Consolidated Financial Statements
in Accordance with International
Financial Reporting Standards (IFRS)Fiscal Years Ended December 31, 2012 and 2011

Rakuten, Inc. and its Consolidated Subsidiaries

Table of Contents

Page

Cover
Consolidated Statement of Financial Position ............................................................. 1
Consolidated Statement of Income ............................................................................. 2
Consolidated Statement of Comprehensive Income ................................................... 3
Consolidated Statement of Changes in Equity ............................................................ 4
Consolidated Statement of Cash Flows ...................................................................... 6
Notes to the Consolidated Financial Statements ..................................................................... 8
1. General Information .......................................................................................................... 8
2. Accounting Policies ......................................................................................................... 10
3. Significant Accounting Estimates and Judgments .......................................................... 23
4. Segment Information ....................................................................................................... 25
5. Cash and Cash Equivalents ........................................................................................... 27
6. Accounts Receivable — Trade ........................................................................................ 28
7. Financial Assets for Securities Business ........................................................................ 28
8. Loans for Credit Card Business ...................................................................................... 29
9. Investment Securities for Banking Business ................................................................... 29
10. Loans for Banking Business ......................................................................................... 30
11. Investment Securities for Insurance Business .............................................................. 30
12. Derivative Assets and Derivative Liabilities .................................................................. 31
13. Investment Securities .................................................................................................... 32
14. Other Financial Assets .................................................................................................. 32
15. Allowance for Doubtful Accounts .................................................................................. 33
16. Investments in Associates and Joint Ventures .............................................................. 34
17. Property, Plant and Equipment ..................................................................................... 36
18. Intangible Assets ........................................................................................................... 38
19. Deposits for Banking Business ..................................................................................... 42
20. Financial Liabilities for Securities Business .................................................................. 42
21. Bonds and Borrowings .................................................................................................. 43
22. Other Financial Liabilities .............................................................................................. 44
23. Provisions ..................................................................................................................... 44
24. Policy Reserves and Others for Insurance Business .................................................... 45
25. Income Tax Expense ..................................................................................................... 47
26. Common Stock, Capital Surplus, Retained Earnings and Treasury Stock ................... 52
27. Revenue ........................................................................................................................ 54
28. Operating Expenses ..................................................................................................... 54
29. Other Income and Other Expenses .............................................................................. 55
30. Additional Line Items ..................................................................................................... 56
31. Financial Income and Financial Expenses ................................................................... 56
32. Earnings per Share ....................................................................................................... 56
33. Transfers of Financial Assets .......................................................................................... 57
34. Assets Pledged as Collateral and Assets Received as Collateral ................................ 58
35. Hedge Accounting ......................................................................................................... 59
36. Contingent Liabilities and Commitments ...................................................................... 60
37. Share-based Payments ................................................................................................ 61
38. Dividends ...................................................................................................................... 6839. Classification of Financial Instruments ......................................................................... 69
40. Gains and Losses Generated from Financial Instruments ............................................ 73
41. Fair Value of Financial Instruments ............................................................................... 77
42. Financial Risk Management ......................................................................................... 82
43. Capital Management ..................................................................................................... 94
44. Related Parties ............................................................................................................. 94
45. Business Combinations ................................................................................................ 96
46. Major Subsidiaries ...................................................................................................... 101
47. Sale of Subsidiary through Business Restructuring .................................................... 103
48. Structured Entities ....................................................................................................... 105
49. Subsequent Events ..................................................................................................... 107
50. Classification of Current and Non-current ................................................................... 108
51. First-time Adoption (Transition to IFRS) ....................................................................... 111

Consolidated Statement of Financial Position
Note
AssetsCash and cash equivalents
Accounts receivable — trade
Financial assets for securities
business
Loans for credit card business
Investment securities for banking
business
Loans for banking business
Investment securities for insurance
business
Derivative assets
Investment securities
Other financial assets
Investments in associates and joint
ventures
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total assets
Liabilities
Accounts payable — trade
Deposits for banking business
Financial liabilities for securities
business
Derivative liabilities
Bonds and borrowings
Other financial liabilities
Income taxes payable
Provisions
Policy reserves and others for
insurance business
Deferred tax liabilities
Other liabilities
Total liabilities
Net assets
Equity attributable to owners of theCompany
Common stock
Capital surplus
Retained earnings
Treasury stock
Other components of equity
Total equity attributable toowners of the Company
Non-controlling interests
Total net assets
Total liabilities and net assets

January 1,
2011

December 31,
2011(Millions of Yen)
December 31,
2012

5
6

¥105,896
44,603¥152,801
48,958¥270,114
65,493

7

483,073415,600

615,7038

348,791

306,131

402,418

9484,530

423,954

296,326

10

124,885

154,555

189,669

11——

13,62312
13
14

10,14359,754
142,556

9,829
10,963
172,764

10,674
23,411
123,132

16

9,454

9,685

6,601

17
18
25

25,885
152,215
47,212
13,574¥2,052,571

21,535
149,620
64,57918,791¥1,959,765

24,143
188,01440,546
17,767¥2,287,634

19¥36,836
714,856¥59,365
742,593¥79,965
809,53120

427,440

364,490558,055

12
21
22
23

2,429
377,661
152,130
17,59032,4992,861
347,983
176,413
3,981
23,181

4,685
305,186
210,048
2,873
29,61424——

18,49625

6,236
67,435¥1,835,112

6,054
20,498¥1,747,419

6,416
20,853¥2,045,722

26
26
26
26

¥107,779
117,311(1,656)(3,626)(11,032)¥107,959
116,864
3,641(3,626)(16,471)¥108,255
116,599
20,873(3,626)(6,159)208,776

208,367

235,9428,683¥217,459¥2,052,571

3,979¥212,346¥1,959,765

5,970¥241,912¥2,287,634―1―

Consolidated Statement of Income(Millions of Yen)
Note

Continuing operations
Revenue
Operating expenses
Other income
Other expenses
Additional line items
Operating income
Financial income
Financial expenses
Share of (loss)/profit of associates(Loss) Income before income tax
Income tax expense
Net income

Year ended
December 31, 2011

27
28
29
29
30
31
31
16
25

Net income attributable to
Owners of the Company
Non-controlling interests
Net income

Year ended
December 31, 2012

¥346,425
265,463
1,178
6,004(75,492)
644
277
2,569
463
(1,185)(10,816)¥9,631¥400,444
319,435
3,365
5,581(28,738)
50,055
193
2,565
1,423
49,10627,970¥21,136¥7,986
1,645¥9,631¥20,489647¥21,136(Yen)
Earnings per share attributable toowners of the Company:
Basic
Diluted

32
32

¥6.08
6.06

―2―

¥15.5915.56

Consolidated Statement of Comprehensive Income
Note(Millions of Yen)
Year ended
December 31, 2011

Net income

Year ended
December 31, 2012

¥9,631¥21,13640(3,008)

(72)

25

815

(51)

16

(20)

28

(2,213)(95)(3,708)10,362

35

185

(447)

25
35

(117)

176

35

526

713

25
35

(197)

(271)

(3,311)

10,533(5,524)

10,438Comprehensive income¥4,107¥31,574

Total comprehensive income
attributable to
Owners of the Company
Non-controlling interests
Comprehensive income¥2,551
1,556¥4,107¥30,907667¥31,574

Other comprehensive income
Items that will not be reclassified to net
income:Gains and losses on financial assets
measured at fair value through othercomprehensive income
Income tax relating to gains andlosses on financial assets measured
at fair value through othercomprehensive income
Share of other comprehensive
income of associates
Total items that will not bereclassified to net income
Items that will be reclassified to net
income:Foreign currency translation
adjustments
The portion of gains or losses on
effective cash flow hedges
recognized in other comprehensive
incomeIncome tax relating to the portion ofgains or losses on effective cash
flow hedges recognized in othercomprehensive income
The portion of gains or losses on
effective cash flow hedges
reclassified from othercomprehensive income to net
incomeIncome tax relating to the portion ofgains or losses on effective cash
flow hedges reclassified from othercomprehensive income to net
incomeTotal items that will be reclassified to
net income
Other comprehensive income, net of
tax

―3―

Consolidated Statement of Changes in Equity(Millions of Yen)
Other components of equity

Note

As of January 1, 2011

Financial
Total equity
Noninstruments
attributable toTotal net
Foreign
Cash Total othermeasured atcontrollingcurrencystock
ownersoftheassetsflow components
fair valueinterests
translation
Company
through other hedges of equity
adjustments
comprehensive
incomeCommon Capital Retained Treasurystock

surplus earnings¥107,779 ¥117,311¥(1,656) ¥(3,626)¥(14,500)¥4,222¥(754)¥(11,032)¥208,776¥8,683 ¥217,459

Comprehensive income
Net income
Other comprehensive
income, net of tax
Total comprehensive
incomeTransactions withownersContributions by anddistributions to ownersof the Company
Issuance of common
stock
Cash dividends paid

－

－

7,986

－

－

－

－

－

7,986

1,645

9,631

－

－

－

－

(3,623)(2,192)380(5,435)(5,435)(89)(5,524)

－

－

7,986

－

(3,623)(2,192)380(5,435)

2,551

1,556

4,107

26, 37

180

180

－

－

－

－

－

－

360

－

360

26, 38－－(2,624)

－

－

－

－

－

(2,624)－(2,624)

－

295

(65)

－

－

(4)

－

(4)

226

－

226

180

475

(2,689)

－

－

(4)

－

(4)

(2,038)－(2,038)

－

－

－

－

－

－

－

－

－

1,379

1,379

－

(1,692)

－

－

－

－

－

－

(1,692)(1,187)(2,879)

－

－

－

－

－

－

－

－

－

(5,915)(5,915)

－

770

－

－

－

－

－

－

770

(537)

233

－

(922)

－

－

－

－

－

－

(922)

(6,260)(7,182)

180

(447)

(2,689)

－

－

(4)

－

(4)

(2,960)(6,260)(9,220)¥3,641 ¥(3,626)¥(18,123)¥2,026(¥374)(¥16,471)¥208,367

OthersTotal contributions
by and distributions
to owners of theCompany
Changes in ownershipinterests in subsidiaries
Issuance of common
stock
Acquisitions and46
disposals of noncontrolling interests
Sales of subsidiaries
OthersTotal changes inownership interestsin subsidiaries
Total transactions withowners
As of December 31,
2011¥107,959 ¥116,864¥3,979 ¥212,346

Comprehensive income
Net income
Other comprehensive
income net of tax
Total comprehensive
incomeTransactions withownersContributions by anddistributions to ownersof the Company
Issuance of common
stock
Cash dividends paid－－

20,489

－

－

－

－

－

20,489647

21,136－－－－

10,341(94)

171

10,418

10,41820

10,438－－20,489－10,341(94)

171

10,41830,907667

31,57426, 37

296

296

－

－

－

－

－

－

592

－

592

26, 38－－(3,284)

－

－

－

－

－

(3,284)－(3,284)―4―Others

26

－

334

27

0)

－

(106)

－

(106)

255

－

255

296

630

(3,257)

(0)

－

(106)

－

(106)

(2,437)－(2,437)

－

－

－

－

－

－

－

－

－

30

30

－

(494)

－

－

－

－

－

－

(494)

1,380

886

Sales of subsidiaries

－

－

－

－

－

－

－

－

－

－

－

Others

－

(401)

－

－

－

－

－

－

(401)

(86)

(487)

－

(895)

－

－

－

－

－

－

(895)

1,324

429

296

(265)

(3,257)

(0)

－

(106)

－

(106)

(3,332)

1,324(2,008)¥20,873 ¥(3,626)¥(7,782)¥1,826¥(203)¥(6,159)¥235,942

Total contributions
by and distributions
to owners of theCompany
Changes in ownershipinterests in subsidiaries
Issuance of common
stock
Acquisitions and45, 46
disposals of noncontrolling interests

Total changes inownership interestsin subsidiaries
Total transactions withowners
As of December 31,
2012¥108,255 ¥116,599―5―¥5,970 ¥241,912

Consolidated Statement of Cash FlowsNote
Net cash flows from operating
activities(Loss) Income before income tax
Depreciation and amortization
Impairment loss
Loss on business restructuring
Other loss
Decrease (Increase) in operatingreceivables
Decrease (Increase) in loans for
credit card business
Increase (Decrease) in deposits forbanking business
Decrease (Increase) in call loans
for banking business
Decrease (Increase) in loans forbanking business
Increase (Decrease)in operating
payablesDecrease (Increase) in security
deposits
Increase (Decrease) in accounts
payable — other and accrued
expenses
Decrease (Increase) in financial
assets for securities business
Increase (Decrease) in financial
liabilities for securities business
OthersIncome tax paid
Net cash flows from operating
activities
Net cash flows from investing
activities
Increase in time deposits
Decrease in time deposits
Purchase of property, plant andequipment
Purchase of intangible assets
Purchase of investment securities
for banking business
Proceeds from sales andredemption of investment
securities for banking business
Acquisition of subsidiaries
Purchase of investment securities
Proceeds from sales andredemption of investment
securities
Proceeds from sales ofsubsidiaries
Other payments
Other proceeds

Year ended
December 31, 2011

(Millions of Yen)
Year ended
December 31, 2012¥(1,185)
18,112
83
75,492
3,894(4,283)¥49,106
21,22724,8054,250
955(9,379)(56,195)(96,287)

27,737

66,941(24,053)

42,000(29,731)(35,113)

21,422

14,284

2,137

7,207

12,396

10,852

67,473(200,103)(62,951)

193,565

8,039(23,165)¥35,222

17,294(6,917)¥104,687¥5,573(9,946)(3,884)¥12,431(6,349)(5,162)(15,102)(382,236)(18,949)(253,991)

446,626

385,11545(10,641)(3,199)1,388(35,076)(15,637)3,324

47

33,554—(3,137)
1,264(4,200)
5,934

30
30

―6―

Year ended
December 31, 2011
¥60,260(Millions of Yen)
Year ended
December 31, 2012
¥67,440¥(19,235)¥6,607(30,200)

14,000173,760(152,686)(4,800)(2,630)(3,328)30,100(90,168)(4,800)(3,286)(6,956)(8,286)¥(47,405)(2,317)¥(56,820)(1,172)

2,006

46,905

117,313

5

105,896

152,801

5¥152,801¥270,114

Note
Net cash flows from investing
activities
Net cash flows from financing
activities
Net increase (decrease) in shortterm borrowings
Increase (Decrease) in commercial
papersProceeds from long-term debt
Repayment of long-term debt
Redemption of bonds
Cash dividends paid
Acquisitions of non-controllinginterests
OthersNet cash flows (used in) fromfinancing activities
Effect of change in exchange rates oncash and cash equivalents
Net increase (decrease) in cash andcash equivalents
Cash and cash equivalents at
beginning of the year
Cash and cash equivalents at end of
the year―7―

[Notes to the Consolidated Financial Statements]
1. General Information(1) Reporting Entity
Rakuten, Inc. (hereinafter referred to as the “Company”) is a company incorporated in Japan. The
Company and its subsidiaries (hereinafter referred to as the “Group Companies”), providers of widerange of internet related services, have aligned its businesses along two main axes, internet services
and internet financial services; the activities in “Internet Services” segment consist of the operation ofEC (e-commerce) sites, including the “Rakuten Ichiba” Internet shopping mall, travel booking sites,
portal sites and e-book business, etc., as well as service based on these sites, such as advertisingand content, and another activities in “Internet Finance” segment involve internet banking andsecurities services via the internet, credit card services, life insurance, e-money services and otherfinancial services, and the other activities in “Others” segment consist of communication services andthe management of a professional baseball team. Please refer to Note 4. Segment Information below
for more details.
(2) Basis of Preparation
The consolidated financial statements have been prepared in conformity with designatedInternational Financial Reporting Standards (hereinafter referred to as the “IFRS”).
The consolidated financial statements are the first ones which the Group Companies have
prepared under IFRS, and the date of transition to IFRS is January 1, 2011. Also, the Group
Companies have applied IFRS 1 “First-time Adoption of International Financial Reporting Standards.”
The effect of transition to IFRS on the financial position, operating results and cash flows of theGroup Companies are stated in Note 51. First-time Adoption (Transition to IFRS).
The consolidated financial statements were approved by Representative Director on March 27,
2013.
(3) Functional Currency and Presentation Currency
Items included in the financial statements of each of consolidated subsidiaries and associates aremeasured using the currency of the primary economic environment in which consolidated
subsidiaries and associates operate (the “functional currency”). The consolidated financial statements
are presented in Japanese yen, which is functional currency of the Company and presentation
currency of the Group Companies, and additionally the figures have been rounded to the nearest
million.
(4) Basis of Measurement
The consolidated financial statements have been prepared under the historical cost basis, except for
financial instruments measured at fair value.
(5) Use of Estimates and Judgments
The preparation of the consolidated financial statements in accordance with IFRS requires the use ofcertain critical accounting estimates. It also requires the management of the Group Companies toexercise its judgment in the process of applying accounting policies of the Group Companies. The
areas involving a higher degree of judgment or complexity, areas where assumptions and estimates
are significant to the consolidated financial statements, or information in respect of uncertainties ofassumptions and estimates which have a significant risk to cause material adjustment in the next

―8―

year are disclosed in Note 3. Significant Accounting Estimates and Judgments.
(6) Early Adoption of Standards and Interpretations
The Group Companies have applied the following standards prior to the mandatory effective datesince IFRS adoption date (January 1, 2011).
- IFRS 9, “Financial instruments” (issued Nov. 2009, amended Oct. 2010 and Dec. 2011)- IFRS 10, “Consolidated financial statements” (issued May 2011, amended June and Oct. 2012)- IFRS 11, “Joint arrangements” (issued May 2011, amended June 2012)- IFRS 12, “Disclosure of interests in other entities” (issued May 2011, amended June and Oct.
2012)
- IAS 1, “Presentation of financial statements” (amended June 2011)- IAS 19, “Employee benefits” (amended June 2011)- IAS 28, “Investments in associates and joint ventures” (amended May 2011)(7) New Standards and Interpretations not yet Applied
As of December 31, 2012, the Group Companies have not applied the following standards,
interpretations and amendments to standards or interpretations, which have been issued before theapproval date of the consolidated financial statements. The Group Companies are analyzing theresulting effect on the presentation of results of operations, financial position or cash flows, andcannot estimate the results currently.

IFRS

IFRS 13IFRS 7

IAS 32

Fair value
measurement
Financial
instruments:
disclosures(Amended Dec.
2011: offsetting
financial assets
and financial
liabilities:
disclosures)
Financial
instruments:
presentation(Amended Dec.
2011: offsetting
financial assets
and financial
liabilities)

Reporting periods
Reporting periodsof the applicationof new IFRSs andon or after which by theGroup Companies Summaries
amendments
the applications(The reportingare required
period ended)
Guidance of fair value
January 1, 2013 December 31, 2013
measurements, which
required in other standards.

January 1, 2013 December 31, 2013

New disclosure for evaluationof the effect and potential
effect of offsetting
arrangements on an entity’s
financial position

January 1, 2014 December 31, 2014

Clarifying the meaning of arequirement under IAS 32,“currently has a legally
enforceable right,” andclarifying the offsetting
requirements for settlement
systems which apply grossamount mechanisms that are
not carried out simultaneously―9―2. Accounting Policies(1) Basis of Consolidation
1) Subsidiaries
A subsidiary is an entity that is controlled by the Group Companies including a structured entity. The
Group Companies control an entity when the Group Companies are exposed, or have rights, tovariable returns from the involvement with the entity and has the ability to affect those returns throughits power over the entity. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group Companies control
another entity or not. Between the beginning date of obtaining control and the date of losing control,
the consolidated financial statements of the Group Companies include financial statements of eachcontrolled subsidiary.
The Group Companies apply the acquisition method to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred,
the liabilities incurred to the former owners of the acquire and the equity interests issued by theGroup Companies. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Acquisition-related costs of the Group
Companies such as agent commissions, legal fees, due diligence costs, other professional fees andother consulting costs, have been recognized as expenses in the period in which they are incurred.
Identifiable assets acquired and liabilities assumed in a business combination are measured initiallyat their fair value at the acquisition date. The acquisition date is the date when the control istransferred to the acquirer. Judgments may be required in deciding the acquisition date and as towhether the control is transferred from one party to another. Further, the Group Companies recognize
any non-controlling interest in the acquiree that are present ownership interests and entitle theirholders to a proportionate share of the entity’s net assets in the event of liquidation, on an
acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate
share of the recognized amounts of acquiree’s identifiable net assets.
Goodwill has been initially measured as the excess of the aggregate of the considerationtransferred, the fair value of non-controlling interest and the fair value of existing interest to theacquire at the acquisition date over the net identifiable assets acquired and liabilities assumed.
Whereas if the aggregate of the consideration transferred, the fair value of non-controlling interest in
the acquiree and the fair value of existing interest to the acquire at the acquisition date is lower than
the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss
as a bargain purchase transaction.
Changes in the ownership interest in subsidiaries, if the Group Companies retain control overthe subsidiaries, they are accounted for as equity transactions. Any difference between theadjustment to the non-controlling interests and the fair value of the consideration transferred or
received is recognized directly in equity attributable to owner of the Company.
Intercompany balances and transactions have been eliminated in consolidation. Unrealized
profit and losses included in assets resulting from transactions within the Group Companies are also
eliminated. To comply with accounting policies of the Group Companies, financial statements of eachsubsidiary would be adjusted, if necessary.
2) Associates and Joint Arrangements
Associates are entities over which the Group Companies have significant influence but does not havecontrol to govern the financial and operating policies. Significant influence is presumed to exist when
the Group Companies hold 20% to 50% of the voting power of another entity. The factors considered―10―

in determining that the Group Companies have significant influence or not include representation on
the board of directors. The existence of these factors could be considered whether the Group
Companies have significant influence, even though the investment of the Group Companies is lessthan 20% of the voting stock.
Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the activities that have significant influence on variable returns fromarrangements require the unanimous consent of the parties sharing control. Investments in joint
arrangement are classified as a joint operation or a joint venture depends upon the rights andobligations of the parties to the arrangement. A joint operation is a joint arrangement whereby parties
that have joint control of the arrangement have rights to the assets, and obligations for the liabilities,
relating to the arrangement. A joint venture is a joint arrangement whereby parties that have joint
control of the arrangement have rights to the net assets of the arrangement.
Investments in associates and joint ventures are accounted for using the equity method, otherthan a case in which they are classified as assets held for sale according to IFRS 5 “Non-current
Assets Held for Sale and Discontinued Operations” and recognized at cost on acquisition. The
investments include goodwill identified on acquisition (net of accumulated impairment losses).
The share of the Group Companies of the operation results of associates and joint ventures isadjusted to conform to the accounting policy of the Group Companies and is reported in the
consolidated statement of income as net income (loss) from equity method investments. The share of
the Group Companies in the investee’s profits and losses resulting from intercompany transactions iseliminated on consolidation. Under the equity method of accounting, the investment of the Group
Companies in associates and joint ventures are initially recorded at cost, and subsequently increased(or decreased) to reflect both the pro-rata share of the post-acquisition net income (or loss) of
associates and joint ventures and other movements included directly in the equity of the associates
and joint ventures.
Goodwill arising on the acquisition of associates or joint ventures is included in the carrying
value of the investment and the Group Companies perform impairment test on all investment thatapplied for the equity method accounting. The Group Companies assess whether there is any
objective evidence that the investment in associates and joint ventures are impaired at each reporting
date. If there is any objective evidence of impairment, an impairment test is performed by comparing
the investment’s recoverable amount, which is higher of its value in use or fair value less costs to sell,with its carrying amount. An impairment loss recognized in prior periods is only reversed if there has
been a change in the estimates used to determine the investment’s recoverable amount since the last
impairment loss was recognized. In this case, the carrying amount of the investment is increased toits higher recoverable amount depending on the reversal of the impairment.
The investment in joint operations accounts for the share of the revenues, expenses, assets
and liabilities of each joint operation.
(2) Business Combinations
The Group Companies use the acquisition method to account for business combinations.
The identifiable assets, liabilities and contingent liabilities are measured at their fair values at
the acquisition date, in accordance with the recognition principles of IFRS 3 “Business Combinations,”
except:- Deferred tax assets or liabilities and liabilities (or assets) related to employee benefit arrangements
are recognized and measured in accordance with IAS 12 “Income taxes” and IAS 19 “Employee
benefits,” respectively; and liabilities related to share-based payment are recognized and―11―measured in accordance with IFRS 2 “Share-based Payment;” and- Non-current assets and operations classified as held for sale are measured in accordance withIFRS 5 “Non-current Assets Held for Sale and Discontinued Operations.”
If the initial accounting for business combinations is incomplete by the end of the reporting
period in which the business combinations occur, the Group Companies report provisional amounts
for the items for which the accounting is incomplete. Those provisional amounts are retrospectively
adjusted during the measurement period to reflect new information obtained about facts andcircumstances that existed at the acquisition date and, if known, would have affected the amounts
recognized as of that date. Additional assets or liabilities are recognized if new information, if known,
would have resulted in the additional recognition of assets or liabilities. The measurement period
does not exceed one year.
Goodwill relating to acquisition on or before the date of transition to IFRSs is reported inaccordance with previous accounting standards.
(3) Foreign Currencies
1) Foreign Currency Transactions
Foreign currency transactions are translated into functional currencies of individual foreignsubsidiaries using the spot exchange rate at the date of the transactions. At the end of each reporting
period, monetary assets and liabilities denominated in foreign currencies are retranslated intofunctional currencies using the spot exchange rate at the end of each reporting period. Non-monetary
assets and liabilities measured at fair value that are denominated in foreign currencies are
retranslated using the spot exchange rates at the date when the fair value was determined.
Exchange differences arising from settlement and translation of foreign currency monetary
assets and liabilities, which translated at the period end closing rate, are recognized in profit or loss.
However, in case that profit or loss related to non-monetary items is recognized in comprehensive
income, the exchange differences are recognized in other comprehensive income.
2) Foreign Operations
Assets and liabilities of foreign operations (including goodwill and fair value adjustments arising on
the acquisition of foreign operations) are translated into Japanese yen using the spot exchange rate
at the reporting date. Income and expenses are translated into Japanese yen at the averageexchange rates for the period.
Exchange differences arising from translation of financial statements of foreign operations arerecognized in other comprehensive income.
These differences are presented as “Foreign currency translation adjustments” in othercomponents of equity. On disposal of the entire interest of foreign operations, and on the partial
disposal of the interest involving loss of control, significant influence or joint control, the cumulative
amount of the exchange differences is reclassified to profit or loss as a part of gains or losses on
disposal.
(4) Cash and Cash Equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other shortterm highly liquid investments with original maturities of three months or less and insignificant risk ofchanges in the value. However, the short-term highly liquid investments in banking business are
excluded.

―12―(5) Financial Instruments
1) Non-derivative Financial Assets
The Group Companies recognize trade and other receivables when they arise. All other financial
assets are recognized at contract dates when the Group Companies become a party to thecontractual provisions of the instrument.
The following is a summary of the classification and measurement model of the non-derivative
financial assets.
Financial Assets Measured at Amortized Cost
Financial assets that meet the following conditions are subsequently measured at amortized cost:- The asset is held within a business model whose objective is to hold assets in order to collectcontractual cash flows; and- The contractual terms of the instrument give rise on a specified date to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Financial assets measured at amortized cost are initially measured at fair value plus directly
attributable transaction costs. Subsequently, the carrying amount of the financial assets measured atamortized cost is calculated using the effective interest method, less impairment loss when necessary.
Impairment of Financial Assets Measured at Amortized Cost
Regarding the financial assets measured at amortized cost, in quarterly basis, the Group Companies
assess whether there is any objective evidence that financial assets is impaired. Financial assets are
impaired and impairment losses are incurred if.
- there is any objective evidence of impairment as a result of a loss event that occurred after the
initial recognition of the assets and up to the reporting date,- the loss event had an impact on the estimated future cash flow of the financial assets and a reliable
estimate of the loss amount can be made.
Objective evidence that a financial assets is impaired includes- a breach of contract, such as a default or delinquency in interest or principal payments;- extension of receivable collection period under a specific condition, which we would not have
performed without such circumstances;- the indication of borrower’s bankruptcy;- the disappearance of an active market.
The Group Companies review the evidence of impairment for financial assets measured atamortized cost individually or collectively. Regarding the significant financial assets, the Group
Companies assess the evidence of impairment individually. If it is not necessary to impair significant
financial assets individually, the Group Companies collectively assess whether objective evidence ofimpairment exists or not that has incurred but not been recognized for the financial assets. Thosefinancial assets are grouped with similar credit risk characteristics and collectively assessed for
impairment.
In collective assessment for impairment, the Group Companies adjust the impairment loss if we
decide that the actual loss, which reflected the current economic and credit conditions, is more orless than the past trend for the possibility of default, timing of recovery, and expected amount of loss.
The amount of the impairment loss for financial assets is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows. The present valueof the estimated future cash flows is discounted at the financial asset’s original effective interest rate.

―13―

The carrying amount of the financial assets is reduced through the use of an allowance account andthe amount of the loss is recognized in the consolidated statement of income. Allowance for doubtful
accounts is written off when there is no realistic prospect of recovery and all collateral has beenrealized or has been transferred to the Group Companies. If, in a subsequent period, the amount of
the estimated impairment loss decreases and the decrease can be objectively to an event occurring
after the impairment was recognized, the impairment loss shall be reversed by adjusting anallowance account in profit or loss. The reversal shall not result in a carrying amount of the financial
asset that exceeds what the amortized cost would have been had the impairment not beenrecognized at the date the impairment is reversed.
Financial Assets at Fair Value through Profit or Loss (“FVTPL”)
Financial assets other than equity instruments that do not meet the above conditions about amortizedcost are measured at fair value with gains or losses on re-measurement recognized in profit or loss.
Those financial assets include financial assets held for trading.
Equity investments are measured at fair value with gains or losses on re-measurement
recognized in profit or loss unless the Group Companies make an irrevocable election to measureequity investments as at fair value through other comprehensive income (“FVTOCI”) on initialrecognition.
Financial assets measured at FVTPL are initially measured at fair value and transaction costs
are recognized in profit or loss when they occur.
Financial Assets at FVTOCI
On initial recognition, the Group Companies may make an irrevocable election to measureinvestments in equity instruments as at FVTOCI. The election is made only for the equity investment
other than held for trading.
Financial assets measured at FVTOCI are initially measured at their fair value (including directly
attributable transaction costs). Subsequently, they are measured at fair value, and gains and losses
arising from changes in fair value are recognized in other comprehensive income and presented as“Gains and losses on financial assets measured at fair value through other comprehensive income” inother components of equity.
However, dividends on financial assets measured at FVTOCI are recognized in profit or loss as"Revenue" or "Financial income".
Derecognition of Financial Assets
The Group Companies derecognize a financial asset when the contractual rights to the cash flows
from the asset expire, or when the Group Companies transfer the contractual right to receive cash
flows from financial assets in transactions in which substantially all the risks and rewards ofownership of the asset are transferred to another entity. Any interests in transferred financial assetsthat qualify for derecognition that is created or retained by the Group Companies are recognized as aseparate asset or liability.
2) Non-derivative Financial Liabilities
Debt securities issued are initially recognized on the issue date. All other financial liabilities arerecognized when the Group Companies become a party to the contractual provisions of the
instruments.
The Group Companies derecognize financial liabilities when they are extinguished, i.e. when
the obligation specified in the contract is discharged, cancelled or expired.
―14―

The Group Companies classify accounts payable-trade, deposits for banking business, financial
liabilities for securities business, bonds and borrowings and other financial liabilities as non-derivative
financial liabilities, initially measure them at fair value, and subsequently measure them at amortizedcost using the effective interest method.
To reduce the difference substantially caused by measurement of assets or liabilities orrecognition of profit or loss in different basis, some deposits for banking business are designated as
financial liabilities at FVTPL. Among fluctuating amounts for the fair values of such financial liabilities,
amounts attributable to the fluctuations of credit risk of such liabilities are included in othercomponents of net assets.
3) Derivatives
Derivatives Qualified for Hedge Accounting
The Group Companies utilize derivatives to manage fair value risk that is attributable to changes ininterest rates, interest rate risk and foreign currency risk. The primary derivatives used by the Group
Companies are interest rate swaps and foreign exchange forward contracts.
At the initial designation of the hedging relationship, the Group Companies document therelationship between the hedging instrument and the hedged item, along with their risk management
objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, thenature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedgedrisk, and the measurement of ineffectiveness will be assessed.
At the inception of the hedge and on an ongoing basis, the Group Companies assess whether
the Group Companies can forecast if the hedging instrument is highly effective in offsetting changes
in fair value or cash flows of the hedged item attributable to the hedged risk throughout the period forwhich the hedge is designated.
Derivatives are initially recognized at fair value with transaction costs recognized in profit or loss
when they occur. Subsequently derivatives are measured at fair value, and gains and losses arisingfrom changes in the fair value are accounted for as follows:-

Fair Value Hedges
The changes in the fair value of the hedging instrument are recognized in profit or loss. The gains orlosses on the hedged items attributable to the hedged risks are recognized in profit or loss, and thecarrying amounts of the hedged items are adjusted.

-

Cash Flow Hedges
When derivatives are designated as hedging instrument to hedge the exposure to variability in cash
flows that are attributable to a particular risk associated with recognized assets or liabilities, “The
portion of gains or losses on effective cash flow hedges recognized in other comprehensive income”
in the other components of equity. The balances of cash flow hedges are reclassified to profit or loss
from other comprehensive income in the periods when the cash flows of hedged items affect profit orloss, in the same line items of the consolidated statement of comprehensive income as those ofhedged items. The gain or loss relating to the ineffective portion is recognized immediately in profit orloss.
Hedge accounting is discontinued prospectively when the hedge no longer qualifies for hedge
accounting, or when the hedging instrument is expired, sold, terminated or exercised, or when thedesignation is revoked.

―15―

Derivatives not Qualified for Hedge Accounting
The Group Companies hold some derivatives for hedging purposes which do not qualify for hedge
accounting. The Group Companies also hold derivatives for trading purposes as opposed to hedging
purposes. Any changes in fair value of these derivatives are recognized immediately in profit or loss.
Embedded Derivative
There are some hybrid contracts, which contain both a derivative and a non-derivative component
among the financial instruments and other contract. In such cases, the derivative component istermed an embedded derivative, with the non-derivative component representing the host contract. In
the case that the host contract is a financial liability, if the economic characteristics and risks ofembedded derivatives are not closely related to those of the host contract, a separate instrument withthe same terms as the embedded derivative would meet the definition of a derivative; and the hybrid
contract itself is not classified as FVTPL as financial liability, the embedded derivative is separated
from the host contract and accounted for as a derivative. The financial liability of the host contract isaccounted for in accordance with the accounting policy, which is applied to the non-derivative
financial liability.
4) Presentation for Financial Instruments
Financial assets and liabilities are offset, with the net amount presented in the consolidated statementof financial position, only if the Group Companies hold a currently enforceable legal right to set off therecognized amounts, and there is an intention to settle on a net basis or to realize an asset and settle
the liability simultaneously.
5) Financial Guarantee Contracts
Financial guarantee contracts are contracts that require the issuer to make specified payment toreimburse the holder for a loss it incurs because debtor fails to make payments when due inaccordance with the original or modified terms of a debt instrument.
Such financial guarantees contracts are measured initially at fair value on the date theguarantee is given. Subsequent to initial recognition, the Group Companies measure the financial
guarantee at the higher of the best estimate of expenditure required to settle the obligation under thefinancial guarantee contract, and the unamortized balance of total amount of future guarantee
charges.
(6) Property, Plant and Equipment
All property, plant and equipment are recorded at cost less any accumulated depreciation andaccumulated impairment losses.
The cost of items comprises costs directly attributable to the acquiring of the items, costs of
dismantling and removing the items, and the initial estimate of the cost of restoring the site on which
they are located. Property, plant and equipment are subsequently carried at the historical cost basis.
Depreciation is calculated based on the depreciable amount. Depreciable amount is the cost of
an asset, or other amount substituted for cost less its residual value.
Depreciation of property, plant and equipment is mainly computed under the straight-line
method based on the estimated useful life of each item. The straight-line method is used because it isconsidered to be the most closely approximate pattern in which the asset’s future economic benefits
are expected to be consumed by the Group Companies. Leased assets are depreciated over the
shorter of the lease term and their useful lives if there is no reasonable certainty that the Group―16―

Companies will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives for the year ended December 31, 2011 and 2012 are as follows:- Buildings and accompanying facilities 10–50 years- Furniture, fittings and equipment 5–10 years
The depreciation methods, useful lives and residual values are reviewed at the end of eachreporting period, and changed when necessary.
(7) Intangible Assets
1) Goodwill
Initial Recognition
Goodwill arising on the acquisition of a subsidiary is recognized as an intangible asset. Measurementof goodwill on initial recognition is described in (1) Basis of Consolidation.
Subsequent Measurement
Goodwill is measured at cost less accumulated impairment losses.
2) Capitalized Software Costs
The Group Companies incur certain costs to purchase or develop software primarily for internal-use.
Expenditures arising from research activities to obtain new scientific or technical knowledge arerecognized as expenses when they are occurred. Expenditures arising from development activities
are capitalized as internally generated intangible assets, if, and only if, they are reliably measurable,
they are technically feasible, it is highly probable to generate future economic benefits, and theGroup Companies have an intention and adequate resources to complete their developments anduse or sell them.
Capitalized software is measured at cost less any accumulated amortization and accumulated
impairment losses.
3) Intangible Assets Acquired in Business Combinations
Intangible assets that are acquired in business combinations, such as trademarks and other, arerecognized separately from goodwill, and are initially recognized at the fair value at the acquisition
date. Subsequently the intangible assets are measured at cost less any accumulated amortization
and accumulated impairment losses.
4) Other Intangible Assets
Other intangible assets with finite useful lives are measured at cost less any accumulated
amortization and accumulated impairment losses.
5) Amortization
Amortization is calculated based on the acquisition cost of an asset less its residual value. Among
intangible assets with definite useful lives, value of business acquired and value of customer
relationship acquired through business combinations are amortized based on calculating theoccurrence ratio of insurance revenue over the expected period of insurance revenue, while otherintangible assets are amortized under the straight-line method. These methods are used because
they are considered to be the most closely approximate pattern in which the intangible assets’ future
economic benefits are expected to be consumed by the Group Companies.

―17―Estimated useful lives of primary intangible assets with definite useful lives are as follows:- Software mainly 5 years- Value of business acquired and value of customer relationship acquired 30 years
The amortization methods, useful lives and residual values are reviewed at the end of eachreporting period, and changed when necessary.
(8) Leases as Lessee
Leasing Transaction
The determination of whether an arrangement is, or contains, a lease is based on the substance of
the arrangement at inception date. In the case that fulfillment of the arrangement is dependent on theuse of a specific assets or assets or the arrangement conveys a right to use the asset, such assets
are defined as the lease transaction.
Finance Lease
Leases that transfer all risks and benefits of ownership of the leased item to lessee are classified as
Finance leases.
Finance leases are capitalized at the lease’s commencement at the lower of the fair value of theleased property and the present value of the minimum lease payments. After the commencement, thearrangement has been treated under the accounting policy.
The discount rate to be used in calculating the present value of the minimum lease payments is
the interest rate in the lease, if this is practicable to determine; if not, the lessee’s incremental
borrowing rate shall be used.
The minimum lease payments are apportioned between finance charges and reduction of thelease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
A leased asset is depreciated over the shorter of the estimated useful life of the asset and thelease term.
Operating Lease
All the lease arrangements except finance leases that have not been capitalized in the consolidated
statement of financial position are classified as operating leases.
In operating lease transactions, lease payments are recognized as an expense using thestraight-line method over the lease term in the consolidated statement of income.
(9) Impairment of Non-financial Assets
The Group Companies assess at each reporting date whether there is an indication that a nonfinancial asset except inventories and deferred tax asset may be impaired. If any indication exists, theGroup Companies estimate the recoverable amount of the asset. Regarding goodwill, intangible
assets with indefinite useful lives, and intangible assets not yet available for use, the recoverable
amount is estimated at the same timing every year.
A recoverable amount of an asset or cash-generating unit (CGU) is the higher of its value in use
and fair value less costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. A CGU is the smallest
group of assets, which generates cash inflows from continuing use that are largely independent of the
cash inflows from other assets or group of assets.
Although CGU of goodwill is determined based on the unit, by which the goodwill is monitored―18―

for internal management purposes, as a rule, each entity becomes one CGU.
Since the corporate assets do not generate independent cash inflows, if there is an indicationthat corporate assets may be impaired, the recoverable amount is determined for the CGU, to which
the corporate assets belong.
Impairment losses are recognized in profit or loss when the carrying amount of an asset or CGU
exceeds its recoverable amount. The impairment loss recognized related to a CGU is allocated first
reducing the carrying amount of any goodwill allocated to the unit and then allocated to the otherassets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit.
An impairment loss recognized for goodwill is not allowed to reverse. Assets other than goodwill
are reviewed at the end of each reporting period to assess whether there is any indication that an
impairment loss recognized in prior years may no longer exist or may have decreased. An
impairment loss recognized is reversed if an indication of reversal of impairment losses exists andthe event occurs to change the estimates used to determine the asset’s recoverable amount. A
reversal of impairment loss does not exceed the carrying amount, net of depreciation andamortization, which would have been determined if any impairment loss had never been recognized
for the asset for prior years.
(10) Provisions
Provisions are recognized when the Group Companies have present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required to settle theobligation, and the amount has been reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required tosettle the obligation using a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the obligation.
(11) Insurance
General Insurance Accounting
The accounting treatments which have been applied for insurance contracts in Japan are applied forthe insurance contract an insurer issues and the reinsurance contract an insurer holds in conformity
with IFRS 4 "Insurance contracts."
Policy reserves and others for insurance business
The Group Companies apply the measurement of Insurance liabilities which has been applied for
insurance contracts in Japan. The liability adequacy test is performed in consideration of current
estimates of cash inflows such as related insurance premium and investment income, and cash
outflows such as insurance claims and benefits and operating expenses. If the test shows that theliability is inadequate, the entire deficiency is recognized in profit and loss.
(12) Equity
Common Stock
Proceeds of issuance of equity instruments by the Company are included in “Common stock” and“Capital surplus.” The direct issuing costs (net of tax) are deducted from “Common stock” and“Capital surplus” in proportion to its proceeds.

―19―Treasury Stock
When the Company acquires its treasury stocks, the consideration paid, including direct transaction
costs (net of tax), is recognized as deduction from equity. When the Company sells treasury stocks,
the consideration received is recognized as addition to equity.
(13) Share-based Payments
The Group Companies have stock option plans as incentive plans for directors, executive officers,
and employees. The fair value of stock options at the grant date is recognized as an employee
expense over the vesting period from the grant date as a corresponding increase in capital surplus.
The fair value of the stock options is measured using the Black-Scholes model or other models,
taking into account for the terms of the options granted. The Group Companies regularly review theassumptions made regularly and revise its estimates of the number of options that are expected tovest, when necessary.
(14) Revenue
The Group Companies mainly provide kinds of EC (e-commerce) services such as internet travelbookings, portal websites including Rakuten Ichiba, and selling advertising and content on thesewebsites. Additionally, the Group Companies also provide several internet finance services such as
credit card, banking, securities, insurance and so on. Revenue is measured at the fair value of theconsideration for goods sold and services provided in the ordinary course of business, less sales
related taxes. The revenue of the Group Companies is recognized when the following conditions are
met.
Sales of Goods
Revenue from the sale of goods is recognized when all the following conditions have been satisfied:- the Group Companies have transferred to the buyer the significant risks and rewards of ownershipof the goods;- the Group Companies retain neither continuing managerial involvement to the degree usuallyassociated with ownership nor effective control over the goods sold;- the amount of revenue can be measured reliably;- it is probable that the economic benefits associated with the transaction will flow to the Group
Companies; and- the cost incurred in respect of the transaction can be measured reliably.
Rendering Services
The outcome of a transaction involving rendering services can be estimated reliably, and revenue isrecognized by reference to the stage of completion of the transaction at the end of each reporting
period, when all the following conditions are satisfied:- the amount of revenue can be measured reliably;- it is probable that the economic benefits associated with the transaction will flow to the Group
Companies;- the stage of completion of the transaction at the end of each reporting period can be measured
reliably; and- the cost incurred for the transaction and the cost to complete the transaction can be measured
reliably.

―20―

Interest Income
Revenue arising from interest is recognized using the effective interest method on the following
bases:- the amount of revenue can be measured reliably;- it is probable that the economic benefits associated with the transaction will flow to the Group
Companies.
(15) Financial Income and Expenses
Financial income mainly comprises interest income, dividend income and changes in fair value offinancial assets measured at FVTPL. Interest income is accrued using the effective interest method.
Dividend income is recognized on the date when the right of the Group Companies to receive thedividend is established.
On the other hand, financial expenses mainly comprise interest expense and impairment loss
on financial assets measured at amortized cost. Interest expense is accrued using the effective
interest method.
Financial income and expenses incurred from the finance business of the subsidiaries areincluded in “Revenue” and “Operating expenses.”(16) Short-term Employee Benefits
Short-term employee benefits are measured on an undiscounted basis and are expensed during theperiod when the service is rendered. Bonus accrual and expense for compensated absence arerecognized as a liability, when the Group Companies have present legal or constructive obligations,and when reliable estimates of the obligation can be made.
(17) Additional Line Items
The Group Companies disclose temporarily generated certain revenues and expenses separately inthe consolidated statement of income when the amounts are material in order to make the effect on
business result clearly.
(18) Current and Deferred Income Tax
The income taxes expense comprises current and deferred taxes. These are recognized in profit orloss, except for income taxes which arise from business combinations or are recognized either inother comprehensive income or directly in equity.
Current taxes are calculated by the expected taxes payables or receivables on the taxable
income, using the tax rates enacted or substantially enacted by the end of the reporting period.
Deferred tax assets and liabilities are recognized on temporary differences between the carrying
amounts of assets and liabilities on the consolidated statement of financial position and the tax basesof them. Deferred tax assets and liabilities are not recognized if the temporary difference arises fromthe initial recognition of an asset or liability in a transaction, which is not a business combination and,at the time of transaction, affects neither net income in the consolidated statement of income nor
taxable income.
Deferred tax assets and liabilities are measured at the tax rate that are expected to apply in the
period when the related deferred tax assets is realized or the deferred tax liability is settled, based on
tax laws that have been enacted or substantively enacted by the end of reporting period.
Deferred tax assets are recognized for unused tax losses, tax credits and deductible temporary―21―

differences, only to the extent that it is probable that future taxable income will be available against
which the temporary differences can be utilized.
Deferred tax assets and liabilities are recognized for taxable temporary difference associatedwith investments in subsidiaries, associates, and joint ventures. However if the Group Companies areable to control the timing of the reversal of the temporary differences and it is probable that thetemporary differences will not reverse in the foreseeable future, deferred tax liabilities are notrecognized. Deferred tax assets are recognized only to the extent that it is probable that there will be
sufficient taxable income against which the benefit of temporary differences can be utilized and thetemporary differences will reverse in the foreseeable future.
Deferred tax assets and deferred tax liabilities are offset when: there is a legally enforceable
right to offset current tax assets against current tax liabilities; and deferred tax assets and deferred
tax liabilities are for those related to income taxes levied by the same taxation authority on either thesame taxable entity or different taxable entities which intend to settle current tax assets and liabilities
on a net basis.
(19) Earnings Per ShareThe Group Companies disclose basic and diluted earnings per share (attributable to owners of theCompany) related to common stock. Basic earnings per share is calculated by dividing profit and loss
(attributable to owners of the Company) by the weighted average number of common stock
outstanding during the reporting period, adjusted for the number of treasury stock acquired. Potential
common stock of the Group Companies is related to the stock option plan.
The Company has made the share splitting, one share into 100 shares at July 1, 2012. Earnings
per share (attributable to owners of the Company) of each reporting period are calculated by the
number of common stock outstanding after considering the share splitting.
(20) Operating Segments
Operating segments are components of business activities, from which the Group Companies may
earn revenues and incur expenses, including revenues and expenses relating to transactions withother operating segments. Discrete financial information for operating results of all operating
segments is available, and is regularly reviewed by the Board of Directors of the Group Companies inorder to determine the allocation of resources to the segment and assess its performance.

―22―

3. Significant Accounting Estimates and Judgments(1) Significant Accounting Estimates and Assumptions
In the preparation of the consolidated financial statements in accordance with IFRS, the Group
Companies make estimates and assumptions concerning future events. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the following reporting period are addressed below.
(a) Goodwill Evaluation (Note 2 “Accounting Policies” (9) and Note 18 “Intangible Assets”)
Regarding the goodwill, which the Group Companies recognize, an impairment test is conducted atleast once a year, regardless of whether there is an indication of impairment or not. Recoverable
amounts of goodwill are mainly calculated by the combination of estimated future cash flow,
estimated growth rate, and discount rate. This calculation is based on judgments and assumptions
that are made by the managements of the Group Companies, considering business and market
conditions. The Group Companies consider these assumptions are significant because if theassumed conditions on the Group Companies change, the recoverable amount calculated might besignificantly different.
(b) Recoverability of Deferred Tax Assets (Note 2 “Accounting Policies” (18) and Note 25 “Deferred
Income Tax and Income Tax Expense”)
Regarding temporary differences that are differences between carrying value of an asset or liability inthe consolidated statement of financial position and its tax base, the Group Companies recognize
deferred tax assets and deferred tax liabilities. The deferred tax assets and deferred tax liabilities arecalculated using the tax rates based on tax laws that have been enacted or substantively enacted by
the end of the reporting period and the tax rates that are expected to apply to the period when thedeferred tax asset is realized or the deferred tax liability is settled. Deferred tax assets arerecognized for all deductible temporary differences, the unused tax losses carried forward and theunused tax credit carried forward to the extent that it is probable that taxable income will be available.
The estimation of the taxable income for the future is calculated based on the business plan
approved by the managements of the Group Companies, and it is based on the managements’subjective judgments and assumptions. The Group Companies consider these assumptions are
significant, because changes in the assumed conditions and amendments of tax laws in the future
might significantly affect amounts of deferred tax assets and deferred tax liabilities.
(c) Methods of Determining Fair Value for Financial Instruments Measured at Fair Value Including
Derivative Instruments (Note 2 “Accounting Policies” (5) and Note 41 “Fair Value of Financial
Instruments”)
Financial assets and financial liabilities including derivatives, which the Group Companies hold, aremeasured at the following fair values,- quoted prices in active markets for identical assets or liabilities;- fair value calculated in observable inputs other than quoted prices for the assets or liability, either
directly or indirectly;- fair value calculated in valuation techniques incorporated with unobservable inputs.
Especially, the fair value estimated in valuation techniques incorporated with unobservable
inputs are premised on the decisions and assumptions of the managements of the Group Companies,
such as appropriate experience assumptions, suppositions, and adopted numerical calculation model.
The Group Companies evaluate that the estimations are significant as it is probable that the changes―23―

of estimations and assumptions will have significant influence on the calculation of fair value forfinancial instruments.
(d) Impairment of Financial Assets Measured at Amortized Cost (Note 2 “Accounting Policies” (5) andNote 42 “Financial Risk Management”)
Regarding the financial assets measured at amortized cost, the Group Companies assess whether
there is any objective evidences that financial assets are impaired quarterly. If there are any objective
evidences, the Group Companies recognize the difference between carrying value of the asset andthe present value of estimated future cash flows as impairment losses.
When the Group Companies estimate the future cash flows, the managements consider the
probability of default, time of recovery and past trend of losses, and decide that the actual loss, whichreflects the current economic and credit condition, is more or less than the past trend. If theseestimations and assumptions are changed as given, the amount of impairment losses for the financial
assets measured at amortized cost might vary widely, the Group Companies conclude that theseestimations are significant.
(e) Provisions (Note 2 “Accounting Policies” (10) and Note 23 “Provisions”)
The Group Companies have some provisions such as provision for point card certificates andprovision for loss on interest repayment. Regarding provision for point card certificates, in preparation
for the point used by our customers in the future, the Group Companies consider the pastexperiences and estimates the provision for Rakuten Super Point Program. Additionally, the Group
Companies estimate the future interest repayment according to past experiences and calculates theprovision. These provisions are estimated on the premise of the management’s decisions andassumptions of the Group Companies. The Group Companies conclude that the estimations are
significant as it is probable that the changes of estimations and assumptions will have significant
influence on the amount of provision.
(f) Liability Adequacy Test in Respect of Insurance Contracts (Note 2 “Accounting Policies” (11) andNote 24 “Policy reserves and others for insurance business”)
The Group Companies perform the liability adequacy test in respect of insurance contracts inconsideration of current estimates of all contractual cash flows, and of related cash flows such as
insurance claims and other payments.
(2) Significant Judgment in Applying the Accounting Policies of the Group Companies
In the process of applying the accounting policies, the managements of the Group Companies havemade a decision, which has a significant influence on the amount recognized on the consolidated
financial statements.
The Group Companies, mainly in banking business and credit card business, are involved withstructured entity, which is designed so that voting rights or similar rights are not the dominant factor in
deciding who controls the entities. The managements of the Group Companies decide whether theGroup Companies are controlling the entities or not. All related facts and circumstances on the
involvement with the structured entity are considered in deciding control over such entity.

―24―

4. Segment Information(1) General Information
As a comprehensive Internet service provider engaged in two main activities of Internet Services andInternet Finance Services, the Group Companies embrace three reportable segments thatare ”Internet Services,” “Internet Finance” and “Others.”
Discrete financial information for operating results of all operating segments is available, and isregularly reviewed by the Board of Directors of the Group Companies in order to determine theallocation of resources to the segment and assess its performance.
“Internet Services” segment comprises businesses running various EC (e-commerce) sites including
an internet shopping mall Rakuten Ichiba, travel booking sites, portal sites and e-book business,along with business for advertising and sales of content on these sites.
“Internet Finance” segment engages in businesses providing services over the internet related
to banking and securities, credit cards, life insurance and electronic money.
“Others” segment comprises businesses involving provision of communication services andmanagement of a professional baseball team.
(2) Measurement of Profits and Losses by Operating Segments
The reported operating segments have been accounted for in accordance with corporate accounting
standards generally accepted in Japan (hereinafter referred to as “JGAAP”), and the operating
segment revenue and profit or loss are those before intersegment eliminations without consolidation
adjustments in consideration, except for certain consolidated subsidiaries. Operating segment profit
or loss is based on operating income or loss in accordance with JGAAP with allocation of corporate
expenses.
The differences in accounting standards between JGAAP and IFRS are included in thereconciliation made from segment revenue to consolidated revenue; and the reconciliation made fromsegment profit or loss to income before income tax. The Group Companies do not allocate assets
and liabilities to operating segments used by the chief operating decision maker.
For the year ended December 31, 2011

(Millions of yen)Internet
Services

Segment revenue
Segment profit or loss

Internet
Finance

OthersTotal¥228,568¥141,161¥34,175¥403,904

65,584

12,9701,142

79,696

8,086

6,819

1,831

16,736

Other items
Depreciation and amortization
For the year ended December 31, 2012

(Millions of yen)Internet
Services

Segment revenue
Segment profit or loss

Internet
Finance

OthersTotal¥285,815¥156,430¥33,270¥475,515

58,63923,714

1,586

83,93911,785

6,928

1,972

20,685

Other items
Depreciation and amortization―25―

The reconciliation made from segment revenue to consolidated revenue is as follows.
(Millions of yen)
Year ended
Year ended
December 31, 2011
December 31, 2012
Segment revenue¥403,904¥475,515

Intercompany transactions, etc.

(24,003)(32,040)

Differences of accounting standards
between JGAAP and IFRS

(33,476)(43,031)

Consolidated revenue¥346,425¥400,444

The reconciliation made from segment profit or loss to (loss) income before income tax is as follows.
(Millions of yen)
Year ended
Year ended
December 31, 2011
December 31, 2012
Segment profit or loss
¥79,696¥83,939
Amortization of goodwill and otheritems not allocated to reporting
segments
Differences of accounting standards
between JGAAP and IFRSOther income(8,907)(11,680)

10,173

8,750

1,178

3,365

Other expenses(6,004)(5,581)

Additional line items(75,492)(28,738)

Operating income

644

50,055(2,292)(2,372)

Share of (loss)/profit of associates

463

1,423

(Loss) Income before income tax¥(1,185)¥49,106

Financial income and expenses(3) Products and Services
Revenue from external customers gained from the major products and services of the Group
Companies are as follows.
(Millions of yen)
Revenue
RakutenRakutenRakuten
Othersfrom external
IchibaCard
Bankcustomers
Year ended¥85,921¥44,054¥34,517¥181,933¥346,425
December 31, 2011
Year ended
106,998
44,47432,175
216,797
400,444
December 31, 2012―26―

(4) Geographic Information
For the year ended December 31, 2011
Japan
Revenue from externalcustomers
Property, plant andequipment andintangible assets(Millions of yen)
Americas

EuropeOthers¥314,386¥11,221¥20,001¥817¥346,425

105,566

30,43333,364

1,792

171,155

For the year ended December 31, 2012
Japan
Revenue from externalcustomers
Property, plant andequipment andintangible assets

Total(Millions of yen)
Americas

EuropeOthersTotal¥346,264¥29,454¥23,573¥1,153¥400,444

132,638

45,94331,753

1,823

212,157(5) Major Customers
For the year ended December 31, 2011
Disclosure of major customers is omitted because revenue from any external customer does notexceed 10% of consolidated revenue from external customers.
For the year ended December 31, 2012
Disclosure of major customers is omitted because revenue from any external customer does notexceed 10% of consolidated revenue from external customers.
5. Cash and Cash Equivalents
Details of Cash and Cash Equivalents(Millions of yen)

January 1, 2011

December 31, 2011

December 31, 2012

Cash and deposits¥70,386¥76,801¥266,614

Negotiable deposits

35,51076,0003,500¥105,896¥152,801¥270,114

Cash and cash equivalents

Funds (cash and cash equivalents) stated in the Group Companies’ Consolidated Statement of Cash
Flows include cash in hand, deposits held at call with banks, and other short-term highly liquid
investments with original maturities of three months or less and insignificant risk of changes in thevalue. However, the short-term highly liquid investments in banking business are excluded.

―27―

6. Accounts Receivable — Trade
Details of Accounts Receivable — Trade(Millions of yen)

January 1, 2011
Gross amount of notes andaccounts receivable — trade
Allowance for doubtful
accounts
Net amount of notes andaccounts receivable — trade

December 31, 2011

December 31, 2012

¥45,847¥50,492¥67,515(1,244)(1,534)(2,022)¥44,603¥48,958¥65,493

Accounts receivable — trade is mainly generated from sales relating to Internet Services businessand is measured at amortized cost.
7. Financial Assets for Securities Business
Details of Financial Assets for Securities Business
December 31,
2011(Millions of yen)
December 31,
2012¥223,114¥207,503¥252,308

97,516

61,210201,589

126,779

115,634

130,165

Short-term guarantee deposits

31,851

27,385

26,664

OthersGross amount of financial assets
measured at amortized cost
Allowance for doubtful accounts
Net amount of financial assets
measured at amortized cost

4,477

5,691

6,206

483,737

417,423

616,932728)

1,951)(1,670)

483,009415,472

615,262

64

128

441

¥483,073¥415,600¥615,703

January 1,
2011
Financial assets measured at amortized
cost
Cash segregated as deposits
Accounts receivable relating toinvestment securities transactions
Margin transactions assets

Financial assets measured at FVTPL
Total financial assets for securities
business

Investment securities held for trading purposes are included in financial assets measured at FVTPL.
Derivative assets held for trading purposes are included in “Derivative assets,” while operating
investment securities are included in “Investment securities.”―28―

8. Loans for Credit Card Business
Details of Loans for Credit Card Business
December 31,
2011(Millions of yen)
December 31,
2012¥369,871¥329,819¥422,955

21,080)23,688)(20,537)¥348,791¥306,131¥402,418

January 1,
2011
Gross amount of loans for credit cardbusiness
Allowance for doubtful accounts
Net amount of loans for credit cardbusiness

Loans for credit card business mainly comprise accounts receivables from the credit card use ofcustomers based on installment contracts.
Loans for credit card business are measured at amortized cost because they are defined as
financial assets held within the Group Companies’ business model with the objective of collecting
contractual cash flows, and such cash flows are limited to solely payments of principal and intereston the principal amount outstanding.
9. Investment Securities for Banking Business
Details of Investment Securities for Banking Business
December 31,
2011(Millions of yen)
December 31,
2012¥117,016¥100,790¥62,164

59,31558,883

100,961

115,800

110,349

88,306292,131270,022

251,431

1,907)

426)

(247)

290,224

269,596

251,184

8,131

4,173

1,552

Domestic bonds

153,217

121,523

15,678Foreign bonds

32,64828,38827,912

Investment trust

220

202

—

194,216

154,286

45,142Financial assets measured at FVTOCI

90

72

0

Total investment securities for banking
business¥484,530¥423,954¥296,326

January 1,
2011
Financial assets measured at amortized
cost
Trust beneficiary rightDomestic bonds
Foreign bonds
Gross amount of financial assets measured
at amortized cost
Allowance for doubtful accounts
Net amount of financial assets measured atamortized cost
Financial assets measured at FVTPL
Trust beneficiary right

Total financial assets measured at FVTPL

Among investment securities for banking business, investment securities which are held within theGroup Companies’ business model with the objective of collecting contractual cash flows limited to―29―solely payments of principal and interest on the principal amount outstanding on a specified dateaccording to the contractual terms, are classified as financial assets measured at amortized cost,
while all other investment securities are classified as financial assets measured at fair value. Amongthe financial assets measured at fair value, investments in equity instruments are designated as
financial assets measured at FVTOCI.
10. Loans for Banking Business
Details of Loans for Banking Business
December 31,
2011(Millions of yen)
December 31,
2012¥126,317¥156,308¥190,321

1,432)(1,753)(652)¥124,885¥154,555¥189,669

January 1,
2011
Gross amount of loans for banking
business
Allowance for doubtful accounts
Net amount of loans for banking
business

Loans for banking business mainly comprise loan receivables from private customers.
Loans for banking business are measured at amortized cost because they are defined as
financial assets held within the Group Companies’ business model with the objective of collecting
contractual cash flows and such cash flows are limited to solely payments of principal and interest on
the principal amount outstanding.
11. Investment Securities for Insurance Business
Details of Investment Securities for Insurance Business(Millions of yen)
December 31,
2012
Domestic bonds
Total investment securities for insurance
business¥13,623¥13,623

Investment securities for insurance business are measured at amortized cost because they are defined as
financial assets held within the Group Companies’ business model with the objective of collecting

contractual cash flows and such cash flows are limited to solely payments of principal and interest on
the principal amount outstanding.

―30―

12. Derivative Assets and Derivative Liabilities
The fair values and notional principal amounts of derivatives qualified for hedge accounting andderivatives not qualified for hedge accounting are as follows.
Derivatives Qualified for Hedge Accounting(Millions of yen)

January 1, 2011

December 31, 2011

Notional
Notional
Fair value
principal
principal
amount Assets Liabilities amount

December 31, 2012

Notional
principal
Assets Liabilities amount
Fair value

Fair value
AssetsLiabilities

Fair-value hedges
Interest rate swap
contracts

¥―

¥―

¥―

¥8,200¥―¥334¥12,500¥―¥566

Cash-flow hedges
Foreign exchange
forward contracts
Interest rate swap
contracts
Subtotal of cash-flow
hedges198―

25

21,948

91

―

―

―

―

74,5505

1,278

55,0879787

37,3241

378

74,7485

1,303

77,035100

787

37,324

1

378

Total

¥74,748¥5¥1,303¥85,235¥100¥1,121¥49,824¥1¥944

Derivatives not Qualified for Hedge Accounting(Millions of yen)

January 1, 2011
Notional
principal
amountDecember 31, 2011

Notional
principal
Assets Liabilities amount
Fair value

December 31, 2012

Notional
principal
Assets Liabilities amount
Fair value

Fair value
AssetsLiabilities

Foreign currency contracts
Foreign exchange
forward contracts
Foreign exchange
margin contracts
Subtotal of foreign currency
contracts¥105,329¥231¥6¥106,990

¥18

¥808

¥110,130¥3,173¥55

331,913

6,392

855

263,752

6,743

575

402,150

4,442

3,608

437,242

6,623

861

370,742

6,761

1,383

512,280

7,615

3,663

84,7093,486

236

119,584

2,930

319

128,353

3,035

55

1,880

29

29

2,112

38

38

572

23

23

¥523,831¥10,138¥1,126¥492,438¥9,729¥1,740¥641,205¥10,673¥3,741

Interest rate contracts
Interest rate swaption
contracts
OthersTotal―31―

13. Investment Securities
Details of Investment Securities

Financial assets measured at amortized
cost

January 1,
2011¥3

December 31,
2011¥1,607(Millions of yen)
December 31,
2012¥7,63948,875

―

―

50

50

50

48,925

50

50

7,608

4,454

3,687

Financial assets measured at FVTPL
Listed(Note 1)

Unlisted
Total financial assets measured at
FVTPL
Financial assets measured at FVTOCI
ListedUnlisted
Total financial assets measured at
FVTOCI

3,218

4,852

12,035

10,826

9,306

15,722

Total investment securities¥59,754¥10,963¥23,411(Note) 1. As of the date of transition to IFRS (January 1, 2011), the amount deposited (¥48,875 million)
through partial repayment accompanying share purchase demand of investment securities
was included in “Other liabilities.”
14. Other Financial Assets
Details of Other Financial Assets
January 1,
2011

December 31,
2011(Millions of yen)
December 31,
2012

Financial assets measured at amortizedcost
Accounts receivable — other¥31,649¥34,646¥38,238

Call loans for banking business

29,00053,00011,000

Security deposits

13,616

11,5994,441

Guarantee deposits

25,103

21,97929,224

43,345

51,77940,524

142,713173,003

123,427

169)

(242)

(298)

142,544

172,761

123,129

Financial assets measured at FVTPL

9

0

0

Financial assets measured at FVTOCI

3

3

3

¥142,556¥172,764¥123,132

OthersGross amount of financial assets
measured at amortized cost
Allowance for doubtful accounts
Net amount of financial assets
measured at amortized cost

Total other financial assets―32―15. Allowance for Doubtful Accounts
Changes in allowance for doubtful accounts by type of financial assets measured at amortized cost
are as follows.
For the year ended December 31, 2011

January 1, 2011
Increases during
the period(allowance for
doubtful accounts
charged to
expenses)
Increases during
the period (others)
Decreases during
the period (utilized)
Decreases during
the period(reversals)
Decrease during
the period (others)
December 31, 2011

Financial Loans for Investment Loans for
Accounts assets
for credit card securities banking
receivable securities
bankingbusiness for— tradebusiness businessbusiness¥1,244¥728¥21,080¥1,907¥1,432(Millions of yen)
Otherfinancialassets

Total

¥169

¥26,560

1,008

2,266

24,312

651

330

76

28,643

568

―

―

176

―

29

773

(611)

(984)

(15,095)(2,132)(9)(11)(18,842)

(135)

(59)

―

―

―

(1)

(195)

(540)

―

(6,609)

(176)

―

(20)

(7,345)¥1,534¥1,951¥23,688¥426¥1,753¥242¥29,594

The increases during the period of allowance for doubtful accounts charged to expenses arerecorded in “Allowance for doubtful accounts charged to expenses” under “Operating expenses” inthe consolidated statement of income.
However, among the increases during the period of allowance for doubtful accounts charged to
expenses relating to financial assets for securities business, ¥2,151 million represents the allowancefor doubtful accounts charged to expenses recorded against a large amount of advances paid as aresult of shortfalls in customers’ settlement funds following sudden price movements in the wake of
the Great East Japan Earthquake, which occurred in March 2011, and are recorded in “Allowance for
doubtful accounts charged to expenses” under “Other expenses.”
Additionally, among the increases during the period of allowance for doubtful accounts charged
to expenses relating to loans for credit card business, ¥11,870 million represents the additional
allowance for doubtful accounts charged to expenses recorded in conjunction with the businessrestructuring in which the Rakuten Card-related business of the former Rakuten KC Co., Ltd., aconsolidated subsidiary, was transferred to Rakuten Credit Co., Ltd. (another consolidated subsidiary,
which changed its name to Rakuten Card Co., Ltd. on August 1, 2011), and thereupon Rakuten KC
stock was sold. Amount is recorded under “Additional line items.”
Furthermore, ¥14 million among the increases during the period of allowance for doubtful
accounts charged to expenses relating to accounts receivable — trade, ¥409 million among theincreases during the period of allowance for doubtful accounts charged to expenses relating to loans
for credit card business, and ¥330 million among the increases during the period of allowance for
doubtful accounts charged to expenses relating to loans for banking business represent additional
allowances recorded taking financial conditions of counterparties into consideration in the wake of
the Great East Japan Earthquake, which occurred in March 2011. Amounts are recorded in “Loss on
disaster” under “Other expenses.”―33―

The decreases during the period (others) of allowance for doubtful accounts relating to loans for
credit card business are due to the elimination of the Rakuten KC Co., Ltd. from the scope of
consolidation, effective August 1, 2011, as described above. For further details, please refer to Note
47. Sale of Subsidiary through Business Restructuring.
For the year ended December 31, 2012

January 1, 2012
Increases during
the period(allowance for
doubtful accounts
charged to
expenses)
Increases during
the period (others)
Decreases during
the period (utilized)
Decreases during
the period(reversals)
Decrease during
the period (others)
December 31, 2012

(Millions of yen)

Financial Loans for Investment Loans for
Accounts assets
for credit card securities banking
receivable securities
bankingbusiness for— tradebusiness businessbusiness¥1,534¥1,951¥23,688¥426¥1,753Otherfinancialassets

Total

¥242

¥29,594

1,124

15

9,446

201

―

125

10,911

316

―

76

―

―

54

446

(737)

(245)

(12,673)―(1,087)(54)(14,796)

(161)

(51)

―

(380)

(14)

(69)

(675)

(54)

―

―

―

―

―

(54)

¥2,022¥1,670¥20,537

¥247

¥652

¥298

¥25,426

Among the increases during the period of allowance for doubtful accounts charged to expenses
relating to accounts receivable — trade, ¥213 million represents the allowance for doubtful accounts
charged to expenses at Play Holdings Limited (U.K.) which was incurred from the reorganization
following the changes in local regulations, and is recorded in “Loss on business restructuring” under“Additional line items.”
The increases during the period of other allowance for doubtful accounts charged to expenses
are recorded in “Allowance for doubtful accounts charged to expenses” under “Operating expenses”
in the consolidated statement of income.
16. Investments in Associates and Joint Ventures(1) Investments in Associates
The Group Companies account for investments in associates using the equity method.
The carrying amounts of investments in individually insignificant associates are as follows.

Name
Total carrying amountJanuary 1, 2011
¥8,984―34―

December 31, 2011

(Millions of yen)
December 31, 2012

¥9,227¥6,175Financial information on individually insignificant associates is as follows. The amounts indicatedbelow take into account the Group Companies’ percentage of ownership.
(Millions of yen)
Year ended
Year ended
December 31, 2011 December 31, 2012
Net income
¥825
¥857
Other comprehensive income
Comprehensive income

20)

28

¥805

¥885

Among the investments in associates, the recoverable amount of investments in certain companies
were found to have fallen below the carrying amounts as of the end of December 2011, and thus an
impairment loss of ¥449 million was recognized and presented as part of “Share of (loss)/profit ofassociates” in the consolidated statement of income. As of the end of December 2012, therecoverable amount recovered to the carrying amount, which would have been determined if any
impairment loss had never been recognized, and thus an impairment loss of ¥449 million was
reversed and included in “Share of (loss)/profit of associates” in the consolidated statement ofincome.
(2) Investments in Joint Ventures
In the investments in certain companies, the Group Companies have entered into contracts with thecounterparties which require unanimous agreement among the counterparties in terms of thedecision making regarding activities that significantly affect the investees’ returns. Moreover, as theGroup Companies exercise joint control with the other counterparties and hold rights to the net
assets, such companies are deemed as joint ventures and the investments are accounted for using
the equity method.
The carrying amounts of investments in individually insignificant joint ventures are as follows.
(Millions of yen)
January 1, 2011
December 31, 2011 December 31, 2012
Total carrying amount

¥470

¥458

¥426

Financial information on individually insignificant joint ventures is as follows. The amounts indicatedbelow take into account the Group Companies’ percentage of ownership.
(Millions of yen)
Year ended
Year ended
December 31, 2011 December 31, 2012
Net income¥72¥38
Other comprehensive income――

Comprehensive income

¥72

¥38

―35―

17. Property, Plant and Equipment(1) Statement of Changes in Property, Plant and Equipment
Buildings andaccompanying
facilities(Millions of yen)

Furniture,
fittings andequipment

Others

Total

January 1, 2011
Cost
Accumulated depreciation andaccumulated impairment
lossesCarrying amount¥18,455¥35,725¥12,224¥66,404(7,036)(25,827)(7,656)(40,519)

11,419

9,898

4,568

25,885

986

2,673

1,194

4,853

68

215

370

653

(40)

(201)

(11)

(252)

(1,506)(20)(2,153)(3,679)Depreciation(784)(4,021)(577)(5,382)

Exchange rate differences

(35)

(52)

(22)

(109)

Other changes

44

(99)

(379)

(434)

14,99730,527

9,971

55,495(4,845)(22,134)(6,981)(33,960)

10,152

8,393

2,990

21,535

1,827

3,703

1,862

7,392

784

266

133

1,183

(33)

(243)

(24)

(300)

(53)

(131)

(186)

(370)

(1,115)(3,269)(910)(5,294)

Exchange rate differences

70

156

18

244

Other changes

41

241

(529)

(247)

17,89026,855

11,01555,760(6,217)(17,739)(7,661)(31,617)¥11,673¥9,116¥3,354¥24,143

Increase
Acquisition through businesscombinations
Disposal
Sales of subsidiaries

December 31, 2011
Cost
Accumulated depreciation andaccumulated impairment
lossesCarrying amount
Increase
Acquisition through businesscombinations
Disposal
Impairment loss
Depreciation

December 31, 2012
Cost
Accumulated depreciation andaccumulated impairment
lossesCarrying amount

Depreciation is recorded under “Operating expenses” in the consolidated statement of income.

―36―

(2) Impairment of Property, Plant and Equipment
The Group Companies assess at each reporting date whether there is an indication that property,
plant and equipment may be impaired. If any indication exists, the Group Companies estimate therecoverable amount of the asset.
As a general rule, the Group Companies estimate the recoverable amount for the individual
asset but if estimation of the recoverable amount of each asset is not possible, then estimation isconducted of the recoverable amount for the CGU to which asset belongs. The CGU is the smallest
identifiable group of assets that generates cash inflows, and that are largely independent of the cash
inflows from other assets or groups of assets. The Group Companies consider each company to bea CGU in principle. Idle assets not anticipated for future use form a group of individual assets. The
impairment loss which has been recognized in this manner is recorded under “Other expenses.”
For the year ended December 31, 2011
No impairment loss on property, plant and equipment was reported in the previous fiscal year.
For the year ended December 31, 2012
Impairment loss for the year ended December 31, 2012 mainly incurred from the businessrestructuring of Play Holdings Limited.
(3) Property, Plant and Equipment Pledged as Collateral
As of January 1, 2011
Not applicable.
As of December 31, 2011
Not applicable.
As of December 31, 2012
Buildings and accompanying facilities of ¥609 million are pledged as collateral for borrowings.
(4) Finance Leases (as Lessee)
Carrying amounts of assets used through finance leases are as follows.

Buildings
Furniture, fittings andequipment
Others
Total

January 1, 2011
¥6,393

December 31, 2011
¥6,169(Millions of yen)
December 31, 2012
¥5,898

2,990

1,793

1,599

1,600
¥10,983

865¥8,827960¥8,457

Included in the above is the baseball park facility, which has been donated to Miyagi Prefecture
based on a franchise contract, and which is treated as a finance lease due to the Group Companies
holding the use right thereof. The carrying amounts of facility as of January 1, 2011, December 31,
2011 and December 31, 2012 were ¥6,679 million, ¥6,370 million and ¥6,053 million, respectively.
There are no lease obligations associated with lease.
Lease obligations based on finance lease contracts as of January 1, 2011, December 31, 2011 andDecember 31, 2012 were ¥5,336 million, ¥2,699 million and ¥2,431 million, respectively.

―37―

18. Intangible Assets(1) Statement of Changes in Intangible Assets(Millions of yen)

Goodwill

Software

Other

Total

January 1, 2011
Cost
Accumulated amortization andaccumulated impairment
lossesCarrying amount¥118,840¥74,179¥18,196¥211,215(15,669)(41,671)(1,660)(59,000)

103,171

32,508

16,536

152,215―

15,37387

15,460

9,373

205

4,669

14,247―(1,003)(2)(1,005)

―

(19)

(265)

(284)

(14,723)

(51)

(49)

(14,823)―(11,717)(1,013)(12,730)(2,129)

(83)

(999)

(3,211)

―

(187)

(62)

(249)

110,639

84,97021,552

217,161(14,947)(49,944)(2,650)(67,541)

95,69235,026

18,902

149,620―

17,852

1,533

19,38525,128

1,683

28,24855,059―(1,217)(16)(1,233)

―

(723)

(1)

(724)

(18,984)(517)(7,925)(27,426)―(12,169)(3,764)(15,933)

Exchange rate differences

6,528

299

2,961

9,788

Other changes

(469)

(227)

174

(522)

145,093

99,441

55,538300,072(37,198)(59,434)(15,426)(112,058)¥107,895¥40,007¥40,112¥188,014

Increase
Acquisition through businesscombinations
Disposal
Sales of subsidiaries
Impairment loss
Amortization
Exchange rate differences
Other changes
December 31, 2011
Cost
Accumulated amortization andaccumulated impairment
lossesCarrying amount
Increase
Acquisition through businesscombinations
Disposal
Sales
Impairment loss
Amortization

December 31, 2012
Cost
Accumulated amortization andaccumulated impairment
lossesCarrying amount

Software under intangible assets mainly comprises internally generated software.

―38―

Amortization of intangible assets is recorded under “Operating expenses” in the consolidated
statement of income.
Research and development expenses recognized as expenses for the years ended December 31,
2011 and 2012 were ¥540 million and ¥614 million, respectively.
Increase in goodwill for the year ended December 31, 2012 is mainly attributable to the acquisition of
Kobo Inc. and AIRIO Life Insurance Co., Ltd. Please refer to Note 45. Business Combinations.
Increase in others under intangible assets for the year ended December 31, 2012 is mainly
attributable to trademarks and technology incurred from the acquisition of Kobo Inc. of ¥11,056
million, and value of business acquired and value of customer relationship acquired incurred fromthe acquisition of AIRIO Life Insurance Co., Ltd. of ¥14,629 million.
(2) Impairment of Goodwill and Intangible Assets with Indefinite Useful Lives
The balance of goodwill and intangible assets with indefinite useful lives of each CGU is as follows.
Intangible assets with indefinite useful lives mainly comprise trademarks. These trademarks, whichwere acquired in business combinations, will basically continue to exist as long as the business
continues and thus are considered to be intangible assets with indefinite useful lives.
(Millions of yen)
January 1, 2011

OthersGoodwill

Intangible
assets withindefinite
useful lives

Goodwill

Goodwill

Intangible
assets withindefinite
useful lives¥16,508¥5,735¥15,408¥4,487¥12,273¥5,11014,322

4,946

13,715

4,719

―

―

―

―

―

―

17,48329

Others12,165

2

21,116644

28,980732

Total

42,995

10,68350,2399,850

58,736

5,871

34,386―34,386―34,386―

14,723

―

―

―

―

―

7,881

―

7,881

―

11,587―

Total

56,990―42,267―45,973―

Others

3,186

―

3,186

―

3,186

―

Total other

3,186

―

3,186

―

3,186

―

¥103,171¥10,683¥95,692¥9,850¥107,895¥5,871CGU

PRICEMINISTE
R S.A.S.
Buy.com Inc.

Internet
Finance

December 31, 2012

Intangible
assets withindefinite
useful lives

Operatingsegment

Internet
Services

December 31, 2011

Kobo Inc.

Rakuten Bank,Ltd.
Rakuten KC Co.,
Ltd.
(Note)
Others

Total(Note) Please refer to Note 47. Sale of Subsidiary through Business Restructuring.
As of January 1, 2011
On January 1, 2011, LinkShare Corporation (CGU), which was engaged in affiliate services,―39―

conducted a review of its expected profit plan assumed in its business plan, which was considered at
the acquisition of shares. As a result, the carrying amount of goodwill was decreased to therecoverable amount and an impairment loss of ¥15,669 million was recognized. In addition,
outstanding goodwill after recognizing impairment loss of LinkShare Corporation was included under“Others” of Internet Services.
For the year ended December 31, 2011
On August 1, 2011, an impairment loss of ¥14,723 million on goodwill for Rakuten KC Co., Ltd.
(CGU), following the restructuring of credit card business, was recorded under “Additional line items”
of the consolidated statement of income.
For the year ended December 31, 2012
Following a review of the business plan in December 2012, impairment losses of ¥14,004 million on
goodwill and of ¥4,818 million on intangible assets with indefinite useful lives for Buy.com Inc. (CGU)
were recognized. For the similar reason, an impairment loss of ¥4,706 million on goodwill for
PRICEMINISTER S.A.S. (CGU) was recognized. These impairment losses were recorded under“Additional line items” of the consolidated statement of income.
When conducting an impairment test for goodwill and intangible assets with indefinite useful lives, theGroup Companies, as a general rule, consider each company to be a CGU and allocate goodwill andintangible assets with indefinite useful lives to those expected to benefit from the synergy associatedwith business combinations.
The CGU is the smallest identifiable group of assets that generates cash inflows, and that arelargely independent of the cash inflows from other assets or groups of assets.
The Group Companies perform impairment test of goodwill once a year, regardless of whether
there is any indication of impairment. Intangible assets with indefinite useful lives are not amortized;
instead they are tested for impairment on a yearly basis. The Group Companies individually
determine the timing of impairment tests for goodwill and intangible asset with an indefinite useful life
by taking into account the period in which they formulate the relevant business plan. Indications of
impairment are also assessed every quarter; and if such indication becomes evident, impairment test
is performed.
The recoverable amount of a CGU is the higher of its value in use and fair value less costs to sell.
The recoverable amount of a CGU as of December 31, 2011 was determined based on thecalculation of value in use, with the exception of Buy.com, Inc., whose recoverable amount wasdetermined by fair value less costs to sell.
Value in use is calculated based on the business plans approved by the management of each
CGU, by using three- to five-years worth of pre-tax, estimated future cash flows and other materials.
These business plans have been drawn up based primarily on gross merchandise sales in Internet
Services segment, and the number of accounts and the number of members in Internet Financesegment. For periods beyond those covered by the business plans, the continuing value is assessed.
The continuing value is calculated using the estimated growth rate of each CGU. Moreover, thepre-tax discount rate used in the assessment of value in use is calculated for each CGU.
The growth rate used in predicting cash flows for periods beyond those covered by the businessplans of each CGU takes into account the status of the country and the industry to which the CGU
belongs and does not exceed the average long-term growth rate of the industry in which the CGU is―40―

active. Pre-tax discount rates used in calculating continuing value reflect the inherent risks of therelevant businesses of each CGU. Discount rates are determined based on the comparable
companies of each CGU, by taking into account market interest rates, the size of the subsidiary
which forms the CGU, and other factors.
Fair value less costs to sell is determined by adjusting the market capitalization of comparable
companies and the trading prices of recent transactions to net sales and gross profit commensuratewith the size of the entity. Such calculations, which are based on business plans approved by the
management of each CGU, use two years-worth of estimated net sales and gross profit; while suchbusiness plans are drawn up based primarily on gross merchandise sales in Internet Services
segment.
Additionally, each CGU at the Group Companies takes the business plan, which forms the basis
for the measurement of the recoverable amount in the impairment test of goodwill and intangible
assets with indefinite useful lives, and compares it with past performance, as well as determines
whether business plan may be considered a reasonable basic assumption in predicting future cash
flows.
Significant assumptions used in the calculation of value in use as of January 1, 2011, and for theyears ended December 31, 2011 and 2012 are as follows. The following estimates have been usedin the analysis of each CGU.
January 1, 2011
Operatingsegment

Internet
Services

CGU

Others

December 31, 2012

Growth rate
Growth rate
Growth rateused in theused in theused in the
Discount
Discount
Discount
calculation of
calculation of
calculation of
rate
rate
rate
continuing
continuing
continuing
value
value
value

PRICEMINISTER
S.A.S.

2.0%

15.3%

2.0%

13.8%

2.0%

12.3%

Buy.com Inc.

3.0%

17.6%

―

―

3.0%

20.1%

―

―

―

―

2.0%

14.5%

2.0%~3.0%

14.8%~
23.8%

2.0%~3.0%

12.4%~
19.6%

2.0%~5.5%

8.6%~
25.3%

2.0%

14.5%

2.0%

8.1%

2.0%

11.8%

2.0%

19.4%

―

―

―

―

Others

2.0%

9.1%~
16.2%

2.0%

9.2%~
13.3%

2.0%

Others

2.0%

9.6%

2.0%

11.6%

2.0%

Kobo Inc.
OthersInternet
Finance

December 31, 2011

Rakuten Bank,Ltd.
Rakuten KC Co.,
Ltd.
(Note)

7.4%~
14.6%
9.1%~
9.6%

(Note) Please refer to Note 47. Sale of Subsidiary through Business Restructuring.
Sensitivity Analysis of Goodwill
As a result of impairment test on goodwill and intangible assets with indefinite useful lives, the Group
Companies have recognized impairment in certain CGUs. Recoverable amount has considerably
exceeded the carrying amount in the CGUs with the exception of the CGUs which had recognizedimpairment loss. Even if the major assumptions used in impairment test were changed within areasonably predictable range, the Group Companies have determined the possibility of significant
impairment occurring at CGUs would be low.

―41―

(3) Impairment of Intangible Assets (Except for Goodwill and Intangible Assets with Indefinite UsefulLives)The Group Companies assess at each reporting date whether there is an indication that intangible
assets (except for goodwill and intangible assets with indefinite useful lives) may be impaired. If any
indication exists, the Group Companies estimate the recoverable amount of the assets.
As a general rule, the Group Companies estimate the recoverable amount for the individual
asset, but if estimation of the recoverable amount of each asset is not possible, then estimation isconducted of the recoverable amount for the CGU to which asset belongs. Idle assets not anticipatedfor future use form a CGU of individual assets. An impairment loss of ¥960 million on intangible
assets (except for goodwill and intangible assets with indefinite useful lives) arose from Buy.com Inc.
for the year ended December 31, 2012 was recorded under “Additional line items” of consolidated
statement of income, while all other impairment losses were recorded under “Other expenses” ofconsolidated statement of income.
19. Deposits for Banking Business
Details of Deposits for Banking Business
January 1, 2011

December 31, 2011

(Millions of yen)
December 31, 2012

Financial liabilities measured
at amortized cost
Demand deposits¥366,520¥434,678¥492,395

Time deposits

286,571

241,481

237,055

Total financial liabilities
measured at amortized cost

653,091

676,159

729,450

61,76566,43480,081¥714,856¥742,593¥809,531

Financial liabilities measured
at FVTPLTime deposits
Total deposits for banking
business

20. Financial Liabilities for Securities Business
Details of Financial Liabilities for Securities Business
January 1, 2011

(Millions of yen)
December 31, 2011

December 31, 2012

Accounts payable relating toinvestment securities
transactions¥97,827¥61,770¥200,962

Margin transactions liabilities

55,32838,23041,778Deposits received

145,973

139,483

177,516

Borrowings secured by
securities

32,77528,73537,465

Guarantee deposits received

95,084

95,666

99,709

453

606

625

¥427,440¥364,490¥558,055

OthersTotal financial liabilities forsecurities business―42―

Financial liabilities for securities business are measured at amortized cost.
Derivative liabilities classified as held for trading purposes are included in “Derivative liabilities.”
21. Bonds and Borrowings
Details of Bonds
Name
Rakuten, Inc.
FusionCommunications
Corporation
FusionCommunications
Corporation
FusionCommunications
Corporation

Type
The 2nd unsecured bondCurrency: JPY
Maturity: five years
The 1stunsecured bondCurrency: JPY
Maturity: three years
The 2nd unsecured bondsubject to redemption
before maturity
Currency: JPY
Maturity: three years
The 3rdunsecured bondCurrency: JPY
Maturity: five years
Total bonds(Millions of yen)
December 31, December 31,
2011
2012

Interest
rate

January 1,
2011―¥7,964¥3,990

¥―

―

987

494

―

0.54%

167

100

33

0.64%

1,200

960

720

―

¥10,318¥5,544¥753

All bonds are measured at amortized cost.
The nominal interest rates applied for each bond in the year ended December 31, 2012 arestated in the “Interest rate” column, which will differ from the effective interest rate.
Details of Borrowings

Short-term debts

Interest
rate
0.32%~3.90%

December 31,
2011(Millions of yen)
December 31,
2012¥93,507¥77,242¥84,340

154,973

186,090184,019

68,86359,3072,274

50,00019,80033,800¥367,343¥342,439¥304,433

January 1,
2011Long-term debts
Floating rate debts
0.53%
Maturity: 1 to 10 years (JPY)~2.70%(Note)
Fixed rate debts
1.04%
Maturity: 1 to 10 years (JPY) ~3.56%
0.28%
Commercial paper~0.80%
Total borrowings―

All borrowings are measured at amortized cost.
The nominal interest rates applied for each borrowing in the year ended December 31, 2012 arestated in the “Interest rate” column, which will differ from the effective interest rate.
(Note) The above borrowings include hedged items of cash flow hedges in which floating rate debts
are swapped for fixed rate debts, and the interest rates stated in the “Interest rate” column―43―

take into account the effect of the cash flow hedge.
22. Other Financial Liabilities
Details of Other Financial Liabilities(Millions of yen)

January 1, 2011

December 31, 2011

December 31, 2012

Other payable¥47,109¥58,344¥63,575

Accrued expenses

14,447

16,917

21,234

Deposits received

44,14652,28873,535

Margin deposits received

33,91739,47736,867

Others12,511

9,387

14,837¥152,130¥176,413¥210,048

Total other financial liabilities

Other financial liabilities are measured at amortized cost.
23. Provisions(1) Statement of Changes in Provisions

January 1, 2011
Increases during the period(provisions made)Increases during the period(others)
Decreases during the period(provisions used)
Decreases during the period(others)
December 31, 2011
Increases during the period(provisions made)Increases during the period(others)
Decreases during the period(provisions used)
Decreases during the period(others)
December 31, 2012

Provision forpoint cardcertificates¥17,008

Provision forloss on interest
repayment¥14,194

20,336(Millions of yen)
OthersTotal¥1,297¥32,499

4,264

2

24,602

3

―

463

466

(16,928)(6,442)(25)(23,395)(78)(10,858)(55)(10,991)¥20,341¥1,158¥1,682¥23,181

25,672―

2,030

27,702

16

―

185

201

(20,350)

(267)

(829)

(21,446)

(3)

―

(21)

(24)

¥25,676¥891¥3,047¥29,614

Decrease during the period (others) for provision for loss on interest repayment for the year ended
December 31, 2011 is mainly due to the elimination of Rakuten KC Co., Ltd. from the scope of
consolidation following the business restructuring. For details, please refer to Note 47. Sale ofSubsidiary through Business Restructuring.
(2) Provision for Point Card Certificates
The Group Companies operate points programs including the Rakuten Super Points program andgrants points to customers as part of sales of its products, provision of services, customer usage of its
assets, the completion of various membership registrations, customer referrals and sales promotions―44―

for a limited period of time. Using such points, the customer is able to receive products and services
free of charge or at a discounted price, or transfer to the points programs of other companies. Points
granted to customers have an expiry date and once the points expire the customer forfeits the right touse such points.
The Group Companies, in light of the fact that the majority of points granted to customers areborne by the registered retailers in the Rakuten Ichiba that have no capital relationships with theGroup Companies, in preparation for the future use of points by the customers, have recorded a
provision for point card certificates, an estimated amount for future use, under liabilities based on past
usage in the prior periods. It should be noted that there is an uncertainty regarding the usage of such
points by the customers.
(3) Provision for Loss on Interest Repayment
There are two laws that regulate interest rates in Japan. The Interest Rate Restriction Law imposes
an interest rate ceiling at 15% to 20%, while the Investment Law sets the interest rate ceiling at
29.2%. Interest rates between these two sets of rates are called as grey-zone interest rates and mostobligors had been making repayments at the grey-zone interest rates. Subsequently, in January 2006,
the Supreme Court ruled that interest paid above the interest rates set forth in the Interest Rate
Restriction Law that did not meet certain conditions were invalid. And as a result of this ruling, there
have been an increasing number of demands for interest repayment from the obligors who had been
making repayments at grey-zone interest rates.
Provision for loss on interest repayments is calculated by estimating future demand for interest
repayments based on experience from prior periods. However, the period for actual payments is
uncertain.
It should be noted that due to the revisions made to the laws in December 2006, grey-zone
interest rates were abolished. Accordingly, interest rates have been capped at 15% to 20%.
(4) Other Provisions
Other provisions include asset retirement obligations.
Provisions are attributable to regular transactions and, taken individually, are not significant.
24. Policy Reserves and Others for Insurance Business(1) Details of Policy reserves and others for insurance business(Millions of yen)
December 31, 2012
Reserve for outstanding claims¥1,658

Liability reserves
Total Policy reserves and others for insurance
business

16,838¥18,496

Regarding the funding method for liability reserves, the method stipulated in the Notification No. 48 of
the Ministry of Finance, 1996 is applied for contracts subject to standard liability reserves, and level
premium method is applied for contracts not subject to standard liability reserves. For the year ended
December 31, 2012, mortality rate based on Standard Mortality Table 2007 (Standard Mortality Table
1996 for contracts with a contract date prior to March 31, 2007) and product crediting rate of 1.5%
(2.0% for contracts with a contract date prior to March 31, 2001) are used for the funding of liability
reserves.

―45―

(2) Liability Adequacy Test in Respect of Insurance Contracts

The Group Companies perform the liability adequacy test in consideration of current estimates ofcash inflows such as related insurance premium and investment income, and cash outflows such as
insurance claims and benefits and operating expenses. As a result of the test for the year ended
December 31, 2012, the amount of liability was adequate, requiring no additional recognition of
liability and expense.
(3) Insurance Risk
For sound and appropriate insurance business operation, it is important to accurately comprehendand adequately manage increasingly diversified and complex risks. Therefore, a cross-functional risk
management framework was developed, and the role and process at departments responsible for risk
management were clarified. The Group Companies will thoroughly ensure appropriate business
operation by having all employees and officers fully understand the importance of risk management.
Specifically, the Group Companies established a cross-functional “Risk Management Committee,”and engaged in the following overall risk management activities: appointing departments responsible
for risk management according to the type of risk; developing risk management framework;
comprehending, analyzing and assessing risk status; and instructing operational departments.
Concerning insurance underwriting risk as a major risk in insurance business, the Group Companies
have identified and analyzed risks through regular monitoring of frequency of insured events andsurrender ratio. In developing new products, risk analysis is carried out in consideration of balancewith profitability.
Under the Japanese laws and regulations, life insurance companies are required to calculate risks
associated with payment of insurance claims and benefits and risks associated with asset
management in preparation for the occurrence of various risks life insurance companies are exposed
to on a scale beyond normally predictable level. The amounts equivalent to risks before tax are as
follows, which are recognized to represent the amounts of impact on profit or loss and equity in theevent of occurrence of such risks. Confidence level of risk quantity is generally assumed to be 95%,
with variance depending on the type of risk.
(Millions of yen)
December 31, 2012
Insurance risks¥955

The third-sector insurance risk

949

Product crediting rate risks

3

Minimum guarantee risk―

Investment risks

378

Minimum business risk

46

The Group Companies only handle traditional products and insured events are mainly death (first
sector product), hospitalization and operations, etc. (third sector product). Policy period of insurance
products is mainly 10 years and lifetime, and insurance liabilities vary with the acquisition of newcontracts, occurrence of insured events and contract cancellation, etc.

―46―

In the future period subject to liability adequacy test, insurance revenue is expected to exceed
the insurance benefit.
25. Income Tax Expense
The deferred tax assets and liabilities as of January 1, 2011, December 31, 2011 and December 31,
2012 were attributable to the following items.
(Millions of yen)
January 1,
December 31,
December 31,
2011
2011
2012
Deferred tax assets
Tax losses carried forward¥14,953¥49,569¥26,362

1,546

1,612

1,730

18,765

114

115

3,375

5,486

3,474

1,354

338

388

7,033

7,879

9,786

4,121

452

337

1,778

2

3

Tax goodwill

―

6,566

4,916

Investments in subsidiaries

―

―

3,161

Others

7,525

5,912

8,606

Total

¥60,450¥77,930¥58,878¥(8,465)¥(7,568)¥(7,568)(2,737)(1,483)(1,233)

Intangible assets(6,833)(6,732)(12,199)

Others(1,439)(3,622)(3,748)

Total¥(19,474)¥(19,405)¥(24,748)

Deferred tax assets¥47,212¥64,579¥40,546

Deferred tax liabilities(6,236)(6,054)(6,416)

Net¥40,976¥58,525¥34,130

Depreciation
Loss on valuation of investment
securities
Allowance for doubtful accounts
Enterprise tax payable
Provision for point cardcertificates
Provision for loss on interest
repayment
Accrued interest

Deferred tax liabilities
Tax deductible losses due totransfer of shares
Gains and losses of financial
assets measured at FVTOCINet amount of deferred tax assets

Deferred tax assets related to tax losses carried forward as of January 1, 2011 mainly recognized by
Rakuten KC Co., Ltd., the Company’s former subsidiary. Such tax losses carried forward wererecognized as a result of unusual factors, the past organizational restructuring in Rakuten KC Co.,
Ltd. and revisions of laws including the Money Lending Business Act. As of January 1, 2011,
exclusive of these unusual factors, it is probable that future taxable income will be available in―47―

Rakuten KC Co., Ltd., and in the future tax losses carried forward due to these unusual factors will
not be expected. While, the Group Companies recognize deferred tax assets that it is probable that
future taxable income will be available against which such tax losses carried forward can be utilized,
based on the management judgments and assumptions.
Deferred tax assets related to tax losses carried forward during the year ended December 31, 2011were mainly recognized by the Company and the Company’s subsidiaries, Rakuten Card Co., Ltd.
and Rakuten Bank, Ltd. Tax losses carried forward recognized by the Company and Rakuten Card
Co., Ltd. as a result of unusual factors, the disposal of assets in the restructuring of businesses andpast organizational restructuring. As of December 31, 2011, exclusive of these unusual factors, it isprobable that future taxable income will be available and in the future tax losses carried forward due
to unusual factors will not be expected. In Rakuten Bank, Ltd., non-performing loans and investment
securities, related to tax losses carried forward, have been reduced to controllable levels, and as aresult of joining the Group Companies, an environment has been set for earning sustainable andstable profits through initiatives toward capturing customers and ensuring stable performance. Now it
is probable that future taxable income will be available in Rakuten Bank, Ltd.
Deferred tax assets related to tax losses carried forward during the year ended December 31, 2012were mainly recognized by the Company and a Company’s subsidiary, Rakuten Bank, Ltd. Tax
losses carried forward recognized by the Company as a result of unusual factors, the disposal of
assets in the restructuring of businesses and past organizational restructuring. Such tax losses
carried forward were partially utilized by taxable income for the current year, and it is highly probablethat future taxable income will be available. Tax losses carried forward are not expected to begenerated from unusual factors. In Rakuten Bank, Ltd., non-performing loans and investment
securities, which used to be the reasons to record tax losses carried forward in the past, have now
been reduced to controllable levels. As a result of joining the Group Companies, an environment has
been set for earning sustainable and stable profits through initiatives toward capturing customers andensuring stable performance. Tax losses carried forward were partially utilized by taxable income forthe current year, and it is highly probable that future taxable income will be available in Rakuten Bank,
Ltd.

―48―

The changes of net deferred tax assets and liabilities were as follows:
For the year ended December 31, 2011

(Millions of yen)Amounts
Amounts
Changes inrecognized
DecemberJanuary 1, recorded
scope of
Othersunder other31, 2011
2011
under netcomprehensive consolidation
profit or loss
incomeTax losses carried forward¥14,953¥34,616

¥―

¥―

¥―

¥49,569

Depreciation and amortization

1,546

66

―

―

―

1,612

Loss on valuation of investment
securities

18,765(18,651)

―

―

―

114

Allowance for doubtful accounts

3,375

2,111

―

―

―

5,486

Enterprise tax payable

1,354(1,016)

―

―

―

338

7,033

846

―

―

―

7,879

4,121

(3,669)

―

―

―

452

1,778

(1,776)

―

―

―

2

Provision for point cardcertificates
Provision for loss on interest
repayment
Accrued interestTax goodwill
Tax deductible losses due totransfer of shares
Gains and losses of financial
assets measured at FVTOCI

―

6,566

―

―

―

6,566

(8,465)

897

―

―

―

(7,568)(2,737)

―

1,254

―

―

(1,483)

Intangible assets(6,833)

101

―

―

―

(6,732)Others

6,086(2,283)

(753)

(861)

101

2,290

Total

¥40,976¥17,808¥501¥(861)¥101¥58,525―49―

For the year ended December 31, 2012

(Millions of yen)Amounts
Amounts
Changes inrecognized
DecemberJanuary 1, recorded
scope of
Othersunder other31, 2012
under net
2012
comprehensive consolidation
profit or loss
incomeTax losses carried forward¥49,569¥(28,185)¥―¥4,625¥353¥26,362

1,612

91

―

15

12

1,730

114

1

―

―

―

115

5,486

(2,018)

―

1

5

3,474

338

36

―

14

―

388

7,879

1,907

―

―

―

9,786

452

(115)

―

―

―

337

2

1

―

―

―

3

6,566

(1,650)

―

―

―

4,916

―

3,161

―

―

―

3,161

(7,568)

―

―

―

―

(7,568)(1,483)

―

250

―

―

(1,233)(6,732)

3,089―(7,721)(835)(12,199)

Others

2,290

2,255

(481)

826

(32)

4,858

Total

¥58,525¥(21,427)¥(231)¥(2,240) ¥(497)¥34,130

Depreciation and amortization
Loss on valuation of investment
securities
Allowance for doubtful accounts
Enterprise tax payable
Provision for point cardcertificates
Provision for loss on interest
repayment
Accrued interestTax goodwill
Investments in subsidiaries
Tax deductible losses due totransfer of shares
Gains and losses of financial
assets measured at FVTOCI
Intangible assets

The breakdown of deductible temporary differences and tax losses carried forward for which nodeferred tax asset is recognized in the consolidated statement of financial position is as follows.
(Millions of yen)
Deductible temporary
differences
Unused tax losses carriedforward
Total

January 1, 2011

December 31, 2011

December 31, 2012¥12,851¥7,246¥5,15140,44525,327

25,134¥53,296¥32,573¥30,285

Deferred tax assets associated with the above are not recognized, as it is unlikely that future taxable
income necessary for the Group Companies to utilize its benefits would be generated.

―50―

The breakdown by expiry date of tax losses carried forward for which no deferred tax asset isrecognized in the consolidated statement of financial position is as follows.
(Millions of yen)
January 1, 2011

December 31, 2011

December 31, 2012

1st year¥1,461¥2,325¥2,198

2nd year

3,086

2,262

2,220

3rd year

6,905

2,868

3,948

4th year

3,950

5,480

1

5th year and thereafter

25,043

12,392

16,767No term of expiry date

―

―

―

¥40,445¥25,327¥25,134

Total

There are no deductible temporary differences with an expiry date, and significant temporary
differences associated with investments in subsidiaries and associates accounted for using theequity method for which no deferred tax liability is recognized.
There will be no significant impact on the Group Companies’ tax payment, even if the retained
earnings of the subsidiaries or associates are remitted to the Group Companies in the future.
Breakdown of income tax expense recognized through profit or loss is as follows.

(Millions of yen)

Year ended December 31, 2011 Year ended December 31, 2012
(Loss) Income before income tax¥(1,185)¥49,106

Current tax expense
Income tax expense (income) fornet income
Subtotal

6,992

6,543

6,992

6,543

14,689(6,758)

2,119―

Deferred tax expense
Generation and reversal of
temporary difference
Effect of changes in tax rate
(corporation tax law)
Changes in unused tax losses
carried forward
Subtotal(34,616)

28,185(17,808)

21,427

Total income tax expense¥(10,816)¥27,970―51―

The relationship between income before income tax and income tax expense is as follows.
Year ended December 31, 2011 Year ended December 31, 2012
(Millions of yen)
(Loss) Income before income tax
Income tax expense based on theapplicable income tax rate (Note 1)(Reconciliations)
Permanent non-deductible items
Permanent non-taxable items
Inhabitant tax, etc. on per capita
basis
Changes in unrecognized deferred
tax assets (Note 2)
Elimination of unrealized profit(%)(Millions of yen)¥(1,185)(%)¥49,106(486)(41.0)

20,133

41.0

434

36.6

970

2.0

(5,488)(462.8)

(315)

(0.6)

123

10.3

128

0.3

(15,248)(1,286.1)

(833)

(1.7)

637

53.7

0

0.0

Difference due to tax rate changes
2,119
178.7
―
―
Effects on sale of subsidiarythrough business restructuring
6,897
581.7
―
―
(Note 3)
Impairment loss of goodwill (Note 4)
―
―
7,784
15.9
Others
196
16.6
103
0.1
Income tax expense¥(10,816)(912.3)¥27,970
57.0(Notes) 1 Income tax expense based on the applicable income tax rate refers to income tax expense
based on the effective tax rate of Japan, where the Company is located.
2 This is mainly the amount of previously unrecognized tax losses carried forward used toreduce deferred tax expense, and benefits generated from temporary differences in priorperiods.
3 Please refer to Note 47. Sale of Subsidiary through Business Restructuring.
4 Please refer to Note 18. (2) Impairment of Goodwill and Intangible Assets with Indefinite
Useful Lives.
26. Common Stock, Capital Surplus, Retained Earnings and Treasury Stock
Common Stock
The Company’s total number of shares authorized to be issued and total number of shares issued are
as follows.
(Thousands of shares)
Total number of shares authorized
Total number of shares issued(Common stock with no-par value) (Common stock with no-par value)
January 1, 2011
3,941,800
1,318,170
Changes during the period:
Increases due to issuance of―
1,288
common stock
December 31, 2011
3,941,800
1,319,458
Changes during the period:
Increases due to issuance of―
1,169
common stock
December 31, 2012
3,941,800
1,320,627―52―

(Note) The Company has made the share splitting, one share into 100 shares for shares at July 1, 2012.
Total number of shares authorized to be issued and total number of shares issued for each year
are the total number of shares after considering the share splitting.
Capital Surplus
The Corporate Law of Japan (hereinafter referred to as the “Corporate Law”) requires that at least
50% of the proceeds of certain issues of common shares shall be credited to common stock, while
the remainder of the proceeds shall be credited to capital reserve included in capital surplus. The
Corporate Law permits, upon approval at the General Shareholders’ Meeting, the transfer of amounts
from capital reserve to common stock.
Retained Earnings
The Corporate Law requires that an amount equal to one tenth of dividends of retained earnings shallbe appropriated as capital reserve (one item of capital surplus) or as appropriated for legal reserve(one item of retained earnings) until the aggregate amount of the capital reserve and the appropriatedfor legal reserve equals to one fourth of common stock. The appropriated for legal reserve may be
used to eliminate or reduce a deficit or be transferred to retained earnings upon approval at theGeneral Shareholders’ Meeting.
Retained earnings available for dividends under the Corporate Law is based on the amountrecorded in the Company’s general accounting records maintained in accordance with accounting
principles generally accepted in Japan.
Treasury Stock
Changes in Treasury Stock(Thousands of shares)
Year ended December 31, 2011 Year ended December 31, 2012

January 1

6,008

6,008

Acquisition―0

Disposal

―

―

6,008

6,008

December 31(Note) The Company has made the share splitting, one share into 100 shares at July 1, 2012. Total
number of treasury stock of each reporting period is the number of shares after considering theshare splitting.

―53―

27. Revenue
Revenue for the years ended December 31, 2011 and 2012 are attributable to the following items:(Millions of yen)
Year ended
Year ended
December 31, 2011
December 31, 2012
Sales of goods¥30,925¥54,815
Rendering services

259,702292,411

Interest income

51,97650,805

Others

3,822

2,413

¥346,425¥400,444

Total

28. Operating Expenses
Operating expenses for the years ended December 31, 2011 and 2012 are attributable to thefollowing items:(Millions of yen)
Year ended
Year ended
December 31, 2011
December 31, 2012
Advertising and promotion¥36,290¥49,611
expenditures
Employee benefits expenses
63,38470,098Depreciation and amortization
Communication and maintenanceexpenses
Consignment and subcontract
expenses
Allowance for doubtful accounts
charged to expenses
Cost of sales of merchandiseInterest expense for financebusiness
Commission fee expense for financebusiness
Insurance claims and otherpayments, and provision of policy
reserves and others for insurance
business
OthersTotal―54―

18,112

21,227

14,692

15,35519,081

22,666

13,675

10,023

26,51850,297

7,787

5,512

5,533

5,002

—

1,857

60,391

67,787¥265,463¥319,435

Details of employee expenses (employee benefits expenses) are as follows.
1) Details of Employee Expenses

Wages and salaries

Year ended
December 31, 2011
¥54,060(Millions of yen)
Year ended
December 31, 2012
¥60,834

Retirement benefits

2,996

3,412

Legal welfare expenses
4,204
Expense of stock option granted
to directors and employees
295(Note)
Other salaries
1,829
Total
¥63,384(Note) Please refer to Note 37. Share-based Payments.

3,631
651
1,570
¥70,098

2) Number of Employees
December 31, 2011

December 31, 2012

Number of employees (persons)
7,615
9,311
(Note) Number of employees represents the number of persons engaged in the Group Companies.
29. Other Income and Other Expenses(1) Details of Other Income(Millions of yen)
Year ended December 31, 2011 Year ended December 31, 2012

The resulting gain in thebusiness combinationachieved in steps (Note)
Gain on sales of subsidiaries¥―¥2,382

374―

Others804

983¥1,178¥3,365

Total(Note) Please refer to Note 45. Business Combinations.
(2) Details of Other Expenses(Millions of yen)
Year ended December 31, 2011 Year ended December 31, 2012

Allowance for doubtful
accounts charged to expenses(Note 1)
Loss on disaster (Note 2)
Retired or disposed property,
plant and equipment or
intangible assets
Loss on liquidation of business(Note 3)
OthersTotal―55―¥2,151

¥―

1,725

―

1,157

1,533

―

808

971

3,240

¥6,004¥5,581

(Notes) 1 Please refer to Note 15. Allowance for Doubtful Accounts.
2 Losses incurred as a result of the Great East Japan Earthquake which occurred in March2011 are reported.
3 It is due to the liquidation of EC service in China.
30. Additional Line Items(Millions of yen)
Year ended December 31, 2011 Year ended December 31, 2012

Additional line items(expenses)
Loss on businessrestructuring (Note 1)
Impairment loss on goodwill
and other (Note 2)
Total¥75,492¥4,250—24,488¥75,492¥28,738(Notes) 1 For the year ended December 31, 2011, please refer to Note 47. Sale of Subsidiaries
through Business Restructuring.
For the year ended December 31, 2012, loss on business restructuring of ¥4,250 million wasrecorded with the view of future business development for Play Holdings Limited.
2 Impairment losses of ¥19,782 million for Buy.com Inc. and of ¥4,706 million for
PRICEMINISTER S.A.S. were recognized. For detail, please refer to Note 18. Intangible
Assets.
31. Financial Income and Financial Expenses(1) Details of Financial Income(Millions of yen)

Year ended December 31, 2011 Year ended December 31, 2012
Interest income

¥133

¥162

Dividend income

144

31

Total

¥277

¥193

(2) Details of Financial Expenses(Millions of yen)
Year ended December 31, 2011 Year ended December 31, 2012

Interest expense¥2,348¥2,220Commission fee

221

345

¥2,569¥2,565Total

32. Earnings per Share
Basic earnings per share are calculated by dividing the net income attributable to owners of theCompany by the weighted average number of common stock outstanding during the year. The
weighted average number of common stock outstanding during the year does not include common
stock purchased by the Company and held as treasury stock.
Diluted earnings per share are calculated on the assumption of full conversion of the dilutive
potential common stock, adjusted for the weighted average number of common stock outstanding.
The Company has dilutive potential common stock related to stock options. The number ofshares that may be acquired through these stock options is calculated at fair value (annual average―56―stock price of the Company) based on the value of the stock acquisition rights granted to theunexercised stock options.
The Company has made the share splitting, one share into 100 shares at July 1, 2012. Earnings
per share of each reporting period are calculated by the number of common stock outstanding after
considering the share splitting.
The status of net income attributable to owners of the Company and the weighted average number ofshares used in the calculation of earnings per share are as follows.

Net income
attributable toowners of theCompany(Millions of yen)
Weighted
average numberof shares(Thousands ofshares)
Earnings per
share (yen)Year ended December 31, 2011

Year ended December 31, 2012

Basic

Adjustments

Diluted

Basic

¥(2)

¥7,984¥20,489¥(0)¥20,489

3,559 1,316,369

1,313,987

3,036

1,317,023¥15.59¥(0.03)¥15.56¥7,986

1,312,810¥6.08¥(0.02)¥6.06

Adjustments

DilutedThe summary of potential shares not included in the calculation of diluted earnings per share since
there are no dilutive effects is as follows.
Year ended December 31, 2011

Year ended December 31, 2012

Subscription Rights to Shares of the Company
Stock options in accordance with theprovisions of Article 280-20 and Article
280-21 of the former Commercial CodeMarch 30, 2005
5,641
Resolution at Generalthousand
Shareholders’ MeetingsharesMarch 30, 2006
3,000
Resolution at Generalthousand
Shareholders’ MeetingsharesSubscription Rights to Shares of the Company
Stock options in accordance with theprovisions of Article 280-20 and Article 28021 of the former Commercial CodeMarch 30, 2005
5,641
Resolution at Generalthousand
Shareholders’ MeetingsharesMarch 30, 2006
3,000
Resolution at Generalthousand
Shareholders’ MeetingsharesThere was no transaction that materially impacted earnings per share during the period from
December 31, 2012 to the date of approval of the consolidated financial statements.
33. Transfers of Financial Assets
The Group Companies engage in the securitization of card loan receivables and card shopping
receivables of its customers derived from credit card business. When securitizing the receivables, theGroup Companies transfer such receivables to trusts and acquire senior and subordinatedbeneficial interests collateralized by the trusted assets. The Group Companies then transfer the―57―senior beneficial interests to third parties or redeem the beneficial interests for borrowings secured by
the trusted assets. Since the Group Companies continue to retain substantially all the credit risks
related to the underlying receivables and the rewards through holding subordinated beneficial
interests, the transferred receivables do not qualify for derecognition.
The carrying amount of the financial assets that did not qualify for derecognition and their associatedliabilities, and their fair values for those liabilities that have only recourse to the transferred assets asof January 1, 2011, December 31, 2011 and December 31, 2012 are as follows.
The counterparty of the associated liabilities to transferred assets has rights of recourse that is only
to the transferred assets.
(Millions of yen)
January 1, 2011
Carrying amount of transferredassetsCarrying amount of theassociated liabilities
Fair value of transferred assets
Fair value of the associatedliabilities
Net position

December 31, 2011 December 31, 2012

¥26,572¥23,416

¥100

9,242

2,000

100

26,56823,416

100

9,242

2,000

100

¥17,326¥21,416¥―

Creditors of the associated liabilities to transferred assets have rights to the reimbursement of the
only transferred assets.
The difference between the transferred assets and the associated liabilities occurred mainly asa result of certain beneficial interests through securitization being held within the Group Companies.
34. Assets Pledged as Collateral and Assets Received as Collateral(1) Assets Pledged as Collateral
The Group Companies pledge assets mainly to secure debts in borrowing contracts, deposits
received of e-money, margin trading and security lending transactions conducted under customary
conditions, and as monetary deposits in derivative transactions.
The carrying amounts of assets pledged as collateral for liabilities and contingent liabilities by
the Group Companies are as follows.
(Millions of yen)
January 1, 2011

December 31, 2011 December 31, 2012

Cash and cash equivalents
Loans for credit card business(Note)
Investment securities¥100¥1,000¥1,097

106,397

41,96847,310

2,201

―

6,836

Total

¥108,698¥42,968¥55,243(Note) Loans for credit card business include securitized receivables.

―58―

In addition to the above, investment securities for banking business, which were pledged as collateralfor foreign exchange settlements, derivative trading and other transactions, and for commitment lines
as of January 1, 2011, December 31, 2011 and December 31, 2012, were ¥72,063 million, ¥74,084
million and ¥57,105 million, respectively.
Among other financial assets, guarantee deposits for futures trading held by a consolidated
subsidiary conducting banking business as of January 1, 2011, December 31, 2011 and December
31, 2012, were ¥8,402 million, ¥9,557 million and ¥8,837 million, respectively.
Among financial assets for securities business, short-term guarantee deposits as of January 1,
2011, December 31, 2011 and December 31, 2012, were ¥31,851 million, ¥27,385 million and¥26,664 million, respectively.
Among assets pledged as collateral, there are no assets to which the transferee has the right to sellor repledge the collaterals.
(2) Assets Received as Collateral
The Group Companies receive securities pledged as collateral in lieu of guarantee deposits andcollateral for other transactions, which are conducted under customary conditions. The Group
Companies hold the right to sell or repledge the received assets, on condition of returning backsecurities of equal value at the time the relevant transactions are completed. The fair values of
securities received by the Group Companies as collateral to which the Group Companies held theright to sell or repledge collateral as of January 1, 2011, December 31, 2011 and December 31, 2012were ¥337,275 million, ¥306,346 million and ¥384,219 million, respectively. Among collateral, the fairvalue of collateral that were actually sold or pledged as of January 1, 2011, December 31, 2011 andDecember 31, 2012, were ¥120,830 million, ¥91,436 million and ¥105,968 million, respectively.
35. Hedge Accounting(1) Fair Value Hedges
In order to offset the risk of fair value fluctuation of certain fixed rate bonds as a result of fluctuatinginterest rates, the Group Companies’ subsidiaries have entered into fixed-for-floating interest rate
swap contracts with financial institutions and applied fair value hedges. The fair values of the interest
rate swaps, which constitute the hedging instruments, are stated in Note 12. Derivative Assets andDerivative Liabilities.
Gains or losses from remeasuring interest rate swaps, which constitute the hedging instruments
measured at fair value were a loss of ¥281 million for the year ended December 31, 2011 and a lossof ¥210 million for the year ended December 31, 2012. Additionally, gains or losses associated withthe hedged items stemming from the hedged risks were a gain of ¥281 million for the year ended
December 31, 2011 and a gain of ¥210 million for the year ended December 31, 2012.
(2) Cash Flow Hedges
In order to offset the risk of fluctuations of future cash flows from floating rate borrowings, the Group
Companies’ subsidiaries have entered into fixed-for-floating interest rate swap contracts with financial
institutions and applied cash flow hedges. The purpose of these hedges is to hedge the futurefluctuations of cash flows from borrowings by effectively converting floating rate borrowings into fixed
rate borrowings. As a result of these hedges, it will become possible to offset the fluctuations of cash
flows from floating rate borrowings with the fluctuations of cash flows from the interest rate swaps.
The hedging relationship within the Group Companies is expected to be terminated by the year―59―

ended December 31, 2017.
The fair values of the interest rate swaps, which constitute the hedging instruments, are statedin Note 12. Derivative Assets and Derivative Liabilities.
Changes of the amounts recognized in other comprehensive income are stated below.
(Millions of yen)
Year ended December 31, 2011 Year ended December 31, 2012
January 1
Changes for the period
Reclassification to net (loss)
incomeDecember 31¥(771)¥(374)

68

(271)

329

442

¥(374)¥(203)(Note) The amounts reclassified to net (loss) income are included in “Revenue” in the consolidated
statement of income.
36. Contingent Liabilities and Commitments(1) Commitment Line Lending Contracts and Guarantee Obligations
A certain entity of the consolidated subsidiaries is engaged in the lending business through cash
advances and credit card loans, which are incidental to the credit cards.
Since these contracts expire without the actual loan being drawn, in addition to the Group
Companies being able to increase or decrease the limits on the loan amounts at its discretion, theunused balance of these loans do not necessarily have material impact on the Group Companies’
cash flows.
Certain consolidated subsidiaries are engaged in the credit guarantee business providing thegeneral customers with guarantees on the liabilities associated with loans which the generalcustomers have received from the business partners of the subsidiaries.
The balance of the unused lending commitment lines and the balance of guarantee obligationsin the credit guarantee business stated above are as follows:(Millions of yen)
January 1, 2011
Commitment lines
Financial guarantee contracts
Total

December 31, 2011 December 31, 2012

¥1,613,494¥1,474,923¥1,666,455

28,646

24,46020,839¥1,642,140¥1,499,383¥1,687,294(2) Commitment Line Borrowing Contracts
The Company and certain consolidated subsidiaries have entered in commitment line borrowing
contracts with multiple financial institutions and the balance of the unused portions of suchcommitment lines are as follows.
(Millions of yen)
January 1, 2011

December 31, 2011 December 31, 2012

Total commitment line
borrowings¥109,737¥148,032¥141,620

Amounts borrowed

39,97913,695

21,583

Unused commitment line

69,758134,337

120,037―60―

(3) Commitments (Contracts)
As of January 1, 2011, December 31, 2011 and December 31, 2012, there were no significant capital
expenditures (commitments) for which contracts had been entered into and unrecognized on the
consolidated financial statements.
37. Share-based Payments
Employee expenses relating to stock options recognized by the Group Companies during the year
ended December 31, 2011 and December 31, 2012 were ¥295 million and ¥651 million, respectively.
The Group Companies have taken advantage of the exemption provided under IFRS 1 and haveconsequently accounted for the 2008 and 2009 stock options and 2012 stock option 1) to 5) grantedby the Company, and 2012 stock option 1) to 6) granted by Kobo Inc. in accordance with IFRS 2.
The Company has granted equity-settled stock options to the executives and employees of theCompany, its subsidiaries, and associates. Kobo Inc. has granted stock options with cash option to
the executives and employees of Kobo Inc. and its subsidiaries. Conditions for vesting of the stock
options require that those who received the allotment of stock options continue to be employed by
the Company, its subsidiaries or associates from the grant date to the vesting date.
The Company has made the share splitting, one share into 100 shares at July 1, 2012. The
number of stock options issued for each year had been adjusted for share splitting. The following is asummary of the Company’s stock options.

―61―

Name
2002 stock
option2003 stock
option 1)
2003 stock
option 2)
2004 stock
option2005 stock
option 1)
2005 stock
option 2)
2006 stock
option 1)
2006 stock
option 2)
2008 stock
option2009 stock
option2012 stock
option 1) A
2012 stock
option 1) B
2012 stock
option 1) C
2012 stock
option 2)
2012 stock
option 3)
2012 stock
option 4)2012 stock
option 5) A
2012 stock
option 5) B
2012 stock
option 5) C

Grant date

Vesting date

April 30,
March 28,
2002
2006
July 14,
March 27,
2003
2007
August 29,
March 27,2003
2007
September 7,
March 30,
2004
2008
December 15, March 30,
2005
2009
February 13,
March 30,
2006
2009
April 20,
March 30,
2006
2010
December 14, March 30,
2006
2010
January 19,
March 27,20092012
February 12,
March 27,2010
2013
April 20,
April 1920122014
April 20,
April 1920122015
April 20,
April 19
2012
2016
July 1,March 29,20122016
August 1,
March 29,20122016
August 20,
March 29,20122016
November 21, November 20,
2012
2014
November 21, November 20,
2012
2015
November 21, November 20,
2012
2016

Balance of
Exerciseoutstanding
price
options(Yen)(Note)
¥110

―

193

308,000

275

43,000755

1,978,000

913

3,571,500

1,038

200,000

1,010

1,978,400

559

663,000

563

2,370,200

707

933,100

0.01

364,500

0.01

364,500

0.01

365,800

0.01

333,800

0.01

106,800

0.01

500

0.01

34,4000.01

34,4000.01

34,500Exercise period
From March 29, 2006 to
March 27, 2012
From March 28, 2007 to
March 26, 2013
From March 28, 2007 to
March 26, 2013
From March 31, 2008 to
March 29, 2014
From March 31, 2009 to
March 29, 2015
From March 31, 2009 to
March 29, 2015
From March 31, 2010 toMarch 29, 2016
From March 31, 2010 toMarch 29, 2016
From March 28, 2012 toMarch 26, 2018
From March 28, 2013 toMarch 26, 2019
From April 20, 2014 toApril 20, 2022
From April 20, 2015 toApril 20, 2022
From April 20, 2016 toApril 20, 2022
From March 30, 2016 to
March 28, 2022
From March 30, 2016 to
March 28, 2022
From March 30, 2016 to
March 28, 2022
From November 21, 2014 toNovember 21, 2022
From November 21, 2015 toNovember 21, 2022
From November 21, 2016 toNovember 21, 2022

(Note) The balance of outstanding options has been converted into the number of shares.

―62―

The following is a summary of Kobo Inc.’s stock options.
Exercise
Balance of
priceoutstanding
Exercise period
Name
Grant date
Vesting date
(Canadianoptions
dollar)(Note)
Kobo Inc.
January 11,
January 10,
From January 11, 2014 to
1.00
5,318,842
2012 stock
2012
2014
January 11, 2018
option 1) A
Kobo Inc.
January 11,
January 10,
From January 11, 2015 to2012 stock
1.00
5,318,840
2012
2015
January 11, 2018
option 1) B
Kobo Inc.
January 11,
January 10,
From January 11, 2016 to2012 stock
1.00
5,318,842
2012
2016
January 11, 2018
option 1) C
Kobo Inc.
February 27, February 26,
From February 27, 2014 to2012 stock
1.00
158,333
20122014
February 27, 2018
option 2) A
Kobo Inc.
February 27, February 26,
From February 27, 2015 to2012 stock
1.00
158,33420122015
February 27, 2018
option 2) B
Kobo Inc.
February 27, February 26,
From February 27, 2016 to2012 stock
1.00
158,333
20122016
February 27, 2018
option 2) C
Kobo Inc.
April 9,April 8From April 9, 2014 to2012 stock
1.00
121,66720122014
April 9, 2018
option 3) A
Kobo Inc.
April 9,April 8From April 9, 2015 to2012 stock
1.00
121,66620122015
April 9, 2018
option 3) B
Kobo Inc.
April 9,April 8From April 9, 2016 to2012 stock
1.00
121,66720122016
April 9, 2018
option 3) C
Kobo Inc.
April 23,
April 22
From April 23, 2014 to2012 stock
1.00
121,66720122014
April 23, 2018
option 4) A
Kobo Inc.
April 23,
April 22
From April 23, 2015 to2012 stock
1.00
121,66620122015
April 23, 2018
option 4) B
Kobo Inc.
April 23,
April 22
From April 23, 2016 to2012 stock
1.00
121,66720122016
April 23, 2018
option 4) C
Kobo Inc.
July 9,July 8,From July 9, 2014 to2012 stock
1.00
780,683
2012
2014
July 9, 2018
option 5) A
Kobo Inc.
July 9,July 8,From July 9, 2015 to
1.00
780,683
2012 stock
2012
2015
July 9, 2018
option 5) B
Kobo Inc.
July 9,July 8,From July 9, 2016 to
1.00
780,683
2012 stock
2012
2016
July 9, 2018
option 5) C
Kobo Inc.
October 5, December 30,
From December 31, 2013
1.00
400,000
2012 stock
2012
2013
to October 5, 2018
option 6) A
Kobo Inc.
October 5, December 30,
From December 31, 2014
1.00
400,000
2012 stock
2012
2014
to October 5, 2018
option 6) B

―63―

(Note) The balance of outstanding options has been converted into the number of shares.
The number of options and the weighted average exercise price related to stock options granted by
the Company are as follows.
Year ended December 31, 2011

Year ended December 31, 2012

Weighted
average
exercise price(Yen)

Number ofoptions(Note)

Weighted
average
exercise price(Yen)

15,897,900¥706

13,883,300¥747

Granted during the year――

1,670,800

0.01

Forfeited during the year

726,500

764

700,900

774

Exercised during the year

1,288,100

226

1,168,800

375

―

―

―

―

13,883,300

747

13,684,400

687

10,075,000

802

11,112,100

786

Number ofoptions(Note)
Balance at beginning of theyear

Expired during the year
Balance at end of the year
Exercisable amount at end of
the year
Weighted average remaining
contract years

4.07 years

3.89 years(Note) The number of options has been converted into the number of shares.
The number of options and the weighted average exercise price related to stock options granted by
Kobo Inc. are as follows.
Year ended December 31, 2011
Number ofoptions(Note)

Year ended December 31, 2012

Weighted
average
exercise price(Canadiandollar)Number ofoptions(Note)

Weighted
average
exercise price(Canadiandollar)Balance at beginning of the
year

―

―

―

―

Granted during the year――

20,303,573

1.00

Forfeited during the year

―

―

―

―

Exercised during the year

―

―

―

―

Expired during the year

―

―

―

―

Balance at end of the year
Exercisable amount at end of
the year
Weighted average remaining
contract years――

20,303,573

1.00

―

―

―

―

―

5.18 years(Note) The number of options has been converted into the number of shares.
The weighted average stock prices of the Company as of the exercise date were ¥788 for the year―64―

ended December 31, 2011 and ¥779 for the year ended December 31, 2012.
The expiration dates and the exercise prices of the outstanding options related to stock options
granted by the Company are as follows.
Exercise price(Yen)

Number of options (Note)
January 1,
December 31,
December 31,
2011
2011
2012
321,200
―
―

2011

¥112

2012

110

353,700

81,000―2013

193~275

1,323,000

864,000

351,000

2014

755

2,230,000

2,111,000

1,978,000

2015

913~1,039

4,159,000

3,986,000

3,771,500

2016

559~1,010

3,379,500

3,033,000

2,641,400

2018

563

2,994,000

2,780,400

2,370,200

2019

707

1,137,500

1,027,900

933,100

2022
Balance at end of theperiod0.01――

1,639,200―

15,897,900

13,883,300

13,684,400(Note) The number of options has been converted into the number of shares.
The expiration dates and the exercise prices of the outstanding options related to stock options
granted by Kobo Inc. are as follows.
Exercise price(Canadiandollar)2018
Balance at end of theperiodNumber of options (Note)

1.00

January 1,
2011―

December 31,
2011―

December 31,
2012
20,303,573

―

―

―

20,303,573(Note) The number of options has been converted into the number of shares.
The Company has granted equity-settled stock options to the executives and employees of theCompany, its subsidiaries, and associates during the year ended December 31, 2012. Kobo Inc. hasgranted stock options with cash option to the executives and employees of Kobo Inc. and its
subsidiaries during the year ended December 31, 2012. The fair value of the options granted has
been calculated using the Black-Scholes model which is adjusted to take dividend into account. The
fair value and assumptions used in the calculation are as follows.
Expected volatility of the Company has been calculated as an annual rate based on thehistorical period of stock price corresponding to the expected remaining period and weekly data
(weekly closing price versus volatility of the previous week), assuming 52 weeks in a year.
Expected volatility of Kobo Inc. is based on the stock price volatility of a similar company as it
is not listed.

―65―

December 31, 2012
The Company
The Company
The Company
2012 stock option 1)
2012 stock option 2) 2012 stock option 3)
A, B, C
Weighted average stock
prices (Yen)
Exercise price (Yen)

893

824

779

0.01

0.01

0.01

Expected volatility (%)
Remaining terms of theoptions (Years)
Expected dividend (Yen)25.8~33.5

29.6

26.8

2~4

3.75

3.66

2.5

2.5

2.5

Risk-free rate (%)

0.11~0.21

0.13

0.11

Fair value per option (Yen)883~888814

769

December 31, 2012
The Company
The Company
2012 stock option 5)
2012 stock option 4)
A, B, C
Weighted average stock
prices (Yen)
Exercise price (Yen)

779

652

0.01

0.01

Expected volatility (%)
Remaining terms of theoptions (Years)
Expected dividend (Yen)

26.8

25.9~26.9

3.66

2~4

2.5

2.5

Risk-free rate (%)

0.11

0.09~0.13

Fair value per option (Yen)769

641~646―66―

December 31, 2012
Kobo Inc.
Kobo Inc.
Kobo Inc.
2012 stock option 1) 2012 stock option 2) 2012 stock option 3)
A, B, C
A, B, C
A, B, C
Weighted average stock
prices (Canadian dollar)
Exercise price (Canadiandollar)
Expected volatility (%)
Remaining terms of theoptions (Years)
Expected dividend(Canadian dollar)
Risk-free rate (%)
Fair value per option(Canadian dollar)

1.00

1.00

1.00

1.00

1.00

1.00

56.8~57.5

57.1~57.5

56.9~57.1

4~5

4~5

4~5

―

―

―

1.11~1.26

1.30~1.42

1.47~1.58

0.45~0.49

0.45~0.50

0.45~0.50

December 31, 2012
Kobo Inc.
Kobo Inc.
Kobo Inc.
2012 stock option 4) 2012 stock option 5) 2012 stock option 6)
A, B, C
A, B, C
A, B
Weighted average stock
prices (Canadian dollar)
Exercise price (Canadiandollar)
Expected volatility (%)
Remaining terms of theoptions (Years)
Expected dividend(Canadian dollar)
Risk-free rate (%)
Fair value per option(Canadian dollar)

1.00

1.00

1.00

1.00

1.00

1.00

56.7~57.0

57.8~58.3

56.6

4~5

4~5

6

―

―

―

1.54~1.62

1.09~1.17

1.45

0.45~0.50

0.45~0.50

0.99

―67―

38. Dividends
Year ended December 31, 2011

Dividends paid for thecurrent year
Dividends by resolution at
the Board of Directors in theprevious year
Dividends paid during thecurrent year
Total dividends paid for thecurrent year

Year ended December 31, 2012

Dividends per
share
(Yen)

Amount ofdividends(Millions ofyen)

Dividends per
share
(Yen)

Amount ofdividends(Millions of yen)¥200

¥2,624¥250¥3,284

―

―

―

―

¥200

¥2,624¥250¥3,284The Company continues to make stable dividend payment under the principle to return profits withthe maximization of corporate value in mind, while maintaining a sound financial position andenhancing retained earnings to be prepared for proactive business development.
Furthermore, the Board of Directors of the Company determines the payment of dividends.
The principle in dividends of the Company is to distribute dividends once a year as year-end
dividends, and as for the dividends due to matters stipulated in each item of Article 459, Paragraph 1of the Corporate Law, the Company will determine flexibly with the business environment, etc. inconsideration.
The Company has made the share splitting, one common stock into 100 shares on July 1,
2012.
(Note) Cash dividends paid with the record date during the current year are as follows.

Date of resolution
Resolution at the Board of
Directors on February 14,
2013

Total dividends (Millions of yen)
¥3,944―68―

Dividends per share (Yen)¥339. Classification of Financial Instruments
The Group Companies’ financial instruments are classified in the following manner.
As of January 1, 2011
(Financial Assets)(Millions of yen)
Financial assets measured
at fair value

Financial assets
measured atamortized cost

Total

Financial assets
measured at
FVTPL

Financial assets
measured at
FVTOCI¥―¥―¥105,896¥105,896――

44,60344,60364―

483,009

483,073――

348,791

348,791

194,21690

290,224484,530――

124,885

124,885

10,143――

10,143

Investment securities

48,925

10,826

3

59,754

Other financial assets

93

142,544

142,556¥253,357¥10,919¥1,539,955¥1,804,231

Cash and cash
equivalents
Accounts receivable ―trade
Financial assets forsecurities business
Loans for credit cardbusiness
Investment securities
for banking business
Loans for banking
business
Derivative assets

Total(Financial Liabilities)(Millions of yen)
Financial liabilities measured
at fair value
Financial
Financial liabilities
liabilities subject
designated as
to mandatory
being measured
measurement at
at FVTPL
fair value

Accounts payable ―trade
Deposits for banking
business
Financial liabilities forsecurities business
Derivative liabilities

Financialliabilities
measured atamortized cost

Total

¥―

¥―

¥36,836¥36,836―

61,765653,091

714,856――

427,440

427,440

2,429

―

―

2,429

Bonds and borrowings――

377,661

377,661

Other financial liabilities――

152,130

152,130¥2,429¥61,765¥1,647,158¥1,711,352

Total

―69―

As of December 31, 2011
(Financial Assets)(Millions of yen)
Financial assets measured
at fair value

Financial assets
measured atamortized cost

Total

Financial assets
measured at
FVTPL

Financial assets
measured at
FVTOCI¥―¥―¥152,801¥152,801――

48,95848,958

128―415,472

415,600――

306,131

306,131

154,28672

269,596

423,954――

154,555

154,555

9,829

―

―

9,829

Investment securities

50

9,306

1,607

10,963

Other financial assets

03

172,761

172,764¥164,293¥9,381¥1,521,881¥1,695,555

Cash and cash
equivalents
Accounts receivable ―trade
Financial assets forsecurities business
Loans for credit cardbusiness
Investment securities
for banking business
Loans for banking
business
Derivative assets

Total(Financial Liabilities)(Millions of yen)
Financial liabilities measured
at fair value
Financial
Financial liabilities
liabilities subject
designated as
to mandatory
being measured
measurement at
at FVTPL
fair value

Accounts payable ―trade
Deposits for banking
business
Financial liabilities forsecurities business
Derivative liabilities

Financialliabilities
measured atamortized cost

Total

¥―

¥―

¥59,365¥59,365―

66,434

676,159742,593――364,490

364,490

2,861

―

―

2,861

Bonds and borrowings――

347,983

347,983

Other financial liabilities――

176,413

176,413¥2,861¥66,434¥1,624,410¥1,693,705

Total

―70―

As of December 31, 2012
(Financial Assets)(Millions of yen)
Financial assets measured
at fair value
Financial assets
measured atamortized cost

Total

Financial assets
measured at
FVTPL

Financial assets
measured at
FVTOCI¥―¥―¥270,114¥270,114――

65,49365,493441―

615,262

615,703――402,418

402,418

45,1420251,184

296,326――

189,669

189,669――

13,623

13,623

10,674――

10,674

Investment securities

50

15,722

7,639

23,411Other financial assets

03

123,129

123,132¥56,307¥15,725¥1,938,531¥2,010,563

Cash and cash
equivalents
Accounts receivable ―trade
Financial assets forsecurities business
Loans for credit cardbusiness
Investment securities
for banking business
Loans for banking
business
Investment securities
for insurance business
Derivative assets

Total(Financial Liabilities)(Millions of yen)
Financial liabilities measured
at fair value
Financial
Financial liabilities
liabilities subject
designated as
to mandatory
being measured
measurement at
at FVTPL
fair value

Accounts payable ―trade
Deposits for banking
business
Financial liabilities forsecurities business
Derivative liabilities

Financialliabilities
measured atamortized cost

Total

¥―

¥―

¥79,965¥79,965―

80,081

729,450

809,531――558,055

558,055

4,685

―

―

4,685

Bonds and borrowings――

305,186

305,186

Other financial liabilities――

210,048

210,048¥4,685¥80,081¥1,882,704¥1,967,470

Total

―71―

(1) Investments in Equity Instruments Designated as being Measured at FVTOCI
Since shares held by the Group Companies are held in the long-term for the purpose of investments
for strengthening business relationships or in anticipation of synergistic effects in business rather than
only for trading purposes, such shares are designated as financial assets measured at FVTOCI.
Equity instruments designated as measured at FVTOCI as of January 1, 2011 and December
31, 2011 mainly comprise shares of Synergy Marketing, Inc., and its fair value was ¥3,709 million and¥1,218 million, respectively. Equity instruments designated as measured at FVTOCI as of December
31, 2012 mainly comprise shares of Pinterest, Inc., and its fair value was ¥7,191 million.
As of December 31, 2011, shares of investment targets from which synergistic effects inbusiness could no longer be anticipated were sold. The fair value of such investments at the time ofsales was ¥190 million and the gain on sales was ¥5 million. Similarly, as of December 31, 2012,
shares of investment targets from which synergistic effects in business could no longer be anticipatedwere sold. The fair value of such investments at the time of sales was ¥1,147 million and the gain on
sales was ¥157 million.
Additionally, during the year ended December 31, 2011, dividend income recognized fromshares designated as financial assets measured at FVTOCI was ¥140 million, and the amountassociated with shares held as of December 31, 2011 was ¥129 million. Furthermore, during the year
ended December 31, 2012, dividend income recognized from shares designated as financial assets
measured at FVTOCI was ¥98 million, and the amount associated with shares held as of December
31, 2012 was ¥85 million.
During the year ended December 31, 2011, the Group Companies reclassified ¥4 million in
cumulative gains in equity, associated with shares designated as financial assets measured at
FVTOCI, to retained earnings due to sales of shares, etc. Furthermore, during the year ended
December 31, 2012, the Group Companies reclassified ¥106 million in cumulative gains in equity,
associated with shares designated as financial assets measured at FVTOCI, to retained earnings due
to sales of shares, etc.
(2) Financial Liabilities Designated as being Measured at FVTPL
The Group Companies classify certain time deposits with special clauses included in “Deposits forbanking business” as financial liabilities measured at FVTPL.
Fair value of such deposits of the Group Companies is measured at the present value
calculated by discounting each portion of future cash flows as sorted into certain periods, for thecorresponding remaining maturity, using the interest rate with credit risk taken into consideration.
(Millions of yen)
January 1, 2011

December 31, 2011

December 31, 2012

Carrying
Carrying
Contractual
Contractual
amountamountobligations Difference
obligations Difference
(Fair
(Fair
at maturity
at maturity
value)
value)

Carrying
amount(Fairvalue)

Depositsforbankingbusiness¥61,765¥60,181¥1,584¥66,434¥65,343¥1,091¥80,081¥78,630¥1,451

Total¥61,765¥60,181¥1,584¥66,434¥65,343¥1,091¥80,081¥78,630¥1,451―72―

Contractual
obligations Difference
at maturity

The amount of payment demanded at maturity has been calculated assuming that the liabilities will
be repaid on the earliest maturity date on which the Group Companies will be demanded for
repayment.
40. Gains and Losses Generated from Financial Instruments
The analysis of the gains and losses generated from financial instruments held by the Group
Companies is as follows.
For the year ended December 31, 2011
(1) Breakdown of Net Gains and Losses Generated from Financial Assets by Type of Financial
Instruments(Millions of yen)
Financial assets measured
at fair value
Financial assets
measured at
Total
Financial assets Financial assets
amortized costmeasured atmeasured at
FVTPL
FVTOCI
Revenue¥5,288¥110¥441¥5,839Operating expenses――

13,675

13,675

Other expenses

―

―

2,903

2,903

Financial income
Other comprehensive
income

113

31

―

144

711

(3,008)―(2,297)

Net gains generated from financial assets measured at fair value include interest income, dividend
income and commission received relating to such assets.
In addition to the above, allowance for doubtful accounts charged to expenses of ¥11,870
million is recorded under additional line items. For detail, please refer to Note 47. Sale of Subsidiarythrough Business Restructuring.
(2) Breakdown of Net Gains and Losses Generated from Financial Liabilities by Type of Financial
Instruments(Millions of yen)
Financial liabilities measured
at fair value
Financial
Financialliabilities
Financial liabilities
Total
liabilities subject
measured at
designated as
to mandatory
amortized cost
being measured
measurement at
at fair value
fair value
Revenue
¥―
¥493
¥―
¥493
Operating expenses

―

682

―

682

Net gains generated from financial liabilities measured at fair value include interest expenses andcommission fees expense associated with such liabilities.

―73―

(3) Total Interest Income and Interest Expenses (Calculated Using the Effective Interest Method)
Associated With Financial Assets Measured at Amortized Cost or Financial Liabilities Measured at
Amortized Cost
(Millions of yen)
Total interest income associatedTotal interest expenses
with financial assets measured associated with financial liabilities
at amortized costmeasured at amortized cost
Revenue¥49,254¥―
Operating expenses―
6,762
Financial income
133―
Financial expenses
Total

―

2,348

¥49,387¥9,110(4) Commission Revenue and Commission Fees Expense Generated from Financial Assets Measured at
Amortized Cost, Financial Liabilities Measured at Amortized Cost, and Trust and Other Trustee
Operations(Millions of yen)
Commission
feesCommission Commission
feesCommission Commission
expensesrevenue
expensesfees expenses
revenue
generated
generated
generated
generated
generatedfromfrom financial fromfinancialfromtrust and
from
trust
and
financialassetsassetsothertrusteeothertrusteeliabilities
measured at measured
at measured at operations
operations
amortized
amortized
amortized
cost
cost
cost
Financial expenses
¥―
¥―
¥221
¥―
¥―
(5) Impairment Loss by Type of Financial Assets(Millions of yen)
Impairment
loss
Accounts receivable¥873― tradeFinancial assets for
2,206
securities business
Loans for credit card
24,312business
Investment securities
651
for banking business
Loans for banking
330
business
Other financial assets
76
Total

¥28,448―74―

(6) Analysis of Gains and Losses Arising from Derecognition of Financial Assets Measured at Amortized
Cost and Reason for Derecognition(Millions of yen)
Gains arising from derecognition Losses arising from derecognitionof financial assets measured at of financial assets measured atamortized costamortized cost
Investment securities for¥161¥―
banking business
Reason for Derecognition
The Rakuten Bank, Ltd. has derecognized investment securities for banking business due to therepurchase by the issuer and the sales in order to reduce interest rate risks.
For the year ended December 31, 2012
(1) Breakdown of Net Gains and Losses Generated from Financial Assets by Type of Financial
Instruments(Millions of yen)
Financial assets measured
Financialat fair value
assets
Total
Financial assets
measured at
Financial assets
measured atamortized costmeasured at FVTPL
FVTOCI
Revenue¥4,591¥67¥210¥4,868Operating expenses――

10,243

10,243

Other income

―

―

―

―

Financial income
Other comprehensive
income

―

31

―

31

266

(72)

―

194

Net gains generated from financial assets measured at fair value include interest income, dividend
income and commission received relating to such assets.
(2) Breakdown of Net Gains and Losses Generated from Financial Liabilities by Type of Financial
Instruments(Millions of yen)
Financial liabilities measured
at fair value
Financial
Financial
Financialliabilities
Total
liabilities subject
liabilities
measured at
to mandatory
designated asamortized costmeasurement at being measured
fair value
at fair value
Revenue¥―¥(359)¥―¥(359)
Operating expenses

―

652

―75―

―

652

(3) Total Interest Income and Interest Expenses (Calculated Using the Effective Interest Method)
Associated With Financial Assets Measured at Amortized Cost or Financial Liabilities Measured at
Amortized Cost
(Millions of yen)
Total interest income associatedTotal interest expenses
with financial assets measured associated with financial liabilities
at amortized costmeasured at amortized cost
Revenue¥48,960¥―
Operating expenses

―

4,536

Financial income

162―

Financial expenses

―

2,220

¥49,122¥6,756

Total(4) Commission Revenue and Commission Fees Expense Generated from Financial Assets Measured at
Amortized Cost, Financial Liabilities Measured at Amortized Cost, and Trust and Other Trustee
Operations(Millions of yen)
Commission Commission
Commission
fees
fees
Commission
Commission
revenue
expenseexpenserevenuefees expense
generated
generated
generated
generated
generatedfrom financial
from
from
from trustfrom trust andassetsfinancialfinancialand otherother trustee
measured at
assetsliabilities
trustee
operations
amortized
measured at measured at
operations
cost
amortized
amortized
cost
cost
Financial expenses
¥―
¥―
¥344
¥―
¥―
(5) Impairment Loss (or Reversal of Impairment Loss) by Type of Financial Assets(Millions of yen)
Impairment
loss (orreversal of
impairment
loss)
Accounts receivable¥963― tradeFinancial assets for(36)
securities business
Loans for credit card
9,446
business
Investment securities(179)
for banking business
Loans for banking(14)business
Other financial assets
56
Total

¥10,236―76―

(6) Analysis of Gains and Losses Arising from Derecognition of Financial Assets Measured at Amortized
Cost and Reason for Derecognition(Millions of yen)
Gains arising fromLosses arising from derecognition
derecognition of financial assets of financial assets measured atmeasured at amortized costamortized cost
Investment securities for¥―¥220
banking business
Reason for Derecognition
The Rakuten Bank, Ltd. has derecognized investment securities for banking business due to thesales for the reason of downgrading of the issuer.
41. Fair Value of Financial Instruments(1) Fair Value and Carrying Amount of Financial Instruments
The following table indicates the comparison between carrying amounts and fair values of thefinancial instruments held by the Group Companies.
(Millions of yen)
January 1, 2011

(Financial assets)
Cash and cash
equivalents
Accounts receivable ―trade
Financial assets forsecurities business
Loans for credit cardbusiness
Investment securities forbanking business
Loans for banking
business
Investment securities for
insurance business
Derivative assets
Investment securities
Total(Financial liabilities)
Accounts payable ―trade
Deposits for banking
business
Financial liabilities forsecurities business
Derivative liabilities
Bonds and borrowings
Total

December 31, 2011

December 31, 2012

Carrying
amountFair value

Carrying
amountFair value

Carrying
amountFair value¥105,896¥105,896¥152,801¥152,801¥270,114¥270,114

44,60344,603

48,95848,95865,49365,493

483,073

483,073415,600

415,600

615,703615,703348,791

360,375

306,131

320,687

402,418

412,615

484,530

486,345423,954423,500

296,326

296,829

124,885

126,325

154,555

156,156

189,669

190,663

—

—

—

—

13,623

13,778

10,143

10,143

9,829

9,829

10,674

10,67459,75459,754

10,963

10,962

23,411

23,425¥1,661,675¥1,676,514¥1,522,791¥1,538,493¥1,887,431¥1,899,294¥36,836¥36,836¥59,365¥59,365¥79,965¥79,965

714,856

716,065

742,593

746,870809,531

808,576

427,440

427,440

364,490

364,490558,055

558,055

2,429

2,429

2,861

2,861

4,685

4,685

377,661

377,312

347,983

348,128

305,186

305,188¥1,559,222¥1,560,082¥1,517,292¥1,521,714¥1,757,422¥1,756,469―77―

Measurement of Fair Values- Cash and cash equivalents, and accounts receivable ― trade
As these financial instruments are subject to short-term settlement, their fair values approximate
their carrying amounts.
- Financial assets for securities businessAs financial assets for securities business are subject to short-term settlement, their fair values
approximate their carrying amounts.
- Loans for credit card business, loans for banking business
Fair value of loans for credit card business and loans for banking business is measured at thepresent value calculated by discounting each portion of receivables as sorted into certain periods,
for the corresponding remaining maturity using the interest rate with credit risk taken into
consideration.
- Investment securities, investment securities for banking business, investment securities for
insurance businessOf these investment securities, fair value of listed shares is measured at closing price of themarket at the end of year, while fair value of unlisted shares is measured by using appropriate
valuation technique such as a method of comparison with similar sectors. Fair value of bonds ismeasured by reasonable valuation methods based on available information, including reference
trading statistics and brokers’ quotes.
- Derivative assets and liabilities
Among derivative assets and liabilities, forward exchange contracts are measured at fair value atthe end of year based on the forward exchange rates. Fair value of interest rate swap ismeasured at the present value calculated by discounting future cash flows for the remaining
maturity using the rate of interest rate swap at the end of year. Since counterparties of interest
rate swap contracts are limited to financial institutions with superior credit rating, credit risk is not
added in the calculation of fair value as it is minimal.
- Accounts payable ― trade
As accounts payable ― trade is subject to short-term settlement, its fair value approximates its
carrying amount.
- Deposits for banking businessFor demand deposits of the deposits for banking business, amount payable on request at theconsolidation closing date (carrying amount) is measured as fair value. Fair value of time deposits
is measured at the present value calculated by discounting each portion of future cash flows assorted into certain periods, for the corresponding remaining maturity, using the interest rate withcredit risk taken into consideration. For time deposits with short remaining maturity (one year orless), carrying amount is deemed as fair value as such fair value approximates its carrying
amount.
- Financial liabilities for securities businessAs financial liabilities for securities business are subject to short-term settlement, their fair values
approximate their carrying amounts.
- Bonds and borrowings
Among bonds and borrowings, fair value of those with longer remaining maturity is measured at
the present value calculated by discounting each portion of payables as sorted into certain
periods, for the corresponding remaining maturity, using the interest rate with credit risk taken into
consideration.

―78―

(2) Fair Value Hierarchy Classified by Level
Among financial instruments, those measured at fair value after initial recognitions are analyzed.
Below is fair value classified into the three levels from Level 1 to Level 3 based on the fair value
hierarchy.
[Definition of Each Level of Hierarchy]
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: Fair value calculated by using the inputs that are directly or indirectly observablefor the assets or liabilities, other than quoted prices included within Level 1
Level 3: Fair value calculated by using the valuation technique including the inputs that areunobservable
As of January 1, 2011
Level 1
Financial assets forsecurities business
Investment securities
for banking business
Investment securities
Deposits for banking
business
Derivative
assets/liabilities

Level 2

(Millions of yen)
Total

Level 3

¥―

¥64

¥―

¥64

―

144,434

49,872

194,306

56,483―

3,268

59,751―

61,765―61,765

―

7,710

4

7,714

As of December 31, 2011
Level 1
Financial assets forsecurities business
Investment securities
for banking business
Investment securities
Deposits for banking
business
Derivative
assets/liabilities

Level 2

(Millions of yen)
Total

Level 3

¥―

¥128

¥―

¥128

―

114,888

39,470154,358

4,454

1,785

3,117

9,356

―

66,434―66,434

―

6,976

(8)

6,968

There was no transfer between Level 1 and Level 2 during the year ended December 31, 2011.

―79―

As of December 31, 2012
Level 1
Financial assets forsecurities business
Investment securities
for banking business
Investment securities
Deposits for banking
business
Derivative
assets/liabilities

Level 2

(Millions of yen)
Total

Level 3

¥―

¥441

¥―

¥441

―

6,283

38,85945,142

3,687

1,736

10,34915,772―80,081―80,081

―

6,007

(18)

5,989

There was no transfer between Level 1 and Level 2 during the year ended December 31, 2012.
(3) Reconciliation of Level 3 of the Hierarchy
The following reconciliation table indicates changes in the balances, from the beginning to the end ofeach year, of the financial instruments classified as Level 3, with one or more significant inputs notsupported by observable market data.
For the year ended December 31, 2011

January 1, 2011

(Millions of yen)

Investment
securities forbankingbusiness¥49,872

Investment
securities

Derivative
assets/liabilities

Total¥3,268¥4¥53,144

Gains or losses
Net profit and loss
Other comprehensive
incomeAcquisition(2,166)0(12)(2,178)

(14)

(360)

―

(374)

―

1,302

―

1,302

Disposal(3,079)(0)―(3,079)Issuance

―

―

―

―

Settlement

―

―

―

―

Redemption(5,411)――(5,411)Others

268

(27)

―

241

Transfer to Level 3

―

―

―

―

Transfer from Level 3 (Note)―(1,066)―(1,066)¥39,470¥3,117¥(8)¥42,579

December 31, 2011

Total net profit and loss onfinancial instruments held at¥(2,148)¥0¥(12)¥(2,160)
the end of previous year
(Note) These are the transfers due to significant inputs used for fair value measurement becoming
observable.
Gains or losses included in net profit and loss during the year ended December 31, 2011 are―80―

included in “Revenue.”
For the year ended December 31, 2012

January 1, 2012

(Millions of yen)

Investment
securities forbankingbusiness¥39,470

Investment
securities

Derivative
assets/liabilities

Total¥3,117¥(8)¥42,579

1,483

0

(10)

1,473

Gains or losses
Net profit and loss
Other comprehensive
incomeAcquisition
Disposal

(31)

(422)

―

(453)

4,000
(3,244)

8,038
(143)

―
―

12,038(3,387)Issuance
Settlement
Redemption
OthersTransfer to Level 3
Transfer from Level 3 (Note)――(3,461)
642
―
―

―
―
(0)
(73)
―
(168)

―
―
―
―
―
―

―
―
(3,461)
569
―
(168)

December 31, 2012
¥38,859¥10,349¥ (18)¥49,190
Total net profit or loss onfinancial instruments held at¥1,304¥0¥(10)¥1,294the end of current year
(Note) These are the transfers due to significant inputs used for fair value measurement becoming
observable.
Gains or losses included in net profit and loss during the year ended December 31, 2012 areincluded in “Revenue.”
For investment securities for banking business classified as Level 3, changes in fair value are notdeemed significant in case each input is changed to reasonably possible alternative assumptions.
Additionally, for other financial assets classified as Level 3, significant change in fair value is not
anticipated in case each input is changed to reasonably possible alternative assumptions.

―81―42. Financial Risk Management
The Group Companies’ investment activities are based on the security confirmation of principal andefficient use of fund, fully taking into account the various risks including credit risk, market risks andliquidity risk. In addition, in view of factors such as economic environment at that time, the Group
Companies’ fund-raising activities are based on the choice of the best conceivable alternatives
among direct as well as indirect financing methods.
The Group Companies’ subsidiaries engage in banking business with primary focus on deposittaking, foreign exchange business, and lending to individual customers, and they offer ordinary
deposits to individual as well as corporate customers, time deposits and foreign currency deposits toindividual customers. In addition, using such financial liabilities as major resources, the subsidiaries
provides unsecured card loans and residential mortgage to individual customers, as well as acquiring
investment securities and monetary claims, establishing monetary trusts, engaging in market
transactions such as call loans, along with derivative transactions and foreign exchange transactions
associated with the sales of financial instruments to customers. The subsidiaries are always aware of
the significance of a bank’s social responsibility and public mission, thus strictly restraining it fromcommitting to the investment deals beyond its management capacity in the undue pursuit of profit,with particular attention to investing the deposits trusted by customers with full consideration to theirsafety. Furthermore, to ensure optimum asset and liability structure along with appropriate capital
adequacy over the entire financial operations from funding to investment, the subsidiaries engage in
Asset and Liability Management (ALM) focused on interest sensitivity, funding liquidity and market
liquidity.
The Group Companies’ subsidiaries engaged in securities business primarily focus on stock
brokerage for individual investors, segregate the deposits and guarantee deposits received from
customers in trusts for the separate management of money and securities, under the Financial
Instruments and Exchange Act, and invest in accordance with laws and regulations. The usage offunds places importance on the safety of investment, such as bank deposits and financial assets withhigh liquidity, while fund-raising is conducted mainly by borrowing from financial institutions.
The Group Companies’ subsidiaries engaged in credit card business (including comprehensive
credit purchase intermediation business, individual credit purchase intermediation business, credit
guarantee business and loan business) restrict their investment of funds to short-term deposits, while
funding through borrowings from banks and other financial institutions, and directly financing by
issuance of commercial paper and securitization of receivables.
The Group Companies’ subsidiaries engaged in insurance business consider ensuring safety
and profitability as their priority mission in asset management, in order to honor their commitment to
the reliable payment of insurance claims and benefits over the years to come. Their principle in asset
management is to invest mainly in domestic public and corporate bonds seeking to disperse risks,
focusing primarily on government bonds and industrial bonds with superior credit rating aiming atconstant investment yield over the medium- to long-term, in an effort to develop a safety-first liquidityoriented investment portfolio. Under the corporate policy, derivative transactions are handled withcaution, never to be treated as speculative instruments.
These financial assets are well diversified both in the investees’ types of business and theirgeographical locations, avoiding particular concentration of credit risk.

―82―

(1) Credit Risk
1) Outline of Credit Risk Associated with Financial Instruments
Financial assets held by the Group Companies are mainly accounts receivable ― installment,
operating loans, investment securities, banking business-related assets held by the subsidiaries
engaged in banking business, and securities business-related assets held by the subsidiaries
engaged in securities business.
Accounts receivable ― installment and operating loans include credit card receivables, loan
receivables, consumer loans and secured loans held by the subsidiaries engaged in credit cardbusiness, all of which are presented as “Loans for credit card business.” These are exposed to credit
risk associated with respective debtors.
“Investment securities” include debt instruments which are exposed to credit risk.
Banking business-related assets include “Investment securities for banking business” and“Loans for banking business.” “Investment securities for banking business” mainly include securities
in shares, domestic bonds and foreign bonds, as well as trust beneficiary rights. Such securities are
exposed to credit risk subject to the financial position of issuers, while trust beneficiary rights are
exposed to credit risk of the issuers as well as underlying assets. “Loans for banking business”
include unsecured card loans and residential mortgage from individual customers that are exposed tocredit risk of individual customers.
“Investment securities for insurance business” mainly include government bonds, municipal
bonds and bonds, and are exposed to credit risk subject to the financial position of issuers.
Securities business-related assets include cash segregated as deposits for securities businessand margin transactions assets, which are presented as “Financial assets for securities business.”
Cash segregated as deposits for securities business are primarily trusts for the separate
management of money and securities, which are invested in bank deposits, thus exposed to thecredit risk of the deposit-taking financial institutions. Margin transactions assets are exposed tocustomers’ credit risk.
2) Management System of Credit Risks Associated with Financial Instruments
Specific methods and systems to manage various risks within the Group Companies are set out
under various risk management regulations established at each Group Company.
Credit risks are managed under the above regulations, through establishing credit limits byindividual case, understanding the credit status of individual customers, and controlling due dates
and loan balances on a regular basis, while efforts are made on early understanding and mitigationof the risk of default resulting from deterioration of borrowers’ financial conditions and other factors.
Meanwhile, derivative transactions are managed based on “the Detailed Regulations for Group
Derivative Transactions”. Derivative transactions are exposed to the risk of financial loss resulting
from counterparty’s contractual default, though credit risk is deemed to be minimal, because
counterparties are mainly financial institutions with superior credit rating.
3) Exposure to Credit Risks
The Group Companies’ maximum exposure to credit risk is as follows.
The maximum credit risk exposure (gross) represents the maximum exposure to credit risk
without taking into account the collateral held by the Group Companies and any other credit
enhancement. The maximum credit risk exposure (net) represents the maximum credit risk exposure,
after reflecting the amount of credit risk mitigation through the collateral held by the Group
Companies and any other credit enhancement.
The maximum exposure to credit risk (gross) associated with financial assets stated as onbalance sheet items in the table below, are the same as their carrying amounts. The maximum―83―

exposure to credit risk associated with the provision of financial guarantee stated as off-balance
sheet items in the table below, are the maximum amount payable in the event that exercise of theguarantee is requested. Meanwhile, the maximum exposure to credit risk associated withcommitment line agreements is the unused portion of such commitment lines.
As of January 1, 2011

(Millions of yen)Classification by
creditworthiness
Financial Financial
assetsassets Financial
neitherpast due assets
past due
but not impaired
nor
impaired
impairedTotal¥105,896¥―¥―¥105,896¥―¥105,896¥―¥105,896

40,487

3,347

2,013

45,847(1,244)44,603―44,603482,98946766

483,801(728)

483,073

125,247

357,826

318,245

17,37934,247369,871(21,080)

348,791―

348,791

482,713―

3,724

486,437(1,907)484,530―

484,530

125,415132770126,317(1,432)

124,885―

124,885

3

―

―

3

―

3

―

3

Derivative assets

10,143――

10,143―

10,143―

10,143

Other financial assets

142,46555

205

142,725(169)

142,556

0

142,556

Total on-balance sheet
items¥1,708,356¥20,959

¥―

¥―

¥―

―

―

¥―

¥―

¥1,708,356¥20,959

Allowance Maximum Total amount Maximumforcredit risk of collateral credit risk
doubtful exposure
exposure
and credit
accounts(gross) enhancement(net)

On-balance sheet items:
Cash and cash equivalents
Accounts receivable ―trade
Financial assets forsecurities business
Loans for credit cardbusiness
Investment securities forbanking business
Loans for banking business
Investment securities¥41,725 ¥1,771,040¥ (26,560) ¥1,744,480¥125,247 ¥1,619,233¥―¥― ¥1,613,494¥― ¥1,613,494

―

―

―

―

¥―

¥―

¥― ¥1,642,140¥― ¥1,642,140¥41,725 ¥1,771,040¥(26,560) ¥3,386,620¥125,247 ¥3,261,373

Off-balance sheet items:
Commitment lines
Financial guarantee
agreements
Total off-balance sheet
items
Total

―84―

28,64628,646

As of December 31, 2011

(Millions of yen)Classification by
creditworthiness
Financial Financial
assetsassets Financial
neitherpast due assets
past due
but not impaired
nor
impaired
impairedTotal¥152,801¥―¥―¥152,801¥―¥152,801¥―¥152,801

47,031

1,055

2,406

50,492(1,534)

48,958―48,958415,391

71

2,089

417,551(1,951)

415,600

102,773

312,827

296,208

10,924

22,687

329,819(23,688)306,131―

306,131424,380――

424,380(426)

423,954―423,954

155,270268

770

156,308(1,753)

154,555―

154,555

Investment securities

1,607

―

―

1,607

―

1,607

―

1,607

Derivative assets

9,829

―

―

9,829

―

9,829

―

9,829

Other financial assets

172,687117

202

173,006(242)

172,764―

172,764

Total on-balance sheet
items¥1,675,204¥12,435

¥―

¥―

¥―

―

―

¥―

¥―

¥1,675,204¥12,435

Allowance Maximum Total amount Maximumforcredit risk of collateral credit risk
exposure
doubtful exposureand credit(net)accounts(gross) enhancement

On-balance sheet items:
Cash and cash equivalents
Accounts receivable ―trade
Financial assets forsecurities business
Loans for credit cardbusiness
Investment securities forbanking business
Loans for banking business¥28,154 ¥1,715,793¥ (29,594) ¥1,686,199¥102,773 ¥1,583,426¥―¥― ¥1,474,923¥― ¥1,474,923

―

―

―

―

¥―

¥―

¥― ¥1,499,383¥― ¥1,499,383¥28,154 ¥1,715,793¥(29,594) ¥3,185,582¥102,773 ¥3,082,809

Off-balance sheet items:
Commitment lines
Financial guarantee
agreements
Total off-balance sheet
items
Total

―85―

24,46024,460As of December 31, 2012

(Millions of yen)Classification by
creditworthiness
Financial Financial
assetsassets Financial
neitherpast due assets
past due
but not impaired
nor
impaired
impairedTotal¥270,114¥―¥―¥270,114¥―¥270,114¥―¥270,114

63,947

1,140

2,428

67,515(2,022)65,493―65,493

615,525

59

1,789

617,373(1,670)615,703130,165

485,538

391,853

10,206

20,896422,955(20,537)

402,418―

402,418

296,573――296,573(247)

296,326―

296,326

190,163

158―

190,321(652)

189,669―

189,669

Investment securities

7,639

―

―

7,639

―

7,639

―

7,639

Investment securities for
insurance business

13,623――

13,623―

13,623―

13,623

Derivative assets

10,674――

10,674―

10,674―

10,674

Other financial assets

123,11431

285

123,430(298)

123,132―

123,132

Total on-balance sheet
items¥1,983,225¥11,594

¥―

¥―

¥―

¥―

¥― ¥1,666,455¥― ¥1,666,455

―

―

―

―

―

―

¥―

¥―

¥―

¥―

¥― ¥1,687,294¥― ¥1,687,294¥1,983,225¥11,594¥25,398 ¥2,020,217¥(25,426) ¥3,682,085¥130,165 ¥3,551,920

Allowance Maximum Total amount Maximumforcredit risk of collateral credit risk
exposure
doubtful exposureand credit(net)accounts(gross) enhancement

On-balance sheet items:
Cash and cash equivalents
Accounts receivable ―trade
Financial assets forsecurities business
Loans for credit cardbusiness
Investment securities forbanking business
Loans for banking business¥25,398 ¥2,020,217 ¥ (25,426) ¥1,994,791¥130,165 ¥1,864,626

Off-balance sheet items:
Commitment lines
Financial guarantee
agreements
Total off-balance sheet
items
Total

20,83920,839In respect of the credit characteristics of loans for banking business and investment securities forbanking business, borrowers are classified to determine repayment capability based on their financial
conditions, cash flow and earnings capacity, while debts are classified according to the probability ofrecovery from each borrower as well as the level of associated value impairment risk.
In respect of the credit characteristics of loans for credit card business, debts are classified inconsideration of the delinquency status and repayment capability of each debtor.

―86―4) Aging Analysis of Past due but not Impaired Financial Assets
Aging analysis of past due but not impaired financial assets is as follows.
In this aging analysis, amounts of financial assets, for which the payment has been overdue or
the payment has not been made since the contractual due dates, are stated by length of overdue
period from due dates to the end of the year.
As of January 1, 2011

(Millions of yen)

¥3,299Over six months to
one year
¥26

16

8

22

12,524

4,852

3

132

―

―

55

0

0

¥16,026¥4,886¥47

Six months or lessAccounts receivable ― trade
Financial assets for securities
business
Loans for credit card business(Note)
Loans for banking business
Other financial assets
Total

Over one year
¥22

(Note) Among the loans for credit card business, those past due for three months or less is ¥8,396
million, while those past due for over three months to six months is ¥4,128 million.
As of December 31, 2011

(Millions of yen)¥954

Over six months to
one year
¥53

23

25

23

7,379

3,545

―

268

―

―

109

0

8

¥8,733¥3,623¥79

Six months or lessAccounts receivable ― trade
Financial assets for securities
business
Loans for credit card business(Note)
Loans for banking business
Other financial assets
Total

Over one year
¥48

(Note) Among the loans for credit card business, those past due for three months or less is ¥5,328
million, while those past due for over three months to six months is ¥2,051 million.
As of December 31, 2012

(Millions of yen)

¥1,053

Over six months to
one year
¥61

20

8

31

7,014

3,192

―

158

―

―

30

―

1

¥8,275¥3,261¥58

Six months or lessAccounts receivable ― trade
Financial assets for securities
business
Loans for credit card business(Note)
Loans for banking business
Other financial assets
Total

―87―

Over one year
¥26

(Note) Among the loans for credit card business, those past due for three months or less is ¥5,023
million, while those past due for over three months to six months is ¥1,991 million.
5) Financial Assets Individually Assessed as Impaired
Analysis of the financial assets individually assessed as impaired is as follows.
As of January 1, 2011

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business
Investment securities for banking
business
Loans for banking business
Other financial assets
Total

Carrying amount

Allowance for
doubtful accounts¥2,013¥(818)(Millions of yen)
Carrying amountless allowance for
doubtful accounts¥1,195

766

(708)

58

34,247(15,404)

18,843

3,724(1,299)

2,425

770

(770)

―

205

(111)

94

¥41,725¥(19,110)¥22,615

Carrying amount

Allowance for
doubtful accounts¥2,406¥(1,144)(Millions of yen)
Carrying amountless allowance for
doubtful accounts¥1,262As of December 31, 2011

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business

2,089(1,951)138

22,687(16,779)

5,908

Loans for banking business

770

(770)

―

Other financial assets

202

(190)

12

¥28,154¥(20,834)¥7,320Carrying amount

Allowance for
doubtful accounts¥2,428¥(1,112)(Millions of yen)
Carrying amountless allowance for
doubtful accounts¥1,316

1,789(1,667)122

20,896(13,922)

6,974

Loans for banking business

―

―

―

Other financial assets

285

(279)

6

¥25,398¥(16,980)¥8,418Total
As of December 31, 2012

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business

Total(2) Liquidity Risk

1) Outline of Liquidity Risk Associated with Financial Instruments―88―Among the financial liabilities held by the Group Companies, those exposed to market risks aremainly borrowings and banking business-related liabilities which are exposed to liquidity risk.
2) Management of Liquidity Risk Associated with Financial Instruments
Liquidity risk associated with funding is managed by the methods including the development of cash
management plan to ensure adequate liquidity on hand according to the regulations established ateach Group Company. Liquidity risk associated with factors such as investment securities ismanaged by the minimum necessary acquisition of securities from a business standpoint, andunderstanding the financial conditions of issuers.
3)

Analysis of Maturity of Financial Liabilities
The balances by maturity of financial liabilities (including derivatives) are as follows.
As of January 1, 2011

(Millions of yen)Over twoOver three Over four
years toOver five
years toyears to
three
years
four years five years
years

One yearor less

Over oneyear totwo years¥36,836

¥―

¥―

¥―

¥―

¥―

611,997

25,287

14,816

9,894

7,391

55,968427,440

―

―

―

―

―

249,690

68,104

43,232

16,1896,651

7141,328

2,827

5,522

1,079

866

565

Derivative liabilities

1,531

442

212

76

12

3

Derivative associated withcover deals of special time
deposits

(731)

(437)

(234)

(286)

(995)

(3,150)Commitment lines

1,613,494

―

―

―

―

―

Financial guarantee
agreements

28,646

―

―

―

―

―

Financial liabilities otherthan derivatives
Accounts payable ―trade
Deposits for banking
business
Financial liabilities forsecurities business
Bonds and borrowings
Other financial liabilities

Off-balance sheet items(Note) Financial liabilities payable on demand are included in “One year or less.” “Deposits for banking
business” include ¥366,520 million of demand deposits.
“Derivative associated with cover deals of special time deposits” are those related to“Deposits for banking business.”―89―

As of December 31, 2011
One yearor less
Financial liabilities otherthan derivatives
Accounts payable ―trade
Deposits for banking
business
Financial liabilities forsecurities business
Bonds and borrowings(Millions of yen)Over twoOver one
Over three Over four
years toOver five
year toyears toyears to
three
years
two years
four years five years
years¥59,365

¥―

¥―

¥―

¥―

¥―

622,134

24,305

12,403

7,051

5,259

80,412364,490

―

―

―

―

―

160,914

64,38151,06632,77325,83622,308

166,961

5,916

1,530

1,324

284

400

Derivative liabilities

1,799

457

190

85

57

67

Derivative associated withcover deals of special time
deposits

(418)

(138)

(348)

(1,012)(453)(3,416)

Commitment lines

1,474,923

―

―

―

―

―

Financial guarantee
agreements

24,460

―

―

―

―

―

Other financial liabilities

Off-balance sheet items(Note) Financial liabilities payable on demand are included in “One year or less.” “Deposits for banking
business” include ¥434,678 million of demand deposits.
“Derivative associated with cover deals of special time deposits” are those related to“Deposits for banking business.”―90―

As of December 31, 2012
One yearor less
Financial liabilities otherthan derivatives
Accounts payable ―trade
Deposits for banking
business
Financial liabilities forsecurities business
Bonds and borrowings
Other financial liabilities
Derivative liabilities
Derivative associated withcover deals of special time
deposits(Millions of yen)Over two
Over
Over one
Over fourOver five
years tothree
year toyears to
years
three
years totwo years
five years
years
four years¥79,965

¥―

¥―

¥―

¥―

¥―

674,270

22,517

8,498

4,765

9,158

99,000558,055

―

―

―

―

―

181,638

47,01031,147

26,672

23,696405

203,867

3,339

1,899

707

228

8

3,996

232

167

142

120

420

(90)

(301)

(956)

(421)

(548)

(3,929)1,666,455

―

―

―

―

―

Off-balance sheet items
Commitment lines

Financial guarantee
20,839―――――agreements(Note) Financial liabilities payable on demand are included in “One year or less.” “Deposits for banking
business” include ¥492,395 million of demand deposits.
“Derivative associated with cover deals of special time deposits” are those related to“Deposits for banking business.”(3) Market Risk
1) Outline of Market Risk Associated with Financial Instruments
The Group Companies’ activities are exposed mainly to risks associated with changes in economic
environment and financial market environment. Risks associated with changes in financial market
environment are specifically, 1) exchange rate risk, 2) interest rate risk and 3) price fluctuation risk.
Financial assets held by the Group Companies that are exposed to market risks are mainly
investment securities, investment securities for banking business, and investment securities for
insurance business. Investment securities include shares that are exposed to price fluctuation risk.
Investment securities for banking business mainly include investment securities such as shares,
government bonds, municipal bonds and foreign securities as well as various trust beneficiary rights,
with exposure to interest rate risk and exchange rate risk, along with exposure to price fluctuation
risk which, however, is minimal as there are no listed shares. Investment securities for insurance
business mainly include government bonds, municipal bonds and bonds, for which exposure to pricefluctuation risk is minimal.
Among the financial liabilities held by the Group Companies, those exposed to market risks aremainly borrowings and banking business-related liabilities, which are exposed primarily to interest―91―

rate risk. Banking business-related liabilities include, ordinary deposits for individual and corporate
customers, general time deposits for individual customers, new type time deposits, as well as foreign
currency ordinary deposits, foreign currency time deposits and interest rate swap transactions aspart of derivative transactions, all of which are exposed to interest rate risk. Among the banking
business-related liabilities, foreign currency ordinary deposits and foreign currency time deposits, aswell as certain derivative transactions including forward exchange contracts and exchange swap
transactions, are exposed to exchange rate risk.
2) Management System of Market Risks Associated with Financial Instruments
Among the financial instruments associated with market risks, investment securities are subject toinvestment decisions based on the consultation with the Board of Directors, as part of the
management to ensure that such investment securities are adequately evaluated according to certain
regulations. As for foreign currency receivables for sale to customers, the Group Companies’ own
positions are under control by establishing position limits and maximum allowable loss for theprevention of any loss in excess of certain level, along with monitoring daily sales conditions. As forfinancial assets held by the subsidiaries engaged in banking business, such financial assets andliabilities are measured at market value, given certain fluctuations in interest rate and exchange rate,
to calculate effect of the net balance after offsetting the financial assets and liabilities (hereinafterreferred to as “the present value”), which is used in a quantitative analysis as part of the process tomanage interest rate risk and exchange rate risk. In addition, the amount of capital in use as a credit
risk is calculated, by using the standard method to calculate the capital requirements for credit risk
under the asserted First Pillar of Basel II (minimum capital requirements ratio), specified in the
Notification No. 19 of the Financial Services Agency, dated March 27, 2006.
3) Interest Rate Risk (Excluding the Subsidiaries Engaged in Banking Business)
The Group Companies’ main financial liabilities are borrowings from financial institutions, of which
borrowings at floating interest rates are exposed to interest rate risk.
Exposures associated with the Group Companies’ financial liabilities are as follows.
(Millions of yen)
December 31, 2011
Bonds and borrowings

December 31, 2012

¥347,983¥305,186

Floating interest rate

239,830

226,339

Fixed interest rate

108,153

78,847

In respect of the above exposures, given all the risk variables remaining constant except for interest
rate, when all the key interest rates have changed upward by 10 basis points (0.1%) for the year
ended December 31, 2011, it is recognized that effect of profit or loss and equity would decrease by¥185 million, conversely in the event of downward change by 0.1%, it would increase by ¥185 million,
from the amounts as of December 31, 2011. Similarly, given all the risk variables remaining constant
except for interest rate, when all the key interest rates have changed upward by 10 basis points(0.1%) for the year ended December 31, 2012, it is recognized that effect of profit or loss and equity
would decrease by ¥189 million, conversely in the event of downward change by 0.1%, it would
increase by ¥189 million, from the amounts as of December 31, 2012.
Among bonds and borrowings with floating interest rate, the Group Companies have
implemented interest rate swap transactions to reduce interest rate fluctuation risk and have fixed―92―

interest expense for ¥55,087 million and ¥37,324 million for the years ended December 31, 2011 and2012, respectively.
4) Price Fluctuation Risk
The Group Companies are exposed to share price fluctuation risk associated with equity instruments.
Equity instruments are not held for short-term trading purpose, but for the efficient implementation ofbusiness strategies. As for equity instruments, the Group Companies regularly check their market
prices and financial conditions of their issuers.
The Group Companies implemented sensitivity analysis as follows, based on the price risk ofequity instruments at the end of the year.
In the event of 5% rise in share prices for the year ended December 31, 2011, it is recognized
that, due to changes in fair value, accumulated other comprehensive income (before tax effect) would
increase by ¥222 million, conversely in the event of 5% fall, it would decrease by ¥222 million, fromthe amounts as of December 31, 2011. Similarly, in the event of 5% rise in share prices for the year
ended December 31, 2012, it is recognized that, due to changes in fair value, accumulated othercomprehensive income (before tax effect) would increase by ¥184 million, conversely in the event of
5% fall, it would decrease by ¥184 million, from the amounts as of December 31, 2012.
5) Management of Market Risks for the Subsidiaries Engaged in Banking Business(Interest Rate Risk)
At the Group Companies’ subsidiaries engaged in banking business, financial assets exposed tointerest rate risk, one of the significant risk variables, are mainly investment securities for banking
business and loans for banking business.
Financial liabilities include, ordinary deposits for individual and corporate customers, generaltime deposits and new type time deposits for individual customers, as well as foreign currency
ordinary deposits, foreign currency time deposits and interest rate swap transactions of all derivativetransactions.
In the subsidiaries engaged in banking business, these financial assets and liabilities aremeasured at market value, given certain fluctuations in interest rate, to calculate effect of the netbalance after offsetting the financial assets and liabilities (hereinafter referred to as “the present
value”), which is used in quantitative analysis as part of the process to manage interest rate risk.
In calculating the effect of the present value, affected financial assets and financial liabilities areclassified into fixed rate group and floating rate group, and then the balance of each group isallocated to appropriate period according to its own maturity with a fluctuation range of the interest
rate for the period. Specifically, given all the risk variables remaining constant except for interest rate,
when all the key interest rates have changed upward by 10 basis points (0.1%) for the year ended
December 31, 2011, it is recognized that the present value as of December 31, 2011 would decreaseby ¥667 million, conversely in the case of downward change by 10 basis points (0.1%), it would
increase by ¥667 million. Similarly, given all the risk variables remaining constant except for interest
rate, when all the key interest rates have changed upward by 10 basis points (0.1%) for the year
ended December 31, 2012, it is recognized that the present value as of December 31, 2012 would
decrease by ¥996 million, conversely in the case of downward change by 10 basis points (0.1%), it
would increase by ¥996 million.
These effects do not take into account correlation between interest rate and other risk variables,
while foreign currency-denominated assets and liabilities are calculated in Japanese yen astranslated by the exchange rates on December 31, 2011 and December 31, 2012. Additionally, the―93―cases of 10 basis points decline amounting to negative interest rate in certain period have not been
excluded.
(Exchange Rate Risk)
Of the Group Companies’ subsidiaries engaged in banking business, financial assets exposed to
exchange rate risk, one of the significant risk variables, are foreign securities and foreign exchange.
Financial liabilities exposed to exchange risk include, foreign currency ordinary deposits andforeign currency time deposits of all deposits, and forward exchange contracts of all derivativetransactions.
In the subsidiaries engaged in banking business, effect of the present value of these financial
assets and liabilities from exchange fluctuations, is used for a quantitative analysis as part of theprocess to manage exchange rate risk.
In calculating the effect of the present value, affected financial assets and financial liabilities areclassified by currency and the respective currency’s fluctuation range is used as the basis foranalysis. Specifically, given all the risk variables remaining constant except for exchange rate, wheneach foreign currency to Japanese yen has fluctuated upward by 10% for the year ended December
31, 2011, it is recognized that the present value as of December 31, 2011 would decrease by ¥22
million, conversely in the case of downward fluctuation by 10%, it would increase by ¥22 million.
Similarly, given all the risk variables remaining constant except for exchange rate, when each foreign
currency to Japanese yen has fluctuated upward by 10% for the year ended December 31, 2012, it isrecognized that the present value as of December 31, 2012 would decrease by ¥21 million,
conversely in the case of downward fluctuation by 10%, it would increase by ¥21 million.
These effects do not take into account correlation between exchange rate and other risk
variables, while the effect of the present value by currency is calculated in Japanese yen astranslated by the exchange rates on December 31, 2011 and December 31, 2012.
43. Capital Management
The Group Companies’ capitalization structure is as follows.
January 1, 2011
Total liabilities
Less: Cash and cash
equivalents
Net liabilities
Total net assets(Millions of yen)

December 31, 2011 December 31, 2012

¥1,835,112¥1,747,419¥2,045,722

105,896

152,801

270,114

1,729,216

1,594,618

1,775,608¥217,459¥212,346¥241,912

The Company’s subsidiaries, Rakuten Bank, Ltd., Rakuten Securities, Inc. and AIRIO Life InsuranceCo., Ltd. are subject to regulations by the Financial Services Agency over their equity ratio, capital-torisk ratio and solvency margin ratio, which are duly complied.
44. Related Parties
Transactions and the balances of receivables and payables between the Group Companies andother related parties are as follows. Although the Group Companies’ subsidiaries are related partiesof the Company, transactions with the subsidiaries are not subject to disclosure as they are
eliminated for the purpose of consolidated financial statements.
(1) Related Party Transactions―94―

(Millions of yen)
January 1, 2011

December 31, 2011

December 31, 2012

Associates

Executives

Group
Total

Associates

Executives

Group
Total

Revenue

¥―

¥―

¥―

¥1,498¥―¥1,498¥1,845¥51¥1,896

Operating expenses

―

―

―

274

―

274

1,111

―

1,111

100

218

318

102

135

237

―

201

201

―

―

―

―

―

―

―

16

16

Common stock

―

―

―

―

―

―

―

39

39

Capital reserve

―

―

―

―

―

―

―

39

39

Deposits for banking
business
Financial liabilities forsecurities business

Associates Executives

Group
Total

(Note) There are no collateral and guarantee transactions, while allowance for doubtful accounts is notrecorded for the receivables.
(2) Transactions with Companies in which Majority of Voting Rights are Held by the Group Companies’
Principal Shareholders (Individuals) and Their Close Relatives(Millions of yen)
January 1, 2011
December 31, 2011
December 31, 2012
Revenue (Note 1)

¥―

¥―

¥24

Operating expenses (Note 2)

―

281

329

Other assets (Note 3)

21

20

21

Deposits for banking business――74
Accounts payable ― trade51
2(Note 4)(Notes) 1 Revenue is commission on ticket sales, and the ticket sales are entrusted by Crimson
Football Club, Inc. Commission on ticket sales is determined similarly as the generalbusiness terms and conditions. Chairman and CEO of the Company, Hiroshi Mikitani
indirectly owns 100% of the voting rights in Crimson Football Club, Inc.
2 Operating expenses are sponsorship fees payable to Crimson Football Club, Inc. forplanning and organizing football matches and other events. The amount of sponsorship fees
is determined in view of the past transactions at other football clubs.
3 Other assets are prepaid expenses resulting from advertising transactions. These
receivables are unsecured in effect, charging no interest. Allowance for doubtful accounts is
not recorded for the receivables from related parties.
4 Accounts payable ― trade is accounts payable resulting from advertising transactions, due
one month after the purchase date. No interest is charged to these payables.
(3) Executive Compensation
Executive compensation is as follows.

(Millions of yen)

Year ended December 31, 2011

Year ended December 31, 2012

¥904

¥883

60

25

¥964

¥908

Short-term employee benefits(Note)
Share-based payments
Total(Note) Short-term employee benefits include salaries and bonuses for the employee portion of thoseserving concurrently as employees and Directors.

―95―

45. Business Combinations
For the year ended December 31, 2011
Business Combination with Play Holdings Limited(1) Outline of the business combination is as follows.
1) Name of the Acquiree and the Description of its Business
Name of the Acquiree:
Play Holdings Limited (hereinafter refer to as “Play Holdings”) andits ten subsidiaries
Description of the Business:
Management of companies engaged in e-commerce websites
2) Reason for the Business Combination
The Company decided that in line with the accelerating global development of various businesses of
the Company, making Play Holdings, the UK’s fourth largest EC operator and the group running an
EC site “Play.com,” as a subsidiary will enable full-scale participation of the Company in the UK
market, on top of the French and German markets where we have already established presence, andplay a core role in the Company’s European strategy.
3) Acquisition Date:
October 3, 20114) Type of the Business Combination:
Acquisition of shares5) Name after the Business Combination: No change in the name of the company after the businesscombination
6) Ratio of Acquired Voting Rights:
100.0%
7) Rationale behind the Decision on the Acquisition
Through the Company’s acquisition of all shares in Play Holdings in exchange for the payment ofcash(2) Details of the consideration of the Acquiree(Millions of yen)
Consideration paid:
Payment in cash

¥2,916

Total consideration paid

¥2,916(3) Cost directly associated with the acquisition was ¥113 million, which was accounted as “Operating
expenses.”(4) The amount of, and reason for goodwill recognized are as follows.
1) Amount of Goodwill:
32 million pound
2) Reason for goodwill recognized: Goodwill has been recognized through the reasonable estimation ofexcess earning power anticipated in association with the futurebusiness development.
(5) Assets acquired and liabilities assumed at the acquisition date are as follows.
(Millions of pound)
Fair Value
Total assets

64

Total liabilities

73(6) Revenue of the acquiree after the acquisition date, as recognized in the consolidated statement ofincome for the year ended December 31, 2011 was ¥13,928 million, while net income was ¥219
million.

―96―

(7) Revenue of the Group Companies on the assumption that the business combination had taken place
at January 1, 2011 would have been ¥368,426 million, while net income would have been ¥6,703
million.
For the year ended December 31, 2012
Business Combination with Kobo Inc.
(1) Outline of the business combination is as follows.
1) Name of the Acquiree and the Description of its Business
Name of the Acquiree:
Kobo Inc.
Description of the Business:
Sales of e-book readers and contents, etc.
2) Reason for the Business Combination
By making Kobo Inc. its subsidiary as part of its full-scale measures for the future e-book era, theCompany will not only have a proprietary brand of e-book readers named “Kobo eReader,” but also
obtain a network with right holders including overseas publishing companies mainly in North America
and Europe, as well as retailers who sell the e-book readers and ODMs. As a result, Kobo Inc. will beable to seek further growth and business expansion, and merge with the Group Companies’ global
services such as EC business. By making Kobo Inc. its subsidiary, the Group Companies will aim toprovide digital content to global users, as well as new e-commerce services applicable to various
mobile devices.
3) Acquisition Date:
January 11, 20124) Type of the Business Combination:
Acquisition of shares5) Name after the Business Combination: No change in the name of the company after the businesscombination
6) Ratio of Acquired Voting Rights:
100.0%
7) Rationale behind the Decision on the Acquisition
Through the Company’s acquisition of all shares in Kobo Inc. in exchange for the payment of cash(2) Details of the consideration of the Acquiree(Millions of yen)

Consideration paid:
Payment in cash

¥24,390

Total consideration paid

¥24,390(3) Cost directly associated with the acquisition was ¥188 million, which was accounted as “Operating
expenses.”(4) The amount of, and reason for goodwill recognized are as follows.
1) Amount of Goodwill:
201 million Canadian dollar
2) Reason for goodwill recognized: Goodwill has been recognized through the reasonable estimation ofexcess earning power anticipated in association with the futurebusiness development.

―97―

(5) Assets acquired and liabilities assumed at the acquisition date are as follows.
(Millions of Canadian dollar)
Fair Value
AssetsCash and cash equivalents

34

Intangible assets

152

Others77

Total assets

263

Liabilities
Accounts payable — trade

39

Others54

Total liabilities

93(6) Revenue of the acquiree after the acquisition date, as recognized in the consolidated statement ofincome for the year ended December 31, 2012 was ¥20,659 million, while net loss was ¥8,481 million.
(7) The impact on the Group Companies’ revenue and net income on the assumption that the businesscombination had taken place on January 1, 2012 would be insignificant, and thus the description isomitted.
Business Combination with AIRIO Life Insurance Co., Ltd.
(1) Outline of the business combination is as follows.
1) Name of the Acquiree and the Description of its Business
Name of the Acquiree:
AIRIO Life Insurance Co., Ltd.
Description of the Business:
Life insurance business
2) Reason for the Business Combination
Insurance business of the Group Companies is expanding steadily such as handling 133 life and nonlife insurance products at 44 companies (as of September 30, 2012). AIRIO Life Insurance Co., Ltd.,
which was an associate accounted for using the equity method, and the Company, have engaged indevelopment of new internet-based products, as we have established a close collaboration
framework to mutually utilize our various expertise and functions.
On the other hand, while the method of information provision and business is diversified andtechnology is improved, the use of internet in life insurance business is expected to grow further.
Given this business environment, the insurance business area will be enhanced by making AIRIO
Life Insurance Co., Ltd. a subsidiary, aiming at enhancing the financial services to be provided by theGroup Companies.
3) Acquisition Date:
October 31, 20124) Type of the Business Combination:
Acquisition of shares5) Name after the Business Combination: No change in the name of the company after the businesscombination
AIRIO Life Insurance Co., Ltd. will change its name to Rakuten Life Insurance Co., Ltd. on April 1,
2013.
6) Ratio of Acquired Voting Rights:
Voting rights ratio held before the business combination
33.9%
Voting rights ratio acquired on the aquisition date
53.9%

―98―

Total Voting rights ratio
87.8%
After the acquisition date, the voting rights ratio at the end of the year ended December 31, 2012 is
99.9% as a result of the additional aquisition.
7) Rationale behind the Decision on the Acquisition
Through the Company’s acquisition of shares in AIRIO Life Insurance Co., Ltd. in exchange for thepayment of cash(2) Details of the consideration of the Acquiree(Millions of yen)

Consideration paid:
Payment in cash

¥11,516

Total consideration transferred

11,516

Fair value of equity interest in AIRIO Life
Insurance Co., Ltd. held before the businesscombination

7,250

Total consideration paid

¥18,766(3) Cost directly associated with the acquisition was ¥12 million, which was accounted as “Operating
expenses.”(4) The amount of, and reason for goodwill recognized are as follows.
1) Amount of Goodwill:¥3,719 million
2) Reason for goodwill recognized: Goodwill has been recognized through the reasonable estimation ofexcess earning power anticipated in association with the futurebusiness development.
(5) Assets acquired and liabilities assumed at the acquisition date are as follows.
(Millions of yen)
Fair Value
AssetsCash and cash equivalents¥3,903

Other receivable

3,929

Investment securities for insurance business

13,914

Intangible assets

15,685

Others4,600

Total assets¥42,031

Liabilities
Policy reserves and others for insurance
business
Others¥18,344
6,557

Total liabilities¥24,901(6) The carrying amount of non-controlling interests in the acquiree recognized as of the acquisition datewas ¥2,083 million. This carrying amount is calculated by multiplying the ratio of non-controllinginterests after acquisition with identifiable net assets acquired on the acquisition date. Furthermore,―99―

non-controlling interests in the acquiree measured at fair value was ¥2,598 million. This fair value isestimated based on the purchase amount paid upon additional acquisition of shares in AIRIO Life
Insurance Co., Ltd.
(7) As a result of measuring the fair value of 33.9% of equity interest in AIRIO Life Insurance Co., Ltd.
held prior to acquisition, the Group Companies have recognized the resulting gain in the businesscombination achieved in steps of ¥2,382 million. This income is included in “Other income” in the
consolidated statement of income.
(8) Revenue of the acquiree after the acquisition date, as recognized in the consolidated statement ofincome for the year ended December 31, 2012 was ¥4,454 million, while net income was ¥110 million.
(9) Revenue of the Group Companies on the assumption that the business combination had taken place
on January 1, 2012 would have been ¥423,032 million, while net income would have been ¥22,540
million.
(10)As a result of the additional acquisition on December 18, 2012, ¥2,595 million in cash was paid to its
non-controlling shareholders, and additional acquired equity interest was ¥2,089 million. As a result,capital surplus decreased by ¥506 million, which is the difference between the consideration for
additionally acquired equity interests and their carrying amounts.

―100―

46. Major Subsidiaries(1) Major Subsidiaries
Major subsidiaries of the Group Companies are as follows.
Name

January 1,
December 31,
December 31,
2011
2011
2012
CapitalLocation
VotingVotingVoting(Millions of yen)rights Ownership rights Ownership rights Ownership
ratio
ratio
ratio

Notes

Internet Services
Segment:
Rakuten Travel, Inc.

Tokyo

¥213

100%

100% 100%

100%

100%

100%

LinkShare
Corporation

U.S.

1 U.S. dollar

100%

100% 100%

100%

100%

100%

100%

100% 100%

100%

100%

100%

100%

100% 100%

100%

100%

100%

―

― 100%

100%

100%

100%

¥1,650 60.0%

60.0% 60.0%

60.0% 60.0%

60.0%

51.0% 51.0%

51.0% 51.0%

51.0%

67.0% 67.0%

67.0% 67.0%

67.0%

63.8% 63.8%

63.8%

100%

100%

―

100%

100%

Buy.com Inc.

U.S.

PRICEMINISTER
S.A.S.

FrancePlay Holdings Limited U.K.
Rakuten Auction, Inc. Tokyo

0.01 U.S.
dollar
356 thousandeuros
29 thousand
poundsTaiwan Rakuten
Ichiba, Inc.
TARAD Dot Com
Co., Ltd.
LinkShare Japan
K.K.

554 million NT
Taiwan51.0%
dollars
11 million
67.0%
ThailandThai baht

Kobo Inc.

CanadaKenko.com, Inc.
RAKUTEN BRASIL
INTERNETSERVICE LTDA.
Internet Finance
Segment:
Rakuten Card Co.,Ltd.
Rakuten Securities,
Inc.
Rakuten Bank, Ltd.

Tokyo

¥259 63.8%
528 million
Canadiandollar

―

―

Tokyo

¥2,023―― 18.6%

18.6% 51.8%

51.8% (Note 5)

Brazil13,342
thousandBrazilian real―

― 90.0%90.0% 90.0%

90.0%

Tokyo

¥19,324

100%

100% 100%

100%

100%

100% (Note 1)Tokyo¥7,496

100%

100% 100%

100%

100%

100%

Tokyo

¥25,954

100%

100% 100%

100%

100%

100%

―

―

― (Note 2)

Rakuten KC Co., Ltd. Fukuoka― 97.3%

96.3%

―

―

Rakuten Edy, Inc.

Tokyo

¥1,840 55.4%

55.4% 85.0%

85.0% 85.0%

85.0% (Note 3)

AIRIO Life InsuranceCo., Ltd.

Tokyo¥2,500 34.0%

34.0% 34.0%

34.0% 99.9%

99.9% (Note 5)

Dot Commodity, Inc.

Tokyo

¥1,900 58.1%

58.1% 97.1%

97.1% 97.1%

97.1%

Tokyo

¥2,026 75.1%

75.2% 50.0%

50.3% 54.8%

55.0% (Note 4)

Others Segment:
FusionCommunications
Corporation(Notes) 1. Rakuten Credit Co., Ltd. was renamed as Rakuten Card Co., Ltd. on August 1, 2011.
2. Discrepancy between the voting rights ratio and ownership of Rakuten KC Co., Ltd. is due
primarily to the fact that the company had issued preferred shares. In addition, the shares in
Rakuten KC Co., Ltd. were sold on August 1, 2011.
3 bitWallet, Inc. was renamed as Rakuten Edy, Inc. on June 1, 2012.
4 Discrepancy between the voting rights ratio and ownership of Fusion Communications
Corporation is due primarily to the fact that the company has issued preferred shares.

―101―

5 Kenko.com, Inc. and AIRIO Life Insurance Co., Ltd. have become consolidated subsidiaries fromthe current year.

(2) Changes in Holdings
For the year ended December 31, 2011
The Group Companies acquired control over Play Holdings Limited on October 3, 2011, making it asubsidiary. The transaction associated with this acquisition is described in Note 45. Business
Combinations. Other changes in holdings are as follows.
Fusion Communications Corporation, the Group Companies’ subsidiary conducted an allocation of
new shares to a third party on April 28, 2011. As a result of this allocation, the Group Companies’
equity interest in Fusion Communications Corporation was reduced to 50.3%, and still maintains
control over the company. Surplus resulting from this allocation has been recognized as “Capitalsurplus” under net assets. The effects from this transaction were as follows.
(Millions of yen)
Year ended
December 31, 2011
Amount of the allocation of new¥1,250shares to a third party
Increase in non-controlling
1,014interests
Surplus of the allocation of new
236
shares to a third party
On September 1, 2011, the Group Companies additionally acquired 29.6% of voting shares in a
subsidiary, bitWallet, Inc. (changed its trade name to Rakuten Edy, Inc. on June 1, 2012). As a result,the Group Companies’ equity interest in bitWallet, Inc. increased to 85.0%. In this additional
acquisition, a consideration in cash of ¥1,771 million was paid to non-controlling shareholders, atwhich point carrying amount of bitWallet, Inc.’s net assets (excluding goodwill at the initialacquisition) was ¥2,171 million, while carrying amount of the additionally acquired equity interest was¥643 million. The difference of ¥1,128 million between the consideration for the additionally acquired
equity interest and its carrying amount has been recognized as “Capital surplus” under net assets.
The effects from this transaction were as follows.
(Millions of yen)
Year ended
December 31, 2011
Consideration in cash
¥1,771
Carrying amount of additionally643
acquired equity interest
Decrease in capital surplus
1,128
The Group Companies additionally acquired voting shares in a subsidiary, Dot Commodity, Inc. for
15.0% and 24.1% on March 24, 2011 and September 1, 2011, respectively. As a result, the Group
Companies’ equity interest in Dot Commodity, Inc. increased to 97.1%. In these additional
acquisitions, considerations in cash of ¥263 million and ¥757 million, respectively were paid to its
non-controlling shareholders, at which points carrying amounts of Dot Commodity, Inc.’s net assets(excluding goodwill at the initial acquisition) were ¥1,059 million and ¥1,585 million, respectively,
while carrying amounts of the additionally acquired equity interest were ¥158 million and ¥382 million,
respectively. The differences of ¥105 million and ¥375 million between the considerations for the―102―

additionally acquired equity interests and their carrying amounts have been recognized as “Capitalsurplus” under net assets. The effects from these transactions were as follows.

Consideration in cash
Carrying amount of additionallyacquired equity interest
Decrease in capital surplus(Millions of yen)
Year ended
December 31, 2011
¥1,020540
480On December 29, 2011, the Group Companies additionally acquired 41.7% of voting shares in a
subsidiary, Rakuten Bank Systems, Ltd. As a result, the Group Companies’ equity interest in Rakuten
Bank Systems, Ltd. increased to 100%. In this additional acquisition, a consideration in cash of ¥537
million was paid to its non-controlling shareholders, at which point carrying amount of Rakuten Bank
Systems, Ltd.’s net assets (excluding goodwill at the initial acquisition) was ¥519 million, while
carrying amount of the additionally acquired equity interest was ¥216 million. The difference of ¥321
million between the consideration for the additionally acquired equity interest and its carrying amount
has been recognized as “Capital surplus” under net assets. The effects from this transaction were as
follows.
(Millions of yen)
Year ended
December 31, 2011
Consideration in cash
¥537
Carrying amount of additionally216
acquired equity interest
Decrease in capital surplus
321
For the year ended December 31, 2012
The Group Companies acquired control over Kobo Inc. on January 11, 2012 and AIRIO Life
Insurance Co., Ltd. on October 31, 2012, making them subsidiaries. The transactions associatedwith these acquisitions are described in Note 45. Business Combinations. Other changes in holdings
are as follows.
On June 29, 2012, the Group Companies additionally acquired 36.2% of voting shares in a
subsidiary, LinkShare Japan K.K. with cash consideration of ¥4,125 million. As a result, the Group
Companies’ equity interest in LinkShare Japan K.K. increased to 100%. Put options are granted to
non-controlling interests in LinkShare Japan K.K., and prior to the additional acquisition of equity
interest, the Group Companies recognized them as financial liabilities in accordance with IAS 32“Financial instruments: presentation.” Therefore, there was no impact on capital surplus from theadditionally acquired equity interest.
47. Sale of Subsidiary through Business Restructuring
For the year ended December 31, 2011
On August 1, 2011, the Group Companies transferred the Rakuten Card-related business of
Rakuten KC Co., Ltd., which was a former subsidiary of the Company, to another subsidiary, Rakuten
Credit Co., Ltd. (changed its trade name to Rakuten Card Co., Ltd. on August 1, 2011), throughabsorption-type company split, and later on the same day, sold all of the shares in Rakuten KC Co.,
Ltd. to a company outside the Group Companies, J Trust Co., Ltd. Businesses of Rakuten KC Co.,―103―

Ltd. on sale were legacy card business, money card business and real estate business.
The sale of the subsidiary was carried out to further concentrate management resources to the
Rakuten Card-related business, in view of the recent drastic change in the environment surrounding
credit card business, including tightening of regulations through revisions of the Money-Lending
Control Law, notwithstanding Rakuten KC Co., Ltd., as an internet-based credit provider, has been
constantly developing the membership and actual usage of its mainstay Rakuten Card.
Rakuten KC Co., Ltd. changed its trade name to KC Card Co., Ltd. on August 1, 2011.
Assets and liabilities excluded from consolidation associated with the loss of control and theconsideration for the transfer of shares (proceeds from sales of investments in subsidiaries), as partof the aforementioned business restructuring are as follows.
(Millions of yen)Amounts
Assets and liabilities excluded from consolidation
associated with the loss of control
Cash and cash equivalents¥8,460Loans for credit card business

93,596

Allowance for doubtful accounts(6,611)Others8,376

Total assets

103,821

Provision for loss on interest repayment(10,858)

Others(4,775)

Total liabilities(15,633)

Loss on transfer of business(46,739)

Total¥41,449

Cash and cash equivalents inflows from sales ofinvestments in subsidiaries
Cash and cash equivalents inflows from repaymentof borrowings to the Company
Total
Cash and cash equivalents held by Rakuten KC Co.,Ltd.
Proceeds from sales of investments in subsidiaries―104―¥4,44937,00041,449(8,460)¥32,989

Loss on business restructuring including the above loss on transfer of business is presented as“Additional line items” in the consolidated statement of income. The details are as follows.
(Millions of yen)Amounts
Loss on transfer of business¥46,739

Impairment loss (Note 1)
Allowance for doubtful accounts charged to expenses(Note 2)Others

14,723

Total¥75,492

11,8702,160(Notes) 1. Impairment loss of goodwill of ¥14,723 million has been recognized for Rakuten KC Co., Ltd.
following the aforementioned business restructuring.
2. The provision was newly recorded by the Group Companies following the aforementioned
business restructuring.
For the year ended December 31, 2012
Not applicable.
48. Structured Entities
Consolidated Structured Entities
In credit card business, the Group Companies consolidate certain trusts for securitization of own
credit card loan and credit card shopping receivables. In addition, the Group Companies engage inoffering investment trust funds activities in their banking business. The Group Companies
consolidate certain investment trusts which are set up and managed by the Group Companies andan investment trust which is set up for the Group Companies.
These investment trust funds and trusts for securitization are structured entities, which havebeen designed so that voting or similar rights are not the dominant factor in deciding who controls
these entities.
The Group Companies have the right to direct the investment or servicing activities by thesestructured entities. In addition, the Group Companies are exposed to variable returns through holding
subordinated beneficial interests that are collateralized by trusted assets and holding interests ininvestment trust funds. Accordingly, it is determined that the Group Companies have control overthese structured entities.
In accordance with the contractual arrangements with the structured entities, use of assets andsettlement of liabilities of these consolidated structured entities are restricted to the purposes forwhich they are structured.
The carrying amounts of assets and liabilities of the consolidated structured entities for the Group
Companies are as follows.

―105―

Carrying amounts of assets and liabilities of the consolidated structured entities
January 1, 2011

(Millions of yen)

December 31, 2011 December 31, 2012

AssetsLoans for credit card business
Investment securities forbanking business
OthersTotal assets¥26,572¥23,416¥25,791

5,315

3,889

733

3,465

1,477

581

¥35,352¥28,782¥27,105¥10,064¥2,728¥11,080

25

21

26

¥10,089¥2,749¥11,106

Liabilities
Bonds and borrowings
OthersTotal liabilities

Unconsolidated Structured Entities
The Group Companies in their banking business engage in investment activities to structured
entities. These structured entities are associated with the securitization products that are set up by
third parties and pledged as collateral by the assets including various real estates, monetary claims
such as auto loans and consumer loans, credit derivatives, and other bonds. The Group Companies
have interests in these structured entities by holding their bonds issued and their trust beneficiaryinterests. The risks of these products are managed on a regular basis by individual case under theGroup Management Regulations in banking business, for early understanding on, and mitigation of
the risk of default resulting from deterioration of the debtors’ financial conditions and other factors.
Additionally, the Group Companies in their investment management business set up investment
trust funds that meet the demand of, and are offered to investors. However, the Group Companies
do not hold their interests of these investment trust funds.
The Group Companies do not provide any guarantee or commitment to these structured entities.
As a result, the maximum exposure to loss associated with the Group Companies’ interests in these
unconsolidated structured entities is limited to the carrying amount of the investments in bonds andtrust beneficiary interests held therein. The maximum exposure to loss represents the potential
maximum loss the Group Companies could incur and does not reflect the likelihood of such a loss
being incurred.
The following table shows the summary of the Group Companies’ maximum exposure to loss
from its interests in these structured entities by class of asset held therein.

―106―

Carrying amount of unconsolidated structured entities and maximum exposure to loss from its
interests in such entities(Millions of yen)
The line item inClass of asset held
January 1,
December 31,
December 31,
the consolidated
by structured
2011
2011
2012
statement ofentities
financial position
Securitization
Investment
products set up by
securities forthird parties
banking
Public andbusiness¥77,535¥64,730¥14,498
corporate bonds
Real estates
16,8425,098
2,371
Monetary claims
120,819
100,054
72,073for consumer
Others
5,964
4,400
521
Total

¥221,160

49. Subsequent Events
Not applicable.

―107―¥174,282¥89,46350. Classification of Current and Non-current
As of January 1, 2011

(Millions of yen)
Collection or settlement period

Total

12 months or lessOver 12 months

Cash and cash equivalents¥105,896¥―¥105,896

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business
Investment securities forbanking business
Loans for banking business

43,126

1,477

44,603

483,01558

483,073

191,389

157,402348,791

76,654

407,876484,530

26,087

98,798124,885

6,751

3,392

10,143―59,75459,754

114,51728,039142,556

―

9,454

9,454

―

25,88525,885Intangible assets―

152,215

152,215

Deferred tax assets―

47,212

47,212Other assets

6,154

7,420

13,574

Total assets¥1,053,589¥998,982¥2,052,571

Accounts payable ― trade¥36,836¥―¥36,836

Deposits for banking business
Financial liabilities forsecurities business
Derivative liabilities

608,072

106,784

714,856

427,440―

427,440

1,340

1,089

2,429

Bonds and borrowings

246,036

131,625

377,661

Other financial liabilities

140,664

11,466

152,130

Income taxes payable

17,590―17,590

Provisions

17,117

15,38232,499

―

6,236

6,236

Other liabilities

66,1991,236

67,435

Total liabilities¥1,561,294¥273,818¥1,835,112

AssetsDerivative assets
Investment securities
Other financial assets
Investments in associates andjoint ventures
Property, plant and equipment

Liabilities

Deferred tax liabilities―108―

As of December 31, 2011

(Millions of yen)
Collection or settlement period

Total

12 months or lessOver 12 months

Cash and cash equivalents¥152,801¥―¥152,801

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business
Investment securities forbanking business
Loans for banking business

47,696

1,262

48,958415,462138

415,600

215,70290,429306,131

99,439324,515423,954

23,729130,826

154,555

7,575

2,254

9,829

600

10,363

10,963

154,969

17,795

172,764

―

9,685

9,685

―

21,535

21,535Intangible assets―

149,620

149,620

Deferred tax assets―

64,57964,579Other assets

11,6197,172

18,791

Total assets¥1,129,592¥830,173¥1,959,765

Accounts payable ― trade¥59,365¥―¥59,365

Deposits for banking business
Financial liabilities forsecurities business
Derivative liabilities

620,125

122,468

742,593364,490―

364,490

1,612

1,249

2,861

Bonds and borrowings

156,839

191,144

347,983

Other financial liabilities

166,962

9,451

176,413

Income taxes payable

3,981

―

3,981

Provisions

20,624

2,557

23,181

―

6,054

6,054

Other liabilities

20,047451

20,498

Total liabilities¥1,414,045¥333,374¥1,747,419

AssetsDerivative assets
Investment securities
Other financial assets
Investments in associates andjoint ventures
Property, plant and equipment

Liabilities

Deferred tax liabilities―109―

As of December 31, 2012

(Millions of yen)
Collection or settlement period

Total

12 months or lessOver 12 months

Cash and cash equivalents¥270,114¥―¥270,114

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business
Investment securities forbanking business
Loans for banking business
Investment securities for
insurance business
Derivative assets

64,177

1,316

65,493

615,580

123

615,703

284,672

117,746

402,418

141,268

155,058

296,326

23,911

165,758

189,669

3,060

10,563

13,623

7,350

3,324

10,674800

22,611

23,411

82,69740,435

123,132

―

6,601

6,601

―

24,14324,143

Intangible assets―

188,014

188,014

Deferred tax assets―

40,54640,546

Other assets

14,5793,188

17,767

Total assets¥1,508,208¥779,426¥2,287,634

Accounts payable ― trade¥79,965¥―¥79,965

Deposits for banking business
Financial liabilities forsecurities business
Derivative liabilities

673,126

136,405

809,531558,055―

558,055

3,913

772

4,685

Bonds and borrowings

179,253

125,933

305,186

Other financial liabilities

204,230

5,818

210,048

Income taxes payable

2,873

―

2,873

Provisions
Policy reserves and others for
insurance business
Deferred tax liabilities

26,167

3,447

29,614―

18,496

18,496

―

6,416

6,416

Other liabilities

20,192661

20,853

Total liabilities¥1,747,774¥297,948¥2,045,722

AssetsInvestment securities
Other financial assets
Investments in associates andjoint ventures
Property, plant and equipment

Liabilities―110―51. First-time Adoption (Transition to IFRS)The current year is the first year in which financial statements are disclosed in accordance with IFRS,
and the date of transition to IFRS was January 1, 2011.
IFRS 1 “First-time Adoption of International Financial Reporting Standards,” in principle, require
a company adopting IFRS for the first time (hereinafter referred to as “first-time adopter”) to
retrospectively apply the standards in force as of the end of the first IFRS reporting period, provided
however that IFRS 1 prohibits retrospective application of certain standards required in accordancewith IFRS (mandatory exceptions in accordance with IFRS 1). Meanwhile, voluntary exemptions fromfull retrospective application are allowed for certain standards required in accordance with IFRS
(exemptions in accordance with IFRS 1). These adjustments as a result of the initial application of
IFRS are recognized directly through retained earnings and other components of equity at the date oftransition to IFRS.
Exemptions in accordance with IFRS 1
The following standards were exempted from retrospective application by the Group Companies at
the transition to IFRS from JGAAP.
(Business Combinations)
A first-time adopter may elect not to retrospectively apply IFRS 3 “Business Combinations” tobusiness combinations that occurred before the date of transition to IFRS. The Group Companies, on
the basis of this exemption, elected not to retrospectively apply IFRS 3 to business combinations that
occurred before the date of transition to IFRS. Consequently, any goodwill arising from businesscombinations which occurred before the date of transition to IFRS was not restated from the carrying
value previously determined in accordance with JGAAP. In accordance with IAS 21 “The Effects of
Changes in Foreign Exchange Rates,” however, any goodwill arising on the acquisition of a foreign
operation and any fair value adjustment to the carrying amounts of assets and liabilities arising on
the acquisition of such foreign operation (foreign currency-denominated goodwill and fair value
adjustments) are presented in functional currency as assets and liabilities of the foreign operation, astranslated by the exchange rate as of the closing date. Furthermore, the Group Companies
performed an impairment test on goodwill at the date of transition to IFRS regardless of whether
there was an indication that the goodwill may be impaired.
(Share-based Payment Transactions)
In respect of share-based payment transactions, the first-time adopter is encouraged but not required
to apply IFRS 2 “Share-based Payment,” to the equity instruments granted on or after November 7,
2002 and vested before the date of transition to IFRS or January 1, 2005, whichever later. The Group
Companies elected not to apply IFRS 2 to the equity instruments granted on or after November 7,
2002 and vested before the date of transition to IFRS. Consequently, IFRS 2 was applied only to thestock options not yet vested at the date of transition to IFRS.

―111―

(Leases)
In accordance with IFRS 1, the first-time-adopter may apply the transition provision in accordancewith IFRIC 4 “Determining Whether an Arrangement Contains a Lease,” in which case whether anarrangement in force as of the date of transition to IFRS contains a lease is determined based on thefacts and circumstances that exist at the date of transition to IFRS. The Group Companies haveapplied this exemption and made such a decision based on the facts and circumstances that existed
at the date of transition to IFRS.
(Asset Retirement Obligations Included in the Cost of Property, Plant and Equipment)
When the Group Companies newly record asset retirement obligations in accordance with IFRS,
acquisition cost of the related assets will be adjusted retrospectively, in principle, at the acquisitiondate, and depreciated based on such acquisition cost in accordance with IFRIC 1 “Changes in
Existing Decommissioning, Restoration and Similar Liabilities.” Meanwhile however, in accordancewith IFRS 1, exemption of IFRIC 1 is allowed in respect of changes in asset retirement obligations
that occurred prior to the date of transition to IFRS, and the Group Companies have applied thisexemption on the date of transition to IFRS.
(Designation of Previously Recognized Financial Instruments)
The first-time-adopter has an option in accordance with paragraphs 4.1.5 and 5.7.5 of IFRS 9“Financial Instruments,” to designate financial assets as those measured at FVTPL, or as thosemeasured at FVTOCI, depending on the facts and circumstances that exist as of the date oftransition to IFRS.
The Group Companies have applied this exemption, and designated the financial assets theyhold either as those subject to fair value measurement or those subject to amortized costmeasurement, depending on the circumstances as of the date of transition to IFRS. Furthermore asof the date of transition to IFRS, the Group Companies designated investments in a part of equity
instruments as the financial assets measured at FVTOCI.
Mandatory Exceptions in accordance with IFRS 1
In accordance with IFRS 1, retrospective application of IFRS is prohibited in respect of the items
including “estimates,” “derecognition of financial assets and financial liabilities,” “hedge accounting”
and “non-controlling interest.” The Group Companies have applied the requirements of IFRS on
these items prospectively from the date of transition to IFRS.
Reconciliation of JGAAP to IFRS
Reconciliation schedule required to be disclosed in the year of transition is as follows. This scheduleand associated notes present the main impacts following the transition from JGAAP to IFRS, on
consolidated statement of financial position, consolidated statement of income, consolidated
statement of comprehensive income and consolidated statement of cash flows. Column of “JGAAP”
indicates balances of consolidated balance sheets, consolidated statements of income, consolidated
statements of comprehensive income and consolidated statements of cash flows in accordance with
JGAAP. These balances have been consolidated into accounts of the consolidated financial
statements in accordance with IFRS. Such consolidation does not have impact on the total assets,
total liabilities, total net assets nor net income or loss.

―112―

(1) Reconciliation to Assets, Liabilities or Net assets as of January 1, 2011
(Millions of yen)
Impact oftransition to
IFRS

Notes

JGAAP

IFRS

Cash and cash equivalents

H¥100,736¥5,160¥105,896

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business
Investment securities for banking
business
Loans for banking business

D, H

40,585

4,018

44,603

D, H

373,317

109,756

483,073H

308,077

40,714

348,791

D, H

533,850(49,320)484,530

D

124,449436

124,885

Derivative assets

H

3,737

6,406

10,143

Investment securities

D, H

58,354

1,400

59,754

Other financial assets
Investments in associates and joint
ventures
Property, plant and equipment

D, H

144,266(1,710)142,556

A, D, H

9,436

18

9,454

H

21,9503,935

25,885Intangible assets

A, B, F, H

173,087(20,872)

152,215

Deferred tax assets

D, E, F, G, H

40,722

6,490

47,212

A, D, H

18,874(5,300)13,574¥1,951,440¥101,131¥2,052,571¥36,836¥―¥36,836

D

713,273

1,583

714,856

AssetsOther assets
Total assets
Liabilities
Accounts payable ― trade
Deposits for banking business
Financial liabilities for securities
business
Derivative liabilities

H

312,303

115,137

427,440

D, H

1,875

554

2,429

Bonds and borrowings

H368,276

9,385

377,661

Other financial liabilities

C, D, H

150,594

1,536

152,130

17,590―17,590H

27,366

5,133

32,499Deferred tax liabilities

D, G, H

7,410

(1,174)

6,236

Other liabilities

D, E, F, H

69,495(2,060)67,435¥1,705,018¥130,094¥1,835,112

Income taxes payable
Provisions

Total liabilities―113―

(Millions of yen)
Notes
Net assets
Equity attributable to owners of theCompany
Common stock
Capital surplus
Retained earnings

C
A, B, D, E, F,
G, H

Treasury stock
Other components of equity
Total equity attributable toowners of the Company
Non-controlling interests

B, D, HC

Total net assets
Total liabilities and net assets

―114―

JGAAP

Impact oftransition to
IFRS

IFRS

¥107,779¥―¥107,779

120,809(3,498)117,311

10,371(12,027)(1,656)(3,626)―(3,626)

1,110(12,142)(11,032)

236,443(27,667)

208,776

9,979(1,296)

8,683¥246,422¥(28,963)¥217,459¥1,951,440¥101,131¥2,052,571

(2) Reconciliation to Assets, Liabilities or Net assets as of December 31, 2011
(Millions of yen)
Notes

Impact oftransition to
IFRS

JGAAP

IFRS

AssetsCash and cash equivalents

H¥149,752¥3,049¥152,801

Accounts receivable ― trade
Financial assets for securities
business
Loans for credit card business
Investment securities for banking
business
Loans for banking business

D, H

48,274684

48,958D, H

344,063

71,537

415,600

H

208,637

97,494306,131

D, H

537,765(113,811)

423,954

D

154,626(71)

154,555

Derivative assets

H

2,933

6,896

9,829

Investment securities

D, H

8,985

1,978

10,963

Other financial assets
Investments in associates and joint
ventures
Property, plant and equipment

D, H

152,533

20,231

172,764

A, D, H

9,606

79

9,685

H

15,805

5,730

21,535Intangible assets

A, B, F, H

173,287(23,667)

149,620

Deferred tax assets

D, E, F, G, H

60,381

4,198

64,579A, D, H49,245(30,454)

18,791¥1,915,892¥43,873¥1,959,765¥59,365¥―¥59,365D

741,501

1,092

742,593

Other assets
Total assets
Liabilities
Accounts payable ― trade
Deposits for banking business
Financial liabilities for securities
business
Derivative liabilities

H289,069

75,421

364,490

D, H

―

2,861

2,861

Bonds and borrowings

H

346,823

1,160

347,983

Other financial liabilities

C, D, H

164,383

12,030176,413

3,981

―

3,981

H

23,252(71)

23,181

Deferred tax liabilities

D, G, H

4,819

1,235

6,054

Other liabilities

D, E, F, H

51,673(31,175)

20,498¥1,684,866¥62,553¥1,747,419

Income taxes payable
Provisions

Total liabilities―115―

(Millions of yen)
Notes

Impact oftransition to
IFRS

JGAAP

IFRS

Net assets
Equity attributable to owners of theCompany
Common stock
Capital surplus
Retained earnings

C, H
A, D, E, F, G,
H

Treasury stock
Other components of equity
Total equity attributable to ownersof the Company
Non-controlling interests

A, B, D, H

C, H

Total net assets
Total liabilities and net assets¥107,959¥―¥107,959

121,216(4,352)

116,864

5,460(1,819)3,641(3,626)―(3,626)(5,367)(11,104)(16,471)

225,642(17,275)

208,367

5,384(1,405)

3,979¥231,026¥(18,680)¥212,346¥1,915,892¥43,873¥1,959,765(3) Reconciliation to the Total Net Assets(Millions of yen)
Notes
Total net assets in accordance withJGAAP
Impairment loss and amortization of
goodwill
Translation of goodwill and fair value
adjustments
Put options granted to noncontrolling interests
Classification and measurement offinancial assets

January 1, 2011

December 31, 2011

¥246,422¥231,026

A(15,669)(6,677)B(8,957)(9,865)C(4,150)(3,635)

D(3,094)

1,105

Reserves under the special laws

E

1,977

1,217

Compensated absence liability

F(1,654)(1,731)

Income taxes

G

3,303

2,177

H

(719)

(1,271)¥217,459¥212,346

OthersTotal net assets in accordance with
IFRS

―116―

(4) Reconciliation to Profit or Loss for the year ended December 31, 2011
(Millions of yen)
Impact oftransition to
IFRS

Notes

JGAAP

IFRS

D, H

¥379,901¥(33,476)¥346,425

Operating expenses

A, D, F, H

309,085(43,622)265,463

Other income

A, D, E, H

1,353

(175)

1,178

Other expenses

A, D, E, H

9,024

(3,020)6,004

Additional line items

A(77,122)

1,630(75,492)

Operating income

A, D, E, F, H

(13,977)

14,621

644

Financial income

D, H

242

35

277

Financial expenses

D, H

1,681

888

2,569

Share of (loss)/profit of associates

H

399

64

463

(Loss) Income before income tax

A, D, E, F, H

(15,017)

13,832(1,185)

Income tax expense

D, E, F, G, H

(13,846)

3,030(10,816)¥(1,171)¥10,802¥9,631

Owners of the Company¥(2,287)¥10,273¥7,986

Non-controlling interests

1,116

529

1,645

Total net (loss) income¥(1,171)¥10,802¥9,631

Continuing operations
Revenue

Net (loss) income
Net income attributable to:―117―

(5) Reconciliation to Comprehensive Income for the year ended December 31, 2011
(Millions of yen)¥(1,171)

Impact ofadoption to
IFRS¥10,802

D, H(5,908)2,900(3,008)D, G, H

2,350

(1,535)

815

(20)

―

(20)

(3,578)1,365(2,213)(3,222)(486)(3,708)

H

372

(187)

185

G, H

(108)

(9)

(117)

H

―

526

526

G, H

―

(197)

(197)

(2,958)(353)(3,311)(6,536)

1,012(5,524)¥(7,707)¥11,814¥4,107¥(8,764)
1,057¥(7,707)¥11,315499¥11,814¥2,551
1,556¥4,107

Notes
Net (loss) income
Other comprehensive income
Items that will not be reclassified to net
income:Gains and losses on financial assets
measured at fair value through othercomprehensive income
Income tax relating to gains andlosses on financial assets measured
at fair value through othercomprehensive income
Share of other comprehensive
income of associates
Total items that will not be reclassified
to net income
Items that will be reclassified to net
income:Foreign currency translation
adjustments
The portion of gains or losses on
effective cash flow hedges
recognized in other comprehensive
incomeIncome tax relating to the portion ofgains or losses on effective cash flow
hedges recognized in othercomprehensive income
The portion of gains or losses on
effective cash flow hedges
reclassified from othercomprehensive income to net income
or loss
Income tax relating to the portion ofgains or losses on effective cash flow
hedges reclassified from othercomprehensive income to net income
or loss
Total items that will be reclassified to
net income
Other comprehensive income, net oftax

A, B, H

Comprehensive income
Total comprehensive income
attributable to:
Owners of the Company
Non-controlling interests
Comprehensive income

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JGAAP

IFRS
¥9,631

(6) Reconciliation to Consolidated Cash Flows for the year ended December 31, 2011
The impact on consolidated statement of cash flows following the transition to IFRS from JGAAP ismainly from consolidating certain trusts for securitization in credit card business in accordance withIFRS 10 “Consolidated financial statements.”(7) Notes to the Reconciliation
Major accounting differences between JGAAP and IFRS are as follows.
A

Impairment Loss and Amortization of Goodwill
In adopting IFRS, impairment test is required at the date of transition to IFRS regardless of whether
there was an indication that the goodwill may be impaired. The Group Companies recognizedimpairment loss since impairment was identified as a result of the impairment test conducted at thedate of transition to IFRS.
Under JGAAP, goodwill is regularly amortized over a certain period, whereas it is not amortizedunder IFRS, but impairment test is required instead. Accordingly, ¥7,691 million of amortization of
goodwill recorded as an expense for the year ended December 31, 2011 under JGAAP has been
reversed in accordance with IFRS.

B

Translation of Goodwill and Fair Value Adjustments
Under JGAAP, following the application of accounting standard for business combinations prior to
January 1, 2011, foreign currency-denominated goodwill and fair value adjustments arising on theacquisition of shares in a foreign subsidiary were required to be measured at the rate on the date ofoccurrence. Under IFRS, following the Group Companies’ retrospective application of translation of
any goodwill arising on the acquisition of a foreign operation and any fair value adjustment to thecarrying amounts of assets and liabilities arising on the acquisition of such foreign operation (foreign
currency-denominated goodwill and fair value adjustments), as required under IAS 21 “The Effects of
Changes in Foreign Exchange Rates,” foreign currency-denominated goodwill and fair value
adjustments translated by the rate on the date of occurrence are translated by the exchange rate on
the closing date under IFRS.

CPut Options Granted to Non-controlling Interests
Under IFRS, if there are provisions regarding options in shareholders’ agreements concluded on
business combinations, along with certain premises being met, put options held by non-controllinginterests are required to be recorded as part of financial liabilities based on IAS 32 “Financial
Instruments: Presentation”. Accordingly, such financial liabilities have been reclassified from noncontrolling interests (minority interests) as originally recorded, and any amount in excess of noncontrolling interests is treated as adjustment items in net assets.

D

Classification and Measurement of Financial Assets
Under JGAAP, investment securities are classified and measured according to the purpose ofholding, while other financial assets are subject to specific rules applicable by their nature. Under
IFRS, all financial assets are required to be classified in accordance with the unified rules, to fairvalue measurement or amortized cost measurement, and measurement is conducted accordingly.

E

Reserves in accordance with the Special Laws

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Under JGAAP, reserves under the special laws are recorded in accordance with the provisions ofArticle 46-5 of Financial Instruments and Exchange Act as well as Article 221 of Commodity
Exchange Act. On the other hand, since provisions are required to be for obligations in nature inaccordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets,” such reserves arereversed under IFRS.
F

Compensated Absence Liability
Since there are no specific accounting standards in respect of compensated absences, nor
accounting practice to record such liability in accordance with JGAAP, compensated absence liability
is not recognized. On the other hand, if compensated absences are qualified (of all short-term
employee benefits in the form of compensated absences) as accumulated compensated absences,and if they meet the requirements for recording provisions, such liability is recognized ascompensated absence liability.

G

Income Taxes
Under JGAAP, recoverability of deferred tax assets is determined by sufficiency of taxable income
based on earning power, presence of tax planning and sufficiency of taxable temporary difference,
where the balance sheet amount of deferred tax assets is restricted to the extent that the effect toreduce the amount of future tax payment is certain to be realized. Given the aforementioned
circumstance, the Group Companies are considering the scheduling period and the amounts to berecorded, based in principle on the classification standard provided under the Japanese Institute ofCertified Public Accountants Audit Committee Report No. 66 "Audit Treatment Concerning
Judgments with Regard to Recoverability of Deferred Tax Assets". Under IFRS on the other hand, as
recorded amount of deferred tax assets must be reduced within the extent of reduced probability ofearning taxable income sufficient to partially or fully realize the benefit of deferred tax assets,deferred tax assets is recognized only if taxable income is probable to be earned at the point when
deductible temporary difference is used. As a result of the Group Companies’ review of therecoverability of deferred tax assets based on such standards, differences between JGAAP and
IFRS were identified.

H

OthersOthers in the above reconciliation schedule include the effects primarily from the following.
Scope of consolidation: Transition from JGAAP to IFRS involved effects from the consolidation ofcertain investment funds and trusts. Under JGAAP, other entities were consolidated when the Group
Companies had control over their decision-making bodies, while the investment funds and trusts
were excluded from the scope of consolidation if their decision-making bodies were not deemed to
be under the control of the Group Companies. Under IFRS on the other hand, investment funds andtrusts are consolidated if they are determined to be under the control of the Group Companies,
determined by whether the Group Companies retain substantial control over the activities that gives
variability to the investment returns. Accordingly, the Group Companies consolidate investment funds
and trusts under their substantial control according to the determination of scope of consolidation.
(Millions of yen)
January 1, 2011

Effects on net assets

December 31, 2011
¥604

¥162

Gross presentation: Under JGAAP, financial assets for securities business and financial liabilities for―120―

securities business were presented on net basis after offsetting the financial assets and financial
liabilities in accordance with “Regulations Concerning the Accounting Unification in Securities-related
Business,” whereas under IFRS, only those involving legally enforceable rights to offset along withintention to settle financial assets against financial liabilities are presented on net basis.
(Millions of yen)
January 1, 2011
Effects on assets and liabilities¥115,993

December 31, 2011
¥78,192

Revenue recognition: Under JGAAP, there are no specific accounting standards or other criteria
whether to present revenue in a gross basis or in a net basis, except for the statement in the Reporton Practical Solution on Revenue Recognition of Software Transactions. Under IFRS, it is required
to determine whether to account transactions in a gross basis or in a net basis, based on the reviewof the relevant facts and circumstances to determine whether an entity is acting as a principal in thetransaction, or acting as an agent in the transaction. As a result of such review within the Group
Companies, revenues are presented on a net basis, for the transactions considered to be conductedby the Group Companies acting as agents. As a result of this reconciliation, “Revenue” and“Operating expenses” have decreased by ¥18,869 million, respectively.
Customer Loyalty Programs: The Group Companies are providing the point program with the
purpose to encourage repeated access and shopping by customers. In JGAAP, there is no specificaccounting standards or other criteria on accounting treatments for such point program. However, as
mentioned in "Research Report on Revenue Recognition in Japan (interim report) ― considerations
in light of IAS 18 ‘Revenue’” (Accounting Practice Committee Research Report No. 13, The
Japanese Institute of Certified Public Accountants), it is generally accepted in practice that goods
and services granted in exchange for points are estimated as operating expenses, with associatedliability recorded as “Provision for point card certificates” based on the estimated future cost. In
accordance with this method, the Group Companies record the amount as “Reserve” that meets the
future usage of unused balance of points at the end of each month or each year, and fundsettlements with the shops participating in Rakuten Ichiba or Group Companies, as well as fundsettlements associated with the point exchange with other companies, are all recorded throughstatements of income.
Under IFRS, according to IFRIC 13 “Customer Loyalty Programs,” points are not deemed as
expenses directly associated with the goods or services delivered at the initial sales, but asindividual goods or services to be delivered in the future, thus points are required to be recognized
as independent component of the initial sales transaction, and a liability is continued to berecognized until the obligation to deliver such goods or services is fulfilled. In addition, since theGroup Companies are collecting considerations substantially as agents in most of the Group
Companies’ point programs subject to the application of IFRIC 13, revenue is recognized on a net
basis.
As a result of this reconciliation, “Revenue” and “Operating expenses” have decreased by¥14,268 million, respectively.

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