Rakuten,Inc.
Annual Report
Fiscal Year Ended December 31, 2005

Correction of Fiscal 2005 Consolidated
Financial Statements Accompanied with
the Revised Financial Reports
Five-Year Summary (Consolidated)
Results of Operations and Financial Condition
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
consolidated statements of cash flows

Five-Year Summary (Consolidated)(After Revision)(Before Revision)

Millions of yen(unless otherwise stated)

Millions of
U.S. dollars

2001

2002

2003

2004

2005

2005

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

Ordinary Income

1,408

2,241

4,438

15,47435,826303.4

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

19,449

Shareholders’ Equity

33,74530,22026,36445,853

Total Assets

36,387

34,054

188,016

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

341,703.03

30,092.66

Net Income (loss) per Share(yen and U.S. dollars)(42,009.30)

Millions of yen(unless otherwise stated)

Millions of
U.S. dollars

2001

2002

2003

2004

2005

2005

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

Ordinary Income

1,408

2,241

4,438

15,47435,826

303.4

164.7

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

19,449164.7

76,550648.3

Shareholders’ Equity

33,74530,22026,36445,85376,550648.3

307,556

1,657,708

14,040.0

Total Assets

36,387

34,054

188,016

307,556

1,657,708

14,040.0

23,570.48

38,814.92

6,464.58

54.75

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

341,703.03

30,092.66

23,570.48

38,814.92

6,464.58

54.75(3,280.33)(51,600.85)(12,458.37)

1,642.50

13.91

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

1,642.50

13.91

––

––

––

––

1,626.19

13.77

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

––

––

––

––

1,626.19

13.77

Equity Ratio (%)

92.7

88.7

14.0

14.9

4.6

Equity Ratio (%)

92.7

88.7

14.0

14.9

4.6

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

31.8

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

31.8

Cash Flow From
Operating Activities

1,389

2,351

2,223

9,069

(48,058)(407.0)Cash Flow From
Operating Activities

1,389

2,351

2,223

9,069

(43,358)(367.2)

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

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

Cash Flow From
Financing Activities

(661)

(695)

63,88027,403

235,426

1,993.9

Cash Flow From
Financing Activities

(661)

(695)

63,88027,403

235,426

1,993.9

Cash and Cash Equivalents

21,35819,671

25,79032,39076,149644.9Cash and Cash Equivalents

21,35819,671

25,79032,39080,849684.7

Number of Employees

304

481

809

958

3,709

Number of Employees

304

481

809

958

3,709

Net Sales

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

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

Net Sales

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

Results of Operations and Financial Condition(After Revision)(Before Revision)

2. Cash flow

2. Cash flow

Net cash provided by operating activities recorded a net decrease of ¥48,058 million for fiscal

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

2005, compared with a net increase of ¥9,069 million for fiscal 2004. The decrease is2005, compared with a net increase of ¥9,069 million for fiscal 2004. The decrease isprincipally due to increase in trading assets from margin transactions of security brokerage

principally due to increase in trading assets from margin transactions of security brokeragebusiness, increase in trade loans receivable and others.

business, increase in trade loans receivable and others.

Net cash used in investing activities recorded a net decrease of ¥144,116 million for fiscal 2005

Net cash used in investing activities recorded a net decrease of ¥144,116 million for fiscal 2005

mainly due to acquisition of investment securities, compared with a net decrease of ¥30,040

mainly due to acquisition of investment securities, compared with a net decrease of ¥30,040

million for fiscal 2004.

million for fiscal 2004.

Net cash provided by financing activities recorded a net increase of ¥235,426 million for fiscal

Net cash provided by financing activities recorded a net increase of ¥235,426 million for fiscal

2005 primarily due to increase in borrowings, compared with a net increase of ¥27,403 million

2005 primarily due to increase in borrowings, compared with a net increase of ¥27,403 million

for fiscal 2004.

for fiscal 2004.

Consolidated cash flows resulted in a net increase of ¥43,759 million in cash and cash

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

equivalents compared with a net increase of ¥6,599 million in 2004.

equivalents compared with a net increase of ¥6,599 million in 2004.

Consolidated Statements of Cash Flows(After Revision)
Millions of yen

Fiscal 2004

January 1, 2004 to December 31, 2004

Millions of yen

Fiscal 2005

January 1, 2005 to December 31, 2005

Amortization of consolidation adjustment accountJanuary 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Cash flows from investing activities

Cash flows from operating activities
Net income (loss) before income taxes and minority interests

Fiscal 2004

¥ (8,437)
10,712¥ 34,276
909

Payments for time deposits¥ ––¥ (419)––15(16,745)(178,801)

Proceeds from sale of investment securities––

49,477

Proceeds from redemption of investment securities

––

5,698

Proceeds from sale of cash in trust

––

5,000

Proceeds from withdrawal from time deposits
Acquisition of investment securities

Equity in earnings of affiliates

10,715(1,041)

Depreciation and amortization

2,461

4,064

Loss on sales of property and equipment

133

41

Loss on disposal of property and equipment

179

97

Acquisition of shares of consolidated subsidiaries(5,508)(9,502)

Amortization of start-up costs

––

910

Acquisition of property and equipment(2,652)(2,927)

Gain on sales of investment securities

––

(335)

Proceeds from sales of property and equipment

Impairment loss on investment securities

375

0

Increase (decrease) in allowance for doubtful accounts

136

(556)

Acquisition of intangible assets

144

120

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

1

Payments for investments

(89)

(13)

Increase in allowance for losses on loan guarantees––

1

Increase in allowance for directors’ retirement benefits––

27

Gain (loss) on change in equity in affiliates––(2,720)Refunds of security deposits

248

100

Interest and dividend income

(26)

(877)

Acquisition of deferred assets

(597)

(313)

Interest expense

164

367

Loans made––

(1,451)Other non-cash expense
Increase in trade receivables
Decrease in installment accounts receivable
Decrease in installment accounts receivable, guarantee contracts

Proceeds from investments
Payments of security deposits

44

1,583

Proceeds from recovery of loans(2,427)(4,226)

Other payments

––

4,807

6

2

(551)

(758)

––

862

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

7762

Receipts of interest and dividends

36

416

(30,040)(144,116)––

103,935

Decrease in beneficial interests in secured assets––

10,962

Increase in inventories

(12)

(145)

Increase (decrease) in accounts payable

201

(558)

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

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

Borrowings on long-term debt

2,000

77,0001,194(1,531)

Repayments of long-term debt

––

(19)

––

9,860

Increase (decrease) in other accounts payable and accrued expenses

Net cash used in investing activities
Cash flows from financing activities

Increase in advances received

542

1,119

Proceeds from issuance of corporate bonds

Decrease in deferred installment income

––

(615)

Payment for maturities of corporate bonds

––

(650)

28,47989

Proceeds from minority shareholders pursuant to increase in capital

––

4,015

Acquisition of treasury stock

(2)

(0)

Proceeds from issuance of stock

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

Increase in payables in security brokerage business

61,787282,377

Increase in statutory reserve for security brokerage business

523

1,098

Payment of interest

(150)

(287)

Decrease in deposited marketable securities for security brokerage business

––

7,890

Payment of dividends

(313)

(287)

(2,349)(15,360)

447

1,893

Subtotal

12,644(40,616)

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

Proceeds of security deposits

300

81

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

Net cash provided by (used in) operating activities

9,069(48,058)

Increase in trade loans receivables
Other*Please refer to Notes to Consolidated Statements of Cash Flows of P44.

––

(44)

27,403

235,426

166

507

Net increase in cash and cash equivalents

6,599

43,759Cash and cash equivalents at beginning of year

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

32,39076,149Payment of dividends to minority shareholders
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents

Consolidated Statements of Cash Flows(Before Revision)
Millions of yen

Fiscal 2004

January 1, 2004 to December 31, 2004

Millions of yen

Fiscal 2005

January 1, 2005 to December 31, 2005

Amortization of consolidation adjustment accountJanuary 1, 2004 to December 31, 2004

Fiscal 2005

January 1, 2005 to December 31, 2005

Cash flows from investing activities

Cash flows from operating activities
Net income (loss) before income taxes and minority interests

Fiscal 2004

¥ (8,437)
10,712¥ 34,276
909

Payments for time deposits¥ ––¥ (419)––15(16,745)(178,801)

Proceeds from sale of investment securities––

49,477

Proceeds from redemption of investment securities

––

5,698

Proceeds from sale of cash in trust

––

5,000

Proceeds from withdrawal from time deposits
Acquisition of investment securities

Equity in earnings of affiliates

10,715(1,041)

Depreciation and amortization

2,461

4,064

Loss on sales of property and equipment

133

41

Loss on disposal of property and equipment

179

97

Acquisition of shares of consolidated subsidiaries(5,508)(9,502)

Amortization of start-up costs

––

910

Acquisition of property and equipment(2,652)(2,927)

Gain on sales of investment securities

––

(335)

Proceeds from sales of property and equipment

Impairment loss on investment securities

375

0

Increase (decrease) in allowance for doubtful accounts

136

(556)

Acquisition of intangible assets

144

120

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

1

Payments for investments

(89)

(13)

Increase in allowance for losses on loan guarantees––

1

Increase in allowance for directors’ retirement benefits––

27

Gain (loss) on change in equity in affiliates––(2,720)Refunds of security deposits

248

100

Interest and dividend income

(26)

(877)

Acquisition of deferred assets

(597)

(313)

Interest expense

164

367

Loans made––

(1,451)Other non-cash expense
Increase in trade receivables
Decrease in installment accounts receivable
Decrease in installment accounts receivable, guarantee contracts

Proceeds from investments
Payments of security deposits

44

1,583

Proceeds from recovery of loans(2,427)(4,226)

Other payments

––

4,807

6

2

(551)

(758)

––

862

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

7762

Receipts of interest and dividends

36

416

(30,040)(144,116)––

103,935

Decrease in beneficial interests in secured assets––

10,962

Increase in inventories

(12)

(145)

Increase (decrease) in accounts payable

201

(558)

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

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

Borrowings on long-term debt

2,000

77,0001,194(1,531)

Repayments of long-term debt

––

(19)

––

9,860

Increase (decrease) in other accounts payable and accrued expenses

Net cash used in investing activities
Cash flows from financing activities

Increase in advances received

542

1,119

Proceeds from issuance of corporate bonds

Decrease in deferred installment income

––

(615)

Payment for maturities of corporate bonds

––

(650)

28,47989

Proceeds from minority shareholders pursuant to increase in capital

––

4,015

Acquisition of treasury stock

(2)

(0)

Proceeds from issuance of stock

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

Increase in payables in security brokerage business

61,787282,377

Increase in statutory reserve for security brokerage business

523

1,098

Payment of interest

(150)

(287)

Decrease in deposited marketable securities for security brokerage business

––

7,890

Payment of dividends

(313)

(287)

(2,349)(15,360)

447

2,806

Subtotal

12,644(35,917)

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

Proceeds of security deposits

300

81

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

Net cash provided by (used in) operating activities

9,069(43,358)

Increase in trade loans receivables
Other*Please refer to Notes to Consolidated Statements of Cash Flows of P44.

––

(44)

27,403

235,426

166

507

Net increase in cash and cash equivalents

6,599

48,459Cash and cash equivalents at beginning of year

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

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

Notes to Consolidated Financial Statements

Consolidated Statements of Cash Flows(After Revision)(Before Revision)
Fiscal 2005

Fiscal 2004

Fiscal 2005

Fiscal 2004

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

January 1, 2004 to December 31, 2004

January 1, 2005 to December 31, 2005

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

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

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

1. The reconciliation between the year-end balance of
cash and cash equivalents and the amounts statedin the consolidated balance sheets is as follows:(As of December 31, 2004)
Cash and cash equivalents: ¥ 32,396 million
Restricted cash:(¥ 6) million
Marketable securities:¥ 0 million
Cash and cash equivalents: ¥ 32,390million(As of December 31, 2005)
Cash and cash equivalents: ¥ 82,037 million
Restricted cash:(¥ 4,700) million
Marketable securities:¥ 0 million
Cash and cash equivalents: ¥ 76,149 million(As of December 31, 2004)
Cash and cash equivalents: ¥ 32,396 million
Restricted cash:(¥ 6) million
Marketable securities:¥ 0 million
Cash and cash equivalents: ¥ 32,390million(As of December 31, 2005)
Cash and cash equivalents: ¥ 82,037 million
Restricted cash:(¥ 1,188) million
Marketable securities:¥ 0 million
Cash and cash equivalents: ¥ 80,849million

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

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

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

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

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

(Millions of yen)Company nameDate deemed acquired

Rakuten Credit, Inc.

(Millions of yen)Company name

Rakuten KC Co.,Ltd. LinkShare Corp.

Date deemed acquired

June 30

810,500
61,364
7,268

9,429
2,791
42,291

10,067

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

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

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

Purchase of stock

7,508

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

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

Net payments

Net payments

43,019September 30

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

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

Purchase of stock

September 30(41,153)(Millions of yen)Company nameDate deemed acquired

Rakuten Credit, Inc.

(Millions of yen)Company name

Rakuten KC Co.,Ltd. LinkShare Corp.

Date deemed acquired

June 30

810,500
61,364
7,268

9,429
2,791
42,291

10,067

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

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

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

Purchase of stock

7,508

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

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

Net payments

Net payments

43,019(41,153)

September 30

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

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

Purchase of stock

September 30