PROFILE

Only one company can converge
the Internet and membership business.
The Rakuten Group had been pursuing Group synergies aiming at one trillion yen in gross transaction value. Looking to the future,
we will seek further growth by maximizing the value of our services for members.

Growth of Gross Transaction ValueJV Business with NTT DoCoMo (Online auction)
LinkShare (Affiliate marketing)
Cyber Brains (Database marketing services)
Kokunai Shinpan (55.5% stake, Credit card)

563,100

2005

329,100

2004

153,000

2003

79,1002002

52,3002001

23,400

2000

Aozora Card (Consumer loan)
Ctrip.com (21.7% stake, Online travel in China)

Rakuten Books (Online bookstore)
DLJdirect SFG Securities (Online brokerage)
MyTrip.net (Online travel)

Ynot (Online greeting card)
Lycos Japan (Search engine)

ShowTime (Broadband media; JV with USEN)

Infoseek (Portal and search engine)

The businesses joinedin each year

0.32

1997

0

150,000

300,000

450,000

600,000

750,000(Millions of yen)Disclaimer- The statements in the annual report with respect to current plans, strategies, beliefs and other statements that are not historical facts of Rakuten, Inc. and its consolidated
subsidiaries and affiliates (Rakuten Group) are forward-looking statements.
- Such forward-looking statements are based on management’s assumptions and beliefs in light of the information currently available to it. These forward-looking statements
involve risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place
undue reliance on them. We do not intend to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as may berequired by applicable laws.
- All the consolidated financial data in this annual report have been prepared in accordance with accounting principles generally accepted in Japan and rounded down to thenearest numbers.
- “Rakuten”,
andare the registered trademarks of Rakuten, Inc. in Japan.

2

Rakuten’s Competitive
Market Position in Japan

Contents

1 Rakuten Ichiba 1
E-Commerce

2 Yahoo! Shopping
3 Amazon
4 Livedoor Shopping
5-

1 Rakuten Travel
Online Travel

2

2 Jalan.net
3 Ikyu.com
4 Best Reserve5-

2 PROFILE
4 TO OUR SHEREHOLDERS
6 TOP INTERVIEW
Strength, Strategy and Corporate Governance

12 BUSINESS REVIEW
12 E-Commerce Business
13 Credit and Payment Business
14 Portal and Media Business
15 Travel Business16 Securities Business

1 E*Trade Japan

2 Rakuten Securities 3

Online Securities 3 Matsui Securities
4 MONEX BEANS
5 Kabu.com

Portal19 Five-Year Summary
20 Results of Operations andFinancial Condition
22 Consolidated Balance Sheet

2 Rakuten Infoseek 4

24 Consolidated Statementsof Operations

3 Global Media Online
4 Nifty
5 msn

3 Rakuten Auction/Rakuten Furima 54–5–

1 Rakuten Hiroba 6
Blog

18 Financial Section

1 Yahoo!

1 Yahoo! Auction
2 Bidders

Online Auction

17 Professional Sports Business

2 Livedoor
3 Yahoo!
4 Goo
5–25 Consolidated Statements ofCapital Surplus andAccumulated Deficit
26 Consolidated Statementsof Cash Flows
28 Notes to Consolidated Financial
Statements

59 Independent Auditors' Report
61 Corporate Data

Notes:
1. By gross transaction value including books. Source: Fuji-Keizai (October,2005)
2. By gross transaction value. Source: Company Information (Rakuten
Travel, Ikkyu.com), Nikkei Marketing Journal (Oct-19, 2005)(Jalan.net),
Company estimate based on Tokyo Shoko Research Data (Best Reserve)
3. By average daily transaction volume from April 2005 to January 2006.
Source: Company Releases
4. By reach, property, home panel for December, 2005. Source:
Neilsen/NetRatings
5. By gross transaction value. Source: Company Releases
6. By page views for 12 months from January 2005 to December 2005.
Source: Neilsen/NetRatings

3

TO OUR SHAREHOLDERS

A Year of Heightened Synergy Among Rakuten Group Businesses
Rakuten’s Strategies Yielded Strong Results for FY2005
Since its founding in 1997, the Rakuten Group has been
dedicated to serving its customers through the creation andexpansion of innovative web services. One major initiative
during fiscal 2005 was to enhance our user experiencethrough the unification of user IDs under a common Rakuten
membership ID. This initiative facilitated greater usage andprovided a “one-stop” service wherein users can access ourvarious offerings with a single ID.
Projects such as this as well as many other customeroriented initiatives contributed to each of our service

segments demonstrating strong performance; both revenue
and profit were at record highs. Net sales surged 184.8%
year-on-year to ¥ 129.7 billion and ordinary income jumped
131.5% to ¥ 35.8 billion.
This past year, we also continued to focus on strengthening
the Rakuten brand. We dramatically increased the awarenessof our brand by entering the highly visible field of professional
baseball with the creation of the Rakuten Eagles. In addition,
we strengthened our brand equity by combining our various
services under a unified Rakuten brand. Finally, we actively
encouraged customer usage across our various services
through the promotion of our Rakuten Super Point program, acomprehensive customer loyalty program.
These various initiatives have helped to significantly increaseuser traffic (the number of visits), which has in turn significantly
augmented the volume of transactions for the entire Group,and has led to exponential growth in revenues and profit.
Consequently, fiscal 2005 was a year in which our pastbusiness strategy bore dramatic results in terms of Groupsynergies.

Laying the Foundations for Further Growth
The Rakuten Group also aggressively embarked on several
new initiatives in fiscal 2005 to ensure continued future
growth. We began to lay the foundations for overseas
operations by acquiring U.S.–based LinkShare Corporation,
one of the world’s largest affiliate marketing companies.
Through LinkShare’s operation, which serves more than 500
blue-chip merchants, we will become active in the U.S. ecommerce marketplace and leverage the solid customer baseof LinkShare for further international expansion. We also
entered the credit card business by turning Kokunai Shinpan
Co., Ltd. (currently Rakuten KC Co., Ltd.) into a consolidated
subsidiary. Furthermore, Rakuten began negotiating abusiness alliance with Tokyo Broadcasting System, Inc. (TBS)in order to explore possibilities for integrating the Internet andbroadcasting .

Hiroshi Mikitani, Chairman and CEO

4

Financial Highlights (Consolidated)

Net Sales
2001(Millions of yen)

Rakuten Ichiba—The Largest Online Shopping Mall in Japan

6,780

2002

9,894

2003

• Rakuten Group members: 33 million(as of March 31, 2006)

18,082

2004

45,5672005• Products: More than 15 million
129,775• Merchants: 15,781 (as of March 31, 2006)(Millions of yen)

Operating Income
2001 1,605
2002
2003

2,550

1

4,750

2004

2

15,0592005

34,885

3(Millions of yen)

Ordinary Income
2001 1,408
2002
2003

2,241
4,438

2004

15,474

2005

35,826(Millions of yen)

Net Income (loss)
2001(4,158)

2002(3,276)2005

3 Links to Other Rakuten Services- Online securities- Credit card
- Consumer loan
- Online travel- Online bookstores- Portal sites

2003 (52,643)
2004

1 A Large Variety of Merchandise
2 Personal Customized Page

(14,271)
19,4495

TOP INTERVIEW

Q.
A.

What are the distinctive features and strengths of the Rakuten Group?
We operate Rakuten Ichiba, Japan’s largest e-commerce site, and provide one-stop
access to diverse services encompassing shopping, hotel reservations and financial services.

Rakuten, Inc. was established in 1997 to launch an ecommerce marketplace which we called Rakuten Ichiba. The
pioneering concept of Rakuten Ichiba was to enable people
with strong business skills to easily set up online businesses at
a time when the production of an effective e-commerce siterequired advanced technical skills. That customer-oriented
focus continues today.
We continue to build our business by delivering convenientsolutions to both the consumers and our merchant partners.
As a result, we have enjoyed rapid growth in terms of grosstransaction value, or gross merchandise sales through the
shopping mall and, today, Rakuten Ichiba has established its
position as one of the Japan’s largest internet service sites witha membership of 30 million and over 500 billion yen in grosstransaction value per year. Rakuten, Inc. conducted an initialpublic offering in 2000 and, as of December 31, 2005, has amarket capitalization of approximately 1.3 trillion yen, making
us the seventh largest Internet-related company in the world.
Following the initial public offering in 2000, we further
expanded the Rakuten Ichiba business and extended theservices we could make available to our loyal customer basethrough several acquisitions of online and offline businesses,
including portal sites (Infoseek), online hotel reservations(MyTrip.net), online brokerages (DLJdirect SFG Securities) andconsumer credit services (Aozora Card, Kokunai Shinpan).

6

Each of those businesses, in turn, had users which
contributed to the overall increase in participation and use of
Rakuten’s other services and gross transaction value. An
overriding benefit to such synergies – attracting morecustomers and greater cross-utilization of our services – isstrong brand recognition and loyalty.
The integration of so many diverse businesses is achallenge which we approach by managing all of thebusinesses according to the same “five concepts of success”
which we set out at the time of Rakuten’s establishment.
Goal of Rakuten Group : To be the No.1 Internet Service Company
The five concepts of success at Rakuten Group:• Get Things Done
• Complete Professionalism• Hypothesize, Execute, Verify and Incorporate• Maximize Customer Satisfaction• Speed!! Speed!! Speed!!

By sharing the goal and guideline of conducting businessamong all the employees, we maintain the quality of the
management and the ability of execution to achieve highorganic growth. We are poised for further growth and provide avariety of Internet services in the six business areas of ECommerce, Credit and Payment, Portal and Media, Travel,
Securities and Professional Sports with Rakuten Ichiba
operations at the core.

Credit & Payment

E-Commerce

Portal & Media

Credit Card
Consumer Loan

Shopping Mall
Bookstore
AuctionSearch Engine
Community Service
Broadband Content

TravelSecurities

Professional Sports

Hotel Reservation
Air Ticket Reservation

Online Brokerage

Professional Baseball Team

Q.
A.

What is Rakuten’s Growth Strategy?
Rakuten seeks to exploit the convergence between the Internet, with its power of distribution
and reach, and membership businesses, with their high brand recognition and loyalty,
to maximize lifetime value of our customers.

The Rakuten Group’s aggressive promotion of initiatives tomaximize Group synergies, including enhanced services toimprove user convenience, database marketing enabled byour 30 million-plus membership, and a brand strategy, isgreatly responsible for its unprecedented growth at a blisteringpace in the less than ten years since the company’s founding.
We have identified four growth drivers for continued, evenaccelerated, growth going forward:
1. enhancing the Rakuten brand;
2. acquiring more traffic and customers;
3. customer retention, cross-selling and personalization; and4. monetization.

Let me explain each of these four growth drivers in moredetail. The first is enhancing the Rakuten brand. I believe wehave achieved nearly 100% recognition for the Rakuten
Group and Rakuten Ichiba in Japan. It is important, however,to move beyond simply being known and increase thestrength of our presence to create a stronger relationshipwith our customers and develop brand loyalty across a
broader range of offerings. Based on this goal, we pursued afull-scale brand strategy in 2005. First, we unified the namesof major Group companies and their services under the
Rakuten brand and adopted a common brand logo. In
addition, our entry into professional sports with a new
baseball franchise in 2005, the Rakuten Eagles, dramatically
boosted awareness of the brand. Consumer recognition of
our brand rose significantly, leading to our selection as the“Most Innovative Brand (2005)” by “Brand Japan” based on a
consumer brand awareness rating conducted by Nikkei BP
Consulting.

Building Strong Bonds Between Key Growth Drivers

Integration of Brand Logos
Business
Application

4. Monetizing

Old logo

New logo
Rakuten Ichiba

Infoseek

Rakuten Travel

1. Enhance Brand

Customer
Database

Media/
Traffic

Rakuten KC

Rakuten Securities

3. Retention

2. Acquiring Traffic+ Cross-selling+ Personalization+ Customer
is the registered trademark of Rakuten, Inc. in Japan.

7

TOP INTERVIEW

The second growth driver is acquiring more traffic andcustomers. Current page views per day for the Rakuten
Group have reached 244 million in the fourth quarter of fiscal
2005, representing dramatic growth over the past three years
from 52 million page views per day in the same period of
2002. Since 2002, we have sought to integrate the separate
membership IDs used by each of our services under one
Rakuten Membership ID. This improves user conveniencedramatically and helps our customers see us as a one-stop
service, especially as we expand our service offerings
through acquisitions and alliances and leverage the synergies
among them.

19.06
15.94
14.00
12.75

20
15

0

5.53
1.671.95

3.50
2.25 2.62 3.03

3.98

17.29
16.19
18.78
14.58

5.77
4.57 5.14

7.84
6.76

02/ 02/ 02/ 02/ 03/ 03/ 03/ 03/ 04/ 04/ 04/ 04/ 05/ 05/ 05/ 05/
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

The third growth driver is customer retention, cross-sellingand personalization. The objective is to build a solid
customer base by promoting multiple uses of the various
services we provide and implementing one-to-one marketingand other measures. Concrete initiatives include the Rakuten
Super Point program, in which points are accumulated byusing Rakuten services, and stronger database marketing.
Having advanced in our ID integration effort, in 2005, to
strengthen marketing targeted at individual users, we
grasped each user’s purchasing preferences and provided
recommendations based on purchasing histories. Rakuten
Super Point Program is the one of the worlds’ firstcomprehensive customer loyalty programs on the Internet.
The program drives customer activity over segments,
increases cross-selling opportunities and promotes loyalty
and customer retention. Rakuten Securities provides aconcrete example of the result of these activities. In the

8

32.8
27.7

(Million)

31.34
29.19
30.75
28.77
28.11
32.47
28.28
25.86
23.75
22.02

25

5

(%)

27.7

24.4

Rakuten Group Member
Rakuten Member

30

10Percentage of New Accounts through Rakuten Ichiba to
Total New Accounts

30

Acquire Traffic and Customers
35

fourth quarter of fiscal 2005, approximately 30,000 new
accounts were being opened each month at Rakuten
Securities, of which 32.8% were customers who originatedthrough use of Rakuten Ichiba. Furthermore, nearly two outof ever three new customers of Rakuten Securities —anextremely high ratio — are Rakuten members, demonstrating
the synergy between our E-Commerce and Financial
businesses.

20
12.0

+ 20

.8 po

ints

10

0

04/4Q

05/1Q

05/2Q

05/3Q

05/4Q

The fourth growth driver is monetization of transactions on
our service sites, which involves generating profit through theinitiatives explained above. The Rakuten Group’s advantage
lies in our ability to maximize the utilization of our services
per user as well as to cut customer acquisition costs throughour common brand, database and point system. I believethat in the final analysis, reducing the cost of acquiring newcustomers and improving the lifetime value of existingcustomers are the two paths to creating profitability.
From a collection of powerful sites to a corporate groupthat generates significant synergies and on to the creation of
new value—we will strive for innovation at the Rakuten Groupby pursuing group synergies toward our goal of becoming
the No. 1 Internet company in the world. We will, however,remain committed to the customer-oriented stance uponwhich our company was founded. By maintaining this basic
commitment, the Rakuten Group will strive toward therealization of a society where all information is gathered on
the Internet.

Q.
A.

What is the Rakuten Group’s approach to Corporate Governance?
We are striving to establish a Corporate Governance structure that will enhance
the competitiveness of the Group and maximize corporate value.

In order to enhance the Group’s competitiveness andmaximize its corporate value, Rakuten places high priority on
enhancing the functions of the Board of Directors, thecompany’s ultimate decision-making body, improving auditor
oversight of business execution by directors, andstrengthening internal check functions to prevent misconduct.
Moreover, to prevent the company from pursuing extremely
short-sighted business goals and prevent a degradation in its
corporate governance system, flexible organizational
restructuring is being implemented to ensure that thecompany remains profitable over the medium and long terms,
makes management decisions that prioritize maximization of
profit, and conducts businesses efficiently in a way that
accommodates changes in the operating environment.

Rakuten supervises management by using a corporate
auditor system. In March 2003, Rakuten adopted theexecutive officer system to separate the roles of management
supervision and business execution. Functions that were until
then performed by the Board of Directors have been divided,
making directors responsible for management decisionmaking and supervision and executive officers responsible forthe execution of business activities. In addition, the in-housecompany system was adopted to build a more powerfulmanagement framework for each Group business. At thesame time, the Group was reorganized, including changes tothe responsibilities of each director, based on a reassessmentof the similarities and relationships of business activities.

The corporate governance framework of the Rakuten Group(As of March 30, 2006)

General Meeting of Shareholders
Selection/Dismissal

Selection/Dismissal

Board of Directors
Directors: 13 (including 4 outside)

Independent Accountant
Financial Audits

Selection/
Dismissal

Cooperation
Operational Audits

Chairman and CEO
Appointment

Board of Corporate Auditors
Corporate Auditors: 3 (including 2 outside)

Audit Reports

Internal Audit Dept.
Mutual Cooperation
AuditsDirections madebased on the
results of audits

Business UnitsGroup Companies

9TOP INTERVIEW

Directors, Board of Directors, Board of
Executive Officers, etc.
The Board of Directors has 13 members, including four
outside directors. The directors hold regular monthly
meetings and extraordinary meetings as necessary. At
meetings, the directors reach decisions concerning importantmatters involving management and supervise theperformance of directors and executive officers responsible
for business activities.
The Group also has an Executive Committee, which ismade up of executives at the Senior Executive Officer level
and above, a company management committee at each
operating company, and a Corporate Headquarters
Committee, which is overseen directly by the Group’s
Chireman and CEO. These committees discuss important
strategic matters, such as basic policies for medium- andlong-term management plans. This provides a frameworkthat enables the directors to reach proper decisions.
In addition, matters directly related to business activities
are examined by the 33-member Executive Officer
Committee, which is made up of the Group’s, chairman andCEO, other directors, presidents of operating companies,and certain other executives. This system ensures that issues
are examined and debated from a variety of viewpoints.

Corporate Auditors, Board of Auditors
There are three corporate auditors, two outside the Groupand one who was a director of a subsidiary. The Board ofAuditors holds regular meetings and extraordinary meetings
as necessary.
The auditors attend meetings of the Board of Directors andother important meetings, receive reports on theperformance of duties by directors, the Internal Audit
Department and other sources, check operations at the head
office and other important business sites, and checksubsidiary operations. These activities are performed in linewith audit policies, plans and other parameters establishedby the Board of Auditors. In addition, the auditors receive
auditing reports from the independent accountant andexamine the financial statements and related documents.
The auditors also hold meetings with the Chairman and CEO
to discuss various matters.

10

Financial Audits
Rakuten has an auditing contract with Ernst & Young ShinNihon
to perform financial audits as prescribed by the JapaneseCommercial Code and Securities and Exchange Law.

Internal Audits
The Internal Audit Department performs audits based on anannual internal audit plan for the purpose of checking
activities at each department and group company. These
audits cover internal controls, including items such as thelegality, suitability and efficiency of activities, and progresswith regard to compliance programs. Results of internal
audits are reported to Chairman and CEO as well as all
directors and executive officers involved. Reports are also
submitted to the Board of Auditors so that this information
can be used for audits performed by the corporate auditors.

Internal Control System
Rakuten has an Internal Administration System Committee
for the purpose of reinforcing programs involving complianceand corporate ethics. In the event that a law or regulation isviolated, this committee takes steps to prevent areoccurrence of the problem. The auditors and Internal Audit
Department perform regular audits to verify that these steps
are functioning as planned.
Rakuten also ensures the timely and appropriate disclosureof information based on judgments about necessity of
disclosure by corporate auditors.

Risk Management System
Risks resulting from ordinary business activities are managed
by the relevant divisions and business units with theassistance of the Security Headquarters, which wasestablished in August 2005. Concerning management-relatedrisks that could have a significant impact on businessactivities, each division and business unit studies these risks
and considers countermeasures that are assessed by the
Executive Committee, operating company management
committees and Board of Executive Officers. Other types ofrisks are assessed by the Board of Executive Officers andother committees. The Group receives advice concerning risk
management as necessary from attorneys and otherspecialists.

Boad of Directors and Corporate Auditors(As of April 20, 2006)

Hiroshi Mikitani
Chairman and CEO

Coporate Auditors

Directors
Atsushi Kunishige

Kouichi Kusano

Kouji Hata

Executive Deputy President and Director

Director(Attorney of the Law)

Corporate Auditor

Katsuichiro Masumi

Toru Shimada
Senior Executive Officer and Director

Yoshihisa Yamada

Hisashi Suzuki
Director(the Chairman of LDH, Inc.)

Corporate Auditor

Katsuyuki Yamaguchi
Corporate Auditor

Senior Executive Officer and Director

Muneaki Masuda
Takashi Yoshida
Senior Executive Officer and Director

Masatada Kobayashi
Senior Executive Officer and Director

Director(CEO of Culture Convenience Club Co., Ltd.)

Note: Mr. Hata and Mr. Yamaguchi areoutside corporate auditors stipulated
in Paragraph 16, Article 2 of the
Corporation Law of Japan.

Tatsumi Yoda
Director(the Chairman of Gaga Communications, Inc.)

Akio Sugihara
Senior Executive Officer and Director

Ken Takayama
Senior Executive Officer and Director

Manabu Mori
Executive Officer and Director

11

BUSINESS REVIEW

E-Commerce Business
The Group’s E-Commerce Business Company comprises the E-Commerce Business segment,
which focuses on operating websites and providing services related to electronic commerce
centered on retailing as well as operating entertainment-related websites and services.
Net sales for fiscal 2005 grew 63.5% year-on-year to ¥35,060 million and operating income rose
64.0% to ¥11,673 million.

Net sales bybusiness segment(¥ million)

35,060Operation Review
Maintaining High Growth in Both Net Sales and Operating
IncomeRakuten Ichiba, the mainstay of the E-Commerce Business,
observed the number of new registered merchants reach arecord-high of 818 in December 2005 with the total numberof merchants exceeding 15,000 within the same month.
Gross merchandise sales (GMS) of the E-Commerce
Business were higher than ¥330 billion, even excluding theadditional effect of the newly consolidated LinkShare
Corporation. This steadily expanding scope led toconsiderable increases in margin sales and advertisement
Number of stores (number of registered merchants)

sales, enabling this enterprise to maintain its significant
contribution to consolidated financial results as the Group’s
mainstay business.
To raise the level of service, we implemented measures
such as improving the functionality and convenience ofRakuten Ichiba, providing attractive content and enhancing
payment by introducing R-Card Plus, a credit card settlement
program for merchants.
Furthermore, we endeavored to bolster our mobile services
in view of the advance in mobile commerce led by younger
users in their teens and twenties, as demonstrated by GMS(gross merchandise sales) of Japan’ e-commerce via mobile
phones approaching 10% of total e-commerce GMS.

(Stores)

18,00015,157

15,00013,833
12,40912,000

9,665
9,000

8,099

10,587

11,312

8,777

6,000

3,000

0

12

04/1Q 04/2Q 04/3Q 04/4Q 05/1Q 05/2Q 05/3Q 05/4Q

T O P I C
Establishment of Rakuten Auction in Joint Venture with NTT
DoCoMo
The Rakuten Group had previously provided two types of auction
services—Rakuten Furima (Rakuten Flea Market) and Rakuten
Super Auction. To aggressively pursue the future development ofefficient, flexible services in this field, we separated the Internet
Auction Business division to establish Rakuten Auction, Inc. in ajoint venture with NTT DoCoMo, Inc. Through this move, we will
strengthen our response to the expansion of mobile commerceand seek to further accelerate the growth of our internet auction
business.

Credit and Payment BusinessOf the Group’s Financial Service Business Company, Rakuten KC, Co., Ltd., Rakuten Credit, Inc.
and their consolidated subsidiaries and affiliates constitute the Credit and Payment Business
Segment, which is primarily concerned with the credit card business as well as the shopping
credit and consumer loan businesses.
Net sales for fiscal 2005 jumped 5,970.7% year-on-year to ¥47,139 million and operating income
was ¥6,332 million, compared with an operating loss of ¥110 million in the previous fiscal year.

Operation Review
Solid Performance from Both Rakuten KC and Rakuten
CreditIn June 2005, the Rakuten Group joined by Kokunai Shinpan
Co., Ltd. (now Rakuten KC, Co., Ltd.) made a full-scalelaunch of its credit card business. This move enabled us toprovide a comprehensive service including payment in our ECommerce Business. Increased recognition of the Rakuten
brand and growth in distribution and new customers at
Rakuten Ichiba provided a boost to Rakuten KC, Co., Ltd.
when its corporate name was changed from Kokunai
Shinpan, Co., Ltd. in October. As a result, the number of new
Rakuten KC credit card membership

Net sales bybusiness segment(¥ million)

47,139credit card members showed a steady rise and profit
expanded in the shopping credit and loan businesses.
Rakuten Credit, which operates a consumer loan businessprimarily targeting medium- to high-income groups, sought
to capture customers by offering loans at the industry’s
lowest interest rates, and as a result the number of new loan
contracts increased significantly by 2 to 2.3 times comparedwith the previous fiscal year. The accompanying rise in
outstanding loans to more than ¥50 billion contributed tobringing the business into the black. Significant year-on-year
growth was also due to synergies sought with other services,
including a focused effort to cultivate new customers throughguaranteed loans, a tie-up loan with Rakuten KC.

(Thousands of card)

2,200

2,072
1,957

2,000

1,878
1,827
1,800

1,683 1,727
1,639

1,600

1,777
Exceeded 2 million cards!
(including 89,000 Rakuten Cards)

1,400

0

04/1Q 04/2Q 04/3Q 04/4Q 05/1Q 05/2Q 05/3Q 05/4Q

T O P I C
Rakuten KC Obtains VISA Special Licensee Rights
In November 2005, Rakuten KC obtained special licensee rightsfrom VISA International to independently issue VISA cards. We
became the second consumer loan business in Japan to obtain
this right since Nippon Shinpan Co., Ltd. (now UFJ NICOS Co.,
Ltd.) in 1987, and the sixth non-banking company to do so.
Beyond Rakuten KC’s current card membership of 2.07 million,
we were highly regarded for our approximately 30 million Rakuten
Group members who represent potential card customers, as well
as for the future business opportunities and high growthprospects of our Internet-based business model.

13

BUSINESS REVIEW

Portal and Media Business
The Group’s Portal and Media Business Company comprises the Portal and Media Businesssegment, which focuses on operating portal sites that serve as gateways to the Internet andengages in other activities such as providing online greeting card services, distributing broadband
content, and research.
Net sales for fiscal 2005 rose 64.8% year-on-year to ¥9,438 million and operating income grew
77.2% to ¥1,929 million.

Operation Review
Focused Effort to Maximize Media Value throughEnhanced Content
In fiscal 2005, we focused on maximizing group synergy andmedia value centered on the three core business fields of
media, tools and community. In June 2005, Cyber Brains
Co., Ltd. (now Rakuten Research, Inc.) was integrated into
the Group to strengthen our Internet research business.
Furthermore, we endeavored to differentiate our service fromthe competition and provide greater convenience for users as
a total community service. These actions included therelease of Rakuten Hiroba Photo service and video service,

Expanded Service and Media Offerings• Infoseek—comprehensive portal site featuring a broad range ofcontent• Ynot—Internet-based greeting card delivery service• Minna-no-Shushoku-Katsudo-Nikki (Everyone’s Job-Seeking
Diary)—community site offering information on job opportunities,
mainly for new college graduates• Rakuten TV—CS broadcasting channel• Target—Advertising agency and marketing service• Rakuten Research—Internet research service• ShowTime—portal site offering broadband content• STAR soccer—lifestyle magazine revolving around soccer

14

Net sales bybusiness segment(¥ million)

9,438

which are linked to Rakuten Hiroba’s blog service, and an
upgraded Rakuten Hiroba mobile edition. In terms of media,
we launched a preliminary version of the lifestyle magazine“STAR soccer,” utilizing the three channels of print
publishing, the website and mobile phones. As a result, we
attained continued increases in sales and income from theprevious fiscal year due to steady growth in advertisement
sales and greater profitability achieved by improved
operational efficiencies.

T O P I C
Launch of “STAR Soccer”—A Lifestyle Magazine Revolving
Around Soccer
The Rakuten Group is seeking to diversify its
information media offerings and attain a mix ofthe Internet and other media. In our firstattempt, we launched a magazine titled “STARsoccer.” Looking ahead, we will present acompletely new media model that leverages
First issue (released
the characteristic strengths of different media, February 25, 2006)
such as the message-carrying power of magazines, theinteractive features and marketing power of the Internet and thereal-time advantages of mobile communications.

Travel Business
The Group’s Travel Business Company comprises the Travel Business segment, which focuseson operating travel-related websites and services, such as hotel bookings.
Net sales for fiscal 2005 increased 35.8% year-on-year to ¥7,367 million and operating income
rose 37.9% to ¥2,982 million.

Net sales bybusiness segment(¥ million)

7,367

Operation Review
Continued Expansion in Gross Transaction Value (GTV) of
Bookings
In fiscal 2005, we enjoyed solid business results as the rateof annual growth in total GTV based on bookings continued
at a high growth rate of 26.8%, and as the transition to a newcontract plan raised the number of rooms available foradvanced bookings, resulting in higher sales.

To enhance user convenience and entertainment features, in
December 2005 we launched Ranking Hiroba to rank popular
accommodations. We also endeavored to expand ourservices as a comprehensive Internet-based travel service
that offers one-stop booking from hotels to transportation bylaunching a service encompassing new travel options,
including booking services for overseas airline tickets andhighway express buses.

Total GTV based on bookings / number of room night bookings(GTV: billion)
70(Reservations: 1,000 nights)
5,000
4,753

4,644

4,396
4,191

60
50

3,979
3,539

3,826

4,000

3,635

39.34

40

3,000
37.35

34.82
30.97

30

25.70

27.49

31.45
28.58

2,000

20
1,000
10
0

04/1Q 04/2Q 04/3Q 04/4Q 05/1Q 05/2Q 05/3Q 05/4Q

0

T O P I CFirst Internet-based Travel Agency to Complete
Registration Change to “First Category Travel Agency”
With the goal of providing comprehensive travel services,
Rakuten Travel, Inc. changed its registration to “First Category
Travel Agency” in August 2005. Until then, the company could
only provide travel arrangement services based on its registration
as a “Third Category Travel Agency.” Changing registration
enables the company to offer planned travel products such as
packaged tours and to provide full travel services including
overseas trips. We intend to seize this opportunity to provide newservices, enhance user convenience and develop new travelneeds.

15

BUSINESS REVIEW

Securities BusinessOf the Group’s Financial Service Business Company, Rakuten Securities, Inc. and its
consolidated subsidiaries and affiliates comprise the Securities Business segment. This segmentprovides online securities brokerage and other services.
Net sales for fiscal 2005 grew 101.6% year-on-year to ¥26,502 million and operating income rose
168.2% to ¥12,798 million.

Net sales bybusiness segment(¥ million)

26,502

Operation Review
Sales and Income Grow DramaticallyIn fiscal 2005, sales and income surged as an increasingly
widespread optimistic economic outlook led to the Japanesestock market boom centered on individual investors.
Consequently brokerage-related income (commissions)increased significantly and the number of accounts more

Accounts at Rakuten Securities(Number of accounts)

500,000

454,125
400,000

365,097299,611300,000

249,222
221,650
200,000 176,588

198,453

100,000

0

16

04/2Q

04/3Q

04/4Q

05/1Q

05/2Q

05/3Q

05/4Q

than doubled from the previous fiscal year.
On the other hand, the considerable increase in transactions
led to a system failure. Based on this situation, we
strengthened our efforts to ensure stable system operation
by further reinforcing and improving systems-related
hardware and software.

T O P I C
Release of “iSPEED” Online Trading Tool on Mobile Platform“iSPEED” brings together on the mobile
phone platform the real-time informationand easy operability concepts of“market speed,” an online trading andinvestment tool developed by Rakutenfor personal computers. Stock prices
are automatically updated at a minimum
five-second interval—a first in the
Stock trading transactions menu
industry. This tool has been wellreceived by users for dramatically enhancing convenience byenabling the use of high-level trading functions anytime,
anywhere.

Professional Sports Business
The Group’s Professional Sports Business Company comprises the Professional Sports Businesssegment, which manages the Tohoku Rakuten Golden Eagles professional baseball team as wellas the planning and sales of related goods.
Net sales in fiscal 2005 were ¥7,385 million and operating income was ¥156 million. No year-onyear comparisons are provided for net sales and operating income because the businesssegment was launched in fiscal 2005.

Net sales bybusiness segment(¥ million)

7,385

Operation Review
Accomplished Operating Profit in the First Season
Fiscal 2005 marked the first season of the first new baseballteam to be established in the last fifty years, and the teamremained popular throughout the season with avid fan
support. Ticket sales and fan club membership grew steadily,
and as a result, net sales exceeded our initial projections by
17%, enabling us to launch the business with a profit.

Under new manager Katsuya Nomura, the Tohoku Rakuten
Golden Eagles are steadily preparing for the second season.
We will continue to promote facility investments including therefurbishments of the stadium, which increases seating
capacity from 20,000 to 23,000, allowing more fans to enjoy
the games. We also intend to concentrate our resources into
further enhancing the team’s strengths and sales activities toattract sponsors.

Major statistics for the Professional Sports Business

T O P I C

Item
Number of games hosted

63

Stadium capacity (seats)

19,500

Official attendance

920,969

Average attendance per game

14,619Fan club membership

38,261

Fullcast Stadium MIYAGI to be Reborn
In 2005, the former Miyagi Ballpark
underwent a fabulous transformation
into Fullcast Stadium Miyagi. The
enhanced stadium facilities opened
in March 2006. The refurbishments
are intended to realize a ballpark that Fullcast Stadium Miyagi
Conceptual plan after completiondelivers the dreams and excitement of Stage II constructionof baseball to fans. We will continue
our efforts to develop the team into an attractive franchise that
responds to fan support.

17

Financial Section
The English translation of part of the “YukashokenHoukokusho” for the year ended December 31, 2005

Five-Year Summary

19

Results of Operations and Financial Condition

20

Consolidated Balance Sheet

22

Consolidated Statements of Operations

24

Consolidated Statements of Capital Surplus and Accumulated Deficit 25
Consolidated Statements of Cash Flows

26

Notes to Consolidated Financial Statements

28

18
18

Five-Year Summary (Consolidated)

Millions of yen(unless otherwise stated)

Millions of
U.S. dollars

2001

2002

2003

2004

2005

2005

¥ 6,780¥ 9,894¥ 18,082¥ 45,567¥ 129,775$ 1,099.1

Ordinary Income

1,408

2,241

4,438

15,47435,826303.4

Net Income (loss)(4,158)(3,276)(52,643)(14,271)

19,449164.7

Shareholders’ Equity

33,74530,22026,36445,85376,550648.3

Total Assets

36,387

34,054

188,016

307,556

1,657,708

14,040.0

Shareholders’ Equity per Share(yen and U.S. dollars)

341,703.03

30,092.66

23,570.48

38,814.92

6,464.58

54.75

Net Income (loss) per Share(yen and U.S. dollars)(42,009.30)(3,280.33)(51,600.85)(12,458.37)

1,642.50

13.91

––

––

––

––

1,626.19

13.77

Equity Ratio (%)

92.7

88.7

14.0

14.9

4.6

Return on Equity (%)(11.5)(10.2)(186.1)(39.5)

31.8

Cash Flow From
Operating Activities

1,389

2,351

2,223

9,069

(43,358)(367.2)

Cash Flow From
Investment Activities(6,180)(3,286)(59,924)(30,040)(144,116)(1,220.6)

Cash Flow From
Financing Activities

(661)

(695)

63,88027,403

235,426

1,993.9

Cash and Cash Equivalents

21,35819,671

25,79032,39080,849684.7

Number of Employees

304

481

809

958

3,709

Net Sales

Net Income (loss) per Diluted Share(yen and U.S. dollars)

Notes:- The U.S dollar amounts in the table of “Five-year Summary (consolidated)” are not included in the original“Yukashoken-Houkokusho” in Japanese.
- The U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥ 118.07 = U.S.$ 1.
- All the consolidated financial data in this annual report have been prepared in accordance with accounting
principles generally accepted in Japan and rounded down to the nearest numbers.

19

Results of Operations and Financial Condition

by adopting a unified logo and changing the names of group

1. Review of 2005

companies. Rakuten continued to switch the user IDs ofgroup services to Rakuten member IDs. This integration
offers customers more convenience and expands eligibility

In 2005, Japan’s economy benefited from improvements infor Rakuten Super Points, thus encouraging customers tocorporate earnings and employment levels due to strong

use more Rakuten services.

growth in internal demand and a rebound in exports. These
trends fueled an increase in consumer spending, resulting in

During 2005, Kokunai Shinpan Co., Ltd., a comprehensivea slow but steady improvement in the economy.

consumer credit company, became a Rakuten subsidiary andwas renamed Rakuten KC Co., Ltd. This company accounts

In this environment, there was also growth in Internet-related

for a major part of the Credit and Payment Business, which ismarkets, business sectors where Rakuten is active. Growthclosely linked and generated synergy with the E-Commerce

took place in a variety of businesses that used theBusiness. For example, Rakuten KC works with Rakuten

capabilities of sophisticated information networks. Internet

Ichiba by offering payment processing services anduse is growing across all age segments and utilization

conducting joint sales activities. This company also issues

categories. Internet utilization is more than 90% in the 20 to

the Rakuten Card, a credit card specialized for Rakuten.

39 age group and has increased significantly in higher age

Acquisitions were made in other business sectors, too. One

groups. The year also saw an increase in Internet use via cell

new subsidiary is Cyber Brains Co., Ltd. (now Rakuten

phones and other wireless devices. Another trend is the

Research, Inc..), which conducts an Internet marketing

increasing use of broadband connections. The availability of

research service. Another is STAR TOURS JAPAN Inc. (nowlow-cost, high-speed links has greatly increased Internet

RAKUTEN BUS SERVICES CO., LTD.), which operates autilization even among individuals. Japan’s consumer e-long-distance bus reservation website and other businesses.

commerce market is now more than five times larger than it

Furthermore,

was in 2000. Almost 90% of individuals who access the

Broadcasting System, Inc. (TBS) in order to explore business

Internet via a PC have made a purchase over the Internet.

opportunities in related fields that use the Internet and(Source: Fiscal 2005 Data Communications White Paper,

broadcasting. The two companies have been working hard

Ministry of Internal Affairs and Communications)on enlarging their business domains, including the creation of

RakutenpurchasedsharesofTokyo

a Business Alliance Committee. The ultimate aim is toAs this growth occurs, the Rakuten Group is aiming to raise

generate more synergies across the Rakuten and TBS

gross transaction values (GTV) at its websites to ¥1,000

groups. Separately, Rakuten has separated its Internet

billion and ordinary income to ¥100 billion. To accomplish

auction business into a subsidiary to expand the mobile

this, Rakuten Group has been working to capture greatercommerce business. The new company, Rakuten Auction,synergies among group companies, improve services andInc., was established through a business and equity alliancebuild a base for growth outside Japan.

with NTT DoCoMo, Inc.

To maximize synergies generated by collaboration amongThanks to these high-profile activities and the Tohoku

group companies, the Rakuten brand was firmly established

Rakuten Golden Eagles professional baseball team, which

20

completed its first season, public awareness of the Rakuten

LinkShare’s affiliate technology and large customer base hasbrand increased. Brand recognition and other factors raised

been used to build a sound foundation for an overseas e-

the number of Rakuten Ichiba stores to more than 15,000.

commerce business.

Furthermore, the number of Rakuten members surged from7.84 million at the end of 2004 to 18.79 million at the end of

As a result of these aggressive initiatives, GTV generated by

2005.

Rakuten Group websites saw very strong growth, increasing
71.1% to ¥563,185 million. Consequently, consolidated net

Meanwhile, many steps were taken to improve services. For

sales rose 184.8% to ¥129,775 million, operating income

Rakuten Ichiba, notable measures included improvements inincreased 131.6% to ¥34,885 million and ordinary income

system functionality, greater ease of operation for users, theincreased 131.5% to ¥35,826 million. Net income wasprovision of more appealing content, and the upgrading of¥19,449 million compared with a net loss of ¥14,271 million

payment functions through the introduction of R-Card Plus, ain 2004.

credit card payment program for Rakuten Ichiba merchants.
In the Portal and Media Business, Rakuten improved search

Note: see page 12 to 17, for the results of business

functions and released new content. In the Travel Business,segments.

new services were added, including an overseas airline ticket
reservation service and a long-distance bus reservation
service, to position this business as a comprehensive travel
website. Rakuten took steps to further strengthen mobile

2. Cash flow

services, including the launch of iSPEED, a trading softwaretool for mobile phone in the securities business.

Net cash provided by operating activities recorded a net
decrease of ¥43,358 million for fiscal 2005, compared with a

Rakuten also established a new customer information

net increase of ¥9,069 million for fiscal 2004. The decrease ismanagement system to provide services that customers canprincipally due to increase in trading assets from margin

use with greater safety and confidence. Two elements of thistransactions of security brokerage business, increase in tradesystem are the new R-Card Plus and the Anshin Service, aloans receivable and others.

secured authorization agency service for credit card

Net cash used in investing activities recorded a net decrease

payments. Furthermore, Rakuten established the Securityof ¥144,116 million for fiscal 2005 mainly due to acquisition

Headguarters to create an information security frameworkof investment securities, compared with a net decrease ofand conducted a rigorous compliance program.

¥30,040 million for fiscal 2004.
Net cash provided by financing activities recorded a net

To prepare for the start of business activities outside Japan,

increase of ¥235,426 million for fiscal 2005 primarily due toInternational Business Headquarters was established toincrease in borrowings, compared with aoversee international business strategies. Rakuten also

¥27,403 million for fiscal 2004.

acquired LinkShare Corporation, one of the world’s largest

Consolidated cash flows resulted in a net increase of ¥48,459

affiliate marketing companies. Rakuten plans to makemillion in cash and cash equivalents compared with a net

LinkShare the nucleus of its international operations.

increase of ¥6,599 million in 2004.

net increase of21

Consolidated Balance Sheet

Millions of yen

Fiscal 2004

As of December 31, 2004

Fiscal 2005

As of December 31, 2005

AssetsCurrent assets
Cash and cash equivalents (Notes 3)
Trade notes and accounts receivable
Installment accounts receivable (Notes 3)
Installment accounts receivable, guarantee contracts (Notes 9)Marketable securities
Inventories
Beneficial interest in securitized assets
Deposits for security brokerage businessTrading assets from margin transactions of security brokerage business
Short-term guarantee deposits for security brokerage business
Trade loans receivable (Notes 3)
Deferred tax assets
Other (Notes 7)
Allowance for doubtful accounts¥ 32,396
6,699
––
––
0
61
––
108,353
87,987
5,769
27,901
1,005
2,936
(343)

¥ 82,037
11,906
143,823
301,154––––
68,837
239,438
285,357
38,648168,280
7,749
36,148(28,785)

Total current assets

272,769

1,354,598

727
3,781
216

––
––
––

Total property and equipment

4,725

20,551Intangible assets
SoftwareConsolidation adjustment account
Other

3,615
––
145

––
56,8688,740

Total intangible assets

3,761

65,609Investments and other assets
Investment securities (Notes 2,3,6)
Investments
Deferred tax assets
Other (Notes 3)
Allowance for doubtful accounts

19,929
83
50
6,114
(474)

170,232––
4,625
42,584(493)

Total investments and other assets

25,703

216,949

34,190303,110

597
597

––
––

307,556

1,657,708

Fixed assets
Property and equipment (Notes 1,3)
Buildings and structures
Tools, furniture, and fixtures
Construction in progress

Total fixed assets
Deferred assets
Start-up cost
Total deferred assets
Total Assets*Please refer to Notes to Consolidated Balance Sheets of P40.

22

Millions of yen

Fiscal 2004

As of December 31, 2004

Fiscal 2005

As of December 31, 2005

Liabilities
Current liabilities
Trade notes and accounts payable
Accounts payable, guarantee contracts (Notes 9)
Current portion of corporate bonds
Short-term borrowings (Notes 3,8)
Other accounts payable and accrued expenses
Accrued income taxes
Advances received
Deferred installment income
Deposits received for security brokerage businessTrading liabilities from margin transactions of security brokerage business (Notes 3)
Guarantee deposits received for security brokerage business
Allowance
Other

¥ 507
––
––
46,897
4,111
1,691
2,206
––
82,50778,701
36,399––1,652¥ 6,357
301,154
12,000490,029––
13,532––
9,856
155,279
231,758
92,441
3,496
46,172

Total current liabilities

254,674

1,362,080

Long-term liabilities
Corporate bonds
Long-term borrowings (Notes 3)
Allowance for retirement benefits
Allowance for directors’ retirement benefits
Deferred tax liabilities
Other

––
2,019
15
––
3,533
14

10,000186,476
138
158
10,230978Total long-term liabilities

5,584

207,982

Special legal reserves
Statutory Reserve for security brokerage business

1,213

2,312

Total special legal reserves

1,213

2,312

261,472

1,572,374

230

8,783

54,05962,863(77,311)
6,372
(48)
(81)

54,13563,479(58,265)
16,974
238(11)

Total shareholders’ equity

45,85376,550Total liabilities, minority interest and shareholders’ equity

307,556

1,657,708

Total liabilities
Minority interests

Shareholders’ equity
Common stock (Notes 4)
Capital surplus
Accumulated deficit
Net unrealized holding gain on investment securities
Foreign currency translation adjustments
Treasury stock (Notes 5)23

Consolidated Statements of Operations

Millions of yen

Fiscal 2004

January 1, 2004 to December 31, 2004

Net Sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Notes 1)

Fiscal 2005

January 1, 2005 to December 31, 2005

¥ 45,567
4,501
41,06526,006¥ 129,775
14,222
115,553
80,66815,05934,885Non-operating income
Interest and dividend income
Gain on sales of investment securities
Foreign exchange gain
Equity in earnings of affiliates
Other

767
26
––
175
506
59

2,682
877
335
224
1,041
203

Non-operating expenses
Interest expense
Commission expense
Issuance costs of new shares
Issuance costs of corporate bonds
Other

352
164
––
116
––
71

1,741
367
908
62
140
262

15,47435,826

65
0
61
––
3

3,547
––
2,720
795
31

Special losses
Equity in loss of affiliates
Amortization of consolidation adjustment accountImpairment loss on investment securities
Provision for point reserve
Loss on sales of property and equipment (Notes 2)
Loss on disposal of property and equipment (Notes 3)
Office relocation and construction expenses
Amortization of start-up costs
Provision for statutory reserve for security brokerage business
Loss on cancellation of lease contracts
Costs for subsidiary name change
Other23,977
11,221
10,712
375
––
133
179
443
––
523
––
––
389

5,097
––
––
0
1,022
41
97
31
910
1,098
547
734
613

Net income (loss) before income taxes and minority interests(8,437)34,276

Corporate, inhabitants’ and enterprise taxes

2,799

16,103

Income taxes deferred

2,971(2,541)

61

1,266(14,271)

19,449Operating income

Ordinary income
Special gains
Gain from reversal of allowance for doubtful accounts
Gain on change in equity
Gain on sale of investment in subsidiary
Other

Income attributable to minority interests
Net income (loss)*Please refer to Notes to Consolidated Statements of Operations of P43.

24

Consolidated Statements of Capital Surplus and Accumulated Deficit

Millions of yen

Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Capital Surplus
Capital surplus at beginning of year
Increase in capital surplus
Issuance of new shares
Issuance of new shares due to exercise of stock purchase rights
Increase due to inclusion in consolidation (Note 1)
Increase due to share exchange transaction
Decrease in capital surplus
Other reversal of capital surplus
Loss on disposal of treasury stock
Capital surplus at end of year

¥ 54,713
15,302
14,194
104
1,004
––
7,153
7,008
144
62,863¥ 62,863
616
––
75
––
540
––
––
––
63,479(69,739)
7,008
––
7,008
14,581
14,271279
31––(77,311)(77,311)
19,44919,449
––
403
––
295
25
83
(58,265)

Accumulated Deficit
Accumulated deficit at beginning of year
Decrease in accumulated deficit
Net income
Other reversal of capital surplus
Increase in accumulated deficit
Net loss
Cash dividends paid
Bonuses to directors and corporate auditors
Exclusion of equity-method affiliate
Accumulated deficit at end of year
Note 1: The amount includes the increase due to share exchange transaction.

25

Consolidated Statements of Cash Flows

Millions of yen

Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Cash flows from operating activities
Net income (loss) before income taxes and minority interests¥ (8,437)¥ 34,276

Amortization of consolidation adjustment account

10,712909

Equity in earnings of affiliates

10,715(1,041)

Depreciation and amortization

2,461

4,064

Loss on sales of property and equipment

133

41

Loss on disposal of property and equipment

179

97

Amortization of start-up costs

––

910

Gain on sales of investment securities

––

(335)

Impairment loss on investment securities

375

0

Increase (decrease) in allowance for doubtful accounts

136

(556)

Increase in allowance for losses on loan guarantees––

1

Increase in allowance for directors’ retirement benefits––

27

Gain (loss) on change in equity in affiliates––(2,720)Interest and dividend income

(26)

(877)

Interest expense

164

367

Other non-cash expense
Increase in trade receivables

1,583(4,226)

Decrease in installment accounts receivable

––

4,807

Decrease in installment accounts receivable, guarantee contracts––

103,935

Decrease in beneficial interests in secured assets––

10,962

Increase in inventories

(12)

(145)

Increase (decrease) in accounts payable

201

(558)

Decrease in loan accounts payable, guarantee contacts––(103,935)

1,194(1,531)

Increase in advances received

542

1,119

Decrease in deferred installment income

––

(615)

Increase in receivables in security brokerage business(63,722)(361,291)

Increase in payables in security brokerage business

61,787282,377

Increase in statutory reserve for security brokerage business

523

1,098

Decrease in deposited marketable securities for security brokerage business

––

7,890

(2,349)(15,360)

447

2,806

Subtotal

12,644(35,917)

Payments of security deposits(2,700)(4,446)

Proceeds of security deposits

300

81

Increase (decrease) in other accounts payable and accrued expenses

Increase in trade loans receivables
Other

Payments of income taxes(1,174)(3,076)

Net cash provided by (used in) operating activities

9,069(43,358)*Please refer to Notes to Consolidated Statements of Cash Flows of P44.

26

44
(2,427)

Millions of yen

Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Cash flows from investing activities
Payments for time deposits¥ ––¥ (419)––15(16,745)(178,801)

Proceeds from sale of investment securities––

49,477

Proceeds from redemption of investment securities

––

5,698

Proceeds from sale of cash in trust

––

5,000

Acquisition of shares of consolidated subsidiaries(5,508)(9,502)Acquisition of property and equipment(2,652)(2,927)

Proceeds from withdrawal from time deposits
Acquisition of investment securities

Proceeds from sales of property and equipment
Acquisition of intangible assets

144

120

(2,896)(5,448)Proceeds from sales of intangible assets––

1

Payments for investments

(89)

(13)

Proceeds from investments
Payments of security deposits

6

2

(551)

(758)

Refunds of security deposits

248

100

Acquisition of deferred assets

(597)

(313)

––

(1,451)Loans madeProceeds from recovery of loans

––

862

(1,442)(6,938)Other receipts

7762

Receipts of interest and dividends

36

416

(30,040)(144,116)

Net increase (decrease) in short-term borrowings(2,608)145,751

Borrowings on long-term debt

2,000

77,000

Repayments of long-term debt

––

(19)

Proceeds from issuance of corporate bonds

––

9,860

Other payments

Net cash used in investing activities
Cash flows from financing activities

––

(650)

28,47989

Proceeds from minority shareholders pursuant to increase in capital

––

4,015

Acquisition of treasury stock

(2)

(0)

Payment of interest

(150)

(287)

Payment of dividends

(313)

(287)

Payment for maturities of corporate bonds
Proceeds from issuance of stock

––

(44)

27,403

235,426

166

507

Net increase in cash and cash equivalents

6,599

48,459Cash and cash equivalents at beginning of year

25,79032,390Cash and cash equivalents at end of year

32,39080,849Payment of dividends to minority shareholders
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents

27Notes to Consolidated Financial Statements

Basis of Presentation of Consolidated Financial Statements
1. Scope of consolidation
Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Number of consolidated subsidiaries: 20

Number of consolidated subsidiaries: 33

Consolidated subsidiaries:
Rakuten Books, Inc.
Digipa Networks, Inc.
Signature Japan Co., Ltd.
Fine Wine Co., Ltd.
Rakuten Enterprise Inc.
Medioport, Inc.
Rakuten USA, Inc.
Ynot, Inc.
Target, Inc.
Rakuten TV, Inc.
College Students’ Portal Community, Inc.
Rakuten Travel, Inc.
MYTRIP NET SEOUL COMPANY LIMITEDSIDE B NETWORK, INC.
Rakuten Securities, Inc.
Rakuten Credit, Inc.
Roppongi Asset Management Co., Ltd.
Rakuten Baseball, Inc.
Bizseek, Inc.
Guy Communications K.K.

Major consolidated subsidiaries:
Rakuten Auction, Inc.
Rakuten KC Co., Ltd.
Rakuten Credit, Inc.
Rakuten Travel, Inc.
Rakuten Securities, Inc.
Rakuten Baseball, Inc.
Newly consolidated subsidiaries: 16
Major newly consolidated subsidiaries and reasons forconsolidation:
Newly acquired:
Rakuten KC Co., Ltd.
LinkShare Corporation
Corporate separation:
Rakuten Auction, Inc.
Number of companies excluded from the scope of
consolidation: 1
Excluded company and reason for the exclusion:
Merger: Ynot, Inc.

For the purpose of presenting the consolidated financial
statements, a provisional settlement of accounts was
prepared for Digipa Networks, Inc. assuming that
Rakuten acquired control of the company on March 31,
2004. Consequently, the consolidated statements ofoperations and consolidated statements of cash flows
for fiscal 2004 include Digipa Networks’ operating
results and cash flows during the nine months from April
1, 2004 to December 31, 2004.

28

For the purpose of presenting the consolidated financial
statements, a provisional settlement of accounts was
prepared for Rakuten KC Co., Ltd., assuming that
Rakuten acquired the company on June 30, 2005.
Consequently, the consolidated statements ofoperations and consolidated statements of cash flows
include Rakuten KC’s operating results and cash flows
during the six months from July 1, 2005 to December
31, 2005.

Fiscal 2004

Fiscal 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

Likewise, a provisional settlement of accounts was
prepared for College Students’ Portal Community, Inc.
assuming that it was acquired by Rakuten on June 30,
2004. As a result, the consolidated statements ofoperations and consolidated statements of cash flows
for fiscal 2004 include College Students’ Portal
Community’s operating results and cash flows during thesix months from July 1, 2004 to December 31, 2004.

Likewise, a provisional settlement of accounts was
prepared for LinkShare Corporation, assuming that it was
acquired by Rakuten on September 30, 2005. As a result,the consolidated statements of operations andconsolidated statements of cash flows for fiscal 2005
include Link Share’s operating results and cash flows
during the three months from October 1, 2005 to
December 31, 2005.

The acquisition of another subsidiary, Rakuten Credit,
Inc., is assumed to have taken place on September 30,
2004, and a provisional settlement of accounts was
prepared for the company to prepare the consolidated
financial statements. Accordingly, the consolidated
statements of operations and consolidated statementsof cash flows for fiscal 2004 include Rakuten Credit’s
operating results and cash flows during the threemonths from October 1, 2004 to December 31, 2004.
MYTRIP NET SEOUL COMPANY LIMITED, Roppongi
Asset Management Co., Ltd. and Rakuten Baseball, Inc.
are included in the scope of consolidation starting infiscal 2004, since all were newly established during the
fiscal year.
Rakuten Travel, Inc. merged with and absorbed MYTRIPNET COMPANY LIMITED during the fiscal year.
Key Prime K.K. and Communication Online Inc. weremerged with and absorbed by Rakuten, also in fiscal
2004.
Bizseek, Inc. and Guy Communications K.K., Rakuten’s
consolidated subsidiaries in fiscal 2003, were liquidated
in fiscal 2004. Therefore, only the results up to the dateof their liquidations are included in the consolidated
statements of income.

29

Notes to Consolidated Financial Statements

Basis of Presentation of Consolidated Financial Statements

2. Scope of equity method
Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Number of affiliates accounted for by the equity
method: 8

Number of affiliates accounted for by the equity
method: 11

Affiliates accounted for by the equity method:
ShowTime, Inc.
TRAFFIC GATE, LTD.
TECHMATRIX CORPORATIONNEXT Co., Ltd.
IndexDigital Co., Ltd.
LAWSON TICKET Inc.
Ctrip.com International, Ltd.
World Travel System Inc.

Major affiliates:
Ctrip.com International, Ltd.
LAWSON TICKET, Inc.
TECHMATRIX CORPORATION

Number of non-consolidated subsidiaries notaccounted for by the equity method: 0

Number of new affiliates accounted for by the equity
method: 4Company names and reason for newly applying equitymethod accounting:
Newly acquired:.Commodity, Inc.
Ecology Asset Management, Co., Ltd.
Liaison Partners Inc.
LinkShare Japan K.K.
Number of companies removed from the scope of theequity method: 1
Company names and reason for termination of equitymethod accounting:Lower equity interest:
IndexDigital Co., Ltd.
Number of non-consolidated subsidiaries notaccounted for by the equity method: 030

3. Accounting periods of consolidated subsidiaries
Fiscal 2004

Fiscal 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

The year-end of consolidated subsidiaries is the same as
the ending date of the consolidated accounting period of
Rakuten, except for Rakuten Securities, Inc. andRoppongi Asset Management Co., Ltd. whose
accounting periods end on March 31. However, for the
purpose of preparing these consolidated financial
statements, provisional financial data were prepared forthese companies as of December 31, 2004.

The year-end of consolidated subsidiaries is December
31, the same as the end of the consolidated accounting
period of Rakuten, except for the following:
Rakuten KC Co., Ltd. (March 31)
JK Holdings Inc. (March 31)
Kokunai Shinpan Service Co., Ltd. (March 31)
Miyazaki Marina Co., Ltd. (September 30)
Kajiyama Warehouse Co., Ltd. (March 31)
Rakuten Securities, Inc. (March 31)
Rakuten Asset Management Co., Ltd. (March 31)
Rakuten Strategic Partners, Inc. (March 31)
Rakuten Realty Management Co., Ltd. (March 31)
R Building Co., Ltd. (March 31)
However, for the purpose of preparing these
consolidated financial statements, provisional financial
statements were prepared for these companies as ofDecember 31, 2005.

31

Notes to Consolidated Financial Statements

Basis of Presentation of Consolidated Financial Statements

4. Significant accounting policies(1) Valuation standards and method for significant assets
Fiscal 2005

Fiscal 2004

January 1, 2005 to December 31, 2005

January 1, 2004 to December 31, 2004

Securities
Other marketable securities

Securities
Other marketable securities

Securities with readily determinable market value:
Stated at market value based on the year-end market
price and other factors (with any unrealized gains orlosses being reported directly as a component ofshareholders’ equity and the cost of any securities
sold being computed by the moving average method)

Securities with readily determinable market value:Same as fiscal 2004

Securities with no readily determinable market value:
Stated at cost, with cost being determined by themoving average method

Securities with no readily determinable market value:Same as fiscal 2004

(2) Depreciation methods for significant depreciable assets
Property and equipment: Mainly computed by the
declining balance method. However, the straight-line
method is applied for buildings (excluding building fixtures)acquired on or after April 1, 1998. The useful life and theresidual value are determined according to the standards
stipulated by the Corporation Tax Law.

Property and equipment: Same as fiscal 2004

Intangible assets: Depreciation on intangible assets iscomputed by the straight-line method. The useful life isdetermined according to the standards stipulated by the
Corporation Tax Law. However, software used in-house isdepreciated over its estimated useful life (mainly five years)
based on the straight-line method.

Intangible assets: Same as fiscal 2004

(3) Accounting for deferred assets
Start-up costs: All expenses are recognized during the
fiscal year in which business took place.

Start-up costs: All expenses are recognized during the
fiscal year in which business took place.

Issuance of new shares: All expenses are recognized at
the time of issuance.

Issuance of new shares: Same as fiscal 2004.
Issuance of corporate bonds: All expenses arerecognized at the time of issuance.

32

(4) Basis of material allowances
Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

A. Allowance for doubtful accounts:
Provision is made for possible credit losses stemming fromreceivables. Estimates of irrecoverable amounts are basedon historical loan-loss ratios for general receivables, andon a consideration of reasonable recoverable amounts inindividual cases of suspected bad debt or other specificdubious accounts.

A. Allowance for doubtful accounts:
Same as fiscal 2004.

B. Accrued bonuses: N.A.

B. Accrued bonuses:
At certain consolidated subsidiaries, an amountcommensurate to expected bonus payments is posted.

C. Allowance for losses on credit guarantees: N.A.

C. Allowance for losses on credit guarantees at certain
consolidated subsidiaries:
An allowance equal to estimated losses is established toprepare for losses from credit guarantees.

D. Accrued retirement benefits:
At certain consolidated subsidiaries, provision is made for
employees’ retirement benefits based on the estimatedamounts of projected benefit obligation at the fiscal yearend.

D. Accrued retirement benefits:
At certain consolidated subsidiaries, provision is made for
employees’ retirement benefits based on the estimatedbenefit obligation at the fiscal year-end. Actuarial
differences are recorded from the following fiscal year on astraight-line basis using a fixed number of years (10 years)
within the average remaining service period of employees.

E. Accrued retirement benefits for directors: N.A.

E. Accrued retirement benefits for directors:
At certain consolidated subsidiaries, an allowance isposted at year-end in accordance with each company’s
regulations to provide for directors’ retirement benefits.

Additional information:
Consolidated subsidiaries whose company regulations
previously posted on allowance for directors’ retirement
benefits abolished such items during fiscal 2004.
Consequently, retirement benefits will no longer be paid
to directors at these companies.
F. Statutory reserve for security brokerage business:
At certain consolidated subsidiaries, provision is made forpossible losses resulting from securities transaction
problems. The amount of the reserve is computed basedon Article 35 of the Cabinet Office Ordinance Concerning
Securities Companies as stipulated by Article 51 of the
Securities Exchange Law.

F. Statutory reserve for security brokerage business:
Same as fiscal 2004.

33

Notes to Consolidated Financial Statements

Basis of Presentation of Consolidated Financial Statements

Fiscal 2004

January 1, 2004 to December 31, 2004

G. Reserve for points: N.A.

Fiscal 2005

January 1, 2005 to December 31, 2005

G. Reserve for points:
An amount equivalent to points that are earned bycustomers and are expected to be used in the future wasrecorded.
Additional information: Starting in fiscal 2005, a reservefor points was established due to the rising registration
and usage of points, the significant role they play in
Rakuten’s operations, and the availability of reasonableestimates for future point usage as of the year-end.
Compared to results determined by previous methods,
establishment of this reserve caused operating income
and ordinary income to drop ¥ 784 million. Also, ¥ 1,022
million was recorded as an extraordinary loss for theestablishment of a reserve for points to cover previous
fiscal years. As a result, income before income taxes
and minority interests declined ¥ 1,807 million.

(5) Significant lease transactions
Finance leases other than those that transfer ownership ofthe leased assets to the lessee are accounted for using thesame methods as those used for ordinary leasetransactions.

Same as fiscal 2004.

(6) Significant hedging methods
N.A.

A. Hedge accounting method:
For interest rate swaps, deferred hedge accounting has
been adopted. However, a special method is used forinterest rate swaps that meets certain conditions.
For foreign-currency denominated guarantee deposits withcurrency forward agreements, the appropriation method
has been adopted.
B. Hedging methods and Hedged items:
Hedging methods: Interest rate swaps and currency
forward agreements
Hedged items: Loans and foreign-currency denominatedguarantee deposits

34

Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

C. Hedging policies:
Interest rate swaps are used to establish hedges for
exposure to interest rate volatility risk associated withloans. Individual contracts identify the item being hedged.
Foreign exchange volatility risk associated with foreign
currency-denominated guarantee deposits is, inaccordance with the company rules, effectively hedged
during the holding period by using currency forward
agreements.
D. Method for evaluating effectiveness of hedging activities:
For interest rate swaps, the company compares every six
months the cumulative changes in cash flows of thehedged item and hedging instrument. The effectiveness ofthe hedge is determined based on volatility of the hedged
item and instrument, along with other items. However, thisevaluation is not performed for interest rate swaps that use
the special methods.
For currency forward agreements, effectiveness isdetermined by the currency, amount and settlement dateof the hedged item based on the company managementdata.

(7) Other important items related to the preparation of consolidated financial statements
A. Consumption tax: All items are booked exclusive of
any national or local consumption taxes.

A. Consumption tax: Same as fiscal 2004.

B. Standards used to recognize margin sales:
Margin sales are a transaction in which user fees arecalculated in proportion to the volume of transactions ofmerchandise and other products and services (grosstransaction value) conducted on the Rakuten website.
Margin sales with cancellation deadline are booked lessthe amount of cancellations estimated at the time of thetransaction.

B. Standards used to recognize sales:

Estimates of cancellation amounts are based on historicalcancellation rates.
Revenues before the end of the cancellation period:¥ 1,002 million

i. Margin sales:
Margin sales are a transaction in which user fees arecalculated in proportion to the volume of transactions ofmerchandise and other products and services (grosstransaction value) conducted on the Rakuten website.
Margin sales with cancellation deadlines are booked lessthe amount of cancellations estimated at the time of thetransaction.
Estimates of cancellation amounts are based on
historical cancellation rates.
Revenues before the end of the cancellation period:¥ 1,613 million

35

Notes to Consolidated Financial Statements

Basis of Presentation of Consolidated Financial Statements

Fiscal 2005

Fiscal 2004

January 1, 2005 to December 31, 2005

January 1, 2004 to December 31, 2004

ii. Customer commission:
Credit cards: Mainly uses the interest method
Installment: Mainly uses the interest method
Loan guarantees: Mainly recorded upon guarantee
contract
Loans: Mainly uses the charge on declining balancemethodiii. Merchant fees for credit and payment business:
In principle, all merchant fees are recorded at the time ofmaking the contractual reimbursement payment tomerchants.

5. Valuation of assets and liabilities of consolidated subsidiaries
All assets and liabilities of consolidated subsidiaries arestated at market value.

Same as fiscal 2004.

6. Amortization of consolidation adjustment account
The consolidation adjustment account is amortized during
the period in which such action is deemed effective.
However, if the amount is marginal, the entire amount isamortized when it is booked.
During fiscal 2004, Rakuten purchased a number ofcompanies. As ways of purchase diversify and become
more complex, the sources of the consolidation

36

The consolidation adjustment account is amortized during
the period in which such action is deemed effective.
However, if the amount is marginal, the entire account isamortized when it is booked.
During fiscal 2005, Rakuten purchased a number ofcompanies, including Rakuten KC Co., Ltd. (formerly
known as Kokunai Shinpan Co., Ltd.), Rakuten Research,Fiscal 2004

Fiscal 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

adjustment account have also become more difficult to
identify. Moreover, because of the intensifying competitionin the Internet-related services industry—in which Rakuten
operates—and the expansion of business opportunities, it
has become extremely difficult to accurately determine thecontributions of the personal finance and other businesses
conducted by companies Rakuten has acquired. For thesereasons, the entire amount of the consolidation adjustment
account that was booked during fiscal 2004 has beenamortized in lump sum and recorded as a special loss.

Inc. (formerly known as Cyber Brains Co., Ltd.), and
LinkShare Corporation. All companies were purchased
based on their excellent long-term prospects and strong
relationships with Rakuten Group businesses.
For these reasons, consolidation adjustment accountarising in fiscal 2005 from these purchases has beenamortized based on sound estimates using the maximum
period of 20 years according to the principles of theconsolidated financial statements, and the amortization
expense is recorded as selling, general, and administrative
expenses .

7. Earnings appropriations
The consolidated statements of accumulated deficit wereprepared based on the earnings appropriations ofconsolidated companies that were approved during fiscal
2004.

Same as fiscal 2004.

8. Cash and cash equivalents in the consolidated statements of cash flows
Cash and cash equivalents as stated in the consolidated
statements of cash flows consist of cash in hand, deposits
that can be converted to cash at any time, and short-term
liquid investments with a maturity not exceeding threemonths at the time of purchase and whose value is not
subject to risk of significant fluctuation in value.

Same as fiscal 2004.

37

Notes to Consolidated Financial Statements

Changes in Presentation of Consolidated Financial Statements
Fiscal 2004

Fiscal 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

Consolidated balance sheets: Although investments
were included as others in investments and other assets infiscal 2003, it was recorded as an independent item infiscal 2004. The amount of investments in fiscal 2003 was¥ 1 million.

Consolidated balance sheets: Accompanying businessexpansion, items that have become financially insignificant
were combined and presented as follows:
Other in Current assets:
Marketable securities: ¥ 1,528 million
Inventories: ¥ 491 million
Other: ¥ 34,128 million
Total: ¥ 36,148 million
Property and equipment:
Buildings and structures: ¥ 5,163 million
Machinery and transportation equipment: ¥ 7 million
Tools, furniture, and fixtures: ¥ 4,898 million
Construction in progress: ¥ 435 million
Land: ¥ 8,491 million
Other: ¥ 1,555 million
Total: ¥ 20,551 million
Other in Intangible assets:
Software: ¥ 5,518 million
Other: ¥ 3,222 million
Total: ¥ 8,740 million
Other in Investments and other assets:
Investments: ¥ 47 million
Other: ¥ 42,537 million
Total: ¥ 42,584 million
Other in Current liabilities:
Other accounts payable and accrued expenses:¥ 21,573 million
Advances received: ¥ 3,021 million
Other: ¥ 21,577 million
Total: ¥ 46,172 million

38

Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Trade accounts payable in fiscal 2004 was included in aline item under trade accounts payable and notes payable.
There are no notes payable from fiscal 2004.
Consolidated statements of operations:
Commission expense, which was presented as other in
non-operating expenses until fiscal 2004, is now presented
as a separate item starting in fiscal 2005, since these fees
now account for more than 10% of non-operating
expenses.
In fiscal 2004, commission expense totaled ¥ 16 million.

Additional Information
N.A.

As the “Law for the Partial Revision of Local Tax, etc.”(Law No. 9, 2003), issued on March 31, 2003, andintroduced the external standards taxation from fiscal year
starting on and after April 1, 2004, in accordance with thePractical Treatment for Presentation of External Standards
Taxation of the Enterprise Taxes in the Statements ofOperations (Practical Solution Report No. 12 issued by
ASBJ on February 13, 2004), starting fiscal 2005, Rakuten
has included amounts corresponding to the value-addedand equity portions of enterprise taxes in selling, generaland administrative expenses.
Due to these changes, selling, general and administrative
expenses increased ¥ 367 million, while operating income,ordinary income, and income before income taxes andminority interests declined by the same amount.

39

Notes to Consolidated Financial Statements

Consolidated Balance Sheets
1. Accumulated depreciation of property and equipment
Fiscal 2004

As of December 31, 2004

Accumulated depreciation of property and equipment:¥ 2,997 million

Fiscal 2005

As of December 31, 2005

Accumulated depreciation of property and equipment:¥ 27,219 million

2. Amounts corresponding to affiliates
Investment securities (shares, etc.):¥ 3,666 million

Investment securities (shares, etc.):¥ 5,741 million

3. Pledged assets(1) Assets pledged as collateral:
Trade loans receivable: ¥ 27,901 million
Overdue loans receivable: ¥ 391 million
Investment securities: ¥ 313 million
In addition, ¥ 3,062 million in securities in custodyfrom customers has been pledged as collateral for
short-term borrowings. Moreover, ¥ 1,446 million and¥ 23,727 million in securities in custody from
customers and securities deposited by customers as
guarantee deposits, respectively, have been pledged
as collateral for borrowings for margin transactions.
(2) Liabilities for which assets were pledged ascollateral:
Short-term borrowings: ¥ 24,895 million
Borrowings for margin transactions: ¥ 63,219 million
Total: ¥ 88,114 million

40(1) Assets pledged as collateral:
Cash: ¥ 126 million
Installment account receivable and trade loans
receivable: ¥ 254,735 million
Lease receivable: ¥ 1,675 million
Investment securities: ¥ 55,624 million
Overdue loans receivable: ¥ 477 million
In addition, ¥ 54,378 million in securities in custodyfrom customers have been pledged as collateral for
short-term borrowings, and ¥ 70,384 million insecurities deposited by customers as guarantee
deposits has been pledged as collateral forborrowings for margin transactions.
(2) Liabilities for which assets were pledged ascollateral:
Short-term borrowings: ¥ 286,742 million
Borrowings for margin transactions: ¥ 210,039 million
Long-term borrowings: ¥ 140,967 million
Total: ¥ 637,749 million

Fiscal 2005

Fiscal 2004

As of December 31, 2004

As of December 31, 2005

(3) Fair values of marketable securities pledged ascollateral:
Securities loaned for margin transactions:¥ 16,851 million
Securities pledged as collateral for margin transactions:¥ 65,002 million
Securities loaned under loan agreements:¥ 655 million(3) Fair values of marketable securities pledged ascollateral:
Securities loaned for margin transactions:¥ 24,339 million
Securities pledged as collateral for margin transactions:¥ 209,522 million
Securities loaned under loan agreements:¥ 7,509 million(4) Fair values of marketable securities received ascollateral:
Securities in custody as collateral from customers for
margin transactions: ¥ 83,825 million
Securities borrowed for margin transactions: ¥ 3,606
millionSecurities deposited by customers as guarantee
deposit: ¥ 98,958 million(4) Fair values of marketable securities received ascollateral:
Securities in custody as collateral from customers for
margin transactions: ¥ 293,385 million
Securities borrowed for margin transactions: ¥ 2,365
millionSecurities deposited by customers as guarantee
deposit: ¥ 221,715 million

4. Number of Shares Issued
Common stock: 1,181,674.1 shares

Common stock: 11,837,893 shares
On February 21, 2005, the Company conducted a 10-for-1
stock split.

5. Treasury stock
Common stock: 725.19 shares

Common stock: 1,060.4 shares
On February 21, 2005, the Company conducted a 10-for-1
stock split.

6. Investment securities loaned for margin transactions
N.A.

Of investment securities recorded as investments andother assets, ¥ 46 million has been loaned for margintransactions.

41Notes to Consolidated Financial Statements

Consolidated Balance Sheets

7. Deferred hedging
Fiscal 2004

January 1, 2004 to December 31, 2004

N.A.

Fiscal 2005

January 1, 2005 to December 31, 2005

The net amount of loss and unrealized losses resulting
from hedging was recorded as deferred hedge loss
(included in other in current assets). Prior to netting out
gains and losses, the deferred hedge loss was ¥ 45 million,
while deferred hedge income was ¥ 6 million.

8. Lines of credit
N.A.

Rakuten and certain consolidated subsidiaries facilitatedline of credit agreements with multiple banks and thebalances which is not implemented is as follows:
Total line of credit: ¥ 160,000 million
Acutual borrowings: ¥ 116,000 million
Net: ¥ 44,000 million

9. Installment accounts receivable, guarantee contracts, and Accounts payable, guarantee contracts
N.A.

42

At certain consolidated subsidiaries in fiscal 2005, aguarantee limit was established for some agreements
concluded with business partners involved in the credit
guarantee business. As a result, the amount equivalent to
the limits was recorded as installment accounts receivable,
guarantee contracts, and accounts payable, guarantee
contracts. As of December 31, 2005, the balance of loans
by business partners with a guarantee limit amounted to ¥126,161 million, for which the guarantee limit was ¥ 25,232
million.
Based on the agreements with partners, Rakuten is
responsible for services such as calculation of tie-up loan
repayments, billing, and collection on an outsourcing
basis. However, if Rakuten terminates these services due
to a breach of an agreement or other reasons, theguarantee limit will become equivalent to the business
partner loan balance.

Consolidated Statements of Operations
1. Selling, general, and administrative expenses
Fiscal 2004

January 1, 2004 to December 31, 2004

Advertising and sales promotion: ¥ 2,112 million
Personnel: ¥ 6,349 million
Depreciation and amortization: ¥ 2,461 million
Communication and maintenance: ¥ 2,774 million
Outsourcing: ¥ 4,462 million
Others: ¥ 7,846 million
Total: ¥ 26,006 million

Fiscal 2005

January 1, 2005 to December 31, 2005

Advertising and sales promotion: ¥ 7,944 million
Personnel: ¥ 16,154 million
Depreciation and amortization: ¥ 3,723 million
Communication and maintenance: ¥ 5,569 million
Outsourcing: ¥ 9,935 million
Allowance for bad debt: ¥ 16,159 million
Others: ¥ 21,180 million
Total: ¥ 80,668 million

2. Loss on sales of non-current assets
Tools, furniture and fixtures: ¥ 133 million
Others: ¥ 0 million
Total: ¥ 133 million

Property and equipment: ¥ 41 million
Total: ¥ 41 million

3. Loss on disposal of non-current assets
Buildings and structures: ¥ 25 million
Tools, furniture and supplies: ¥ 38 million
Software: ¥ 114 million
Others: ¥ 1 million
Total: ¥ 179 million

Property and equipment: ¥ 97 million
Intangible assets: ¥ 0 million
Total: ¥ 97 million

43Notes to Consolidated Financial Statements

Consolidated Statements of Cash Flows
Fiscal 2005

Fiscal 2004

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

1. The reconciliation between the year-end balance of
cash and cash equivalents and the amounts statedin the consolidated balance sheets is as follows:

1. The reconciliation between the year-end balance of
cash and cash equivalents and the amounts statedin the consolidated balance sheets is as follows:(As of December 31, 2004)
Cash and cash equivalents: ¥ 32,396 million
Restricted cash:(¥ 6) million
Marketable securities:¥ 0 million
Cash and cash equivalents: ¥ 32,390million(As of December 31, 2005)
Cash and cash equivalents: ¥ 82,037 million
Restricted cash:(¥ 1,188) million
Marketable securities:¥ 0 million
Cash and cash equivalents: ¥ 80,849million

2. The assets and liabilities of the newly consolidated
subsidiary due to the share acquisitions:2. The assets and liabilities of the newly consolidated
subsidiary due to the share acquisitions:

The followings are the reconciliation between the assets
and liabilities of newly consolidated subsidiary due toshare acquisitions at the time of their initial consolidationand net costs of share acquisitions and net payments foracquisition.

The followings are the reconciliation between the assets
and liabilities of newly consolidated major subsidiaries due
to share acquisitions at the time of their initialconsolidation and costs of share acquisitions and net
payments for acquisition.

(Millions of yen)Company nameDate deemed acquired

Rakuten Credit, Inc.

(Millions of yen)Company name

Rakuten KC Co.,Ltd. LinkShare Corp.

Date deemed acquired

June 30

810,500
61,364
7,268

9,429
2,791
42,291

10,067

Current assets
Fixed assets
Consolidation adjustment
account
Deferred assets
Current liabilities
Long-term liabilities
Minority interests

5(700,244)(158,216)(4,906)––(7,286)(5)––

Cash and cash equivalents
held by subsidiary(4,791)

Purchase of stock

7,508

47,219(6,065)(5,276)

Cash and cash equivalents
held by subsidiaries(50,528)

Net payments

Net payments

43,019(41,153)

September 30

Current assets
Fixed assets
Consolidation adjustment accountDeferred assets
Current liabilities
Long-term liabilities

30,306354
9,650
76(30,319)(0)

Purchase of stock

44

September 30

Lease Transactions
Fiscal 2005

Fiscal 2004

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

Details on finance leases other than those that transfer
ownership of the leased assets to the lessee
Lessee1. The acquisition cost, accumulated depreciation, andnet leased property values at the year-end for theleased assets on an “as if” basis

Details on finance leases other than those that transfer
ownership of the leased assets to the lessee
Lessee1. The acquisition cost, accumulated depreciation, andnet leased property values at the year-end for theleased assets on an “as if” basis(Millions of yen)

Buildings
Tools, furnitureand fixtures
SoftwareTotal

Acquisition cost

Accumulated
depreciation

Net leased
property

3
3,919

1
2,242

1
1,677

4,538
8,462

2,324
4,568

2,214
3,893

2. Outstanding obligation value under finance leases at
the year-end
Due within one year
¥ 1,426 million
Due after one year
¥ 2,658 million
Total¥ 4,084 million

3. Lease payments, depreciation value, and interest
payment value
Lease payments¥ 1,631 million
Depreciation value¥ 1,457 million
Interest payment value ¥ 161 million
4. Calculation method for depreciation value
Computed by the straight-line method over the usefullife of the leased asset with a residual value of zero.
5. Calculation method for interest value
The difference between the total lease payments andlease asset acquisition costs is interest value. The
payment in each period is allocated using the interest
method.

(Millions of yen)

Buildings
Tools, furnitureand fixtures
SoftwareTotal

Acquisition cost

Accumulated
depreciation

Net leased
property

11
9,029

3
4,299

8
4,729

4,149
13,191

1,805
6,108

2,344
7,082

2. Outstanding obligation value under finance leases at
the year-end
Due within one year
¥ 2,134 million
Due after one year
¥ 5,128 million
Total¥ 7,262 million

3. Lease payments, depreciation value, and interest
payment value
Lease payments¥ 2,276 million
Depreciation value¥ 2,061 million
Interest payment value ¥ 184 million
4. Calculation method for depreciation value
Same as fiscal 2004.
5. Calculation method for interest value
Same as fiscal 2004.
Lessor
1. The acquisition cost, accumulated depreciation, andnet leased property values at the year-end for theleased assets on an “as if” basis(Millions of yen)

Accumulated
depreciation

Net leased
property

34

32

1

17,223

15,688

1,535

101

88

13

34
17,39429
15,8384
1,555

Acquisition cost

Buildings andstructures
Tools furuitureand fixtures
Automotive
equipment
SoftwareTotal

2. Outstanding value under finance leases at the year-end
Due within one year
¥ 550 million
Due after one year
¥ 1,065 million
Total¥ 1,616 million

3. Lease received, depreciation, and interest received value
Lease received¥ 439 million
Depreciation¥ 340 million
Interest received value ¥ 52 million
4. Calculation of interest value
Calculation of interest value for each fiscal year uses theinterest method.

45

Notes to Consolidated Financial Statements

Marketable Securities
Fiscal 2004

Fiscal 2005

As of December 31, 2004

As of December 31, 2005

1. Held-to-maturity bonds with readily determinable
market value: N.A.

1. Held-to-maturity bonds with readily determinable
market value: N.A.

2. Other securities with readily determinable market
value:

2. Other securities with readily determinable market
value:(Millions of yen)
Type

Securities carrying
unrealized gains on
consolidated balance sheet:
Shares
Bonds
OthersSubtotal
Securities carrying
unrealized losses on
consolidated balance sheet:
Shares
Bonds
OthersSubtotal
Total

Amount booked
Acquisitionin consolidated
cost
balance sheets

1,437
––
––
1,437

12,234––––
12,234(Millions of yen)Amount booked
Acquisitionin consolidated
cost
balance sheets

Difference

10,797––––
10,797

Securities carrying
unrealized gains on
consolidated balance sheet:
Shares
Bonds
OthersSubtotal

117,039––––
117,039

144,730––––
144,730

27,690––––27,690

Securities carrying
unrealized losses on
consolidated balance sheet:
Shares
Bonds
OthersSubtotal

95
––
100
195

89
––
99
188

(6)
––
(0)
(7)

117,235

144,918

27,682Difference

––
––
100
100

––
––
99
99

––
––
(0)
(0)

1,537

12,333

10,796

Type

Total

3. Held-to-maturity bonds sold during fiscal 2004: N.A.

3. Held-to-maturity bonds sold during fiscal 2005: N.A.

4. Other securities sold in fiscal 2004: N.A.

4. Other securities sold in fiscal 2005:(Millions of yen)

5. Significant securities not carried at market value:(Millions of yen)Amount booked inconsolidated balance sheets

Held-to-maturity bonds
CP
Other securities
Non-listed shares
OthersProceeds

Gain

Loss

915

335

2

5. Significant securities not carried at market value:(Millions of yen)

––
814
3,120

Amount booked inconsolidated balance sheets

Other securities
Non-listed shares
Others

6. Projected redemption value of bonds reaching
maturity or held-to-maturity bonds among othersecurities after the fiscal year-end: N.A.

46

2,907
19,672

6. Projected redemption value of bonds reaching
maturity or held-to-maturity bonds among othermarketable securities after the fiscal year-end:
None.

Derivative Transactions
Fiscal 2004

Fiscal 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

1. Derivative transactions:(1) Description and purpose of derivatives
In principle, Rakuten does not use derivativetransactions. However, the company sometimes uses
forward exchange contracts as hedging instruments withregard to exchange rate volatility risk.
(2) Derivative usage policies
Rakuten uses currency forward agreements only within
the scope of its foreign currency-denominated business
transactions. The company policy states that derivatives
shall not be used for speculative purposes.
(3) Transactional risks
Forward exchange contracts used by Rakuten are
subject to risks associated with volatility in foreignexchange markets. However, since all counterparties ofthese forward agreements are highly reliable Japanesebanks, Rakuten believes that there is few “credit risk”
with regard to a potential breach of contract by acounterparty.
(4) Risk management concerning derivative transactions
Finance Department executes and manages allderivative transactions, reports the results to thedirectors in charge and related division managers, andreceives approval as required.

1. Derivative transactions:(1) Description of derivative transactions
Rakuten and certain subsidiaries use forward exchange
contracts with regard to currencies and interest rate swaps withregard to interest rates.
(2) Derivative usage policies
Rakuten and certain subsidiaries use derivatives to hedge risks
associated with future changes in foreign exchange rates andinterest rates. The companies policy states that derivatives shallnot be used for speculative purposes.
(3) Purposes of derivative transactions
For currencies, derivatives are used to hedge exposure to theeffects of foreign exchange rate volatility on foreign currencydenominated financial receivables and payables for the purposeof stabilizing earnings. For interest rates, derivatives are used tohedge exposure to the possibility of interest rate associated withloan increases.
Hedge accounting is used for derivative transactions.
Accounting for hedging activities: Deferred hedge accounting
has been adopted.
Hedging instruments and hedged items:
Hedging methods: Interest rate swaps, currency forward
agreements
Hedged items: Loans, foreign currency-denominatedguarantee deposits
Hedging policies: Interest rate swaps are used to establish
hedges for exposure to interest rate volatility risk associatedwith loans. The item being hedged is identified with individual
contracts.
Foreign exchange volatility risk associated with foreign
currency-denominated guarantee deposits are, in accordancewith the company rules, effectively hedged during the holding
period by using currency forward agreements.
Method for evaluating effectiveness of hedging activities: Forinterest rate swaps, Rakuten and certain subsidiaries compares
every six months the cumulative changes in cash flows of thehedged item and hedging method, and determines theeffectiveness of the hedge based on volatility of those changes,
along with other items. However, this evaluation is notpreformed for interest rate swaps that use special methods. For
currency forward agreements, effectiveness is determinedbased on the company management materials in accordancewith the currency, amount and settlement date of the hedged
item.
(4) Transactional risks
Forward exchange contracts are subject to risks associated withvolatility in foreign exchange markets and interest rate swaps
are subject to risks associated with volatility of market interest
rates.
Since the Company restricts counterparties of these derivativetransactions to financial institutions with high ratings, thecompany believes that there is few credit risk associated withthese derivatives.
(5) Derivative risk management system
The execution and management of derivative transactions are
performed by Finance Department in those companies with theapproval of the manager with decision-making authority, within
the limitations on transactions and monetary amounts
prescribed by the company rules.

2. Market values of derivative positions:None as of December 31, 2004.

2. Market values of derivative positions:
Hedge accounting is used for both currency forward
agreements and interest rate swaps. Therefore, these market
values are not included in the notes to the financial statements.

47

Notes to Consolidated Financial Statements

Retirement Benefits
Fiscal 2005

Fiscal 2004

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

1. Summary of retirement benefit plans:
Certain consolidated subsidiaries have a lump-sum
payment system at retirement as a defined-benefit
program.

1. Summary of retirement benefit system:
Certain consolidated subsidiaries, as a defined-benefit
program, have a tax-qualified pension plan for
employees with at least five years of service and a lumpsum severance payment plan for employees with lessthan five years of service.

2. Information concerning retirement benefit obligation:(i) Retirement benefit obligation:(¥ 15 million)(ii) Pension plan assets: ¥ - million(iii) Unfunded retirement benefit obligation: (¥ 15 million)(iv) Unrecognized past service cost:¥ - million(v) Unrecognized actuarial gain or loss:¥ - million(vi) Accrued retirement benefits(sum of (iii), (iv), and (v)):(¥ 15 million)(iii) Unfunded retirement benefit obligation: (¥ 168 million)(iv) Unrecognized differencewith actuarial gain or loss:¥ 29 million(v) Net retirement benefit obligation as shown onbalance sheet:(¥ 138 million)

Note 1: Certain consolidated subsidiaries that have aretirement benefit system use a simplified method for
calculating retirement benefit obligation.

(vi) Accrued retirement benefits(sum of (iii), (iv), and (v)):

Note 2: Subsidiary that accounted for its retirement
benefits by the standard method abolished theretirement benefit plan during the year.

Note: Certain consolidated subsidiaries that have aretirement benefit system use a simplified method for
calculating retirement benefit obligation.

3. Retirement benefit expenses:(i) Service cost:(ii) Interest cost:(iii) Expected return on plan assets:(iv) Amortization of past service cost:(v) Amortization of actuarial gain or loss:¥ 0 million¥ - million¥ - million¥ - million¥ - million(vi) Total retirement benefit expenses(sum of the above five items):¥ 0 million

Note: Retirement benefit expenses at consolidated
subsidiaries using the simplified method are included in“(i) Service cost.”
4. Basis for calculating retirement benefit obligation, etc.:
Retirement benefit obligation is defined as all required
payments as prescribed by internal regulations
concerning retirement payments.

48

2. Information concerning retirement benefit obligation:(i) Retirement benefit obligation:(¥ 4,783 million)(ii) Pension plan assets:¥ 4,614 million(¥ 138 million)

3. Retirement benefit expenses:(i) Service cost:(ii) Interest cost:(iii) Expected return on plan assets:(iv) Amortization of actuarial gain or loss:¥ 135 million¥ 47 million(¥ 39 million)¥ 51 million(v) Total retirement benefit expenses(sum of the above four items):¥ 194 million

Note: Retirement benefit expenses at consolidated
subsidiaries using the simplified method are included in“(i) Service cost.”
4. Basis for calculating retirement benefit obligation, etc.:(i) Periodic allocation method for projected retirement
benefit payments uses a method based on years ofservices.
(ii) Discount rate: 2.0%(iii) Expected rate of return: 2.0%(iv) Amortization period of actuarial gain or loss: 10 years
Amortized using the straight-line method over a
fixed number of years within the average number ofremaining years of employment of employees at thetime the obligation is recognized. Recognized as
expenses beginning in the following fiscal year.

Deferred Tax Accounting
1. The significant components of deferred tax assets and liabilities:
Fiscal 2004

Fiscal 2005

As of December 31, 2004

As of December 31, 2005

Deferred tax assets
Net operating loss carry forward: ¥ 3,115 million
Excess depreciation: ¥ 923 million
Impainment loss on investment securities: ¥ 654 million
Allowance for investment loss: ¥ 673 million
Allowance for doubtful accounts: ¥ 241 million
Depreciation of one-time depreciable assets: ¥ 64 million
Accrued enterprise tax: ¥ 103 million
Others: ¥ 76 million
Deferred tax assets subtotal: ¥ 5,851 million
Valuation allowance: (¥ 3,885 million)
Total deferred tax assets: ¥ 1,965 million

Deferred tax assets
Net operating loss carry forward: ¥ 4,470 million
Excess depreciation: ¥ 1,248 million
Impainment on investment securities: ¥ 263 million
Allowance for investment loss: ¥ 1,053 million
Allowance for doubtful accounts: ¥ 3,981 million
Depreciation of one-time depreciable assets: ¥ 95 million
Accrued enterprise tax: ¥ 875 million
Disallowed reserve for points: ¥ 740 million
Others: ¥ 4,517 million
Deferred tax assets subtotal: ¥ 17,247 million
Valuation allowance: (¥ 3,741 million)
Total deferred tax assets: ¥ 13,506 million

Deferred tax liabilities
Reserve for special depreciation: ¥ 16 million
Unrealized holding gain on securities: ¥ 4,426 million
Total deferred tax liabilities: ¥ 4,443 million

Deferred tax liabilities
Reserve for special depreciation: ¥ 10 million
Unrealized holding gain on securities: ¥ 11,351 million
Total deferred tax liabilities: ¥ 11,361 million

Net deferred tax liabilities: ¥ 2,478 million

Net deferred tax assets: ¥ 2,144 million

2. The reconciliation between the statutory effective tax rate and the actual effective tax rate
after the application of deferred tax (corporate tax, income tax, etc.) accounting:
Fiscal 2004 (As of December 31, 2004): None, since a net
loss is posted.

Fiscal 2005 (As of December 31, 2005): Omitted, since
the difference between the statutory effective tax rate
and the actual effective tax rate after the application oftax effect falls below 5% of the former.

49

Notes to Consolidated Financial Statements

Segment Information
1. Business segment information
Fiscal 2004

January 1, 2004 to December 31, 2004

I. Net sales, operating income
Net sales(1) External sales(2) Intersegment sales andtransfers
Total
Operating expenses
Operating income
II. Assets, depreciation, andcapital expenditure
AssetsDepreciation andamortization
Capital expenditure(Millions of yen)

E-Commerce
Business

Portal & MediaBusiness

Travel &Entertainment
Business

20,613
116

4,904
823

6,129
14

13,919––45,567
954

––
(954)

45,567––

20,72913,473
7,256

5,728
4,639
1,088

6,144
4,120
2,023

13,9199,257
4,661

46,522
31,491
15,030

(954)
(983)
28

45,56730,507
15,05948,766
1,582

2,508
253

5,451
273

249,142352

305,868
2,461

1,687
––

307,556
2,461

3,110

207

389

2,310

6,018

13

6,031

Financial Services
Business

Total

Internal
Eliminations

Consolidated

Notes:
1. Categorization of businesses: Rakuten’s businesses are categorized according to the content and special features of each service provided.
2. Main services provided in each business segment:
Segment

Main Services

E-Commerce Business

Operation of Rakuten Ichiba, an Internet shopping mall
Operation of Rakuten Furima, an auction website for individual users
Operation of Rakuten Business, an online market for business users
Provision of e-commerce consulting services
Operation of Rakuten Books, a book retailing website
Operation of Rakuten Download, a digital content site, and the development of systems for providing digital content
Operation of Rakuten GORA, an online golf tee-time reservation service

Portal and Media Business

Operation of Infoseek portal site offering search engine and other functions
Provision of online greeting card services
Operation of Infoseek Games, an online game site
Operation of satellite TV channels
Operation of advertising agency
Provision of website access analysis services
Operation of ShowTime, a broadband content portal site

Travel and Entertainment Business

Operation of Rakuten Travel, a comprehensive travel site, and provision of hotel booking services
Operation of membership-based marketing businesses such as Dining a La Card
Operation of an online ticket sales ASP business
Planning, operation and management of ticket sales systems
Operation of Ctrip.com, a comprehensive travel site in China, and a hotel and flight booking business using a large-scale call center

Financial Services Business

Operation of an online securities trading service
Operation of a consumer card loan business

3. Assets included in internal eliminations totaled ¥ 20,303 million, the majority of which are held by Rakuten as long-term investment assets (investment securities and capital investments).
4. There are no unallocated operating expenses.
5. Changes in business segments previously, Rakuten’s operations comprised three segments: E-Commerce Business, Portal Business, Travel and Other Services Business. However,in order to further strengthen links between each business, the segments were reclassified in March 2004 into four categories: E-Commerce Business, Portal and Media Business,
Travel and Entertainment Business and Financial Services Business. Subsequently, (i) Other Services Business were split to Media Business and Entertainment Business, then (ii)former Portal Business and Media Business were integrated into Portal and Media Business, and similarly, Travel Business included in former E-Commerce Business andEntertainment Business integrated into Travel and Entertainment Business, in consideration of similarity and relationship of businesses. The following table shows operating resultsby segment for fiscal 2003 based on this new business segment classification applied from fiscal 2004.

Fiscal 2003 (January 1, 2003 to December 31, 2003)
Portal & MediaBusiness

Travel & Entertainment
Business

Financial Services
Business

Total

Internal
Eliminations

11,676
148

3,906
1,079

2,499
14

––
––

18,082
1,242––(1,242)

18,082––

Total
Operating expenses
Operating income

11,825
7,775
4,049

4,985
4,506
479

2,514
2,307
207

––
––
––

19,325
14,5894,736(1,242)(1,256)14

18,082
13,332
4,750

II. Assets, depreciation, andcapital expenditure
AssetsDepreciation andamortization
Capital expenditure

33,698
1,201

2,157
199

3,835
112

146,954––

186,645
1,513

1,371
––

188,016
1,513

2,332

315

65

––

2,712

––

2,712

I.

50

(Millions of yen)

E-Commerce
Business
Net sales, operating income
Net sales(1) External sales(2) Intersegment sales andtransfers

Consolidated

Fiscal 2005

January 1, 2005 to December 31, 2005

I. Net sales, operating income
Net sales(1) External sales(2) Intersegment sales andtransfers
Total
Operating expenses
Operating income
II. Assets, depreciation, andcapital expenditure
AssetsDepreciation andamortization
Capital expenditure

E-Commerce
Business

Credit &Payment
Business

Portal & MediaBusiness

TravelBusiness

34,648411

47,129
10

7,540
1,898

35,06023,386
11,67347,13940,807
6,332

203,205
2,184
3,574

(Millions of yen)

Securities
Business

ProfessionalSportsBusiness

Total

7,270
96

26,318
183

6,867
518

129,775
3,118––(3,118)

129,775
––

9,438
7,509
1,929

7,367
4,384
2,982

26,502
13,703
12,798

7,385
7,229
156

132,894
97,02135,872(3,118)(2,131)(987)

129,775
94,89034,885805,515
363

4,317
246

7,222
305

591,360
395

7,011
228

1,618,633
3,723

39,075––

1,657,708
3,723

996

228

385

236

2,954

8,376

––

8,376

Internal
Consolidated
Eliminations

Notes:
1. Categorization of businesses: Rakuten’s businesses are categorized according to the content and special features of each service provided.
2. Main services provided in each business segment:
Segment

Main Services

E-Commerce Business

Operation of Rakuten Ichiba, an Internet shopping mall
Operation of Rakuten Auction, an auction website for individual users
Operation of Rakuten Business, an online market for business users
Provision of e-commerce consulting services
Operation of Rakuten Books, a book retailing website
Operation of Rakuten Download, a digital content site, and the development of systems for providing digital content
Operation of Rakuten GORA, an online golf tee-time reservation service
Provision of affiliate marketing services
Operation of membership-based marketing businesses such as Dining a La Card
Operation of an online ticket sales ASP business
Planning, operation and management of online ticket sales systems

Credit and Payment Business

Operation of a personal finance card loan businessComprehensive consumer credit-related services

Portal and Media Business

Operation of Infoseek portal site offering search engine and other functions
Provision of online greeting card services
Operation of Infoseek Games, an online game site
Operation of satellite TV channels
Operation of advertising agency
Operation of comprehensive internet research business
Operation of ShowTime, a broadband content portal site

Travel Business

Operation of Rakuten Travel, a comprehensive travel site, and provision of hotel booking services
Operation of Ctrip.com, a comprehensive travel site in China, and a hotel and flight booking business using a large-scale call center

Securities Business

Operation of an online securities brokerage service

Professional Sports Business

Management of the Tohoku Rakuten Golden Eagles professional baseball team
Planning and sales of Tohoku Rakuten Golden Eagles merchandise

3. Assets included in internal eliminations totaled ¥ 70,382 million, the majority of which are held by Rakuten as long-term investment assets (investment securities).
4. Unallocated operating expenses totaled ¥ 425 million, which mainly comprised pro forma external standard tax expenses at head office and other items, and head office expense notallocatable directly to business segments.
5. As shown in additional information, from the fiscal year under review the added value portion and capital portion of income taxes have been included under selling, general andadministrative expenses. This change, compared with previous methods, had the effect of increasing operating expenses in Internal Eliminations by ¥ 172 million, Credit and Payment
Business by ¥ 95 million, Travel Business by ¥ 10 million, Securities Business by ¥ 83 million, and Professional Sports Business by ¥ 5 million.

51

Notes to Consolidated Financial Statements

Segment Information

6. Changes in business segments:(1) Changes from fiscal 2004
Previously, Rakuten’s operations comprised four segments: E-Commerce Business, Portal and Media Business, Travel and Entertainment Business and Financial
Services Business. However, in order to further strengthen links between each business in response to rapid expansion of the company’s sphere of operations,
including the move into the professional sports-related business, the segments were reclassified in January 2005 into five categories: E-Commerce Business, Portal
and Media Business, Travel Business, Financial Services Business and Professional Sports Business. Subsequently, (i) Travel and Entertainment Business were split toTravel Business and Entertainment Business then (ii) former E-Commerce Business and Entertainment Business integrated into E-Commerce Business in considerationof similarity and relationship of Businesses. In addition, Professional Sports Business was newly established in accordance with launch of the business in fiscal 2005.
Furthermore, in July 2005, Rakuten again revised its segment classifications, dividing the Financial Services Business into two separate segments: Credit and Payment
Business and Securities Business. This was done to reflect the differences between the two businesses and distinguish their respective earnings following the growthof the Financial Services Business after Rakuten KC Co., Ltd. became a consolidated subsidiary. As a result, the new business segments are as follows: E-Commerce
Business, Credit and Payment Business, Portal and Media Business, Travel Business, Securities Business and Professional Sports Business. The following table shows
operating results by segment for fiscal 2004 based on this new business segment classification applied from fiscal 2005.

(Millions of yen)

Fiscal 2004 (From January 1, 2004 to December 31, 2004)

I.

Securities
Business

ProfessionalSportsBusiness

Total

5,411

13,143

––

12

––

––

5,728

5,424

13,143

––

4,639

3,262

8,371

54

(110)

1,088

2,161

4,772

50,19230,512

2,508

4,025

1,610

26

253

245

3,145

16

207

354

E-Commerce
Business

Credit &Payment
Business

Portal & MediaBusiness

TravelBusiness

21,331

776

4,904

112

––

823

Total

21,443776

Operating expenses

14,325886

Operating income

7,117

AssetsDepreciation andamortization
Capital expenditure

Internal
Eliminations

Consolidated

45,567––45,567

948

(948)

––

46,516(948)

45,56731,540(1,032)30,507(54)

14,97583

15,059218,629

3,953

309,821(2,265)

307,556

325

––

2,461

––

2,461

2,294

13

6,031

––

6,031

Net sales, operating
incomeNet sales(1) External sales(2) Intersegment sales andtransfers

II. Assets, depreciation, andcapital expenditure(2) Changes from the Interim Consolidated Accounting Period
In the consolidated fiscal year under review, Rakuten's operations comprised six segments: E-Commerce Business, Portal and Media Business, Travel
Business, Credit and Payment Business, Securities Business and Professional Sports Business. However, in the consolidated interim accounting
period, the segments had been classified into five categories: E-Commerce Business, Portal and Media Business, Travel Business, Financial Services
Business and Professional Sports Business. The difference is due to a reclassification of the segment undertaken in July 2005 in light of the expansion
in the scope of the Financial Services Business resulting from Rakuten KC Co., Ltd. turning into a consolidated subsidiary. Accordingly, to reflect thedifferent features of the two businesses in the segment classification and to distinguish their respective earnings, the Financial Services Business was
divided into two separate segments: the Credit and Payment Business and the Securities Business. The following table shows the effect of applying
the business classification used for the fiscal year on segment information for the interim accounting period:(Based on segment classification used in the consolidated fiscal year)

I.

(Millions of yen)

Credit & Payment Business

Securities Business

1,837

9,781

––

––

Total

1,837

9,781

Operating expenses

2,127

5,751

Operating income

(290)

4,030

Net sales(1) External sales(2) Intersegment sales andtransfers(Based on segment classification used in the consolidated interim period)(Millions of yen)
Financial Services BusinessI.

Net sales(1) External sales(2) Intersegment sales andtransfers

52

11,619––Total

11,619Operating expenses

7,879

Operating income

3,739

2. Geographic segment information
Fiscal 2004 (January 1, 2004 to December 31, 2004) and Fiscal 2005 (January 1, 2005 to December 31, 2005)
Geographic segment information is omitted because domestic net sales and assets account for more than 90% of total
segment sales and assets.

3. Overseas sales
Fiscal 2004 (January 1, 2004 to December 31, 2004) and Fiscal 2005 (January 1, 2005 to December 31, 2005)
Overseas sales are omitted because overseas sales account for less than 10% of consolidated net sales.

4. Business Transactions with related parties
Fiscal 2004 (January 1, 2004 to December 31, 2004)
Business transactions with related parties are omitted since they had no material impact on Rakuten’s business activities.
Fiscal 2005 (January 1, 2005 to December 31, 2005)
Business transactions with related parties are omitted since they had no material impact on Rakuten’s business activities.

53

Notes to Consolidated Financial Statements

Per Share Data
Fiscal 2005

Fiscal 2004

January 1, 2005 to December 31, 2005

January 1, 2004 to December 31, 2004

Net assets per share: ¥ 6,464.58
Net income per share: ¥ 1,642.50
Diluted net income per share: ¥ 1,626.19

Net assets per share: ¥ 38,814.92
Net loss per share: ¥ 12,458.37
Diluted net income per share is not shown. Although
Rakuten had stock acquisition rights and stock options
outstanding at the end of fiscal 2004, diluted net loss isomitted because a net loss was posted.

On February 21, 2005, the company conducted a 10-for-1
common stock split. Per share data calculated assuming
this split had occurred at the beginning of fiscal 2004 are
as follows.
Adjusted per share data for fiscal 2004
Net assets per share: ¥ 3,881.49
Net loss per share: ¥ 1,245.83

Notes:

Notes:

1. The average number of shares outstanding is calculated based

1. The average number of shares outstanding is calculated basedon shares outstanding on day of the year.

on shares outstanding on day of the year.

2. Net income or loss per share is calculated as follows.

2. Net income or loss per share is calculated as follows.

19,44930

15

Net income (loss) (¥ million)
Amounts not applicable to common stock (¥ million)
Amount allocated for directors’ bonuses(14,286)

Income (loss) applicable to common stock (¥ million)

19,419Average shares outstanding (thousand shares)

11,823

Net income (loss) (¥ million)
Amounts not applicable to common stock (¥ million)
Amount allocated for directors’ bonuses(14,271)
15

Income (loss) applicable to common stock (¥ million)
Average shares outstanding (thousand shares)
Major common stock equivalents used in calculation ofdiluted net income per share (thousand shares)
Stock options
Summary of non-dilutive
common stock equivalents
not included in dilution

54

1,146

––––––

Stock options: 2 types(8,309 rights)
Stock acquisition rights complying
with former Commercial Code Article289-19:2 types
Second issue of unsecured warrant
Third issue of unsecured warrant

Major common stock equivalents used in calculation ofdiluted net income per share (thousand shares)
Stock options
Summary of non-dilutive common stock equivalents
not included in dilution

30

118

––––––

Important Events Subsequent to the Period under Review
Fiscal 2004

Fiscal 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

1. Reduction in capital reserves
In accordance with Article 289-2 of the Commercial Code,Rakuten resolved at the 8th Annual General Meeting of
Shareholders held on March 30, 2005, to reduce capitalreserves of ¥ 25,135,769,677 by ¥ 10,000,000,000 and totransfer the amount to other Additional paid-in capital toenable flexible utilization of capital reserves.

1. New stock issuanceAt the Board of Directors’ Meeting on March 1, 2006,
Rakuten agreed to issue new stocks through a public
offering; the total amount was paid by the payment due
date (March 23, 2006).
(1) Type of stock issued
Common stock(2) Total number of new stock issued
1,150,000 shares(3) Offering price¥ 92,214 per share(4) Total amount¥ 106,046,100,000(5) Amount incorporated into capital¥ 46,107 per share(6) Dividend value date
January 1, 2006
(7) Use of proceeds
Of the total net proceeds of approximately ¥ 105,604
million raised in the public offering, ¥ 20,000 million will
be invested in a subsidiary (capital injection for Rakuten
KC, Co., Ltd.) and the remainder used to repay debt.

2. Stock split
Rakuten, based on decision at the Board of Directors’Meeting on August 27, 2004, carried out a 10-for-1 stock
split on February 21, 2005, applicable for stock owned byshareholders listed or registered in the final list ofshareholders or the actual list of shareholders, andfractional shareholders listed or registered in the fractional
stock register dated December 31, 2004. Consequently,
the total number of stock issued and outstanding
increased by 10,635,066.9 shares. Concurrently, the total
number of shares to be issued by the company increased
by 35,476,200 to 39,418,000, reflecting the ratio of thestock split.
The following table shows per share data for the
consolidated accounting periods of Fiscal 2004 and Fiscal
2005, respectively, based on the assumption the stock
split was implemented at the beginning of the each fiscal
year:
Fiscal 2004

Fiscal 2005

Net assets per share:¥ 2,357.04

Net assets per share:¥ 3,881.49

Net loss per share:¥ 5,160.08

Net loss per share:¥ 1,245.83

3. Issuance of stock options according to Article 28020 and 280-21 of the Commercial CodeIn accordance with the rules laid out in Articles 280-20 and
280-21 of the Commercial Code, Rakuten resolved at the
8th Annual General Meeting of Shareholders held on
March 30, 2005 to issue stock options for the benefit of its
directors, corporate auditors and employees with theobjective of further increasing their motivation and morale
for enhancing corporate performance.

2. Issuance of stock options according to Article 28020 and 280-21 of the Commercial CodeIn accordance with the rules laid out in Articles 280-20 and
280-21 of the Commercial Code, Rakuten resolved at the
9th Annual General Meeting of Shareholders held on
March 30, 2006, to issue stock options for the benefit of
directors, corporate auditors and employees of thecompany and its subsidiaries and affiliates with theobjective of further increasing their motivation and morale
for enhanced corporate performance.
The outline of the stock option is as follows:(1) Type of stock to be issued
Common stock(2) Beneficiaries
Directors, corporate auditors and employees of
Rakuten, Inc., its subsidiaries and affiliates(3) Number of stock options to be issued:
60,000 shares (maximum)(4) Exercise price of stock option
Amount equivalent to the average transaction price as55Notes to Consolidated Financial Statements

Important Events Subsequent to the Period under Review

Fiscal 2004

Fiscal 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

(1) Type of stock to be issued
Common stock(2) Beneficiaries
Directors, corporate auditors and employees of
Rakuten, Inc., its subsidiaries and affiliates(3) Number of stock options to be issued:
65,000 shares (maximum)(4) Exercise price of stock option
Amount equivalent to the average transaction prices asof 15:00 (closing price) disclosed by the JASDAQ
Securities Exchange for each day on which trades weremade during the month preceding the month in which
the right is exercised (fractions below ¥ 1 are counted
as one). However, in case the above amount falls below
the closing price of the exercise date, the latter will beapplied.
(5) Period of exercise
From March 31, 2009 to March 29, 2015of 15:00 (closing price) disclosed by the JASDAQ
Securities Exchange for each day on which trades weremade during the month preceding the month in which theright is exercised (fractions below ¥ 1 are counted as one).
However, in case the above amount falls below the closing
price of the exercise date, the latter will be applied.
(5) Period of exercise
From March 31, 2010 to March 29, 2016

4. Business and capital alliance (transformation of thecompany into a subsidiary) with Kokunai Shinpan
Co., Ltd.
At the Board of Directors’ Meeting on March 10, 2005,
Rakuten agreed to sign a basic agreement on acomprehensive business and capital alliance with Kokunai
Shinpan Co., Ltd., and agreed at the Board of Directors’Meeting on March 28 to sign a contract on the acquisitionof its shares from the company’s existing shareholder,which was implemented on the same day.
(1) Outline of Kokunai Shinpan Co., Ltd.
-Trade name: Kokunai Shinpan Co., Ltd.
-Location: Hakata-ku, Fukuoka City, Fukuoka Prefecture-Representative Officer: Kinji Nakamura, President-Date of incorporation: April 1963
-Operations: credit card services, shopping credit
services, card loan services, etc.
-Accounting period: April 1 to March 31-Number of employees: 1,477 (as of March 31, 2004)-Capital: ¥ 3,055 million (as of March 31, 2004)-Operating revenue: ¥ 58,293 million (Fiscal 2004)-Operating income: ¥ 2,211 million (Fiscal 2004)-Ordinary income: ¥ 2,025 million (Fiscal 2004)(2) Reason for the alliance
As a comprehensive Internet services corporate group,56

Fiscal 2004

January 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

the Rakuten Group undertakes E-Commerce, Portal andMedia, Travel and Financial Services businesses, andmaintains a focused effort to develop new businesses
and expand its operational domain, seeking to further
enhance and diversify its services. In the Financial
Services Business in particular, the Group began
issuing Rakuten Credit Cards in August 2005, through acard alliance. Over 130,000 cards were issued in thesubsequent eight-month period, making the Group oneof the largest Internet-based credit companies in Japan.
Kokunai Shinpan Co., Ltd. possesses extensive
expertise, with 1.64 million cards issued and grosstransactions of ¥ 559.7 billion in fiscal 2004.
Incorporating the company into the Group will enable
Rakuten to secure revenues from payment settlement
services and installment sales generated by its internet
shopping mall site Rakuten Ichiba and comprehensive
travel site Rakuten Travel, while increasing credit card
membership through collaboration with the sports
industry, including professional baseball, in which the
Tohoku Rakuten Golden Eagles participates, thereby
further expanding the Group’s business and enhancing
its business base. For these reasons, Rakuten agreed to
a comprehensive business and capital alliance(transformation of the company into a subsidiary) with
Kokunai Shinpan Co., Ltd.
(3) Content of capital alliance
KC Holdings Co., Ltd., a holdings company of Kokunai
Shinpan Co., Ltd., indirectly owns 100% of Kokunai
Shinpan Co., Ltd.’s stock.
Rakuten will invest in the company by acquiring a
55.5% stake in KC Holdings Co., Ltd. owned by JIP
funds LLP. investment fund managed by Japan
Industrial Partners, Inc. (planned investment:
approximately ¥ 12 billion). In addition, Rakuten plans toacquire ¥ 4.5 billion worth of preferred stock from KC
Holdings Co., Ltd. in a third-party allotment of stock on
March 31, 2005.
(4) Date of stock acquisition:
June 1, 2005 (tentative)(5) Change in subsidiary
The stock acquisition will give Rakuten a 55.5% stake in
Kokunai Shinpan Co., Ltd., thereby making it a Rakuten
subsidiary.

57

Notes to Consolidated Financial Statements

Supplementary Statement of Consolidated Accounting
Schedule of corporate bonds
Amount outstanding
as of Fiscal 2004 year-end(¥ million)

Date ofissuance

Company

Description

Rakuten, Inc.

No.1
unsecuredvariable ratebondFebruary28, 2005––

Rakuten KC, Co., Ltd.

No.2
unsecuredbond

January
5, 2001

Rakuten KC, Co., Ltd.

No.3
unsecuredbond

Rakuten KC, Co., Ltd.

Amount outstanding
as of Fiscal 2005
year-end (¥ million)

Date ofmaturity

Interest (%)

Collateral

10,000(––)

0.525

Unsecured

February
26, 2010––

10,000(10,000)

2.500

Unsecured

January
5, 2006April
12, 2001

––

300
(300)

1.050

UnsecuredApril
12, 2006

No.4
unsecuredbond

September
28, 2001

––

300
(300)

1.366

Unsecured

September
28, 2006

Rakuten KC, Co., Ltd.

No.5
unsecuredbond

December26, 2001

––

400
(400)

1.450

Unsecured

December26, 2006

Rakuten KC, Co., Ltd.

No.6
unsecuredbond

December25, 2003––

1,000(1,000)1.470

Unsecured

December25, 2006

––

––

––

22,000(12,000)

––

––

––

Total

Notes:
1. Figures in parenthesis ( ) indicate the current portion of amounts outstanding.
2. Annual bond redemption value over the five years following the close of the consolidated fiscal year are shown below:
Over 1 year, up to 2 years (¥ million)

Over 2 years, up to 3 years (¥ million)

Over 3 years, up to 4 years (¥ million)

Over 4 years, up to 5 years (¥ million)

––

4,000

4,000

2,000

Due date

Schedule of debt service
Category
Short-term borrowings
Current portion of
long-term debt
Long-term debt
(excluding the current
portion)
Other interest-bearing debt
Total

Amount outstanding asof Fiscal 2004 year-end(¥ million)

Amount outstanding asof Fiscal 2005 year-end(¥ million)

Average interest (%)

46,895375,774

1.0761––

2

114,255

2.1865––

2,019

186,476

2.09782007 to 2011

––

––

––

––

48,916

676,505––––

Notes:
1. “Average interest” denotes the weighted average based on the amount of debt outstanding as of each year-end.
2. Repayment amount for long-term debt, excluding the current portion, over the five years following the close of the consolidated fiscal
year are shown below:
Over 1 year, up to 2 years (¥ million)

Over 2 years, up to 3 years (¥ million)

Over 3 years, up to 4 years (¥ million)

Over 4 years, up to 5 years (¥ million)

85,28955,07130,295

15,071(2) OtherN.A.

58

Independent Auditors’ Report(The English translation of Report of Independent Auditors in Japanese)

Report of Independent Auditors

March 30, 2005

The Board of Directors
Rakuten, Inc.

Ernst & Young ShinNihon
Representative and Engagement Partner

Hidehiro Takayama

Representative and Engagement Partner

Shoji Wakamatsu

Pursuant to Article 193-2 of the Securities and Exchange Law, we have audited the consolidated balance
sheet, the consolidated statement of operations, the consolidated statement of retained earnings, theconsolidated statement of cash flows and the consolidated supplemental schedules of Rakuten, Inc.
included in “Financial Information” for the fiscal year from January 1, 2004 to December 31, 2004. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Rakuten, Inc. and consolidated subsidiaries at December 31, 2004, andthe consolidated results of their operations and their cash flows for the year then ended in conformity withaccounting principles generally accepted in Japan.

Supplementary Information
As described in “Business segment information, Note 5, Changes in business segments,” the Company
changed the classification of its business segments.
We have no interest in the Company that should be disclosed pursuant to the provisions of the Certified
Public Accountants Law.

59

Independent Auditors’ Report(The English translation of Report of Independent Auditors in Japanese)

Report of Independent Auditors

March 30, 2006

The Board of Directors
Rakuten, Inc.

Ernst & Young ShinNihon
Designated and Engagement Partner

Hidehiro Takayama

Designated and Engagement Partner

Shoji Wakamatsu

Designated and Engagement Partner

Yoshihiko Shimizu

Pursuant to Article 193-2 of the Securities and Exchange Law, we have audited the consolidated balance
sheet, the consolidated statement of operations, the consolidated statement of retained earnings, theconsolidated statement of cash flows and the consolidated supplemental schedules of Rakuten, Inc.
included in “Financial Information” for the fiscal year from January 1, 2005 to December 31, 2005. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Rakuten, Inc. and consolidated subsidiaries at December 31, 2005 andthe consolidated results of their operations and their cash flows for the year then ended in conformity withaccounting principles generally accepted in Japan.

Supplementary Information(1) As described in “Important events subsequent to the period under review, Note 1, New stock issuance,”
at the Board of Director’s meeting held on March 1, 2006, it was resolved that the Company would issue
new stocks for 106 billion yen through a public offering. All proceeds from the issuance of stocks werereceived by March 23, 2006.
(2) As described in “Business segment information, Note 6, Changes in business segments,” the Company
changed the classification of its business segments.
We have no interest in the Company that should be disclosed pursuant to the provisions of the Certified
Public Accountants Law.

60

Corporate Data

Company Overview (As of March 31, 2006)
Company NameFoundedService Launched
IPO
CapitalMain Office

Rakuten, Inc.
February 7, 1997
May 1, 1997
April 19, 2000
107,165 million yen
Roppongi Hills Mori Tower, 6-10-1 Roppongi,
Minato-ku, Tokyo, 106-6118
3,765 (Consolidated)
815 (Non-consolidated)

Employees

Stock Information (As of December 31, 2006)
Stock CodeFiscal Year End
Date of General Shareholders Meeting
Shareholder Record Date
Transfer Agent
Transfer Agent Address4755(JASDAQ)
December 31 (Interim Period June 30)
End of March
December 31
The Chuo Mitsui Trust and Banking Company, Ltd.
33-1, Shiba, 3-chome, Minato-ku, Tokyo
The Chuo Mitsui Trust and Banking Company, Ltd.
Stock Transfer Agency Department 8-4, Izumi
2-chome, Suginami-ku, Tokyo
Toll-free call: +81-120-78-2031

Number of shares and shareholders
Total number of shares authorized
Total number of shares issued
Number of shareholders

39,418,000
11,837,893
129,702

Major Shareholders
Number ofsharesVoting shares
held (%)

Hiroshi Mikitani

2,283,590

19.29

Crimson Group, Inc

2,257,350

19.07

Haruko Mikitani

1,558,750

13.17

Masuda and Partners Inc.

534,910

4.52

Shinnosuke Honjo

233,890

1.98

Kazuyoshi Masuda

225,600

1.91

The Chase Manhattan Bank N.A. London

185,529

1.57

Morgan Stanley & Co. International Limited

168,347

1.42

Japan Trustee Services Bank, Ltd. (Trust Account)

157,284

1.33

The Master Trust Bank of Japan, Ltd. (Trust account)

135,811

1.15

Shareholders

Classification by Type of Shareholder
Shares owned by the company 0.01%
Japanese government and local government 0.01%
Securities corporations 0.81%
Domestic financial institutions 4.40%
Foreign financial institutions and individuals 14.51%

Individuals and others 56.17%
Other domestic corporations 24.09%

Inquiry
Investor Relations
Tel. +81-3-4523-8001
URL http://www.rakuten.co.jp/info/ir/english

61

Corporate Data

Consolidated Subsidiaries and Affiliated Companies
Name

Location

Capital orinvestment(¥ million)

Type ofbusiness

Voting rights orownership (%)

Relationship

Concurrent appointmentof Rakuten executives

Note

Consolidated Subsidiaries

62

Rakuten Auction, Inc.

Minato-ku, Tokyo

1,650

E-Commerce
Business

60.00

Rakuten Books, Inc.

Minato-ku, Tokyo

400

E-Commerce
Business

100

Concurrent appointment of
Rakuten executives, Loans lended

Digipa Networks, Inc.

Minato-ku, Tokyo

67

E-Commerce
Business

100

Concurrent appointmentof Rakuten executives

Rakuten Enterprise Inc.

Minato-ku, Tokyo

10

E-Commerce
Business

100

Concurrent appointment of
Rakuten executives, Loans lended

Signature Japan Co., Ltd.

Minato-ku, Tokyo

80

E-Commerce
Business

100

Concurrent appointment of Rakuten
executives, Loans borrowed

Fine Wine Co., Ltd.

Minato-ku, Tokyo

205

E-Commerce
Business

100

Concurrent appointmentof Rakuten executives

LinkShare Corporation

U.S.A.

74,011 thousand
U.S. dollars

E-Commerce
Business

100
(100)

Concurrent appointmentof Rakuten executives

MEDIOPORT Inc.

Minato-ku, Tokyo

171

E-Commerce
Business

100

Rakuten USA, Inc.

U.S.A.

5,000 thousand
U.S. dollars

E-Commerce
Business

100

Concurrent appointmentof Rakuten executives

Rakuten Credit, Inc.

Minato-ku, Tokyo

4,450

Credit and Payment
Business

96.50

Concurrent appointmentof Rakuten executives

2

Rakuten KC Co., Ltd.

Fukuoka-shi, Fukuoka

3,055

Credit and Payment
Business

55.52(55.52)

Concurrent appointment of
Rakuten executives, Loans lended

2
6

JK Holdings Inc.

Minato-ku, Tokyo

770

Credit and Payment
Business

100

Concurrent appointment of
Rakuten executives, Loans lended

2

Kokunai Shinpan Service Co., Ltd.

Fukuoka-shi, Fukuoka

10

Credit and Payment
Business

100
(100)

2
7

Miyazaki Marina Co., Ltd.

Miyazaki-shi, Miyazaki

45

Credit and Payment
Business

100
(100)

2
7

Kajiyama Warehouse Co., Ltd.

Kitakyusyu-shi, Fukuoka

240

Credit and Payment
Business

100
(100)

2
7

Rakuten TV Inc.

Minato-ku, Tokyo

80

Portal and MediaBusiness

100

Concurrent appointment of
Rakuten executives, Loans lended

Target, Inc.

Minato-ku, Tokyo

480

Portal and MediaBusiness

100

Concurrent appointment of
Rakuten executives, Loans lended

College Students’ Portal
Community, Inc.

Minato-ku, Tokyo

10

Portal and MediaBusiness

100

Concurrent appointment of
Rakuten executives, Loans lended

Rakuten Research, Inc.

Minato-ku, Tokyo

246

Portal and MediaBusiness

98.40

Cyber Brains (Shanghai)Consulting Co., Ltd.

People’s Republic of China

1,158 thousand yuan

Portal and MediaBusiness

100
(100)

Rakuten Travel, Inc.

Minato-ku, Tokyo

764

Travel Business

100

RAKUTEN TRAVEL KOREA
CO., LTD.

Republic of Korea

350 million won

Travel Business

100
(100)

8

TABIMADO CO., LTD SHANGHAI

People’s Republic of China

1,000 thousand yuan

Travel Business

––
(100)

2
4

Rakuten Bus Services Inc.

Minato-ku, Tokyo

40

Travel Business75.0(75.0)

SIDE B NETORK, INC.

Minato-ku, Tokyo

12

Travel Business

100

Concurrent appointmentof Rakuten executives

2

2
5

2
2

Concurrent appointment of
Rakuten executives, Loans lended

Concurrent appointmentof Rakuten executives
Concurrent appointment of
Rakuten executives, Loans lended28Capital orinvestment(¥ million)

Type ofbusiness

Voting rights orownership (%)

Relationship

Note

Name

Location

Rakuten Securities, Inc.

Minato-ku, Tokyo

6,600

Securities Business

96.67

Concurrent appointment of
Rakuten executives, Loans lended

Rakuten Asset Management Co., Ltd.

Minato-ku, Tokyo

10

Securities Business

100
(100)

Concurrent appointment of
Rakuten executives, Loans lended

9

Rakuten Strategic Partners, Inc.

Minato-ku, Tokyo

300

Securities Business

100
(100)

Loans lend

9

Rakuten Realty Management Co., Ltd.

Chuo-ku, Tokyo

200

Securities Business100

R Building Co., Ltd.

Chuo-ku, Tokyo

10

Securities Business

100
(100)

Loans lend

Rakuten Baseball, Inc.

Sendai-shi, Miyagi

400

Professional Sports
Business

100

Concurrent appointment of
Rakuten executives, Loans lended

Rakuten Sports Properties, Inc.

Minato-ku, Tokyo

150

Professional Sports
Business

51.0(51.0)

Rakuten Media Investment, Inc.

Minato-ku, Tokyo

10

LAWSON TICKET, Inc.

Shibuya-ku, Tokyo

2,892

E-Commerce
Business

17.82

LinkShare Japan K.K.

Chiyoda-ku, Tokyo

10

E-Commerce
Business

50.00(50.00)SHOWTIME, Inc.

Shibuya-ku, Tokyo

480

Portal and MediaBusiness

50.00

Concurrent appointment of
Rakuten executives

Ctrip.com International, Ltd.

People’s Republic of China

326 thousand
U.S. dollars

Travel Business

20.89

Concurrent appointment of
Rakuten executives

WORLD TRAVEL SYSTEMS INC.

Shinjuku-ku, Tokyo

80

Travel Business

20.00

Concurrent appointment of
Rakuten executives. Commodity, Inc.

Shibuya-ku, Tokyo

1,000

Securities Business

42.48

Concurrent appointment of
Rakuten executives

Ecology Asset Management, Co., Ltd.

Minato-ku, Tokyo

300

Securities Business

20.00(20.0)

2
13

Liason Partners, Inc.

Minato-ku, Tokyo

3

Securities Business

20.00(20.0)

2
13

TRAFFIC GATE, LTD.

Meguro-ku, Tokyo

200

50.00

Concurrent appointment of
Rakuten executives

TECHMATRIX CORPORATION

Minato-ku, Tokyo

1,263

31.45

Concurrent appointment of
Rakuten executives

NEXT Co., Ltd.

Chuo-ku, Tokyo

187

20.54

Concurrent appointment of
Rakuten executives

100

2
2
10

Concurrent appointment of
Rakuten executives

2
11

Concurrent appointment of
Rakuten executives, Loans lended2

Equity-Method Affiliates
Concurrent appointment of
Rakuten executives
2
122

Notes:
1. Business segments are used to indicate the type of business.
2. Company became a group member during the past fiscal year.
3. Indirectly held voting rights are shown in parentheses.
4. Voting rights held by parties close to Rakuten or that support Rakuten’s policies, but not included in the voting rights percentage, are shown in brackets.
5. LinkShare Corporation is a subsidiary of Rakuten USA, Inc.
6. Rakuten KC Co., Ltd. is a subsidiary of JK Holdings Inc.
7. Kokunai Shinpan Co., Ltd., Miyazaki Marina Co., Ltd. and Kajiyama Warehouse Co., Ltd. are subsidiaries of Rakuten KC Co., Ltd.
8. RAKUTEN TRAVEL KOREA CO., LTD. and Rakuten Bus Services Inc. are subsidiaries of Rakuten Travel, Inc.
9. Rakuten Asset Management Co., Ltd. and Rakuten Strategic Partners Co., Ltd. are subsidiaries of Rakuten Securities, Inc.
10. R Building Co., Ltd. is a subsidiary of Rakuten Realty Management Co., Ltd.
11. Rakuten Sports Properties, Inc. is a subsidiary of Rakuten Baseball, Inc.
12. LinkShare Japan K.K. is an equity-method affiliate of LinkShare Corporation.
13. Ecology Asset Management Co., Ltd. and Liaison Partners, Inc. are equity-method affiliates of Rakuten Asset Management Co., Ltd.
14. Ynot Inc., which was a consolidated subsidiary in 2004, was absorbed by Rakuten in 2005.

63