151 147,705 121,926 113,552 116,136Property and Equipment . . . . . . . 71,147 69,800 69,394 71,429 78,696 78,840Investments and Other Assets . . . 108,198 79,717 75,001 82,161 99,145 114,285

Current Liabilities . . . . . . . . . . . . . . 121,106 111,941 102,158 86,192 93,313 101,882Long-term Liabilities . . . . . . . . . . . . 22,513 20,790 18,616 19,323 25,324 30,705Shareholders’ Equity . . . . . . . . . . . . 186,292 174,711 170,781 169,428 171,826 170,011Equity Ratio (%) . . . . . . . . . . . . . . . 56.4 56.8 58.5 61.5 59.0 55.0Shareholders’ Equity per Shareof Common Stock (Yen) . . . . . . . . 1,817 1,701 1,641 1,612 1,616 1,599

Notes: 1. The computation of Shareholders’ Equity per Share of Common Stock is based on the weighted average number of shares of commonstock outstanding during each year.

2. The computation of the number of shares outstanding during each year and at the fiscal year-end is retroactively adjusted for theeffect of a 1:2 stock split made on May 19, 2000.

(2) Cash FlowsCash provided by operating activities decreased due mainly to an increase in income taxes—paid; cash used in investingactivities increased, mainly for purchases of investment securities; cash used in financing activities decreased, mainlydue to a decline in purchase of treasury stock; as a result, net cash at the end of the fiscal year was down year on year.Cash and cash equivalents at the end of the fiscal year stood at ¥66,417 million, ¥23,060 million, or 25.8% lower than a yearearlier. Although net cash provided by operating activities amounted to ¥17,448 million, cash used in investing activities andfinancing activities was ¥31,473 million and ¥9,610 million, respectively.

Net cash provided by operating activities decreased 38.6% year on year to ¥17,448 million. Despite income taxes—paidof ¥14,896 million and increase in inventories of ¥1,983 million, cash was provided by income before income taxes andminority interests of ¥27,746 million and depreciation and amortization, which is a non-cash expense, of ¥9,775 million.


Net cash used in investing activities rose 39.7% to ¥31,473 million. This was mainly due to cash used of ¥25,044 millionfor the purchases of investment securities, and ¥6,227 million for the purchases of property and equipment.

Net cash used in financing activities decreased 10.5% to ¥9,610 million. This chiefly reflected ¥7,179 million in divi-dends paid, ¥1,467 million for purchases of treasury stock, and ¥1,308 million for the repayment of long-term debt.

Cash Flows

Millions of Yen


Net Cash Providedby Operating Activities . . . . . . . . . ¥ 17,448 ¥ 28,427 ¥27,935 ¥ 17,505 ¥ 8,286 ¥21,853

Net Cash (Used in) Providedby Investing Activities . . . . . . . . . . (31,473) (22,523) (9,661) 16,778 (11,701) (7,830)

Net Cash Usedin Financing Activities . . . . . . . . . . (9,610) (10,733) (6,044) (13,530) (11,209) (4,339)

Foreign Currency TranslationAdjustments on Cash andCash Equivalents . . . . . . . . . . . . . 575 159 (617) (470) 727 502

Net (Decrease) Increasein Cash and Cash Equivalents . . . . (23,060) (4,670) 11,613 20,283 (13,897) 10,231

(3) Share Buyback ProgramContinued implementation of share buyback program in fiscal 2005Benesse has an ongoing share buyback program aimed at improving capital efficiency and shareholder value. In fiscal2005, we repurchased 400,000 shares of Benesse common stock for ¥1,457 million, representing an average price pershare of ¥3,645. For fiscal 2004, these figures were: 1,317,000 shares, ¥4,350 million, and ¥3,302. In fiscal 2003: 963,300shares, ¥2,059 million, and ¥2,137. In fiscal 2002: 1,360,000 shares, ¥2,586 million, and ¥1,901. Treasury stock at March31, 2006 totaled 3,857,438 shares, representing 3.7% of all issued Benesse shares. Benesse plans to continue flexiblyimplementing its share buyback program, taking into account factors such as stock price trends and capital efficiency.

(4) Capital Expenditures, Depreciation and AmortizationCapital expenditures increased due to investment in software development and other factorsCapital expenditures for fiscal 2005 totaled ¥20,504 million, an increase of ¥9,388 million, or 84.5%, compared to a yearearlier. The main reasons for this increase were the transfer of some operations from AVIVA Japan Corporation, which wasbeing administered by the Industrial Revitalization Corporation of Japan, on April 1, 2005, and the resulting acquisition ofgoodwill related to the commencement of this business by consolidated subsidiary AVIVA; the opening of the New NaoshimaHotel; and the development of IT system infrastructure in the Education Group.

Depreciation and amortization totaled ¥9,775 million, an increase of ¥2,264 million, or 30.1%, year on year.

5. ISSUES AND POLICIES(1) Issues Facing the CompanyLaunch new initiatives to build a more powerful Benesse brand in the education fieldIn the education field, the academic abilities and skills children need for later life are changing dramatically. As illustrated byinternational tests of academic ability like the Program for International Student Assessment (PISA) run by the OECD,reading and mathematical literacy are being given greater currency in education. Quick to identify these trends, Benessehas been pioneering efforts in Japan, centered on the Benesse Educational Research and Development Center (BERD), anin-house think tank, to help children acquire the internationally recognized academic abilities and skills they will need for thefuture. Additionally, customer needs are becoming more diverse due to the increasing number of combined junior andsenior high schools, changes to school curricula and entrance exam systems and dramatic developments in communicationtechnology. To satisfy these needs, private education providers have to develop a whole host of new products and services.In this environment, the Benesse Group is rolling out a number of new initiatives that go far beyond its existing approach.

In mainstay Shinkenzemi correspondence courses, based on highly accurate customer segmentation, Benesse is work-ing to enhance its ability to respond to individual customer needs by offering more course materials for students withdifferent academic abilities. Going forward, in addition to upgrading course-based operations, Benesse will offer new servicesthat use PCs, mobile phones, classrooms and other tools to create learning styles tailored to individual needs. As part ofthese efforts, we have steadily expanded our lineup of new products aimed at the high-end market since fiscal 2004.Examples include the March 2006 launch of special University of Tokyo and University of Kyoto courses for high schoolstudents aiming to enter these universities. We also plan to roll out a number of new extra-curricular learning initiatives to


supplement existing coursework-based study. Already, starting in fiscal 2006, we have launched what we call “FutureCourses” for elementary school students that are designed to give them the chance to enjoy other experiences like campingand science experiments. Meanwhile, in Kodomo Challenge courses for preschoolers, we have completely renewed coursematerials with an emphasis on helping children acquire problem solving abilities.

Responding to a projected diversification in learning styles and further progress in communication technology, Benessehas started building a study support system that will allow students to get coursework checked and marked via the Internetor email. Knowledge and expertise gleaned from our experience with e-Juken Service, a web-based service launched infiscal 2004 that gives students advice about entrance exams, is helping us to develop this system.

Moreover, in our high-profile courses for students at elite combined private junior and senior high schools, we plan toextend the course framework to include grade three junior high school students during fiscal 2006, as well as steadily begindeveloping the curriculum for senior high school students to create a complete six-year system.

Strengthening marketing capabilities remains a key issue for Benesse. Amid the growing trend toward greater personalinformation security, Benesse decided to stop using the basic resident register access system in October 2005. Instead, we arenow enhancing marketing activities aimed at potential customers who already have a strong interest in Benesse by usingmultiple marketing channels like the mass media, the internet and local events. In a related move, we created the post of CMOin November 2005 to oversee company-wide marketing activities. The CMO will head the marketing-oriented CRM Committeeand work to speed up decision-making and strategy implementation in marketing activities. By creating a marketing promotionframework that covers the entire company, we are targeting much more efficient and effective marketing approaches.

Benesse has positioned East Asia as its most important market after Japan and is currently setting up new businesses inSouth Korea and China. We drew on expertise acquired in Taiwan to launch preschool operations in South Korea in March2006, and took a similar step in China in June. We plan to steadily increase our product offering in both countries going forward.Meanwhile, operations targeting high school students launched in South Korea in 2005 experienced a tough first year.

In the LTV Company business field, Benesse sees the development of new products and improvements to its existingproduct lineup as key issues to enhance value for customers over their lifetimes. In this vein, in April 2005, Benesse createdthe in-house Parenting Company by combining the business division responsible for mainstay pregnancy, childbirth andchildcare titles Tamago Club and Hiyoko Club, with the business division providing Kodomo Challenge correspondencecourses for preschoolers. This step was taken for two main reasons: to create a smoother migration of customers from thesemagazines to Kodomo Challenge, and to build an integrated parent support framework from pregnancy, childbirth andchildcare through to preschool education. Meanwhile, we established the Benesse Institute for the Child Sciences, Parentingand Aging, Inc. in January 2006 to carry out surveys and research related to pregnancy, childbirth, parenting, childcare andeducation, and the Benesse Shokuiku Institute the following April, an in-house think tank devoted to dietary educationissues. We plan to use the research and surveys supplied by these organizations to develop new products and services andreinforce our existing product lineup, and at the same time give back something to the community.

Although the nursing care market continues to expand, Benesse is finding it increasingly difficult to secure sites andpersonnel in its core nursing home business due to rising real estate prices and the growing number of companies enteringthe market from different sectors. In this environment, Benesse plans to leverage its reservoir of expertise to maintain highservice levels, build a trusted brand in the market and develop the business with an emphasis on profitability. Additionally,we plan to create a more distinctive presence in the marketplace by offering value-added services. Examples includepreventative care exercise programs, developed jointly with the Graduate School of Tohoku University and sports cluboperator Renaissance Inc., and specialist medical support with partners in the medical field.

In the language education field, Berlitz International achieved a marked ¥3.1 billion improvement in earnings and returnedto profitability in fiscal 2005 thanks to a raft of radical management reforms. Going forward, the company will work to boostworldwide sales further and raise profitability. Specifically, Berlitz International will seek to maintain the high level of serviceit offers through its lessons and course materials; strengthen corporate-focused marketing and sales capabilities at eachlanguage center, underpinned by a more stable management base; and roll out new products and services such as distancelearning courses.

AVIVA, which took over part of the business of AVIVA Japan Corporation in April 2005 to become Japan’s largest operatorof PC schools, achieved a significant reduction in costs in fiscal 2005 by closing or integrating schools, implementingorganizational reforms and overhauling marketing strategy. Thanks to this, AVIVA posted operating income before the amor-tization of goodwill in fiscal 2005. Looking ahead, the company will move out of the business restructuring phase and beginsteadily introducing initiatives that generate synergies with other businesses in the Benesse Group.

A capital structure policy designed to boost corporate valueCapital structure policy, including the return of profits to shareholders, is a vital issue for the Benesse Group. Benesse hasclearly stated a goal of achieving a dividend payout ratio of at least 35% as it works to implement a capital structure policythat aims to boost corporate value. For fiscal 2005, Benesse plans to raise the dividend for the third consecutive period toachieve a projected dividend payout ratio of 47.9%. Further, in order to improve capital efficiency and increase shareholder


value, Benesse is implementing an ongoing share buyback program. As of March 31, 2006, Benesse had repurchased acumulative total of 4.04 million shares, at a cost of ¥10,452 million and representing 3.7% of all issued and outstandingshares. Meanwhile, the company plans to actively use cash reserves in the region of ¥20 to ¥30 billion to invest for medium-and long-term business growth. Possible uses of cash include M&As in fields that could generate synergies with existingbusinesses, and R&D centered on the education field.

(2) Outlook for the Fiscal Year Ending March 31, 2007Benesse is forecasting a fourth consecutive year of top- and bottom-line growth; improvement in profitability atBerlitz and AVIVA projectedThe Company is projecting an increase in consolidated net sales of 4.9% to ¥350.0 billion. This reflects expected expansion inthe Senior Company’s nursing home business, growth by Berlitz International in the Language Company, continued increasesin enrollment in the Education Group’s Elementary and Senior High School Shinkenzemi courses and other factors.

Despite aggressive new business investments in East Asia and other markets, and expenses related to upgrades to Shinkenzemiproducts, Benesse is forecasting an increase in ordinary income of 9.4% to ¥32.2 billion, mainly thanks to improved profitabilityin the AVIVA Business and stronger sales-led earnings growth. Benesse is also projecting an increase in net income of 16.0%to ¥18.6 billion, reflecting the absence of costs booked in fiscal 2005 such as expenses related to AVIVA school closures in linewith the company’s restructuring plan, and expenses at Berlitz International, also related to restructuring.

(3) Dividend PolicyBenesse plans to raise the dividend for the third year in successionBenesse’s fundamental policy is to pay a stable and sustainable dividend to its shareholders, and is targeting a dividendpayout ratio of at least 35% in the near term. The Company also intends to effectively use retained earnings to boost futureprofits that it can return to shareholders by promoting new businesses, upgrading products and services in existing busi-nesses and developing new products.

In accordance with this policy, the Company plans to pay an annual dividend of ¥80.00 per common share for fiscal2006, consisting of an interim dividend of ¥40.00 and a year-end dividend of ¥40.00 per common share.

Note: The above forecasts, plans and other forward-looking statements are based on information available to management as of June 26,2006 and contain potential risks and uncertainties. As such, forward-looking statements may differ to actual performance due tochanges in the 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 2006, the number of members totaled 4.05 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 infor-mation, such as their name, gender, birthdate, address, telephone number, and name of guardian. This personal informa-tion is processed 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 strategy andworked to diversify our marketing methods. For example, in addition to using the existing direct mail method, we activelyused TV commercials and the Internet, further strengthened telemarketing, and promoted marketing activities tailored to thespecific characteristics of different regions. However, as the review of our marketing strategy is currently in progress, thismay have an impact on total enrollment in Shinkenzemi courses, which has been rising since fiscal 2005.(ii) Management of personal informationThe Benesse Group has formulated internal rules and offered regular internal training on privacy protection, in parallel withactions to strengthen the security of its information systems, and takes sufficient care in managing its database and privacyprotection. However, the Benesse Group’s results and financial position could be affected by claims for damages, the loss ofpublic trust and other factors that may result from the leak of personal information due to unpredictable events such asunauthorized external access and other criminal acts.


(3) Regulations (Education system and nursing care insurance)(i) Education systemIn the education field, the launch of new curricula 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 in juniorhigh schools from fiscal 2006. In fiscal 2007, the next school curricula are slated to be publicly announced, and measuresto improve the reading ability of Japanese children, which is regarded as weak, are also expected to be included. As such,there is an ongoing movement by the Japanese government to review educational content and the educational system. Aspart of this trend, a stronger emphasis is being placed on distinctive styles of instruction and evaluation in individual regionsand schools in order to improve academic abilities. Amid these significant changes, the education needs of children andtheir parents are rapidly becoming more individual and diverse. As a result, Benesse is providing new products and servicesthat are carefully tailored to these fragmenting needs. Nevertheless, the Benesse Group’s results and financial position maybe affected by a decline in the appeal of its core products and services and a decline in sales, given the high share of totalsales accounted for by the Shinkenzemi business, if its response is insufficient to cater for the rapid pace of change in theeducation environment and in customer 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 a surgein the number of specified facilities. As a result, the establishment of new facilities may be restricted at the discretion of localgovernments. 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 expan-sion as far as possible.

The next review of the nursing care insurance system is slated to be carried out in fiscal 2009. Although Benesse hasbuilt a nursing care business model with a low degree of dependence on income from nursing care insurance, the Group’sresults and financial position could be affected by the need to review the nature of products and services, fee structures, andso on, due to revisions in regulations related to the provision of nursing care services, standard reimbursement rates appli-cable to various nursing care services, payment limits commensurate with care requirements, and other factors.

(4) Accounting for Asset ImpairmentIn fiscal 2005, the Company booked an impairment loss on idle assets of ¥223 million for certain fixed assets owned byBenesse Corporation and its domestic subsidiaries.

The Benesse Group’s results and financial position may be affected by the necessity to record additional impairmentlosses on landholdings 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, theCompany applies an asset-impairment test once a year without amortization and at the time when an event indicating thepossibility 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 partnerin China 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 subsidiaryBerlitz International, Inc. also has operations covering 68 countries and regions worldwide.

Natural disasters, cultural and religious tension, political and economic instability, or the new establishment or amendmentof laws or regulations in any of these countries and regions could have an adverse impact on the Benesse Group’s business.


Benesse Corporation and Consolidated SubsidiariesMarch 31, 2006, 2005 and 2004

CONSOLIDATED BALANCE SHEETS


Millions of Yen (Note 1)

ASSETS 2006 2005 2004 2006

CURRENT ASSETS:Cash and time deposits (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 35,844 ¥ 46,613 ¥ 55,391 $ 306,359Marketable securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,466 54,368 44,701 371,504Trade receivables:

Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,684 21,633 18,959 193,880Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,002 11,302 9,388 145,316Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4 4 94

Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,146 13,053 12,146 129,453Deferred tax assets (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,802 2,770 2,311 41,043Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,703 9,973 6,507 117,120Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,773) (1,565) (1,702) (15,154)

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,885 158,151 147,705 1,289,615

PROPERTY AND EQUIPMENT:Land (Notes 6, 10 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,291 33,674 31,666 293,085Buildings and leasehold improvements (Notes 6 and 10) . . . . . . . . . . . . . . . 63,431 61,803 59,673 542,145Equipment, fixtures and other (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,509 16,814 18,859 158,197

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,231 112,291 110,198 993,427Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,084) (42,491) (40,804) (385,333)

Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,147 69,800 69,394 608,094

INVESTMENTS AND OTHER ASSETS:Investment securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,773 18,165 13,806 297,205Investments in unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . 437 405 369 3,735Goodwill and other intangible assets (Notes 6 and 8) . . . . . . . . . . . . . . . . . . . 53,505 42,850 43,851 457,308Deferred tax assets (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527 2,187 1,956 4,504Prepaid pension expenses (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,684 3,543 3,255 31,487Other assets (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,272 12,567 11,764 130,531

Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,198 79,717 75,001 924,770

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥330,230 ¥307,668 ¥292,100 $2,822,479

See notes to consolidated financial statements.




LIABILITIES AND SHAREHOLDERS’ EQUITY 2006 2005 2004 2006

CURRENT LIABILITIES:Short-term bank loans (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 509 ¥ 1,100 ¥ 1,056 $ 4,350Current portion of long-term debt (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,266 1,242 1,410 10,821Trade payables:

Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,478 30,015 27,964 260,496Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 559 380 4,607

Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,216 59,040 56,590 591,590Income taxes payable (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,779 8,438 5,625 49,393Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,319 11,547 9,133 113,837

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,106 111,941 102,158 1,035,094

LONG-TERM LIABILITIES:Long-term debt, less current portion (Note 10) . . . . . . . . . . . . . . . . . . . . . . . 2,964 3,593 4,584 25,333Deferred tax liabilities (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574 318 372 4,906Liability for retirement benefits (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,711 3,593 3,387 31,718Other long-term liabilities (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,264 13,286 10,273 130,462

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,513 20,790 18,616 192,419

MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 226 545 2,727

COMMITMENTS AND CONTINGENT LIABILITIES (Notes 7 and 17)

SHAREHOLDERS’ EQUITY (Notes 12, 17, 19 and 21):Common stock—authorized,

405,282,040 shares in 2006, 2005 and 2004;issued, 106,353,453 shares in 2006, 2005 and 2004 . . . . . . . . . . . . . . . . 13,600 13,600 13,600 116,239

Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,358 29,359 29,358 250,923Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,155 145,535 136,608 1,317,564Unrealized gain on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . 879 618 490 7,513Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,714) (5,375) (4,615) (14,650)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,278 183,737 175,441 1,677,589Treasury stock—at cost—3,857,438 shares

in 2006, 3,653,578 shares in 2005 and 2,331,807 shares in 2004 . . . . . . (9,986) (9,026) (4,660) (85,350)

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,292 174,711 170,781 1,592,239

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥330,230 ¥307,668 ¥292,100 $2,822,479


Benesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2006, 2005 and 2004

CONSOLIDATED STATEMENTS OF INCOME



2006 2005 2004 2006

NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥333,767 ¥291,403 ¥260,142 $2,852,709

COST OF SALES (Notes 7, 11 and 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,347 139,672 125,312 1,413,222

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,420 151,731 134,830 1,439,487

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(Notes 7, 11, 15 and 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,008 125,553 114,128 1,196,649

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,412 26,178 20,702 242,838

OTHER INCOME (EXPENSES):Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 43 93 504Interest income—net (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 41 2 1,684Gain on investments—net (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479 870 574 4,094Equity in net earnings (losses) of unconsolidated subsidiaries and affiliates . . 67 42 (40) 573Loss on impairment of long-lived assets (Note 6) . . . . . . . . . . . . . . . . . . . . . . (223) (334) (1,906)Valuation loss on property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,242)Government grant for rehire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 7,692Loss on restructuring of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,705) (678) (14,573)Other—net (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (440) (363) (1,838) (3,761)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS . . . . . . . . . . 27,746 25,799 17,251 237,145

INCOME TAXES (Note 18):Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,697 12,335 8,648 99,975Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) (896) (1,020) (513)

Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,637 11,439 7,628 99,462

MINORITY INTERESTS IN NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 63 229 598

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 16,039 ¥ 14,297 ¥ 9,394 $ 137,085

Yen U.S. Dollars

2006 2005 2004 2006

PER SHARE OF COMMON STOCK (Notes 2.r, 20 and 21):Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 156.45 ¥ 138.05 ¥ 88.80 $ 1.3372Diluted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155.92 137.66 88.77 1.3326Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.0 60.0 40.0 0.64



CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


Thousands Millions of Yen

Outstanding Unrealized ForeignNumber of Gain (Loss) on CurrencyShares of Common Capital Retained Available-for-sale Translation Treasury

Common Stock Stock Surplus Earnings Securities Adjustments Stock

BALANCE, APRIL 1, 2003 . . . . . . . . . . . . . . . . 104,987 ¥ 13,600 ¥ 29,358 ¥ 130,448 ¥ (91) ¥ (1,290) ¥ (2,597)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,394Cash dividends, ¥29 per share . . . . . . . . . . . . (3,031)Bonuses to directors and corporate auditors . . (160)Unrealized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . (7)

Decrease due to removal of an equity-method affiliated company . . . . . . . . . . . . . . (36)

Unrealized gain onavailable-for-sale securities . . . . . . . . . . . . . . 581

Foreign currency translation adjustments . . . . (3,325)Treasury stock acquired . . . . . . . . . . . . . . . . . (965) (2,063)

BALANCE, MARCH 31, 2004 . . . . . . . . . . . . . . 104,022 13,600 29,358 136,608 490 (4,615) (4,660)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,297Cash dividends, ¥50.5 per share . . . . . . . . . . . (5,253)Bonuses to directors and corporate auditors . . (124)Unrealized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . 7


Foreign currency translation adjustments . . . . (760)Treasury stock acquired . . . . . . . . . . . . . . . . . (1,323) (4,367)Gain on sales of treasury stock . . . . . . . . . . . . 1 1 1

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


Foreign currency translation adjustments . . . . 3,661Treasury stock acquired . . . . . . . . . . . . . . . . . (403) (1,467)Gain on sales of treasury stock . . . . . . . . . . . . 1 1 1Disposal of treasury stock due to exerciseof stock options . . . . . . . . . . . . . . . . . . . . . . . 198 (2) (79) 506

BALANCE, MARCH 31, 2006 . . . . . . . . . . . . . . 102,496 ¥ 13,600 ¥ 29,358 ¥ 154,155 ¥ 879 ¥ (1,714) ¥ (9,986)

Thousands of U.S. Dollars (Note 1)

Unrealized ForeignGain on Currency

Common Capital Retained Available-for-sale Translation TreasuryStock Surplus Earnings Securities Adjustments Stock

BALANCE, MARCH 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,239 $ 250,932 $ 1,243,889 $ 5,282 $ (45,940) $ (77,145)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,085Cash dividends, $0.60 per share . . . . . . . . . . . . . . . . . . . . . . (61,359)Unrealized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . (1,376)

Unrealized gain on available-for-sale securities . . . . . . . . . . . 2,231Foreign currency translation adjustments . . . . . . . . . . . . . . . 31,290Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,538)Gain on sales of treasury stock . . . . . . . . . . . . . . . . . . . . . . . 8 8Disposal of treasury stock due to exercise ofstock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (675) 4,325

BALANCE, MARCH 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . $116,239 $250,923 $1,317,564 $7,513 $(14,650) $(85,350)



CONSOLIDATED STATEMENTS OF CASH FLOWS




2006 2005 2004 2006

OPERATING ACTIVITIES:Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 27,746 ¥ 25,799 ¥ 17,251 $ 237,145Adjustments for:

Income taxes—paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,896) (9,740) (4,041) (127,316)Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,775 7,511 7,821 83,547Loss on impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 334 1,906Loss on restructuring of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,705 678 14,573Valuation loss on property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,242Increase in allowance for doubtful receivables, liability for retirement benefits and other reserves . . . 502 999 768 4,291Other non-cash expenses—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,632) (578) 1,066 (13,949)Changes in assets and liabilities, net of effects from newly consolidated subsidiaries:

Increase in trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (817) (2,624) (1,839) (6,983)(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,983) (868) 882 (16,949)Increase in trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 2,358 2,539 7,786Increase in advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805 2,287 5,102 6,880

Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,891) 2,271 (3,856) (41,803)Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,298) 2,628 10,684 (88,017)Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,448 28,427 27,935 149,128

INVESTING ACTIVITIES:Increase in time deposits—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,194) (594) (85) (10,205)Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,655) (23,457) (15,844) (296,197)Proceeds from sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,356 19,624 13,988 310,735Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,227) (6,687) (6,796) (53,222)Proceeds from sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 1,149 1,659 4,009Purchases of software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,280) (3,299) (2,486) (36,581)Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,044) (10,783) (8,362) (214,051)Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,651 5,557 7,816 56,846Acquisition of shares of a consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (515)Cash increased due to acquisition of controlling interest in a company . . . . . . . . . . . . . . . . . . . . . . . 1,798Proceeds from acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 3,692Proceeds from sale of investments of a consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 214Proceeds from sale of investments in an affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976Cash decreased due to sale of controlling interest in a company . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) (120)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,992) (3,518) (2,325) (34,120)

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,473) (22,523) (9,661) (269,000)FINANCING ACTIVITIES:

Increase (decrease) in short-term bank loans—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (781) 44 (16) (6,675)Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,308) (1,514) (1,072) (11,180)Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,179) (5,253) (3,031) (61,359)Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 3,632Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,467) (4,367) (2,063) (12,538)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700 357 138 5,983

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,610) (10,733) (6,044) (82,137)FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS . . . . . . . 575 159 (617) 4,915NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . (23,060) (4,670) 11,613 (197,094)CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,477 94,147 82,534 764,761CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 66,417 ¥ 89,477 ¥ 94,147 $ 567,667ADDITIONAL CASH FLOW INFORMATION:

Acquisition of a business:Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,278 10,923Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,644 22,598Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,555 73,120Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 102Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,028) (102,803)Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (461) (3,940)Cash and cash equivalents of consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 3,692Proceeds from acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 3,692

Sale of controlling interest in a company:Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 1,675Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 85Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (215) (1,838)Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47) (402)Gain on sales of shares of the consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 479Transfer expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (85)Cash and cash equivalents of consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (34)Cash decreased due to sale of controlling interest in a company . . . . . . . . . . . . . . . . . . . . . . . . . (14) (120)

Acquisition of controlling interest in a company:Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,206Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,724)Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,205)Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Increased value on equity method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Cash and cash equivalents of newly consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,925Cash increased due to acquisition of controlling interest in a company . . . . . . . . . . . . . . . . . . . . . ¥ (1,798)



1. BASIS OFPRESENTINGCONSOLIDATEDFINANCIALSTATEMENTS

2. SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 regula-tions, 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 theUnited States of America, where such subsidiaries are established.

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 2005 and 2004 financial statements to conformto the classifications used in 2006.

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 ¥117 to U.S.$1, the approximate rate of exchangeat March 31, 2006. 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 (29 in 2005 and2004) significant subsidiaries (collectively, the “Companies”). Consolidation of the remaining unconsolidated subsidiarieswould not have a material effect on the accompanying consolidated financial statements in 2006, 2005 and 2004.

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 2 unconsolidated subsidiaries in 2005 and2004) 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. 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.

c. 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.

d. 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-maturitydebt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity, are reportedat amortized 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 share-holders’ 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.

e. 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 ratesbased on the estimated useful lives of the assets, while the straight-line method is applied to buildings acquired after April 1,1998 of the Company and its domestic consolidated subsidiaries, and all property and equipment of foreign consolidatedsubsidiaries. The ranges of useful lives in the Company and its domestic consolidated subsidiaries are principally from 2 to50 years for buildings.


f. Long-lived Assets—In August 2002, the Business Accounting Council (“BAC”) issued a Statement of Opinion, “Account-ing for Impairment of Fixed Assets,” and in October 2003 the Accounting Standards Board of Japan (“ASBJ”) issued ASBJGuidance No. 6, “Guidance for Accounting Standard for Impairment of Fixed Assets.” These new pronouncements areeffective for fiscal years beginning on or after April 1, 2005 with early adoption permitted for fiscal years ending on or afterMarch 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.

g. Goodwill and Other Intangible Assets—The differences between the cost and net equity in domestic consolidatedsubsidiaries at acquisition (“Consolidation goodwill”) are amortized on a straight-line basis over 20 years. Consolidationgoodwill which was incurred in the current period was amortized in this period as immaterial.

Domestic consolidated subsidiaries’ goodwill are amortized on a straight-line basis over 5 years in conformity to theJapanese Commercial Code (the “Code”).

Goodwill and other intangible assets associated with foreign consolidated subsidiaries are amortized on a straight-linebasis primarily over 40 years following the accounting practice in their respective countries. Effective January 1, 2002,Berlitz International, 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 inthe United 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.

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

i. Interests in Partnerships—The Company has interests in limited partnerships. The Company’s share of the partnerships’profits or losses is credited or charged to income as incurred.

j. Retirement and Pension Plans—The Company and certain domestic consolidated subsidiaries have severance paymentplans for employees, directors, corporate auditors and company officers. The Company and certain domestic consolidatedsubsidiaries 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 2006 (7 in 2005 and 4 in 2004) 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. Research and Development Costs—Research and development costs are charged to income as incurred.

l. 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 gainsand losses from translation are recognized in the consolidated statements of income to the extent that they are not hedgedby forward exchange contracts.


m. Foreign Currency Financial Statements—The balance sheet accounts of the foreign consolidated subsidiaries aretranslated into Japanese yen at the current exchange rate as of the balance sheet date except for shareholders’ equity,which is translated at the historical rate. Differences arising from such translation are shown as “Foreign currency translationadjustments” in a separate component of shareholders’ equity. Revenue and expense accounts of foreign consolidatedsubsidiaries are translated into yen at the average exchange rate.

n. 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,net of deferred taxes, in the foreign currency translation adjustments account on the balance sheets.

o. 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 bonuses todirectors 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 retainedearnings after approval of appropriation of retained earnings. The Company accrued bonuses to directors as of March 31,2005 and charged 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. Therefore, all of such bonuses must be charged to income fromthe next fiscal year.

p. 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.

q. 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.

r. 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.

s. New Accounting PronouncementsBusiness combination and business separationIn October 2003, the BAC issued a Statement of Opinion, “Accounting for Business Combinations,” and on December 27,2005 the ASBJ issued “Accounting Standard for Business Separations” and ASBJ Guidance No. 10, “Guidance for AccountingStandard for Business Combinations and Business Separations.” These new accounting pronouncements are effective forfiscal years beginning on or after April 1, 2006.

The accounting standard for business combinations allows companies to apply the pooling of interests method of accountingonly when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests.These specific criteria are as follows:(a) the consideration for the business combination consists solely of common shares with voting rights,(b) the ratio of voting rights of each predecessor shareholder group after the business combination is nearly equal, and(c) there are no other factors that would indicate any control exerted by any shareholder group other than voting rights.


Cash and cash equivalents at March 31, 2006, 2005 and 2004, consisted of the following:


2006 2005 2004 2006

Cash and time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 35,844 ¥ 46,613 ¥55,391 $ 306,359Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,466 54,368 44,701 371,504Time deposits and short-term investments which mature orbecome due over three months after the date of acquisition . . . (12,878) (11,489) (5,894) (110,068)

Trading marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)Investment fund and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15) (15) (45) (128)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 66,417 ¥ 89,477 ¥94,147 $ 567,667

Marketable and investment securities as of March 31, 2006, 2005 and 2004, consisted of the following:


2006 2005 2004 2006

Current:Trading marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6Government and corporate bonds . . . . . . . . . . . . . . . . . . . . . . ¥ 4,998 ¥ 5,602 5,430 $ 42,718Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . 38,468 48,766 39,265 328,786

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥43,466 ¥54,368 ¥44,701 $371,504

Non-current:Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,455 ¥ 4,027 ¥ 4,019 $ 38,077Government and corporate bonds . . . . . . . . . . . . . . . . . . . . . . 30,020 13,796 8,618 256,581Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . 298 342 1,169 2,547

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥34,773 ¥18,165 ¥13,806 $297,205

3. CASH ANDCASHEQUIVALENTS

4. MARKETABLEANDINVESTMENTSECURITIES

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. Goodwill, including negative goodwill, is to be systematicallyamortized over 20 years or less, but is also subject to an impairment test.

Under the accounting standard for business separations, in a business separation where the interests of the investor nolonger continue and the investment is settled, the difference between the fair value of the consideration received for thetransferred business and the book value of net assets transferred to the separated business is recognized as a gain or loss onbusiness separation in the statement of income. In a business separation where the interests of the investor continue andthe investment is not settled, no such gain or loss on business separation is recognized.Stock optionsOn December 27, 2005, the ASBJ issued “Accounting Standard for Stock Options” and related guidance. The new standardand guidance are applicable to stock options newly granted on and after May 1, 2006.

This standard requires companies to recognize compensation expense for employee stock options based on the fair valueat the date of grant and over the vesting period as consideration for receiving goods or services. The standard also requirescompanies to account for stock options granted to non-employees based on the fair value of either the stock option or thegoods or services received. In the balance sheet, the stock option is presented as a stock acquisition right as a separatecomponent of shareholders’ equity until exercised. The standard covers equity-settled, share-based payment transactions,but does not cover cash-settled, share-based payment transactions. In addition, the standard allows unlisted companies tomeasure options at their intrinsic value if they cannot reliably estimate fair value.


The carrying amounts and aggregate fair value of marketable and investment securities at March 31, 2006, 2005 and2004, were as follows:

Millions of Yen

Unrealized Unrealized FairCost Gains Losses Value

March 31, 2006Securities classified as:

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


Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Available-for-sale:

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,001 826 19 2,808Government and corporate bonds . . . . . . . . . . . . . . . . . . . . . . . 7,006 21 9 7,018Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . . 1,014 9 1,005

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 17 34 4,983

Thousands of U.S. Dollars

Unrealized Unrealized FairCost Gains Losses Value


Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,607 $14,145 $ 214 $ 26,538Government and corporate bonds . . . . . . . . . . . . . . . . . . . . . . . 241,094 299 1,923 239,470Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . . 299 299

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,829 231 1,325 58,735

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2006, 2005 and 2004, were as follows:

Carrying Amount


2006 2005 2004 2006

Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,350 ¥ 1,320 ¥ 1,211 $ 11,539Government and corporate bonds . . . . . . . . . . . . . . . . . . . . . . 2,030Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . 38,731 49,049 39,265 331,034

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥40,081 ¥50,369 ¥42,506 $342,573


Proceeds from sales of available-for-sale securities and related gross realized gains and losses on these sales, computedon the moving average cost basis for the years ended March 31, 2006, 2005 and 2004, were as follows:


2006 2005 2004 2006

Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,030 ¥ 1,678 ¥ 3,004 $8,803

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 184 ¥ 260 ¥ 230 $1,572Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50) (30) (37) (427)

Net realized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 134 ¥ 230 ¥ 193 $1,145

The carrying values of debt securities by contractual maturities for securities classified as available-for-sale andheld-to-maturity at March 31, 2006, were as follows:


2006 2006

Available- Held-to- Available- Held-to-for-Sale Maturity for-Sale Maturity

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥34,495 $294,829Due after one year through five years . . . . . . . . . . . . . . . . . . 20,747 ¥ 5,000 177,325 $42,735Due after five years through ten years . . . . . . . . . . . . . . . . . . 2,800 2,000 23,931 17,094

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥58,042 ¥ 7,000 $496,085 $59,829

Inventories at March 31, 2006, 2005 and 2004, consisted of the following:


2006 2005 2004 2006

Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥10,641 ¥ 9,266 ¥ 8,557 $ 90,948Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,504 2,900 2,841 29,949Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001 887 748 8,556

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥15,146 ¥13,053 ¥12,146 $129,453

6. LONG-LIVEDASSETS

5. INVENTORIES

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

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

The assessed valueYear ended March 31, 2006 Unused Land ¥180 $1,538 of fixed assets

Unused Rights of telephone 43 368 ¥1 per one

Total ¥223 $1,906

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

Management system ofthe mail-order business Other intangible(Lifetime Value Company) assets 161 ¥0

Total ¥334


(1) LesseeTotal lease payments under finance lease arrangements that do not transfer ownership of the leased property to the Com-pany and its domestic subsidiaries were ¥2,031 million ($17,359 thousand), ¥1,808 million and ¥2,153 million for theyears ended March 31, 2006, 2005 and 2004, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation and obligations underfinance leases which included imputed interest of finance leases that do not transfer ownership of the leased property to thelessee on an “as if capitalized” basis for the years ended March 31, 2006, 2005 and 2004, were as follows:


Equipment and Fixtures and Other Assets 2006 2005 2004 2006

Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥9,444 ¥8,169 ¥9,142 $80,718Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,575 4,212 5,605 39,103

Net leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,869 ¥3,957 ¥3,537 $41,615

Obligations under finance leases:


2006 2005 2004 2006

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,712 ¥1,516 ¥1,527 $14,632Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,157 2,441 2,010 26,983

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,869 ¥3,957 ¥3,537 $41,615

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, 2006, 2005 and 2004.

A foreign consolidated subsidiary leases certain equipment, office space and other assets under noncancellable operat-ing leases. The Company and a domestic consolidated subsidiary have lease contracts of certain land, building and otherassets under noncancellable operating leases.

The minimum rental commitments under noncancellable operating leases at March 31, 2006, 2005 and 2004, were as follows:


2006 2005 2004 2006

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,848 ¥ 4,715 ¥ 4,007 $ 49,983Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,734 28,472 22,436 305,419

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥41,582 ¥33,187 ¥26,443 $355,402

(2) SubleasePro forma lease receivables under sublease arrangements that do not transfer ownership of the leased property to the lesseeat March 31, 2006, 2005 and 2004, which included imputed interest, were as follows:


2006 2005 2004 2006

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4 ¥ 7 ¥ 8 $34Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 8 17

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥6 ¥12 ¥16 $51

Pro forma obligations under sublease agreements that do not transfer ownership of the leased property to the lessee atMarch 31, 2006, 2005 and 2004, which included imputed interest, were as follows:


2006 2005 2004 2006

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3 ¥ 6 ¥ 7 $26Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4 7 17

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5 ¥10 ¥14 $43

7. LEASES


Goodwill and other intangible assets at March 31, 2006, 2005 and 2004, consisted of the following:


2006 2005 2004 2006

Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,751 ¥ 2,948 ¥ 3,145 $ 23,513Goodwill associated with a foreign consolidated subsidiary . . . . . 8,254 7,779 7,671 70,547Goodwill associated with domestic consolidated subsidiaries . . . . 6,888 88 132 58,872Intangible assets that are determined tohave an indefinite life with a foreignconsolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,917 2,958 3,289 24,932

Intangible assets that are determined notto have an indefinite life with a foreignconsolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,323 21,515 22,166 207,889

Software with the Company and itscertain domestic consolidated subsidiaries . . . . . . . . . . . . . . . . 7,980 7,150 7,031 68,205

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392 412 417 3,350

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥53,505 ¥42,850 ¥43,851 $457,308

8. GOODWILL ANDOTHERINTANGIBLEASSETS

9. INTERESTS INPARTNERSHIPS

The Company has investments in limited partnerships. The original capital contributions to the partnerships amounted to¥713 million ($6,094 thousand), ¥713 million and ¥922 million as of March 31, 2006, 2005 and 2004, respectively, andthe change in carrying value for the three years in the period ended March 31, 2006, were as follows:


2006 2005 2004 2006

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(1,116) ¥(1,555) ¥(1,908) $(9,538)Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 439 353 2,572

Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (815) ¥(1,116) ¥(1,555) $(6,966)

The negative balances were included in other long-term liabilities.


10. SHORT-TERMBANK LOANSAND LONG-TERM DEBT

Short-term bank loans at March 31, 2006, 2005 and 2004, consisted of notes to banks. The annual interest rates applicableto the short-term bank loans ranged from 0.5% to 2.875% at March 31, 2006, ranged from 0.55% to 1.875% at March 31,2005 and ranged from 1.15% to 4.54% at March 31, 2004.

Long-term debt at March 31, 2006, 2005 and 2004, consisted of the following:


2006 2005 2004 2006

Long-term debt, collateralized:Banks and others, in yen—with interest ratesof 2.88% in 2005 and ranging from 1.49%to 3.13% in 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 58 ¥ 96

Government-owned bank, in yen, maturingserially through 2013—with interest ratesranging from 3.5% to 5.45% in 2006, 2005 and 2004 . . . . . ¥ 3,038 3,624 4,212 $ 25,966

Total long-term debt, collateralized . . . . . . . . . . . . . . . . . . 3,038 3,682 4,308 25,966

Long-term debt, unsecured:Banks, in yen, maturing serially through 2011—with interest rates ranging from 0.79% to 2.875%in 2006 and ranging from 0.84% to 2.89% in 2005 and 2004 . 1,070 930 1,368 9,145

Banks and others, in U.S. dollars—with interest at the average rate of 7.65% in 2006,7.45% in 2005 and 8.02% in 2004 . . . . . . . . . . . . . . . . . . . . 2 13 48 17

Bonds due 2008—with interest rates ranging from 0.31% to 0.51%in 2006, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 210 270 1,026

Total long-term debt, unsecured . . . . . . . . . . . . . . . . . . . 1,192 1,153 1,686 10,188

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,230 4,835 5,994 36,154

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,266) (1,242) (1,410) (10,821)

Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . ¥ 2,964 ¥ 3,593 ¥ 4,584 $ 25,333

Annual maturities of long-term debt at March 31, 2006, were as follows:

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

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,266 $10,8212008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 961 8,2142009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678 5,7952010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 3,7952011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 2,6322012 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 4,897

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,230 $36,154

At March 31, 2006, assets having the following carrying values were pledged as collateral for the long-term debt in yen inthe amount of ¥3,038 million ($25,966 thousand) by the Company and its domestic consolidated subsidiaries.


Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥14,589 $124,692Buildings—net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,231 87,445

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥24,820 $212,137


11. RETIREMENTANDPENSION PLANS

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, byretirement at the mandatory retirement age.

The Company and its domestic consolidated subsidiaries have a contributory defined benefit pension plan. The contribu-tory funded defined benefit pension plan, which is established under the Japanese Welfare Pension Insurance Law, coversa substitutional portion of the governmental pension program by the Company on behalf of the government and a corporateportion established at the discretion of the Company. The pension fund is administered by a board of trustees composed ofmanagement and employee representatives as required by government regulations.

According to the enactment of the Defined Benefit Pension Plan Law on April 1, 2002, the Company applied for anexemption from obligation to pay benefits for future employee services related to the substitutional portion which wouldresult in the transfer of the pension obligations and related assets to the government upon approval. The Company obtainedan approval for exemption from future obligation by the Ministry of Health, Labour and Welfare on March 14, 2003.

As a result of this exemption, the Company and its domestic subsidiaries recognized a gain on exemption from futurepension obligation of the governmental program in the amount of ¥3,150 million in accordance with a transitional measure-ment of the accounting standard for employees’ retirement benefits for the year ended March 31, 2003.

On April 1, 2004, the Company applied for transfer of the substitutional portion of past pension obligations to the govern-ment and obtained approval by the Ministry of Health, Labour and Welfare. The actual transfer of the pension obligationsand related assets to the government is to take place subsequently after the government’s approval.

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

The liability for employees’ retirement benefits at March 31, 2006, 2005 and 2004, consisted of the following:


2006 2005 2004 2006

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 9,283 ¥ 8,913 ¥ 8,169 $ 79,342Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,687) (10,242) (10,141) (99,889)Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365 (813) (54) 3,120Unrecognized transitional obligation . . . . . . . . . . . . . . . . . . . . . . . . 607 710 812 5,188Prepaid pension expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,684 3,543 3,255 31,487

Net liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,252 ¥ 2,111 ¥ 2,041 $ 19,248

Prepaid pension expenses were included in other assets.The components of net periodic benefit costs for the years ended March 31, 2006, 2005 and 2004, were as follows:


2006 2005 2004 2006

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,076 ¥ 944 ¥ 896 $ 9,197Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 159 172 1,470Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204) (213) (178) (1,744)Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 65 178 1,436Amortization of transitional obligation . . . . . . . . . . . . . . . . . . . . . . . (102) (102) (8) (872)

Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,110 ¥ 853 ¥1,060 $ 9,487

Assumptions used for the years ended March 31, 2006, 2005 and 2004, were set forth as follows:

2006 2005 2004

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 2.0% 2.0%Expected rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 2.1% 2.0%Recognition period of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 years 8 years 8 yearsAmortization period of transitional obligation . . . . . . . . . . . . . . . . . . . . . . . . 8 years 8 years 8 years


Retirement benefits for directors, corporate auditors and company officersThe liability for retirement benefits at March 31, 2006, 2005 and 2004 for directors, corporate auditors and companyofficers was ¥1,459 million ($12,470 thousand), ¥1,482 million and ¥1,346 million, respectively. The retirement benefitsfor directors and corporate auditors are paid subject to the approval of the shareholders.

A Foreign Consolidated Subsidiary—BIBI has a Supplemental Executive Retirement Plan (“SERP”) for the benefit of its Chairman of the Board, certain desig-nated executives and their designated beneficiaries. Information for the SERP at March 31, 2006, 2005 and 2004, wasset forth as follows:


2006 2005 2004 2006

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,304 ¥1,732 ¥1,816 $19,692Accrued benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,222 1,681 1,779 18,991

Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 225 238 1,487

12. SHARE-HOLDERS’EQUITY

Through May 1, 2006, Japanese companies are subject to the Code.The Code requires that all shares of common stock are recorded with no par value and at least 50% of the issue price of

new shares is required to be recorded as common stock and the remaining net proceeds as additional paid-in capital, whichis included in capital surplus. The Code permits Japanese companies, upon approval of the Board of Directors, to issueshares to existing shareholders without consideration as a stock split. Such issuance of shares generally does not give rise tochanges within the shareholders’ accounts.

The Code also provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain otherappropriations of retained earnings associated with cash outlays applicable to each period shall be appropriated as a legalreserve (a component of retained earnings) until such reserve and additional paid-in capital equals 25% of common stock.The amount of total additional paid-in capital and legal reserve that exceeds 25% of the common stock may be available fordividends by resolution of the shareholders. In addition, the Code permits the transfer of a portion of additional paid-incapital and legal reserve to the common stock by resolution of the Board of Directors.

The Code allows Japanese companies to purchase treasury stock and dispose of such treasury stock by resolution of theBoard of Directors. The aggregate purchased amount of treasury stock cannot exceed the amount available for futuredividend plus amount of common stock, additional paid-in capital or legal reserve to be reduced in the case where suchreduction was resolved at the general meeting of shareholders.

The Company repurchased 400 thousand shares of common stock from the market during the fiscal year ended March31, 2006, at an aggregate cost of ¥1,457 million ($12,453 thousand) approved by the Board of Directors.

In addition to the provision that requires an appropriation for a legal reserve in connection with the cash payment, theCode imposes certain limitations on the amount of retained earnings available for dividends. The amount of retained earn-ings available for dividends under the Code was ¥135,276 million ($1,156,205 thousand) as of March 31, 2006, based onthe amount recorded in the parent company’s general books of account.

Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends areapplicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors, subject to certainlimitations imposed by the Code.

On May 1, 2006, a new corporate law (the “Corporate Law”) became effective, which reformed and replaced the Codewith various revisions that would, for the most part, be applicable to events or transactions which occur on or after May 1,2006 and for the fiscal years ending on or after May 1, 2006. The significant changes in the Corporate Law that affectfinancial 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 aBoard of Directors, (2) having independent auditors, (3) having a 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) if the company has prescribed so in its articles of incorpora-tion. The Corporate Law permits companies to distribute dividends in kind (non-cash assets) to shareholders subject to acertain limitation and additional requirements.


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. Under the Code, certain limitations were imposed on the amount of capitalsurplus and retained earnings available for dividends. The Corporate Law also provides certain limitations on the amountsavailable for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution tothe shareholders, but the amount of net assets after dividends must be maintained to be at least ¥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 account chargedupon the payment of such dividends until the total of the aggregate amount of legal reserve and additional paid-in capital equals25% of the common stock. Under the Code, the aggregate amount of additional paid-in capital and legal reserve that exceeds25% of the common stock may be made available for dividends by resolution of the shareholders. Under the Corporate Law,the total amount of additional paid-in capital and legal reserve may be reversed without limitation of such threshold. TheCorporate Law also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retainedearnings can be transferred among the accounts under certain conditions upon 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 to theshareholders’ which is determined by a specific formula.

Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as aseparate component of shareholders’ 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 shareholders’ equity or deducted directlyfrom stock acquisition rights.

On December 9, 2005, the ASBJ published a new accounting standard for presentation of shareholders’ equity. Underthis accounting standard, certain items which were previously presented as liabilities are now presented as components ofshareholders’ equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on deriva-tives accounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, 2006.

13. SEGMENTINFORMATION

Information about industry segments, geographic segments and sales to foreign customers of the Companies for the yearsended March 31, 2006, 2005 and 2004, was as follows:

a. Industry Segments(1) Sales and Operating Income

Millions of Yen

2006

Education Lifetime Value Senior Language AVIVA Eliminations/Group Company Company Company Business Others Corporate Consolidated

Sales to customers . . . . . . ¥198,665 ¥20,834 ¥27,402 ¥51,536 ¥13,915 ¥21,415 ¥333,767Intersegment 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



2006


Sales to customers . . . . . . $1,697,992 $178,068 $234,205 $440,479 $118,931 $183,034 $2,852,709Intersegment sales . . . . . . 675 128 1,009 227,744 $(229,556)

Total sales . . . . . . . 1,698,667 178,196 234,205 441,488 118,931 410,778 (229,556) 2,852,709

Operating expenses . . . . . 1,444,692 177,068 217,889 419,735 132,299 399,239 (181,051) 2,609,871

Operating income (loss) . . $ 253,975 $ 1,128 $ 16,316 $ 21,753 $ (13,368) $ 11,539 $ (48,505) $ 242,838

Change in method for allocating operating expensesPreviously, the Company allocated certain operating expenses that cannot be directly charged to business segments, namelythose incurred by the personnel, general affairs and other departments of the Company, on a departmental basis. From thefiscal year under review, the Company has adopted a more detailed section-by-section basis for the allocation of theseoperating expenses.

This change, in conjunction with a review carried out in the current fiscal year for internal management standards relatedto operating results, is designed to enable a more accurate understanding of profitability in each business segment. Specifi-cally, more clearly defining the scope of unappropriated operating expenses for allocation in terms of the relative benefitsand burdens enjoyed by each business segment allows a more sophisticated approach for the allocation of operatingexpenses that cannot be directly charged to business segments.

Compared to the previous method, this change had the effect of decreasing operating expenses in four business seg-ments: Education Group, ¥1,233 million ($10,538 thousand); Lifetime Value Company, ¥217 million ($1,855 thousand);Senior Company, ¥40 million ($342 thousand); and Language Company, ¥3 million ($26 thousand). Operating expensesincreased ¥61 million ($521 thousand) in the Others business segment and ¥1,431 million ($12,231 thousand) in elimina-tions/corporate.

Operating income in each business segment increased or decreased by the same amounts. The following table showsoperating expenses in each business segment in the previous fiscal year if the new method for the allocation of unappropri-ated operating expenses adopted in the fiscal period under review had been used.

To conform to the method allocated in 2006, the segment information for the years ended March 31, 2005 and 2004,classified in accordance with the new method is shown as follows:

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

Millions of Yen

2004


Sales to customers . . . . . . . . . . . . . . . ¥164,780 ¥16,264 ¥16,761 ¥46,096 ¥16,241 ¥260,142

Intersegment sales . . . . . . . . . . . . . . . 21 49 23,113 ¥(23,183)

Total sales . . . . . . . . . . . . . . . . 164,801 16,264 16,761 46,145 39,354 (23,183) 260,142

Operating expenses . . . . . . . . . . . . . . 142,382 17,463 15,037 45,695 37,484 (18,621) 239,440

Operating income (loss) . . . . . . . . . . . ¥ 22,419 ¥ (1,199) ¥ 1,724 ¥ 450 ¥ 1,870 ¥ (4,562) ¥ 20,702


(2) Assets, Depreciation and Amortization, and Capital Expenditures

Millions of Yen

2006


Assets . . . . . . . . . . . . . . . . . . ¥87,605 ¥8,404 ¥28,385 ¥61,232 ¥9,303 ¥18,492 ¥116,809 ¥330,230Depreciation and amortization . . 4,879 227 758 1,582 1,837 636 (144) 9,775Capital expenditures . . . . . . . . 5,249 167 2,505 1,296 9,298 839 1,150 20,504


2006


Assets . . . . . . . . . . . . . . . . . . $748,761 $71,829 $242,607 $523,350 $79,513 $158,051 $998,368 $2,822,479Depreciation and amortization . . 41,701 1,940 6,479 13,521 15,701 5,436 (1,231) 83,547Capital expenditures . . . . . . . . 44,863 1,428 21,410 11,077 79,470 7,171 9,829 175,248

Millions of Yen

2005


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

Millions of Yen

2004


Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥75,268 ¥8,620 ¥23,442 ¥55,225 ¥15,385 ¥114,160 ¥292,100

Depreciation and amortization . . . . . . . . . . . 4,727 351 587 1,620 691 (156) 7,820

Capital expenditures . . . . . . . . . . . . . . . . . . . 3,014 165 4,935 1,315 515 (93) 9,851

(Change of the segment name)The Lifetime Value Company was renamed from the Women and Family Company from the fiscal year under review. Theinformation of industry segments for the years ended March 31, 2005 and 2004, changed into the new segment name.

b. Geographical SegmentsThe foreign operations of the Companies for the years ended March 31, 2006, 2005 and 2004, were summarized as follows:

Millions of Yen

2006

North Eliminations/Japan America Others Corporate Consolidated

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

Millions of Yen

2004


Sales:To customers . . . . . . . . . . . . . . . . . . . . . . ¥227,115 ¥10,199 ¥22,828 ¥260,142Inter-area . . . . . . . . . . . . . . . . . . . . . . . . . 23 49 ¥ (72)

Total sales . . . . . . . . . . . . . . . . . . . . . 227,115 10,222 22,877 (72) 260,142Operating expenses . . . . . . . . . . . . . . . . . . . 207,688 8,000 23,824 (72) 239,440

Operating income (loss) . . . . . . . . . . . . . . . . ¥ 19,427 ¥ 2,222 ¥ (947) ¥ 20,702

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥116,102 ¥45,848 ¥12,533 ¥117,617 ¥292,100


2006


Sales:To customers . . . . . . . . . . . . . . . . . . . . . . $2,518,171 $100,359 $234,179 $2,852,709Inter-area . . . . . . . . . . . . . . . . . . . . . . . . . 68 137 23,111 $ (23,316)

Total sales . . . . . . . . . . . . . . . . . . . . . 2,518,239 100,496 257,290 (23,316) 2,852,709Operating expenses . . . . . . . . . . . . . . . . . . . 2,278,453 87,171 267,563 (23,316) 2,609,871

Operating income (loss) . . . . . . . . . . . . . . . . $ 239,786 $ 13,325 $ (10,273) $ 242,838

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,252,556 $441,684 $ 96,786 $1,031,453 $2,822,479

c. Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2006, 2005 and 2004, were as follows:


2006 2006

North NorthAmerica Others Total America Others Total

Sales to foreign customers (A) . . . . . . . . . . ¥11,735 ¥27,413 ¥ 39,148 $100,299 $234,299 $ 334,598Consolidated sales (B) . . . . . . . . . . . . . . . . 333,767 2,852,709Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . . . . . . . . 3.5% 8.2% 11.7% 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%

Millions of Yen

2004

NorthAmerica Others Total

Sales to foreign customers (A) . . . . . . . . . . ¥10,199 ¥22,967 ¥ 33,166Consolidated sales (B) . . . . . . . . . . . . . . . . 260,142Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . . . . . . . . 3.9% 8.8% 12.7%

Notes: North America consists of the United States of America and Canada.Others consists of the United Kingdom, Germany and France.

14. RELATEDPARTYTRANSACTIONS

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.

16. RESEARCHANDDEVELOPMENTCOSTS

Research and development costs charged to income were ¥3,131 million ($26,761 thousand), ¥2,533 million and ¥1,905 mil-lion for the years ended March 31, 2006, 2005 and 2004, respectively.

15. ADVERTISINGCOSTS

Advertising costs charged to income were ¥42,144 million ($360,205 thousand), ¥37,081 million and ¥33,274 million forthe years ended March 31, 2006, 2005 and 2004, respectively.

17. DERIVATIVES 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, aforeign 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, 2006, 2005 and 2004, consisted of the following:

Millions of Yen

2006 2005 2004

Contract or Contract or Contract orNotional Fair Unrealized Notional Fair Unrealized Notional Fair UnrealizedAmount Value Loss (Gain) Amount Value Loss Amount Value Loss

Foreign currency forwardcontracts:Payables—U.S. dollars . . . . ¥2,691 ¥2,691 ¥2,470 ¥2,470 ¥5,185 ¥5,186 ¥1Payables—Korean won . . . . 1,944 1,947 ¥3

Total . . . . . . . . . . . . . . . . . . . . ¥4,635 ¥4,638 ¥3 ¥2,470 ¥2,470 ¥5,185 ¥5,186 ¥1

Interest rate swaps—Receive floating/pay fixed . . . ¥ 236 ¥ (3) ¥3

Interest rate cap . . . . . . . . . . . ¥ 400 ¥ (0) ¥8


2006

Contract orNotional Fair UnrealizedAmount Value Loss (Gain)

Foreign currency forwardcontracts:Payables—U.S. dollars . . $23,000 $23,000Payables—Korean won . . 16,615 16,641 $26

Total . . . . . . . . . . . . . . . . . . $39,615 $39,641 $26

The contract or notional amounts of derivatives which are shown in the above table do not represent the amounts ex-changed by the parties and do not measure the Company’s exposure to credit or market risk.

18. INCOME TAXES 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, 2006 and 2005, and42% for the year ended March 31, 2004, respectively.


The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities at March 31, 2006,2005 and 2004, were as follows:


2006 2005 2004 2006

Deferred tax assets:Provision for employees’ bonuses . . . . . . . . . . . . . . . . . . . . . . ¥ 1,522 ¥1,548 ¥1,265 $ 13,009Enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473 676 531 4,043Social insurance premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 186 129 1,538Liability for retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . 1,469 1,263 1,246 12,556Deferred tax assets of the foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,250 1,616 1,337 19,230

Unrealized profit of fixed asset . . . . . . . . . . . . . . . . . . . . . . . . 274 216 321 2,342Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,246 327 799 10,650Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,253 1,159 884 10,709Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,476) (463) (935) (12,615)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 7,191 ¥6,528 ¥5,577 $ 61,462

Deferred tax liabilities:Unrealized gain on available-for-sale securities . . . . . . . . . . . . 599 470 335 5,120Prepaid pension expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 1,420 1,308 12,821Deferred tax assets of the foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 598

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 39 2,282

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,436 1,890 1,682 20,821

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,755 ¥4,638 ¥3,895 $ 40,641

Net deferred tax assets were included in the consolidated balance sheets as follows:


2006 2005 2004 2006

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,802 ¥2,769 ¥2,311 $41,043Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527 2,187 1,956 4,504Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (574) (318) (372) (4,906)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,755 ¥4,638 ¥3,895 $40,641

*The tax effects of significant temporary differences, which resulted in deferred tax assets and liabilities of the foreign consolidated subsid-iaries at March 31, 2006, 2005 and 2004, were as follows:


2006 2005 2004 2006

Deferred tax assets:Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,717 ¥ 1,496 ¥ 1,526 $ 14,675Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486 254 138 4,154Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550 1,682 478 21,795Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 758 709 6,026Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 959 769 672 8,196Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,104) (2,465) (1,407) (26,530)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,313 ¥ 2,494 ¥ 2,116 $ 28,316

Deferred tax liabilities:Publishing rights amortization . . . . . . . . . . . . . . . . . . . . . . . . . 539 512 568 4,607Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 594 366 211 5,077

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,133 878 779 9,684

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,180 ¥ 1,616 ¥ 1,337 $ 18,632


Net deferred tax assets were included in the tax effects of significant temporary differences as follows:


2006 2005 2004 2006

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,250 ¥1,616 ¥1,337 $19,230Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70) (598)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,180 ¥1,616 ¥1,337 $18,632

Deferred tax assets were included in other current assets and other assets, and deferred tax liabilities were included inlong-term liabilities.

A reconciliation between the normal effective statutory tax rate for the years ended March 31, 2006, 2005 and 2004, andthe actual effective tax rates reflected in the accompanying consolidated statements of income were as follows:

2006 2005 2004

Normal effective statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.6% 40.6% 42.0%Differences of income taxes with foreign consolidated subsidiaries . . . . . . . . . . . . . (0.1) 3.7 2.6Permanently non-deductible expenses of social expenses, etc. . . . . . . . . . . . . . . . . . 0.9 0.8 2.3Valuation loss on investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.4)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 (0.8) (0.3)

Actual effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.9% 44.3% 44.2%

19. STOCKOPTION PLAN

The Company has a stock option plan. The stock option plan, which was approved at the 49th, 50th and 51st generalshareholders’ meeting, provides options for purchases of the Company’s common stock for the directors, corporate auditors,company officers and selected employees of the company and directors and company officers of subsidiaries.

The ExerciseNumber of Options Granted Price of Options

Date of Grant (Thousands of Shares) Exercise Period (Yen per Share)

July 25, 2003 Directors 267 From July 1, 2005 to ¥2,148Officers 326 June 30, 2009Directors of subsidiaries 29

July 23 and Directors 106 From July 1, 2006 to 3,549July 26, 2004 Officers 126 June 30, 2010

Directors of subsidiaries 8June 24, 2005 Directors 99 From July 1, 2007 to 3,780

Officers 96 June 30, 2011Corporate auditors 100Selected employees 50Directors of subsidiaries 70Officers of subsidiaries 20

Total 1,297


21. SUBSEQUENTEVENTS

20. NET INCOMEPER SHARE

Reconciliation of differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2006,2005 and 2004, was as follows:

Millions Thousandsof Yen of Shares Yen U.S. Dollars

Net Weighted-averageIncome Shares EPS

Year Ended March 31, 2006Basic EPS—Net income availableto common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . ¥16,039 102,519 ¥156.45 $1.3372

Effect of dilutive securities—Stock options . . . . . . . . . . . . . 347

Diluted EPS—Net income for computation . . . . . . . . . . . . . ¥16,039 102,866 ¥155.92 $1.3327

Year Ended March 31, 2005Basic EPS—Net income availableto common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . ¥14,297 103,568 ¥138.05


Diluted EPS—Net income for computation . . . . . . . . . . . . . ¥14,297 103,858 ¥137.66

Year Ended March 31, 2004Basic EPS—Net income available tocommon shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 9,266 104,347 ¥ 88.80


Diluted EPS—Net income for computation . . . . . . . . . . . . . ¥ 9,266 104,382 ¥ 88.77

a. Stock Option PlanAt the general shareholders’ meeting held on June 25, 2006, 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 400,000 shares of the Company’s common stock in the period from July 1, 2008to June 30, 2012. 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, 2006, were approved by the Company’s shareholders at ameeting held on June 25, 2006:


2006 2006

Year-end cash dividends, ¥40 ($0.34) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,100 $35,043


INDEPENDENT AUDITORS’ REPORT


CONSOLIDATED SUBSIDIARIES

As of March 31, 2006

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

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 50.05 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. 50 100.00 Office operational management, outsourcing and support services

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 *2 100.00 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 *3 92.72 Insurance agency business

Carry Com Co., Ltd. 10 100.00 Truck transport services and warehouse storage

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 *2 100.00 Rental, sale and repair of simultaneous interpreting equipment

Thousands ofU.S. Dollars %

Berlitz International, Inc. 1,005 *4 100.00 Language instruction

U.S. Dollars %

Benesse Holdings International, Inc. 5.48 100.00 Holding company

Thousands ofRMB %

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, simulated exams and other services

Six other subsidiaries

*1 Indirectly held through Benesse Style Care Co., Ltd.*2 Indirectly held through Simul International, Inc.*3 Including an indirect holding of 62.72% through subsidiaries and affiliates*4 Indirectly held through Benesse Holdings International, Inc.*5 Indirectly held through Telemarketing Japan, Inc.


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.

1999 Customer-based, in-house company system is introduced.

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.Benesse subsidiary AVIVA Co., Ltd. takes over part of the business operations of AVIVA Japan Corporation.“Benesse Study Loans” and “Benesse Credit Cards” are launched.

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.


INVESTOR INFORMATION

As of March 31, 2006

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:39,124

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 16,044 15.08Japan Trustee Services Bank, Ltd. 7,828 7.36The Chugoku Bank, Ltd. 4,337 4.07Reiko Fukutake 3,174 2.98The Master Trust Bank of Japan, Ltd. 2,814 2.64Nobuko Fukutake 2,769 2.60Mitsuko Fukutake 2,675 2.51Junko Fukutake 2,675 2.51Fukutake Education Foundation 2,430 2.28Trust & Custody Services Bank, Ltd. 2,353 2.21Note: The Company holds 3,857 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 Institutions23.69%

Other Corporations9.27%

Foreign Companies—Other18.47% Individuals and

Other43.97%

Securities Companies0.97%

Treasury Stock3.63%

BENESSE GROUP CODE OF CONDUCT

To support “Benesse = well-being” for each individualTo 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.


ANN

UAL R

EPOR

T 2006

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

Printed on recycled paper in Japan

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