Rakuten, Inc. andConsolidated Subsidiaries
Consolidated Financial Statements for theYears Ended December 31, 2008 and 2007

Rakuten, Inc. and Consolidated Subsidiaries

Rakuten, Inc. and Consolidated Subsidiaries

Rakuten,
Inc.Balance
and Consolidated
Subsidiaries
Consolidated
SheetsRakuten,
Inc.Balance
and Consolidated
Subsidiaries
Consolidated
Sheets

December 31, 2008 and 2007
Consolidated Balance Sheets
December 31, 2008 and 2007

December 31, 2008 and 2007
Consolidated Balance Sheets
December 31, 2008 and 2007

Thousands of
U.S. Dollars
Thousands(Note 1)of
Millions of Yen
U.S. Dollars
ASSETS
2008
2007
2008
(Note 1)Millions of Yen
ASSETS
2008
2007
2008
CURRENT ASSETS:¥ 57,437$ 973,174
Cash and deposits (Note 4)¥ 88,588
CURRENTASSETS:354,180
32,241
27,904
Notes andaccounts receivable – trade¥ 57,437$ 1,028,576
973,174
Cash
and deposits(Note4)¥ 88,588
93,63170,739Accounts
receivable– installment(Note 4)354,180
32,241
27,904Notes
and accounts
receivable– trade39,005
3,551
4,497
Accounts
receivable– installment
sales - credit guarantee (Note 6)
1,028,576
93,63170,739Accounts
receivable
4)(Note 5)
1,115,810
Beneficial
interests –ininstallment
securitized(Noteassets101,572
110,144
39,005
3,551
4,497
Accounts
receivableas– deposits
installment- creditguarantee (Note 6)
2,360,671
214,892
230,641
Cash segregatedforsalessecurities
business
1,115,810
Beneficial
interests inassets
securitized
assets (Note5)
101,572
110,144891,506
81,154
188,704
Margin transaction
for securities
business
2,360,671
214,892
230,641
Cashsegregatedas deposits
for forsecurities
business
125,558
11,430
8,731
Short-term
guarantee
deposits
securities
business
891,506
81,154
188,704
Margintransaction
assetsOperatingloans (Note4,for5) securities business
2,072,899
188,696
158,964
125,558
11,430
8,731
Short-term
guarantee
deposits
for securities
28,883
2,629
26,380
Short-term
investment
securities(Note18) business
2,072,899
Operating(Note 4, 5)
188,696
158,964
140,935
12,82915,635
Deferredloans
tax assets
28,883
2,629
26,380
Short-term
investment securities (Note18)
605,595
55,12747,872
Other140,935
12,82915,635
Deferredtax forassets(396,278)
Allowance
doubtful accounts(36,073)(44,447)
605,595
Other
Total current assets¥ 55,127¥ 47,872$ 9,340,514
850,267
903,201(396,278)
Allowance for doubtful accounts(36,073)(44,447)
TotalASSETS:
current assets¥ 850,267¥ 903,201$ 9,340,514
NONCURRENT
231,956
21,11524,027
Property, plant and equipment
NONCURRENT ASSETS:
231,956
21,11524,027
Property,plant
and equipment
Intangible
assets64,466
714,965
65,083
Goodwill (Note 7)
Intangible
28,944
310,116
28,230
Other assets
Goodwill (Note64,466
714,965
65,083
Total7)intangible assets
1,025,081
93,313
93,41028,944
310,116
28,230
Other
Total
intangible
assets1,025,081
93,313
93,410
NVESTMENTS AND OTHER ASSETS:
910,096
82,846
104,070
Investment securities (Note 4, 14)
NVESTMENTS
OTHER
Deferred taxAND
assets(NoteASSETS:
18)
170,388
15,51018,713910,096
82,846
104,070
Investment
securities (Note 4, 14)
321,806
29,29520,609Other
Deferredtax forassets(Noteaccounts
18)
170,388
15,51018,713(59,408)(5,408)(5,107)
Allowance
doubtful
321,806
29,29520,609Other
Investments and other assets
1,342,882
122,243
138,285(59,408)(5,408)(5,107)
Allowance for
doubtfulaccounts
2,599,919
Total
noncurrent
assets236,671
255,722
Investments and other assets
1,342,882
122,243
138,285
Total noncurrent assets
2,599,919
236,671
255,722$ 11,940,433
Total Assets¥ 1,086,938 ¥ 1,158,923$ 11,940,433
Total Assets¥ 1,086,938 ¥ 1,158,923
The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers
outside Japan and have been made at ¥ 91.03 to $1, the rate prevailing of exchange at December 31, 2008
The
translationsof Japanesefinancial
yen amounts
into U.S. dollar amounts are included solely for the convenience of readersSee
notes to consolidated
statements.
outside Japan and have been made at ¥ 91.03 to $1, the rate prevailing of exchange at December 31, 2008
See notes to consolidated financial statements.

LIABILITIES AND NET ASSETSLIABILITIESNET ASSETSCURRENT AND
LIABILITIES:
Short-term debts (Note 3)
CURRENT
CurrentLIABILITIES:
portion of long-term debts (Note 3)
Short-term(Notepayable3)
Notes anddebts
accounts– trade (Note 4)
Current
portionof long-term
debts (Note3) 6)
Accounts
payable- credit guarantee
(Note
Notes
and accounts
Advances
receivedpayable – trade (Note 4)
Accounts
payable- credit(Noteguarantee
Income taxes
payable18) (Note 6)
Advances
Depositsreceived
received for securities business
Incomepayableliabilities(Note 18)
Margintaxes
transaction
for securities business (Note 4)
Deposits
received
for securities
business
Guarantee
deposits
received for
securities businessMargintransaction
liabilitiesborrowings
for securities4) (Note 4)
Collateralized
guarantee
for businesssecurities(Notebusiness
Guarantee
Provision deposits(Note 6) received for securities business
Collateralized
guarantee borrowings for securities business (Note 4)
Other (Note 4)
Provision (Note6) current liabilities
Total
Other (Note 4)
Total
current liabilities
NONCURRENT
LIABILITIES:Long-term debts (Note 3, 4)
NONCURRENT
Provision forLIABILITIES:
loss on interest repayments
Long-term(Note 3,(Note4) 18)
Deferred debts
tax liabilities
Provision
for loss on interest repayments
Other provision
Deferred
Other tax liabilities (Note 18)
Other provisionTotal noncurrent liabilities
Other
Total
noncurrent
liabilities LAWSRESERVES
UNDER
THE SPECIAL
Reserve for financial instrument transaction liabilities
RESERVESTHE SPECIAL
Reserve forUNDER
commodities
transactionLAWS
liabilities
Reserve for financial
instrument
liabilities
Reserves under thetransaction
special laws
Reservefor commodities transaction liabilities
Total
liabilities
Reserves under the special laws
Total
NETliabilities
ASSETS
Shareholders’ equity
NET ASSETS
Capital stock—authorized, 39,418,000 shares;
Shareholders’equity shares in 2008 and 13,076,334 shares in 2007
issued, 13,087,064
Capital39,418,000 shares;
Capitalstock—authorized,
surplusissued,13,087,064
Retainedearningsshares in 2008 and 13,076,334 shares in 2007
CapitalsurplusTreasurystock—at cost, 979.50 shares in 2008 and 977.3 shares
Retainedin 2007 earnings
Treasury stock—at
cost, 979.50equity
shares in 2008 and 977.3 shares
Total shareholders’in 2007
equityVALUATIONTotal
ANDshareholders’
TRANSLATIONADJUSTMENTS
Valuation difference on available - for - sale securities
VALUATION
ADJUSTMENTS
Deferred AND
gainsTRANSLATIONor losses on hedges
Valuation
on available- for - sale securities
Foreign difference
currency translation
adjustments
Deferred gains
or losses
on andhedgesTotalvaluationtranslation adjustment
Foreign currency translation adjustments
Total valuation
andSHARES
translation adjustment
SUBSCRIPTIONRIGHTS TO
SUBSCRIPTIONRIGHTS TO SHARESMINORITY INTERESTS
Total net assets
MINORITY INTERESTS
Total
net assets
TOTAL
LIABILITIES AND NET ASSETSTOTAL LIABILITIES AND NET ASSETS

107,536
119,565
107,536(76,409)
119,565(76,409)(11)
150,681(11)
150,681
656
(336)
656
(1,298)(336)(978)(1,298)(978)243

107,454
119,484
107,454(20,123)
119,484(20,123)(11)
206,804(11)
206,804(21,077)
27(21,077)81
27(20,969)
81(20,969)
128

1,181,312
1,313,473
1,181,312(839,378)
1,313,473(839,378)(122)
1,655,285(122)
1,655,285
7,204(3,687)
7,204(14,256)(3,687)(10,739)(14,256)(10,739)
2,673

243
8,781
158,727
8,781
158,727¥1,086,938

128
7,860
193,824
7,860
193,824¥1,158,923

2,673
96,463
1,743,682
96,463
1,743,682$ 11,940,433¥1,086,938

2
2

Millions of Yen
2008
2007
Millions of Yen
2008
2007
¥ 156,150¥ 140,475
134,156
96,600¥ 156,150¥ 140,475
20,21016,668134,156
96,6003,551
4,497
20,21016,66833,282
23,177
3,551
4,497
10,697
17,07533,282
23,177
142,609148,316
10,697
17,07553,539101,688
142,609148,316
88,749104,92953,539101,688
4,607
40,66688,749104,929
13,452
7,144
4,607
40,66641,85449,207
7,144¥ 13,452
702,856¥ 750,442
41,85449,207¥ 702,856¥ 750,442¥ 197,081¥ 183,404
15,36520,075¥ 197,081¥ 183,404
8,266
5,838
15,36520,075
375
212
8,266
5,838
1,051
1,209
375
212
222,138
210,738
1,051
1,209
222,138
210,738
3,206
3,920
－
11
3,206
3,920
3,217
3,920
－
11
928,211965,100
3,217
3,920
928,211965,100

3
3

Thousands of
U.S. Dollars
Thousands(Note 1)of
U.S. Dollars
2008(Note 1)2008
$ 1,715,373
1,473,761$ 1,715,373
222,010
1,473,761
39,005222,010
365,619
39,005
117,512
365,619
1,566,615
117,512588,145
1,566,615
974,942
588,145
50,613974,942
147,780
50,613459,762
147,780$ 7,721,137
459,762$ 7,721,137$ 2,165,013
168,789$ 2,165,013
90,808
168,789
4,118
90,808
11,5424,118
2,440,270
11,5422,440,270
35,221
123
35,22135,344123
10,196,751
35,344
10,196,751¥1,158,923$ 11,940,433

Rakuten, Inc. and Consolidated Subsidiaries

Rakuten, Inc. and Consolidated Subsidiaries

Rakuten,
Inc.Statements
and Consolidated
Consolidatedof Income Subsidiaries

Rakuten,
Inc.Statements
and Consolidated
Consolidatedof ChangesSubsidiaries
in Net Assets

Years Ended December 31, 2008 and 2007
Consolidated Statements of Income
Years Ended December 31, 2008 and 2007

Year Ended December 31, 2008
Consolidated Statements of Changes in Net Assets
Year Ended December 31, 2008

Thousands of
U.S. Dollars
Thousands
Millions of Yen(Note 1)of
U.S. Dollars
2008
2007
2008
(Note 1)Millions of Yen
2008
2007
¥
249,883¥
213,938$2008
2,745,065

NET SALES
NET
SALES
COST
OF SALES¥ 249,883
55,347 ¥ 213,938
39,480COST OF SALES
Gross profit$ 2,745,065
608,004

55,347
194,536

39,480174,458

608,004
2,137,061

194,536
147,385

174,458
174,339

2,137,061
1,619,086

SELLING, GENERAL
ANDincome
ADMINISTRATIVE EXPENSES (Note 8)
Operating147,385
47,151

174,339
119

1,619,086
517,975

OperatingincomeOTHER INCOME(EXPENSES):Interest income
OTHER
INCOME(EXPENSES):
Dividend
incomeInterest
incomeGain onsales of investment securities
Dividend
Foreignincome
exchange (loss) gain
Gain
on salesof investment
Equityin (losses)
earnings securities
of affiliates
Foreignexchange(loss)
gain
Interest expenses
Equityin (losses)
Commission
feeearnings of affiliates
Interest
expensesGain onsales of noncurrent assets (Note 9)
Commission
fee of investment securities
Gain on receipt
Gain
onon
sales
ofof
noncurrent
assets (Note 9)
Gain
sales
affiliate securities
Gain
onon
receipt
securities
Gainsales ofof investment
subsidiary securities
Gain
on
sales
of
affiliatesecurities
Gain on changes in equity
Gain
on salesof subsidiary
securities
Reversalof provision
for losson business liquidation
Gain
on changes
in equity
Reversalof reservefor financial products transaction liabilities
Reversal
provision
for loss on business liquidation
Loss onofbusinessliquidation
Reversalreservefor financial
products transaction liabilities
Loss onofspecial
retirement
benefitsLossonbusinessliquidation
Loss on sales of noncurrent assets
Loss
onon
specialretirement
benefits assets
Lossretirementof noncurrent
Loss
on
sales
of
noncurrent
Office relocation expensesassets
Loss
onon
retirementof noncurrent
Loss
cancellationof leases assets
Officerelocation
expenses
Provision
for losson business liquidationLosson cancellationof leases
Provisionfor statutory
reserve for securities business
Provision
for
loss
on
businessliquidation
Loss on valuation of investment
securities
Provisionfor statutory
reserve
Impairment
loss (Note10) for securities business
Loss
on —
valuationof investment securities
Other
net
Impairment loss
(Note
10)
Other
(expenses)
income — net
Other — net
OtherBEFORE(expenses)
incomeTAXES— net AND MINORITY INTERESTS(LOSS) INCOME
INCOME

47,151
¥171
867
¥171－
867
(68)
－
(116)
(68)
(2,224)(116)(1,244)(2,224)121(1,244)
267
121－
267－
－31
－
185
31
714
185－
714－
－
(145)
－
(1,855)(145)(691)(1,855)－(691)(4,481)－－(4,481)(67,177)－(5,418)(67,177)(1,077)(5,418)(82,140)(1,077)(82,140)(34,989)

119
¥274
1,707
¥274
1,764
1,707
259
1,764
1,047
259
(1,505)
1,047(670)(1,505)
1,085
(670)
－
1,085
53,873－
1,037
53,873598
1,03740
598－
40
(412)
－
(240)
(412)
－
(240)
(1,426)－(304)(1,426)(3,108)(304)－(3,108)
(778)
－
(322)
(778)
(750)
(322)
(1,615)(750)
50,554(1,615)50,55450,673517,975$1,877
9,527$1,877－
9,527
(752)
－
(1,277)(752)(24,430)(1,277)(13,668)(24,430)
1,333(13,668)
2,934
1,333－
2,934－
－
339
－
2,029
339
7,845
2,029－
7,845－－(1,598)－(20,383)(1,598)(7,586)(20,383)－(7,586)(49,229)－－(49,229)(737,964)－(59,517)(737,964)(11,827)(59,517)(902,347)(11,827)(902,347)(384,372)(LOSS)
INCOMEINCOMETAXESBEFORE(Note 18)INCOME TAXES AND MINORITY INTERESTS
Income taxes - current
INCOME
TAXES
18)
Incometaxes(Note- deferred
Income taxes - current
Income taxesIncome- deferredtaxes(34,989)
15,695
4,911
15,695
4,911
20,60650,673
20,942(5,971)
20,942(5,971)
14,971(384,372)
172, 417
53,951
172, 417
53,951
226,368

20,606(617)

14,971(1,197)226,368(6,788)(617)¥ (54,978)¥(1,197)
36,899(6,788)$ (603,952)

Gross profit
SELLING, GENERALAND ADMINISTRATIVE EXPENSES (Note 8)

Income taxesIN LOSSMINORITY INTERESTSMINORITY
INTERESTS
NET (LOSS)INCOME IN LOSS
NET (LOSS) INCOME¥ (54,978)¥ 36,899

As of
As of

Capital stock
Capital surplus
Retained
Capitalstockearnings
Treasurystock
Capitalsurplus
Shareholders’equityRetainedearnings

Dec. 31,2007
Dec. 31,2007

Issuanceof capitalstockIssuanceof capital¥107,454
stock ¥81
119,484
81(20,123 )¥107,454¥81 －
119,484(11 )81 －206,804
162(20,123)－

Treasury stock
Valuation difference
Shareholders’on availableequity– for sale securities
Valuation difference
onDeferredavailablegains– for -orlosseson hedges
sale
securities
Foreigngains
currency
Deferredortranslation
losseson hedges
adjustments
Foreigncurrency
Valuationandtranslationtranslation
adjustments
adjustments
Valuation andtranslation
Subscription rights toadjustments
shares(11 )206,804

Subscription
rights to
Minority interests
sharesNet assets
Minority interests
Net assets, Dec. 31,
Net2008
assetsthousands of
U.S. dollars (Note 1)
Net assets, Dec. 31,
2008 thousands of
U.S. dollars (Note 1)

－
162

Cash
dividends
paid
Cashdividends－
paid－¥ (1,308－ )－－(1,308¥ (1,308) )Millions of Yen

Changes in fiscal year 2008
Millions of Yen
Net changes
Changes
Purchasein items otherTotal ofin theNet Changes in fiscal year 2008
ofthan those inscope ofchanges inlosstreasuryNetchanges
Changesshareholders’consolida Purchasefiscal 2008stock
in items
otherTotal ofin theequitytion
Netofthan those inscope ofchanges inlosstreasury－ consolida －－ shareholders’ － fiscal 2008¥81
stock －－－
81
equitytion －¥ (54,978)¥(1)(56,285)
－
－
－－
－－
¥81
¥ (0 )－－－－－－－
81 (0)(54,978(56,123)¥ (54,978) )¥ (1)(1)－ (0 )－－(56,285)－(1,308 )－(54,978 )¥ (0 )
(0 )

－
－

(0)
(56,123)

Dec. 31,
2008¥107,536
119,565(76,409)¥107,536
119,565(11)150,681(76,409)(11)
150,681(21,077 )

－

－

－

－

－

¥21,733

21,733656(21,07727
)

－－

－－

－－

－－

－－

(363)
¥21,733(363)
21,733

(336)
656

27
81

－

－

－

－

－

－

(363)
(1,379)(363)(1,379)(336)(1,298)81 )(20,969

－－

－－

－－

－－

－－

(1,379)19,991(1,379)19,991(1,298)(978)(20,969
)
128

－－

－－

－－

－－

－－

19,991
115

19,991115

(978)
243

7,860
128
¥193,824

－
－
¥162
－

－
－
¥ (1,308 )－－－¥ (54,978 )
－

－
－
¥ (1)
－

－
－
¥ (0 )－

921
115¥21,027921
115¥ (35,097)

8,781
243
¥158,727

7,860

－

－

－

¥193,824¥162¥ (1,308 )¥ (54,978 )$2,129,227$1,780$ (14,364 )$ (603,952 )$2,129,227$1,780$ (14,364 )$ (603,952 )See notes to consolidated financial statements.
See notes to consolidated financial statements.

$ (603,952)

See notes to consolidated financial statements.
See notes to consolidated financial statements.

4
4

－
(1)

Dec. 31,
2008

5
5

－

¥ (1)
$ (6)
$ (6)

¥ (0 )$ (1 )$ (1 )

921

921

8,781

¥21,027¥ (35,097)¥158,727$230,996$ (385,547)$1,743,680$230,996$ (385,547)$1,743,680

Rakuten, Inc. and Consolidated Subsidiaries

Rakuten, Inc. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
Years Ended December 31, 2008 and 2007

Consolidated Statements of Cash Flows
Years Ended December 31, 2008 and 2007

Millions of Yen
2008
2007

Thousands of
U.S. Dollars(Note 1)
2008
Net cash (used in) provided by operating activities - (Brought forward)

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:(Loss) income before income taxes and minority interests¥ (34,989 )¥ 50,673$ (384,372)

Adjustments for:
Amortization of goodwill
Equity in earnings (losses) of affiliates
Depreciation and amortization
Loss on sales of noncurrent assets
Loss on retirement of noncurrent assets
Gain on sales of securities
Gain on sales of affiliate securities
Gain on sales of subsidiary securities
Loss on valuation of investment securities(Decrease) increase in allowance for doubtful accounts(Decrease) increase in provision for loss on interest repayments
Gain on changes in equity
Interest and dividend income
Interest expenses
Other loss
Increase in notes and accounts receivable – trade
Increase in accounts receivable – installment
Decrease in accounts receivable installment sale – credit guarantee
Decrease (increase) in beneficial interests in securitized assets
Decrease in accounts payable - credit guarantee
Decrease in operating receivables for securities business
Decrease in operating payable for securities business(Decrease) increase in reserve for financial instruments transaction liabilities(Decrease) increase in advances received from borrowing for securities business(Increase) decrease in operating loans receivable
Income taxes paid
Income taxes refund
Other — net

3,931
116
12,284
145
1,855
－
－
－
67,177(8,125 )(4,710 )(31 )(1,038 )
2,224
4,781
(4,146 )(22,892 )
946
8,572(946 )
128,326(77,630 )(714 )(36,059 )(29,732 )(23,453 )
1,031(390 )

3,752(1,047 )
8,518
35
1,426
(1,835 )(53,873 )(1,037 )322
17,146
16,527(598 )(1,981 )
1,505
1,215
(4,143 )(7,383 )556(36,931 )(556 )
37,806(31,581 )
778
8,066
26,618(8,497 )
7,943
9,543

43,1791,277
134,945
1,598
20,383－－－
737,964(89,258)(51,743)(339)(11,404)
24,43052,519(45,543)(251,480)
10,395
94,166(10,395)
1,409,716(852,794)(7,845)(396,120)(326,617)(257,640)
11,321(4,281)

Net cash (used in) provided by operating activities - (Carried forward)¥ (13,467 )¥ 42,967$ (147,938)

See notes to consolidated financial statements.

Millions of Yen
2007
2008

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES:Payments into time deposits
Proceeds from withdrawal of time deposits
Proceeds from sales and redemption of securities
Purchase of investment securities
Proceeds from sales of investment securities
Proceeds from redemption of investment securities
Proceeds from sales of affiliates securities
Purchase of investments in subsidiaries
Purchases of investments in subsidiaries resulting in change in scope of
consolidation
Proceeds from sales of investments in subsidiaries resulting in change in scope of
consolidation
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Payment for lease and guarantee deposits
Proceeds from collection of lease and guarantee deposit
Payment of loans receivableCollection of loans receivable
Proceeds from transfer of business
Other payments
Other proceeds
Interest and dividends income received
Net cash (used in) provided by investing activities
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:Net increase (decrease) in short-term debt
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from issuance of common stock
Proceeds from sales and leaseback
Repayment of lease obligations
Purchase of treasury stock
Interest expenses paid
Proceeds from minority shareholders pursuant to increase in capital
Proceeds from stock issuance to minority shareholders
Repayments of stock issuance to minority shareholders
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
EFFECT OF CHANGE OF THE SCOPE OF CONSOLODATION ON CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS (Note 1)

See notes to consolidated financial statements.

6

7

Thousands of
U.S. Dollars(Note 1)2008

¥ (13,467 )¥ 42,967$ (147,938 )(9,296 )3,873－(21,071 )17170－(404 )(4,058 )
3,339
3,618
(8,650 )65,1023,416
3,225(654 )(102,121 )
42,546－(231,472 )
184
1,869
－
(4,443 )(537 )(712 )(5,901 )195(3,699 )1,663(12,848 )(257 )
1,350(102 )
104－(3,009 )
1,753
1,121
(40,977 )－(5,259 )1,818(11,371 )(999 )
1,512(441 )
443
1,822(744 )
821
2,842
55,0702,144(40,634 )
18,269(141,139 )(2,825 )14,835(1,121 )1,146－(33,052 )
19,263
12,308(450,144 )

14,605
156,410(106,499 )162
778(811 )(0 )(2,310 )
623
1,030
－
(1,299 )(292 )
62,397(865 )
7,088¥73,861(71,589 )40,004(83,105 )318
3,048(142 )(0 )(1,483 )
329
40
(85 )
(648 )(315 )(113,628 )232(15,358 )¥89,219

160,437
1,718,224(1,169,929 )
1,780
8,549
(8,894 )(1 )(25,380 )
6,840
11,315－(14,272 )(3,209 )685,460(9,512 )77,866$811,388

335¥81,284－¥73,861

3,682$892,936

Rakuten, Inc. and Consolidated Subsidiariese.

Intangible Assets—Amortization on intangible assets is computed by the straight-line method.
Software for internal use is amortized by the straight-line method over its estimated useful life
(generally five years). Patents are amortized by the straight-line method over seven years.

f.

Leases—For leased assets acquired before the Japanese accounting standards for leases changed,
finance leases that deem to transfer ownership of the leased assets to the lessee are to becapitalized, while other finance leases are permitted to be accounted for as operating leasetransactions if certain "as if capitalized" information is disclosed in the notes to the lessee's financial
statements.
Assets leased in finance leases that transfer ownership of the leased assets are depreciated using
the same method that is applied to fixed assets. Assets leased in finance leases that do not transfer
ownership of the leased assets are depreciated by the straight-line depreciation method over theestimated useful lives of the each asset, which is deemed to be the lease period, with zero residual
value.

g.

Allowance for Doubtful Accounts—An allowance equal to estimated losses is established toprepare for losses from credit guarantees. The method of estimating the allowance is based on credit
loss ratio for general credit, and on likelihood of collection for doubtful accounts.

h.

Reserve for Points—An amount equivalent to points that are earned by customers and are
expected to be used in the future is recorded for the fiscal year. Provision of allowance for points areincluded in advertising and promotion expenses.

i.

Allowance for bonus—At the company and certain consolidated subsidiaries, an allowance forbonus is provided for the estimated amounts to be paid in the subsequent period based on theservice provided during the current year.

j.

Provision for Loss on Business Liquidation—At the company and certain consolidated
subsidiaries, a reserve for loss on business liquidation, merger and abolishment were recorded
based on an estimate of future expenses.

k.

Allowance for Retirement Benefits—At certain consolidated subsidiaries, an allowance is made for
employees’ retirement benefits based on the estimated benefit obligation at the fiscal year-end.
Actuarial differences are recorded from the following fiscal year by a the straight-line method using afixed number of years (10 years) within the average remaining service period of employees.

l.

Allowance for Loss on Interest Repayments—Rakuten KC has calculated and recorded anallowance for losses on interest repayments based on factors such as the actual ratio of repayments
made and average amount of repayments over the reasonable estimate period. The expected loss of¥14,069 million for write-offs of principals by interest repayment claims was included in the allowancefor doubtful accounts.

Notes to Consolidated Financial Statements
Years Ended December 31, 2008 and 2007

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in Japan, which are different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards, and have been compiled from the consolidated
financial statements prepared by Rakuten, Inc. (the "Company") and consolidated subsidiaries as required by
the Financial Instruments and Exchange Law of Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which theCompany is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts
are included solely for the convenience of readers outside Japan and have been made at the rate of ¥91.03 to$1, the approximate rate of exchange at December 31, 2008. Such translations should not be construed as
representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s
presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Consolidation—The consolidated financial statements as of December 31, 2008 include theaccounts of the Company and its 46 (unchanged since 2007) significant subsidiaries (together, the"Group"). Under the control or influence concept, those companies in which the Company, directly or
indirectly, is able to exercise control over operations are fully consolidated.
Investments in 10 (13 in 2007) affiliates are accounted for by the equity method. Those companies
over which the Group has the ability to exercise significant influence in terms of their operating andfinancial policies are accounted for by the equity method.
Investments in the remaining 17 (8 in 2007) non-consolidated subsidiaries and affiliates are stated atcost. If the equity method of accounting had been applied to the investments in these companies,
the effect on the accompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All
material unrealized profit included in assets resulting from transactions within the Group iseliminated.

b.

Cash and Cash Equivalents—Cash and cash equivalents as stated in the consolidated statementsof cash flows consist of cash on hand, securities and deposits that can be converted to cash at any
time, and short-term liquid investments with a maturity not exceeding three months at the time ofpurchase and whose value is not subject to significant fluctuation risk.

c.

Securities—Marketable and investment securities are classified and accounted for, depending on
management's intent, as follows: (1) trading securities, which are held for the purpose of earning
capital gains in the near term are reported at fair value, and the related unrealized gains and losses
are included in earnings, (2) held-to-maturity debt securities, which are expected to be held tomaturity with the positive intent and ability to hold to maturity are reported at amortized cost,(3) available-for-sale securities, which are not classified as either of the aforementioned securities,
are reported at fair value with unrealized gains and losses, net of applicable taxes, reported in a
separate component of equity. The cost of available-for-sale securities sold is computed by themoving-average method and (4) non-marketable available-for-sale securities are stated at cost
determined by the moving-average method.

d.

Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation ofproperty, plant and equipment is computed substantially by the declining-balance method at rates
based on the estimated useful lives of the assets, while the straight-line method is applied tobuildings.
8m. Reserve for Financial Instrument Transaction Liabilities—At a certain consolidated subsidiary,provision is made for possible loss resulting from securities transaction accidents. The amount of thereserve is provided based on Article 175 of the Cabinet Order Concerning Transactions in Financial
Instruments, which is based on the provisions of Article 46-5 of the Financial Instruments andExchange Law. Amount of statutory reserve for security brokerage business based on Article 35 of
the former Cabinet Office Ordinance Concerning Securities Companies as stipulated by Article 51 of
the former Securities and Exchange Law in 2007 is included here.
n.

Reserve for Liabilities on Transaction in Commodities—A certain consolidated subsidiary
allocate the amounts stipulated in the Commodity Exchange Law to provide for losses resulting fromcontingencies relating to commodity transactions, in accordance with the provisions of Article 221 of
the Commodity Exchange Law.

o.

Derivatives and Hedging Accounting
Hedging policies:
The Group uses derivative financial instruments to manage its exposures to fluctuations in foreignexchange and interest rates. Foreign exchange forward contracts, interest rate swaps and interest
rate caps are utilized by the Group to reduce foreign currency exchange and interest rate risks. The
Group does not enter into derivatives for trading or speculative purposes.
93.
Interest rate swaps and interest rate caps are used to establish hedges for exposure to interest rate
volatility risk associated with borrowings. Hedged items are identified by each individual contract.
Foreign exchange volatility risks associated with foreign currency-denominated receivables andpayables relating to business transactions are, in accordance with certain company rules, managedby using currency forward agreements to reduce foreign currency exchange risks in actual demandof securities transactions.
Hedge accounting:
For interest rate swaps and some interest rate caps, deferred hedge accounting has been adopted.
However, a special method is used for interest rate swaps which meet certain conditions. The
appropriation method has been adopted for foreign currency-denominated receivables andpayables.
Hedging instruments and hedged items:
Hedging instruments comprise interest rate swaps, interest rate caps and currency forward
agreements. Hedged items comprise loans and foreign currency-denominated receivables andpayables relating to business transactions.
Method for evaluating effectiveness of hedging activities:
For interest rate swaps and interest rate caps, the company compares the cumulative changes incash flows of the hedged items and hedging instruments every six months. The effectiveness of thehedge is determined based on the cumulative changes of the hedged items and instruments, alongwith other items. However, this evaluation is not performed for interest rate swaps that use special
methods.
For currency forward agreements, the effectiveness is determined by the currency, amount andsettlement date of the hedged item based on the company management data.
p.

q.

Consumption Taxes－The tax-excluded method is used in consumption tax accounting for national
and local consumption taxes.
Goodwill—The excess of the cost of an acquisition over the fair value of the net assets of theacquired subsidiary at the date of acquisition is called goodwill. The goodwill is amortized over theperiod in which such action is deemed effective. However, if the amount is marginal, the entire
amount is amortized at the date of acquisition.

r.

Foreign Currency Transactions—All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at thebalance sheet date. The foreign exchange gains and losses from translation are recognized in the
consolidated statements of income to the extent that they are not hedged by forward exchange
contracts.

t.

Foreign Currency Financial Statements— The balance sheet accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the exchange rate as of the balance sheet date
except for net assets, which is translated at the historical rate. Revenue and expense accounts ofconsolidated foreign subsidiaries are also translated into Japanese yen at the exchange rate ofbalance sheet date.
Differences arising from such translation are shown as "Foreign currency translation adjustments" ina separate component of net assets.

u.

Income Taxes—The provision for income taxes is computed based on the pretax income included in
the consolidated statements of income. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes aremeasured by applying currently enacted tax laws to the temporary differences.

10

SHORT-TERM AND LONG-TERM DEBT
Short-term debt at December 31, 2008 and 2007 consisted of notes to banks, bank overdrafts, andcommercial paper and lease obligations. Short-term and long-term debt at December 31, 2008 and 2007
consisted of the following:
Corporate bonds
Millions of Yen
2007
2008
Rakuten, Inc. (due 2010 with interest rate of 1.32%)
Rakuten Credit, Inc. (due 2010 with interest rate of 1.75%)
Rakuten, Inc. (due 2012 with interest rate of 1.68%)
Total¥ 6,000
2,010
10,00018,010¥10,000
3,000－
13,000

Annual maturities of corporate bonds at December 31, 2008 were as follows:Year Ending
December 31

2008
Millions of Yen

2009
2010
2011
2012

¥ 4,990
5,020
4,000
4,000

Total

¥18,010

Borrowing and others
Millions of Yen
2007
2008
Short-term bank loans
Long-term bank loans, due within one year
Long-term bank loans, due after one year
Other debt with interest
Commercial paper
Margin transaction liabilities
Lease obligation, due within one year
Lease obligation, due after one year

¥ 142,150
128,185
181,065¥ 134,175
91,023173,072

14,00025,251
981
2,996

6,300
84,410
587
2,321

Total

¥ 494,628¥ 491,888

Weighted average interest rates of loans as of December 31, 2008 and 2007are follows:
2008
Short-term bank loans
Long-term bank loans, due within one year
Long-term bank loans, due after one year
Commercial paper
Margin transaction liabilities
Lease obligation, due within one year
Lease obligation, due after one year

1.76%
2.15%
1.94%
2.39%
1.11%
－
－

11

2007
1.80%
2.15%
2.04%
1.44%
1.11%
3.21%
3.21%

Annual maturities of corporate bank loans and lease obligations at December 31, 2008 were as follows:
2008
Year Ending
December 31
Millions of Yen
2010
2011
2012
2013

81,45657,906
29,71014,623

Total¥183,695(4)Fair value of marketable securities received as collateral:
Millions of Yen
2007
2008
Securities pledged for loans receivable for margin transactions
Securities borrowed on margin transactions
Substitute securities for guarantee deposits received on futures
5.

PLEDGED ASSETS

6.

(1)Assets pledged as collateral:
The carrying amounts of assets pledged as collateral for short-term bank loans of ¥41,395 and¥59,763 million and the above collateralized long-term debt at December 31, 2008 and 2007 were as
follows:
Millions of Yen
2007
2008
Deposits
Accounts receivable - installment and operating loans
Receivable from lease contracts
Investment securities
Total

100
127,970
169
43,771¥¥172,010¥217,049¥

LINE-OF-CREDIT AGREEMENTSCOMMITMENTS AND CONTINGENCIES
Installment accounts receivable, guarantee contracts and accounts receivable, guarantee contracts
which a consolidated subsidiary does not provide certain service for collection are not recorded in the
consolidated balance sheet. Such balance as of December 31, 2008 and 2007 were as follow:
Millions of Yen
2008
2007

100
139,531444
76,974

Securities in custody from customers in the amount of ¥7,967 million and ¥18,385 million were
pledged as collateral for short-term bank loans at December 31, 2008 and 2007, respectively.
Securities in the amount of ¥25,665 million and ¥45,470 million were pledged as collateral for shortterm loans and borrowings related to margin transactions at December 31, 2008 and 2007,
respectively. Securities loaned were pledged as collateral for borrowings in the amount of ¥4,607
million and ¥40,666 million at December 31, 2008 and 2007, respectively.

¥161,540
1,791
178,143

Certain subsidiaries make loans to customers who have credit card or loan card issued by subsidiaries.
Unused lines of credit granted to customers amounted to ¥977,673 million and ¥873,076 million at
December 31, 2008 and 2007, respectively.

Unused commitment lines for financing at December 31, 2008 and 2007 amounted to ¥23,680 millionand ¥61,050 million, respectively.
4.

¥ 60,732
8,340
119,187

Credit guarantee
Provision for loss on guarantees¥33,699(90)¥38,505－

Total¥33,609¥38,505

The Group had guarantees tor customers in the amount of ¥201 million and ¥231 million at
December 31, 2008 and 2007, respectively.
.
7.

GOODWILL
The change in the carrying amount of goodwill for the years ended December 31, 2008 and 2007 is asfollows:(2)Liabilities for which assets were pledged as collateral:
Millions of Yen

Millions of Yen
2007
2008
Short-term bank loans
Long-term bank loans, due within one year
Borrowings related to margin transactions
Long-term bank loans, due after one year
Accrued liabilities
Accounts payable
Total¥ 41,395
92,74025,251
63,20569
1,445¥244,105¥ 59,764
64,98384,409115,73971
1,780¥326,746(3)Fair value of marketable securities pledged as collateral:
Millions of Yen
2007
2008
Securities loaned on margin transactions
Securities pledged for loans payable for margin transactions
Securities loaned by promissory note collateralized

12¥ 30,588
26,035
4,483¥ 17,638
83,41240,007

Balance at December 31, 2006
Goodwill acquired during the year
Amortization
Balance at December 31, 2007
Goodwill acquired during the year
Amortization
Impairment
Balance at December 31, 2008

¥64,795
3,423(3,752)64,466
5,680(3,931)(1,132)¥65,083

Goodwill acquired during fiscal 2007 mainly consisted of goodwill related to the acquisition of Fusion
Communications Corp, and additional shares of Rakuten Securities Holdings, Inc. Goodwill acquired
during fiscal 2008 mainly consisted of goodwill related to the acquisition of additional share of O-net, Inc.
Goodwill of Rakuten Research, Inc. was impaired in fiscal 2008 due to the difficulty in recovery of thecompany’s net assets based on estimated future financial performance under the current businessenvironment.

13

8.

SALES, GENERAL AND ADMINISTRATIVE EXPENSES

10.

The breakdown of selling with the sales, general and administrative expenses is as follows:

The Rakuten Group recorded the impairment losses in the year ended December 31, 2008 as follows.

Millions of Yen
2008
2007
Advertising and promotion expenses
Personnel expenses
Depreciation
Communication and maintenance expenses
Outsourcing expenses
Credit loss
Provision of allowance for doubtful accounts
Provision of allowance for interest repayments
Other
Total selling, general and administrative expenses¥ 15,126
34.358
11,145
13,52021,604544
14,897－36,191¥ 147,385

IMPAIRMENT LOSSES

Main assets for which impairment losses were recognized:¥ 12.827
26,603
7,886
10,792
20,798167
39,552
19,42336,291¥ 174,339

Research and development cost in general administration expenses for the year ended December 31,
2008 and 2007 were ¥188 million and ¥76 million yen respectively.

Company
Rakuten Financial
Solution, Inc. (Tokyo
Metropolitan Area)
Rakuten Securities, Inc.
(Kanagawa Prefectureand elsewhere)
Rakuten KC Co., Ltd.
(Miyazaki Prefecture andelsewhere)
Rakuten Research, Inc.
(Tokyo Metropolitan Area)

PurposeType
Software

Banking Business

Idle assets
Leased real estate,marina project—

Other
Facilities, etc., building
structures
Leased assets
Land

Amount of Impairment
Loss (Millions of yen)
2,080
67
141
1,263
287

Buildings

60

Goodwill

1,132(A).Asset Grouping Method
9.

GAIN/LOSS on SALES and LOSS on RETIREMENT of NONCURRENT ASSETSIn principle, the Rakuten Group groups assets by business units. Idle assets and leased real estate
are assessed separately for each property.

The gain on sales of noncurrent assets for the year ended December 31, 2008 and 2007 are as follows:(B).Process Leading to Recognition of Impairment Losses
Millions of Yen
2008
2007
－
¥ 121
0
¥121

Building and structures
Land
Other
Total gain on sales of noncurrent assets

¥ 28
1,005
52
¥1,085The loss on sales of noncurrent assets for the year ended December 31, 2008 and 2007 are as follows:
Millions of Yen
2008
2007
Building and structures
Tool, equipment and fixtures
Software
Other
Total loss on sales of noncurrent assets

¥65
44
20
16
¥145

¥ 26
9
－
－

¥35

The loss on retirement of noncurrent assets for the year ended December 31, 2008 and 2007 are as follows:
Millions of Yen
2008
2007
Building and structures
Tool, equipment and fixtures
Machinery and equipment
Software
Other
Total loss on retirement of noncurrent assets

¥331
228
510
659
127
¥1,855

14

¥ 283
377
26
586
154
¥1,426(1) Rakuten Financial Solution, Inc
An impairment loss was recorded for account system facilities that are no longer required due tothe cancellation of an operational partnership contract with The Tokyo Tomin Bank, Limited in theyear.
(2) Rakuten Securities, Inc.
An impairment loss was recorded for leased assets and other items that will no longer be used as aresult of the relocation of offices in fiscal 2008. This relocation led to the centralization of data
center operations and a decision to dispose of assets.
(3) Rakuten KC Co., Ltd.
An impairment loss was recorded to reflect a significant decline in the recoverability of assets thatthe company, decided to dispose with the sale of a business after a review of unprofitable
operations. An impairment loss was also recorded for leased real estate vacated by tenants.
(4) Rakuten Research, Inc.
An impairment loss was recorded for goodwill, based on a judgment that the value of net assets
was unlikely to recover. In view of the impact of the company’s business environment on its future
income and outlook.
(C).Method Used to Estimate Recoverable Amounts
Recoverable amounts are calculated by using agreed sale prices in the case of business assets on saleagreements, and the appraised values of leased real estate. The recoverable amounts of otherbusiness assets, idle assets and goodwill are deemed to be zero.

15

11.

CASH AND CASH EQUIVALENTS
b.

Obligations under finance leases:

The reconciliation between the year-end balance of cash and deposits stated in the consolidatedbalance sheet and cash and cash equivalents stated in the consolidated statement of cash flow is asfollows:
Millions of Yen
2007
2008

December 31

12.

Millions of Yen
2008
2007

Cash and deposits
Time deposit over three months’ maturity
Deposits separately kept
Deposits with restrictions
Securities¥ 88,588(4,396)(4,700)
(837)
2,629

¥ 57,437(3,973)(4,700)(1,284)
26,380Cash and cash equivalents¥ 81,284¥ 73,861

Pro forma information regarding of leased properties acquired before change of accounting
standard for lease such as acquisition cost, accumulated depreciation, obligations underfinance lease, depreciation expense, impairment loss interest expense and other information
regarding of finance leases that do not transfer ownership of the leased assets to the lessee onan "as if capitalized" basis for the years ended December 31, 2008 and 2007 were as follows:

Building

VehicleAcquisition costLess: Accumulated depreciation
Impairment loss

¥12
8

¥21
14

¥8,2774,181－－

Net amount¥4¥7¥ 4,369
9,256

Total

¥8,128¥13,625

Lease payment depreciation expense, deemed interest expenses and other information underfinance leases:
Millions of Yen
2007
2008

A. The Group leases buildings, machinery, furniture and fixtures, software and vehicle.

Millions of Yen
2008
Furniture
andFixtures
Machinery¥3,2894,839

c.

LEASESa.

Due within one year
Due after one year

Depreciation expense
Deemed interest expense
Impairment loss
Reversal of impairment of lease assets¥4,021
273
1,268
100

¥4,032
345
198

Lease payments¥4,440¥4,352d.

B.

Depreciation expense and interest expense, which are not reflected in the accompanying
consolidated statements of income, are computed by the straight-line method and the interest
method, respectively.

Finance Lease

SoftwareTotal¥ 1,121807－¥17,695
9,698
155

I.

－

¥8,264
4,688
155

Description of leased asset
Intangible fixed asset
This is a settlement system (software) used for the Credit and Payment Business.

¥4,096¥3,421¥ 314¥7,842II.

Depreciation method for leased asset
The method is as described in “Basis of Presenting Consolidated Financial Statements”
under “2 Depreciation Methods for Major Depreciated Assets” of “ f. Significant Accounting
Policies.”a.

Finance leases that result in the transfer of ownership

Millions of Yen
2007

Building

Furniture
andFixtures

Acquisition costLess: Accumulated depreciation
Impairment loss

¥21
7

¥12,506
4,746－

Net amount¥14b.
Machinery

SoftwareTotal¥1,130763－¥11,825
6,417
199

－

¥25,482
11,933
199¥7,760¥ 5,209¥ 5,209¥13,350

Finance leases that do not result in the transfer of ownership
I.

Description of leased asset
i. Tangible fixed asset
These consist primarily of telephone exchange equipment (tools, equipment, fixtures)
used for the Credit and Payment Business, as well as a charging system andtelecommunications equipment used for the Telecommunications Business.
ii. Intangible fixed asset
This consists of software.

II.

16

－

Depreciation method for leased assets
The method is as described in “Basis of Presenting Consolidated Financial Statements”
under “2 Depreciation Methods for Major Depreciated Assets” of “ f. Significant Accounting
Policies.”

17

Obligations under operation leases:

14.
Millions of Yen
2008
2007

13.

Due within one year
Due after one year

¥ 415
2,366

¥ 181
1,581

Total

¥2,781¥1,762LEASED ASSETS
Leased assets include furniture and fixtures and other assets which the company leases to its customers,
and the values of such leased assets as of December 31, 2008and 2007 were as follows:
Millions of Yen
2008
2007

SECURITIESThe costs, unrealized gains and losses and aggregate fair values of marketable securities at December
31, 2008 and 2007 were as follows:

December 31, 2008

Millions of Yen
Unrealized
Unrealized
Gains
Losses

Cost

Marketable securities classified as
Trading
Available-for-sale
Equity securities
Other

－

－

－

¥54,94650¥2,586
13

¥609
－

Fair
Value

¥

118

56,92363

Note: The carryings value shown above are the amount after adjusted impairment losses. Valuation
loss on investment securities of ¥66,952 million was recognized in fiscal 2008.
December 31, 2007

Furniture and fixtures
Other
Total
Accumulated depreciation
Net leased assets¥ 8,733
86
8,819(8,491)¥ 11,055
117
11,172(10,549)

¥328

¥623

The aggregate receivables from the lessees including equipment costs, unearned income and executory
costs, which were not recorded on the books of account, as of December 31, 2008 and 2007, were as
follows:
Millions of Yen
2008
2007
Due within one year
Due after one year

¥191
154

¥297
372

Total

¥345

¥669

Receivables from unexpired leases related to subleased items other than which listed above amount to¥6,725 million.
Receivables lease fees, depreciation and deemed interest income as of December 31, 2008 and 2007
were as follows:
Millions of Yen
2008
2007
Receivable lease fees
Depreciation
Deemed interest income

¥228
207
22

The amount of interest income booked is based on the interest method.

18

¥338
271
37

Marketable securities classified as
Available-for-sale
Equity securities¥122,527¥4,496¥28,014¥99,009

Note: When the market price has fallen by 50% or more compared with the acquisition cost, an
impairment loss is presumed to occur. If the market price has fallen by 30% or more but less than
50% compared with the acquisition cost, an impairment loss is evaluated for the amount deemed tobe necessary based on an assessment of recoverability.
Available-for-sale securities for which fair value is not readily determinable as of December 31, 2008 and2007 were as follows:
Millions of Yen
2007
2008
Equity securities of unlisted corporations
Negotiable deposit
Open-end bond investment trust
Others¥ 24,249
－
2,629
641

¥ 3,753
22,5003,879
772

Proceeds from sales of available-for-sale securities for the years ended December 31, 2007 was¥8,824 million. Gross realized gains on these sales, computed on the moving average cost basis, for theyears ended December 31, 2007 was ¥2,615 million. Gross realized losses on these sales was¥236 million for the year ended December 31, 2007.
The face values of debt securities by contractual maturities for securities classified as available-for-salesecurities at December 31, 2008 and 2007, were as follows:
Millions of Yen
2007
2008
－

Negotiable deposits (Due within one year)19¥ 22,500

15.

DERIVATIVES

16.

The Group enters into foreign currency forward contracts to hedge foreign exchange risk associated withcertain assets and liabilities denominated in foreign currencies. The consolidated subsidiaries also enter
into interest rate swap and interest rate cap contracts to manage their interest rate exposures on certain
liabilities.

RETIREMENT AND PENSION PLANS
Employees in certain consolidated subsidiaries are granted a tax-qualified pension plan and with a lumpsum retirement and pension plan.
Information concerning retirement benefit obligation:
Millions of Yen
2008
2007

Derivatives will not be used for speculative purposes. For currencies, derivatives are used to hedge
exposure to the effects of foreign exchange rate volatility on foreign currency-denominated receivables
and payables for the purpose of stabilizing earnings. For interest rates, derivatives are used to hedge
exposure to the possibility of interest rate associated with loan increases.

Projected benefit obligation
Fair value of plan assets
Unfunded retirement benefit obligation
Unrecognized actuarial gain (loss)
Net retirement benefit obligation as shown on balance sheet
Allowance for retirement benefits

Because the counterparties to these derivatives are limited to major international financial institutions,
the Group views the likelihood of losses from credit risk as limited.
Derivative transactions are conducted under the byelaw of consolidated subsidiaries in accordance with
the Group Derivative Transaction Rules which regulates use of derivatives to be limited to actual
demand and not for speculative purposes. Foreign exchange forward contracts conducted byconsolidated subsidiaries are controlled by Operational Department at Rakuten, Inc. Other derivativetransactions are controlled by Finance Department.

¥ 3,704(2,617)
1,087
(750)
337
¥ 337

¥ 4,276(4,155)
121
59
180
¥ 180

Certain consolidated subsidiaries that have a retirement benefit plan use the simplified method for
calculating retirement benefit obligations.
Retirement benefit expenses:
Millions of Yen
2008
2007

Fair value of foreign currency as of December 31, 2008 is as follow:
Millions of Yen
Contractprincipal
Transactions other than market transactions
Foreign exchange forward contracts
Sold
U.S. Dolores

Fair value

Unrealized gain
(loss)¥ 3,749¥ 3,760¥ 11

Foreign exchange forward contracts subject to hedge accounting are not included.
The fair value is indicated by the financial institutions that are counterparties of the transactions.
Fair value of interest rate caps as of December 31, 2007 and 2008 are as follow:

Transactions other thanmarket transactions
Interest rate caps Bought

¥ 194
83
(75)
78
¥ 280

2007

Contractprincipal

Fair
value

Unrealized
gain (loss)

Contractprincipal

Fair
value

Unrealized
gain (loss)

¥24

¥1

¥(23)

¥ 25

¥6

¥ (19)

Basis for calculating retirement benefit obligations and others:
The retirement benefit obligation is attributed to each period by the straight-line method over theestimated years of service of employees.
2007
2008
2.00%
2.00%
10 years

Derivative transactions such as interest rate swaps subject to hedge accounting are not included.
The listed transactions are under non-hedge accounting that require disclosure though the intragroup elimination of hedged transactions.
The fair value is indicated by the financial institutions that are counterparties of the transactions.

20

¥ 242
91
(89)
41
¥ 285

Retirement benefit expenses at consolidated subsidiaries using the simplified method are included in“Service cost.”

Discount rate
Expected rate of return on plan assets
Amortization period of actuarial gain (loss)

Millions of Yen
2008

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gain (loss)
Total retirement benefit expenses

21

2.00%
2.00%
10 years

17.

STOCK-BASED COMPENSATION PLANS
The Company has stock-based compensation plans as an incentive program for directors, auditors andemployees of the Company, subsidiaries and affiliates.
From 2001, in accordance with approval at shareholders’ meetings, the Company has granted stockacquisition rights and stock options to directors, auditors and certain employees of the Company,
subsidiaries and affiliates. These options vest about over two years to four years and expire within ten
years from the date of grant. Some subsidiaries have the same type plans. For the fiscal year ended
December 31, 2008, the Company didn’t grant any stock options.
A summary of information regarding the Company's stock-based compensation is as follows: Option
Grant Date

April 26, 2001
April 30, 2002
July 14, 2003
August 29, 2003
September 7, 2004
December 15, 2005
February 13, 2006
April 20, 2006
December 14, 2006

Exercisable Period
From March 30, 2003
to March 28, 2011
From March 29, 2006
to March 27, 2014
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
to March 29, 2016
From March 31, 2010
to March 29, 2016

Exercise Price

Number of outstanding
stock options
as of Dec. 31 2008

September 15, 2005

11,000*9,435

July 12, 2001

19,300*38,780July 12, 2001

27,500*2,630

June 29, 2002

75,500*35,730June 30, 2003

91,30054,410103,8482,000

101,000

30,00055,90014,340495

1,380,000

250

A summary of information regarding for the Rakuten KC Co., Ltd.'s stock-based compensation plans is
as follows:
Number of outstanding
Grant Date
Exercisable Period
Exercise Pricestock options
as of Dec.31 2008
June 17, 2005

From June 18, 2006
to June 17, 2015

November 20, 2000
July 12, 2001

¥ 520,000¥ 256,000

880¥ 320,000

195

From November 20, 2002
to November 20, 2010
From July 12, 2001
to July 10, 2010
From July 12, 2001
to July 10, 2010
From July 12, 2001
to July 10, 2010
From June 29, 2004
to June 28, 2012
From July 1, 2005
to June 30, 2013

¥ 50,000

1,650

155,792555

155,792705

155,792310

219,388855

219,388

126

A summary of information regarding for the CASAREAL, Ltd. ’s stock-based compensation is as follows:
Number of outstanding
Grant Date
Exercisable Period
Exercise Pricestock options
as of Dec. 31 2008
May 30, 2001
May 7, 2003
May 12, 2004
June 5, 2006

From May 31, 2001
to May 29, 2010
From July 1, 2004
to June 30, 2011
From July 1, 2005
to June 30, 2012
From July 1, 2007
to June 30, 2014

¥ 16,000

2,100

150,000183

150,00073

150,000

208

A summary of information regarding for the Net’s Partners Co., Ltd. ’s stock-based compensation is asfollows:
Number of outstanding
Grant Date
Exercisable Period
Exercise Pricestock options
as of Dec. 31 2008
July 30, 2005
April 28, 2006

From July 28, 2007
to July 27, 2015
From April 27, 2008
to April 26, 2016

¥38,000

380

38,000120

A summary of information regarding for the . Commodity, Inc.’s stock-based compensation is as follows:
Number of outstanding
stock options
Grant Date
Exercisable Period
Exercise Priceas of Dec.31 2008
July 1, 2005
July 1, 200622

From August 1, 2005
to July 31, 2008

A summary of information regarding for the Fusion Communications Corp.'s stock-based compensation
is as follows:
Number of outstanding
Grant Date
Exercisable Period
Exercise Pricestock options
as of Dec.31 2008

25,250A summary of information regarding for the Rakuten Securities Holdings, Inc.'s stock-based compensation
is as follows:
Number of outstanding
Grant Date
Exercisable Period
Exercise Pricestock options
as of Dec.31 2008
From April 20, 2006
to April 19, 2011
From September 19, 2007
to September 18, 2012

July 22, 2003

¥ 11,210** Exercise price has been adjusted to reflect the stock splits.

April 19, 2004

A summary of information regarding for the Rakuten Travel, Inc.'s stock-based compensation is asfollows:
Number of outstanding
stock options
Grant Date
Exercisable Period
Exercise Priceas of Dec. 31 2008

From July 1, 2007
to May 31, 2015
From July 1, 2008
to May 31, 201823

¥50,000

480

50,000

280

19.
18.

SEGMENT INFORMATIONINCOME TAXESThe Company operates in the following industries:
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes
which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 41% for theyears ended December 31, 2008 and 2007.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred
tax assets and liabilities at December 31, 2008 and 2007 are as follows:
Millions of Yen
2007
2008
Deferred tax assets:
Tax loss carryforwards
Excess of depreciation
Loss on valuation of investment securities
Excess of allowance for doubtful accounts
Reserve for points
Impairment loss
Allowance for loss on interest repayment
Reserve for financial instrument transaction liabilities
Other
Less valuation allowance
Total¥ 29,569
2,395
18,830
7,298
2,896
1,317
6,223
1,305
7,039
(47,109 )29,763¥ 33,890
1,727－
12,310
2,338
1,369
8,130
1,595
7,652
(33,038)
35,973

Deferred tax liabilities:
Tax-deductible loss due to transfer of shares
Valuation difference on available - for - sale
Other
Total

¥ 8,465
1,074
242
9,781

¥ 8,465－
116
27,392

Net deferred tax assets¥ 19,982¥ 27,392

Reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflectedin the accompanying consolidated statements of income for the year ended December 31,2007 is asfollows. And this fiscal year ended December 31, 2008 resulted in loss before income taxes and minority
interests, so tax rates are not shown here:

The E-Commerce Business segment consists mainly of Rakuten Ichiba (Including Package Media,
Media Rental), managed by Rakuten, Inc.: Rakuten Auction, Inc., and LinkShare Corporation. The
business focuses on operating and providing services for websites related to retailing and other formsof e-commerce, as well as for entertainment-related websites. And this fiscal year we started Rakuten
Ichiba Taiwan as a first step of overseas development and International Shipping Service.
The Credit and Payment Business segment consists mainly of Rakuten Credit, Inc.: Rakuten KC Co.,
Ltd. and Rakuten Financial Solution, Inc. The business is primarily concerned with the consumer credit
card business and consumer loan businesses, and provides banking services through alliance with
Tokyo Tomin Bank. However, we dissolved alliance with Tokyo Tomin Bank February 23, 2009.
The Portal and Media Business segment consists mainly of Infoseek, a portal site managed by
Rakuten, Inc. Rakuten Research, Inc., and College Students' Portal Community, Inc. The segment
focuses on the operation of Internet portal sites and community networking sites, as well as Internet
market research and distribution of broadband content. And this fiscal year O-net is consolidated fromthe third quarter.
The Travel Business segment consists of Rakuten Travel, Inc. and its subsidiaries and affiliates. It
focuses on operating travel-related websites and services, such as hotel bookings.
The Securities Business segment mainly consists of Rakuten Securities Holdings, Inc. and its
subsidiaries and affiliates. The business provides online securities brokerage and investment related
business.
The Professional Sports Business segment consists of Rakuten Baseball, Inc., and Rakuten Sports
Properties, Inc. It manages the Tohoku Rakuten Golden Eagles (“Rakuten Eagles”) professional
baseball team, as well as planning and selling related goods.
The Telecommunication segment consists of Fusion Communications Corp. and its subsidiaries andaffiliates. The business provides IP network services, IP telephony and other services. The segment isestablished in 2007 as expansion of telecommunication businesses through the acquisition of Fusion
Communication Corp.

2007
Effective statutory tax rate
Expenses not deductible for income tax purposesTax benefits on liquidation of subsidiary
Valuation allowance
Amortization of goodwill
Unrealized loss
Other — net

41.00%
0.33(17.83)26.82
2.80(14.70)(8.88)

Actual effective tax rate

29.54%

24

25

(1)
a.

a.

Industry Segments

Sales and Operating Income
Millions of Yen
2007

Sales and Operating Income
E-Commerce
Business

Millions of Yen
2008
E-Commerce
Business

Credit and Portal andPayment
Media
Business BusinessTravelBusiness

Securities
Business

ProfessionalSportsTeleBusiness communications

Total

Corporate &Internal
Eliminations

Consolidated

Sales to customers¥91,073¥65,911¥ 9,681¥16,199¥24,807¥7,963¥34,249¥249,883－¥249,883

Intersegment sales

1,310

844

5,615

351

1

472

4

8,596

¥(8,596)－

Total sales 92,383

66,755

15,296

16,55024,808

8,435

34,253

258,479(8,596)249,883

33,819210,972(8,240)202,732434¥ 47,507¥ (356) ¥ 47,151

Operating expenses

66,31656,052

15,501

9,087

20,951

9,247

Operatingincome (loss)¥26,067¥10,703 ¥(205)¥7,463¥ 3,857¥ (812)¥

Sales to customers

Credit andPayment
Business

Portal andMedia
Business¥ 75,512 ¥ 70,196

TravelSecurities
Business Business¥ 7,511 ¥12,910 ¥30,556

ProfessionalSportsBusiness

Telecommunications

Corporate &Internal
Eliminations

Total

Consolidated¥7,553¥ 9,700¥213,938－¥213,938

Intersegment sales

1,367

903

7,168

452

2

693

0

10,585¥(10,585)－

Total sales

76,87971,09914,67913,36230,558

8,246

9,701

224,523(10,585)

213,938

Operating expenses

57,33896,274

15,042

7,358

24,812

9,083

10,095220,000(6,181)

213,819

Operatingincome (loss)¥19,541 ¥(25,175 )¥ (363 ) ¥ 6,004 ¥ 5,746¥ (837)4,523¥ (4,404) ¥Total

Corporate &Internal
Eliminations

b.

¥

(394)

¥

119

Total Assets, Depreciation and Capital Expenditures
Millions of Yen
2007

Note: Accounting for Advertising Revenues
In the past, if the advertising services sold by the Portal and Media (PM) Business was sold to end users through anotherbusiness segment (selling segment), it was treated as internal (inter-segment) sales in the PM business, and as externalsales in the selling segment. Under a new system introduced in the year, external sales are now divided into amounts
equivalent to the price of advertising media and the sales margin, and these amounts are shown as external sales of the
PM business and the selling segment respectively. Transactions are no longer treated as inter-segment sales under thissystem.
Inter-segment costs corresponding to the sales of the PM business and the selling segment were previously recognized.
Following this change of accounting method for sales, it is no longer necessary to recognize these amounts.
This change was implemented as a part of improvements designed to strengthen the income management structure. Its
purpose is to clarify the role of each segment in advertising sales and its contribution to net sales.
This change caused a ¥1,088 million increase in the external advertising sales of the PM business, a ¥1,801 million
reduction in internal (inter-segment) sales and transfers, and a ¥712 million reduction in inter-segment operating
expenses. However, there was no effect on the operating income of each segment, since the external sales of sellingsegments decreased by ¥1,088 million and internal inter-segment sales, transfers and inter-segment operating expenses
decreased by the same amounts as the external sales.

E-Commerce
Business

Total assets
Depreciation andamortization

Credit andPayment
Business

Portal andMedia
Business¥247,928 ¥383,853

TravelSecurities
Business Business

ProfessionalSportsBusiness¥4,481 ¥10,218 ¥469,824¥12,314

Telecommunications¥12,331 ¥1,140,949

Consolidated¥(37,473) ¥1,158,923

4,159

1,581

557

549

632

830

215

8,523

－

8,523

Loss due to impairment

116

398

－

－

23

－

213

749

－

749

Capital expenditures

9,219

4,284

83

935

4,239

549

52

19,361－

19,361(2) Geographical Segmentsb.

Total Assets, Depreciation and Capital Expenditures
Millions of Yen
2008
E-Commerce
Business

Credit andPayment
Business¥285,667¥417,969

Total assets
Depreciation andamortization

Portal andMedia
Business

Securities
Business

ProfessionalSportsBusiness

Telecommunications¥8,460 ¥16,568 ¥373,235¥11,459¥11,053

TravelBusiness

Total

Corporate &Internal
Eliminations

Consolidated¥1,124,411 ¥(37,473) ¥1,086,938

5,842

2,168

51

637

2,090

855

641

12,284－

Loss due to impairment

91

2,494

1,132

－

1,616

－

85

5,418

－

Capital expenditures

6,037

2,282

137

662

3,883

498

851

14,350－26Disclosure of geographic segment information is omitted because domestic net sales and assets
exceed 90% of total segment sales and assets.
(3) Sales to Foreign Customers
Disclosure of sales to foreign customers is omitted because such sales represent less than 10% ofconsolidated net sales.

14,35027

20.

AMOUNTS PER SHARE
B.Significant Subsequent Event Pertaining to Business Combination
Yen

Net income
Basic
DilutedCash dividends applicable to the year

2008

2007

¥ (4,203.55)－
100.00¥ 2,825.95
2,813.32
100.00Outline of the mergera.

i Acquiree’s nameii Business activities of the acquireeiii Main reason for the merger

eBANK Corporation
Banking
Rakuten, which has a group membership basecentering on net shopping, and eBANK Corporation(eBANK), which provides advanced, high-quality
payment services, agreed to form a capital andbusiness alliance with the aim of developing
products, services and providing financial services
that will further enhance customer convenience.

Yen

Net assets

2008

2007

¥ 11,439.86¥ 14,212.68

Basic net income per share is computed by dividing net income available to common shareholders by
the weighted-average number of common shares outstanding for the period, retroactively adjusted forstock splits. Diluted net income per share of common stock assumes full conversion of the dilutive
stock options. Listed cash dividends per share applicable to the respective years include dividends tobe paid after the end of the year.
21.

RELATED PARTY TRANSACTIONSTransactions during the years ended December 31, 2008 and 2007 with a professional football club
operator, in which the Chairman and CEO owned 100% of voting shares indirectly, were as follows:
Millions of Yen
2008
2007
Sponsor fee

¥179

¥171

Sponsor fee is determined on arm’s length basis.
The balances payable due from the company at December 31, 2008 and 2007 were as follows:
Millions of Yen
2008
2007
Sponsor fee
22.

¥ 16

¥ 15

Rakuten obtained approval from the authorities tobecome a major shareholder of eBANK, whichbecame a consolidated subsidiary through theconversion of eBANK preferred stocks acquired on
September 29, 2008 into common stock.
February 10, 2009
Acquisition of shares
eBANK Corporation
666,400
48.7%

iv Date of the merger
v Legal form of the merger
vi Name of post-merger company
vii Number of shares acquiredviii Percentage of voting rights acquired
Breakdown of acquisition priceb.

Acquisition priceDirect expenditure on the acquisition
Cost of the acquisition

Cash

The above amount is classified as investment securities in the financial statements for fiscal 2008.
The shareholding of 666,000 shares (acquisition price: ¥19,980 million) resulted from the conversionof eBANK’s preferential shares on September 29, 2008 into common stock.
Source of fund procurementc.

External borrowing, etc.
Amount of goodwill, source of goodwilld.

 Amount of goodwill
 Source of goodwill

SUBSEQUENT EVENT¥15,582 million
This amount represents a reasonable estimation of
the future excess earnings that eBANK can be
expected to generate through the future
development of its business activities.

A. Dividend
The following distributions of retained earnings at December 31, 2008 were approved at the Company's
shareholders’ meeting held on March 27, 2008:
Millions of Yen
Year-end cash dividends, ¥100 per share¥1,30928¥20,001 million¥76 million¥20,077 million

Amounts and breakdowns of principal assets and liabilities taken over on the date of the merger:e.
iAssetsTotal assets¥813,518 million
Loans¥1,500 million
Securities¥676,991 million
Allowance for doubtful accounts (¥13,945 million)ii

Liabilities
Total liabilities
Deposits¥803,362 million¥771,809 million

29

a.

Purpose, number and type of stock options

b.
c.
d.

Issuance price
GratisTotal amount of issuance¥1,860 million
Amount capitalized out of issuance price
The increase in capital, if the options are exercised, will be one-half of the increase in capital,
etc., as calculated under the provisions of Article 40 of the Company Accounting Regulations,based on rounding up less than one year.
Allocation date for stock options January 19, 2009
Period for exercise of the option rights
From March 28, 2012 to March 26, 2018

C.Underwriting of Capital Increase for eBANK, a Consolidated Subsidiary
In accordance with a resolution approved by its Board of Directors on February 13, 2009, Rakuten
underwrote all shares of allocation of new shares to a third party offered by eBANK, which was
implemented to strengthen eBANK’s capital structure and stabilize its financial base.
On March 27, 2009, preferential shares were converted into common stock. After the conversion,
Rakuten’s shareholding was 56.5%.
a.Number of new shares issued by eBANK:
b.Issuance price per share:c.Total amount of issuance:
d.Pay-in date:e.Source of fund procurement:e.
f.

333,000¥30,000¥9,990 million
March 19, 2009
External borrowings, etc.

D.Absorption－type Split Involving Rakuten Credit, Inc.,On February 13, 2009, Rakuten Credit, Inc. (Rakuten Credit), a consolidated subsidiary of Rakuten,Inc., and eBANK entered into an absorption-type split agreement, providing for the partial transfer of thecredit card loan business of Rakuten Credit to eBANK.
Outline of the company splita.
iName of business and businessactivities :Credit card loan business operated by Rakuten
Credit (including management of short-term overdue
receivables, excluding management of long-term
overdue receivables, and loan screening andguarantee business)
April 1, 2009
An absorption-type split where Rakuten Credit is the
split company and eBANK is the successor company
eBANK
Rakuten, Inc. separated the credit card loanbusiness (including management of short-term
overdue receivables, excluding management of longterm overdue receivables, and the loan screening
and guarantee business) with the aim of diversifying
and expanding the Rakuten Group’s business baseby integrating the credit card loan operations of
Rakuten Credit and eBANK, and utilizing thecustomer base, knowledge and infrastructure of
Rakuten Credit in the credit card loan field.

ii Date of the split :iii Legal form of the split :iv Name of company after the split :v Overview of transaction, including
purpose:b.

Summary of accounting processes

This company split will be treated as a transaction under common control in accordance withAccounting Standard for Business Combinations (Business Accounting Council, October 31, 2003,
revised on December 26, 2008, Accounting Standard 21), Accounting Standard for Business
Divestitures (Business Accounting Council, December 27, 2005, revised on December 26, 2008,
Accounting Standard 7), and Guidance on Accounting Standard for Business Combinations andAccounting Standard for Business Separations (Accounting Standards Board of Japan, December
27, 2005, final revision revised on December 26, 2008).
E.Granting of Stock Options under the Provisions of Articles 236, 238 and 239 of the Companies Act
At a meeting on January 17, 2009, the Board of Directors of Rakuten, Inc. passed a resolution for
stipulating subscription conditions and providing for the subscription of parties to underwrite stock
options issued under the provisions of Articles 236, 238 and 239 of the Companies Act, in accordancewith a resolution of the 11th General Meeting of Shareholders held on March 27, 2008.

30

31

Common stock in Rakuten, Inc.
33,050