The following items are major risks related to the business activities of the Benesse Group that could potentially have a significant effect on the judgment of investors. Recognizing the possibility that these risks may arise, Benesse considers and implements concrete measures with the aim of avoiding such risk and minimizing the impact on the Company’s results and financial position in the event that they should occur.

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  Declining Birthrate (Effect on Core Business)

  The Benesse Group’s core correspondence course businesses, Shinkenzemi and Kodomo Challenge (Preschool courses), have membership ranging from infants to senior high school students. As of April 2010, the number of members totaled 4.08 million. The Benesse Group strives to satisfy increasingly diverse and individualized customer needs in the education market by enhancing its lineup of educational materials, seeking to expand its share through next-generation products that combine the internet and various other learning media. The Group aims to grow its businesses outside the correspondence course business as well by providing prep schools and other places for learning. Benesse is developing the correspondence course business in East Asian countries, including China, and will expand these and other businesses outside of Japan going forward. In order to respond to the rapid decline in birthrate and the aging of the population in Japan, the Group will also work to expand the senior/nursing care business, centering on operation of nursing homes for the elderly.

  Nevertheless, if Japan’s declining birthrate falls at a significantly greater pace than projected there may be a dramatic contraction in the overall size of the education market, which could have an impact on the Benesse Group’s results and financial position.

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  Acquisition of Personal Information

  The Benesse Group’s core business involves the provision of products and services to individual customers, centered on correspondence courses such as Shinkenzemi and Kodomo Challenge. Existing and potential customers are required to register personal information, such as their name, gender, date of birth, address, telephone number, and the name of a guardian, and this information is deployed effectively in our sales activities.

  Benesse ceased using the basic resident register access system in October 2005, shifting to a system in which we acquire personal information directly, on the basis of individual consent. In tandem with this move, we reviewed our marketing strategy and worked to diversify our marketing methods. For example, in addition to using conventional direct mail, we are actively using TV commercials and the Internet and further strengthening telemarketing, as well as promoting marketing activities tailored to the specific characteristics of different regions.

  However, revision to these marketing strategies could have an impact on total enrollment in Shinkenzemi and Kodomo Challenge courses.

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  Regulations (Education system and nursing care insurance)

  Education system

  In the education field, in March 2008 the Ministry of Education, Culture, Sports, Science and Technology announced new curricula for kindergarten, elementary, and junior high schools. Based on the key concept of fostering “zest for life,” the enhancement of the curriculum includes plans for an increase in the number of classroom hours and foreign-language activities in elementary schools, among other changes. Furthermore, going beyond acquisition of basic knowledge, the curricula aim to cultivate students’ ability to apply their knowledge. These curricula have already been implemented for kindergartens since fiscal 2009, and will be implemented in elementary and junior high schools in fiscal 2011 and fiscal 2012, respectively. However, the revised content has been taken up in part at all levels during a transitional period that began in fiscal 2009. The next senior high school curriculum was announced in March 2009, and will be implemented starting with the class matriculating at senior high school in fiscal 2013. There is an ongoing movement by the Japanese government to review educational content and the educational system. As part of this trend, a stronger emphasis is being placed on measures to improve, and better evaluate, academic abilities in individual regions and schools. Amid these significant changes, the educational needs of children and their parents are rapidly becoming more diverse and individualized. Benesse is therefore providing products and services that are carefully tailored to these fragmenting needs.

  Nevertheless, the Benesse Group’s results and financial position could be affected by a decline in the appeal of its core products and services and a decline in sales, given the high share of total sales accounted for by the Shinkenzemi business, if its response is insufficient to cater for the rapid pace of change in the education environment and in customer needs.

  Nursing care

  Revisions to nursing care benefits under the long-term care insurance system are conducted once every three years. The April 2009 revisions saw the first increases in the history of the long-term care insurance system, were enacted with the aim of improving their terms of employment of nursing staff. The increases also applied to benefits for day-to-day care of residents in specified nursing homes—one of the Benesse Group’s main business domains. However, as a result of 2006 revisions to the Long-Term Care Insurance Act, it became possible for local governments to limit the number of new specified nursing homes. Although certain local governments have begun new plans for designated homes, most localities are continue to restrict new openings.

  Further changes to the system of nursing care are anticipated, including government debate over the elimination of all beds for long-term care in hospitals at the end of fiscal 2011.

  In light of the restrictions on establishment of specified nursing homes, the Benesse Group aims to open new locations in line with local governments’ plans to build up the number of such facilities. At the same time, the Group aims to maintain its relative edge in terms of service quality and financial position and sustain the speed of business expansion as far as possible.

  Moreover, although Benesse has built a nursing care business model with a low degree of dependence on income from nursing care insurance, the Group’s results and financial position could be affected by the need to review the nature of products and services, fee structures, and so on, due to revisions in regulations related to the provision of nursing care services, standard reimbursement rates applicable to various nursing care services, payment limits commensurate with care requirements, and other factors.

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  Accounting for Asset Impairment

  The Benesse Group’s results and financial position may be affected by the necessity to record impairment losses on such assets as landholdings, buildings, and goodwill in the event of a sharp decline in the profitability of Benesse Holdings, Inc. and Group companies.

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  Overseas Business

  Benesse operates a business primarily providing preschool education services in China and other East Asian countries. As of April 2010, the business in China had 220 thousand members, the Taiwan business had 170 thousand members, and the business in Korean had 130 thousand members. In addition, Benesse oversees the manufacturing and procurement of educational tools and toys through its local subsidiary in Hong Kong. Subsidiary Berlitz International also operates over 550 schools in more than 70 countries and regions worldwide.

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