ANNUAL REPORT 2003pdf.irpocket.com/C9783/SAip/sZCL/NyP7.pdf · help people of all ages develop and achieve their true potential in language studies. And we have the network and the

ANNUAL REPORT 2003FOR THE YEAR ENDED MARCH 31, 2003

PROFILE

The name Benesse derives from the Latin words “bene,” meaning good or well, and “esse,” meaning to live or to be.

Together, they embody our corporate philosophy to help people live well.

The Benesse story began with Tetsuhiko Fukutake, a former teacher, who established Fukutake Publishing

Co., Ltd. in 1955. Mr. Fukutake created simulated exams and correspondence seminars that are the direct

predecessors of the Shinken Simulated Exams and Shinkenzemi home study correspondence courses we offer

today. Even at this early stage, the company was guided by the ideal of helping to motivate people throughout

their entire active lives and supporting them in overcoming their unique challenges.

Later, the company gradually moved into other business domains such as language education and nursing

care, becoming a comprehensive provider of services for people of all ages. In 1995 we changed our name to

Benesse Corporation, symbolizing the crystallization of our corporate philosophy in a single word and cementing

our philosophy’s intrinsic relationship with all our business activities.

We define our business activities as education, languages, lifestyle and welfare, demonstrating our involve-

ment in virtually all aspects of people’s lives—from childbirth to child-rearing, school and family life, through to

old age. At Benesse, we are proud to be able to support customers in all these life stages by helping them to

overcome their challenges and realize their dreams.

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

ON THE COVER:

Naoshima Island

Naoshima Island on the picturesque Seto Inland Sea is an idyl-lic and tranquil hideaway. Developed and run by Benesse, it wedscontemporary art, architecture, nature and culture to offer visitorsan unforgettable experience.

CONTENTS

Financial Highlights 01Expanding Your Horizons with Benesse 02Message from the CEO & COO 08An Interview with the Chief Operating Officer 11Corporate Governance 14Social Responsibilities 16Business Activities

Education Group 18Women & Family Company 24Senior Company 26Language Company 28Others 30

Financial Section 31Benesse Corporation Organization of 2003 68Consolidated Subsidiaries 69The History of Benesse Corporation 70Investor Information 71The Benesse Code of Corporate Conduct 72

01ANNUAL REPORT 2003

FINANCIAL HIGHLIGHTSBenesse Corporation and Consolidated Subsidiaries

Net Sales(Millions of Yen)

ROE / ROA(%)

Net Income(Millions of Yen)

Operating Income(Millions of Yen)

Thousands ofMillions of Yen U.S. Dollars

Years ended March 31, 2003 and 2002 2003 2002 2003

FOR THE YEAR:Net Sales ¥258,289 ¥267,250 (3.4)% $2,152,408Operating Income 16,317 24,589 (33.6) 135,975Income before Income Taxes, Minority Interests andImpairment Loss on Goodwill 14,446 24,195 (40.3) 120,383

Net Income 6,973 327 — 58,108

AT YEAR-END:Total Assets ¥275,516 ¥291,393 (5.4)% $2,295,967Shareholders’ Equity 169,428 171,826 (1.4) 1,411,900

Yen U.S. Dollars

PER SHARE OF COMMON STOCK:Net Income ¥ 65 ¥ 2 $ 0.54Shareholders’ Equity 1,612 1,616 13.43Cash Dividends Applicable to the Year 29 29 0.24

Percentage

RATIOS:Equity Ratio 61.5% 59.0%Return on Equity (ROE) 4.1 0.2Return on Assets (ROA) 2.5 0.1

Employees

Employees 8,081 9,051

Notes: 1. U.S. dollar figures are translated, for convenience only, at the rate of ¥120 to U.S.$1, the effective rate of exchange prevailing on March 31, 2003.2. 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.

PercentageChange

6,000

0

12,000

18,000

24,000

30,000

36,000

99 0300 01 02

30,98132,954

30,278

24,589

16,317

50,000

0

100,000

150,000

200,000

250,000

300,000

99 0300 01 02

259,852 260,964 262,948 267,250258,289

3,000

0

6,000

9,000

12,000

15,000

18,000

99 0300 01 02

16,036 16,413 16,498

327

6,973

2

0

4

6

8

10

12

99 0300 01 02

11.5 10.7

5.7 5.75.4

0.1

2.5

10.0

4.1

0.2

ROE ROA

0302 ANNUAL REPORT 2003ANNUAL REPORT 2003

Benesse House

Benesse House, an art museum and hotel designedby the internationally renowned Japanese architectTadao Ando, is a stunning concrete and marblebuilding that stands in perfect contrast to the verdantvegetation of the island.

Expanding your horizons with Benesse

Realizing your dreams.

Benesse helps children to achieve their goals and realize their dreams. With our diverserange of products and services, we are giving children the confidence, ability andinitiative to pursue lifelong learning. Supporting the education professionals who arein direct contact with the students is also a vital part of our mission.

Shinkenzemi home study correspondence courses, for infants through to high schoolstudents, have grown to become Japan’s largest private education service with 3.7million members as of April 2003, representing 18% of all children in the target agegroups. Shinken Simulated Exams, a related learning assessment study aid for universityentrance exams, is Japan’s market-leader with 5.5 million students taking these simu-lated tests in the year ended March 2003.

ANNUAL REPORT 2003

Developing your potential.

In an increasingly borderless world, the importance of language skills cannot be over-emphasized. Benesse provides a range of language education and support services tohelp people of all ages develop and achieve their true potential in language studies.

And we have the network and the resources to achieve this.Benesse subsidiary Berlitz International, Inc. is the world’s largest language education

company, operating 494 language centers in 67 countries as of December 2002.

ANNUAL REPORT 2003

Broadening your relationships.

Based on the idea of helping women of all ages lead the lifestyles they want, Benessehas created numerous communities, opportunities and services that keep womeninformed about lifestyle and child rearing issues, and provide forums for the exchangeof views.

Tamago Club, Hiyoko Club and Tamahiyo Kokko Club are our lifestyle magazinesthat provide essential information on all stages of pregnancy, childbirth and childcare.As of March 2003, these publications had a combined circulation of 820,000, thehighest readership figures for magazines of this kind in Japan. We have also estab-lished Benesse Women’s Park, a free, members-only Internet portal site for women.Members totaled 261,000 as of March 2003, making it the most popular portal sitefor women in Japan.

ANNUAL REPORT 2003

Enhancing your comfort.

We only provide nursing care services that we would be happy to receive ourselves oroffer to our own families. Benesse nursing care homes really are a “home away fromhome” where resident privacy is paramount and individual lifestyles are respected.Residents can also enjoy high-quality services that enhance their daily comfort.

Benesse is the largest provider of private nursing care home services in Japan with anetwork of 61 nursing care homes as of March 2003 offered through four brands—Benesse Home Clara and Madoka, and Granny and Granda.

ANNUAL REPORT 2003

The Benesse Group’s operating environment continued to experience fundamental

changes during fiscal 2002, ended March 31, 2003.

The most significant change was the reforms of Japan’s educational system, launched

in April 2002. Viewed from an historical perspective, these reforms represent a major mile-

stone in the evolution of the education system in Japan.

The reforms introduced a two-day weekend and led to the adoption of a new curricu-

lum giving students more free time by reducing textbook content by around 30%. How-

ever, the reforms also raised concerns among parents about whether public education is

becoming too relaxed by excessively reducing demands on students. This is the climate

that characterizes the private education market, where providers of educational resources

and services are responding to diversifying needs with an array of new products. Cram

schools offering personalized education, practical science activities and field trips have

appeared on the scene. Other cram schools combine classroom instruction with e-learning.

However, all this comes against the backdrop of a falling birthrate, weak consumer spend-

ing and intensified competition in the private education market in Japan. In public educa-

tion, there are plans on the table for different types of schools, such as those combining

junior and senior high schools, and so-called super-science schools. A two semester-

year is also already being introduced. With different regions and indi-

vidual schools exploring new approaches to education, and

extensive reforms underway, we believe a new era is just around

the corner in the Japanese education market.

It is now over three years since the April 2000 introduction

of the Long-term Care Insurance System. This has helped

to stimulate and expand the nursing care market. Grow-

ing awareness of this system is increasing demand

for nursing care services, and private-sector

service providers are responding proactively.

As Japanese society ages and the market for

nursing care services expands, more private

firms will enter the market.

The language-services market, particularly over-

seas, is experiencing a temporary slowdown in the

wake of the 9/11 terrorist attacks in the U.S. and

the war in Iraq. We are, however, confident that this

is a potential growth area in view of the underlying

long-term trend toward more globalized, borderless

economies. Demand, particularly for English lan-

guage education, continues to be strong in

Japan. We expect sustained growth in demand

for all types of language services, including

further expansion in the corporate sector.

MESSAGE FROM THE CEO & COO

Left:Soichiro FukutakeChairman and CEO

Right:Masayoshi ‘Mike’ MorimotoPresident and COO


REVIEW OF FISCAL 2002

In fiscal 2002, consolidated net sales declined 3.4% to ¥258,289 million. Sales were lower in

the Education Group as enrollment declined in mainstay Shinkenzemi home study correspon-

dence courses. Sales also declined in the Language Company due to the sale of a translation

service business at Berlitz International, Inc., a consolidated subsidiary. On a more positive

note, the Senior Company continued to steadily increase sales on the strength of an expand-

ing nursing care home network. Meanwhile, the circulation of magazines published by the

Women & Family Company (W&F Company) were favorable, and newly launched titles quickly

won popularity.

Operating income fell 33.6% to ¥16,317 million, affected by lower sales in the Education

Group and the impact of a high level of investments in the W&F Company. Net income

rose ¥6,646 million from the previous fiscal year to ¥6,973 million. This rise was mainly

because profit was undermined last year by a ¥13,195 million impairment loss on good-

will at Berlitz, and a ¥3,150 million extraordinary gain on exemption from future pension

obligation of the governmental program.

In April 2002, we extensively renewed the course materials for our Shinkenzemi home

study correspondence courses. Unlike previous course materials, which were designed

primarily to supplement public education, the new materials focus on building the student’s

fundamental academic abilities and on the essential elements of each subject. In April

2003, to further leverage our new course materials, we introduced improved versions of our

Junior High School and Senior High School Courses to more closely match the academic

ability of individual students. Our efforts go well beyond the renewal of our existing

products, extending to the development of new products and services in promising growth

areas. This includes Preschool Courses, designed for babies and their parents and English

language study materials for toddlers. These new products and services are being well

received and are recording favorable sales growth.

Although our educational services face a very difficult operating environment, we are

confident that mainstay Shinkenzemi products will find a new level of strength, once the

quality of the new course materials is communicated to the market. In addition, the con-

tinuing introduction of new products and services in response to changing market needs,

and the ability to offer more than just basic correspondence course products, will support

us in restoring business performance and propel us firmly onto a growth track.

MANAGEMENT RESTRUCTURING

We are fundamentally restructuring our management framework at a time when our operat-

ing environment is also experiencing dramatic changes. This restructuring is so far-reach-

ing that we are positioning fiscal 2003 as the year of our third founding. This follows a

second founding in 1995, the year we changed the company name from Fukutake Pub-

lishing Co., Ltd. to Benesse Corporation.

Management restructuring is centered on the introduction of a Corporate Executive

Officer System. By transferring more authority to in-house companies and divisions, this

is promoting rapid and appropriate decision-making, while at the same time enhancing

10 ANNUAL REPORT 2003

transparency and confidence in our decision-making process.

In addition, we have appointed two independent directors to the Board to strengthen

its supervisory functions. We have also appointed Group Executive Officers to strengthen

governance throughout the Group. This new structure separates supervisory and executive

management roles. With the Board and the Corporate Executive Officers fulfilling their

respective roles and responsibilities, we expect to raise the quality of management of the

whole company.

On the occasion of Benesse’s third founding, Masayoshi Morimoto was appointed as

the company’s new President, the first change to this post in 17 years. The main motivation

for selecting Mr. Morimoto, an external appointment, was to make an entirely clean break

with our past as we seek to implement bold and extensive reforms. The Annual General

Shareholders Meeting held on June 25, 2003 approved this appointment and that of

Soichiro Fukutake as Chairman and CEO. Mr. Morimoto was also appointed to the con-

current position of COO. Until now, overall managerial authority has been held entirely

by Mr. Fukutake, but in order to clearly separate supervisory and executive management

roles, senior management responsibilities have been divided and clearly defined. The

CEO now supervises management from the standpoint of shareholder interests, while

the COO, having received operating authority from the CEO, is responsible for corporate

business performance.

The new Corporate Executive Officer System builds on the in-house company system

we have already introduced. We see this new system as being as important to the smooth

functioning of the company as an operating system is to a computer. Only after putting

the Corporate Executive Officer System in place can we embark on our path of ongoing

restructuring. We will now concentrate on making the new management system function

smoothly, while developing new initiatives to assure medium- to long-term growth.

In total, the new initiatives we have talked about represent a new and exciting era for

your company. We very much hope that you will continue to support us as we open this

new chapter in the corporate history of Benesse.

July 2003

Soichiro Fukutake Masayoshi ‘Mike’ MorimotoChairman and CEO President and COO

BRIEF PERSONAL HISTORY OF MASAYOSHI MORIMOTO1962: Joined Sony Corporation

Subsequently worked as President, Sony Manufacturing Company of America; President, Sony Comercio e IndustriaLtda.; and Corporate Senior Executive Vice President, Sony Corporation.

2001: Appointed Representative Director and President, Aiwa Co., Ltd.December 2002: Appointed advisor to Benesse CorporationApril 2003: Appointed Chief Executive Vice President


How has Benesse responded to the reforms of the national education system introduced in Japan

from April 2002?

New curriculum guidelines outlined in the New Course of Study were introduced into elementary schools and

junior high schools in April 2002, and into senior high schools in April 2003. We responded with extensive revi-

sions of the course materials used in our mainstay Shinkenzemi home study correspondence courses in April

2002. The aim was to develop a unique curriculum that moves away from simply complementing what is taught in

schools, to focus on improving the basic understanding of each subject and promoting enhanced critical thinking

and self-study abilities. The government’s reforms provoked considerable concern about public education, and a

lot of dissatisfaction. As a result, parents have become more critical in their choice of private-sector educational

services. This means we have to offer a more comprehensive response that directly addresses those concerns.

Aiming to meet increasingly individualized and diversifying needs, we introduced new course materials in April

2003 that not only enhance the quality of content but also accommodate and meet the needs of students with

different academic abilities. Now students can select course materials that match their progress and their scho-

lastic level. Leveraging the strengths of our Shinken Simulated Exams, we also reinforced the assessment function

of course materials, in order to allow students to check their basic academic ability and progress. The measures

we have taken have strengthened the study support provided by our course materials and also made them

more effective.

In support services for schools, Benesse is providing new products and services, and delivering more informa-

tion to teachers, who now have greater personal discretion under the new education system. Measures taken

include providing the services of consultants in the use of IT and software systems for computer-based instruc-

tion. We are also building closer relationships with teachers, with the aim of raising their confidence in Benesse

services, by expanding career counseling support for students. This move responds to changes in the entrance

examination system that has opened up more options for students.

What direction will Benesse take under its new management system, and what strategies do you have

in mind to realize your targets?

The first step we took was to clearly define our medium-term targets through to fiscal 2006. With a renewed focus

on securing profits, these targets include achieving operating income of ¥26.0 billion by fiscal 2006. This is to be

achieved by a thorough review of our business portfolio and aggressive expansion of profit opportunities. This

will result in a business structure capable of producing steady income streams.

We will invest heavily in improving the competitive position of our products and services throughout the

Group, enhancing our marketing capabilities and strengthening brand management. In addition to continuing

to develop products and services that fully meet customer needs, we will focus on more accurately classifying

customer requirements. We will strengthen marketing by adopting new, more focused marketing techniques in

addition to our existing direct-mail (DM)-based approaches.

Overseas, we see new opportunities in East Asia, where educational needs are growing alongside moves to

increase social capital and build stronger economies. We have positioned this region as the most important after

our home market and will be introducing new products and services in the years ahead.

We are confident that our initiatives will promote continued growth in all areas of operations. And we will make

sure that this growth continues into the future by initiating bold, far-reaching reforms of our production processes,

including those for Shinkenzemi. Raising efficiency as a way of ensuring stable income will also be vital.

AN INTERVIEW WITH THE CHIEF OPERATING OFFICER

AQ

AQ


What are Benesse’s strategies in the education business?

The operating environment in our mainstay education business is undergoing unprecedented changes, charac-

terized by the falling birthrate in Japan, reforms of the educational system launched in April 2002, and diversify-

ing market needs. At Benesse, we see these changes as a business opportunity. As Japan’s largest provider of

private education services, we also believe we have the responsibility to lead change in the industry in response

to the shifting operating landscape. Based on this approach we are further enhancing our core Shinkenzemi

home study correspondence courses, and at the same time, aggressively moving into new business domains

unrelated to correspondence education methods.

In Shinkenzemi, we will work to offer course materials more closely suited to specific customer segments through

on-demand services and other means. We will also strengthen marketing capabilities by developing new marketing

tools in tandem with our conventional DM approach. These new tools will include specific sales channels tailored

to each area, cultivated by local branch offices, and web-based and telemarketing strategies.

In areas outside correspondence course education, we have been strengthening our classroom-based business

with a new approach. This is centered on a capital and operational tie-up with Up Inc. in August 2002. Up Inc. is

a leading cram school company listed on the Tokyo Stock Exchange. We will use this tie-up to further strengthen

our presence in the classroom-based business by forging other alliances and seeking M&A opportunities. With

the advent of the broadband era, we will also explore and research the possibilities of new educational tech-

niques such as e-learning that take full advantage of IT. Our goal is to offer customers a comprehensive menu of

new educational services that combine correspondence courses with both classroom-based work and e-learning.

We feel that support services for extra-curricular education and guidance are as important as our core educa-

tional services. Here we will focus on providing information and advice to help the individual abilities and chart

the future career paths of our customers.

What are your plans for areas outside educational services?

Outside educational services, our focus will be on services for senior citizens and language services.

In services for seniors, we will steadily expand business centered on nursing care home operations, which

became profitable in fiscal 2002. Benesse provides home-help services in a number of areas, but the focus re-

mains on the nursing care home business, which offers more efficient business operations and higher profitability.

We have expanded our network of nursing care homes, adding about 15 homes a year mainly in the Tokyo

metropolitan area. Capital investment has been curbed by using leased properties where possible. Our plans call

for the accelerated opening of new homes, based on the development of a new business model, which offers two

types of nursing care homes. This approach adds a line of more luxurious nursing care homes, Benesse Senior

Style, and the more economical Benesse Home Madoka, to our existing brands. This will help us to expand our

customer base and our target regions. To tap the full growth potential of this sector, we will expand the range of

target customers, presently limited to senior citizens in need of nursing care, to embrace services for all seniors.

In the language services area, we set up the Language Company, an in-house operating division. Plans call for

establishing robust governance at Berlitz and dynamically developing its business. We are also moving toward

consolidating the entire Group’s management resources related to language services and implementing unified

business strategies. We see Japan as a strategic market where demand for English language services is relatively

high. In this market we plan to rapidly expand our classroom-based network, adding 59 new language centers in

the next three years to our existing network of 62 centers as of the end of December 2002. We expect to have

121 centers up and running by the end of December 2005.

AQ

AQ

What impact will legislation for the protection of personal information have on Benesse’s operations,

and what measures are you taking to comply with the new regulations?

The new legislation requires that companies handling personal information put in place systems for the appropri-

ate collection, management and use of personal information, which comply with provisions in the Act for Protec-

tion of Computer Processed Personal Data held by Administrative Organs. Recognition of the importance of

personal information must also be built into these systems.

Benesse has already made real progress in this area. In 1999, we drew up the Benesse Privacy Policy as a move

to assure complete security of personal information. This policy goes well beyond the new legal requirements

and complies with international standards. In-built is an understanding of the need for protection of such informa-

tion from the standpoint of the individual. These initiatives serve a clear purpose—to increase customer trust in

Benesse. Among the moves we have taken are to set up a special department expressly tasked with promoting

measures for the protection of personal information throughout the Group.

A Privacy Protection Committee was set up in December 2002. The committee is responsible for the education

and training of employees throughout the company to assure strict compliance with the government regulations.

Guidelines for the protection of personal information under the new legislation are not clear on certain issues. We

will therefore closely monitor developments in these areas and quickly introduce necessary steps as soon as

clarification is given.

Benesse currently holds a large amount of cash. How do you plan to use these funds?

The operating environments in all our core businesses—education, senior citizen-related and language services—

are experiencing fundamental change. In particular, the operating landscape in our education business is under-

going a sea change due to extensive reforms of the education system in Japan. At Benesse we see these shifts as

business opportunities and we are seeking to capitalize on them wherever possible. Consequently, we have

designated the education field as a priority investment area in order to strengthen our product and service menu

outside our mainstay home study correspondence course business. At the same time, we also plan to actively

invest in the senior citizen-related and language service domains, growth areas for Benesse. In a fast-moving

business climate, timely investment decisions are crucial to ensure rapid and appropriate responses and speed

up business development. For this reason, we are actively pro-

moting alliances with other companies and seeking M&As. In this

way, we aim to boost Benesse’s corporate value through enhanced

profitability, and return profits to shareholders.

Another way we are using funds is by repurchasing stock. In

fiscal 2002, we launched a stock repurchase program with

approved limits of 2 million shares up to a value of ¥6.0 billion. In

the year under review, we repurchased shares equivalent to 68%

of the approved share limit. The thinking behind this was to enable

the Group to adopt timely and flexible financial strategies in

response to changes in the operating environment, and to raise

shareholder value. Plans call for repurchasing up to five million

shares of stock to a maximum of ¥10.0 billion in fiscal 2003.

Masayoshi ‘Mike’ MorimotoPresident and COO

AQ

AQ


Legal issues Major corporate issues Internal company issues

Chairman and CEO: Soichiro Fukutake

President and COO: Masayoshi Morimoto

Board of Directors

Board of Directors

COO

Corporate Executive Officers

Company Presidents

Supervision

Board of DirectorsInstituting andmonitoring basic corporate policies

Executive management

Planning andimplementingstrategies

(six members, two of whom are

independent directors)

17 Corporate Executive Officers

(term of office:1 year)

3 Group Executive Officers

(status on a par with Corporate Executive

Officers)

The COO is the only Corporate Executive Officer on the Board

PASTSYSTEM

CURRENTSYSTEM

Management Committee

CORPORATE GOVERNANCE

of Benesse. Information on the discussions

and decisions carried out in these commit-

tees is disclosed in order to enhance the

decision-making process and ensure trans-

parency.

Corporate Executive Officer remunera-

tion will not be uniform but performance-

based, reflecting factors such as results

of business plans drawn up by individual

Corporate Executive Officers at the begin-

ning of the year, the level of their commit-

ment to the Company represented by their

business plans, and the actual achievements

of the organizations they lead.

Reform of the Board of Directors

Effective from fiscal 2003, the size of the

Board of Directors was reduced from ten

to six members. By limiting the Board’s re-

sponsibility to supervision, we expect to

accelerate the decision-making process.

By appointing two independent directors,

we are bringing in outside opinions and

advice and incorporating them in our man-

agement strategy, thus enhancing the qual-

ity of our Board as the core decision-making

body of the Benesse Group.

Introduction of the Corporate ExecutiveOfficer System

Benesse has introduced the Corporate

Executive Officer System to separate the

supervisory and executive roles of manage-

ment. This step has been taken in conjunc-

tion with a reduction in the size of the Board

of Directors to enhance transparency and

improve the speed of decision-making, with

the ultimate objective of improving corpo-

rate governance.

This new management structure will help

Benesse respond more flexibly to the funda-

mental changes in its operating environment

and strengthen its competitive position.

Structure of the Corporate ExecutiveOfficer System

As a rule, the term of office for Corporate

Executive Officers will be one year. On

March 31, 2003, five former directors resigned

from the Board and were reappointed as

Corporate Executive Officers. We also re-

organized our in-house companies, with each

representative of these companies ap-

pointed to the post of Corporate Executive

Officer, also known as Company Presidents.

The heads of each corporate staff division

are also now Corporate Executive Officers.

Transferring authority to operating divi-

sions will make them closer to customers

and the markets in which they operate, and

therefore better position them to respond

rapidly and accurately to customer and

market needs.

The decision-making process has also

undergone fundamental reform with the

creation of two committees: the Company

Management Committee (CMC) to support

Corporate Executive Officers in making

decisions within the sphere of their author-

ity, and the Headquarter Management

Committee (HMC) to assist the COO in

decision-making in his position as president

From fiscal 2003, Benesse initiated a fundamental management restructuring

designed to achieve a clean break with past initiatives. Supporting this new man-

agement structure is a corporate governance system aimed at encouraging greater

transparency and speeding up decision-making.

SUBSTANTIAL TRANSFER OF AUTHORITY TO CORPORATEEXECUTIVE OFFICERS

NEW MANAGEMENT STRUCTURE


Board of Directors

Chairman and CEOSoichiro Fukutake

Vice ChairmanMakoto Sato

President and COOMasayoshi Morimoto

DirectorKenjiro Kaneshiro

DirectorTakeo Tsumura*

DirectorTamotsu Adachi*

*Independent directors

Corporate Auditors

Standing Corporate AuditorToichiro Miyakawa*

Standing Corporate AuditorKimie Sakuragi

Corporate AuditorKazuo Ichikawa*

Corporate AuditorTomoji Wada*

*Independent corporate auditors

Corporate Executive Officers

Corporate Senior Executive Vice PresidentTamotsu Fukushima

Corporate Senior Executive Vice PresidentShigemi Asano

Corporate Executive Vice PresidentAkira Kataoka

Corporate Executive Vice PresidentYoshinori Matsumoto

Corporate Executive Vice PresidentYoji Shiraishi

Corporate Executive Vice PresidentKimiko Kunimasa

Corporate Executive Vice PresidentHiroaki Kawamura

Corporate Senior Vice PresidentNobuharu Ueno

Corporate Senior Vice PresidentKenji Nakajima

Corporate Senior Vice PresidentNaoto Sugiyama

Corporate Senior Vice PresidentTetsuhisa Oda

Corporate Senior Vice PresidentDaisuke Okada

Corporate Senior Vice PresidentHaruna Okada

Corporate Senior Vice PresidentEiji Aketa

Corporate Senior Vice PresidentMasaaki Ito

Corporate Senior Vice PresidentToru Noda

Group Executive Officers

Group Executive OfficerMark Harris

Group Executive OfficerTakao Miyazawa

Group Executive OfficerHisao Nose

Board of Directors, Corporate Auditors, Corporate Executive Officers and Group Executive OfficersAs of July 1, 2003

Separating the responsibilities of theCEO and COO

The CEO, as Benesse’s representative, con-

centrates on developing our brand philoso-

phy, building closer relationships with

business and political communities, in ad-

dition to training the next generation of

senior management personnel while look-

ing after the interests of our shareholders

and the market. In other words, the CEO

works on raising shareholder value. The

COO, with all executive authority previously

held by the CEO, makes concrete commit-

ments to the CEO regarding the Group’s

financial targets, and is responsible for

delivering on those commitments.

Group Executive Officers

With the Benesse Group made up of a num-

ber of subsidiaries that are increasingly

reliant on certain operating fields and

regions, such as Berlitz, which operates glo-

bally, consolidated group management is

taking on added importance. Accordingly,

we have introduced a Group Executive

Officer System aimed at achieving three

goals: increase cohesion among Benesse

Group companies; train management ex-

ecutives to manage subsidiaries; and

strengthen corporate governance as a

whole. Group Executive Officers have been

appointed to focus primarily on developing

and promoting management policies and

strategies for the entire Benesse Group.

Quarterly meetings of the Group Manage-

ment Committee (GMC), an expanded

HMC meeting, are held to ensure their full

participation in group management. Their

contribution to consolidated group man-

agement will be an important element in

determining their remuneration.


Benesse Island Publications by Benesse EducationalResearch Center

Art on Benesse Island

As a company engaged in education and welfare, our business philosophy is best described by our

Company name “Benesse,” meaning, “ to live well” in Latin. We are convinced that the trust and

confidence of our customers and society is the bedrock of growth. It is no overstatement to say that

winning the trust and confidence of our customers is an integral part of our business. We have

initiated a series of measures that aim to assure our position as a trustworthy company with a

reputation for integrity, thereby strengthening the foundations of trust and confidence our customers

place in us.

1. Business Ethics and Compliance

In November 1998, Benesse recognized the need for an in-house department to assure adherence with its code

of ethics and compliance with laws and regulations.

We affirmed this commitment by establishing the Business Ethics Division and Committee to oversee all aspects

of corporate ethics and compliance.

We followed up on this by announcing The Benesse Code of Corporate Conduct in July 2001 and The Benesse

Standard of Conduct in November 2001, a copy of which was provided to each and every director and employee

of the Company. We invited outside professionals, including specialists in business ethics and law, to support

development of both codes, and invited all employees to participate actively in their improvement. In tandem

with this move, we announced our Three Principles of Conduct, which all employees must be constantly aware of.

Printed on cards that employees are expected to carry with them at all times, they summarize the essence of The

Benesse Standard of Conduct.

We also implemented several initiatives to assure that The Benesse Code of Corporate Conduct and The

Benesse Standard of Conduct are known and firmly established throughout the Group. Alongside this, we took a

number of measures to reinforce our compliance system. These include:

• Appointment of COO as a compliance officer and the establishment of a Business Ethics and Compliance Committee

• Introduction of Business Ethics and Compliance Rules

• Related education and training of directors and employees

• Establishment of the Ethics Line, a help line for employees at Benesse and all of its subsidiaries

• Creation of a system for monitoring strict compliance with The Benesse Code of Corporate Conduct and The

Benesse Standard of Conduct, such as internal audits, employee awareness surveys, customer opinion surveys,

and evaluation at the in-house committee level

• Identification of risks and countermeasures and the development of Compliance Plans at the divisional level,

in order to monitor and reduce compliance risks

SOCIAL RESPONSIBILITIES


2. Corporate Citizenship – Contributing to Society

We manage a series of social programs that center on the educational and cultural businesses in which we operate.

Details are as follows:

(1) Conducting educational surveys and releasing results for public use

For more than 20 years, Benesse has studied and surveyed important public issues, particularly those involving

children and education, through two in-house research centers: the Advanced Education Research Center and

the Benesse Educational Research Center. Issues covered include school and home education, children’s aware-

ness studies and changes in the social environment that impact on children. And we are giving something back to

society by making the results of this research widely available to the public via publications and the Internet.

(2) Support for organizations studying issues related to children

We provide financial support to the Child Research Net, an organization engaged in research into child-related

issues on an interdisciplinary and international scale.

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

(3) Scientific, educational and cultural organizations

Benesse contributes to the development of science, culture, education, research and regional culture by support-

ing the Fukutake Science and Culture Foundation, an organization sponsoring geographical and historical re-

search through grants to researchers throughout Japan, and the Fukutake Education Foundation and Fukutake

Culture Foundation, which support educational and cultural activities in Okayama Prefecture.

(4) Benesse Island

Benesse operates a cultural center on Naoshima, a small island in Japan’s Inland Sea. It is based on the concept

of integrating lifestyles with modern art, architecture and nature. The site includes an art museum and hotel

called Benesse House, Naoshima International Camping Ground, and the Art House Project in Naoshima, which

fuses modern art with the traditional style of Naoshima’s old houses. As many as 40,000 people from all over the

world visit Benesse Island every year.

In addition to the above, we have freed up part of the office buildings at our head office in Okayama and our

Tokyo head office for public use, and we participate in a wide range of regional activities as Benesse strives to be

a good corporate citizen.

3. Contributing to Environmental Protection

In December 2002, Benesse established an Environmental Committee, a company-wide project team with the

mission of addressing environmental issues. The committee will develop basic corporate policy on the environ-

ment that will form the foundation of our environmental protection activities. Through the education and training

of employees, we will promote the development of programs and products that give due consideration to lowering

the impact of our operations on the environment.

Our current focus in this area is to provide services and products that consumers can use with peace of mind.

For instance, we do not use PVC in any of our products, ensuring no dioxins are released into the atmosphere if

products are finally disposed of through incineration. We also make sure our products do not contain any materials

that lead to adverse side-effects in humans. Because paper is the most common material we use in our products,

we have largely shifted to recycled paper. This now accounts for 96% of all the paper that we use.


63.0%

Overview

1. Private education

(1) ShinkenzemiLaunched in 1969, Shinkenzemi has grown

to become Japan’s largest home study cor-

respondence course. Shinkenzemi offers a

total of 17 high-quality courses, covering all

age groups from one-year old preschoolers

to students in the final year of high school.

Cumulative enrollment in all Shinkenzemi

courses in fiscal 2002 declined by 3.2 mil-

lion students to 43.3 million students.

While enrollment in Elementary School

Courses and Preschool Courses slipped

slightly, reflecting the falling birthrate,

demand for the courses in these categories

was nonetheless relatively strong.

Enrollment in Junior and Senior High

School Courses was more of a source of

concern and showed a considerable de-

cline. Although the effects of Japan’s fall-

ing birthrate were also felt, the primary

reason for the reduced numbers was the

reforms of the school curriculum, which

reduced text book content by around 30%

to give students more free time. These re-

forms caused mounting concern among

parents about whether public education is

becoming too relaxed. It also made them

more critical and demanding in their choice

of services from private education provid-

ers. Compounding these developments

was the ongoing diversification of private

education needs.

In April 2002, Benesse carried out a major

renewal of course materials for Shinkenzemi

courses. Unlike previous course materials,

which were designed primarily to supplement

public education, the new materials focus

on building the fundamental academic

abilities of students and on the essential

elements of each subject. They also seek

to promote interest in learning and

strengthen conceptual thinking. We also

strengthened career counseling support

services and increased the provision of

In fiscal 2002, ended March 31, 2003, the Children & Students Company and the

School & Teacher Support Company merged to form the Education Group. The

unification of these in-house companies consolidated the expertise they had built

up over the years in the education field, and is now enabling us to strengthen our

overall position in the education market. The principal activities of the Education

Group are focused on educational services that expand the boundaries of conven-

tional school education and provide comprehensive support for teachers. The main-

stay product in this segment is Shinkenzemi home study correspondence courses

for children, encompassing all age ranges from preschoolers to senior high school

students, and Shinken Simulated Exams provided to high schools. The environment

for educational services is experiencing fundamental changes as educational re-

forms are implemented, Japan’s economy becomes increasingly global, and society

moves into an IT-oriented age. Benesse is actively responding to these changes

by expanding the lineup of its products and services to meet diversifying needs.

BUSINESS ACTIVITIES Education Group

Realizing your dreams.

SEGMENT SALES TO TOTAL SALES


Preschool Courses Elementary School Courses Junior High School Courses Senior High School Courses

Preschool Courses Elementary School Courses Junior High School Courses Senior High School Courses

Preschool Courses 0

2,000

4,000

6,000

99 0300 01 02

4,200 4,200 4,1003,870 3,700

0

20,000

40,000

60,000

99 0300 01 02

46,92048,630 49,690

46,48043,310

ENROLLMENTS IN SHINKENZEMIOVER A FULL YEAR(Thousands of students)

SHINKENZEMI ENROLLMENTS AS OF APRIL(Thousands of students)

information to parents. Unfortunately, these

efforts did not stimulate demand, largely

because the quality of our new course ma-

terials was not sufficiently communicated

to the market. At Benesse, we are very

aware that we must focus more on meet-

ing the diversifying needs of local regions

and customers if we are to return to the

growth path. As of April 2003, there were

3.7 million students enrolled in Shinkenzemi

courses, a decline of 170,000 students, with

falls pronounced in Junior and Senior High

School Courses.

Measures for Fiscal 2002Comprehensive renewal of coursematerials

In the year under review, we renewed our

course materials, mainly for Junior and Senior

High School Courses, this time with focus

on providing materials suitable for indi-

vidual student needs. Building on our repu-

tation as a private education service

provider with special strengths in career

counseling and support for high school and

university entrance examinations. We also

enhanced products designed to prepare

students for examinations and introduced

courses suited for students with different

levels of academic capability, allowing them

to choose courses as they progress. These

changes have made Shinkenzemi courses

uniquely suited to students with high levels

of ability, our principal target.

Expanding businesses peripheralto Shinkenzemi

In fiscal 2002, we launched a new Preschool

Course variant for infants from six to 12

months—the Infant Preschool Course. This

new product quickly became popular and

membership has been increasing steadily,

reaching 50,000 by April 2003. We also

launched a range of new Preschool English

Courses that use videos, picture books and

specially designed electronic learning ma-

terials to teach English to children as they

play with Preschool Course characters.

Membership of this course is also growing

steadily.

In May 2003, we added another course

to the Preschool English series. We also

launched the Korasho English Course in

July 2003, which uses characters from

Shinkenzemi courses for elementary school

students. It has been specially designed for

lower elementary school children.

Stepping up marketing to parents

With interest in education rising among

parents, they are increasingly the main

decision-makers on what private educa-

tional tools to purchase. Winning the trust

of parents has never been more important.

Shinkenzemi conducts comprehensive par-

ent awareness studies to pinpoint their

wants and needs. With that in mind, we also

regularly publish booklets offering informa-

tion of interest to parents, such as advice

on home study, high school and university

entrance examination trends by region and

other useful news and information. This is

aimed at alleviating their current concerns

and answering frequently asked questions.

Transition to an organization structuredfor rapid decision-making

Steps have been taken to speed up the

decision-making process at Benesse.

The Education Group comprises four

companies and one division: the Senior High

School & Junior High School Education

Company, the Elementary School Education

Company, the Preschool Education Com-

pany, the Research & Educational Business

Development Division, and the School &

Teacher Support Company. This five-division

organization was created by breaking up

the former two-division organization com-

prised of the Children & Students Company

and the School & Teacher Support Com-

pany. Each of the five divisions is lead by a

Corporate Executive Officer, assuring rapid

decision-making and defined areas of op-

erational responsibility.

As of April Years ended March 31


Junior High School CoursesElementary School Courses

(2) Other businessesExpanding classroom instruction

In August 2002, we formed a capital and

operational alliance with Up Inc., a cram

school chain listed on the Tokyo Stock Ex-

change. Having acquired a 24.8% stake in

the company, Benesse is now its largest

shareholder. We are working closely with

the company to develop new content while

at the same time exploring opportunities

for cooperation in other areas.

In response to growing demand for

English language instruction for children,

we offer English classes for children up to

age 12. There were 169 schools in this net-

work as of the end of March 2003.

To support working mothers, we operate

a nursery school chain. As of the end of

March 2003, Benesse Childcare Center had

10 centers, mostly in the Tokyo metropolitan

area. We also manage public nursery

schools on contract for five municipalities,

including Mitaka City, Tokyo.

Developing new media educationmaterials

The Education Group offers BE-GO a com-

puter and Internet-based self study English

product. It includes two courses for stu-

dents aged 9 to 15 and one course for high

school students and adults. A Freestyle

Course in which students can communicate

directly with native speakers overseas

through the Internet is also available.

Sales of Pocket Challenge, an electronic

media product designed to enhance

memory skills, are rising steadily. Cumula-

tive sales of Pocket Challenge as of the end

of March 2003 were around 880,000 units.

2. Support services for schoolsand teachers

Comprehensive support services for

schools provide back up to teachers

through Shinken Simulated Exams and sup-

port for teachers giving career and aca-

demic counseling to students. As of the end

of March 2003, we counted 3,983 of the

5,479 high schools in Japan as our clients,

approximately 73% of the market. Using our

expertise in school support services, we will

actively respond to the diversifying needs

of school teachers arising from the introduc-

tion of the New Course of Study. These new

curriculum guidelines give teachers more

discretion in the classroom environment.

Support services for high schoolsexpanding favorably

During fiscal 2002, Benesse was able to

secure higher unit sales of Shinken Simulated

Exams, Study Support, a learning assessment

study aid, and other school support prod-

ucts and services. In fiscal 2002, 5.5 million

students took these tests, making them the

market leader in Japan. Furthermore, sales

rose considerably for Course Map, which tests

aptitude and basic learning ability. The tests

are used for career and academic counseling.

Steady growth in the Elementary andJunior High School markets

Since the introduction of the New Course

of Study, schools have more classes with

personal computers. In response, Benesse

introduced a new product, Ta-Net Land, in

alliance with Fujitsu Limited. With this prod-

uct we not only provide content, but also

send IT support staff to schools to help

teachers tap into the benefits of information

technology. In fiscal 2002, the number of

schools using our services increased 2.6

times from the previous year to 907.

Strategy

Expanding the scope of Shinkenzemi

In our mainline Shinkenzemi home study

correspondence courses, we plan to add

new products and services to accurately

respond to changing customer needs.

Junior and Senior High School Courses

will also be strengthened to establish

Shinkenzemi as the leading brand in academic

and career counseling.

Shinken Simulated Exams


PERCENTAGE OF CLIENT HIGHSCHOOLS TO TOTAL HIGHSCHOOLS IN JAPAN

72.7%3,983 schools

99 0300 01 020

2,000

4,000

6,000

4,8705,180 5,180 5,370

5,500

NUMBER OF STUDENTS TAKINGSHINKEN SIMULATED EXAMSAND OTHER EXAMS(Thousands)

Concrete measures include expanding

the range of information we provide on

educational issues and strengthening prod-

ucts and services for assessing student ap-

titude and scholastic ability. We will

continue to renew Shinkenzemi home study

correspondence course content in response

to diversifying needs in the private educa-

tion sector, including the on-demand supply

of course materials.

In Preschool Courses, and Elementary

School Courses, we have already branched

out into English language courses. We also

plan to expand into other peripheral product

and service areas.

Developing new education services

In order to meet the needs of customers

not satisfied through correspondence

course products, we are expanding our

menu of education services based on a wide

range of other education media, including

cram schools and e-learning products.

Strengthening marketing capabilities

Aware of the importance of aggressive mar-

keting, we are developing a range of market-

ing tools that integrate our direct mail

approach with efficient multimedia marketing

tools. We will also use our nine branch offices

in Japan to promote marketing activities.

Expanding education-relatedinformation services

Extending the range of information services

such as national entrance examination

trends, local entrance examination data, and

educational institution-specific information,

will help us strengthen the competitive

position of our products and services.

The full potential of our in-house re-

sources, represented by the Advanced

Education Research Center and the Benesse

Educational Research Center, will be di-

rected toward enhancing the quality of in-

formation we provide. We will also make full

use of external resources, such as the strong

relationships our branch offices have built

with educational institutions over the years.

Strengthening support services for schools

In support services for schools, Benesse’s

focus is on bolstering support services for

senior high schools. This goes hand in hand

with ongoing efforts to expand our presence

in support services for elementary and junior

high schools and at the university level.

We already count around 73% of all senior

high schools in Japan among our clients. We

are now looking to offer optimized combi-

nations of services chosen from a full menu

of support services for education and career

counseling. This approach, we believe, will

enhance our presence in school support

services. In the elementary and junior high

school markets, we plan to build closer re-

lationships with schools by leveraging our

product, Ta-Net Land, while expanding the

range of our multimedia-based study tools.

We view higher education as a potentially

lucrative market. This belief is based on the

assumption that competition for university

entry will ease as the birthrate declines.

Universities will have to be better prepared

to provide career counseling and will only

be able to attract students by becoming

more attractive places to study themselves.

This is an opportunity for us to leverage the

career counseling expertise built up over the

years at the high-school level. Combining

these strengths with the marketing know-

how of Shinken AD Co., Ltd., an affiliate

specializing in recruiting students for uni-

versities, junior colleges and vocational

schools, will help us to enhance our support

services for universities.

Consolidated SubsidiariesPlandit Co., Ltd.

Benesse Music Publishing Co.

Okayama Fukutake Publishing Co., Ltd.

Learn-S Co., Ltd.

Benesse Base-Com, Inc.

Years ended March 31Year ended March 31, 2003


A Look at Education Trends in Japan

Although Japan’s birth rate is falling, mir-

roring the same trend in Western industri-

alized nations, this will not prevent

qualitative changes and quantitative expan-

sion in the market for children’s educational

services. It will even promote diversification.

Benesse, the largest private education ser-

vice company in Japan, sees these market

trends as promising business opportunities.

This belief is based on the following factors:

(1) The role of public education iscontracting

A system providing education from elemen-

tary school to senior high school, under a

single unified curriculum, was introduced

into Japan in the second half of the 19th

century. This system made a significant con-

tribution to Japan’s economic development

and to the growth of democracy in the

country. Private education services, from

tutorial schools and correspondence

courses to cram schools and private teach-

ers, developed in tandem with the spread

of the public education system. Private edu-

cation services have subsequently grown

into a major industry in Japan.

Japan’s education system has undergone

three major reform programs. The first one

came in 1872, with the introduction of a mod-

ern education system. The second round of

reforms came in 1947, after the Second World

War, providing the first shake up of the edu-

cation system under a democratic govern-

ment. The third and most recent round of

reforms was initiated in 2002.

The reforms started in 2002 are character-

ized by dramatic curriculum revisions. First,

the school week was shortened to five days,

and then textbook content was reduced by

around 30%. Benesse believes that these

changes will ultimately result in a smaller role

for the public system in the total education

market, thereby raising the importance of

private education, home education and edu-

cation at the community level.

The change characterizes a growing trend

in Japan where public services are being

increasingly transferred to the private sec-

tor wherever possible. This shift, which has

become more pronounced since the 1990s,

is aimed at enhancing efficiency and reju-

venating the economy by harnessing mar-

ket forces. The government is deregulating

heavily controlled sectors, such as transpor-

tation, telecommunications, distribution

and welfare, as far as possible—and edu-

cation is no exception.

(2) Parents are increasingly interested intheir children’s educational abilities anddiscipline

The education reforms, particularly the

reform of the curriculum initiated in 2002,

provoked widespread public debate. Parents

were concerned that closing schools on

Saturdays and cutting textbook content by

around 30% would lead to an overall decline

in Japanese educational ability—the main

pillar that has supported the nation’s

economy and culture. Parents are increas-

ingly worried that they will have to supple-

ment school education with private tuition.

(See Figure 1.) Concerns about a possible

decline in educational standards were taken

up widely by the mass media, including

television and newspapers.

In response to these concerns, the Minis-

try of Education, Culture, Sports, Science

and Technology partially changed its policy

and gave the go-ahead for a progressive

roll out of lessons in schools that went

beyond the curriculum. However, Japan’s

public schools, at least for now, are ill-

prepared to take on such a challenge. This

is causing parents even more concern about

the academic abilities of their children. It is

this kind of sentiment that is driving demand

FIGURE 2:ANNUAL SPENDING ON PRIVATE EDUCATION(Yen)

FIGURE 1:MAJOR CONCERNS RELATED TOCHILDREN’S EDUCATION

0 10 20 30 40 50 60

42.7

48.0

46.9

52.7

Feel concerned about the futureof my child unless he/she receives

supplementary education or attendsa cram school

Taking steps to assuremy child is not at a disadvantage

in education and in admission to higher schools

20001996 1998

360,000

320,000

280,000

240,000

200,000

1998 2002

% = Very concerned + Somewhat concerned

Survey range: 5,000 parents of children between 9 and 15Source: Benesse Advanced Education Research Center Survey (2003)

Private education cost includes fees for supplementary education (cram schools, privateteachers, correspondence courses, etc.) and extra-curricular activities (fees for culturalactivities, sports etc.)Source: Survey of Child Learning, Ministry of Education, Culture, Sports, Science and

Technology (2002)

Junior high school (third year) Junior high school (second year) Junior high school (first year)


for private educational services.

At present, as many as 70% of all junior

high school students receive some form of

private education. While the number of

school age children in Japan is falling,

spending on private education, particularly

in the year before entrance examinations,

is increasing. (Please refer to Figure 2.) This

is strong evidence that the aggregate mar-

ket for education is not shrinking.

What’s more, parents no longer look to

private education services simply to raise the

academic levels of their children. As shown

in Figure 3, parents are sending their chil-

dren to learn music, the arts and other cul-

tural activities, even sports. Private education

firms are responding positively to these

diversifying needs. A national character with

a bent for education may explain the strong

demand for private education services in

Japan, while the shift to nuclear families,

which has generally weakened traditional

approaches to discipline and child rearing,

may also be driving growth in this sector.

(3) Demand for Benesse’s broad rangeof education services is increasing

We expect the above kinds of market fac-

tors to drive greater demand for private

educational services, from kindergarten

right through to the university level.

With its Shinkenzemi home study corre-

spondence courses, Benesse has devel-

oped a range of courses and study materials

for all age groups, from infants to high

school students. In many countries, corre-

spondence courses are seen as a means of

educating students who have no access to

regular schools. In Japan, however, corre-

spondence courses are considered a means

of complementing school education to

make it accessible to all, anytime, anywhere.

There is a great deal of interest in the pri-

vate educational services offered by

Benesse, even at the preschool level. This is

evidenced by the fact that around 23% of

all preschool children (aged one to six) are

enrolled in Shinkenzemi Preschool Courses.

By capturing a large market share at this level

we can expect children to stay with us as

they progress through elementary, junior

and senior high schools. What’s more, stu-

dents must pass difficult entrance examina-

tions to gain admission to prestigious junior

and senior high schools and universities.

This makes it all the more important that

they are able to study at home, efficiently

and at the times of their choice. Moreover,

information on examinations for entrance to

the schools students are interested in will

also take on added importance.

In another promising trend, demand for

English language education is also growing,

as Japan’s economy becomes increasingly

global. The Ministry of Education, Culture,

Sports, Science and Technology’s 2003

announcement of an action program to pro-

mote English language proficiency suggests

that the government is committed to raising

the English language ability of the Japanese.

These government moves will work to the

benefit of Berlitz and Benesse’s English lan-

guage services. Benesse is now going beyond

the traditional boundaries of correspon-

dence courses: introducing new educational

services independent of public education,

and providing support for extra-curricular

activities. We are also expanding the range

of services we provide, offering products

and services to people in all age brackets

and of all lifestyles.

FIGURE 3:PRIVATE EDUCATION ANDEXTRA-CURRICULAR ACTIVITIES(Respondents gave multiple answers)

21.9 16.9

15.9 15.4

13.4 12.6

10.0 9.8

9.3 6.7

4.2 3.1 2.9 2.8

1.9

Correspondence coursesLessons to learn a musical instrument

Cram schools for entrance exam preparationSwimming schools

Language schools and private lessonsLocal sports teams

Supplementary schoolsCalligraphy schools

Sports clubs, gymnastic schoolsSchools mainly using printed handouts

Music schoolsPrivate tutors

Soroban (abacus) studiesBallet, rhythmic dance schools

Painting and formative arts

0 5 10 15 20 25

Survey range: 6,000 parents of children between 7 and 15Source: Benesse Advanced Education Research Center Survey (2003)

(%)


BUSINESS ACTIVITIES Women & Family Company


5.7%

Overview

The W&F Company, the former publications

division, has been restructuring its business

since 1998. This has resulted in a phasing

out of stand-alone publications and a move

toward a more sustainable business struc-

ture that provides integrated information,

merchandise and services. Moves taken so

far have strengthened the company’s pres-

ence in areas where we can interact with

customers more closely, including direct-

sale membership magazines and Internet

sites. This has also allowed us to expand

the range of products and services we offer

to homemakers. In fiscal 2002 we launched

DOG’S HEART, an information magazine

designed to enrich the lives of people own-

ing pet dogs.

Main Products and Services

Magazines for mothers andmothers-to-be

The W&F Company publishes a series of

lifestyle information magazines for women

mainly in their 20s and 30s—Tamago Club,

Hiyoko Club and Tamahiyo Kokko Club—that

provide essential information on all stages

of pregnancy, childbirth and childcare. As

of March 2003, Tamago Club had a circula-

tion of 260,000, Hiyoko Club 360,000 and

Tamahiyo Kokko Club 200,000. These rep-

resent the highest circulation figures of all

magazines focusing on pregnancy, child-

birth and childcare in Japan. And all three

have won loyal readerships by inviting and

encouraging readers to take part in produc-

tion of the magazines themselves.

Businesses peripheral to magazine pub-

lications, such as mail-order services for

childcare, are also growing well.

Lifestyle magazine

The lifestyle information magazine THANK

YOU! had achieved a circulation of 480,000

as of March 2003. Meanwhile, mooks* on

cooking and household management have

also proved to be popular.

Family diet and health magazines

Benesse publishes the magazine bon merci!,

which addresses family diet and health issues.

bon merci! little targets families with infants,

while bon merci! school is aimed at fami-

lies raising elementary school students. All

these titles are published on a membership

basis, and membership is growing favor-

ably, reaching 220,000 as of March 2003.

The Women & Family (W&F) Company has built a business model that focuses on

supporting women in the areas of family lifestyles and child rearing. It publishes

information magazines and provides mail-order services, a portal site to exchange

information, and various lifestyle support services.

Broadening your relationships.

*A book-magazine hybrid


W&F Company Magazines and Others(Circulation: Thousands)

Average Monthly Circulations Years ended March 31 2003 2002 2001

Tamago Club 260 260 260Hiyoko Club 360 320 320Tamahiyo Kokko Club 200 200 200THANK YOU! 480 430 430Subscriptions As of March (Subscribers: Thousands)

bon merci! 220 190 85Benesse Women’s Park 261 172 61DOG’S HEART 92 – –

DOG’S HEARTTamago Club, Hiyoko Club, Tamahiyo Kokko Club bon merci!

Pet magazine

DOG’S HEART, a magazine for people with

dogs that provides information on their

pets, including grooming, pet training and

healthcare, was launched in fiscal 2002. A

newspaper providing information on pre-

sents also comes with it. We also operate

an Internet site providing interesting pet-

related information and also market mail-

order pet merchandise. This new business got

off to a good start, attracting a membership

of 92,000 as of March 2003.

Home food-delivery service

A food delivery service for evening meals,

Benesse Food Delivery Service with Kids’

Course, provides food for families with tod-

dlers. The business is operated by Benesse

en-Famille Inc., a joint venture with a major

food-delivery-service company, Taihei. The

service is available throughout Japan, ex-

cept some southern regions.

Benesse Women’s Park

Benesse Women’s Park is a free, members-

only Internet portal site for women. The site

allows members to share information on

issues of interest, such as child rearing, the

family, and local news and information. It also

provides a notice board, allowing members

to find e-mail friends, and provides informa-

tion on exchanging recycled items. It has

quickly become a site women use to promote

active information exchange. Membership

is growing rapidly and reached 261,000 at

the end of March 2003. The number of

people accessing the site is higher than any

other site in this category in Japan.*

*Based on data published by Nielsen//NetRatingsas of April 2003

Strategy

Focusing on capital efficiency totransform the earnings structure

Initiatives include:

(1) Reviewing the business portfolio

(2) Focusing on marketing

(3) Expanding the profitability of existing

operations

Continuing to generate company-widesynergies

Given their influence in family affairs, the

W&F Company will work to provide home-

makers with more information on a wide

range of family issues to expand the cus-

tomer base and sales per customer. This in

turn will help raise the corporate value of

the entire business.

Consolidated subsidiariesBenesse en-Famille Inc.

Benesse Cross World, Inc.


BUSINESS ACTIVITIES Senior Company


4.7%Enhancing your comfort.

Overview

1. Nursing care homes

Steady expansion of the home network

As of the end of March 2003, the Senior

Company operated 61 nursing care homes:

30 Benesse Home Clara and Madoka (a new

brand) operated by Benesse Care and 31

Granny and Granda homes operated by

Shinkoukai. Benesse Care added 8 homes

and Shinkoukai 6 during the year.

Of these 61 homes, 44 are located in the

Tokyo metropolitan area. Eight are in the

Osaka region and four in the Nagoya region.

These are areas where demand for nursing

care homes tends to be high.

By utilizing leasehold properties such as

remodeled company housing and proper-

ties built by landowners, the Senior Com-

pany plans to keep capital investment for

expansion to a minimum. Benesse’s nurs-

ing care homes respect the individuality and

privacy of residents by offering them a

homelike atmosphere. This is one reason

why occupancy rates are maintained at a

high level.

Given the investment burden of this busi-

ness, new facilities tend to take some time

before getting onto a stable footing. Nev-

ertheless, the Senior Company as a whole

moved into the black in fiscal 2002.

Expanding the customer base byopening lower-priced homes

Benesse Care opened the first Benesse

Home Madoka in January 2003 in Chiba

prefecture. By modifying the cost structure,

the company has been able to lower resi-

dential costs compared to that for Benesse

Home Clara. Consequently, the monthly

service charge is affordable to individuals

living on pensions.

Using the PFI model to drive growth

Benesse Care won the contract for the first

nursing care home funded by a private

finance initiative (PFI) model in Suginami

Ward, Tokyo. In this model, private compa-

nies build nursing care homes, which are

then acquired by the government and leased

back to the builder. The PFI model is

expected to enable private firms to offer

nursing care home services at more afford-

able rates.

Centered on Benesse Care Corporation and Shinkoukai Co., Ltd., the Senior Company

operates nursing care homes for the elderly. It also provides training courses and

home-help services, and operates daycare centers.

In fiscal 2002, Benesse established Benesse Senior Style Corp. to manage

nursing care homes, and Benesse MCM Corp. to carry out the back-office functions

of the Senior Company. These moves strengthened the operational framework

of this business segment.


Number of Homes in Each Region of Japan

As of March 31, 2003 Benesse Home Clara Benesse Home Madoka Granny/Granda Total

Tokyo Region 14 1 29 44Nagoya Region 4 – – 4Osaka Region 6 – 2 8Others 5 – – 5Total 29 1 31 61

Revision of nursing care fees

Effective April 1, 2003, the government

revised nursing care fees under the Long-

term Care Insurance System. However, this

is not expected to have a significant impact

on Benesse’s business, as fees for care ser-

vices provided in for-profit private homes

for the elderly were not revised.

2. Home-help services anddaycare services

Benesse Care offers home-help services

and daycare services through its Benesse

Home Clara nursing homes. By offering

nursing care home services and home-help

services from the same facility, Benesse

Care can better respond to the needs of

families with elderly members.

3. Training coursesThe Senior Company works to nurture a

broad base of skilled home-helpers to work

in nursing-related fields through its Home-

Helper Level-Two Training Course offered

at nine locations throughout Japan. In fiscal

2002, the Senior Company streamlined the

number of training centers to improve effi-

ciency while diversifying the types of train-

ing programs it offers.

Strategy

Accelerating the opening of newnursing care homes based on adistinctive brand strategy

In March 2003, Benesse established Benesse

Senior Style Corp. to create a new nursing

care home brand that will offer luxury homes

in areas where incomes are high and demand

for these services are strong. It will be the

Senior Company’s fifth nursing care home

brand, after Clara, Madoka, Granny and

Granda. By developing brands matched to

local needs, Benesse plans to speed up the

expansion of its nursing care home network

and its operational base.

Strengthening the operational base tosupport expansion

Benesse MCM Corp. was established to

provide the back-office services required for

the operation of nursing care homes, thus

allowing the Senior Company to channel more

resources into expanding its nursing care

home network. Benesse MCM specializes

in back-office functions, such as account-

ing and human resources, thus enhancing

efficiency of operations. On a different

note, we are also exploring the possibility

of tie-ups with medical institutions to pro-

vide medical services in our nursing care

homes.

Consolidated subsidiariesBenesse Care Corporation

Shinkoukai Co., Ltd

Benesse MCM Corp.

Benesse Senior Style Corp.

Benesse Home Clara HigashikoganeiGranda Kamakurayama


21.3%


Overview

1. Berlitz International, Inc.

Challenges to overcome in theglobal market

Affected by the global economic downturn,

and by the aftermath of the 9/11 terrorist

attacks in the U. S., the number of language

lessons at Berlitz declined in all areas except

Japan and other Asian countries. As a result

the total number of lessons in 2002 fell by

457,000 to 6.1 million.

Strong business expansion in Japan

The Benesse Group has defined Japan as

its most important market for language ser-

vices, given the robust growth in demand

in the country. This was evidenced by the

increase in the number of lessons, growing

by 20,000 to 1.3 million in 2002, at a time

when most other markets reported declines.

Berlitz became a wholly owned subsid-

iary in July 2001 when Benesse acquired

the shares held by minority shareholders.

In January 2002, it was placed under the

control of the Language Company. This move

has led to closer cooperation, helping Berlitz

to steadily expand operations in Japan.

Berlitz added 10 directly operated language

centers in Japan in 2002, expanding the

network to 62 centers.

Divesture of the translation business

Berlitz sold off its translation services opera-

tion in September 2002 to focus its

resources on language instruction services.

Given the low margins of translation services,

the sale of this operation is expected to

improve the company’s profitability.

In fall of 2002, Berlitz introduced Berlitz

English, a new curriculum that has bolstered

the competitive position of its language

service products.

2. Simul International, Inc.Simul is Benesse’s second major subsidiary in

language services. With a focus on the inter-

pretation business, Simul engages in the train-

ing of professional interpreters and translators

at its Simul Academy, and provides language

instruction to corporations and associations.

This segment comprises language instruction, translation, and interpretation ser-

vices mainly provided through consolidated subsidiaries Berlitz International, Inc.

and Simul International, Inc.

Berlitz is the largest language education company in the world, operating

494 language centers in 67 countries as of December 2002. Under the ELS Lan-

guage Centers brand, Berlitz also offers services for students wishing to study

abroad. Since its foundation in 1965, Simul has been promoting international

communications through high-quality translation and interpretation services for

the public and private sectors.

Developing your potential.

BUSINESS ACTIVITIES Language Company


NUMBER OF BERLITZ LESSONS(Thousands of lessons)

BERLITZ LANGUAGE CENTERSAND FRANCHISES

Europe Latin America Asia North America

98 0299 00 010

200

400

600

451 467 476 483 494

98 0299 00 010

2,000

4,000

6,000

8,000

5,826 5,9926,438 6,564

6,106

Europe Latin America Asia North America

Left:Berlitz (Shinagawa School)

Right:Berlitz (Hakata School)

As of December 31 Years ended December 31

Strategy

Strengthening corporate governance

Benesse will work to strengthen corporate

governance at Berlitz, and at the same time

develop a language business strategy for

the entire Group centered on the Language

Company. Brand management focusing on

the Berlitz name will also be a priority area.

Expanding language services businessin Japan

Berlitz will continue to focus on expanding

its language services in Japan, adding 59

new Berlitz Language Centers to its exist-

ing 62 centers over the next three years to

create a network of 121 centers by the end

of December 2005. Benesse will back up this

expansion by providing financial and human

resources. Currently, the majority of cus-

tomers are individuals and corporate clients

who wish to learn foreign languages for

business purposes. Plans call for diversify-

ing the customer base to include children

and other categories.

The GTEC English assessment test

More than four million individuals take

English assessment tests in Japan every

year. However, the present assessment

tests are centered on measuring passive

skills such as listening and reading. This

shortcoming has increased demand for

assessment tests that assess active skills

such as speaking and writing. In response,

the Language Company is introducing the

GTEC (Global Test of English Communica-

tion) designed to measure active English skills.

Starting fiscal 2003, the GTEC will be offered

at Berlitz Language Centers, corporations and

universities. In the coming years, the test will

be offered overseas. It should also eventu-

ally lead to the development of English lan-

guage assessment tests for junior and senior

high school students.

Consolidated subsidiariesBerlitz International, Inc.

Simul International, Inc.

Okayama Language Center

Simul Business Communications, Inc.


5.3%


BUSINESS ACTIVITIES Others

Telemarketing Japan, Inc.Telemarketing Japan was established in

1992 when Shinkenzemi’s telephone cus-

tomer service department was made an

independent company. Sales in fiscal 2002

increased 10.4% to ¥16,195 million.

Backed by its state-of-the-art systems and

expertise in the telemarketing sector, the

company has built a multi-contact center

that can be accessed through a variety of

tools. The range of these tools is expand-

ing in tandem with the spread of the Inter-

net and the resulting proliferation of

communication channels between busi-

nesses and their customers. Spurred by the

growth of telemarketing, sales outside the

Benesse Group have grown rapidly and now

represent 71.4% of total sales. Major cli-

ents include insurance companies, securi-

ties firms, and communications companies.

Synform Co., Ltd.The primary business of Synform is the

development and operation of computer

systems. Synform plays a key role in sup-

porting the operations of Benesse by

designing and managing customer data-

bases for Shinkenzemi. This subsidiary is

now leveraging its accumulated expertise

and technology to offer information pro-

cessing outsourcing services to companies

outside the Benesse Group.

Consolidated subsidiariesTelemarketing Japan, Inc.

Synform Co., Ltd.

Carry Com Co., Ltd.

Persons Inc.

(and 8 other subsidiaries)

Major consolidated subsidiaries in this segment include Telemarketing Japan,

Inc., a telemarketing services firm, and Synform Co., Ltd., an information pro-

cessing services firm. Originally spun off from the parent company, they operate

independently and specialize in services that support business expansion at the

parent company. Including these two subsidiaries, there were a total of 12

subsidiaries in this segment as of March 31, 2003.

ANNUAL REPORT 2003 31

FINANCIAL SECTION

CONTENTS

Six-Year Summary of Consolidated Financial Statements 32

Management’s Discussion and Analysis 33

Consolidated Balance Sheets 42

Consolidated Statements of Income 44

Consolidated Statements of Shareholders’ Equity 45

Consolidated Statements of Cash Flows 46

Notes to Consolidated Financial Statements 47

Independent Auditors’ Report 67

ANNUAL REPORT 200332

SIX-YEAR SUMMARY OF CONSOLIDATED FINANCIAL STATEMENTS

Millions of Yen

Years ended March 31 2003 2002 2001 2000 1999 1998

FOR THE YEAR:Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥258,289 ¥267,250 ¥262,948 ¥260,964 ¥259,852 ¥241,571Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,223 128,382 123,766 120,687 120,698 111,039Selling, General and Administrative Expenses . 108,749 114,279 108,904 107,323 108,173 101,598Operating Income . . . . . . . . . . . . . . . . . . . . . . . . 16,317 24,589 30,278 32,954 30,981 28,934Income before Income Taxes, Minority Interestsand Impairment Loss on Goodwill . . . . . . . . . . 14,446 24,195 29,985 29,746 31,501 26,994

Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,553 11,693 13,940 13,783 15,483 14,778Impairment Loss on Goodwill . . . . . . . . . . . . . . – 13,195 – – – –Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,973 327 16,498 16,413 16,036 12,250

Capital Expenditures . . . . . . . . . . . . . . . . . . . . . ¥ 8,046 ¥ 10,934 ¥ 11,275 ¥ 11,105 ¥ 5,416 ¥ 7,138Depreciation and Amortization . . . . . . . . . . . . . 8,572 10,700 9,609 9,199 8,841 7,897

Yen

PER SHARE OF COMMON STOCK:Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 65 ¥ 2 ¥ 153 ¥ 309 ¥ 302 ¥ 226

Retroactively Adjusted . . . . . . . . . . . . . . . . . . 65 2 153 154 151 113Cash Dividends Applicable to the Year . . . . . . 29 29 29 58 48 43

Retroactively Adjusted . . . . . . . . . . . . . . . . . . 29 29 29 29 24 22

Millions of Yen

AT YEAR-END:Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥275,516 ¥291,393 ¥309,261 ¥297,828 ¥280,620 ¥277,298Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . 169,428 171,826 170,011 160,302 146,933 131,794

Yen

Shareholders’ Equityper Share of Common Stock . . . . . . . . . . . . . . ¥ 1,612 ¥ 1,616 ¥ 1,599 ¥ 3,015 ¥ 2,763 ¥ 2,478Retroactively Adjusted . . . . . . . . . . . . . . . . . . 1,612 1,616 1,599 1,507 1,382 1,239

Number of Shares of Common Stock Issued(in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,353 106,353 106,353 53,177 53,177 53,177

Notes:1. Benesse Corporation and its domestic consolidated subsidiaries adopted tax allocation accounting, beginning with the fiscal year ended March 31,1999. Berlitz International, Inc. has applied accounting for allocation of income taxes.

2. The computation of Net Income per Share of Common Stock is based on the weighted average number of shares of common stockoutstanding during each year.

3. The computation of the weighted average number of shares of common stock outstanding during each year and the number of shares outstand-ing at fiscal year-end is retroactively adjusted for the effect of a 1:1.2 stock split made on May 20, 1997, and a 1:2 stock split made on May 19, 2000.

4. Certain reclassifications of previously recorded amounts have been made to conform with the 2003 presentation, in accordance with newguidelines for consolidated financial statements.

5. Net Income per Share of Common Stook for the years ended March 31, 2003, 2002, and 2001 is computed in accordance with the new accountingstandard for earnings per share of common stock issued by the Accounting Standards Board of Japan. However, Net Income per Share of Com-mon Stock for the years ended March 31, 2000, 1999, and 1998 has not been retroactively adjusted.

Benesse Corporation and Consolidated Subsidiaries


MANAGEMENT’S DISCUSSION AND ANALYSIS

OPERATING RESULTSDramatic changes are sweeping Benesse’s business environment and affecting our core education business.These include major changes in Japan’s public education system following the introduction of new curriculumguidelines in April 2002. They also come at a time when customer needs are diversifying. In our nursing care-related business, there are hopes of a large increase in demand as the Long-term Care Insurance System becomesmore established after its introduction in 2000, and the number of senior citizens continues to grow. However,competition is intensifying as a number of private companies enter the field to tap this growing demand. Thelanguage business, meanwhile, faces a challenging environment as a result of the sluggish global economy.

In this difficult operating environment, consolidated net sales declined ¥8,961 million, or 3.4%, from the previousfiscal year to ¥258,289 million. This decline was mainly due to a decrease in enrollment in the mainstay Shinkenzemihome study correspondence courses and the divesture in September 2002 of Berlitz GlobalNet, the translationservices business of Berlitz International, Inc. Operating income declined ¥8,272 million, or 33.6%, to ¥16,317 mil-lion, primarily due to reduced sales of Shinkenzemi and an increase in the cost of sales ratio, the result of a renewalof course materials.

Net SalesConsolidated net sales in fiscal 2002, ended March 31, 2003, declined ¥8,961 million, or 3.4%, from the previousfiscal year to ¥258,289 million. This was the first decline in net sales since Benesse became a publicly listed companyin 1995.

Net Sales by Segment

Millions of Yen


Net Sales . . . . . . . . . . . . . . . . . . . . ¥258,289 ¥267,250 ¥262,948 ¥260,964 ¥259,852 ¥241,571Education Group . . . . . . . . . . . . 162,835 174,729 184,154 188,320 182,675 N/AW&F Company . . . . . . . . . . . . . 14,757 10,946 9,182 9,218 9,872 N/ASenior Company . . . . . . . . . . . . 12,149 7,145 3,861 1,331 826 N/ALanguage Company . . . . . . . . . 54,939 62,247 55,258 53,544 59,294 N/AOthers . . . . . . . . . . . . . . . . . . . . 13,609 12,183 10,493 8,551 7,185 N/A

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, werecombined into a single business segment, the Education Group. Data for the years ended March 31, 2002 and 2001,have been recalculated based on this new business classification, while data for the years ended March 31, 2000 and1999, are the unaudited simple sum of figure for the C&S Company and the S&TS Company. Data for the year endedMarch 31, 1998 has not been recalculated.

3. The Language Instruction and Translation segment was renamed the Language Company from the year endedMarch 31, 2003.

Benesse Corporation and Consolidated Subsidiaries

Net Sales(Millions of Yen)

Operating Income(Millions of Yen)

99 0300 01 02

30,98132,954

30,278

24,589

16,317

0

10,000

20,000

30,000

40,000

0

100,000

200,000

300,000

99 0300 01 02

259,852 260,964 262,948 267,250258,289


Cost of Sales and SG&AThe cost of sales rose 3.8% to ¥133,223 million. This pushed up the cost of sales ratio from 48.0% to 51.6%. Twofactors were reflected in this increase: higher production costs in the Education Group, the result of a completerenewal of Shinkenzemi course materials, and growth in the nursing care-related business, where the cost of sales iscomparatively higher than in our other businesses.

Selling, general and administrative (SG&A) expenses declined 4.8% from the previous fiscal year to ¥108,749million, lowering the SG&A ratio from 42.8% to 42.1%. Although sales promotion expenses were largely the same asfiscal 2001, particularly direct mail and advertising expenses that represent the main part of SG&A expenses, Be-nesse reduced communications costs and other expenses. This contributed to the lower SG&A ratio.

Cost of Sales Ratio and SG&A Ratio


Cost of Sales Ratio . . . . . . . . . . . . 51.6% 48.0% 47.1% 46.3% 46.4% 46.0%SG&A Ratio . . . . . . . . . . . . . . . . . . 42.1 42.8 41.4 41.1 41.7 42.0

Operating IncomeOperating income declined ¥8,272 million, or 33.6%, to ¥16,317 million. As a result, the operating income margin fellfrom 9.2% in fiscal 2001 to 6.3% in fiscal 2002.

Operating Income (Loss) by Segment

Millions of Yen


Operating Income (Loss) . . . . . . . ¥16,317 ¥24,589 ¥30,278 ¥32,954 ¥30,981 ¥28,934Education Group . . . . . . . . . . . . 17,649 27,021 32,789 34,016 31,659 N/AW&F Company . . . . . . . . . . . . . (2,811) (2,016) (1,192) (637) (2,152) N/ASenior Company . . . . . . . . . . . . 463 (1,064) (2,149) (1,338) (942) N/ALanguage Company . . . . . . . . . 1,016 584 1,602 1,218 2,936 N/AOthers . . . . . . . . . . . . . . . . . . . . 1,851 1,545 763 1,153 900 N/A

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, werecombined into a single business segment, the Education Group. Data for the years ended March 31, 2002 and 2001,have been recalculated based on this new business classification, while data for the years ended March 31, 2000 and1999, are the unaudited simple sum of figure for the C&S Company and the S&TS Company. Data for the year endedMarch 31, 1998, has not been recalculated.

3. The Language Instruction and Translation segment was renamed the Language Company from the year endedMarch 31, 2003.

43

0

46

49

52

55

58

99 0300 01 02

46.4 46.347.1

48.0

51.6

39

0

40

41

42

43

44

99 0300 01 02

41.7

41.141.4

42.8

42.1

Cost of Sales Ratio(%)

SG&A Ratio(%)


Segment Information

Education GroupNet sales in this segment declined 6.8% to ¥162,835 million and operating income fell 34.7% to ¥17,649 million.ShinkenzemiThe Education Group experienced falling enrollment mainly in Senior and Junior High School Courses in its mainstayShinkenzemi home study correspondence courses. This forced down aggregate Shinkenzemi-related sales by 9.2%,to ¥134,078 million. The Education Group also has to contend with the falling birthrate in Japan, which affected salesof Preschool Courses. However, the Infant Preschool Course, for babies aged from six months to one year, has grownin popularity since its fiscal 2002 launch. Preschool English Courses, launched in the same period, also increasedenrollment. As a result, net sales in the Preschool Course business recorded an uptick in growth, rising 0.9%.School & Teacher Support CompanyThe School & Teacher Support (S&TS) Company, providing a range of support services for schools, expanded itsfocus during the year under review. This led to higher sales of Shinken Simulated Exams and Study Support, alearning-assessment study aid. Sales also climbed for Course Map, a test of aptitudes and basic academic abilities.The S&TS Company also joined hands with travel agents to foster a new service area that combines the benefits ofstudy trips and study courses in a single package. The service got off to a good start. As a result of the above, netsales in the S&TS Company increased 5.6% to ¥17,792 millionOtherStudent numbers grew in BE-GO, the computer and Internet-based self-study English course for children. This wasdue to strong sales from existing courses, the launch of a wider range of courses for children and an increase in theBE-GO lineup with new courses for adults. Following on from fiscal 2001, the nursery school management outsourc-ing service for public nursery schools continues to expand steadily in Tokyo and adjacent prefectures.

Reduced operating income in the Education Group segment was primarily due to two reasons: lower enrollmentin Shinkenzemi courses and higher production costs. These costs were from the renewal of course materials toreflect new curriculum guidelines introduced in fiscal 2002.

Breakdown of Net Sales for the Education Group

Millions of YenPercentage

Years ended March 31 2003 2002 Change

Shinkenzemi:Senior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 22,266 ¥ 27,636 (19.4)%Junior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,537 40,017 (13.7)Upper Elementary School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,045 29,324 (7.8)Lower Elementary School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,677 23,360 (2.9)Preschool Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,553 27,295 0.9

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,078 147,632 (9.2)

S&TS Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,792 16,842 5.6Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,965 10,255 6.9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥162,835 ¥174,729 (6.8)%


Women & Family CompanySegment net sales grew 34.8% to ¥14,757 million. The operating loss widened from ¥2,016 million in the previousfiscal year to ¥2,811 million. This primarily reflected costs from forward-looking investments. The operating loss wassignificantly lower than the ¥3,900 million projected at the beginning of the year under review.

The Women & Family Company built on favorable sales in fiscal 2001 and continued to achieve increased circula-tion for its stable of magazines in fiscal 2002. Circulation numbers grew for THANK YOU!, a lifestyle informationmagazine, and for Hiyoko Club, a magazine targeting mothers of young children. Sales of mooks and mail-orderservices were also favorable, while sales climbed at bon merci!, a direct-sales membership magazine focused on theculinary needs of families with children. The growth in sales at bon merci! was due to steady sales of existingproducts and a strong performance by bon merci! school, a magazine for families with elementary school childrenlaunched in the previous fiscal year. DOG’S HEART, a direct-sales membership magazine targeting families with petdogs, was launched in the current fiscal year and also got off to a good start. Business results at Benesse CrossWorld, Inc., a travel planning company providing members-only travel packages, were weak in the wake of slowdemand following the 9/11 terrorist attacks in the U.S. Due to poor prospects for recovery in this field, we made thedecision to pull out of this business.

Senior CompanyNet sales in this segment rose 70.0%, to ¥12,149 million. Supported by rising sales, the Senior Company moved intothe black and recorded operating income of ¥463 million, reversing an operating loss of ¥1,064 million in the previ-ous fiscal year.

The Senior Company continued steady business expansion centered on nursing care homes. In the fiscal yearunder review, 14 new nursing care homes for the elderly were opened: seven Benesse Home Clara and one BenesseHome Madoka, all operated by Benesse Care Corporation; and six Granny and Granda nursing care homes, oper-ated by Shinkoukai Co., Ltd. Most filled steadily after opening and went on to record a strong performance. As ofMarch 31, 2003, the Senior Company operated 61 nursing care homes in all—29 Benesse Home Clara, one BenesseHome Madoka and 31 Granny and Granda nursing care homes. Home-help services provided by Benesse CareCorporation recorded consistent growth.

Following a decrease in enrollment in Home-Helper Level-Two Training Courses, Benesse enhanced efficiency bystreamlining the number of training centers, while the types of training programs offered were also diversified.

Breakdown of Net Sales for the Senior Company

Millions of YenPercentage

Years ended March 31 2003 2002 Change

Benesse Care Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,877 ¥3,855 78.4%Shinkoukai Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,007 3,000 66.9Benesse MCM Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 – –Benesse Corporation Senior Company . . . . . . . . . . . . . . . . . . . . . . . . . . 120 290 (58.7)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥12,149 ¥7,145 70.0%

Senior Company(Millions of Yen)

99 0300 01 02

826

(942) (1,338)(2,149)

(1,064)

4631,331

3,861

7,145

12,149

10,000

5,000

15,000

20,000

8,000

4,000

0 0

12,000

16,000

–4,000

PDF

Net Sales (left) Operating Income (right)

W&F Company(Millions of Yen)

99 0300 01 02

9,872

(2,152)

(637)(1,192)

(2,016)(2,811)

9,218 9,182

10,946

14,757

10,000

5,000

15,000

20,000

8,000

4,000

0 0

12,000

16,000

–4,000


Education Group(Millions of Yen)

99 0300 01 02

182,675

31,65934,016 32,789

27,021

17,649

188,320 184,154174,729

162,835

100,000

50,000

150,000

200,000

0

40,000

20,000

60,000

80,000

0



Language CompanyNet sales in this segment declined 11.7% to ¥54,939 million, while operating income rose 74.0% to ¥1,016 million.Meanwhile, owing to the recording of an impairment loss on goodwill in the previous year, related to the adoptionof new U.S. accounting standards by Berlitz International, Inc., amortization of goodwill was no longer a factor in theyear under review.

Berlitz Japan, Inc. a subsidiary of Berlitz International, Inc., recorded steady growth in its language instructionservices, thanks to success in increasing the number of language lessons and raising average revenue per lesson.Berlitz Japan also expanded aggressively during the year, opening 10 new language centers, most of them in theTokyo metropolitan area. Berlitz as a whole, however, reported lower sales. This was largely the result of threefactors: a slowdown of orders from corporate clients, a decline in the number of students signing up for studyabroad services following the 2001 terrorist attacks in the U.S., and the sale of the translation services business inSeptember 2002.

Simul International, Inc., mainly providing interpretation, translation and other language-related services, recordedsales level with the previous fiscal year.

Breakdown of Net Sales for Berlitz International, Inc.

Thousands ofU.S. Dollars

PercentageYears ended December 31 2002 2001 Change

Language Services:Instruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $290,479 $305,298 (4.9)%ELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,315 62,844 (35.8)Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,393 7,381 (81.1)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 154 (82.5)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332,214 375,677 (11.6)Berlitz GlobalNET (translation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,172 107,409 (30.0)Eliminations and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,602 (729) –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $409,988 $482,357 (15.0)%

OthersNet sales in this segment increased 11.7% to ¥13,609 million, due to increased sales to customers outside theBenesse Group by Telemarketing Japan, Inc. and other Group companies. Operating income increased 19.8% to¥1,851 million, due mainly to higher income in line with rising sales at Telemarketing Japan.

Others(Millions of Yen)

99 0300 01 02

7,185

9001,153

763

1,545

1,8518,551

10,493

12,183

13,609

10,000

5,000

15,000

20,000

0

2,000

1,000

3,000

4,000

0


Language Company(Millions of Yen)

99 0300 01 02

59,294

2,936

1,218

1,602

584

1,016

53,544 55,258

62,247

54,939

40,000

20,000

60,000

80,000

0

2,000

1,000

3,000

4,000

0



Other Income (Expenses)Other expenses (net) increased ¥1,477 million to ¥1,871 million.

The Company booked ¥3,150 million in gain on exemption from its future pension obligation in the governmentalprogram. Meanwhile other expenses (net) increased, reflecting a loss on sale of the translation business of Berlitz of¥2,110 million, foreign exchange loss of ¥976 million, and a decrease in income from leveraged lease assets.

Income Before Income Taxes, Minority Interests and Impairment Loss on GoodwillIncome before income taxes, minority interests and impairment loss on goodwill decreased ¥9,749 million, or 40.3%,from the previous fiscal year to ¥14,446 million.

Income TaxesIncome taxes declined ¥4,141 million, or 35.4%, from the previous fiscal year to ¥7,553 million. The actualeffective tax rate rose from 48.3% in the previous fiscal year to 52.3% in the year under review.

The normal effective statutory tax rate is 42.0%. The difference between the normal effective statutory tax rateand the actual effective tax rate arises from losses not recognized for inclusion in expenses on tax purposes.

Impairment Loss on GoodwillThe Company recognized a goodwill impairment charge of ¥13,195 million for the year ended March 31, 2002,associated with the adoption by Berlitz of the Statement of Financial Accounting Standard No.142 (SFAS 142),Accounting for Goodwill and Other Intangible Assets, issued by the Financial Accounting Standards Board (FASB).

Net IncomeNet income rose ¥6,646 million to ¥6,973 million, increasing return on sales from 0.1% to 2.7%.

Return on equity rose from 0.2% to 4.1%. Return on assets also increased, rising from 0.1% to 2.5%.

ROE and ROA


ROE . . . . . . . . . . . . . . . . . . . . . . . . 4.1% 0.2% 10.0% 10.7% 11.5% 9.5%ROA . . . . . . . . . . . . . . . . . . . . . . . . 2.5 0.1 5.4 5.7 5.7 4.5

ROE(%)

ROA(%)

2

0

4

6

8

10

12

99 0300 01 02

5.7 5.7 5.4

0.1

2.5

2

0

4

6

8

10

12

99 0300 01 02

11.510.7

10.0

0.2

4.1


FINANCIAL POSITION

Assets, Liabilities and Shareholders’ EquityTotal assets as of March 31, 2003 were ¥275,516 million, ¥15,876 million lower than the end of the previous fiscal year.

Total current assets rose ¥8,374 million, or 7.4%, to ¥121,926 million, largely due to the transfer of investment secu-rities to MMF and other short-term financial instruments. These steps were principally taken to maintain sufficientliquidity while lowering risk related to management of funds.

Property and equipment was ¥71,429 million, ¥7,267 million lower than the previous fiscal year-end, due mainly tothe sale of works of art owned by the Company.

Investments and other assets decreased ¥16,984 million from the previous fiscal year-end to ¥82,161 million. Thiswas due to the sale of investment securities, including euro-yen bonds and trust fund investments, the transfer offunds to short-term financial instruments, and declines in goodwill and other intangible assets resulting from thedivesture of the translation services business at Berlitz.

Total current liabilities fell ¥7,121 million to ¥86,192 million, reflecting declines in trade payables, short-term bankloans and income taxes payable.

Long-term liabilities fell ¥6,001 million to ¥19,323 million, a result of redemption of convertible debentures atBerlitz and a decline in long-term debt at Benesse.

Total shareholders’ equity decreased ¥2,398 million to ¥169,428 million. This was caused by the inclusion of trea-sury stock worth ¥2,597 million and a ¥1,290 million charge for foreign currency translation adjustments in share-holders’ equity.

Financial Position

Millions of Yen

As of March 31 2003 2002 2001 2000 1999 1998

Total Assets . . . . . . . . . . . . . . . . . . ¥275,516 ¥291,393 ¥309,261 ¥297,828 ¥280,620 ¥277,298Current Assets . . . . . . . . . . . . . . 121,926 113,552 116,136 116,960 104,407 95,589Property and Equipment . . . . . 71,429 78,696 78,840 76,292 75,865 77,219Investments and Other Assets . 82,161 99,145 114,285 104,576 100,348 104,490

Current Liabilities . . . . . . . . . . . . . 86,192 93,313 101,882 98,779 93,660 94,976Long-Term Liabilities . . . . . . . . . . 19,323 25,324 30,705 31,685 31,610 41,091Shareholders’ Equity . . . . . . . . . . . 169,428 171,826 170,011 160,302 146,933 131,794Equity Ratio (%) . . . . . . . . . . . . . . . 61.5 59.0 55.0 53.8 52.4 47.5Shareholders’ Equity per Shareof Common Stock (Yen) . . . . . . . 1,612 1,616 1,599 1,507 1,382 1,239

Notes: 1. Benesse Corporation and its domestic consolidated subsidiaries adopted tax allocation accounting, beginning with thefiscal year ended March 31, 1999. Berlitz International, Inc. has applied accounting for allocation of income taxes.

2. The computation of the number of shares outstanding at fiscal year-end is retroactively adjusted for the effect of a1:1.2 stock split made on May 20, 1997, and a 1:2 stock split made on May 19, 2000.

3. Certain reclassifications of previously recorded amounts have been made to conform with the 2003 presentation.


Cash FlowsCash and cash equivalents at the end of the fiscal year stood at ¥82,534 million, an increase of ¥20,283million, or 32.6%, from the end of the previous fiscal year.

Net cash provided by operating activities was ¥17,505 million, a ¥9,219 million increase from the previous fiscalyear. This included income before income taxes, minority interests and impairment loss on goodwill of ¥14,446million, depreciation and amortization of ¥8,666 million, and income taxes paid of ¥10,608 million.

Net cash provided by investing activities was ¥16,778 million, against net cash used of ¥11,701 million in theprevious fiscal year. This included net proceeds of ¥8,364 million from the purchase and sale of investment securi-ties, ¥6,221 million from the sale of the translation services business at Berlitz and ¥5,473 million in proceeds fromthe sale of works of art. Stringent curbs on capital investment were also a factor in reducing net cash used.

Net cash used in financing activities was ¥13,530 million, an increase of ¥2,321 million, or 20.7%. This included¥5,643 million for the redemption of convertible debentures at Berlitz, ¥2,595 million for the repurchase of stock and¥3,072 million in cash dividends.

Cash Flows

Millions of Yen


Net Cash Providedby Operating Activities . . . . . . . . ¥17,505 ¥ 8,286 ¥21,853 ¥ 32,525 ¥ 32,309 ¥ 13,677

Net Cash Provided by (Used in)Investing Activities . . . . . . . . . . . 16,778 (11,701) (7,830) (18,910) (1,687) (17,739)

Net Cash Usedin Financing Activities . . . . . . . . . (13,530) (11,209) (4,339) (5,169) (16,925) (3,995)

Foreign Currency TranslationAdjustments on Cash andCash Equivalents . . . . . . . . . . . . . (470) 727 502 (983) (949) 344

Net Increase (Decrease)in Cash and Cash Equivalents . . 20,283 (13,897) 10,231 7,463 12,748 (7,713)

ISSUES AND POLICIESManagement is committed to developing and implementing the best possible initiatives in respect to the operatingenvironment and information currently available.

The operating environment for Benesse Group’s core businesses—the Shinkenzemi home study correspondencecourses and Shinken Simulated Exams—is undergoing profound change. The central issue is how schools and thefamily can best cooperate to cultivate and support an interest in studies and career development among students.This issue is of course linked to the future of society itself, as it is the children of today who will be the leaders andworkers of tomorrow.

Demand is rising in fields where the Benesse Group is active. This is due to a number of reasons—society isundergoing structural changes, evidenced by growing interest in mastering the English language sparked by inter-nationalization; growing participation of women and volunteer organizations in society; and increasing deregula-tion, including a relaxation of the rules associated with nursing care. At the same time, demand for educationalservices is growing in East Asia in line with economic growth and an increase in social capital.

We believe the current challenging business environment will continue through fiscal 2003. In response, makinga clean break from the past, the Company implemented innovative management restructuring as and when neces-sary, in order to further increase profitability. Management has positioned fiscal 2003 as the year of the third found-ing of the company, following the second founding in 1995 with the change of Benesse’s company name and itsinitial public offering. In line with this move, we have strengthened our ability to cope with the dramatic changes in ouroperating environment and enhanced our competitive position by adopting the Corporate Executive Officer System.We believe this system will be as important to the running of the Company as an operating system is to a computer.


We have also drawn up medium-term management targets that will take Benesse through to fiscal 2006. Manage-ment has identified three sectors—education, senior citizen-related services, and language services—as promisinggrowth areas. The Company will channel management resources into selected operations in these sectors in orderto raise our competitive strengths.

We will also establish a brand management system to develop and strengthen our corporate brands, includingBerlitz. The Company views East Asia as the most important market after our home market. We will therefore ex-pand into these regions. Meanwhile, we will continue to position environmental protection as an important part ofour operating activities.

OUTLOOKIn fiscal 2003, consolidated full-year sales are set to decrease 1.8% to ¥253,600 million. Sales are expected to behigher in the Senior Company, reflecting expanding nursing care operations due to the addition of nursing carehomes at Benesse Care Corporation and Shinkoukai Co., Ltd. These gains however, will be offset by slowing growthin enrollment mainly in Shinkenzemi Junior and Senior High School Courses in the Education Group. Sales will alsobe affected by the sale of the translation services business at Berlitz, a division of the Language Company, in thethird quarter of the previous fiscal year.

Operating income, however, is expected to increase 5.4% to ¥17,200 million, as we continue to review and streamlineour business portfolio and focus on improving cost performance. Net income is projected at ¥9,700 million, anincrease of 39.1%.

SHARE BUYBACK PROGRAMIn fiscal 2002, we initiated a share buyback program and repurchased 1.36 million shares of Benesse common stockto a value of ¥2,586 million. The number of shares repurchased represented 68.0% of the repurchase limit of 2million shares, to a maximum value of ¥6.0 billion, approved by the Annual General Meeting of Shareholders onJune 25, 2002.

Approval has been given to expand the share buyback program in fiscal 2003, with the share repurchase limit setat 5 million shares to a maximum value of ¥10.0 billion.

DIVIDEND POLICYBenesse positions investment in potential growth areas as its most important management priority. The Companyalso considers the return of earnings to shareholders as one of its central management objectives. Basic policy is toshare profits with shareholders, with due consideration to business performance, the payout ratio and other factors.

In accordance with this policy, management has declared a full-year dividend of ¥29.00 per common share, thesame as in the previous fiscal year. This represents an interim dividend and a year-end dividend of ¥14.50 percommon share.

The Company plans to make effective use of retained earnings to improve performance and to provide futurereturns to shareholders through new business activities, improvements to existing products and services, and thedevelopment of new products and services.


CONSOLIDATED BALANCE SHEETS


Millions of Yen (Note 1)

ASSETS 2003 2002 2001 2003

CURRENT ASSETS:Cash and time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 39,995 ¥ 32,943 ¥ 25,019 $ 333,292Marketable securities (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,157 34,484 51,683 359,642Trade receivables:

Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,647 18,100 16,771 130,392Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 205 101 1,833

Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,955 17,810 14,900 107,958Other current assets (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,918 12,210 9,459 99,316Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,966) (2,200) (1,797) (16,383)

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,926 113,552 116,136 1,016,050

PROPERTY AND EQUIPMENT:Land (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,210 33,735 33,506 285,083Buildings and leasehold improvements (Note 7) . . . . . . . . . . . . . . . . . . . . 60,222 59,941 57,180 501,850Equipment, fixtures and other (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,366 21,683 21,265 136,384

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,798 115,359 111,951 923,317Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39,369) (36,663) (33,111) (328,075)

Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,429 78,696 78,840 595,242

INVESTMENTS AND OTHER ASSETS:Investment securities (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,557 23,155 32,818 112,975Investments in unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . 1,734 493 304 14,450Goodwill and other intangible assets (Note 5) . . . . . . . . . . . . . . . . . . . . . . 49,075 59,367 66,193 408,958Other assets (Notes 7, 8, 10 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,795 16,130 14,970 148,292

Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,161 99,145 114,285 684,675

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥275,516 ¥291,393 ¥309,261 $2,295,967

See notes to consolidated financial statements.

Benesse Corporation and Consolidated SubsidiariesMarch 31, 2003, 2002 and 2001




LIABILITIES AND SHAREHOLDERS’ EQUITY 2003 2002 2001 2003

CURRENT LIABILITIES:Short-term bank loans (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 310 ¥ 1,170 ¥ 203 $ 2,583Current portion of long-term debt (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . 751 1,347 2,591 6,258Trade payables:

Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,747 23,446 27,213 189,558Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 303 292 2,484

Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,027 53,662 55,705 441,892Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960 5,034 6,484 8,000Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,099 8,351 9,394 67,492

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,192 93,313 101,882 718,267

LONG-TERM LIABILITIES:Long-term debt, less current portion (Note 7) . . . . . . . . . . . . . . . . . . . . . . 4,281 10,951 17,692 35,675Liability for retirement benefits (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,193 4,322 5,025 26,608Other long-term liabilities (Notes 6 and 10) . . . . . . . . . . . . . . . . . . . . . . . . 11,849 10,051 7,988 98,742

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,323 25,324 30,705 161,025

MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 930 6,663 4,775

SHAREHOLDERS’ EQUITY (Notes 9, 15 and 17):Common stock—authorized,

405,282,040 shares in 2003, 2002 and 2001;issued, 106,353,453 shares in 2003, 2002 and 2001 . . . . . . . . . . . . . . . . 13,600 13,600 13,600 113,333

Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,358 29,358 29,358 244,650Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,448 127,519 130,708 1,087,067Unrealized gain (loss) on available-for-sale securities . . . . . . . . . . . . . . . . (91) (356) 757 (758)Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . (1,290) 1,707 (4,412) (10,750)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,025 171,828 170,011 1,433,542Treasury stock—at cost—1,366,380 shares in 2003,

719 shares in 2002 and 97 shares in 2001 . . . . . . . . . . . . . . . . . . . . . . . . (2,597) (2) (0) (21,642)

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,428 171,826 170,011 1,411,900

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥275,516 ¥291,393 ¥309,261 $2,295,967




2003 2002 2001 2003

NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥258,289 ¥267,250 ¥262,948 $2,152,408

COST OF SALES (Notes 8, 11 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,223 128,382 123,766 1,110,191

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,066 138,868 139,182 1,042,217

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(Notes 8, 11, 12 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,749 114,279 108,904 906,242

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,317 24,589 30,278 135,975

OTHER INCOME (EXPENSES):Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 155 149 958Interest expense—net (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119) (517) (327) (992)Gain (loss) on investments—net (Notes 6 and 14) . . . . . . . . . . . . . . . . . . . (851) 1,491 1,415 (7,092)Equity in net earnings of unconsolidated subsidiaries and affiliates . . . . 139 41 73 1,158Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (976) (43) (30) (8,133)Gain on exemption from future pension obligation ofthe governmental program (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150 26,250

Loss on disposal of a part of translation segment . . . . . . . . . . . . . . . . . . . (2,110) (17,583)Other—net (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,219) (1,521) (1,573) (10,158)

INCOME BEFORE INCOME TAXES, MINORITY INTERESTS ANDIMPAIRMENT LOSS ON GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,446 24,195 29,985 120,383

INCOME TAXES (Note 10):Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,550 11,202 13,700 54,584Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003 491 240 8,358

Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,553 11,693 13,940 62,942

MINORITY INTERESTS IN NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80) (1,020) (453) (667)

NET INCOME BEFORE IMPAIRMENT LOSS ON GOODWILL . . . . . . . . . 6,973 13,522 16,498 58,108

IMPAIRMENT LOSS ON GOODWILL (Note 5) . . . . . . . . . . . . . . . . . . . . . . (13,195)

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,973 ¥ 327 ¥ 16,498 $ 58,108

Yen U.S. Dollars

2003 2002 2001 2003

PER SHARE OF COMMON STOCK (Note 2.p):Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥65 ¥ 2 ¥153 $0.54Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 29 29 0.24


CONSOLIDATED STATEMENTS OF INCOME

Benesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2003, 2002 and 2001


Thousands Millions of Yen

Issued 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, 2000 . . . . . . . . . . . . . . . . . . . . 53,177 ¥ 13,600 ¥28,715 ¥ 117,994 ¥ (7)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,498Cash dividends, ¥43.5 per share . . . . . . . . . . . . . . (2,871)Bonuses to directors and corporate auditors . . . . (175)Stock split (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . 53,176Increase from merger (Note 9) . . . . . . . . . . . . . . . . 14,718 735 643Stock cancelled from merger (Note 9) . . . . . . . . . (14,718) (735) (641)Unrecognized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . (97)

Unrealized gain on available-for-sale securities . . ¥ 757Foreign currency translation adjustments . . . . . . . ¥(4,412)Treasury stock sold—net (645 shares) . . . . . . . . . . 7

BALANCE, MARCH 31, 2001 . . . . . . . . . . . . . . . . . 106,353 13,600 29,358 130,708 757 (4,412) (0)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327Cash dividends, ¥29 per share . . . . . . . . . . . . . . . . (3,084)Bonuses to directors and corporate auditors . . . . (183)Unrecognized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . (249)

Unrealized loss on available-for-sale securities . . (1,113)Foreign currency translation adjustments . . . . . . . 6,119Treasury stock acquired—net (622 shares) . . . . . . (2)

BALANCE, MARCH 31, 2002 . . . . . . . . . . . . . . . . . 106,353 13,600 29,358 127,519 (356) 1,707 (2)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,973Cash dividends, ¥29 per share . . . . . . . . . . . . . . . . (3,072)Bonuses to directors and corporate auditors . . . . (82)Unrealized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . (165)

Decrease due to equity change of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . (725)

Unrealized gain on available-for-sale securities . . 265Foreign currency translation adjustments . . . . . . . (2,997)Treasury stock acquired (1,365,661 shares) . . . . . . (2,595)

BALANCE, MARCH 31, 2003 . . . . . . . . . . . . . . . . . 106,353 ¥13,600 ¥29,358 ¥130,448 ¥ (91) ¥(1,290) ¥(2,597)

Thousands of U.S. Dollars (Note 1)

Unrealized ForeignGain (Loss) on Currency

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

BALANCE, MARCH 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 113,333 $ 244,650 $ 1,062,658 $(2,967) $ 14,225 $ (17)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,108Cash dividends, $0.24 per share . . . . . . . . . . . . . . . . . . . . . . . . (25,600)Bonuses to directors and corporate auditors . . . . . . . . . . . . . . (683)Unrealized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,374)

Decrease due to equity change of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,042)

Unrealized gain on available-for-sale securities . . . . . . . . . . . . 2,209Foreign currency translation adjustments . . . . . . . . . . . . . . . . . (24,975)Treasury stock acquired (1,365,661 shares) . . . . . . . . . . . . . . . . (21,625)

BALANCE, MARCH 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113,333 $244,650 $1,087,067 $ (758) $(10,750) $(21,642)


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY





2003 2002 2001 2003

OPERATING ACTIVITIES:Income before income taxes, minority interestsand impairment loss on goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 14,446 ¥ 24,195 ¥ 29,985 $120,383

Adjustments for:Income taxes—paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,608) (13,199) (15,448) (88,400)Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,666 10,738 9,609 72,217Increase (decrease) in allowance for doubtfulreceivables, liability for retirement benefits and other reserves . . . . . . . . . (2,283) (296) 2,877 (19,025)

Loss on disposal of a part of translation segment . . . . . . . . . . . . . . . . . . . . . 2,110 17,583Other non-cash (income) expenses—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,599 299 (538) 21,658Changes in assets and liabilities, net of effectsfrom newly consolidated subsidiaries:(Increase) decrease in trade accounts receivable . . . . . . . . . . . . . . . . . . . . 119 (604) 559 992(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,361 (2,784) 1,120 36,342Increase (decrease) in trade accounts payable . . . . . . . . . . . . . . . . . . . . . . 39 (3,887) 845 325Decrease in advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (568) (2,543) (1,652) (4,733)

Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,376) (3,633) (5,504) (11,467)Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,059 (15,909) (8,132) 25,492Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . 17,505 8,286 21,853 145,875

INVESTING ACTIVITIES:Decrease in time deposits—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 73 229 1,058Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,908) (9,404) (11,679) (15,900)Proceeds from sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . 7,075 10,021 18,583 58,958Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,584) (4,784) (6,365) (29,867)Proceeds from sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . 5,578 302 630 46,483Purchases of software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,255) (4,288) (3,355) (27,125)Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (952) (5,204) (6,900) (7,933)Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,317 6,014 6,595 77,642Acquisition of controlling interest in a company . . . . . . . . . . . . . . . . . . . . . . . . (3,465)Acquisition of shares of a consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . (4,901)Acquisition of shares of an affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,105) (9,208)Proceeds from disposal of a part of translation segment . . . . . . . . . . . . . . . . . 6,221 51,842Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (736) 470 (2,103) (6,133)

Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . 16,778 (11,701) (7,830) 139,817

FINANCING ACTIVITIES:Increase (decrease) in short-term bank loans—net . . . . . . . . . . . . . . . . . . . . . . (860) 968 85 (7,167)Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,363) (2,447) (1,947) (11,358)Redemption of convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,643) (6,691) (47,025)Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,072) (3,084) (2,871) (25,600)Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,595) (6) (13) (21,625)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 51 236 25

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,530) (11,209) (4,339) (112,750)FOREIGN CURRENCY TRANSLATION ADJUSTMENTSON CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (470) 727 502 (3,917)

CASH AND CASH EQUIVALENTS INCREASED BY MERGER . . . . . . . . . . . . . 45NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . 20,283 (13,897) 10,231 169,025CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . . . . 62,251 76,148 65,917 518,758CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . ¥ 82,534 ¥ 62,251 ¥ 76,148 $687,783

ADDITIONAL CASH FLOW INFORMATION:Disposal of a part of translation segment:Assets disposed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 12,428 $103,567Liabilities transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914 7,617Loss on disposal of translation segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,110 17,583Gross cash received (net proceeds ¥6,221 million ($51,842 thousand)) . . . . . . 9,404 78,367Purchases of newly consolidated subsidiaries:

Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,462Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,487Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,853Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,878

NON-CASH INVESTING AND FINANCING ACTIVITIES:Assets acquired and liabilities assumed in merger (Note 9):

Current assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Fixed assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,377Current liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42


CONSOLIDATED STATEMENTS OF CASH FLOWS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements of Benesse Corporation (the “Company”) have been pre-pared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its relatedaccounting regulations, and in conformity with accounting principles and practices generally accepted in Japan,which are different in certain respects as to application and disclosure requirements of International Financial Re-porting Standards. The consolidated financial statements are not intended to present the financial position, resultsof operations and cash flows in accordance with accounting principles and practices generally accepted in countriesand jurisdictions other than Japan. The foreign consolidated subsidiaries maintain and prepare their financial state-ments in accordance with accounting principles generally accepted in the United States of America, where suchsubsidiaries are established.

In preparing these consolidated financial statements, certain reclassifications and rearrangements have beenmade to the consolidated financial statements issued domestically in order to present them in a form which is morefamiliar to readers outside Japan. In addition, certain reclassifications have been made in the 2002 and 2001 finan-cial statements to conform to the classifications used in 2003.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Com-pany is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are includedsolely for the convenience of readers outside Japan and have been made at the rate of ¥120 to U.S.$1, the approxi-mate rate of exchange at March 31, 2003. Such translations should not be construed as representations that theJapanese yen amounts could be converted into U.S. dollars at that or any other rate.

1. BASIS OFPRESENTINGCONSOLIDATEDFINANCIALSTATEMENTS

a. Consolidation—The consolidated financial statements include the accounts of the Company and its 27 (23 in2002 and 19 in 2001) significant subsidiaries (collectively, the “Companies”). Consolidation of the remaining uncon-solidated subsidiaries would not have a material effect on the accompanying consolidated financial statements in2003, 2002 and 2001.

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

Investments in 4 affiliates and 2 unconsolidated subsidiaries (4 affiliates and 2 unconsolidated subsidiar-ies in 2002 and 4 affiliates and 1 unconsolidated subsidiary in 2001) are accounted for by the equity method.

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

b. Cash Equivalents—Cash equivalents on the 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,which are included in marketable securities amounted to ¥42,539 million ($354,491 thousand), ¥29,308 million and¥51,129 million for the years ended March 31, 2003, 2002 and 2001, respectively.

c. Inventories—Inventories of the Company and its domestic consolidated subsidiaries are stated at cost, deter-mined by the average 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 deter-mined using the weighted average cost method.

d. Marketable and Investment Securities—Marketable and investment securities are classified and accountedfor, depending on management’s intent, as follows: (1) trading securities, which are held for the purpose of earningcapital gains in the near term are reported at fair value, and the related unrealized gains and losses are included inearnings, (2) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent andability to hold to maturity are reported at amortized cost and (3) available-for-sale securities, which are not classifiedas either of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of appli-cable taxes, reported in a separate component of shareholders’ equity.

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

2. SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES



e. Property and Equipment—Property and equipment are stated at cost. Depreciation of property and equip-ment of the Company and its consolidated domestic subsidiaries is computed substantially by the declining-balancemethod at rates based on the estimated useful lives of the assets, while the straight-line method is applied tobuildings acquired after April 1, 1998 of the Company and its consolidated domestic subsidiaries, and all propertyand equipment of consolidated foreign subsidiaries. The ranges of useful lives in the Company and its domesticconsolidated subsidiaries are principally from 8 to 50 years for buildings and from 4 to 7 years for equipmentand fixtures.

f. Goodwill and Other Intangible Assets—The differences between the cost and net equity in domestic consoli-dated subsidiaries at acquisition (“Consolidation goodwill”) are amortized on a straight-line basis over 20 years.Goodwill and other intangible assets associated with foreign consolidated subsidiaries are amortized on a straight-line basis primarily over 40 years following the accounting practice in their respective countries. Effective January 1,2002, a U.S. based subsidiary, Berlitz International, Inc. (“BI”), adopted a new accounting standard for goodwill,Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” in accor-dance with accounting principles generally accepted in the United States of America. Under SFAS No. 142, goodwilland other intangible assets that are determined to have an indefinite life will no longer be amortized, but rather willbe tested for impairment on an annual basis and between annual tests if an event occurs or circumstances changethat would more likely than not reduce the fair value below its carrying amount. As a result, BI recorded a goodwilland other intangible assets impairment charge associated with the adoption of this statement, at January 1, 2002.See Note 5 which discusses new accounting pronouncements regarding goodwill and other intangible assets. Priorto the adoption of SFAS No. 142, amortization expense of goodwill and other intangible assets that are determinedto have an indefinite life of BI for the years ended December 31, 2002 and 2001, was ¥1,848 million and ¥1,732million, respectively. Intangible assets that are determined not to have an indefinite life primarily consist of publish-ing rights. Publishing rights are amortized on a straight-line basis over 25 years.

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

h. Retirement and Pension Plans—Effective April 1, 2000, the Company and its domestic consolidated subsidiar-ies adopted a new accounting standard for employees’ retirement benefits and accounted for the liability for retire-ment benefits based on the projected benefit obligations and plan assets at the balance sheet date.The full amount of the transitional obligation of ¥258 million, determined as of April 1, 2000, is charged to incomeand included in as other expenses in the consolidated statements of income.

Retirement benefits to directors and corporate auditors of the Company and its 3 domestic consolidated subsid-iaries in 2003 (3 in 2002 and 2001) are calculated to state the liability for directors and corporate auditors at theamount that would be required if all directors and corporate auditors retired at each balance sheet date.

Foreign consolidated subsidiaries have defined contribution plans.

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

j. Leases—All leases are accounted for as operating leases by the Company and its domestic consolidated subsid-iaries. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leasedproperty to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operat-ing lease transactions if certain “as if capitalized” information is disclosed in the notes to the lessee’s financialstatements.

k. Income Taxes—The provision for income taxes is computed based on the pretax income included in the consoli-dated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilitiesfor the expected future tax consequences of temporary differences between the carrying amounts and thetax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to thetemporary differences.


l. Appropriations of Retained Earnings—Appropriations of retained earnings at each year end are reflected in thefinancial statements for the following year upon shareholders’ approval.

m. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denomi-nated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. Theforeign exchange gains and losses from translation are recognized in the statements of income to the extent thatthey are not hedged by forward exchange contracts.

n. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiariesare translated 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 “Foreigncurrency translation adjustments” in a separate component of shareholders’ equity. Revenue and expense accountsof consolidated foreign subsidiaries are translated into yen at the average exchange rate.

o. Derivative Financial Instruments—The Companies use derivative financial instruments to manage their expo-sures to fluctuations in foreign exchange. Foreign exchange forward contracts and currency swap agreements areutilized by the Companies to reduce foreign currency exchange risks. The Companies do not enter into derivativesfor trading or speculative purposes.

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

A foreign consolidated subsidiary marks currency swap agreements to fair value. When these agreements areeffective as hedges, realized and unrealized gains and losses are excluded from its consolidated statements ofincome, and included, net of deferred taxes, in the foreign currency translation adjustments account on the balancesheets.

p. Per Share Information—Effective April 1, 2002, the Company adopted a new accounting standard for earningsper share of common stock issued by the Accounting Standards Board of Japan. Under the new standard, netincome per share is computed by dividing net income available to common shareholders, which is more preciselycomputed than under previous practices, by the weighted-average number of common shares outstanding for theperiod. Net income per share for the years ended March 31, 2003, 2002 and 2001 are computed in accordance withthe new standard. The average number of common shares used in the computation was 105,607 thousand for 2003,106,353 thousand for 2002 and 106,353 thousand for 2001.

Diluted net income per share is not disclosed because it is anti-dilutive.Cash dividends per share presented in the accompanying consolidated statements of income are dividends

applicable to the respective years including dividends to be paid after the end of the year.


Marketable and investment securities as of March 31, 2003, 2002 and 2001, consisted of the following:


2003 2002 2001 2003

Current:Government and corporate bonds . . . . . . . . . . . . . . . . . . ¥ 892 ¥ 4,712 ¥11,197 $ 7,433Trust fund investments and other . . . . . . . . . . . . . . . . . . . 42,265 29,772 40,486 352,209

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥43,157 ¥34,484 ¥51,683 $359,642

Non-current:Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,874 ¥ 4,716 ¥ 8,317 $ 23,950Government and corporate bonds . . . . . . . . . . . . . . . . . . 6,937 11,102 15,785 57,808Trust fund investments and other . . . . . . . . . . . . . . . . . . . 3,746 7,337 8,716 31,217

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥13,557 ¥23,155 ¥32,818 $112,975

The carrying amounts and aggregate fair value of marketable and investment securities at March 31, 2003, 2002and 2001, were as follows:

Millions of Yen

Unrealized Unrealized FairCost Gains Losses Value

March 31, 2003Securities classified as:

Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,945 ¥ 23 ¥280 ¥1,688Government and corporate bonds . . . . . . . . . . . . . . . . 3,248 11 3,237Trust fund investments and other . . . . . . . . . . . . . . . . . 3,810 1 65 3,746

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,301 43 93 4,251


Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,211 293 609 2,895Government and corporate bonds . . . . . . . . . . . . . . . . 10,580 13 72 10,521Trust fund investments and other . . . . . . . . . . . . . . . . . 7,884 21 267 7,638

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,303 60 478 4,885


Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,108 1,860 300 5,668Government and corporate bonds . . . . . . . . . . . . . . . . 10,397 25 39 10,383Trust fund investments and other . . . . . . . . . . . . . . . . . 9,275 56 287 9,044

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,315 42 195 5,162

3. MARKETABLEANDINVESTMENTSECURITIES


Thousands of U.S. Dollars

Unrealized Unrealized FairCost Gains Losses Value


Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,208 $192 $2,333 $14,067Government and corporate bonds . . . . . . . . . . . . . . . . 27,067 92 26,975Trust fund investments and other . . . . . . . . . . . . . . . . . 31,750 8 541 31,217

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,842 358 775 35,425

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2003, 2002 and2001, were as follows:

Carrying Amount


2003 2002 2001 2003

Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,186 ¥ 1,821 ¥ 2,649 $ 9,883Government and corporate bonds . . . . . . . . . . . . . . . . . . 300 87 2,500Trust fund investments and other . . . . . . . . . . . . . . . . . . . 42,265 29,461 51,355 352,209

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥43,751 ¥31,282 ¥54,091 $364,592

Proceeds from sales of available-for-sale securities and related gross realized gains and losses on these sales,computed on the moving average cost basis for the years ended March 31, 2003, 2002 and 2001, were as follows:


2003 2002 2001 2003

Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,132 ¥1,136 ¥5,854 $34,433

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 165 ¥ 619 ¥ 636 $ 1,375Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (202) (1,466) (85) (1,683)

Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (37) ¥ (847) ¥ 551 $ (308)

The carrying values of debt securities by contractual maturities for securities classified as available-for-sale andheld-to-maturity at March 31, 2003, were as follows:


2003 2003

Available Held to Available Held tofor Sale Maturity for Sale Maturity

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥24,390 ¥ 301 $203,250 $ 2,509Due after one year through five years . . . . . . . . . . . . . . . . . . 2,265 4,000 18,875 33,333Due after five years through ten years . . . . . . . . . . . . . . . . . 1,290 10,750

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥27,945 ¥4,301 $232,875 $35,842


Inventories at March 31, 2003, 2002 and 2001, consisted of the following:


2003 2002 2001 2003

Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 8,628 ¥12,993 ¥ 9,401 $ 71,900Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,593 4,012 4,786 29,941Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . 734 805 713 6,117

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥12,955 ¥17,810 ¥14,900 $107,958

4. INVENTORIES

5. GOODWILLAND OTHERINTANGIBLEASSETS

Goodwill and other intangible assets at March 31, 2003, 2002 and 2001, consisted of the following:


2003 2002 2001 2003

Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,294 ¥ 3,487 ¥ 3,681 $ 27,450Goodwill associated with a foreign consolidated subsidiary 8,400 10,554 21,899 70,000Intangible assets that are determined to have an indefinitelife with a foreign consolidated subsidiary . . . . . . . . . . . . . 4,048 5,027 4,900 33,733

Intangible assets that are determined not to have an indefinitelife with a foreign consolidated subsidiary . . . . . . . . . . . . . 24,862 31,155 27,979 207,183

Goodwill associated with a domestic consolidated subsidiary 259Software with the Company and its certain domestic consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,073 8,758 7,072 67,275Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 386 403 3,317

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥49,075 ¥59,367 ¥66,193 $408,958

The Company recognized a goodwill impairment charge of ¥13,195 million associated with the adoption of SFASNo. 142 by BI for the year ended March 31, 2002.

The Company has investments in limited partnerships. The original capital contributions to the partnerships amountedto ¥1,054 million ($8,783 thousand), ¥1,150 million and ¥1,584 million as of March 31, 2003, 2002 and 2001, respec-tively, and the change in carrying value for the three years in the period ended March 31, 2003, were as follows:


2003 2002 2001 2003

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . ¥(2,148) ¥(2,621) ¥(2,925) $(17,900)Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 473 304 2,000

Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(1,908) ¥(2,148) ¥(2,621) $(15,900)

The negative balance was included in other long-term liabilities.

6. INTERESTS INPARTNERSHIPS


Short-term bank loans at March 31, 2003, 2002 and 2001, consisted of notes to banks. The annual interest ratesapplicable to the short-term bank loans ranged from 1.28% to 1.375% at March 31, 2003, ranged from 0.81% to1.52% at March 31, 2002 and were 1.5% at March 31, 2001.

Long-term debt at March 31, 2003, 2002 and 2001, consisted of the following:


2003 2002 2001 2003

Long-term debt, collateralized:Banks and others, in yen, maturing seriallythrough 2004—with interest rates ranging from1.474% to 3.30% in 2003, 2002 and 2001 . . . . . . . . . . . . . ¥ 99 ¥ 250 ¥ 346 $ 825

Government-owned bank, in yen, maturing seriallythrough 2013—with interest rates ranging from3.5% to 5.45% in 2003, 2002 and 2001 . . . . . . . . . . . . . . . 4,799 5,871 6,944 39,991

Total long-term debt, collateralized . . . . . . . . . . . . . 4,898 6,121 7,290 40,816

Long-term debt, unsecured:Banks, in yen, maturing seriallythrough 2004—with interest rates ranging from1.57% to 3.1% in 2003, 2002 and 2001 . . . . . . . . . . . . . . . 21 87 1,366 175

Banks and others, in U.S. dollars—with interestat the average rate of 6.45% in 2003,7.46% in 2002 and 4.62% in 2001 . . . . . . . . . . . . . . . . . . . 113 152 152 942

U.S. dollar convertible debentures,convertible into BI’s common stockat $33.05 per share, due 2011 . . . . . . . . . . . . . . . . . . . . . 5,938 11,475

Total long-term debt, unsecured . . . . . . . . . . . . . . . . 134 6,177 12,993 1,117

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 5,032 12,298 20,283 41,933

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (751) (1,347) (2,591) (6,258)

Long-term debt, less current portion . . . . . . . . . . . . . . . . . . ¥4,281 ¥10,951 ¥17,692 $35,675

Annual maturities of long-term debt at March 31, 2003, were as follows:

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

2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 751 $ 6,2582005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649 5,4082006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 594 4,9502007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587 4,8922008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580 4,8332009 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,871 15,592

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,032 $41,933

7. SHORT-TERMBANK LOANSAND LONG-TERM DEBT


At March 31, 2003, assets having the following carrying values were pledged as collateral for the long-term debtsin yen in the amount of ¥4,898 million ($40,816 thousand) by the Company and its domestic consolidated subsidiaries.


Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥15,163 $126,358Buildings—net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,750 106,250Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854 7,117

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥28,767 $239,725

The Company and its certain domestic consolidated subsidiaries have severance payment plans for employees,directors and corporate auditors.

Under most circumstances, employees terminating their employment are entitled to retirement benefits deter-mined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirementbenefits are made in the form of a lump-sum severance payment from the Company or from certain domesticconsolidated subsidiaries and annuity payments from a welfare annuity fund. Employees are entitled to larger pay-ments if the termination is involuntary, by retirement at the mandatory retirement age. The liability for retirementbenefits at March 31, 2003, 2002 and 2001 for directors and corporate auditors was ¥1,216 million ($10,133 thou-sand), ¥1,225 million and ¥1,132 million, respectively. The retirement benefits for directors and corporate auditorsare paid subject to the approval of the shareholders.

The liability for employees’ retirement benefits at March 31, 2003, 2002 and 2001, consisted of the following:


2003 2002 2001 2003

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . ¥8,737 ¥16,678 ¥13,336 $72,808Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,886) (10,122) (7,974) (74,050)Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . (957) (3,854) (1,492) (7,975)Prepaid pension expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,083 395 23 25,692

Net liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,977 ¥ 3,097 ¥ 3,893 $16,475

Prepaid pension expenses were included in other assets.

The components of net periodic benefit costs for the years ended March 31, 2003, 2002 and 2001, were as follows:


2003 2002 2001 2003

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,610 ¥1,282 ¥1,223 $13,417Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 396 352 3,441Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . (202) (279) (355) (1,683)Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505 186 258 4,208

Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,326 ¥1,585 ¥1,478 $19,383

8. RETIREMENTAND PENSIONPLANS


Assumptions used for the years ended March 31, 2003, 2002 and 2001, were set forth as follows:

2003 2002 2001

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 2.5% 3.0%Expected rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 3.5% 5.5%Recognition period of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 years 8 years 8 yearsAmortization period of transitional obligation . . . . . . . . . . . . . . . . . . . . . . 1 year

The Company and its domestic consolidated subsidiaries have a contributory defined benefit pension plan. Thecontributory funded defined benefit pension plan, which is established under the Japanese Welfare Pension Insur-ance Law, covers a substitutional portion of the governmental pension program by the Company on behalf of thegovernment and a corporate portion established at the discretion of the Company. The pension fund is adminis-tered by a board of trustees composed of management and employee representatives as required by governmentregulations.

According to the enactment of the Defined Benefit Pension Plan Law on April 1, 2002, the Company applied foran exemption from obligation to pay benefits for future employee services related to the substitutional portionwhich would result in the transfer of the pension obligations and related assets to the government by anothersubsequent application. The Company obtained an approval of exemption from future obligation by the Ministry ofHealth, Labour and Welfare on March 14, 2003.

As a result of this exemption, the Company and its domestic subsidiaries recognized a gain on exemption fromfuture pension obligation of the governmental program in the amount of ¥3,150 million ($26,250 thousand) in accor-dance with a transitional measurement of the accounting standard for employees’ retirement benefits for the yearended March 31, 2003.

A foreign consolidated subsidiary has a Supplemental Executive Retirement Plan (“SERP”) for the benefit of itsChairman of the Board, certain designated executives and their designated beneficiaries. Information for the SERPat March 31, 2003, 2002 and 2001, was set forth as follows:


2003 2002 2001 2003

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,966 ¥2,130 ¥1,378 $16,383Accrued benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,924 2,084 1,357 16,033Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 365 288 2,500


Japanese companies are subject to the Japanese Commercial Code (the “Code”) to which certain amendmentsbecame effective from October 1, 2001.

The Code was revised whereby common stock par value was eliminated resulting in all shares being recordedwith no par value and at least 50% of the issue price of new shares is required to be recorded as common stock andthe remaining net proceeds as additional paid-in capital, which is included in capital surplus. The Code permitsJapanese companies, upon approval of the Board of Directors, to issue shares to existing shareholders withoutconsideration as a stock split. Such issuance of shares generally does not give rise to changes within the sharehold-ers’ accounts.

The revised Code also provides that an amount at least equal to 10% of the aggregate amount of cash dividendsand certain other appropriations of retained earnings associated with cash outlays applicable to each period shallbe appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-incapital equals 25% of common stock. The amount of total additional paid-in capital and legal reserve that exceeds25% of the common stock may be available for dividends by resolution of the shareholders. In addition, the Codepermits the transfer of a portion of additional paid-in capital and legal reserve to the common stock by resolution ofthe Board of Directors.

The revised Code eliminated restrictions on the repurchase and use of treasury stock allowing Japanese compa-nies to repurchase treasury stock by a resolution of the shareholders at the general shareholders meeting anddispose of such treasury stock by resolution of the Board of Directors beginning April 1, 2002. The repurchasedamount of treasury stock cannot exceed the amount available for future dividend plus amount of common stock,additional paid-in capital or legal reserve to be reduced in the case where such reduction was resolved at thegeneral shareholders meeting.

At the general shareholders meeting held on June 25, 2002, the Company’s shareholders approved the acquire-ment of treasury stock, up to 2,000,000 shares of the Company’s common stock (aggregate amount of ¥6,000 million).According to the resolution, the Company acquired 1,360,000 shares of common stock for the year ended March 31,2003, at an aggregate cost of ¥2,586 million ($21,550 thousand).

On May 19, 2000, the Company made a stock split by way of a free share distribution at the rate of 1 share for eachoutstanding share, and 53,176,764 shares were issued to shareholders of record on March 31, 2000. Stated capitalwas not changed as a result of this stock split.

On October 1, 2000, the Company merged with Minamigata Enterprise Co., Ltd., a company privately held by theCompany’s president and family. Accordingly, 14,717,885 new shares were issued, and 14,717,960 shares werecancelled.

The amount of retained earnings available for dividends under the Code was ¥124,903 million ($1,040,858 thou-sand) as of March 31, 2003, based on the amount recorded in the parent company’s general books of account. Inaddition 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.

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

9. SHARE-HOLDERS’EQUITY


The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in theaggregate, resulted in a normal effective statutory tax rate of approximately 42% for the years ended March 31,2003, 2002 and 2001.

The tax effects of significant temporary differences which result in deferred tax assets and liabilities at March 31,2003, 2002 and 2001, were as follows:


2003 2002 2001 2003

Deferred tax assets:Enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 129 ¥ 461 ¥ 597 $ 1,075Provision for employees’ bonuses . . . . . . . . . . . . . . . . . . . 586 584 489 4,884Liability for retirement benefits . . . . . . . . . . . . . . . . . . . . . 1,048 1,534 1,891 8,733Deferred tax assets of the foreignconsolidated subsidiaries* . . . . . . . . . . . . . . . . . . . . . . . . 1,497 1,008 639 12,475

Unrealized gains on fixed assets . . . . . . . . . . . . . . . . . . . . 342 327 218 2,850Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006 977 8,383Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 1,017 414 425Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . (1,006) (977) (8,383)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,653 ¥4,931 ¥4,248 $30,442

Deferred tax liabilities:Unrealized gain on land held by a consolidated subsidiary . . ¥ 409 ¥ 409 ¥ 409 $ 3,408Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 292

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 444 ¥ 409 ¥ 409 $ 3,700

* The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities of the foreign consoli-dated subsidiaries at March 31, 2003, 2002 and 2001, were as follows:


2003 2002 2001 2003

Deferred tax assets:Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,411 ¥ 1,434 ¥ 602 $ 11,758Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 312 201 3,283Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 241 397 1,592Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869 642 501 7,242Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589 462 304 4,908

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,454 3,091 2,270 28,783

Deferred tax liabilities:Publishing rights amortization . . . . . . . . . . . . . . . . . . . . . . 683 641 587 5,692Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 428 328 433

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735 1,069 915 6,125

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,719 2,022 1,355 22,658Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,222) (1,014) (716) (10,183)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,497 ¥ 1,008 ¥ 639 $ 12,475

10. INCOMETAXES


Research and development costs charged to income were ¥1,730 million ($14,417 thousand), ¥2,047 million and¥2,268 million for the years ended March 31, 2003, 2002 and 2001, respectively.

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

A reconciliation between the normal effective statutory tax rate for the years ended March 31, 2003, 2002 and2001, and the actual effective tax rates reflected in the accompanying consolidated statements of incomewere as follows:

2003 2002 2001

Normal effective statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.0% 42.0% 42.0%Goodwill amortization in the foreign consolidated subsidiaries . . . . . . . 8.1 4.1 4.9Permanently non-deductible expenses of social expenses, etc. . . . . . . . 1.0 0.6 0.4Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 1.6 (0.8)

Actual effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.3% 48.3% 46.5%

On March 31, 2003, a tax reform law was enacted in Japan which changed the normal effective statutory tax ratefrom approximately 42.0% to 40.6%, effective for years beginning April 1, 2004. By this change, deferred tax assetswere reduced by ¥13 million ($108 thousand) and income tax—deferred and unrealized gain (loss) on available-for-sale securities were increased by ¥11 million ($92 thousand) and ¥2 million ($16 thousand), respectively.

11. RESEARCHANDDEVELOPMENTCOSTS

Advertising costs charged to income were ¥29,902 million ($249,183 thousand), ¥29,717 million and ¥27,296 millionfor the years ended March 31, 2003, 2002 and 2001, respectively.

12. ADVERTISINGCOSTS

(1) LesseeTotal lease payments under finance lease arrangements that do not transfer ownership of the leased property to theCompany and its domestic subsidiaries were ¥2,305 million ($19,208 thousand), ¥2,931 million and ¥2,227 million forthe years ended March 31, 2003, 2002 and 2001, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation and obligationsunder finance leases which included imputed interest of finance leases that do not transfer ownership of the leasedproperty to the lessee on an “as if capitalized” basis for the years ended March 31, 2003, 2002 and 2001, were as follows:

14. LEASES

Major transactions of the Company with a director for the year ended March 31, 2003, were as follows:


2003 2003

Sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,473 $45,608

Gain on sales of property and equipment was included in other-net in the amount of ¥501 million ($4,175 thousand).

13. RELATEDPARTYTRANSACTION



Equipment and Fixtures and Other Assets 2003 2002 2001 2003

Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥11,652 ¥13,425 ¥11,385 $97,100Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,763 7,406 5,155 56,358

Net leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,889 ¥ 6,019 ¥ 6,230 $40,742

Obligations under finance leases:


2003 2002 2001 2003

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,083 ¥2,238 ¥2,219 $17,358Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,806 3,781 4,011 23,384

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,889 ¥6,019 ¥6,230 $40,742

Depreciation expenses, which are not reflected in the accompanying consolidated statements of income, werecomputed by the straight-line method for the years ended March 31, 2003, 2002 and 2001.

A foreign consolidated subsidiary leases certain equipment, office space and other assets, under noncancellableoperating leases. And effective April 1, 2000, the Company and a domestic consolidated subsidiary lease certainland, building and other asset, under noncancellable operating leases.

The minimum rental commitments under noncancellable operating leases at March 31, 2003, 2002 and 2001,were as follows:


2003 2002 2001 2003

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,286 ¥ 3,747 ¥ 2,058 $ 27,383Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,108 23,556 11,840 167,567

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥23,394 ¥27,303 ¥13,898 $194,950

(2) LessorThe Company, as lessor, participates in a leveraged lease of an aircraft. The balance of the leased asset at March 31,2001, is included in other assets.

Total income derived from this lease was ¥420 million and ¥503 million for the years ended March 31, 2002 and2001, respectively.

Pro forma information of leased property such as acquisition cost and accumulated depreciation of finance leasesthat do not transfer ownership of the leased property to the lessee at March 31, 2003, 2002 and 2001, and leasereceivables under finance leases at March 31, 2003, 2002 and 2001, was as follows:


Aircraft 2003 2002 2001 2003

Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,000Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,618

Net leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 382


Lease receivables under finance leases: 2003 2002 2001 2003

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥826

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥826


Depreciation expense computed by the declining-balance method, and interest received which is not reflectedin the accompanying consolidated statements of income, for the three years ended March 31, 2003, were as follows:

Millions of YenDepreciation Interest

Year ended March 31 Expense Received

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥382 ¥292001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 60

(3) SubleasePro forma lease receivables under sublease arrangements that do not transfer ownership of the leased property tothe lessee at March 31, 2003, 2002 and 2001, which included imputed interest, were as follows:


2003 2002 2001 2003

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5 ¥ 8 ¥14 $ 42Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 12 5 58

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥12 ¥20 ¥19 $100

Pro forma obligations under sublease agreements that do not transfer ownership of the leased property to thelessee at March 31, 2003, 2002 and 2001, which included imputed interest, were as follows:


2003 2002 2001 2003

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 7 ¥ 7 ¥12 $ 58Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 10 4 92

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥18 ¥17 ¥16 $150

The Company and its foreign consolidated subsidiary enter into foreign exchange contracts and currency swapagreements to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreigncurrencies.

It is the Company’s policy to use derivatives only for the purpose of reducing market risks associated with assetsand liabilities. The Company and its foreign consolidated subsidiary do not hold or issue derivatives for tradingpurposes.

Derivatives are subject to market risk and credit risk. Market risk is the exposure created by potential fluctuationsin market conditions, including foreign exchange rates. Credit risk is the possibility that a loss may result from acounterparty’s failure 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 Com-pany and its foreign consolidated subsidiary do not anticipate any losses arising from credit risk.

The execution and control of derivatives are managed by the Company’s Finance Department applying internalcontrol policies which regulate the authorization and credit limit amount. Each derivative transaction is reported tothe director of the Finance Department daily, and reported to the Board of Directors quarterly. Prior to entering intoits derivative contracts, a foreign consolidated subsidiary conferred with independent advisors to assess the reason-ableness of the contracts and obtained Board of Directors approval, and each derivatives transaction is periodicallyreported to its Board of Directors.

15. DERIVATIVES


Derivatives contracts outstanding at March 31, 2003, 2002 and 2001, consisted of the following:

Millions of Yen

2003 2002 2001

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

Foreign currency forwardcontracts—Receivables—U.S. dollar ¥10 ¥10 ¥1,037 ¥1,068 ¥ 31

Currency swap agreements:U.S. dollar receipt,yen payment . . . . . . . . . ¥12,627 ¥ 101 ¥ 101 ¥10,981 ¥(65) ¥(65)

U.S. dollar receipt,British pound payment . 1,052 6 6 915 6 6

Total . . . . . . . . . . . . . . . . . . . ¥13,679 ¥ 107 ¥ 107 ¥11,896 ¥(59) ¥(59)


2003

Contract orNotional Market UnrealizedAmount Value Gain

Foreign currency forwardcontracts—Receivables—U.S. dollar . . . . . . . . . . . . $83 $83

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


Information about industry segments, geographic segments and sales to foreign customers of the Companies forthe years ended March 31, 2003, 2002 and 2001, was as follows:

a. Industry Segments(1) Sales and Operating Income

Millions of Yen

2003

Women &Education Family Senior Language Eliminations/

Group Company Company Company Others Corporate Consolidated

Sales to customers . . . . . . . . . . . . . . . . . ¥162,835 ¥14,757 ¥12,149 ¥54,939 ¥13,609 ¥258,289

Intersegment sales . . . . . . . . . . . . . . . . . 25 92 31,928 ¥ (32,045)

Total sales . . . . . . . . . . . . . . . . . . 162,860 14,757 12,149 55,031 45,537 (32,045) 258,289

Operating expenses . . . . . . . . . . . . . . . . 145,211 17,568 11,686 54,015 43,686 (30,194) 241,972

Operating income (loss) . . . . . . . . . . . . . ¥ 17,649 ¥ (2,811) ¥ 463 ¥ 1,016 ¥ 1,851 ¥ (1,851) ¥ 16,317


2003



Sales to customers . . . . . . . . . . . . . . . $1,356,959 $122,975 $101,242 $457,825 $113,407 $2,152,408

Intersegment sales . . . . . . . . . . . . . . . 208 767 266,067 $(267,042)

Total sales . . . . . . . . . . . . . . . . 1,357,167 122,975 101,242 458,592 379,474 (267,042) 2,152,408

Operating expenses . . . . . . . . . . . . . . 1,210,092 146,400 97,383 450,125 364,050 (251,617) 2,016,433

Operating income (loss) . . . . . . . . . . . $ 147,075 $ (23,425) $ 3,859 $ 8,467 $ 15,424 $ (15,425) $ 135,975

(The change of industry segment)Prior to June 1, 2002, the Company classified business into six segments of “Children & Students Company,” “School& Teacher Support Company,” “Women & Family Company,” “Senior Company,” “Language Instruction and Trans-lation” and “Others.” Effective June 1, 2002, the Company reclassified these six segments into five segments bycombining the Children & Students Company segment and School & Teacher Support Company segment into theEducation Group segment.

This reclassification was implemented to enable the Company to remain a leading private education company bysharing such expertise and resources for creating educational materials as customer and other data accumulated inShinkenzemi correspondence courses, a strength of the former Children & Students Company segment, and infor-mation from teachers in schools and educational course data accumulated through Shinken Simulated Exams, astrength of the former School & Teacher Support Company segment. By this change, the Company will be able tomaximize its collective strength in the education field.

16. SEGMENTINFORMATION


To conform to the segmentation used in 2003, the reclassified segment information of the years ended March 31,2002 and 2001, was shown as below:

Millions of Yen

2002



Sales to customers . . . . . . . . . . . . . . . . . ¥174,729 ¥10,946 ¥ 7,145 ¥62,247 ¥12,183 ¥267,250

Intersegment sales . . . . . . . . . . . . . . . . . 5 35 38,094 ¥(38,134)

Total sales . . . . . . . . . . . . . . . . . . 174,734 10,946 7,145 62,282 50,277 (38,134) 267,250


Operating income (loss) . . . . . . . . . . . . . ¥ 27,021 ¥ (2,016) ¥(1,064) ¥ 584 ¥ 1,545 ¥ (1,481) ¥ 24,589

Millions of Yen

2001



Sales to customers . . . . . . . . . . . . . . . . . ¥184,154 ¥ 9,182 ¥ 3,861 ¥55,258 ¥10,493 ¥262,948

Intersegment sales . . . . . . . . . . . . . . . . . 21 34 38,893 ¥(38,948)

Total sales . . . . . . . . . . . . . . . . . . 184,175 9,182 3,861 55,292 49,386 (38,948) 262,948


Operating income (loss) . . . . . . . . . . . . . ¥ 32,789 ¥(1,192) ¥(2,149) ¥ 1,602 ¥ 763 ¥ (1,535) ¥ 30,278

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

Millions of Yen

2003



Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥71,893 ¥8,689 ¥17,175 ¥59,009 ¥19,423 ¥99,327 ¥275,516

Depreciation and amortization . . . . . . . 5,256 310 507 1,971 709 (181) 8,572

Capital expenditures . . . . . . . . . . . . . . . 3,880 610 1,614 1,281 865 (204) 8,046


2003



Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $599,108 $72,409 $143,125 $491,742 $161,858 $827,725 $2,295,967

Depreciation and amortization . . . . . . . 43,800 2,583 4,225 16,425 5,908 (1,508) 71,433

Capital expenditures . . . . . . . . . . . . . . . 32,333 5,084 13,450 10,675 7,208 (1,700) 67,050


Millions of Yen

2002



Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥75,406 ¥6,840 ¥14,198 ¥75,033 ¥20,530 ¥ 99,386 ¥291,393

Depreciation and amortization . . . . . . . 5,331 195 371 3,719 693 391 10,700

Capital expenditures . . . . . . . . . . . . . . . 6,307 290 1,435 2,280 850 (228) 10,934

Millions of Yen

2001



Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥75,402 ¥6,024 ¥ 8,719 ¥80,858 ¥21,841 ¥116,417 ¥309,261

Depreciation and amortization . . . . . . . 5,300 277 285 3,481 408 (142) 9,609

Capital expenditures . . . . . . . . . . . . . . . 4,648 220 3,240 2,713 241 213 11,275

b. Geographical SegmentsThe foreign operations of the Companies for the years ended March 31, 2003, 2002 and 2001, were summa-rized as follows:

Millions of Yen

2003

North Eliminations/Japan America Others Corporate Consolidated

Sales:To customers . . . . . . . . . . . . . . . . . ¥214,808 ¥15,705 ¥27,776 ¥258,289Inter-area . . . . . . . . . . . . . . . . . . . . 6 ¥ (6)

Total sales . . . . . . . . . . . . . . . 214,808 15,711 27,776 (6) 258,289Operating expenses . . . . . . . . . . . . . 199,105 13,428 29,445 (6) 241,972

Operating income (loss) . . . . . . . . . . ¥ 15,703 ¥ 2,283 ¥ (1,669) ¥ 16,317

Assets . . . . . . . . . . . . . . . . . . . . . . . . . ¥109,721 ¥54,392 ¥ 6,959 ¥104,444 ¥275,516


2003


Sales:To customers . . . . . . . . . . . . . . . . . $1,790,067 $130,875 $231,466 $2,152,408Inter-area . . . . . . . . . . . . . . . . . . . . 50 $ (50)

Total sales . . . . . . . . . . . . . . . 1,790,067 130,925 231,466 (50) 2,152,408Operating expenses . . . . . . . . . . . . . 1,659,208 111,900 245,375 (50) 2,016,433

Operating income (loss) . . . . . . . . . . $ 130,859 $ 19,025 $ (13,909) $ 135,975

Assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 914,342 $453,267 $ 57,992 $870,366 $2,295,967


Millions of Yen

2002




Operating income (loss) . . . . . . . . . . ¥ 24,218 ¥ 959 ¥ (588) ¥ 24,589

Assets . . . . . . . . . . . . . . . . . . . . . . . . . ¥120,310 ¥49,233 ¥16,458 ¥105,392 ¥291,393

Millions of Yen

2001




Operating income . . . . . . . . . . . . . . . ¥ 28,747 ¥ 1,183 ¥ 348 ¥ (0) ¥ 30,278

Assets . . . . . . . . . . . . . . . . . . . . . . . . . ¥115,251 ¥55,951 ¥14,552 ¥123,507 ¥309,261

c. Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2003, 2002 and 2001, were as follows:


2003 2003

North NorthAmerica Others Total America Others Total

Sales to foreign customers (A) . . . ¥15,705 ¥28,059 ¥ 43,764 $130,875 $233,825 $ 364,700Consolidated sales (B) . . . . . . . . . 258,289 2,152,408Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . 6.1% 10.8% 16.9% 6.1% 10.8% 16.9%

Millions of Yen

2002

NorthAmerica Others Total

Sales to foreign customers (A) . . . ¥20,095 ¥30,689 ¥ 50,784Consolidated sales (B) . . . . . . . . . 267,250Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . 7.5% 11.5% 19.0%


a. Stock Option PlanAt the general shareholders meeting held on June 25, 2003, the Company’s shareholders approved the stock op-tion plan for the Company’s directors and corporate executive officers to purchase up to 1,000,000 shares of theCompany’s common stock in the period from July 1, 2005 to June 30, 2009. The options will be granted at anexercise price of 105% of the higher price, either the average market value of the Company’s common stock in themonth prior to which the date of option grant occurs, or the fair market value of the Company’s common stock atthe previous date of option grant.

b. Purchase of Treasury StockAt the general shareholders meeting held on June 25, 2003, the Company’s shareholders approved the purchase oftreasury stock. The Company is authorized to repurchase up to 5,000,000 shares of the Company’s common stock(aggregate amount of ¥10,000 million).

c. Appropriations of Retained EarningsThe following appropriations of retained earnings at March 31, 2003, were approved by the Company’s sharehold-ers at a meeting held on June 25, 2003:


2003 2003

Year-end cash dividends, ¥14.5 ($0.12) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,522 $12,683Bonuses to directors and corporate auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 975

17. SUBSEQUENTEVENTS

Millions of Yen

2001

NorthAmerica Others Total

Sales to foreign customers (A) . . . ¥17,767 ¥26,985 ¥ 44,752Consolidated sales (B) . . . . . . . . . 262,948Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . 6.7% 10.3% 17.0%

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


To the Board of Directors of Benesse Corporation:

We have audited the accompanying consolidated balance sheets of Benesse Corporation and consoli-

dated subsidiaries as of March 31, 2003, 2002 and 2001, and the related consolidated statements of

income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31,

2003, all expressed in Japanese yen. These consolidated financial statements are the responsibility of

the Company’s management. Our responsibility is to express an opinion on these consolidated finan-

cial statements based on our audits.

We conducted our audits in accordance with auditing standards, procedures and practices generally

accepted and applied in Japan. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement. An

audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement presentation. We

believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the consolidated financial position of Benesse Corporation and consolidated subsidiaries as

of March 31, 2003, 2002 and 2001, and the consolidated results of their operations and their cash flows

for each of the three years in the period ended March 31, 2003, in conformity with accounting principles

and practices generally accepted in Japan.

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, a U.S.

based subsidiary, Berlitz International, Inc., adopted a new accounting standard for goodwill, State-

ment of Financial Accounting Standards No.142, “Goodwill and Other Intangible Assets” in accor-

dance with accounting principles generally accepted in the United States of America.

Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts

and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such

U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

June 25, 2003

INDEPENDENT AUDITORS’ REPORT

ANNUAL REPORT 200368 ANNUAL REPORT 200368

BENESSE CORPORATION ORGANIZATION OF 2003

As of July 1, 2003

Branch OfficeOkayama HeadquartersTokyo Head OfficeHokkaido OfficeTohoku OfficeKanto OfficeTokyo OfficeNagoya OfficeHokuriku OfficeOsaka OfficeChugoku-Shikoku OfficeKyushu OfficeTaipei Office

General Meeting of Shareholders

Board of Directors

Chairman & CEO

President & COO

Corporate PlanningDivision

Business DevelopmentDepartment

Subsidiaries & AffiliatesAdministration Department

Personnel & GeneralAffairs Division

Accounting & FinanceDepartment

Legal & ComplianceDepartment

Information Systems & ProcessInfrastructure Management Division

Audit Office

Corporate Organization Company Organization

Research &Educational BusinessDevelopment Division

Senior High School & Junior High SchoolEducation Company

Elementary School Education Company

Preschool Education Company

School & Teacher Support Company

Women & Family Company

Language Company

Senior Company

Board of Corporate Auditors

ANNUAL REPORT 2003 69ANNUAL REPORT 2003 69

CONSOLIDATED SUBSIDIARIES

Common Ratio of

Name of company stock shareholding Description of businessMillions of Yen %

Telemarketing Japan, Inc. 300 100.00 Telemarketing

Synform Co., Ltd. 95 100.00 Computer information processing and systems development sales

Sympres Co., Ltd. 95 51.05 Prepress operations

Okayama Language Center 50 75.00 Language instruction and translation services

Benesse en-Famille Inc. 50 66.00 Home food-delivery service

Benesse Cross World, Inc. 50 100.00 Planning and organizing travel, publishing and sale of magazines

Plandit Co., Ltd. 40 100.00 Planning and editing of study materials

Simul International, Inc. 40 100.00 Interpretation, translation and language instruction services, equipment support for simultaneous interpretation

CRM Direct, Inc. 40 *1 100.00 Direct marketing planning and support business

Shinkoukai Co., Ltd. 30 100.00 Operation of senior citizen welfare business

Benesse MCM Corp. 30 100.00 Support for nursing care 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 Order, production, sale and management distribution services of study materials and software

Benesse Insurance Service, Inc. 20 91.97 Insurance agency business

B.C. ESTATE Co., Ltd. 10 100.00 Real estate management

Okayama Fukutake Publishing Co., Ltd. 10 100.00 Production and sale of study materials, educational devices and student pocketbooks

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

Benesse Care Corporation 10 100.00 Operation of senior citizen welfare business

Learn-S Co., Ltd. 10 100.00 Planning and editing of study materials

Benesse Business Service Co., Ltd. 10 100.00 Clerical services for accounting and general affairs

Benesse Senior Style Corp. 10 100.00 Operation of senior citizen welfare business

Thousands ofU.S. Dollars %

Berlitz International, Inc. 1,005 *3 100.00 Language instruction

U.S. Dollars %

Benesse Holdings International, Inc. 5.48 100.00 Holding company

Thousands ofU.S. Dollars %

Value Communication Services 1,150 *1100.00 Call center planning, operation(Shanghai), Inc.

*1 Indirectly held through Telemarketing Japan, Inc.*2 Indirectly held through Simul International, Inc.*3 Indirectly held through Benesse Holdings International, Inc.

As of March 31, 2003


THE HISTORY OF BENESSE CORPORATION

Year History

1955 Fukutake Publishing Co., Ltd., is established in Minamigata, Okayama prefecture, and begins publishing junior high school

educational 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) for senior high school students 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) for junior high school students is

launched.

1973 Kansai Simulated Exams are renamed Shinken Simulated Exams.

Correspondence Education Seminar is renamed Shinkenzemi.

1980 Shinkenzemi Elementary School Courses is introduced.

1988 Shinkenzemi Preschool Courses (for age 4 to 5) is 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 age 2 to 3) is 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.

Learn-S Co., Ltd. is established.

Benesse en-Famille Inc. is established through joint capital investment with Taihei, a home food-delivery company.

2002 Benesse enters a capital and business alliance with UP Inc.

2003 Benesse introduces Corporate Executive Officer System and Group Executive Officer System.

ANNUAL REPORT 2003 71ANNUAL REPORT 2003 71

INVESTOR INFORMATION

As of March 31, 2003

Number of Shares Outstanding: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:UFJ Trust Bank Limited

Number of Shareholders:44,295

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. 4,847 4.55The Master Trust Bank of Japan, Ltd. 4,544 4.27The Chugoku Bank, Ltd. 4,337 4.07Reiko Fukutake 3,174 2.98Nobuko Fukutake 2,769 2.60

Northern Trust Company AVFC Sub-accountAmerican Clients 2,728 2.56

Mitsuko Fukutake 2,675 2.51Junko Fukutake 2,675 2.51Fukutake Education Foundation 2,430 2.28

Stock Price Range & Trading Volume (Osaka Securities Exchange):

Shareholdings by Type of Shareholder (%):

Financial Institutions27.19%

Other Corporations9.31%

Foreign Companies—Other11.87%

Individuals andOther50.04%

Securities Companies1.59%

99/10 99/12 00/2 00/4 00/6 00/8 00/10 00/12 01/2 01/4 01/6 01/8 01/10 01/12 02/2 02/4 02/6 02/8 02/10 02/12 03/2 03/4 03/60

15,000

9,000

12,000

6,000

3,000

Stock Price Range (Yen)

99/10 99/12 00/2 00/4 00/6 00/8 00/10 00/12 01/2 01/4 01/6 01/8 01/10 01/12 02/2 02/4 02/6 02/8 02/10 02/12 03/2 03/4 03/60

10,000,000

5,000,000

Trading Volume (Share)


THE BENESSE CODE OF CORPORATE CONDUCT

Benesse, the very name of our company means to live well.We are dedicated to the challenge of living up to our name by making integrity the founding principle

for our growth as a strong and competitive corporation.

As employees of the Benesse Group,we will constantly strive to bring the benefits of our goal of “living well” to all our stakeholders,to place the utmost importance upon integrity, and to make integrity the basis of all our actions

and the key to achieving our success as a corporation.

“The Benesse Code of Corporate Conduct” and “The Benesse Standard of Conduct”are designed to serve as a guide for ensuring that integrity serves as the basis of our day to day activity.

For our customers:At Benesse we extend our promise of living well to all our customers: from the smallest infant to the most senior citizen. We take pridein offering our customers services of the highest possible quality: services which we and the members of our own families would behappy to receive. The needs and well being of our customers are therefore of the utmost importance to us all, and the satisfaction of ourcustomers is the measure by which we evaluate all of our achievements.

By dedicating ourselves to the service of our customers in this manner, and by treating our customers as we and our own familieswould like to be treated, we strive to provide our customers with the goods and services best suited to them, in a timely manner and atthe most reasonable prices possible.

Conducting our business in this way requires that we collect information of a personal nature from our customers. We take thecollection and management of this information to be a grave responsibility, and are constantly reviewing our business practices in orderto ensure that we are worthy of the trust hereby shown to us by our customers.

To our partners in business:Our success as a business, and our ability to satisfy our customers, is largely due to the co-operation we receive from our businesspartners. We emphasize the importance of the role of our business partners in the achievement of our corporate mission by formalizingin writing our relationship with them as equal partners. In this way, all those involved in fulfilling the mission of Benesse are made clearlyaware of their role, their responsibilities and their contribution in creating prosperity for all.

To our colleagues:Our achievements are the result of the individual efforts of our employees and of their combined strengths as a dedicated team. Becauseof this we place great value upon our culture of challenge and voracity, and encourage behavior based upon initiative and originality. Asmembers of Benesse we must treat each other with respect, recognize our different individual strengths and strive to create a workplacewhere these strengths may be combined for the benefit of all. Each employee of Benesse is expected to act as a mature individual, takingthe responsibility for their own actions and the achievement of their given tasks.

Benesse makes every effort to ensure that its employees are evaluated fairly and rewarded accordingly, and that motivated and skilledemployees are given the opportunity to further develop their abilities and to advance within the organization. We seek to create aworkplace wherein talented individuals inspire each other to greater achievements and levels of expertise.

To our community:Our business is based upon supporting and assisting individuals and families in their everyday lives; as such our business would not bepossible without a strong and positive relationship with the community. At Benesse we hold a clear vision for the future, which we striveto realize by positive action and leadership. Fully aware of our influence upon society, Benesse is mindful of its obligation to contributeto the community as a responsible corporate citizen, and is actively involved in environmental initiatives as part of its obligation as aresponsible consumer of natural resources. Living up to our name, we at Benesse believe that it is our duty to aim to adhere to thehighest standards in business ethics, to be vigilant in our pursuit of social justice, and to act with integrity towards all individuals andorganizations with which we come into contact.

To our shareholders:Our shareholders have great expectations for their investments in Benesse. In order to meet these expectations we must pursue innova-tion by means of an ongoing regimen of research and development so as to ensure that our business activities remain profitable. At thesame time, we feel obligated to fully disclose the nature and contents of our business activities so that we may be able to discharge theresponsibility of conducting our business in a manner which is both fair and safe.

It is our belief that in order for our shareholders to realize a good return on their investment in Benesse, we must first fully comply withthe standards set out in our code of corporate conduct and maintain a comprehensive and consistent disclosure of information to all ourstakeholders.

Copyright (C) 2003 Benesse Corporation All Rights Reserved.

ANNUAL REPORT 2003

Printed on recycled paper in Japan

Accounting & Finance DepartmentIR Section1-34, Ochiai, Tama-shi, Tokyo 206-8686, JapanPhone: 81-42-356-0808Facsimile: 81-42-356-0722E-mail: [email protected]: http://www.benesse.co.jp/IR

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