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%
2 Annual Report 2006
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
3 Annual Report 2006
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
Years ended March 31
0
50
100
150
200
156
138
89
64
2
153
01 02 03 04 05 06Years ended March 31
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
Years ended March 31
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
Years ended March 31
0
25
50
75
100
75
60
40
292929
01 02 03 04 05 06Years ended March 31
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
5 Annual Report 20065 Annual Report 2006
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
7 Annual Report 2006
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
8 Annual Report 2006
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.
9 Annual Report 2006
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.
10 Annual Report 2006
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.
11 Annual Report 2006
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.
12 Annual Report 2006
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
13 Annual Report 2006
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.
15 Annual Report 200614 Annual Report 2006
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
15 Annual Report 200614 Annual Report 2006
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
17 Annual Report 200616 Annual Report 2006
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
17 Annual Report 200616 Annual Report 2006
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.
19 Annual Report 200618 Annual Report 2006
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.’”
“
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.
19 Annual Report 200618 Annual Report 2006
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
21 Annual Report 200620 Annual Report 2006
! 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.
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
21 Annual Report 200620 Annual Report 2006
! 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.
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.
25 Annual Report 200624 Annual Report 2006
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.
25 Annual Report 200624 Annual Report 2006
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.
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.
29 Annual Report 200628 Annual Report 2006
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.
29 Annual Report 200628 Annual Report 2006
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.
31 Annual Report 200630 Annual Report 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.
31 Annual Report 200630 Annual Report 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.
32 Annual Report 2006
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
33 Annual Report 2006
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
34 Annual Report 2006
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
35 Annual Report 2006
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.
36 Annual Report 2006
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
37 Annual Report 2006
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.
38 Annual Report 2006
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
39 Annual Report 2006
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
40 Annual Report 2006
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
41 Annual Report 2006
42 Annual Report 2006
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.
43 Annual Report 2006
%
Years ended March 31 2006 2005 2004 2003 2002 2001
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
01 02 03 04 05 06Years ended March 31
0
5
10
15
11.5
9.2 8.0
9.0
6.3
Operating Income Ratio(%)
8.5
01 02 03 04 05 06Years ended March 31
–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
01 02 03 04 05 06Years ended March 31
49,69046,480
41,44043,30043,310
0
15,000
30,000
45,000
60,000 5,880
01 02 03 04 05 06Years ended March 31
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)
44 Annual Report 2006
MANAGEMENT’S DISCUSSION AND ANALYSIS
333,767
01 02 03 04 05 06Years ended March 31
0
100,000
200,000
300,000
400,000
262,948 267,250 260,142
291,403
258,289
28,412
01 02 03 04 05 06Years ended March 31
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)
45 Annual Report 2006
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
Years ended March 31 2006 2005 2004 2003 2002 2001
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.
46 Annual Report 2006
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
Years ended March 31
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
Years ended March 31–10,000
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)
Net Sales (left) Operating Income (loss) (right)
(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
Years ended March 31 2006 2005 2004 2003 2002 2001
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
01 02 03 04 05 06Years ended March 31
51.6
0
40
50
60
47.148.0 48.2
47.9
41.9
01 02 03 04 05 06Years ended March 31
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.
47 Annual Report 2006
Net Sales (left) Operating Income (right)
21,415
01 02 03 04 05 06
1,350
Years ended March 310
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)
Net Sales (left) Operating Income (loss) (right)
51,536
01 02 03 04 05 06
2,545
Years ended March 31–20,000
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)
Years ended March 31–5,000
0
5,000
10,000
15,000
20,000
–2,000
0
2,000
4,000
6,000
8,000
Net Sales (left) Operating Income (loss) (right)
AVIVA Business(Millions of Yen)
Operating Income (Loss) by Segment
Millions of Yen
Years ended March 31 2006 2005 2004 2003 2002 2001
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%.
48 Annual Report 2006
16,039
01 02 03 04 05 06Years ended March 31
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
01 02 03 04 05 06Years ended March 31
0
5
10
15
10.0
0.2
5.5
8.3
4.1
ROE(%)
5.0
01 02 03 04 05 06Years ended March 31
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
Years ended March 31 2006 2005 2004 2003 2002 2001
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.
49 Annual Report 2006
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
50 Annual Report 2006
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
51 Annual Report 2006
(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.
52 Annual Report 2006
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
Years ended March 31 2006 2005 2004 2003 2002 2001
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
53 Annual Report 2006
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
54 Annual Report 2006
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.
55 Annual Report 2006
(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.
56 Annual Report 2006
Benesse Corporation and Consolidated SubsidiariesMarch 31, 2006, 2005 and 2004
CONSOLIDATED BALANCE SHEETS
Thousands ofU.S. Dollars
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.
57 Annual Report 2006
Thousands ofU.S. Dollars
Millions of Yen (Note 1)
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
58 Annual Report 2006
Benesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2006, 2005 and 2004
CONSOLIDATED STATEMENTS OF INCOME
Thousands ofU.S. Dollars
Millions of Yen (Note 1)
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
See notes to consolidated financial statements.
59 Annual Report 2006
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Benesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2006, 2005 and 2004
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
Unrealized gain onavailable-for-sale securities . . . . . . . . . . . . . . 128
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)
Unrealized gain onavailable-for-sale securities . . . . . . . . . . . . . . 261
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)
See notes to consolidated financial statements.
60 Annual Report 2006
CONSOLIDATED STATEMENTS OF CASH FLOWS
Benesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2006, 2005 and 2004
Thousands ofU.S. Dollars
Millions of Yen (Note 1)
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)
See notes to consolidated financial statements.
61 Annual Report 2006
1. BASIS OFPRESENTINGCONSOLIDATEDFINANCIALSTATEMENTS
2. SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Benesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2006, 2005 and 2004
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.
62 Annual Report 2006
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.
63 Annual Report 2006
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.
64 Annual Report 2006
Cash and cash equivalents at March 31, 2006, 2005 and 2004, consisted of the following:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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.
65 Annual Report 2006
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
March 31, 2005Securities classified as:
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
March 31, 2004Securities classified as:
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
March 31, 2006Securities classified as:
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
Thousands ofMillions of Yen U.S. Dollars
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
66 Annual Report 2006
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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
67 Annual Report 2006
(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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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
68 Annual Report 2006
Goodwill and other intangible assets at March 31, 2006, 2005 and 2004, consisted of the following:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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.
69 Annual Report 2006
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:
Thousands ofMillions of Yen U.S. Dollars
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.
Thousands ofMillions of Yen U.S. Dollars
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥14,589 $124,692Buildings—net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,231 87,445
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥24,820 $212,137
70 Annual Report 2006
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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
71 Annual Report 2006
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:
Thousands ofMillions of Yen U.S. Dollars
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.
72 Annual Report 2006
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
73 Annual Report 2006
Thousands of U.S. Dollars
2006
Education Lifetime Value Senior Language AVIVA Eliminations/Group Company Company Company Business Others Corporate Consolidated
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
Education Lifetime Value Senior Language Eliminations/Group Company Company Company Others Corporate Consolidated
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
74 Annual Report 2006
(2) Assets, Depreciation and Amortization, and Capital Expenditures
Millions of Yen
2006
Education Lifetime Value Senior Language AVIVA Eliminations/Group Company Company Company Business Others Corporate Consolidated
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
Thousands of U.S. Dollars
2006
Education Lifetime Value Senior Language AVIVA Eliminations/Group Company Company Company Business Others Corporate Consolidated
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
Education Lifetime Value Senior Language Eliminations/Group Company Company Company Others Corporate Consolidated
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥80,071 ¥8,387 ¥25,517 ¥53,748 ¥17,767 ¥122,178 ¥307,668
Depreciation and amortization . . . . . . . . . . . 4,700 254 644 1,460 619 (166) 7,511
Capital expenditures . . . . . . . . . . . . . . . . . . . 4,315 155 4,338 1,925 621 (238) 11,116
Millions of Yen
2004
Education Lifetime Value Senior Language Eliminations/Group Company Company Company Others Corporate Consolidated
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
75 Annual Report 2006
Millions of Yen
2005
North Eliminations/Japan America Others Corporate Consolidated
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
North Eliminations/Japan America Others Corporate Consolidated
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
Thousands of U.S. Dollars
2006
North Eliminations/Japan America Others Corporate Consolidated
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:
Thousands ofMillions of Yen U.S. Dollars
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%
76 Annual Report 2006
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.
77 Annual Report 2006
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
Thousands of U.S. Dollars
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.
78 Annual Report 2006
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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:
Thousands ofMillions of Yen U.S. Dollars
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
79 Annual Report 2006
Net deferred tax assets were included in the tax effects of significant temporary differences as follows:
Thousands ofMillions of Yen U.S. Dollars
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
80 Annual Report 2006
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
Effect of dilutive securities—Stock options . . . . . . . . . . . . . 290
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
Effect of dilutive securities—Stock options . . . . . . . . . . . . . 35
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:
Thousands ofMillions of Yen U.S. Dollars
2006 2006
Year-end cash dividends, ¥40 ($0.34) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,100 $35,043
82 Annual Report 2006
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.
83 Annual Report 2006
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.
84 Annual Report 2006
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.
85 Annual Report 2006
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