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 2009, the number of members totaled 4.04 million. The Benesse Group strives to satisfy increasingly individual customer needs in the education market by enhancing its products and services, including its educational materials. The Group also aims to achieve further business growth by expanding beyond correspondence courses to offer a diverse range of learning platforms, including prep school and Internet-based learning . 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. This personal information is processed and stored in the Benesse Group's database. Benesse ceased using the basic resident register access system in October 2005, and now acquires 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 the existing direct mail method, we are actively using TV commercials and the Internet and further strengthening telemarketing, in addition to promoting marketing activities tailored to the specific characteristics of different regions. Revisions to these marketing strategies may 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, the Ministry of Education, Culture, Sports, Science and Technology announced new curricula for students from kindergarten to junior high school in March 2008. Based on the key concept of fostering "zest for life," these new guidelines include plans for an increase in the number of classroom hours and elementary school English activities, and other changes. Furthermore, going beyond acquisition of basic knowledge, the curricula aim to cultivate students' ability to apply their knowledge. These curricula will be implemented for kindergartens in fiscal 2009, in fiscal 2011 for elementary schools, and in fiscal 2012 for junior high schools, but the revised content will be taken up in part at all levels during a transitional period beginning in fiscal 2009. The next senior high school curriculum is scheduled to be announced in March 2009, for implementation 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 individualized and diverse. Benesse is therefore providing new 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

  In April 2009, the regularly scheduled revisions to nursing care benefits under the Long-term Care Insurance system took place. The government raised benefits applicable to day-to-day care of residents in specified nursing homes—Benesse's main business domain—with the aim of recruiting more nursing staff, improving their terms of employment, and differentiating between nursing care and medical treatment, while promoting links between the two. Radical revision of the system since fiscal 2006 has included the introduction of a quantitative regulatory mechanism to control a surge in the number of specified facilities. Since then, the establishment of new facilities has been restricted at the discretion of local governments. While it is likely that some of these local governments will start building up the number of specified facilities again, the number of facilities is likely to be restricted overall. In this environment, the Benesse Group aims to open specified nursing homes 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. Further changes to the system of nursing care are anticipated, including the shift from specified facilities to other forms of residential nursing care in the run-up to the elimination of all beds for long-term care in hospitals at the end of fiscal 2011.
  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 Corporation and Group companies.

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  Overseas Business

  Benesse operates a business primarily providing preschool education services through its Taipei Office in Taiwan. In March 2006, the Company started a similar business at its subsidiary in South Korea, and launched a jointly operated business with a local partner in China in June of the same year. As of April 2009, the business in Taiwan had 180,000 members (as of September), the Korean business had 120,000 members, and the business in China had 150,000 members. In addition, Benesse oversees the manufacturing of educational tools and toys through its local subsidiary in Hong Kong, and markets the Kodomo Challenge brand through its local subsidiary in China. Subsidiary Berlitz International also operates 561 schools in 75 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.