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Annual Report 2002 29

Annual Report 2002FOR THE YEAR ENDED MARCH 31, 2002

CONTENTS

Corporate Philosophy 1Benesse for Life 5Message from the President 6Questions & Answers 10Business Activities

Children & Students Company 14School & Teacher Support Company 18Women & Family Company 20Senior Company 22Language Instruction and Translation 24Others 26

Financial Section 27Benesse Corporation Organization of 2002 62Consolidated Subsidiaries 63Board of Directors and Corporate Auditors 64The History of Benesse Corporation 65Investor Information 66The Benesse Code of Corporate Conduct 67

CONSOLIDATED FINANCIAL HIGHLIGHTSBenesse Corporation and Consolidated Subsidiaries

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

Thousands ofMillions of Yen U.S. Dollars

Years ended March 31, 2002 and 2001 2002 2001 2002

FOR THE YEAR:Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥267,250 ¥262,948 1.6% $2,009,398Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,589 30,278 (18.8) 184,880Income before Income Taxes, Minority Interests andImpairment Loss on Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,195 29,985 (19.3) 181,918

Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 16,498 (98.0) 2,459

AT YEAR-END:Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥291,393 ¥309,261 (5.8)% $2,190,925Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,826 170,011 1.1 1,291,925

Yen U.S. Dollars

PER SHARE OF COMMON STOCK:Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3 ¥ 155 $ 0.02Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,616 1,599 12.15Cash Dividends Applicable to the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 29 0.22

Percentage

RATIOS:Equity Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.0% 55.0%Return on Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 10.0Return on Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 5.4

Employees

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,051 9,081

Notes: 1. U.S. dollar figures are translated, for convenience only, at the rate of ¥133 to U.S.$1, the effective rate of exchange prevailing on March 31, 2002.2. 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. The computation of the weighted-average number of shares of common stock outstanding during each year and the number of shares outstanding at fiscal

year-end is retroactively adjusted for the effect of a 1:2 stock split made on May 19, 2000.4. Return on Equity is calculated based on the average of total shareholders’ equity at the beginning and end of each fiscal year.5. Return on Assets is calculated based on the average of total assets at the beginning and end of each fiscal year.

PercentageChange


0 TO

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.

Benesse Corporation is committed to help each and every customer live well. To live well, we must

make decisions on a range of issues in our daily lives. We at Benesse believe in a way of living that

brings people closer, step by step, to their dreams and aspirations in an enjoyable process.

Benesse Corporation’s business fields encompass babies through to the aged and are built around

the universal themes of education, language, lifestyle and welfare.

In every aspect of life, from school to childbirth, raising children, families and living with old age,

Benesse Corporation understands the desire for fulfillment and the issues and problems surrounding

each of our customers. It is our mission to work together with our customers to help them solve

problems and realize their ambitions.

CORPORATE PHILOSOPHY

2

CHILDREN & STUDENTS COMPANY

Shinken Simulated Exams

Study Support

Course Map

Proficiency Test of English

English conversation classes for preschool childrenand elementary school students

BE-GO Junior

Shinkenzemi

BE-GO Basic

Preschool CoursesLower ElementarySchool Courses

Upper ElementarySchool Courses

Junior High SchoolCourses

Senior HighSchool Courses

Benesse Childcare Center

SCHOOL & TEACHER SUPPORT COMPANY

Ta-Net Land

Berlitz International, Inc.

LANGUAGE INSTRUCTION AND TRANSLATION

1 YEAR OLDAt this age everything I see is newand I am full of dreams.

6 YEARS OLDI enter school, begin to study andmake many friends.

12 YEARS OLDI enter junior high school andbecome very busy with study andclub activities.

15 YEARS OLDI enter high school and begin tothink seriously about my academicand career path.


WOMEN & FAMILY COMPANYTamago Club

Hiyoko Club

Tamahiyo Kokko Club

Benesse Women’s Park

bon merci! little

Benesse Home Food-Delivery

DOG’S HEART

THANK YOU!

Simul International, Inc.

Home-Helper Level-Two Training Courses

39 YEARS OLDI enjoy a life filled with opportunitiesand meet many people through myhobbies and community activities.

20 YEARS OLDI study seriously to realize mydreams.

27 YEARS OLDMy family grows, and I begin thecontinuous process of discoverythat comes with childrearing.

36 YEARS OLDEveryday is packed full, as I try tobalance work and interests.

bon merci! school

4

50 YEARS OLDAlthough I am busy at work, I priori-tize the time I spend with my family.

83 YEARS OLDI pay close attention to my health andcontinue to focus on my interests.

66 YEARS OLDHappy Retirement. Chapter two ofmy life begins.

48 YEARS OLDMy childrearing phase is com-plete and I am becoming con-cerned about the health of myaging parents.

WOMEN & FAMILY COMPANY

Granny/Granda nursing home

Home-Help Services

Benesse Home Clara nursing home

Aile for You

Cross World


DOG’S HEART

SENIOR COMPANY

LANGUAGE INSTRUCTION AND TRANSLATIONBerlitz International, Inc.


Home-Helper Level-Two Training Courses


Benesse for LifeAt Benesse, we believe all people want to live a life that suits and satisfies them.Benesse supports people of every generation to live well, offering a diverse rangeof services at its friendly facilities that provide meaningful human interaction.

6

MESSAGE FROM THE PRESIDENT

The Benesse Group’s operating environment is currently undergoing unprecedented

change. The reform of Japan’s education system from April 2002 has heightened aware-

ness about education issues among parents and guardians and given rise to concerns

about public education. Increasingly, private education is expected to fill the breach.

Accordingly, an unprecedented array of individualized and diverse private education

services is appearing on the scene. Compounding these shifts in the market, the propor-

tion of household expenditure allocated to education has declined due to the downturn in

the Japanese economy. The end result has been a market characterized by intensifying

competition in both services and prices.

Meanwhile, according to statistics released by the National

Institute of Population and Social Security Research in April

2002, the aging of Japanese society is projected to pro-

ceed at an even faster pace than previously forecasted.

Despite this, the introduction of the Public Nursing Insur-

ance Law did not lead to the widespread growth of private

nursing care as initially expected. However, as Japanese

society ages, demand for nursing care is increasing and our

business in this area is on track to meet this demand.

REVIEW OF FISCAL 2001

In fiscal 2001, ended March 31, 2002 consolidated net sales

increased in all segments except the Children & Students (C&S)

Company, growing 1.6% to ¥267,250 million. This result primarily

reflected strong growth in the number of residents at the facilities of

our Senior Company and increased sales on a U.S. dollar basis of our

subsidiary Berlitz International, Inc. (BI) as well as exchange rate gains due

to the weak yen. Operating income declined 18.8% to ¥24,589 million along

with a drop in income from the C&S Company. We recorded a valuation loss

on goodwill of ¥13,195 million associated with BI. This loss reflected the adop-

tion of a new U.S. accounting principle for goodwill. As a result net income

declined 98.0% to ¥327 million.

Soichiro FukutakePresident


Enrollments of junior high school and senior high school students in Shinkenzemi, the C&S

Company’s main business, decreased significantly. The background to this fall was the intro-

duction in April 2002 of new curriculum guidelines outlined in the New Course of Study by the

Ministry of Education, Culture, Sports, Science and Technology, which led to lower course

requirements. This in turn generated increased concern among parents and guardians regard-

ing a decline in the academic ability of their children. Consequently, private education services

have become the focus of unprecedented attention, with parents and guardians placing greater

emphasis, when choosing courses, on course content and cost. In addition, the market has

been growing more competitive. These trends have been held up as the reasons for the weaker

performance of Shinkenzemi during the year.

We adapted to this environment by renewing our educational materials in fiscal 2001. This

included extending services beyond support for the education system to incorporate fundamen-

tal academic ability, and education materials that focus on the essential elements of the school

curriculum. However, in fiscal 2001 this content revision had not been effectively communi-

cated to the market, and Shinkenzemi could not shake off the image that course content merely

followed standard school textbooks.

In the future, it will be necessary for the new Shinkenzemi to penetrate the market more

deeply and develop further.

FUNDAMENTAL POLICY

In our corporate activities, we believe that there are some things that remain constant in any era,

and others that must shift with the times and environment. Our enduring strength is our wealth

of human resources and, as we shift from a focus on products to a focus on people, our mission

is to provide society with the services that individuals and their families require.

We examined current trends and initiated a range of moves targeting next-generation growth.

These moves included introducing a customer-specific in-house company system, in 1999, to

facilitate a thorough customer-centered approach. In addition, we established the Senior Company

to tackle changes related to the declining birthrate and aging of Japanese society, and strength-

ened our language business to take advantage of the strong demand for language education.

Other measures were the discontinuation of some outdated publications and the creation of a

new business model that takes into account women and families.

8

GOALS AND OBJECTIVES

The Benesse Group has established and has been steadily working on the following three major

goals since fiscal 2000:

• Become the leading company in the private education market.

• Assume the leading position in language services in Japan.

• Establish and grow community-based businesses to help enhance Life Time Value (LTV).

Become the leading company in the private education market

In June 2002, we integrated our Children & Students (C&S) Company and our School & Teacher

Support (S&TS) Company to create the new Education Company. The C&S Company possesses

a wealth of information and data in relation to customers, as well as expertise and fundamental

business knowledge in the area of creating educational materials via its Shinkenzemi opera-

tions. Meanwhile, the S&TS Company has gleaned information from teachers as well as Shinken

Simulated Exams. By combining the expertise and resources of these two companies we will

create a leading position in the field of private education with broad capabilities in education.

Assume the leading position in language services in Japan

In July 2001, we made BI a wholly owned subsidiary and in January 2002 we established the

Language Company. By concentrating the Group’s language resources in this company, and

establishing a system for implementing strategy rapidly and efficiently, Benesse aims to achieve

growth and expansion across the entire Group.

Establish and grow community-based businesses to help enhance Life Time Value (LTV)

Targeting a strong community-based business, we are reinforcing our relationship with sub-

scribers in the Women & Family (W&F) Company by expanding subscription magazines. In

addition, we are establishing new peripheral businesses that target our customer-base through

affiliations with other companies.


BOOSTING PROFITABILITY AND COMPETITIVENESS

We are expanding the scope of our business in the areas outlined in our three major goals. In

addition to these three goals we have introduced four specific objectives to boost profitability

and competitiveness:

• Build a stable management structure that can provide a ratio of operating income to net

sales of greater than 10% by fiscal 2004.

• Remove the dependence on Shinkenzemi from the earnings structure. And, based on

independent accounting of results for each in-house company, create a profitable and

autonomous management structure.

• Restructure and reinforce the Group structure to enable comprehensive capabilities and

an appropriate response to change.

• Focus on a strong earnings base and a solid management foundation to ensure busi-

ness growth.

With these additional business approaches, we are targeting sustainable growth. By strength-

ening corporate competitiveness, we aim to enhance performance and further increase our

corporate value. We look forward to the continued support and understanding of all stakehold-

ers in the Benesse Group.

August 2002

Soichiro Fukutake

President

10

Q

A

The introduction of Japan’s new curriculum guidelines outlined in the New Course of

Study began at elementary school and junior high school in April 2002 and will start at

senior high school in April 2003. What effect are the changes having on Benesse?

The current reform of the Japanese national education system provides a highly advantageous

business environment for private-sector education providers. We are convinced that we can

seize this opportunity and further develop our education businesses.

The following three reasons explain this conviction.

First, when we examine the fundamental policy behind the current reform of the national

education system, we notice a dramatic shift in Japanese education from a public business

conducted by national and regional governments to a business run by the private sector and

companies. We expect regulations related to education to be relaxed further and the private

education market to grow.

Second, the reforms have provoked concern for, and dissatisfaction with, public education.

The New Course of Study, which is the main pillar of these current reforms, has reduced course

content of mandatory subjects in elementary and junior high school by about 30%. This has

caused, parents and guardians, who send their children to public schools, to fear that the

academic ability of their own child might fall. Consequently, demand for private-sector educa-

tion services can be expected to steadily increase.

Third, each and every child is a unique individual and demand is increasing for education

services that take this individuality into account. The public education system, for the most part,

finds it extremely difficult to cater to this diversity. At Benesse we offer a highly diverse range of

services that extend beyond correspondence courses to courses such as BE-GO, which makes

use of computers and the Internet, and English Conversation Classes for Children.

These opportunities have to be won. The competition between private-sector education provid-

ers is intensifying. Even Shinkenzemi, which until recently maintained steadily increasing enroll-

ments as a key form of education supplementing the public education system, is experiencing a

steep increase in competition in both services and prices. Customers’ needs are shifting away

from educational material based on school textbooks and from mass services and products devel-

oped on a national scale. With this kind of individualization and diversification of educational

needs, customers are scrutinizing services more carefully. We will leverage our expertise and the

relationship of trust and reliability that we have established through building Japan’s largest edu-

cation services business to further develop business in the field of education.

QUESTIONS & ANSWERS


QA

In July 2001, Benesse made Berlitz International, Inc. into a wholly owned subsidiary.

What is the aim of this move?

The aim is to build a system for our language business that is capable of implementing strate-

gies quickly and flexibly. Berlitz International, Inc. (BI) had been listed on the New York Stock

Exchange and had developed business while taking into consideration a large base of minority

interest shareholders. Now as a wholly owned subsidiary, BI can develop business with a high

degree of freedom within the framework of the management strategy of the Benesse Group.

After we made BI into a wholly owned subsidiary we began aggressively expanding the bases

of this subsidiary in Asia, especially in Japan, where demand for language services is very high.

Benesse is providing broad support to BI in their efforts to expand.

Please outline the progress of the Senior Company.

Benesse is aggressively expanding senior citizens’ nursing-care group home businesses through

its Senior Company subsidiaries Benesse Care Corporation and Shinkoukai Co., Ltd.

In rapidly aging Japan, the National Institute of Population and Social Security Research

forecasts that about 29% of the population will be over 65 years old by 2025. With a population

profile like this, the burden of providing nursing care for senior citizens cannot remain the sole

responsibility of the national government—private sector involvement is very important.

Benesse has quickly entered this field and has established a business model for the provi-

sion of nursing-care services and nursing-care facilities. This business model centers on

demand in and around large cities and adopts low-risk methods to keep capital expenditure

low. These methods involve renovating and remodeling unused company accommodation

and utilizing leasehold properties. As of March 2002, Benesse had 47 nursing-care facilities

located mainly in the Tokyo area. With resident intakes steadily increasing, in fiscal 2002,

ending March 2003, the Company expects to post a net profit for its nursing-care services

and nursing-care facilities business.

QA

12

QA

Please outline future management strategy in each business area.

Education Business

Benesse integrated the C&S Company, which offers education materials and services for home

study and the S&TS Company, a business that supports schools and teachers. The new Educa-

tion Company aims to provide the highest level of trust and reliability in its relationships with

schools and families.

In the C&S Company we are conducting a comprehensive review of Shinkenzemi. To cater

for changing customer needs we are rebuilding the basic strengths and values of our education

materials and changing content and marketing methods. We are moving into fields other than

correspondence courses and to accommodate the requirements of an increasing number of

students that find self-study difficult we plan to establish classroom-based courses. In addition,

we are offering new materials that use computers and the Internet. Benesse has a wealth of

expertise in English conversation classes for children and in the language instruction business,

which we can leverage to encourage the classroom-based business. In addition, we are vigor-

ously encouraging affiliations with other companies, and mergers and acquisitions, to ensure

our move into this business is successful.

The S&TS Company is bolstering its position as a partner to schools and teachers. To achieve

this, the S&TS Company is expanding from its current business with high schools to businesses

for elementary and junior high school and is offering new products and services that meet the

requirements of the New Course of Study.

Language Business

Berlitz International, Inc. (BI) is speeding up its classroom-based network in Japan with coop-

eration from Benesse. As of December 2001, BI had 52 bases in Japan and, four years from

this date, these will be increased by 70 for a total of 122. The financial and personnel support

needed to achieve this expansion will be provided by Benesse. By fiscal 2005, Benesse aims to

be the leading language educator in Japan. In September 2002, we will enhance our language

teaching by introducing a new curriculum, Berlitz English.

Senior Citizen Welfare Business

We plan to expand our senior citizen welfare business by expanding nursing homes into 20 new

locations every year mainly in the Tokyo area. In 2002 a new kind of care housing was intro-

duced and we will become involved in this to take advantage of the strong growth in private-

sector nursing and the even greater growth expected in the future. This new care housing will be

developed through Private Finance Initiatives (PFI) promoted by local government bodies. In

addition, with our base in nursing home facilities, we believe we can generate even more growth

through community care services in regional areas and day services.


QA

Community-Based Business

In our community-based business, handled by our W&F Company, we are forming strong ties

with our customers through media such as magazines and the Internet. Through the enduring

relationship formed with customers we are able to develop new business value. Currently, we

are aiming to build a new business model to make effective use of our relationship with custom-

ers. We are establishing new media such as subscription-based magazines, establishing

peripheral businesses and steadily building and creating business value.

Please outline the Benesse’s stance on corporate governance.

Three of Benesse’s four corporate auditors are outside auditors. This strengthens management

supervision at the Company. We do not have many members on our board of directors, which

allows vigorous discussion of issues.

Compliance, an important element of corporate governance, is achieved through our internal

control system. This system does not merely monitor compliance in relation to regulations but

acts on company rules and ethics, and considers how to achieve goals set out in our corporate

philosophy and vision. To familiarize all employees with the Company’s stance, Benesse estab-

lished “The Benesse Code of Corporate Conduct” and “The Benesse Standard of Conduct.” In

addition, we are strengthening systems to monitor our standards through establishing a busi-

ness ethics committee and an ethics hotline for employees.

What are your views in relation to shareholder value?

Benesse believes it is necessary to invest funds derived from business back into growth-gener-

ating businesses. This increases our corporate value by enhancing future earnings and thereby

our ability to provide returns to shareholders. To ensure a rapid response to our changing oper-

ating environment, we must speed up business development. For this reason, we are promoting

affiliations with other companies, and mergers and acquisitions as measures to ensure the

effective use of funds.

To enable more flexible equity management and enhance value for shareholders, we plan to

conduct a repurchase of treasury stock to a ceiling of 2 million shares, or ¥6 billion.

In the future, we will maintain our fundamental policy to provide stable dividends to share-

holders. Benesse paid an interim dividend of ¥14.50 per share and a year-end dividend of

¥14.50 per share, bringing cash dividends for fiscal 2001, ended March 2002, to ¥29 per share.

QA

14

BUSINESS ACTIVITIES

CHILDREN & STUDENTS COMPANY

SHINKENZEMI CORRESPONDENCE

COURSES

Established in 1969, Shinkenzemi is the larg-

est correspondence program in Japan. The

program comprises 17 individualized courses

for students ranging from one year old to third

year high school.

Shinkenzemi correspondence courses form the mainstay of the Children & Students

(C&S) Company. The C&S Company develops and provides educational materials for

home study to cater for students ranging from preschoolers to university students. The

company is now developing a range of new products and services that respond to the

changing operating environment and diversifying customer needs. These products in-

clude educational materials using new media, such as the computer- and Internet-

based BE-GO self-study English course, and Pocket Challenge, an electronic device to

aid the memorization of study material. The classroom-based English Conversation

Classes for Children, is also part of this new lineup.

OVERVIEW

Total enrollment in Shinkenzemi, as of April

2002, was 3.87 million students, a decline of

230,000 from the previous year.

By course, Preschool Courses and Lower

Elementary School Courses recorded favorable

enrollments. This largely reflected success in

maintaining a high market share and the

strong reputation of Preschool Courses,

courses that target children aged 1-6 and their

parents and guardians. Generally, all courses

from Preschool Courses to the Lower Elemen-

tary School Courses maintained a high student

retention rate.

Falling enrollments in Upper Elementary

School Courses, Junior High School and Senior

High School Courses reflected the declining

birthrate in Japan and increasing concern

Segment Sales to Total Sales

59.08%

Preschool Courses Junior High School Courses


about public education. This concern

stemmed from the introduction of new cur-

riculum guidelines outlined in the New Course

of Study by the Ministry of Education, Culture,

Sports, Science and Technology. As a result,

parents and guardians are carefully choosing

educational services for their children, espe-

cially those outside the regular school curricu-

lum. In addition, competition is intensifying as

cram schools and other competitors in the

industry extend their services to satisfy the

myriad of increasingly diverse customer needs.

In this environment, the mass packaging of

materials and mass marketing methods of

Shinkenzemi were unable to completely sat-

isfy the proliferation of different regional and

customer needs. Analysis also attributed this

decline in enrollments to the inability to shake

off the image that Shinkenzemi is a traditional,

school textbook-based course. In addition, the

academic level was considered inappropriate

for high achievers and those who seek to learn

beyond the confines of textbooks.

RENEWAL OF EDUCATIONAL

MATERIALS FROM APRIL 2002

New national curriculum guidelines for

elementary and junior high school education,

called the New Course of Study, began in April

2002. In response to these guidelines, the C&S

Company renewed its education materials. The

new materials are based on the guidelines and

curriculum in the New Course of Study and

seek to foster interest in the course content

while training students to think more for them-

selves. Content deemed essential to shaping

academic ability has been retained in our

materials, despite its removal from the New

Course of Study.

ORGANIZATIONAL RESTRUCTURE

In June 2002, we combined the C&S Com-

pany and the School & Teacher Support

(S&TS) Company into a single organization—

the Education Company. Bringing together

educational and marketing expertise as well

as information on schools and regions, will

make it possible for the new company to make

broad revisions to the educational materials

and services of Shinkenzemi.

Furthermore, the new company aims to

establish an enduring learning approach with

the merging of school education and corre-

spondence courses.

FURTHER MEASURES FOR CHANGE

In fiscal 2002, together with creating a lineup

that better meets customer needs and upgrad-

ing products and services, the new company

is considering how to promote understanding

in the market in relation to the materials,

services and effectiveness of the new

Shinkenzemi.

In fiscal 2002, the new company will focus

on the following areas.

1. Introducing Educational Materials Tailored

to Different Academic Levels

There is an increasing need for educational

materials that match the individual academic

level of each learner. We will prepare educa-

tional materials that provide a solid basic

foundation in each subject and study unit.

These materials offer learning based on con-

tent that progresses with the development of

each student and is appropriately matched

to individual ability. The materials therefore

allow students to study at their own pace and

academic level.

0

50,000

20,000

10,000

30,000

40,000

Thousands of studentsEnrollments in Shinkenzemi Over a Full Year

98 99 00 01 02

46,92048,630 49,690

46,48044,850

Years ended March 31

0

5,000

2,000

1,000

3,000

4,000

Thousands of studentsShinkenzemi Enrollments as of April

98 99 00 01 02

4,200 4,200 4,1003,8704,010

As of April

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

16

2.Strengthening Area Marketing

The education reforms increased the degree

to which each school can determine its own

courses. As a result, the curriculums at pub-

lic schools have features unique to each school

and region. This has meant greater diversity

between regions and schools. To adapt to

these changes, the C&S Company is currently

initiating a number of initiatives by making use

of its networks in each region and affiliations

with each school. These efforts enable the C&S

Company to provide timely services suited to

the diverse needs of each region and school.

For example, Shinkenzemi courses are be-

ing prepared to match the progress and event

schedule of each school, while offering

detailed information on the entrance exams

in each region.

3.Reinforcing Marketing Targeted at Parents

and Guardians

Against a background of increasing concern

by parents and guardians about education,

families are increasingly selecting from a

broader base of after school and home-

based educational options in the private

school sector. The C&S Company believes it

is important to win greater trust from par-

ents and guardians.

Targeting parents and guardians, the C&S

Company conducts detailed recognition and

marketing surveys of parents and guardians

in relation to Shinkenzemi. This information

allows the C&S Company to focus closely on

the concerns and needs of parents and guard-

ians. The C&S Company also regularly pub-

lishes booklets for parents and guardians on

educational themes and enhances communi-

cation with parents by providing answers to

questions and concerns about the education

of their children. Furthermore, the C&S

Company’s public relations activities commu-

nicate the educational views of Benesse and

the effectiveness of Shinkenzemi.

OTHER BUSINESSES

These efforts to reorganize the core

Shinkenzemi business go hand in hand with

efforts to reinforce the C&S Company’s earn-

ings base in new business areas beyond cor-

respondence courses.

CLASSROOM-BASED BUSINESS

The C&S Company is starting businesses

based on classroom lessons to accommo-

date the requirements of students that can-

not be satisfied through correspondence

courses. These include the increasing num-

ber of children who find self-study difficult,

and increasing demand for preschool

English conversation.

From fiscal 2001, the C&S Company began

developing community-based English

conversation classes for preschool and

elementary school children. These classes are

based on a curriculum tailored to students’

abilities and interests. Learning experiences

are closely linked to the daily life. By April 2002

the number of these community-based English

classes had grown to 126, chiefly in the Tokyo

Metropolitan area, with plans on the table to

increase this number further.

Using its expertise in classroom and face-

to-face businesses fostered through children’s

Senior High School Courses


English classes and home-tutoring services,

the C&S Company is developing a new cram

school business targeting students from

elementary to high school. The new schools

will be based on Benesse ’s renowned

approach to education—encouraging students

to develop the ability to think for themselves.

EDUCATION MATERIALS USING

NEW MEDIA

From April 2001, the C&S Company launched

the English conversation study materials BE-GO

Junior 1, which focus on entry-level English

study for 10 to 13 year olds. The BE-GO

course is a new English learning resource

centered around personal computer tools,

and includes activities to promote speaking

ability through games and an interactive

Internet link with native speakers based over-

seas. In preparation for an increase in enroll-

ments, from April 2002 the BE-GO Junior 2

course was added as an extension to the BE-GO

Junior 1 course, while from May in the same

year, the BE-GO Basic course, targeting stu-

dents from high school and higher, began.

As of April 2002, enrollments for BE-GO

Junior 1 and BE-GO Junior 2 totaled

approximately 52,000.

In addition, the Pocket Challenge, an elec-

tronic device to aid the memorization of study

material, posted strong sales.

CHILDCARE BUSINESS

The Japanese government has announced a

plan to increase childcare places for 150,000

children by 2004. In Tokyo and surrounding

regions, which have long waiting lists at

childcare facilities, each relevant government

body has been increasing capacity at nursery

school facilities.

Benesse became the first private business

to acquire a contract for the administration of

a public nursery school in the city of Mitaka in

Tokyo and began running the school from April

2001. In fiscal 2002, Benesse also began the

administration of public nursery schools in

Yokosuka City, in Kanagawa Prefecture,

Bunkyo Ward in Tokyo and in Wako City in

Saitama Prefecture.

At existing nursery schools we have suc-

ceeded in consistently raising customer satis-

faction. In the future, the C&S Company will

cooperate with local governments to run nurs-

ery schools according to the needs of parents

and guardians, as well as the requirements of

local communities.

Consolidated Subsidiaries

Plandit Co., Ltd.

Benesse Music Publishing Co.

1.BE-GO2.Benesse Childcare Center

1 2

18

6.30%

SCHOOL & TEACHER SUPPORT COMPANY

ACADEMIC AND PROFESSIONAL

CAREER COUNSELING AND

STUDY SUPPORT

The S&TS Company’s main products are

Shinken Simulated Exams and Study Support,

a scholastic testing aid. Despite generally dif-

ficult conditions due to declining student num-

bers in Japan, sales of these products grew.

In the period ended March 2002, the total

number of students taking exams peaked at

5.26 million. With the inclusion of academic

testing figures and vocational aptitude rating

such as Course Map, a counseling support tool

to help students make a range of decisions on

their academic paths and employment, the

S&TS Company performed well. The total

number of client high schools was 3,805,

representing more than 69% of all high schools

in Japan.

TARGETING GROWTH

Until recently, the S&TS Company has focused

on high schools and established relationships

to provide teachers with support at the

chalkface. Reforms to the education system

have increased demands on teachers and

schools. The S&TS Company is now expand-

ing its business to support schools as they

respond to the demand of the new reforms.

The School & Teacher Support (S&TS) Company provides comprehensive support

for teachers in study guidance and career counseling. With the increase in teacher

freedom and discretion under the new curriculum guidelines outlined in the New

Course of Study, the S&TS Company will leverage its many years of expertise in

school support services to offer new products and services that meet the diverse

requirements of teachers.


Ta-Net LandCourse Map


0

6,000

2,000

1,000

3,000

4,000

5,000

Thousands

Number of Students Taking Shinken Simulated Exams and Other Exams

98 99 00 01 02

4,8705,150 5,160 5,260

4,830

Years ended March 31

IT SUPPORT

Currently, the use of computers in schools

from elementary to high school, is increasing.

This growth has been prompted by the rap-

idly advancing computing infrastructure at

schools, and government education policies

under the New Course of Study that encour-

age the use of IT in education.

In a joint venture with Fujitsu Limited in

fiscal 2001, the S&TS Company began pro-

viding the groupware Ta-Net Land for use in

elementary and junior high school classes.

In conjunction with computing tools, Ta-Net

Land can energize communication within

schools, provide investigative learning, and

provide a tool to create reports and databases.

Providing an unrivaled IT support, the expert

staff of the S&TS Company make regular

school visits and provide teachers with the

support needed to prepare lessons. In the

year ended March 2002, the Ta-Net Land

system had been introduced at more than

400 schools. Demand from schools for these

services is very high, and we expect strong

growth in the future.

INTERNATIONAL EDUCATION

SUPPORT

A key objective of the New Course of Study is

to enhance English language ability to enable

students to adapt to internationalization.

English classes have been newly introduced

to elementary schools and greater importance

is now being placed on English communica-

tive skills in junior and senior high schools. As

a result, new methods and programs are

needed in schools.

The S&TS Company offers the Proficiency

Test of English to foster and evaluate practical

communicative ability in the English language.

In addition, in affiliations with Berlitz Japan,

Inc. and JTB Corp., the S&TS Company is

jointly developing a broad range of support

services for international education, including

overseas language training programs, place-

ment of native speaking language teachers in

Japanese schools, and English ability testing.


Okayama Fukutake Publishing Co., Ltd.

Learn-S Co., Ltd.

Benesse Base-Com, Inc.

Percentage of Client High Schools to Total High Schools(Year ended March 31, 2002)

69.4%3,805 schools

20

4.10%

WOMEN & FAMILY COMPANY

DEEPER RELATIONSHIPS

WITH CUSTOMERS

The W&F Company aims to create long-term

businesses that deepen relationships with

every customer.

1.Targeting relationships with customers

through media such as magazines

2.Developing ongoing communication to

grasp customer needs

3.Providing products and services that match

customer needs

Together with increasing media that provide

a point of contact with customers, the W&F

Company is seeking to provide a lineup of

products and services that each generation of

women really need.

Tamahiyo

Targeting the childrearing generation, the W&F

Company provides magazines for expectant

mothers and mothers of young children. These

include Tamago Club, Hiyoko Club, and

Tamahiyo Kokko Club. Currently, these maga-

zines have no major competitors and have

gained an avid readership by encouraging

reader participation.

The W&F Company is steadily increasing

sales by expanding peripheral business, such

as mail order services, around its Tamago

Club, Hiyoko Club, and Tamahiyo Kokko Club.

The Women & Family (W&F) Company is shifting its stance from a conventional, indirect

publishing-type business to direct subscription-based business. Providing information

on lifestyles and childrearing, a place to exchange ideas, and lifestyle support services,

the W&F Company is designed to help women find a lifestyle that suits them. Women

can take advantage of our products and services to improve themselves and take an

interest in society while running a family.

Benesse Cross World, Inc.(Travel business)

Mail-order sales of accessories for pets

Tamahiyo Mail-order

Benesse en-Famille Inc.(Food delivery)

bon merci!(Subscribers:190,000)

Aile for You(Subscribers:45,000)

DOG’S HEARTTHANK YOU!(Circulation:430,000)

Tamahiyo(Circulation:780,000)

Benesse Women’s Park(Subscribers: 181,000)

Building relationships

with customers

Promoting ongoing relationships

Broadening value of peripheral businesses

1

2

3



THANK YOU!

A lifestyle magazine for housewives, THANK

YOU! has a healthy circulation. The W&F

Company also publishes related magazine-

books on such topics as storage and cooking.

bon merci!

In February 2001, the W&F Company launched

bon merci! a direct sales magazine that pro-

vides helpful advice related to food and health.

Currently, the W&F Company offers bon merci!

little, targeting families with children aged 3-6,

and bon merci! school, launched in February

2002 for families with elementary school chil-

dren. Membership of these magazines is

steadily rising.

BENESSE HOME FOOD-DELIVERY

BUSINESS

Benesse Corporation launched the subsidiary

Benesse en-Famille Inc., in October 2001, with

a 66% stake in a joint venture with Japan’s

leading home food-delivery company Taihei.

Targeting families in and around Tokyo,

Benesse launched the Benesse Food Delivery

with Kids Course in January 2002. This deliv-

ery service is currently available in the Tokyo

area only, and expansion is focused on bon

merci! readers. In fiscal 2002, this service will

be expanded throughout Japan.

Aile for You

The magazine Aile for You provides encour-

agement for women in their fifties and older to

enjoy their post-childrearing years. Aiming to

increase subscriptions, the W&F Company is

planning new content and a new layout in

fiscal 2002.

TRAVEL BUSINESS

In October 2001, Benesse Corporation estab-

lished the subsidiary Benesse Cross World,

Inc. Targeting middle-aged customers, this

subsidiary offers tailored plans, such as tours

of Europe based on the desires expressed

by customers.


The W&F Company maintains a free mem-

bers-only Internet portal site called Benesse

Women ’s Park. With a membership of

181,000 as of April 2002, this site has the

best access in Japan to women’s sites. The

site is affiliated with the magazines of

Benesse Corporation and has abundant con-

tent, including information on childrearing

and family life, local word-of-mouth infor-

mation, a notice board, e-mail friends, and

information exchange on recycled products.

This site has also become a place for lively

exchanges and a platform for communica-

tion between women.


Benesse en-Famille Inc.

Benesse Cross World, Inc.

W&F Company Magazines(Circulation: Thousands)

Average Monthly Circulations Years ended March 31 2002 2001 2000

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

bon merci! 190 85 –Aile for You 45 45 –

bon merci! Benesse Food Delivery with Kids Course Benesse Women’s Park

22

2.67%

SENIOR COMPANY

GROWTH OF NURSING-CARE GROUP

HOME SERVICES

In fiscal 2001, the Senior Company established

10 new Benesse Home Clara nursing home

facilities operated by Benesse Care Corpora-

tion, bringing the total number of facilities to

22. In addition, the Senior Company estab-

lished seven new Granny and Granda nursing

home facilities operated by Shinkoukai Co.,

Ltd., bringing the total number of these facili-

ties to 25. As of March 2002, the Senior

Company’s total number of nursing-care

facilities stood at 47.

Of the 47 nursing-care facilities, 35 are

located in the Tokyo Metropolitan area, 5 in

Kansai and 3 in Chubu. Demand is high for

places in facilities located in large cities. To

grow, the Senior Company has adopted low-

risk methods that keep capital expenditure low.

These methods involve renovating and remod-

eling unused company houses and utilizing

leasehold properties, as well as leasing prop-

erties from landowners who build the facilities.

The Senior Company’s nursing homes re-

spect the individuality and privacy of residents,

offering them a homelike atmosphere with high

quality services. As a result, resident intake at

our homes is steadily rising. Initial investment

to establish this business and make facilities

operational has resulted in operating losses.

However, the Senior Company projects prof-

its in fiscal 2002, ending March 2003.

The Senior Company conducts business focusing on nursing-care group home services

through subsidiaries Benesse Care Corporation and Shinkoukai Co., Ltd. Other busi-

nesses include home-help services and training courses.


1.Benesse Home Clara Roka Koen2.Granny Shonandai Fujisawa

1 2


FUTURE GROWTH

Looking ahead, the Senior Company is plan-

ning 20 new facilities every year mainly in

the Tokyo Metropolitan region. Furthermore,

the Senior Company will introduce facilities

based on its highly praised, low-cost model

for regional cities, such as Sendai. The num-

ber of low-cost, fee-based special nursing

homes for the elderly run by government in-

stitutions is insufficient to meet the rising

population of elderly people in Japan. In the

future, we expect the number of privately run

facilities to increase steadily.

Another growth driver for the business is a

new type of care housing introduced in spring

2002. This care housing is based on privately

financed initiative, where by local governments

buy privately built facilities and then contract

the running of the care facilities back to a pri-

vate company, thereby enabling low cost ser-

vices. As a result of these Private Finance

Initiative (PFI) systems, the Senior Company

is projecting even greater growth.

HOME-HELP SERVICES

Home-help services are centered on Benesse

Home Clara run by the Benesse Care

Corporation. In the year ended March 2002,

there were 15 home-help centers nationwide,

conducting nursing care home visits and short-

term nursing care at centers. All centers have

received approval as a designated business

under the nursing care insurance system in

Japan. By making services of nursing-care

facilities and home help identical, this system

has been designed to meet a variety of user

needs of both the user and families concerned.

TRAINING COURSES

The Senior Company holds Home-Helper

Level-Two Training Courses at 18 locations

throughout Japan. These courses give care

staff the skills that enable them to provide the

high quality services required in the home-help

business. At the end of March 2002, more

than 29,000 people had successfully com-

pleted this course. The Senior Company also

holds its Communication with Senior Citizens

Seminars, which aim to teach methods of com-

munication with people suffering such diffi-

culties as senile dementia, and other courses.

Number of Facilities in Each Region of Japan

Hokkaido

Tohoku

Kanto

Kansai

Chugoku

Benesse Home Clara established fiscal 2001Granny/Granda established fiscal 2001

established before fiscal 2001established before fiscal 2001

8

1

1

Chubu12

41

11

3

6

18


Benesse Care Corporation

Shinkoukai Co., Ltd.

24

23.29%

LANGUAGE INSTRUCTION AND TRANSLATION

BERLITZ INTERNATIONAL, INC.

BERLITZ BECOMES A WHOLLY

OWNED SUBSIDIARY

In July 2001, Benesse made its consolidated

subsidiary BI a wholly owned subsidiary. BI had

been listed on the New York Stock Exchange

and had developed its business while taking into

consideration a large base of minority interest

shareholders. Now, as a wholly owned subsid-

iary, BI can develop business with a higher

degree of freedom within the framework of the

management strategy of the Benesse Group.

FUTURE STRATEGIES

BI has undergone business restructuring since

it became part of the Benesse Group in fiscal

1993. In fiscal 2002, ending December 2002,

achieving sales growth is challenging due to

a slump in the global economy compounded

by the terrorist incidents on September 11.

However, BI expects to reap the benefits of

the restructuring conducted in fiscal 2000

and 2001, and forecasts growth. From fiscal

2002, BI plans to restore its business perfor-

mance through the implementation of the

following strategies.

This Segment offers language instruction, translation and interpreting mainly through

its consolidated subsidiaries Berlitz International, Inc. (BI) and Simul International,

Inc. (Simul).

BI is the largest language education-related company in the world with 483 language

learning centers worldwide as of December 2001. BI provides language instruction

and study-abroad level English skills, under the name ELS Language Centers, and

business translation services.

Established in 1965, Simul provides international communication support for

government institutions, financial institutions and companies.

The Benesse Group provides language services catering for the needs of students at

different levels, from children to adults.


1.Berlitz Japan, Inc. (Akasaka School)2.Berlitz Japan, Inc. (Toranomon School)

1 2


Benesse and Berlitz Team up to

Develop Language Services in Japan

The Segment will strengthen the Benesse and

Berlitz brands and speed up development of

language businesses in Japan. In the Japa-

nese market, demand for English language

education is strong and has maintained high

growth over a number of years. Focusing on

this growth in Japan, BI is planning to increase

its language bases by 70 between fiscal 2002

and fiscal 2005. Together with existing bases,

this will bring the total to 122. To develop these

bases, Benesse will provide comprehensive

personnel and funding backup.

New Curriculum and Organizational Change

From autumn 2002, BI will introduce a new

curriculum called Berlitz English. Berlitz

English is a curriculum catering to modern lan-

guage needs. Providing courses ranging from

beginners English to business English, this new

curriculum focuses on the development of

comprehensive language skills covering

speaking, listening, reading and writing.

BI has become a more horizontal organiza-

tion, directly managing its 11 global regions

through the guidance and management of

head office.

SIMUL INTERNATIONAL, INC.

One of the main pillars of the Segment, Simul

provides interpreting and training for profes-

sional interpreters and translators at its Simul

Academy, and conducts language instruction

seminars for corporations and associations.

ESTABLISHING THE LANGUAGE

COMPANY

Benesse Corporation established the Lan-

guage Company in January 2002 to ensure

an integrated strategy for the Benesse

Group’s language business. The Language

Company brings together BI, Simul, Okayama

Language Center and Simul Business

Communications, Inc., and implements lan-

guage business strategies.


Berlitz International, Inc.


Okayama Language Center

Simul Business Communications, Inc.

0

8,000

4,000

2,000

6,000

Thousands of lessonsNumber of Berlitz Lessons

97 98 99 00 01

5,826 5,9926,438 6,564

5,548

Years ended December 31

Europe Latin AmericaAsiaNorth America

0

500

300

200

100

400

Berlitz Language Centers and Franchises

97 98 99 00 01

451467 476 483

424

ELSBerlitz

As of December 31

26

4.56%

OTHERS

TELEMARKETING JAPAN, INC.

Telemarketing Japan, Inc. was established

in 1992 when the telephone customer ser-

vice department of Shinkenzemi became an

independent company. Total sales in fiscal

2001, ended March 2002, increased 10.6%

to ¥14,664 million.

Driven by the spread of the Internet, com-

munication channels between companies and

customers have diversified. Telemarketing

Japan, Inc. has made use of its leading-edge

systems and expertise in telemarketing to

SYNFORM CO., LTD.

Synform Co., Ltd. plays a key role in support-

ing the operations of Benesse Corporation by

designing and managing systems infrastruc-

ture, including the customer database for

Shinkenzemi. Leveraging a wealth of exper-

tise and technology gained through this work

experience, Synform is developing information

processing outsourcing services for companies

outside the Benesse Group.


Telemarketing Japan, Inc.

Synform Co., Ltd.

Carry Com Co., Ltd.

Persons Inc.

and six other subsidiaries

This Segment is based on the operations of 10 consolidated subsidiaries (as of March

2002). These companies focus on each important area of Benesse Group business and

have a high degree of independence. The companies include Telemarketing Japan,

Inc., which handles telemarketing business, and Synform Co., Ltd., which manages

the development and operation of computer systems.

build a multi-contact center with comprehen-

sive capabilities and access. As a result, this

subsidiary has been able to increase sales

and earnings. In the fiscal year ended March

2002, 65.7% of its total sales were to clients

outside the Benesse Group. Major clients

include Japanese and foreign insurance com-

panies, securities companies and communi-

cations companies.


Telemarketing Japan, Inc.

FINANCIAL SECTION

CONTENTS

Five-Year Summary of Consolidated Financial Statements 28Financial Review 29Consolidated Balance Sheets 36Consolidated Statements of Income 38Consolidated Statements of Shareholders’ Equity 39Consolidated Statements of Cash Flows 40Notes to Consolidated Financial Statements 41Independent Auditors’ Report 61


28

FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL STATEMENTSBenesse Corporation and Consolidated Subsidiaries


Years ended March 31 2002 2001 2000 1999 1998 2002

FOR THE YEAR:Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥267,250 ¥262,948 ¥260,964 ¥259,852 ¥241,571 $2,009,398Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,382 123,766 120,687 120,698 111,039 965,278Selling, General and Administrative Expenses . . 114,279 108,904 107,323 108,173 101,598 859,240Operating Income . . . . . . . . . . . . . . . . . . . . . . . 24,589 30,278 32,954 30,981 28,934 184,880Income before Income Taxes, Minority Interestsand Impairment Loss on Goodwill . . . . . . . . . . 24,195 29,985 29,746 31,501 26,994 181,918

Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 11,693 13,940 13,783 15,483 14,778 87,917Impairment Loss on Goodwill . . . . . . . . . . . . . . 13,195 – – – – 99,211Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 16,498 16,413 16,036 12,250 2,459

Capital Expenditures . . . . . . . . . . . . . . . . . . . . . ¥ 10,934 ¥ 11,275 ¥ 11,105 ¥ 5,416 ¥ 7,138 $ 82,211Depreciation and Amortization . . . . . . . . . . . . . 10,700 9,609 9,199 8,841 7,897 80,451

Yen U.S. Dollars

PER SHARE OF COMMON STOCK:Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3 ¥ 155 ¥ 309 ¥ 302 ¥ 226 $ 0.02

Retroactively Adjusted . . . . . . . . . . . . . . . . . . 3 155 154 151 113 0.02Cash Dividends Applicable to the Year . . . . . . . 29 29 58 48 43 0.22

Retroactively Adjusted . . . . . . . . . . . . . . . . . . 29 29 29 24 22 0.22


AT YEAR-END:Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥291,393 ¥309,261 ¥297,828 ¥280,620 ¥277,298 $2,190,925Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . 171,826 170,011 160,302 146,933 131,794 1,291,925

Yen U.S. Dollars

Shareholders’ Equityper Share of Common Stock . . . . . . . . . . . . . . ¥ 1,616 ¥ 1,599 ¥ 3,015 ¥ 2,763 ¥ 2,478 $ 12.15Retroactively Adjusted . . . . . . . . . . . . . . . . . . 1,616 1,599 1,507 1,382 1,239 12.15

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

Notes: 1. U.S. dollar figures are translated, for convenience only, at the rate of ¥133 to U.S.$1, the effective rate of exchange prevailing on March 31, 2002.2. 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.3. 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.4. The computation of the weighted average number of shares of common stock outstanding during each year and the number of shares outstanding 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, 2000.5. Certain reclassifications of previously recorded amounts have been made to conform with the 2002 presentation, in accordance with new guidelines for

the creation of consolidated financial statements.


0

300,000

100,000

200,000

Millions of Yen

Net Sales

98 99 00 01 02

259,852 260,964 262,948 267,250

241,571

FINANCIAL REVIEWBenesse Corporation and Consolidated Subsidiaries

OPERATING RESULTSIn fiscal 2001, ended March 31, 2002, consolidated net sales increased ¥4,301 million, or 1.6%, to ¥267,250 million(U.S.$2,009 million), an all-time high. However, operating income declined ¥5,689 million, or 18.8% to ¥24,589million (U.S.$185 million). The increase in net sales reflected increases in all segments except the Children & Students(C&S) Company. The decline in net sales for the C&S Company reflected declining enrollments in the Shinkenzemicorrespondence courses, a key group business. This decline is attributed to the increased competition in the educationmarket and declining birthrate in Japan. On the other hand, operating income reflected an increase in operatingincome in both the School & Teacher Support (S&TS) Company and Others Segment; a narrowing in the operating lossof the Senior Company; a decline in operating income in the C&S Company and a widening of the operating loss at theWomen & Family (W&F) Company. In addition, the Language Instruction and Translation Segment recorded a decreasein operating income.

Net SalesIn fiscal 2001, ended March 31, 2002, consolidated net sales increased ¥4,301 million, or 1.6%, to ¥267,250 million(U.S.$2,009 million), an all-time record and sixth consecutive increase since Benesse Corporation was listed on thestock exchange.

Net Sales by Segment



Net Sales . . . . . . . . . . . . . . . . . . . ¥267,250 ¥262,948 ¥260,964 ¥259,852 ¥241,571 $2,009,398C&S Company . . . . . . . . . . . . . 157,887 168,733 173,314 168,225 N/A 1,187,120S&TS Company . . . . . . . . . . . . . 16,842 15,253 15,006 14,450 N/A 126,631W&F Company . . . . . . . . . . . . . 10,946 9,182 9,218 9,872 N/A 82,301Senior Company . . . . . . . . . . . . 7,145 3,861 1,331 826 N/A 53,722Language Instructionand Translation . . . . . . . . . . . . 62,247 55,258 53,544 59,294 N/A 468,023

Others . . . . . . . . . . . . . . . . . . . 12,183 10,661 8,551 7,185 N/A 91,601

Notes:1. Segment sales are based on outside sales and intersegment sales are not included.2. From the year ended March 31, 2001 the segment classifications changed. Segment sales for the years ended March 31, 1999

and 2000, were recalculated to conform to the new classifications. However, segment sales based on the new classifications arenot available for prior years.

30

Cost of Sales and SG&A ExpensesIn fiscal 2001, ended March 31, 2002, cost of sales rose 3.7% to ¥128,382 million (U.S.$965 million). The ratio of costof sales to net sales rose from 47.1% a year earlier to 48.0%. Benesse Corporation’s non-consolidated cost of salesdeclined. However, the inclusion of the results of subsidiaries, such as Benesse Care Corporation and Shinkoukai Co.,Ltd., led to an increase in cost of sales. These subsidiaries operate in the expanding area of nursing-care group homeservices, which have a high ratio of cost of sales to net sales. The increase in consolidated cost of sales also reflected anincrease in the cost of sales at Berlitz International, Inc.

Selling, general and administrative expenses rose ¥5,375 million, or 4.9%, to ¥114,279 million (U.S.$859 million).This increase primarily reflects an increase of ¥2,413 million for direct mail expenses and advertising expenses at theparent company and factors associated with the weaker yen that influenced results at Berlitz International, Inc.

Operating IncomeOperating income declined ¥5,689 million, or 18.8% to ¥24,589 million (U.S.$185 million). The ratio of operating incometo net sales fell from 11.5% a year earlier to 9.2%.

Operating Income (Loss) by Segment



Operating Income (Loss) . . . . . . . . ¥24,589 ¥30,278 ¥32,954 ¥30,981 ¥28,934 $184,880C&S Company . . . . . . . . . . . . . 25,307 31,964 33,862 31,325 N/A 190,278S&TS Company . . . . . . . . . . . . . 1,695 959 154 334 N/A 12,745W&F Company . . . . . . . . . . . . . (2,016) (1,192) (637) (2,152) N/A (15,157)Senior Company . . . . . . . . . . . . (1,064) (2,149) (1,338) (942) N/A (8,000)Language Instructionand Translation . . . . . . . . . . . . 584 1,602 1,218 2,936 N/A 4,391

Others . . . . . . . . . . . . . . . . . . . 1,545 536 1,153 900 N/A 11,616

Notes:1. Operating Income (Loss) for each segment is before eliminations in consolidated totals.2. From the year ended March 31, 2001 accounting segment classifications changed. Segment operating income (loss) for the

years ended March 31, 1999 and 2000, were recalculated to conform to the new classifications. However, segment operatingincome (loss) based on the new classifications are not available for prior years.

0

44

38

36

42

40

%

Selling, General and Administrative Expenses/Net Sales

98 99 00 01 02

42.0

41.1

41.741.4

42.8

0

50

44

42

48

46

%

Cost of Sales Ratio

98 99 00 01 02

48.0

47.1

46.3

46.446.0


Segment InformationChildren & Students (C&S) CompanyNet sales in the C&S Company declined 6.4% to ¥157,887 million (U.S.$1,187 million) and operating income fell 20.8%to ¥25,307 million (U.S.$190 million).

The decline in net sales reflected lower enrollments in the segment’s mainstay Shinkenzemi correspondence courses.Enrollments in Lower Elementary School Courses rose but that of Junior and Senior High School Courses declined due tointense competition in the education market, a declining birthrate and the diversification of customer needs.

The decline in operating income reflected the fall in sales for Shinkenzemi Junior and Senior High School Courses aswell as a revision of the method of determining the month of contracts for Preschool Courses.

In courses other than Shinkenzemi, the C&S Company launched its computer-and Internet-based BE-GO self-studyEnglish product from May 2001, and enrollments increased steadily.

The C&S Company discontinued some unprofitable correspondence courses, such as Career-Up Zemi, that focus onactivities, such as the acquisition of qualifications for university students and adults, and scaled back Challenge-NetCourse, an Internet course for junior high school students.

Breakdown of Net Sales for the C&S Company

Millions of YenPercentage

Years ended March 31 2002 2001 Change

Shinkenzemi:Senior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 27,636 ¥ 30,889 (10.5)%Junior High School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,017 46,698 (14.3)Upper Elementary School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . 29,324 29,597 (0.9)Lower Elementary School Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,360 22,000 6.2Preschool Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,295 29,780 (8.3)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,632 158,964 (7.1)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,255 9,769 5.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥157,887 ¥168,733 (6.4)%

Note: Recognition of sales for Preschool Courses is based on the month of instruction contract. However, in accordance with modificationsin instruction materials services, the C&S Company reviewed its method of determining the month of contract. Consequently, resultsfor fiscal 2000, ended March 31, 2001, include 13 months of sales for Preschool Courses.

0

40,000

10,000

20,000

30,000

Millions of Yen

Operating Income

98 99 00 01 02

30,98132,954

30,278

24,589

28,934

32

School & Teacher Support (S&TS) CompanyNet sales in the S&TS Company increased 10.4% to ¥16,842 million (U.S.$127 million) and operating income rose76.7% to ¥1,695 million (U.S.$13 million). The S&TS Company is expanding its concept from career guidance support tocomprehensive school support. This move involves a concerted effort to develop a diverse range of services and productsto help schools accommodate reforms to Japan’s education system.

The rise in net sales and operating income reflected an increase in enrollments in Shinken Simulated Exams, a keybusiness targeting high school students, and Study Support, a scholastic testing aid, as well as a steady increase in salesof Course Map, a product that combines aptitude tests in career areas and basic academic ability tests.

New products and services, such as School Intra-Pack series Ta-Net Land, a product supporting the use of computersat elementary and junior high school, recorded strong post-launch sales.

Women & Family (W&F) CompanyNet sales in the W&F Company increased 19.2% to ¥10,946 million (U.S.$82 million). However, operating loss worsenedby ¥825 million to ¥2,016 million (U.S.$15 million).

The rise in net sales reflected the favorable circulations of Tamago Club and Hiyoko Club magazines for expectantmothers and mothers of young children, and of THANK YOU!, a lifestyle magazine for housewives. In addition, mail-ordersales related to Tamago Club and Hiyoko Club grew steadily. Subscriptions also grew for bon merci!, a direct-salesmagazine focusing on the culinary needs of families with children.

The worsening of the operating loss primarily reflected an increase in development expenses to launch new busi-nesses, such as the direct-sales magazine DOG’S HEART.

New services and products were established in the home food-delivery field. Benesse Corporation launched Benesse en-Famille Inc. in October 2001 with a 66% stake in a joint venture with Japan’s leading home food-delivery company Taihei.Targeting families with preschool children, Benesse launched the Benesse Food Delivery with Kids Course in January 2002.

Senior CompanyNet sales in the Senior Company increased 85.1% to ¥7,145 million (U.S.$54 million) and operating loss narrowed by¥1,085 million to ¥1,064 million (U.S.$8 million).

The Senior Company steadily expanded businesses focusing on nursing-care facilities. In the nursing-care group homesbusiness, 10 new facilities were established for Benesse Home Clara, which are run by Benesse Care Corporation, andseven new facilities for Granny and Granda, run by Shinkoukai Co., Ltd. As of March 31, 2002, the Senior Company hada total of 47 facilities: 22 Benesse Home Clara facilities and 25 Granny and Granda facilities.

Breakdown of Net Sales for the Senior Company

Millions of YenPercentage

Years ended March 31 2002 2001 Change

Benesse Care Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,855 ¥ 853 352.0%Shinkoukai Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1,870 60.4Benesse Corporation Senior Company . . . . . . . . . . . . . . . . . . . . . . . . . . 290 1,138 (74.5)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥7,145 ¥3,861 85.1%


Language Instruction and TranslationNet sales in the Language Instruction and Translation segment increased 12.7% to ¥62,247 million (U.S.$468 million),while operating income declined 63.5% to ¥584 million (U.S.$4 million).

The increase in net sales is attributable mainly to a rise in language instruction and translation services, the keybusinesses of Berlitz International, Inc., and a gain on translation adjustments relating to the weak yen. On the otherhand, the drop in operating income mainly resulted from increased expenses in the translation business. The translationbusiness suffered a decline in orders due to the downturn in the IT-business and intensifying competition.

Breakdown of Net Sales for Berlitz International, Inc.

Thousands ofU.S. Dollars

PercentageYears ended December 31 2001 2000 Change

Language Services:Instruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $298,971 $296,424 0.9%ELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,844 64,517 (2.6)Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,857 10,503 (25.2)Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,186 2,125 2.9Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,162 2,947 7.3

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,020 376,516 (0.4)Berlitz GlobalNET (translation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,285 103,925 3.2Eliminations and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 (233) –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $482,357 $480,208 0.4%

OthersTelemarketing Japan, Inc. significantly increased sales outside the Benesse Group. As a result, overall sales increased14.3% to ¥12,183 million (U.S.$92 million). Operating income increased 188.8% to ¥1,545 million (U.S.$12 million)due to a revision of cost to sales.

Other Income (Expenses)Other expenses (net) increased ¥101 million to ¥394 million (U.S.$3 million).

Income Before Income Taxes, Minority Interests and Impairment Loss on Goodwillincome before income taxes, minority interests and impairment loss on goodwill declined 19.3% or ¥5,790 million to¥24,195 million (U.S.$182 million).

Income TaxesTotal income taxes declined ¥2,247 million to ¥11,693 million (U.S.$88 million). The effective tax rate climbed from46.5% in fiscal 2000 to 106.3% in fiscal 2001.

Impairment Loss on GoodwillThe Company recognized a goodwill impairment charge of ¥13,195 million (U.S.$99 million) for the year ended March31, 2002 associated with the adoption by Berlitz International, Inc. of the Statement of Financial Accounting StandardNo. 142 (SFAS 142), Accounting for Goodwill and Other Intangible Assets by the Financial Accounting StandardsBoard (FASB).

Net IncomeNet income declined 98.0% or ¥16,171 million to ¥327 million (U.S.$2 million), and net income to net sales declinedfrom 6.3% in the previous year to 0.1 %.

Net income per share of common stock fell by ¥152 to ¥3 (U.S.$0.02) from ¥155 in the previous year.Meanwhile, return on total assets fell from 5.4% to 0.1%.

34

FINANCIAL POSITION

Assets, Liabilities and Shareholders’ EquityTotal assets as of March 31, 2002, were ¥291,393 million (U.S.$2,191 million) falling by ¥17,869 million, from the endof the previous year. This fall was mainly attributable to a decline in marketable and investment securities, and goodwill.

Total current assets fell ¥2,585 million to ¥113,552 million (U.S.$854 million). The main contributing factor was adecline associated with MMF and other marketable securities.

Investments and other assets decreased ¥15,140 million to ¥99,145 million (U.S.$745 million). This decrease occurredalong with an impairment loss on goodwill and a decrease in investment securities, such as government and corporate bonds.

Total current liabilities decreased ¥8,569 million to ¥93,313 million (U.S.$702 million) due primarily to a fall in tradeaccounts payable and a fall in advances received along with declining enrollments in Shinkenzemi.

Long-term liabilities decreased ¥5,381 million to ¥25,324 million (U.S.$190 million) as a result of the partial redemption ofconvertible debentures of Berlitz International, Inc. and a reduction in long-term debt, less current portion of the parent company.

Minority interests declined ¥5,733 million to ¥930 million (US$7 million). This decline mainly reflected the conversionof Berlitz International, Inc. into a wholly owned subsidiary.

Total shareholders’ equity rose ¥1,815 million to ¥171,826 million (U.S.$1,292 million). The main reason for this rise wasforeign currency translation adjustments at the time of converting the subsidiaries results for inclusion in consolidated results.

Financial Position


As of March 31 2002 2001 2000 1999 1998 2002

Total Assets . . . . . . . . . . . . . . . . . ¥291,393 ¥309,261 ¥297,828 ¥280,620 ¥277,298 $2,190,925Current Assets . . . . . . . . . . . . . 113,552 116,136 116,960 104,407 95,589 853,775Property and Equipment . . . . . . 78,696 78,840 76,292 75,865 77,219 591,699Investments and Other Assets . . 99,145 114,285 104,576 100,348 104,490 745,451

Current Liabilities . . . . . . . . . . . . . 93,313 101,882 98,779 93,660 94,976 701,602Long-Term Liabilities . . . . . . . . . . 25,324 30,705 31,685 31,610 41,091 190,406Shareholders’ Equity . . . . . . . . . . . 171,826 170,011 160,302 146,933 131,794 1,291,925Equity Ratio (%) . . . . . . . . . . . . . . 59.0 55.0 53.8 52.4 47.5Shareholders’ Equity perShare of Common Stock(Yen, U.S. Dollars) . . . . . . . . . . . 1,616 1,599 1,507 1,382 1,239 12.15

Notes:1. Benesse Corporation and its domestic consolidated subsidiaries adopted tax allocation accounting, beginning with the fiscal yearended 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 a 1:1.2 stock splitmade 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 2002 presentation.

In fiscal 2001, ended March 31, 2002, ROE and ROA declined dramatically. This is mainly attributed to an impairmentloss on goodwill relating to Berlitz International, Inc.

0

12

4

2

10

8

6

%

ROE

98 99 00 01 02

9.5

10.711.5

10.0

0.20

6

2

1

5

4

3

%

ROA

98 99 00 01 02

0.1

5.75.4

5.7

4.5


Cash FlowsCash and cash equivalents at the end of fiscal 2001 declined ¥13,896 million, or 18.2%, to ¥62,251 million(U.S.$468 million).

Net cash provided by operating activities fell 62.1%, from ¥21,853 million the previous year to ¥8,286 million (U.S.$62million). This decline reflected a fall from ¥29,985 million in the previous year to ¥24,195 million in income before incometaxes, minority interests and impairment loss on goodwill, a decrease in trade accounts payable of ¥3,887 million com-pared to an increase of ¥845 million in the previous year and an increase in inventories of ¥2,784 million compared to adecrease of ¥1,120 million in the previous year.

Net cash used in investing activities increased from ¥7,830 million the previous year to ¥11,701 million (U.S.$88million). The main contributing factor was a decrease in proceeds from sales of marketable securities from ¥18,583million in the previous year to ¥10,021 million. On the other hand, cash used for purchases of property and equipmentdecreased from ¥6,365 million to ¥4,784 million, and was mainly used for purchases related to the nursing-care facilitiesfor the Senior Company. In addition, the acquisition of shares of Berlitz International, Inc. used ¥4,901 million.

Net cash used in financing activities increased from ¥4,339 million in the previous year to ¥11,209 million (U.S.$84million). This mainly reflected cash used for the redemption of convertible debentures of ¥6,691 million and an increasein cash used for the repayment of long-term debt from ¥1,947 million in the previous year to ¥2,447 million.

Cash Flows



Net Cash Providedby Operating Activities . . . . . . . . ¥ 8,286 ¥21,853 ¥ 32,525 ¥ 32,309 ¥ 13,677 $ 62,301

Net Cash Usedin Investing Activities . . . . . . . . . (11,701) (7,830) (18,910) (1,687) (17,739) (87,977)

Net Cash Usedin Financing Activities . . . . . . . . . (11,209) (4,339) (5,169) (16,925) (3,995) (84,278)

Foreign Currency TranslationAdjustments on Cash andCash Equivalents . . . . . . . . . . . . 727 502 (983) (949) 344 5,466

Net Increase (Decrease)in Cash and Cash Equivalents . . . (13,897) 10,231 7,463 12,748 (7,713) (104,488)

36

CONSOLIDATED BALANCE SHEETSBenesse Corporation and Consolidated SubsidiariesMarch 31, 2002, 2001 and 2000


Millions of Yen (Note 1)

ASSETS 2002 2001 2000 2002

CURRENT ASSETS:Cash and time deposits (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 32,943 ¥ 25,019 ¥ 32,974 $ 247,692Marketable securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,484 51,683 47,869 259,278Trade receivables:

Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,100 16,771 14,585 136,090Due from unconsolidated subsidiary and affiliates . . . . . . . . . . . . . . . . . 205 101 242 1,541Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,200) (1,797) (1,590) (16,541)

Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,810 14,900 15,824 133,910Other current assets (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,210 9,459 7,056 91,805

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,552 116,136 116,960 853,775

PROPERTY AND EQUIPMENT:Land (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,735 33,506 32,435 253,647Buildings and leasehold improvements (Note 8) . . . . . . . . . . . . . . . . . . . . 59,941 57,180 54,301 450,684Equipment and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,058 20,014 18,955 158,331Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625 1,251 4,699

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,359 111,951 105,691 867,361Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,663) (33,111) (29,399) (275,662)

Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,696 78,840 76,292 591,699

INVESTMENTS AND OTHER ASSETS:Investment securities (Notes 4 and 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,155 32,818 23,715 174,098Investments in unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . 493 304 254 3,707Goodwill (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,108 56,613 49,630 361,714Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 9,603Other assets (Notes 8, 11 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,389 24,550 21,374 205,932

Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,145 114,285 104,576 745,451

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥291,393 ¥309,261 ¥297,828 $2,190,925

See notes to consolidated financial statements.




LIABILITIES AND SHAREHOLDERS’ EQUITY 2002 2001 2000 2002

CURRENT LIABILITIES:Short-term bank loans (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,170 ¥ 203 ¥ 15 $ 8,797Current portion of long-term debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . 1,347 2,591 1,659 10,128Trade payables:

Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,446 27,213 22,710 176,286Due to unconsolidated subsidiary and affiliates . . . . . . . . . . . . . . . . . . . 303 292 2,080 2,278

Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,662 55,705 56,715 403,474Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,034 6,484 7,971 37,850Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,351 9,394 7,629 62,789

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,313 101,882 98,779 701,602

LONG-TERM LIABILITIES:Long-term debt, less current portion (Note 8) . . . . . . . . . . . . . . . . . . . . . . 10,951 17,692 18,680 82,338Liability for retirement benefits (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,322 5,025 6,169 32,496Other long-term liabilities (Notes 7 and 11) . . . . . . . . . . . . . . . . . . . . . . . . 10,051 7,988 6,836 75,572

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,324 30,705 31,685 190,406

MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930 6,663 7,062 6,992

SHAREHOLDERS’ EQUITY (Notes 10, 15 and 17):Common stock—authorized,

405,282,040 shares in 2002 and 2001,148,666,000 shares in 2000; issued,106,353,453 shares in 2002 and 2001,53,176,764 shares in 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,600 13,600 13,600 102,256

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,358 29,358 28,715 220,737Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,519 130,708 117,994 958,789Unrealized gain (loss) on available-for-sale securities . . . . . . . . . . . . . . . . . (356) 757 (2,677)Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 1,707 (4,412) 12,835

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,828 170,011 160,309 1,291,940Treasury stock—at cost—719 shares in 2002,97 shares in 2001 and 742 shares in 2000 . . . . . . . . . . . . . . . . . . . . . . . (2) (0) (7) (15)

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,826 170,011 160,302 1,291,925

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥291,393 ¥309,261 ¥297,828 $2,190,925

38



2002 2001 2000 2002

NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥267,250 ¥262,948 ¥260,964 $2,009,398

COST OF SALES (Notes 9 and 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,382 123,766 120,687 965,278

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,868 139,182 140,277 1,044,120

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(Notes 9, 12, 13 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,279 108,904 107,323 859,240

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,589 30,278 32,954 184,880

OTHER INCOME (EXPENSES):Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 149 169 1,165Interest expense—net (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (517) (327) (537) (3,887)Gain on investments—net (Notes 7 and 14) . . . . . . . . . . . . . . . . . . . . . . . 1,491 1,415 1,566 11,211Equity in net earnings of unconsolidated subsidiaries and affiliates . . . . . . 41 73 55 308Expenses on recognition of past service costs of pension (Note 3) . . . . . . . (3,400)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,564) (1,603) (1,061) (11,759)

INCOME BEFORE INCOME TAXES, MINORITY INTERESTSAND IMPAIRMENT LOSS ON GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . 24,195 29,985 29,746 181,918

INCOME TAXES (Note 11):Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,202 13,700 15,486 84,225Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491 240 (1,703) 3,692

Total income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,693 13,940 13,783 87,917

MINORITY INTERESTS IN NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,020) (453) (450) (7,669)

NET INCOME BEFORE IMPAIRMENT LOSS ON GOODWILL . . . . . . . . . . . 13,522 16,498 16,413 101,670

IMPAIRMENT LOSS ON GOODWILL (Note 6) . . . . . . . . . . . . . . . . . . . . . . . (13,195) (99,211)

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 327 ¥ 16,498 ¥ 16,413 $ 2,459

Yen U.S. Dollars

2002 2001 2000 2002

PER SHARE OF COMMON STOCK (Note 2.o):Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3 ¥155 ¥154 $0.02Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 29 58 0.22


CONSOLIDATED STATEMENTS OF INCOMEBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2002, 2001 and 2000


Thousands Millions of Yen

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

Common Stock Stock Capital Earnings Securities Adjustments Stock

BALANCE, APRIL 1, 1999 . . . . . . . . . . . . . . . . . . . 53,177 ¥13,600 ¥28,715 ¥104,627 ¥(9)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,413Cash dividends, ¥54.5 per share . . . . . . . . . . . . . . (2,898)Bonuses to directors and corporate auditors . . . . . (161)Equity in earnings of an affiliate newly recordedon the equity method (Note 2.a) . . . . . . . . . . . . . 13

Treasury stock sold—net . . . . . . . . . . . . . . . . . . . . 2

BALANCE, MARCH 31, 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 10) . . . . . . . . . . . . . . . . . . . . . . . 53,176Increase from merger (Note 10) . . . . . . . . . . . . . . 14,718 735 643Stock cancelled from merger (Note 10) . . . . . . . . . (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 . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . (2)

BALANCE, MARCH 31, 2002 . . . . . . . . . . . . . . . . . 106,353 ¥13,600 ¥29,358 ¥127,519 ¥ (356) ¥ 1,707 ¥(2)

Thousands of U.S. Dollars (Note 1)

Unrealized ForeignAdditional Gain (Loss) on Currency

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

BALANCE, MARCH 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . $102,256 $220,737 $982,767 $ 5,692 $(33,173) $ (0)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,459Cash dividends, $0.22 per share . . . . . . . . . . . . . . . . . . . . . . . (23,188)Bonuses to directors and corporate auditors . . . . . . . . . . . . . . (1,376)Unrecognized pension liabilities of foreignconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,873)

Unrealized loss on available-for-sale securities . . . . . . . . . . . . (8,369)Foreign currency translation adjustments . . . . . . . . . . . . . . . . 46,008Treasury stock acquired—net . . . . . . . . . . . . . . . . . . . . . . . . . (15)

BALANCE, MARCH 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . $102,256 $220,737 $958,789 $(2,677) $ 12,835 $(15)


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2002, 2001 and 2000

40



2002 2001 2000 2002

OPERATING ACTIVITIES:Income before income taxes, minority interestsand impairment loss on goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 24,195 ¥ 29,985 ¥ 29,746 $ 181,918

Adjustments for:Income taxes—paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,199) (15,448) (15,171) (99,241)Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,738 9,609 9,199 80,737Increase (decrease) in allowance for doubtful receivables,liability for retirement benefits and other reserves . . . . . . . . . . . . . . . . . (296) 2,877 405 (2,226)

Other non-cash (income) expenses—net . . . . . . . . . . . . . . . . . . . . . . . . 299 (538) 869 2,248Changes in assets and liabilities, net of effectsfrom newly consolidated subsidiaries:(Increase) decrease in trade accounts receivable . . . . . . . . . . . . . . . . (604) 559 (1,706) (4,541)(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,784) 1,120 494 (20,932)Increase (decrease) in trade accounts payable . . . . . . . . . . . . . . . . . . (3,887) 845 1,323 (29,226)Increase (decrease) in advances received . . . . . . . . . . . . . . . . . . . . . (2,543) (1,652) 5,021 (19,120)

Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,633) (5,504) 2,345 (27,316)

Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,909) (8,132) 2,779 (119,617)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 8,286 21,853 32,525 62,301

INVESTING ACTIVITIES:(Increase) decrease in time deposits—net . . . . . . . . . . . . . . . . . . . . . . . . . 73 229 (239) 549Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,404) (11,679) (26,324) (70,707)Proceeds from sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . 10,021 18,583 22,236 75,346Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,784) (6,365) (6,865) (35,970)Purchases of software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,288) (3,355) (4,261) (32,240)Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,204) (6,900) (3,584) (39,128)Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . 6,014 6,595 1,554 45,218Acquisition of controlling interest in a company . . . . . . . . . . . . . . . . . . . . . (3,465)Acquisition of shares of a consolidated subsidiary . . . . . . . . . . . . . . . . . . . (4,901) (36,850)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 772 (1,473) (1,427) 5,805

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . (11,701) (7,830) (18,910) (87,977)

FINANCING ACTIVITIES:Increase (decrease) in short-term bank loans—net . . . . . . . . . . . . . . . . . . 968 85 (40) 7,278Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 558Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,447) (1,947) (2,475) (18,398)Redemption of convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,691) (50,308)Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,084) (2,871) (2,898) (23,188)Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 223 (314) 338

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . (11,209) (4,339) (5,169) (84,278)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTSON CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727 502 (983) 5,466

CASH AND CASH EQUIVALENTS INCREASED BY MERGER . . . . . . . . . . . 45

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . (13,897) 10,231 7,463 (104,488)CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . . 76,148 65,917 58,454 572,541

CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . . ¥ 62,251 ¥ 76,148 ¥ 65,917 $ 468,053

ADDITIONAL CASH FLOW INFORMATION:Purchases 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 10):

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


CONSOLIDATED STATEMENTS OF CASH FLOWSBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSBenesse Corporation and Consolidated SubsidiariesYears Ended March 31, 2002, 2001 and 2000

The consolidated financial statements of Benesse Corporation (the “Company”) have been prepared in accordance withthe provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations and inconformity with accounting principles and practices generally accepted in Japan, which are different in certain respectsas to application and disclosure requirements of International Accounting Standards. The consolidated financial state-ments are not intended to present the financial position, results of operations and cash flows in accordance with account-ing principles and practices generally accepted in countries and jurisdictions other than Japan. The foreign consolidatedsubsidiaries maintain and prepare their financial statements in accordance with accounting principles generally acceptedin the United States of America, where such subsidiaries are established.

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made tothe consolidated financial statements issued domestically in order to present them in a form which is more familiar toreaders outside Japan. Certain reclassifications have been made in the 2001 and 2000 financial statements to conform toclassification used in 2002.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company isincorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥133 to U.S.$1, the approximate rate ofexchange at March 31, 2002. Such translations should not be construed as representations that the Japanese yenamounts could be converted into U.S. dollars at that or any other rate.

1. BASIS OFPRESENTINGCONSOLIDATEDFINANCIALSTATEMENTS

a. Consolidation—The accompanying consolidated financial statements include the accounts of the Company and its 23in 2002 (19 in 2001 and 14 in 2000) significant subsidiaries (collectively, the “Companies”). Consolidation of the remain-ing unconsolidated subsidiaries would not have a material effect on the accompanying consolidated financial statementsin 2002, 2001 and 2000.

Effective April 1, 1999, the Companies changed their consolidation scope of subsidiaries and affiliates from the appli-cation of the ownership concept to the control or influence concept. Under the control or influence concept, thosecompanies in which the Parent, directly or indirectly, is able to exercise control over operations are fully consolidated, andthose companies over which the Companies have the ability to exercise significant influence are accounted for by theequity method. The change in retained earnings arising from the change in the consolidation scope is recognized as“Equity in earnings of an affiliate newly recorded on the equity method” in the consolidated statements of shareholders’equity for the year ended March 31, 2000.

Investments in 4 affiliates and 2 unconsolidated subsidiaries are accounted for by the equity method in 2002(4 affiliates and 1 unconsolidated subsidiary in 2001 and 5 affiliates and 1 unconsolidated subsidiary in 2000).

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

The differences between the cost and net equity in domestic consolidated subsidiaries at acquisition (“Consolidationgoodwill”) are amortized on a straight-line basis over 20 years. Goodwill associated with foreign consolidated subsidiar-ies is amortized on a straight-line basis primarily over 40 years following the accounting practice in their respectivecountries. 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 accordancewith accounting principles generally accepted in the United States of America. This standard changes the accountingfor goodwill from an amortization method to an impairment-only approach. As a result, BI recorded a goodwill impair-ment charge associated with the adoption of this statement. See Note 6 which discusses new accounting pronounce-ments regarding goodwill.

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, whichare included in marketable securities amounted to ¥29,308 million ($220,361 thousand), ¥51,129 million and¥32,943 million for the years ended March 31, 2002, 2001 and 2000, respectively.

2. SUMMARY OFSIGNIFICANTACCOUNTINGPOLICIES

42

c. Inventories—Inventories of the Company and its domestic consolidated subsidiaries are stated at cost, determined bythe 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 determinedusing the weighted average cost method.

d. Marketable and Investment Securities—Prior to April 1, 2000, marketable and investment securities listed on stockexchange were stated at the lower of cost, determined by the moving-average method, or market. Other investments arestated at moving-average cost.

Effective April 1, 2000, the Company and its domestic consolidated subsidiaries adopted a new accounting standardfor financial instruments, including marketable and investment securities.

The standard requires all applicable securities to be classified and accounted for, depending on management’s intent,as follows: (1) trading securities, which are held for the purpose of earning capital gains in near term are reported at fairvalue, and the related unrealized gains and losses are included in the earnings, (2) held-to-maturity debt securities, whichare expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost and(3) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at fairvalue, with unrealized gains and losses, net of applicable taxes, reported in a separate component of shareholders’ equity.

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

The effect of adoption of the new standard was to increase income before income taxes and minority interests by ¥214million for the year ended March 31, 2001. Marketable securities classified as current assets decreased by ¥9,898 millionand investment securities increased by the same amount as of April 1, 2000.

e. Property and Equipment—Property and equipment are stated at cost. Depreciation is computed by the declining-balancemethod while the straight-line method is applied to buildings acquired after April 1, 1998. The straight-line depreciationmethod is principally applied to the property and equipment of the consolidated foreign subsidiaries. The ranges of usefullives in the Company and its domestic consolidated subsidiaries are principally from 10 to 50 years in 2002, 2001 and2000 for buildings and from 4 to 7 years for equipment and fixtures.

f. Interests in Partnerships—The Company has interests in limited partnerships. The Company’s share of the partner-ships’ profits or losses are credited or charged to income as incurred.

g. Retirement and Pension Plans—Prior to April 1, 2000, the annual provisions for retirement benefits of the Companyand its domestic consolidated subsidiaries are calculated to state the liability at the amount that would be required if allemployees voluntarily terminated their employment at each balance sheet date, less amounts funded by a contributorydefined benefit pension plan.

Effective April 1, 2000, the Company and its domestic consolidated subsidiaries adopted a new accounting standardfor employees’ retirement benefits and accounted for the liability for retirement benefits based on the projected benefitobligations 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 income andincluded in as other expenses in the consolidated statements of income. As a result, net periodic benefit costs as com-pared with the prior method, increased by ¥860 million and income before income taxes and minority interests decreasedby ¥1,094 million for the year ended March 31, 2001.

Retirement benefits to directors and corporate auditors of the Company and its 3 domestic consolidated subsidiaries in2002 (3 in 2001 and 2 in 2000) are calculated to state the liability for directors and corporate auditors at the amount thatwould be required if all directors and corporate auditors retired at each balance sheet date.

Foreign consolidated subsidiaries have contributory pension plans.

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


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

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

k. Appropriations of Retained Earnings—Appropriations of retained earnings at each year end are reflected in theconsolidated financial statements in the year following shareholders’ approval.

l. Foreign Currency Transactions—Prior to April 1, 2000, short-term receivables and payables denominated in foreigncurrencies were translated into Japanese yen at the current exchange rates at each balance sheet date, while long-termreceivables and payables denominated in foreign currencies were translated at historical rates.

Effective April 1, 2000, the Company and its domestic consolidated subsidiaries adopted a revised accounting stan-dard for foreign currency transactions. In accordance with the revised standard, all short-term and long-term monetaryreceivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at thebalance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated state-ments of income to the extent that they are not hedged by forward exchange contracts.

m. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries aretranslated into Japanese yen at the current exchange rate as of the balance sheet date except for shareholders’ equity,which is translated at the historical rate. Prior to April 1, 2000, differences arising from such translation were shown as“Foreign currency translation adjustments” as either all asset or liability in the balance sheet.

Effective April 1, 2000, such differences are shown as “Foreign currency translation adjustments” in a separate compo-nent of shareholders’ equity in accordance with the revised accounting standard for foreign currency transactions.

Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.

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

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

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

o. Per Share Information—The computation of the net income per share is based on the weighted average number ofshares of common stock outstanding during each year after giving retroactive adjustment for subsequent stock splits. Theaverage number of common shares used in the computation was 106,353 thousand for 2002, 106,353 thousand for2001 and 106,351 thousand for 2000, respectively.

Diluted net income per share is not disclosed because the result would be 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 without giving retroactive adjustment forsubsequent stock splits.

44

The Companies’ marketable and investment securities as of March 31, 2002, 2001 and 2000, consisted of the following:


2002 2001 2000 2002

Current:Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . ¥ 555Government and corporate bonds . . . . . . . . . . . . . . . . . . . ¥ 4,712 ¥11,197 50 $ 35,428Trust fund investments and other . . . . . . . . . . . . . . . . . . . 29,772 40,486 47,264 223,850

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥34,484 ¥51,683 ¥47,869 $259,278

Non-current:Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,716 ¥ 8,317 ¥ 4,117 $ 35,459Government and corporate bonds . . . . . . . . . . . . . . . . . . . 11,102 15,785 17,593 83,474Trust fund investments and other . . . . . . . . . . . . . . . . . . . 7,337 8,716 2,005 55,165

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥23,155 ¥32,818 ¥23,715 $174,098

Information regarding each category of the securities classified as available-for-sale and held-to-maturity at March 31,2002 and 2001, was as follows:

Millions of Yen

Unrealized Unrealized FairCost Gains Losses Value

March 31, 2002Securities classified as:

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

4. MARKETABLEANDINVESTMENTSECURITIES

Prior to April 1, 1999, unrecognized past service costs under the contributory defined benefit pension plan were expensedin the term in which they were funded. Due to a change in accounting policy during the year ended March 31, 2000, theunrecognized past service costs are accounted for as a liability and charged to income on an accrual basis.

As a result of this change, the Company and its domestic consolidated subsidiaries recognized past service coststotaling ¥3,400 million in the year ended March 31, 2000.

3. ACCOUNTINGCHANGE


Thousands of U.S. Dollars

Unrealized Unrealized FairCost Gains Losses Value


Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,143 $2,203 $4,579 $21,767Government and corporate bonds . . . . . . . . . . . . . . . . . 79,549 97 541 79,105Trust fund investments and other . . . . . . . . . . . . . . . . . 59,278 158 2,007 57,429

Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,872 451 3,594 36,729

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2002 and 2001, wereas follows:

Carrying Amount


2002 2001 2002

Available-for-sale:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,821 ¥ 2,649 $ 13,692Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Trust fund investments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,461 51,355 221,511

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥31,282 ¥54,091 $235,203

Proceeds from sales of available-for-sale securities for the years ended March 31, 2002 and 2001 were ¥1,136 million($8,541 thousand) and ¥5,854 million, respectively. Gross realized gains and losses on these sales, computed on themoving average cost basis, were ¥619 million ($4,654 thousand) and ¥1,466 million ($11,023 thousand), respectively,for the year ended March 31, 2002 and ¥636 million and ¥85 million, respectively, for the year ended March 31, 2001.

The carrying values of debt securities by contractual maturities for securities classified as available-for-sale andheld-to-maturity at March 31, 2002, are as follows:


2002 2002

Available Held to Available Held tofor Sale Maturity for Sale Maturity

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥13,022 $ 97,910Due after one year through five years . . . . . . . . . . . . . . . . . . 3,058 ¥3,303 22,992 $24,834Due after five years through ten years . . . . . . . . . . . . . . . . . . 3,679 2,000 27,662 15,038

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥19,759 ¥5,303 $148,564 $39,872

46

Inventories at March 31, 2002, 2001 and 2000, consisted of the following:


2002 2001 2000 2002

Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥12,993 ¥ 9,401 ¥10,750 $ 97,692Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,012 4,786 4,430 30,165Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . 805 713 644 6,053

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥17,810 ¥14,900 ¥15,824 $133,910

5. INVENTORIES

6. GOODWILL Goodwill at March 31, 2002, 2001 and 2000, consisted of the following:


2002 2001 2000 2002

Goodwill associated with foreign consolidated subsidiaries . . ¥44,621 ¥52,932 ¥49,630 $335,496Consolidation goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,487 3,681 26,218

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥48,108 ¥56,613 ¥49,630 $361,714

The Company recognized a goodwill impairment charge of ¥13,195 million ($99,211 thousand) associated with theadoption of SFAS No. 142 by BI for the year ended March 31, 2002.

The Companies’ carrying amounts and aggregate market values of current and non-current marketable equity securi-ties, government and corporate bonds and trust fund investments and other, current, included in marketable securitiesand investment securities at March 31, 2000, were as follows:

Millions of Yen

2000

Current:Carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥9,473Aggregate market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,432

Unrealized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (41)

Non-current:Carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,627Aggregate market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,790

Unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,163

The difference between the above carrying amounts and the amounts shown in the accompanying consolidated bal-ance sheets principally consists of money management funds and non-marketable securities for which there is noreadily-available market from which to obtain or calculate the market value thereof.


The Company has investments in limited partnerships. The original capital contributions to the partnerships amounted to¥1,150 million ($8,647 thousand), ¥1,584 million and ¥1,690 million as of March 31, 2002, 2001 and 2000, respectively,and the change in carrying value for the three years in the period ended March 31, 2002, were as follows:


2002 2001 2000 2002

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . ¥(2,621) ¥(2,925) ¥(3,449) $(19,707)Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473 304 524 3,557

Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(2,148) ¥(2,621) ¥(2,925) $(16,150)

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

7. INTERESTS INPARTNERSHIPS

Short-term bank loans at March 31, 2002, 2001 and 2000, consisted of notes to banks. The annual interest ratesapplicable to the short-term bank loans ranged from 0.81% to 1.52% at March 31, 2002, were 1.5% at March 31, 2001,and ranged from 1.375% to 2.35% at March 31, 2000.

Long-term debt at March 31, 2002, 2001 and 2000, consisted of the following:


2002 2001 2000 2002

Long-term debt, collateralized:Banks and others, in yen, maturing seriallythrough 2004—with interest ranging from1.474% to 3.30% in 2002, 2001 and 2000 . . . . . . . . . . . ¥ 250 ¥ 346 ¥ 42 $ 1,880

Government-owned bank, in yen, maturing seriallythrough 2013—with interest ranging from3.5% to 5.45% in 2002, 2001 and 2000 . . . . . . . . . . . . . 5,871 6,944 8,016 44,143

Total long-term debt, collateralized . . . . . . . . . . . . . . . 6,121 7,290 8,058 46,023

Long-term debt, unsecured:Banks, in yen, maturing seriallythrough 2004—with interest ranging from1.57% to 3.1% in 2002, 2001 and 2000 . . . . . . . . . . . . . 87 1,366 1,324 654

Banks and others, in U.S. dollars—with interestat the average rate of 7.46% in 2002,4.62% in 2001 and 5.33% in 2000 . . . . . . . . . . . . . . . . . 152 152 717 1,143

5% U.S. dollar convertible debentures,convertible into BI’s common stockat $33.05 per share, due 2011 . . . . . . . . . . . . . . . . . . . . 5,938 11,475 10,240 44,646

Total long-term debt, unsecured . . . . . . . . . . . . . . . . 6,177 12,993 12,281 46,443

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 12,298 20,283 20,339 92,466

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,347) (2,591) (1,659) (10,128)

Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . ¥10,951 ¥17,692 ¥18,680 $ 82,338

8. SHORT-TERMBANK LOANSAND LONG-TERM DEBT

48

Annual maturities of long-term debt at March 31, 2002, were as follows:

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

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,347 $10,1282004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744 5,5942005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645 4,8502006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587 4,4132007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587 4,4132008 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,388 63,068

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥12,298 $92,466

At March 31, 2002, assets having the following carrying values were pledged as collateral for the long-term debts in yenin the amount of ¥6,090 million ($45,789 thousand) by the Company and its domestic consolidated subsidiaries.


Time deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 37 $ 278Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,163 114,008Buildings—net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,529 101,722Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716 5,383Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018 7,654

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥30,463 $229,045

The convertible debentures bear interest at 5% per annum, payable semi-annually. Principal amounts outstandingunder such debentures are not due until March 2011, and BI is not required to establish a bond sinking fund forrepayment of the principal thereof.

The convertible debentures are convertible at any time into shares of BI’s common stock at a conversion price of$33.05 per share.

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

Under most circumstances, employees terminating their employment are entitled to retirement benefits determinedbased on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits aremade in the form of a lump-sum severance payment from the Company or from certain domestic consolidated subsidiar-ies and annuity payments from a welfare annuity fund. Employees are entitled to larger payments if the termination isinvoluntary, by retirement at the mandatory retirement age, or by death, etc. The liability for retirement benefits at March31, 2002, 2001 and 2000 for directors and corporate auditors was ¥1,225 million ($9,210 thousand), ¥1,132 million and¥1,083 million, respectively. The retirement benefits for directors and corporate auditors are paid subject to the approvalof the shareholders.

The Company and its domestic consolidated subsidiaries have a contributory defined benefit pension plan. The pensionfund is administered by a board of trustees composed of management and employee representatives as required by govern-ment regulations. In addition, the Company has an additional separate pension plan for its employees.

Effective April 1, 2000, the Company and its domestic consolidated subsidiaries adopted a new accounting standardfor employees’ retirement benefits.

9. RETIREMENTAND PENSIONPLANS


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


2002 2001 2002

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 16,678 ¥13,336 $125,398Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,122) (7,974) (76,105)Unrecognized actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,854) (1,492) (28,977)Prepaid pension expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395 23 2,970

Net liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,097 ¥ 3,893 $ 23,286

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


2002 2001 2002

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,282 ¥1,223 $ 9,639Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396 352 2,977Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (279) (355) (2,098)Amortization of transitional obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 258 1,399

Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,585 ¥1,478 $11,917

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

2002 2001

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

A foreign consolidated subsidiary has a Supplemental Executive Retirement Plan (“SERP”) for the benefit of its Chair-man of the Board, certain designated executives and their designated beneficiaries. Information for the SERP at March31, 2002 and 2001, are set forth as follows:


2002 2001 2002

Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,130 ¥1,378 $16,015Accrued benefit liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,084 1,357 15,669Net periodic benefit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365 288 2,744

50

The Company is subject to the Japanese Commercial Code (the “Code”) to which certain amendments became effectivefrom October 1, 2001. Prior to October 1, 2001, the Code required at least 50% of the issue price of new shares, with aminimum of the par value thereof, to be designated as stated capital as determined by resolution of the Board of Directors.Proceeds in excess of amounts designated as stated capital were credited to additional paid-in capital. Effective October1, 2001, the Code was revised and common stock par values were eliminated resulting in all shares being recorded withno par value.

Prior to October 1, 2001, the Code also provided that an amount at least equal to 10% of the aggregate amount of cashdividends and certain other cash payments which are made as an appropriation of retained earnings applicable to eachfiscal period shall be appropriated and set aside as a legal reserve until such reserve equals 25% of stated capital.Effective October 1, 2001, the revised Code allows for such appropriations to be set aside as a legal reserve until the totaladditional paid-in capital and legal reserve equals 25% of stated capital. The amount of total additional paid-in capital andlegal reserve which exceeds 25% of stated capital can be transferred to retained earnings by resolution of the sharehold-ers, which may be available for dividends. The Company’s legal reserve amount, which is included in retained earnings,totals ¥3,400 million ($25,564 thousand) as of March 31, 2002, 2001 and 2000, respectively.

Under the Code, companies may issue new common shares to existing shareholders without consideration as a stocksplit pursuant to a resolution of the Board of Directors. Prior to October 1, 2001, the amount calculated by dividing thetotal amount of shareholders’ equity by the number of outstanding shares after the stock split could not be less than ¥500.The revised Code eliminated this restriction.

Prior to October 1, 2001, the Code imposed certain restrictions on the repurchase and use of treasury stock. EffectiveOctober 1, 2001, the Code eliminated these restrictions allowing companies to repurchase treasury stock by a resolutionof the shareholders at the general shareholders meeting and dispose of such treasury stock by resolution of the Board ofDirectors after March 31, 2002. The repurchased amount of treasury stock cannot exceed the amount available for futuredividend plus amount of stated capital, additional paid-in capital or legal reserve to be reduced in the case such reductionwas resolved at the general shareholders meeting.

The Code permits companies to transfer a portion of additional paid-in capital and legal reserve to stated capital byresolution of the Board of Directors. The Code also permits companies to transfer a portion of unappropriated retainedearnings, available for dividends, to stated capital by resolution of the shareholders.

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 capital wasnot changed as a result of this stock split.

The Company is authorized to repurchase, at management’s discretion, up to 5,000,000 shares of the Company’sstock for the purpose of cancelling the shares by crediting such amounts against retained earnings. On October 1, 2000,the Company merged with Minamigata Enterprise Co., Ltd., a company privately held by the Company’s president andfamily. Accordingly 14,717,885 new shares were issued, and 14,717,960 shares were cancelled.

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

Under the Code, the amount available for dividends is based on retained earnings as recorded on the Company’s books.At March 31, 2002, retained earnings recorded on the Company’s books were ¥122,183 million ($918,669 thousand)which is available for future dividends subject to the approval of the shareholders and legal reserve requirements.

10. 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, 2002,2001 and 2000.

The tax effects of significant temporary differences which result in deferred tax assets and liabilities at March 31, 2002,2001 and 2000, are as follows:


2002 2001 2000 2002

Deferred tax assets:Enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 461 ¥ 597 ¥ 726 $ 3,466Provision for employees’ bonuses . . . . . . . . . . . . . . . . . . . 584 489 308 4,391Liability for retirement benefits . . . . . . . . . . . . . . . . . . . . . 1,534 1,891 2,328 11,534Deferred tax assets of the foreignconsolidated subsidiaries* . . . . . . . . . . . . . . . . . . . . . . . . 1,008 639 306 7,579

Unrealized gains on fixed assets . . . . . . . . . . . . . . . . . . . . 327 218 197 2,458Unrealized (gain) loss on available-for-sale securities . . . . . 258 (549) 1,940Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 977 7,346Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 759 963 648 5,707Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . (977) (7,346)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥4,931 ¥4,248 ¥4,513 $37,075

Deferred tax liabilities:Unrealized gain on land held by a consolidated subsidiary . . ¥ 409 ¥ 409 ¥ 409 $ 3,075

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 409 ¥ 409 ¥ 409 $ 3,075

*The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities of the foreign consolidatedsubsidiaries at March 31, 2002, 2001 and 2000, are as follows:


2002 2001 2000 2002

Deferred tax assets:Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,434 ¥ 602 ¥ 617 $10,782Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 201 320 2,346Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 397 236 1,812Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642 501 31 4,827Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 304 314 3,474

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,091 2,270 1,518 23,241

Deferred tax liabilities:Publishing rights amortization . . . . . . . . . . . . . . . . . . . . . . 641 587 550 4,820Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428 328 284 3,218

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,069 915 834 8,038

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,022 1,355 684 15,203Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,014) (716) (378) (7,624)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,008 ¥ 639 ¥ 306 $ 7,579

11. INCOME TAXES

52

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

A reconciliation between the normal effective statutory tax rate for the years ended March 31, 2002, 2001 and 2000, andthe actual effective tax rates reflected in the accompanying consolidated statements of income are as follows:

2002 2001 2000

Normal effective statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.0% 42.0% 42.0%Impairment loss on goodwill in the foreign consolidated subsidiary . . . . . . 50.4Goodwill amortization in the foreign consolidated subsidiaries . . . . . . . . . . 9.1 4.9 3.8Permanently non-deductible expenses of social expenses, etc. . . . . . . . . . 1.4 0.4 1.4Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 (0.8) (0.9)

Actual effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.3% 46.5% 46.3%

Research and development costs charged to income were ¥2,047 million ($15,391 thousand), ¥2,268 million and ¥2,244million for the years ended March 31, 2002, 2001 and 2000, respectively.

12. RESEARCH ANDDEVELOPMENTCOSTS

Advertising costs charged to income were ¥29,717 million ($223,436 thousand), ¥27,296 million and ¥27,175 million forthe years ended March 31, 2002, 2001 and 2000, respectively.

13. 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 ¥2,931 million ($22,038 thousand), ¥2,227 million and ¥1,878 million forthe years ended March 31, 2002, 2001 and 2000, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation of finance leases that donot transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years ended March 31,2002, 2001 and 2000, and obligations under finance leases on an “as if capitalized” basis at March 31, 2002, 2001 and2000, which included imputed interest, were as follows:


Equipment and Fixtures and Other Assets 2002 2001 2000 2002

Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥13,425 ¥11,385 ¥8,297 $100,940Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 7,406 5,155 3,538 55,684

Net leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,019 ¥ 6,230 ¥4,759 $ 45,256


Obligations under finance leases: 2002 2001 2000 2002

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,238 ¥2,219 ¥1,643 $16,827Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,781 4,011 3,116 28,429

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥6,019 ¥6,230 ¥4,759 $45,256

Depreciation expenses, which are not reflected in the accompanying consolidated statements of income, computed bythe straight-line method for the years ended March 31, 2002, 2001 and 2000, are equivalent to the amount of total leasepayments above.

14. LEASES


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 certain land,building and other asset, under noncancellable operating leases.

The minimum rental commitments under noncancellable operating leases at March 31, 2002, 2001 and 2000, wereas follows:


2002 2001 2000 2002

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,747 ¥ 2,058 ¥1,721 $ 28,173Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,556 11,840 7,041 177,113

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥27,303 ¥13,898 ¥8,762 $205,286

(2) LessorThe Company, as lessor, participates in a leveraged lease of an aircraft. The balance of the leased asset at March 31,2002, 2001 and 2000, is included in other assets.

Total income derived from this lease was ¥420 million ($3,158 thousand), ¥503 million and ¥503 million for the yearsended March 31, 2002, 2001 and 2000, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation of finance leases that donot transfer ownership of the leased property to the lessee at March 31, 2002, 2001 and 2000, and lease receivablesunder finance leases at March 31, 2002, 2001 and 2000, were as follows:


Aircraft 2002 2001 2000 2002

Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,000 ¥5,000Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 4,618 4,519

Net leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 382 ¥ 481


Lease receivables under finance leases: 2002 2001 2000 2002

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥826 ¥ 442Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥826 ¥1,268

Depreciation expense computed by the declining-balance method, and interest received which is not reflected in theaccompanying consolidated statements of income, for the three years ended March 31, 2002, were as follows:


Depreciation Interest Depreciation InterestYear Ended March 31 Expense Received Expense Received

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥382 ¥29 $2,872 $2182001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 602000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 84

54

(3) SubleasePro forma lease receivables under sublease arrangements that do not transfer ownership of the lease property to lessee atMarch 31, 2002, 2001 and 2000, which included imputed interest, were as follows:


2002 2001 2000 2002

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 8 ¥14 ¥17 $ 60Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5 17 90

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥20 ¥19 ¥34 $150

Pro forma obligations under sublease agreements that do not transfer ownership of the lease property to lessee atMarch 31, 2002, 2001 and 2000, which included imputed interest, were as follows:


2002 2001 2000 2002

Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 7 ¥12 ¥15 $ 53Due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4 12 75

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥17 ¥16 ¥27 $128

The Company and its foreign consolidated subsidiary enter into foreign exchange contracts and currency coupon swapsto hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies.

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

Derivatives are subject to market risk and credit risk. Market risk is the exposure created by potential fluctuations inmarket conditions, including foreign exchange rates. Credit risk is the possibility that a loss may result from a counterparty’sfailure to perform according to the terms and conditions of the contract.

Because the counterparties to these derivatives are limited to major international financial institutions, the Companyand 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 to thedirector of the Finance Department daily, and reported to the Board of Directors quarterly. Prior to entering into itsderivative contracts, a foreign consolidated subsidiary conferred with independent advisors to assess the reasonable-ness of the contracts and obtained Board of Director approval, and each derivatives transaction is periodically reportedto its Board of Directors.

15. DERIVATIVES


Derivatives contracts outstanding at March 31, 2002, 2001 and 2000, consisted of the following:

Millions of Yen

2002 2001 2000

Contract or Contract or Unrealized Contract or UnrealizedNotional Fair Unrealized Notional Fair Gain Notional Fair GainAmount Value Gain Amount Value (Loss) Amount Value (Loss)

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

Currency coupon swaps:U.S. dollar receipt,yen payment . . . . . . . . . . ¥12,627 ¥ 101 ¥101 ¥10,981 ¥(65) ¥(65) ¥ 9,799 ¥(371) ¥(371)

U.S. dollar receipt,German mark payment . . 5,716 63 63

U.S. dollar receipt,Swiss franc payment . . . . 1,143 22 22

U.S. dollar receipt,British pound payment . . 1,052 6 6 915 6 6 817 (3) (3)

Total . . . . . . . . . . . . . . . . . . . ¥13,679 ¥ 107 ¥107 ¥11,896 ¥(59) ¥(59) ¥17,475 ¥(289) ¥(289)


2002

Contract orNotional Market UnrealizedAmount Value Gain

Foreign currency forwardcontracts—Receivables—U.S. dollar . . . . . . . . . . . . $ 7,797 $8,030 $233

Currency coupon swaps:U.S. dollar receipt,yen payment . . . . . . . . . . $ 94,940 $ 759 $759

U.S. dollar receipt,British pound payment . . 7,910 45 45

Total . . . . . . . . . . . . . . . . . . . $102,850 $ 804 $804

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.

56

Information about industry segments, geographic segments and sales to foreign customers of the Companies for the yearsended March 31, 2002, 2001 and 2000, is as follows:

a. Industry Segments(1) Sales and Operating Income

Millions of Yen

2002

School & LanguageChildren & Teacher Women & InstructionStudents Support Family Senior and Eliminations/Company Company Company Company Translation Others Corporate Consolidated

Sales to customers . . . . . . ¥157,887 ¥16,842 ¥10,946 ¥ 7,145 ¥62,247 ¥12,183 ¥267,250

Intersegment sales . . . . . . 27 7 35 38,094 ¥(38,163)

Total sales . . . . . . . 157,914 16,849 10,946 7,145 62,282 50,277 (38,163) 267,250

Operating expenses . . . . . 132,607 15,154 12,962 8,209 61,698 48,732 (36,701) 242,661

Operating income (loss) . . ¥ 25,307 ¥ 1,695 ¥ (2,016) ¥(1,064) ¥ 584 ¥ 1,545 ¥ (1,462) ¥ 24,589


2002


Sales to customers . . . . $1,187,120 $126,631 $ 82,301 $53,722 $468,023 $ 91,601 $2,009,398

Intersegment sales . . . . 203 53 263 286,421 $(286,940)

Total sales . . . . . 1,187,323 126,684 82,301 53,722 468,286 378,022 (286,940) 2,009,398

Operating expenses . . . 997,045 113,939 97,458 61,722 463,895 366,406 (275,947) 1,824,518

Operating income

(loss) . . . . . . . . . . . . . $ 190,278 $ 12,745 $(15,157) $ (8,000) $ 4,391 $ 11,616 $ (10,993) $ 184,880

Millions of Yen

2001


Sales to customers . . . . . . ¥168,733 ¥15,253 ¥ 9,182 ¥ 3,861 ¥55,258 ¥10,661 ¥262,948

Intersegment sales . . . . . . 19 34 40,637 ¥(40,690)

Total sales . . . . . . . 168,733 15,272 9,182 3,861 55,292 51,298 (40,690) 262,948


Operating income (loss) . . ¥ 31,964 ¥ 959 ¥ (1,192) ¥(2,149) ¥ 1,602 ¥ 536 ¥ (1,442) ¥ 30,278

16. SEGMENTINFORMATION


(The change of industry segment)Prior to 2001, the industry segments have been based on the similarity of the products and markets, and the Companyhad four segments of “Correspondence course,” “Language instruction and translation,” “Test and study aid” and“Publishing and other.”

Effective April 1, 2000, the Company reclassified the four segments to six segments of “Children & students company,”“School & teacher support company,” “Women & family company,” “Senior company,” “Language instruction andtranslation” and “Others.” In addition, the Company introduced a customer-based company structure and the newstructure was established this year. This change was made to show the new financial and business administrationstructure more clearly.

“Women & family company” and “Senior company” had been classified as “Publishing and other” in the past. Thisreclassification was made in accordance with the change of the Company structure and because of the importance ofeach market.

To conform to the segmentation used in 2002 and 2001, the segment information of the year ended March 31, 2000,classified in accordance with the new standard is shown as below:

Millions of Yen

2000


Sales to customers . . . . . . ¥173,314 ¥15,006 ¥9,218 ¥ 1,331 ¥53,544 ¥ 8,551 ¥260,964

Intersegment sales . . . . . . 8 1 49 25,465 ¥(25,523)

Total sales . . . . . . . 173,322 15,007 9,218 1,331 53,593 34,016 (25,523) 260,964


Operating income (loss) . . ¥ 33,862 ¥ 154 ¥ (637) ¥(1,338) ¥ 1,218 ¥ 1,153 ¥ (1,458) ¥ 32,954

(2) Assets, Depreciation and Amortization, Capital Expenditures

Millions of Yen

2002


Assets . . . . . . . . . . . . . . . ¥64,600 ¥10,806 ¥6,840 ¥14,198 ¥75,033 ¥20,530 ¥99,386 ¥291,393

Depreciation and

amortization . . . . . . . . . . 4,715 616 195 371 3,719 693 391 10,700

Capital expenditures . . . . . 5,493 814 290 1,435 2,280 850 (228) 10,934


2002


Assets . . . . . . . . . . . . . . $485,714 $81,248 $51,429 $106,752 $564,158 $154,361 $747,263 $2,190,925

Depreciation and

amortization . . . . . . . . . 35,451 4,632 1,466 2,789 27,962 5,211 2,940 80,451

Capital expenditures . . . . 41,301 6,120 2,181 10,789 17,143 6,391 (1,714) 82,211

58

Millions of Yen

2001


Assets . . . . . . . . . . . . . . . ¥65,506 ¥9,044 ¥6,024 ¥8,719 ¥80,858 ¥22,909 ¥116,201 ¥309,261

Depreciation and

amortization . . . . . . . . . . 4,554 737 277 285 3,481 435 (160) 9,609

Capital expenditures . . . . . 4,206 437 220 3,240 2,713 246 213 11,275

Millions of Yen

2000


Assets . . . . . . . . . . . . . . . ¥68,337 ¥10,397 ¥5,969 ¥3,020 ¥73,425 ¥18,914 ¥117,766 ¥297,828

Depreciation and

amortization . . . . . . . . . . 3,901 814 131 118 3,488 645 102 9,199

Capital expenditures . . . . . 5,968 629 107 750 3,671 640 (660) 11,105

b. Geographical SegmentsThe foreign operations of the Companies for the years ended March 31, 2002, 2001 and 2000, are summarizedas follows:

Millions of Yen

2002

North Eliminations/Japan America Others Corporate Consolidated

Sales:To customers . . . . . . . . . . . . . . . . ¥216,751 ¥20,095 ¥30,404 ¥267,250Inter-area . . . . . . . . . . . . . . . . . . . 6 ¥ (6)

Total sales . . . . . . . . . . . . . . . 216,751 20,101 30,404 (6) 267,250Operating expenses . . . . . . . . . . . . . 192,533 19,142 30,992 (6) 242,661

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

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


2002


Sales:To customers . . . . . . . . . . . . . . . . $1,629,707 $151,090 $228,601 $2,009,398Inter-area . . . . . . . . . . . . . . . . . . . 45 $ (45)

Total sales . . . . . . . . . . . . . . . 1,629,707 151,135 228,601 (45) 2,009,398Operating expenses . . . . . . . . . . . . . 1,447,616 143,925 233,022 (45) 1,824,518

Operating income (loss) . . . . . . . . . . $ 182,091 $ 7,210 $ (4,421) $ 184,880

Assets . . . . . . . . . . . . . . . . . . . . . . . $ 904,587 $370,173 $123,744 $792,421 $2,190,925


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

Millions of Yen

2000




Operating income . . . . . . . . . . . . . . . ¥ 31,426 ¥ 1,152 ¥ 377 ¥ (1) ¥ 32,954

Assets . . . . . . . . . . . . . . . . . . . . . . . ¥107,304 ¥51,177 ¥11,085 ¥128,262 ¥297,828

c. Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2002, 2001 and 2000, are as follows:


2002 2002

North NorthAmerica Others Total America Others Total

Sales to foreign customers (A) . . . ¥20,095 ¥30,689 ¥ 50,784 $151,090 $230,745 $ 381,835Consolidated sales (B) . . . . . . . . . 267,250 2,009,398Ratio of foreign sales toconsolidated sales (A)/(B) . . . . . . 7.5% 11.5% 19.0% 7.5% 11.5% 19.0%

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%

60

Millions of Yen

2000

NorthAmerica Others Total

Sales to foreign customers (A) . . . ¥17,502 ¥26,914 ¥ 44,416Consolidated sales (B) . . . . . . . . . 260,964Ratio 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.

a. Purchase of Treasury StockAt the general shareholders meeting held on June 25, 2002, the Company’s shareholders approved the purchase oftreasury stock. The Company is authorized to repurchase up to 2,000,000 shares of the Company’s common stock(aggregate amount of ¥6,000 million).

b. Appropriations of Retained EarningsThe following appropriations of retained earnings at March 31, 2002, were approved by the Company’s shareholders at ameeting held on June 25, 2002:


2002 2002

Year-end cash dividends, ¥14.5 ($0.11) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,542 $11,594Bonuses to directors and corporate auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 414

17. SUBSEQUENTEVENTS


To the Board of Directors and Shareholders of Benesse Corporation:

We have examined the consolidated balance sheets of Benesse Corporation and consolidated subsidiaries

as of March 31, 2002, 2001 and 2000, and the related consolidated statements of income, shareholders’

equity, and cash flows for each of the three years in the period ended March 31, 2002, all expressed in

Japanese yen. Our examinations were made in accordance with auditing standards, procedures and prac-

tices generally accepted and applied in Japan and, accordingly, included such tests of the accounting

records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly the financial position

of Benesse Corporation and consolidated subsidiaries as of March 31, 2002, 2001 and 2000, and the

results of their operations and their cash flows for each of the three years in the period ended March 31,

2002, in conformity with accounting principles and practices generally accepted in Japan consistently applied

during the period, except for the change made as of April 1, 1999, with which we concur, in the accounting

for past service costs under the contributory defined benefit pension plan of Benesse Corporation and its

domestic consolidated subsidiaries as discussed in Note 3.

As discussed in Note 2, effective April 1, 2000, the consolidated financial statements have been prepared

in accordance with new accounting standards for employees’ retirement benefits and financial instruments

and a revised accounting standard for foreign currency transactions.

Our examinations 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, 2002

INDEPENDENT AUDITORS’ REPORT

62

BENESSE CORPORATION ORGANIZATION OF 2002As of July 1, 2002

Education Company

Management RevisionsPromotion Headquarters

Corporate StrategyPlanning Headquarters

Area Marketing Office

Benesse EducationalResearch Center

Women &Family Company

Senior Company

Language Company

Center Administration

Division Management andPlanning Headquarters

Business Support Center

Customer RelationshipManagement Promotion Office

Value Chain ManagementPromotion Office

Shinkenzemi (Senior andJunior High School Programs)Company

Shinkenzemi (ElementarySchool Programs) Company

Preschool ProgramsCompany

Educational Technology &Asia Company

Classroom EducationCompany

School & TeacherSupport Company

Business Support Center

Guidance andConsultation Center

Human CapitalOrganization Center

BeneducationPromotion Office

Benesse CommunityMarketing Center

Development ofLearning Office

InfrastructuralManagement & SupportTechnologies Center

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

General Meeting ofShareholders

Board of Directors

President

Business ManagementHeadquarters


CONSOLIDATED SUBSIDIARIESAs of March 31, 2002

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 A home food-delivery service and others

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, equipmentsupport 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

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 studymaterials and software

B.C. ESTATE Co., Ltd. 10 100.00 Real estate management, video and compact disc (CD) rental, and CD sales

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

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 Processing paperwork of accounting and general affairs departments

Thousands ofU.S. Dollars %

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

U.S. Dollars %

Benesse Holdings International, Inc. 5.48 100.00 Holding company*1 Indirectly held through Telemarketing Japan, Inc.*2 Indirectly held through Simul International, Inc.*3 Indirectly held through Benesse Holdings International, Inc.

64

BOARD OF DIRECTORS AND CORPORATE AUDITORSAs of June 25, 2002

President Soichiro Fukutake

Vice President Makoto Sato Education Company

Director Kenjiro Kaneshiro Human Capital Organization Center

Director Shigemi Asano Senior Company

Director Kazuo Yamakawa Business Management Headquarters

Director Yoji Shiraishi Shinkenzemi (Senior and Junior High School Programs) Company

Director Nobuya Kashihara Women & Family Company

Director Tamotsu Fukushima Corporate Strategy Planning Headquarters

Director Kimiko Kunimasa

Director Hiroaki Kawamura Infrastructural Management & Support Technologies As Administration

Director Yasuyuki Kudo Business Management Headquarters

Standing Corporate Auditor Toichiro Miyakawa*

Standing Corporate Auditor Hirofumi Ueda

Corporate Auditor Tsuneya Komoto*

Corporate Auditor Kazuo Ichikawa*

*Non-Executive Internal Auditors


THE HISTORY OF BENESSE CORPORATION

Year History

1955 Fukutake Publishing Co., Ltd., is established in Minamigata, Okayama-shi, 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 Course is introduced.

1988 Shinkenzemi Preschool Course (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 Course (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.

The Company acquires controlling stake in Shinkoukai Co., Ltd.

2001 Learn-S Co., Ltd. is established.

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

Benesse Cross World, Inc. is established.

66

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:38,882

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 15.08The Chugoku Bank, Limited 4,337 4.07The Mitsubishi Trust and Banking Corporation 3,823 3.59Japan Trustee Services Bank, Ltd. 3,608 3.39Reiko Fukutake 3,174 2.98Mitsui Asset Trust and Banking Company, Limited 3,112 2.92Nobuko Fukutake 2,769 2.60UFJ Trust Bank Limited 2,728 2.56Mitsuko Fukutake 2,675 2.51Junko Matsuura 2,675 2.51

Shareholdings (in %) by Type of Shareholder:

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

Financial Institutions28.66%

Securities Companies1.33%

Other Corporations9.24%

Foreign Companies—Other13.81%

Individuals and Other46.96%

INVESTOR INFORMATION

As of March 31, 2002

98/10 98/12 99/2 99/4 99/6 99/8 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 02/60

15,000

9,000

12,000

6,000

3,000

(Yen)

0

20,000,000

10,000,000

(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 pride in offeringour customers services of the highest possible quality: services which we and the members of our own families would be happy to receive. Theneeds and well being of our customers are therefore of the utmost importance to us all, and the satisfaction of our customers is the measure bywhich 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 families would like tobe treated, we strive to provide our customers with the goods and services best suited to them, in a timely manner and at the most reasonableprices possible.

Conducting our business in this way requires that we collect information of a personal nature from our customers. We take the collection andmanagement of this information to be a grave responsibility, and are constantly reviewing our business practices in order to ensure that we areworthy 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 business partners. Weemphasize the importance of the role of our business partners in the achievement of our corporate mission by formalizing in writing our relation-ship with them as equal partners. In this way, all those involved in fulfilling the mission of Benesse are made clearly aware of their role, theirresponsibilities 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. Because of thiswe place great value upon our culture of challenge and voracity, and encourage behavior based upon initiative and originality. As members ofBenesse we must treat each other with respect, recognize our different individual strengths and strive to create a workplace where these strengthsmay be combined for the benefit of all. Each employee of Benesse is expected to act as a mature individual, taking the responsibility for their ownactions 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 skilled employ-ees are given the opportunity to further develop their abilities and to advance within the organization. We seek to create a workplace whereintalented 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 be possiblewithout a strong and positive relationship with the community. At Benesse we hold a clear vision for the future, which we strive to realize bypositive action and leadership. Fully aware of our influence upon society, Benesse is mindful of its obligation to contribute to the community as aresponsible corporate citizen, and is actively involved in environmental initiatives as part of its obligation as a responsible consumer of naturalresources. Living up to our name, we at Benesse believe that it is our duty to aim to adhere to the highest standards in business ethics, to bevigilant in our pursuit of social justice, and to act with integrity towards all individuals and organizations 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 innovation bymeans of an ongoing regimen of research and development so as to ensure that our business activities remain profitable. At the same time, wefeel obligated to fully disclose the nature and contents of our business activities so that we may be able to discharge the responsibility ofconducting 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 with thestandards set out in our code of corporate conduct and maintain a comprehensive and consistent disclosure of information to all our stakeholders.

Copyright (C) 2002 Benesse Corporation All Rights Reserved.


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Finance & IR DepartmentTokyo Head Office1-34, Ochiai, Tama-shi, Tokyo 206-8686, JapanPhone: 81-42-356-0808Facsimile: 81-42-356-0722E-mail: [email protected]: http://www.benesse.co.jp/IR Printed on recycled paper in Japan

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