2007–2017

Next Decade
Rakuten, Inc. (“Rakuten”) and its consolidated subsidiaries and affiliates (“Rakuten
Group”) are full-line Internet services companies. Since its founding in 1997, Rakuten
has spent a decade evolving its business model centered on e-commerce, to create amarket completely new to Japan.
The Rakuten Group is focusing on two approaches in particular to target growth in
the decade to come. The first is to empower people and society through continuous
innovation and business operation based on our five core concepts of success. The
second is to establish a “Rakuten eco-system” which enables us to maximize ourcustomers’ lifetime value and leverage synergies. Guided by the key phrase “morethan Web,” Rakuten Group is taking on the challenge of creating new value by driving
convergence between the Internet and traditional “brick and mortar” businesses.

more than Web
Contents
Consolidated Financial Highlights

1

Corporate Governance

To Our Shareholders

2

Risk Factors

22

Top Interview

4

Financial Section

32

Our Services, History and
About the Rakuten Group

Corporate Data

60

8

Business Review
Business Overview

12

E-Commerce Business

14

Credit and Payment Business

15

Portal and Media Business16

Travel Business

17

Securities Business18

Professional Sports Business

19

20

Consolidated Financial Highlights
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31

Thousands of
U.S. dollars

Millions of yen

2004

2005

2006

2006

45,568¥ 129,775¥ 203,272$ 1,708,164

Gross Profit

41,066

115,553

175,970

1,478,739

Operating Income

15,06034,88529,149244,948

Net Income (loss)(14,271)

19,4502,703

22,711

Total Assets

307,557

1,657,709

1,296,063

10,891,285

Total Shareholders’ Equity

45,85376,550––––203,197

1,707,535¥ 38,814.92¥ 6,464.58¥14,492.23

Basic(12,458.37)

1,642.50

212.03

1.78

Diluted

–1,626.19

193.091.62

For the Year:Net Sales¥

At Year-End:Total Net Assets
Per Share (in yen and U.S. dollars):
Total Net Assets$

121.78Net Income (loss):

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥119 to U.S.$1, the approximate rate of exchange at
December 31, 2006.

Net Sales Millions of yen

Gross Profit Millions of yen

04

04

45,56805

129,7750506

203,272

41,066
115,55306

Operating Income Millions of yen

Net Income (loss) Millions of yen

04

04 (14,271)

15,06005
06

34,88529,149

175,97005
06

19,4502,703

Cautionary Statement
The statements in this report with respect to current plans, strategies, beliefs and other statements that are not historical facts of the Rakuten Group are
forward-looking statements.
Such forward-looking statements are based on management’s assumptions and beliefs in light of the information currently available to it. These forwardlooking statements involve risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements,
and therefore you should not place undue reliance on them. We do not intend to update these forward-looking statements, whether as a result of new
information, future events or otherwise, except as maybe required by applicable law.
“Rakuten”,
andare the registered trademarks of Rakuten, Inc. in Japan.

1

To Our Shareholders

Innovation andBecoming the World’s No. 1
Internet Service Company
Five Concepts of Success
1. Get Things Done
2. Complete Professionalism
3. Hypothesize, Execute,
Verify and Incorporate
4. Maximize Customer Satisfaction
5. Speed! Speed! Speed!

Hiroshi Mikitani Chairman and CEO

2

Growth for the Next Decade
Let me first say how grateful I am for the support that our shareholders have given us in Rakuten
Group’s first decade of business. This support has been indispensable to the growth and development of the Rakuten Group. Today, we are enacting a host of new initiatives in the hopesof taking our growth during the last decade a step further.

For the Rakuten Group to sustain growth amid a rapidly changing Internet industry, andto contribute to society as a respected company, it will become increasingly vital that we
promote business operations founded on the “five concepts of success” that we have insisted on since Rakuten was founded in 1997. Where growth strategies are concerned, I want
us to spur further growth in what we call the “Rakuten eco-system” by strengthening strategies built around our brand and Rakuten Group memberships. We will also take steps toenhance our technologies and pursue full-scale operations overseas. The key phrase here
will be “more than Web.” In other words, we will move beyond the Web to take on the challenge of creating new value through convergence with traditional “bricks and mortar”
businesses. We are also eyeing another decade of growth and improved corporate value bybuilding better relationships with our wide range of stakeholders.

3Top Interview

Q

What is Rakuten’s background, and how did it become the Rakuten
Group it is today?

A

When Rakuten was founded in 1997, a pervasive sense of gloom had taken
hold in Japan. Our vision was to “empower Japan and get moving again.” If
the country was going to regain its momentum, we knew Rakuten would
have to become a model for success in this new era of business.

To become an example of how to succeed in Japan’s new

Group to establish a unique membership business that nobusiness era required more than a simple grassroots venture.

other firm in the industry can match.

We had to create a foundational venture, one able to moveNot being satisfied with Web-only operations, Rakuten

beyond the status of “new business” to become an industry.

Group has also aggressively pursued more traditional “bricks

Today, Rakuten Group has made Internet shopping andand mortar” businesses. Rakuten Group has built a solid foun-auctions commonplace; we provide portal sites, blogs, stream-

dation for a “Rakuten eco-system” by consistently tacklinging video, and a host of other media content; and we facilitate

new business models and charting astounding growth in the

new relationships between Rakuten Group users and tradi-

rapidly evolving Internet industry, combined with a rigorous

tional inns, hotels and other accommodation facilities. In ad-

focus on improving customer satisfaction.

dition, we have introduced new services to users who

There have been cases where Rakuten Group services

previously had little interest in stocks and other financial prod-

are being used to help boost economic activity in local vil-ucts; and through professional baseball, we have brought thelages and revitalize entire regions in Japan. Activities like theseInternet to people who once had no interest.

have helped Rakuten grow in ways that no one could have

Leveraging synergies across each of these services has

imagined when it was founded. This type of growth is just thecontributed to the success and expansion of our operations.

beginning as Rakuten Group strives to become the blueprint

As a result, we are proud of the leadership Rakuten Groupfor success in this new era of business in Japan.

has played in promoting the growth of the Internet in Japan.

* Excluding portal sites provided by ISP.

Since Rakuten’s establishment, the Rakuten Group has
sought to evolve its business model, from being solely focused

Rakuten Ichiba

on e-commerce to a company offering a full range of Internet
services. In just a decade, Rakuten Group has become theJapanese leader in e-commerce and online travel businesses,
is ranked second in online securities trading volume, and is2

the third most popular Internet portal*.
The Rakuten Group sites have a gross transaction value

1of more than ¥800 billion ($6.5 billion), 37 million people enjoy
Rakuten Group membership services, and after just 18 months
in operation, the number of Rakuten Card members has grown3

to more than 480,000 cardholders.
One key to our success is our membership database,the largest of its kind in Japan. We have leveraged this database to offer user ID integration, and introduce the “Rakuten
Super Point” service, which is integrated with an array ofservices. As a result, Rakuten Group’s cross-promotion strategy maximizes the lifetime value of our customers, while
enhancing synergy effects. This process has enabled Rakuten

4(As of March 31, 2007)• Products: 15,807,969• Merchants: 19,539

1 A Large Variety of Merchandise
2 Personal Customized Pages
3 Links to Other Rakuten Services- Online securities- Credit cards- Consumer loans- Online travel- Online bookstores- Portal sites

Q

How do you plan to improve your corporate value?

A

Rakuten is enacting various measures to enhance corporate value andincrease shareholder value.

The Rakuten Group gives the highest priority to strict corpo-

Rakuten Triangle Strategy

rate governance in order to enhance competitiveness throughgroup-wide risk management and maximize its corporate value.
For the Rakuten Group as a whole, measures to further
improve corporate governance are being taken to promote

Business
Application

more efficient management. Doing so will forge better relationships between Rakuten Group and our stakeholders. This

Monetizationis considered the most important aspect to raise corporate
value. While maximizing our corporate scope, returning profits to shareholders is a key concern. Our basic policy in returning profits is to consistently pay a stable dividend that is
unaffected by performance in any given year. We carefully analyze a number of factors, including whether we have the retained
earnings available to maintain a sound financial structure and toproactively develop our businesses. Since Rakuten was founded,
The Rakuten Triangle Strategy has been implemented to achieve

Customer
Database

Brand

Media/
Traffic

steady growth by synchronizing business applications, media
traffic and membership activities centered on the Rakuten brand.
For example, users recruited through media businesses are con-

Retention+ Cross-selling

Acquiring Traffic+ Customers

verted into membership programs users, where retention levels
are higher. There users then become loyal users of the otherbusiness applications, leading to higher earnings. Going forward,
we remain committed to growing a “Rakuten eco-system” thatoffers a comprehensive range of services to our clients by pursuing synergies among Rakuten Group. Ultimately, our goal isto achieve substantial ongoing growth in both shareholder andcorporate value.
Among other measures to enhance corporate value, wewill reconfigure our personnel strategies by upgrading ourinternal training systems and providing an environment inwhich employees can learn and grow on their own initiatives.
In taking this step, we will groom talented personnel that are
critical to Rakuten Group business strategies and successes.

5

Q

What business or management strategies is Rakuten Group pursuing toachieve another decade of growth?

AInternet services are now a part of everyday life for the average person. Hereat the Rakuten Group, we are rallying behind the phrase “more than Web” byaggressively promoting our Group business strategy.

Our basic business strategy is to develop and execute effec-

To strengthen our organizational capabilities, we havetive marketing strategies encompassing the Rakuten Group

adopted a Growth Management Program (GMP) as our busi-

that update and expand our customer database, by pushingness administration system. Through GMP, the Rakuten Groupthe development of new services. In addition to a brand image

is eyeing sustainable growth going forward, as well as man-centered on services offered, we are working to establish

agement decision-making that can adroitly respond to

Rakuten Group as a technology brand as well.

changes in the business environment. We are using a more

As part of The Rakuten Triangle Strategy that underpins

sophisticated business portfolio strategy, which will serve as

Rakuten Group’s business concept, we intend to enhance oura guideline for the strategic allotment of managementbusiness applications and service lineup based on the con-resources when making new investments. We have also abol-

cept “Everything Rakuten.” Next, to capture new traffic, we

ished our former “internal company” structure and establishedare supporting the public release of Web APIs, as well as multi-

a flat and highly adaptable organization consisting of 38 busi-

device compatibility with users shifting from PC-based Inter-

ness units (BUs). For critical functions shared by all businessnet to mobile and TV-based Internet. We believe that steps

units (e.g., production, financing and marketing), Functional

like these will help us reach new users through a variety ofTeams have been established that work across the BUs, shar-

Rakuten Group services, content, and marketing approaches,

ing expertise among business operations and enhancing syn-and that our influence will grow. As for membership programs,

ergies. These are some of the ways that we ensure soundaggregating accounts between financial services will proveand transparent management of our diversified and expanded

to be a major boost for those operations.

business operations.

The Rakuten Group has achieved growth over the past

Our global strategy on the technology front is to promotedecade through the pursuit of innovation. From here on, we

research and development overseas to build an operating baseare entering a new stage of growth in which operations willthat will allow us to compete on a global stage. Furthermore,

play a critical role. Examining and reviewing how we work,

we plan to pursue initiatives, including personnel exchanges

reducing costs, and conducting lean operations will enablewith overseas subsidiaries, before we begin the development

Rakuten Group to spark new innovations for improving theof our travel business and other operations overseas.

quality of existing services and allow us to create new businesses by encouraging an entrepreneurial mindset.

6

Q

How does Rakuten Group view its responsibilities as a corporate citizen?

A

We believe earning trust from society and stakeholders will lead to sustained
growth and development of our company.

Rakuten has become a leading corporate sponsor of the“Fiscal 2007 World Heritage Theatre” produced by the World
Heritage Theatre Implementation Committee (Asahi Shimbun
and SAP). We are also sponsoring a “Miyagi Prefecture
Disaster Prevention and Crisis Management Blog.”
Rakuten Group will attempt to make a great social contribution starting in 2007. In recent years, Japan has been hit
by a number of incidents involving the Internet and unauthorized leaks of personal information. At Rakuten Group, theprotection of personal information gets our undivided attention. We exercise caution regarding information security ineach of the Rakuten Group’s services. As part of our extensive
information management efforts, we have obtained Information
Security Management System (ISMS) certification for our corebusinesses. Together with NTT DoCoMo, Inc. (NTT DoCoMo),
Japan’s largest mobile phone carrier, we have invested in atransaction system that incorporates both Social Network“Rakuten World Heritage”: JapaneseService (SNS) and anonymous escrow services. This system

traditional music was played at a World

makes it possible to offer an extremely safe Internet auction

Heritage Theater (the five-storiedservice that eliminates the need for direct contact between

pagoda in Nikko’s Toshogu Shrine).

auction winners and sellers.
At Rakuten, empowering people has been a key principle since day one. We provide a system and know-how thatallows small and medium-sized merchants with little knowledge of the Internet to succeed. At the same time, we seek toimprove usability by upgrading and expanding functions.
Greater user and customer satisfaction, in turn, will lead tothe return of profits to our investors. In this way, we strive toraise our corporate value as a firm whose interests lie squarely
with those of its stakeholders.

7Our Services, History and About the Rakuten Group

1997-2007

Our First Decade
Rakuten Group1997• MDM, Inc. was founded.
• Rakuten Ichiba (Rakuten Internet shoppingmall) service began.

Rakuten Ichiba

1999• MDM, Inc. was renamed Rakuten, Inc.

1997

• Rakuten Ichiba (Rakuten Internet shoppingmall) service began.

1998• Rakuten Super Auction service began.
• Rakuten Greeting Card service began.

1999• Rakuten Furima Auction (Rakuten Flea Market
Auction) service began.

8

2000

• Rakuten, Inc. completed IPO on JASDAQ

2002• Rakuten Travel, Inc. was established.
• Rakuten, Inc. acquired Lycos Japan

market.

(merged with Infoseek in 2003).

• Rakuten Books was founded as a joint
venture with Nippon Shuppan Hanbai Inc.
• Rakuten USA, Inc. was established.
• Rakuten, Inc. acquired Infoseek Japan, K.K.

2001

• Rakuten, Inc. made equity investment in
TECHMATRIX CORPORATION.
• Rakuten, Inc. and Usen Broad Networks K.K
established joint venture, SHOWTIME, Inc.

2000

• Rakuten University opened and offered
Rakuten Merchants special classes in Internet

2002• Rakuten Delivery service began.
• Rakuten Ichiba introduced new fee plan

marketing and setting up and managing theirservice. New service plan combines fixed

online storefronts.

monthly fees with commission sales.

• Group-Buy service began.

• Rakuten Ichiba launched new marketing• “Mobile Rakuten Ichiba” service began.

program, Affiliate Program, offering all• Rakuten Business, an outsourcing BtoB

merchants the opportunity to market theirmatchmaking service, service began.

products from beyond their own storefronts.
• Rakuten Ichiba began offering HTML-version

2001

of Rakuten Shopping Mall email newsletters• Online hotel reservations service began.
• Rakuten Books, online bookstore, service
began.
• Rakuten Hiroba (currently Rakuten Blog)
opened.

to Rakuten members.
• Rakuten Ichiba began new service, Rakuten
Super Point that rewards customers who
shop at Ichiba. Users can use their points tobid on selected prizes.

• Rakuten Ichiba introduced new fee plan
service, Rakuten Lite, to merchants.
• Rakuten TV shopping service began.

9Our Services, History and About the Rakuten Group2003• Rakuten, Inc. acquired MyTrip.net (merged

2005with Rakuten Travel, Inc. in 2004).

• Rakuten, Inc. acquired 100% of shares in
LinkShare Corporation.

• Rakuten, Inc. acquired 96.7% of shares in• Rakuten, Inc. and NTT Docomo, Inc. estab-

DLJdirect SFG Securities (currently Rakuten

lished joint venture, Rakuten Auction, Inc.

Securities, Inc.).

• Kokunai Shinpan Co., Ltd. (currently RakutenKC) became a subsidiary of Rakuten, Inc.

2004

• Rakuten, Inc. acquired 100% shares ofCollege Students’ Portal Community, Inc.

2006

(Minnano Shushoku).

• Rakuten, Inc. entered into an operational tieup with Shinsei Bank, Limited and The Tokyo• Rakuten, Inc. acquired 99.6% of shares in

Tomin Bank, Limited.

Cyber Brains Consulting Co., Ltd.

• Rakuten KC transferred its credit business to• Rakuten, Inc. acquired 100% shares ofOrient Corporation.

Aozora Card (currently Rakuten Credit, Inc.).
• Rakuten Baseball, Inc. was founded.

2003• Mobile Rakuten Ichiba introduced photos of2005• Rakuten Card (Inhouse credit card, provided
by Rakuten KC) was introduced.

products to mobile shoppers.
• Rakuten Ichiba began redemption service for
Rakuten Super Point holders for purchases
made at Rakuten Ichiba.
• Rakuten Affiliate Program was upgraded.

2006• Free magazine “Rakuten magazine” waslaunched.
• Rakuten Auction service began.
• Rakuten 10th-Anniversary “GANBARE! Plan”

2004• Rakuten, Inc. launched Rakuten Card, credit
card services, allianced with Sumitomo Mitsui
Card Company, Limited.
• Rakuten Ichiba introduced new fee plan,
Rakuten Premium Lite, to merchants.

10

was introduced to merchants.

Group Gross Transaction Value (Billions of yen)

836.5
Membership of Rakuten Group

37,270,000
Number of Active Rakuten Card Holders

480,000
Developing the “Rakuten eco-system”
Rakuten Group will continue to generate new services and create dynamic communication using its
key business asset: the largest membership database of its kind in Japan. This will enable it to extend
beyond Internet services to grow its businesses globally in a wider range of fields.

E-Commerce
Business
Rakuten, Inc.
Rakuten Auction, Inc.
Rakuten Books, Inc.
LinkShare Corporation

Creditand Payment
Business
Rakuten KC Co., Ltd.
Rakuten Credit, Inc.

Internetusers
and general
consumers

Internet users,
Rakuten Ichiba
merchants,
etc.

Membership
Database

Travel Business
Rakuten Travel, Inc.

Internet
users,
hotels andfacilities incontract with
Rakuten Travel,
etc.

Individual
investors,
etc.

Securities
Business

Internet
users,
advertisers,
etc.

Baseballfans andgeneralconsumers

ProfessionalSports Business
Rakuten Baseball, Inc.
Rakuten Sports
Properties, Inc.

Rakuten Securities, Inc.

Portal andMedia Business
Rakuten, Inc.
College Students’ Portal
Community, Inc.
Rakuten TV Inc.
Target, Inc.
Rakuten Research, Inc.

11

Business Review
Business Overview

Rakuten marked its 10th anniversary on February 7,

in asset efficiency through business restructuring.

2007. During the preceding fiscal year, ended Decem-

At a time when the number of Internet users is

ber 2006, the Rakuten Group’s gross transaction value

growing and there is an ongoing shift to mobile Inter-had continued to increase. Rakuten Ichiba and othernet access, the Rakuten Group worked to improvecore businesses recorded strong growth, with Groupthe quality of its member services in a range of busi-

net sales rising substantially, up 56.6% year on year.

ness fields that encompasses Rakuten Ichiba,

The Rakuten Group expanded the “Rakuten eco-

Rakuten Securities, and Rakuten Travel. We also uti-

system” and accelerated business selection andlized the Rakuten Super Point and other programs toconcentration in accordance with its medium to long-promote the use by members of various Rakuten

term growth strategies. Meanwhile, in the Credit andGroup services, creating a virtuous circle that drives

Payment Business the Group implemented restruc-the expansion of the Group’s gross transaction value.

turing measures centered on the transfer of non-core

The Rakuten Group posted net sales of ¥203,272

operations, contributing to both operating and spe-

million (up 56.6% year on year) during the fiscal year

cial losses that reduced Group earnings compared

ended December 31, 2006. Amid steady growth into the previous fiscal year.

merchandise sales value, the E-Commerce BusinessOn the other hand, however, we further stabilized

performed well, achieving a 66.5% increase in sales

the Group’s financial foundations with a capitaland a 51.3% increase in operating income. The Travelincrease through a public offering, and improvements

Business also achieved strong growth, realizing

E-Commerce Business

Credit and Payment BusinessPortal and Media BusinessBusiness Units:

Business Units:

Business Units:

Rakuten Ichiba; Auction; Books &Personal Finance; KC

Infoseek; Advertising; Target;

Media; Golf; Fine Wine; Automobiles;

Research; Career Service; Blog;

Delivery; Dining; Tickets; Stuffed

Downloads; Satellite Broadcasting;Animal Greeting Cards; Business

Internet Television; Cross Media

Service; Greeting Service;
Performance Marketing
Share of Net Sales

Share of Net Sales

28.4%

12

Share of Net Sales

39.1%

4.2%

increases in sales and operating income of 43.9% andand for the Rakuten Group as a whole to achieve

56.2%, respectively. Likewise, the Securities Businessincreases in both revenue and earnings. In terms ofposted gains in both revenue and earnings. Rakuten

shareholder returns, our basic policy is to distribute

KC Co., Ltd., however, posted an operating loss stem-

earnings to shareholders while remaining mindful ofming from the impact of business restructuring andthe need to maximize corporate value, maintain aother steps to address a changing business environ-sound financial position and ensure sufficient retained

ment. As a result, the Group’s operating income

earnings for proactive business development. As

totaled ¥29,149 million (down 16.4% year on year).

such, we have continually paid out a stable dividend

Net income amounted to ¥2,703 million (down 86.1%),

each year without being influenced by fluctuations in

the result of special losses arising from the loss on

performance. Looking ahead, we will continue to pur-transfer of Rakuten KC’s credit business, and ansue synergies through collaboration between Rakuten

increase in allowance for bad debt following theGroup, while promoting the growth of the “Rakuten

establishment of stricter estimation standards.

eco-system” to offer a full-line service to our custom-

As business restructuring of Rakuten KC is nearlyers, and seeking sustainable growth in shareholder

complete, and performance in its credit card andand corporate value.

finance business—where management resources
have been concentrated—is steady, we expect
earnings to recover in the business during fiscal 2007,

Travel Business

Securities Business

Professional Sports BusinessBusiness Unit:

Business Units:

Business Unit:

TravelSecurities; Capital Investments;

Professional Sports

Asset Management;
Property Management

Share of Net Sales

Share of Net Sales

5.1%

Share of Net Sales

19.9%

3.2%

13

E-Commerce Business
The E-Commerce Business segment consists mainly of Rakuten Ichiba(Rakuten Internet shopping mall), managed by Rakuten, Inc., along with

Net sales bybusiness segment
Millions of yen

Rakuten Auction, Inc. and Rakuten Books, Inc. The business focuses on
operating and providing services for websites related to retailing and otherforms of e–commerce, as well as for entertainment-related websites.
Net sales in this segment rose 66.5% year on year to ¥57,686 million, with

57,686

operating income up 51.3% to ¥17,658 million.

Significant increase in gross merchandise sales;
Number of registered merchants also increasing

to purchase from Rakuten Ichiba. Distinctive products are

The E-Commerce Business, for which Rakuten Ichiba is thegenres, while users can also post their own rankings. In an-main service, grew considerably during the fiscal year underother move, Rakuten Auction was launched as a new service

review, with gross merchandise sales up 42.2% year on year

for Rakuten members and those accessing the Internet via

to ¥657,025 million. The number of merchants also exceeded

mobile phone using NTT DoCoMo’s iMode® function. One of

18,500 at the end of 2006, boosted by the introduction in June

Japan’s largest auction sites, Rakuten Auction is intended toof the “Rakuten 10th-Anniversary GANBARE! Plan,” which

serve as a means of developing mobile commerce. Features

helped increase the number of new merchants.

to make using the site easy, reliable, safe and convenient havepresented by specialists in gourmet foods, fashion and other

New content offerings during the year included the

been incorporated to attract first-time and casual users. Such

Rakuten Ichiba Lounge, which aids members in deciding whatfeatures include an intermediary service allowing winners andsellers to remain anonymous and simplified procedures forregistering by mobile phone.

Number of registered merchants

Topic(Stores)

8,000

18,637

17,91015,781

15,157

13,833

11,312

12,00012,40916,00016,47220,000

The Rakuten 10th-Anniversary “GANBARE! Plan”
The “Rakuten 10th-Anniversary GANBARE! Plan,” a new fee
structure for merchants using Rakuten Ichiba, was implemented in June 2006 to mark the 10th anniversary of Rakuten’sfounding. This plan lowers the hurdles for new merchants byconsiderably reducing monthly fixed fees, and provides a wider

4,000

range of retailers with opportunities for Internet sales. The
0

05/
Q1

05/
Q2

05/
Q3

05/
Q4

06/
Q1

06/
Q2

06/
Q3

06/
Q4

contract period is also longer than that of the previous “Light”
plans, allowing us to establish a deeper relationship and support merchant owners.

14

Credit and Payment Business
The Credit and Payment Business segment consists mainly of Rakuten Credit,
Inc., Rakuten KC Co., Ltd. and its consolidated subsidiaries and affiliates.

Net sales bybusiness segment
Millions of yen

The business is primarily concerned with the consumer credit card business, as well as the shopping credit and consumer loan businesses.
Net sales (revenues) in this segment rose 68.8% year on year to ¥79,538

79,538million, while the segment posted an operating loss of ¥6,150 million (compared with operating income of ¥6,332 million the previous fiscal year).

Rebuilding the business to create an Internetbased credit card company

Going forward, we will concentrate resources in the credit cardand finance businesses to achieve increases in profitability.

Rakuten KC Co., Ltd., the core business of the Credit and Pay-

Rakuten Credit, Inc., which operates a consumer loan

ment Business, undertook a fundamental business restructur-

business, achieved significant increases in both number ofing that included completing the transfer of its credit businessmembers and its outstanding loan balance. Rakuten Credit,by means of a corporate separation in November. The credit

Inc., strengthened its promotions including a tie-up campaign

and payment businesses, which are highly Internet-compat-

with Rakuten Travel, and launched a competitive card loanible, recorded steady growth, with consistently rising cardholder

product, a loan with a limit of ¥5 million and minimum 7.0%

numbers for the Rakuten Card, and an 86.7% year-on-year

interest rate, aimed at medium- to high-income groups.

rise in credit card shopping transaction value during the fiscal
year under review. However, the Credit and Payment Busi-

Topicness recorded an operating loss, reflecting a decrease in operwith an increase in bad debt-related expenses in response toTransfer of the credit business and strengtheningof core businesseschanges in the business environment for consumer finance.

Rakuten KC Co., Ltd. undertook a fundamental restructuring

ating revenues in conjunction with the business transfer, alongof this business segment with the transfer to Orient Corporation of the credit business (mainly automobile installment ser-

Card shopping transaction volume

vices) of Rakuten KC Co., Ltd. In essence, Rakuten Grouphas withdrawn from the conventional type of consumer credit(Billions of yen)business centered on automobile and shopping credit, and

52.9

20

has begun a full-scale shift to the credit card and financebusiness centered on Internet marketing, the core businessof the Rakuten Group. We have also begun streamlining by
integrating business offices and other locations. Management

39.5

36.7

40

75.5

60

63.6

80

and employees are working together to enhance businessefficiency, while adapting to the changes in the business

0

05/
Q4

06/
Q1

06/
Q2

06/
Q3

06/
Q4

environment for the consumer finance business, including regulatory changes that have introduced stricter standards for estimating bad debt, and debate on lowering interest rate ceilings.

15

Portal and Media Business
The Portal and Media Business segment consists mainly of Infoseek,
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 ofbroadband content.

Net sales bybusiness segment
Millions of yen

8,510

Net sales in this segment rose 12.9% year on year to ¥8,510 million, while
operating income declined 79.6% to ¥394 million.

Improving site usability, and developing newservices

Topic

In the Infoseek business advertising revenue remained steadyas we worked to expand compatibility with a range of de-

Rakuten Links provides enhanced community
networking

vices and improve user convenience through a number of

Rakuten Links, launched in March 2006, is a social networking

measures such as enhancing hybrid searching functions. For

service (SNS*) that enhances various community networking

the “Mail de Point” point email service, for which the number

capabilities. As the linchpin of Rakuten’s community-orientedof members surpassed 2.1 million during the fiscal year underservices, we will improve usability with links to a range of ser-review, we continued to conduct a cross-registration cam-vices, helping to promote communication among users.

paign within the Rakuten Group and make other efforts aimed
at increasing the number of high-frequency users.
In terms of new business developments, we began offering Rakuten Links, a social networking service (SNS) linked
to Rakuten Blog, which now boasts approximately 780,000
users. In the Internet television business we launched Rakuten
Eagles TV with live coverage of all games of the Tohoku
Rakuten Golden Eagles professional baseball team, along with
Rakuten Market TV covering the stock markets live from theTokyo Stock Exchange. We also worked to acquire new members and enhance the entertainment value of programming.
For the Minna-no-Shushoku-Katsudo-Nikki (Everyone’s
Job-Seeking Diary), a community site for job seekers with
650,000 students registered nationwide, Rakuten Groupenhanced user satisfaction with the Shigoto-ga-Wakaru(Understanding the Job) Forum, a live event with presentations
from major corporations held early in the job-seeking season.

16* SNS: A community-style membership website through which participants introduce friends to each other and expand their circle of friends.

Travel Business
The Travel Business segment consists of Rakuten Travel, Inc. and its subsidiaries and affiliates. It focuses on operating travel-related websites andNet sales bybusiness segment
Millions of yen

services, such as hotel bookings.
Net sales in this segment rose 43.9% year on year to ¥10,465 million, with
operating income up 56.2% to ¥4,659 million.

10,465

Continued rise in gross transaction value forbookings and number of lodgers

overseas travel that allows users to select their own airline

The travel business showed strong growth with the grossPack, following in October. We also developed a variety of newtransaction value of bookings made through Rakuten Travel

services tailored to diverse user needs, including a lump-sum

up 25.5% year on year, and the number of contracting ac-

settlement service for contracting companies and advancecommodation facilities in Japan surpassing 20,000 in July.

credit card settlement service (both introduced in February), a

The number of users staying at accommodation facilities

service allowing mobile phone-based bookings for highway

reached 18.9 million during the fiscal year under review, withbuses (September), and a pet hotel reservation service (De-

1.3 million comments registered on accommodation facilities.

cember). Through these new services, Rakuten Travel, Inc.

The customer comments portion of the website helps new

intends to become an even more comprehensive travel

users in making decisions on accommodations, enhances theservice provider.

and accommodations, with the domestic version, ANA Raku

added value of the site, and increases activity on it.
In terms of new business developments, in February, weTopicbegan offering Raku Pack, a dynamic package service forLaunch of the ANA Raku Pack service
ANA Raku Pack is a package tour service for individual travel

Contracting Accommodation Facilities in Japan

provided by Rakuten ANA Travel Online Co., Ltd., a joint venture established by All Nippon Airways Co., Ltd. (ANA) and

22,000to freely create their own travel plans to suit their objectives

14,00019,866

19,54917,62917,046

16,00015,981

18,00019,06720,00020,967

Rakuten Travel, Inc. Through Rakuten Travel, users are able

20,363(Number of facilities)

and budget, choosing
from among ANA’s
900 daily flights andapproximately 20,000
accommodation facilities that have contracts with Rakuten
Travel and ANA Sales

0

05/
Q1

05/
Q2

05/
Q3

05/
Q4

06/
Q1

06/
Q2

06/
Q3

06/
Q4

Co., Ltd.

17

Securities Business
The Securities Business segment consists of Rakuten Securities Holdings,
Inc. and its subsidiaries including Rakuten Securities, Inc. The business pro-

Net sales bybusiness segment
Millions of yen

vides online securities brokerage and other services.
Net sales in this segment rose 54.0% year on year to ¥40,525 million, with
operating income up 20.0% to ¥15,359 million.

40,525Strong growth achieved with enhanced services
and products

to address the growing desire to invest in overseas securities,

Rakuten Securities, Inc. has over 645,000 user accounts—

the U.S. Exchange Trade Fund (ETF), an exchange-traded fundthird among online securities brokerages in Japan—with thelinked to stock indexes. With regard to savings-based prod-

second highest daily trading value at ¥141,095 million.

ucts, Rakuten Securities, Inc. also added to its range of non-Our trading tool for mobile platforms, iSPEED, has been

Rakuten Securities, Inc. became the first in the industry to offer

Japanese bonds and investment trusts.

enhanced to provide mobile traders with more convenience.
It offers an “anytime, anywhere” environment that is compat-

Topicible with all domestic mobile carrier services, which is an industry first, as well as features including automated updates

The latest version of Market Speedin a minimum five-second interval. Further, drawing on group

In October 2006, Rakuten Securities, Inc. released the latest

synergies we worked to expand the customer base throughversion of Market Speed, a trading tool developed for per-promotions to attract Rakuten Group members.

sonal computers. The new version incorporates suggestions

The product lineup has also been enhanced in response

from leading users of the tool, with such added features as ato the diversifying investment needs of individuals. In a move“super quick order” function that allows an order to be placedin as few as two mouse clicks, as well as stock screening andAccounts at Rakuten Securities

other analysis functions. These improvements have substantiallyreduced the

700,000

operational
592,209621,472

100,000

365,097

200,000

249,222300,000

299,611400,000

454,125500,000

552,816600,000

06/
Q2

06/
Q3

645,414(Number of accounts)

0

05/
Q1

18

05/
Q2

05/
Q3

05/
Q4

06/
Q1

06/
Q4

steps andtime.

Professional Sports 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

Net sales bybusiness segment
Millions of yenplanning and selling related goods.
Net sales in this segment declined 4.7% year on year to ¥6,548 million, with
an operating loss of ¥1,396 million (compared to operating income of ¥157
million for the previous fiscal year).

6,548

Advertising and sponsor revenue increases alongwith the team’s win rate

Topic

Advertising revenues rose 17% year on year following efforts
to win new sponsors through a new plan developed as one of

The “Tohoku Project” supports the region throughbaseballthe business initiatives for fiscal 2006. Ticket sales were also

Rakuten Baseball, Inc. launched the “Tohoku Project” with

up 2% year on year as a result of repeat purchases by season

the aim of ensuring that the Rakuten Eagles become more

ticket holders, and stepped-up efforts to attract new fans.

firmly rooted in the Tohoku region and are supported by local

In terms of facilities, we built a new large-scale indoor

fans. In 2006, we held our Baseball School throughout thepractice area and farm team playing ground, establishing a

Tohoku region for elementary and junior high school students,

foundation that will further strengthen the club. The Fullcast

where junior coaches from the Rakuten Eagles would instruct

Stadium Miyagi was also expanded to allow for even more

players in basic skills to help them more fully enjoy the game.

fans to enjoy the games in even greater comfort, including

We also organized and sponsored a baseball tournament forsuch facilities as royal boxes, a premium lounge, refreshment

the Tohoku region.

facilities, and an additional 3,000 spectator seats. At the sametime, we also worked to expand the fan base with repeatedcommunity-based efforts, including a fan appreciation day andbaseball lessons for children.
The team itself, under the management of Katsuya
Nomura, won 47 games, nine more than in the previous season. The team was also strengthened for the coming season
through the drafting of promising new players and addition of
new foreign players.

New Rakuten Eagles players at their introductory press conference19Corporate Governance(1) Basic Approach Regarding Corporate GovernanceDirectors, Board of Directors and Executive Officers

The Rakuten Group gives the highest priority to strict corporate

The Board of Directors has 14 members, including 4 outside

governance through Group-wide risk management, while maxi-

directors, with the maximum number of directors allowed

mizing its corporate value.

under the Articles of Incorporation set at 14 members.

Specific governance measures include upgrading the

Resolutions to appoint directors must be approved by a

Board of Directors and its capacity to supervise businessmajority of the shareholders with voting rights at meetings inexecution by directors through the appointment of outsidewhich at least one-third of the shareholders eligible to exer-

directors; the establishment of an auditors office to assist thecise voting rights are in attendance.

auditors as a means of bolstering audit functions; andThe Board of Directors holds regular monthly meetingsenhancing internal checking functions by increasing person-and extraordinary meetings as necessary. At meetings, thenel assigned to the Internal Audit Department, an indepen-

directors reach decisions concerning important mattersdent body under the direct authority of the CEO.

involving management and supervise the performance ofFurthermore, the Rakuten Group has adopted a businessdirectors and Executive Officers responsible for business

unit system in an ongoing commitment to achieve faster

activities. The Rakuten Group also has an Executive Strate-decision-making in each business operation, and has devel-

gic Meeting, which is made up of executives at the Senior

oped a system for internal controls across the Rakuten Group

Executive Officer level and above, which discusses important

through the establishment of Functional Teams with broad

matters pertaining to Rakuten Group strategies, such as

control powers that cut across all Rakuten Group businesses.

medium- and long-term management plans and basic policies.
This framework helps to ensure proper decision-making by the(2) Implementation of Corporate Governance
Measures (as of March 30, 2007)

Board of Directors.
Once made, decisions by the Board of Directors are delegated to the Executive Officer Meeting, comprised of the햲 Status of management control organization regarding

Rakuten Group’s Executive Officers. Board decisions thenmanagement decision-making, execution and super-serve as a basis for the management and administrative duties

vision, and other corporate governance systems

carried out by each Executive Officer. Where the implemen-

Rakuten supervises management by using a Corporate Auditor

tation and administration of each business is concerned, busi-

System. In March 2003, Rakuten adopted the Executive Officer

ness unit management meetings held at each business unit,

System to separate the roles of management supervision andas well as management meetings of committees convened

business execution. Functions that were until then performedby the Functional Teams work to ensure that each businessby the Board of Directors were divided, making directors

is conducted in a proper and efficient manner, and that admin-

responsible for management decision-making and supervi-

istrative control that spans the entire Rakuten Group is enacted.

sion and Executive Officers responsible for the execution ofbusiness activities. A business unit system has also been
introduced to promote faster business execution by Executive
Officers and to strengthen the supervisory functions of theBoard of Directors and the Corporate Auditors.

20

Corporate Auditors and the Board of Auditors

Results of internal audits are reported to the CEO and

There are 4 Corporate Auditors, 3 of whom are from outside

the Compliance Committee, as well as all Executive Officers

the Rakuten Group. Of the Corporate Auditors, 2 serve on a

involved and the Executive Officer Meeting. Results are also

full-time basis. The Corporate Auditors are assisted in theirreported to the Board of Auditors as a means of linking theseduties by the auditors office, a body established under thefindings to the audits performed by Corporate Auditors. The

Board of Auditors. The board holds regular meetings andInternal Audit Department comprises 6 dedicated personnel.

extraordinary meetings as necessary.

햳 Implementation of measures to enhance corporate

The auditors attend meetings of the Board of Directors
and other important meetings, receive reports on the performance of duties by directors, the Internal Audit Department
and other sources, check operations at the head office andother important business sites, and check subsidiary operations. These activities are performed in line with audit policies, plans and other parameters established by the Board ofAuditors. In addition, the auditors receive auditing reports fromthe independent accountant and examine the financial state-

governance enacted during the past year
During fiscal 2006, the Board of Directors formulated a basic
policy regarding Rakuten’s system of internal controls. The
year also saw the establishment of the auditors office to assist
the Corporate Auditors and an increase in personnel assigned
to the Internal Audit Department as steps to strengthen
auditing functions. Among other actions, Rakuten Group further
reinforced its information security framework by obtaining ISMS
(information security management system) certification.

ments and related documents. The auditors also hold meetings with the Chairman and CEO to discuss various matters.

햴 Resolutions from 10th Annual General Shareholders’Meeting (March 30, 2007) that the Board of Directors

Financial Audits
Rakuten Group has an auditing contract with Ernst & Young
ShinNihon to perform financial audits as prescribed by Japan’s
corporate law and the Securities and Exchange Law.

is authorized to decideWith respect to the distribution of retained earnings and othermatters pursuant to Article 459-1 of Japan’s corporate law,and excluding cases specifically referred to by other laws,

Internal Audits

Rakuten’s Board of Directors, in accordance with the Articles

The Internal Audit Department, established as an indepen-of Incorporation, may enact an earnings distribution policy bydent body under the direct authority of the CEO, performs

its own resolution without a resolution from the Annual General

audits based on an annual internal audit plan for the purpose

Shareholders’ Meeting, in order to maintain a flexible earningsof checking the status of operational execution at each

distribution policy. However, a separate provision to these samedepartment. These audits cover internal controls, including

regulations states that these regulations will come into effectitems such as the legality, suitability and efficiency of activi-

upon the completion of the terms of service of all directors.

ties, and progress with regard to audits and compliance programs. By bolstering ties with the internal audit departments
at each subsidiary, the Internal Audit Department works toensure that operations are properly conducted through theimplementation of an ongoing process of internal audit acrossthe entire Group.

21

Risk Factors

Business Risk

(1) Rakuten Ichiba

Listed below are the principal matters related to the businessIn terms of our application procedure, we supervise the regis-

and finances of the Rakuten Group that are considered to

tration of merchants on our site. In principle, Rakuten Ichiba

involve risk or to have a major impact on the investment deci-

registered merchants are incorporated or, if they are notsions of investors. In recognition of the potential for theseincorporated, have a proven business record, for example in arisks to occur, the Rakuten Group has taken measures to mini-“bricks and mortar” store. Following registration, we have amize the likelihood of occurrence and to deal with risks shouldsystem for providing operational support by our E-Commercethey occur. Nevertheless, the Rakuten Group believes that

consultants and through that system carry out monitoring ofinvestment in its securities should be undertaken based on

the sales items listed by the merchants and their compliancedue diligence by the investor, to include consideration of otherwith the terms of our contract. It is clearly stated in the con-matters in addition to those stated here.

tract with the merchant that any problems arising between the

In the absence of an indication to the contrary, all forward-

merchant and the purchaser regarding defects or payments

looking statements included in the following discussion arewill be settled between the parties concerned and that thedetermined by the Rakuten Group at the time of preparing

Rakuten Group has no responsibility for such matters. How-yukashouken-houkokusho on March 30, 2007. These below-

ever, if during the monitoring process it is found that a mer-listed risk factors are translations of the original reportchant has a bad reputation or that many complaints about the(yukashouken-houkokusho) issued in Japanese for the purpose

merchant have been received by the member services depart-of reference only and they contain elements of uncertainty andment that conducts customer support, the Rakuten Group may

could differ materially from actual results.

take such measures as requiring the merchant to improve services or terminating their contract (removing the merchants from

I. Risks Relating to Our Businesses

the site). However, because of the dominant size of the Rakuten

1. E-Commerce BusinessGroup’s Internet shopping mall business within the market, it

The basic feature of the Internet shopping mall and consumer

is possible that such disciplinary measures or the provisions

auction businesses that comprise our E-Commerce Businesson which they are founded, including the terms and conditions

is that they introduce consumers to merchants or to auction

for setting up a Rakuten Ichiba merchant, could constitute aparticipants to enable them to make commercial transactions.

violation under the Act on Prohibition of Private Monopoliza-

Since the role of Rakuten Group’s services is limited to pro-tion and Maintenance of Fair Trade. In such a case, the Rakuten

viding a market for the transactions, the counterparties inGroup could become subject to new restrictions on its opera-transactions are consumers, merchants, or auction partici-

tions that might have a negative impact on its business, results

pants. In conducting transactions, these counterparties couldof operations or financial condition.

list or transact an illegal item, infringe on rights such as ownership or intellectual property, breach the privacy of others,(2) Rakuten Auction

or commit fraud or some other illegal activity. Should such an

Problems occurring between participants in Rakuten Auction’s

event occur, there is the risk that not only the individuals in-individual-oriented business are to be settled by the individu-

volved, but also the Rakuten Group will be held accountable

als and it is clearly stated in the contract with the participants

due to having provided and been in charge of the site wherethat the Rakuten Group has no responsibility for such matters.

the transaction in question was concluded.

Moreover, the Rakuten Group monitors listed items to screen

To avoid such an occurrence, the Rakuten Group takes

for illegal items or those that violate public decency. Amongthe following preemptive measures in each of its businesses

other measures, to forestall or curtail problems related toto prevent such problems and endeavors to fulfill all its obli-delivery and settlement between the winner and seller, thegations under the law regarding these matters.

Rakuten Group provides a rating system on the site where22participants rate each other with regard to these functions.

and certain specific requirements have been met including the

Despite our control systems, because of the growth inexchange of written documentation regarding the loan.

the number of merchants and transaction volume and ourHowever, in recent years, rulings by the Japanese courts have

limited human resources, it has become difficult to monitor all

begun to severely restrict when such excessive interest pay-transactions in the above businesses and to determine whether

ments will be recognized as deemed payments. As a result,contracts are being fully complied with or whether any illegal

there has been a steady rise in the number of legal suits byactions have occurred. Therefore, if a transaction problem does

debtors requiring creditors to refund these excessive interest

occur, it is possible that the Rakuten Group may be held legally

payments because they are not deemed payments. Since theliable despite the provisions of the contract with the merchant.

deemed payments have been terminated under the promul-

In addition, the occurrence of the problem itself may have agated Revision Law, it is possible that these interest refund

detrimental effect on the brand image of the Rakuten Groupsuits will continue to increase on past and present loans.

or its individual businesses. Another risk is that the govern-

Although the interest rates in the loan agreements of Rakuten

ment authorities may take disciplinary action or issue new

Credit, Inc., are not in excess of the ceiling under the Interest

guidelines resulting in restrictions on business development

Rate Restriction Law, some of the interest rates in the loan

or unavoidable business reform. Such circumstances have theagreements of Rakuten KC Co., Ltd. remains. Therefore, should

potential to damage the Rakuten Group’s business, results of

the number of debtors taking legal action demanding theoperations or financial condition.

repayment of these so-called excessive interest payments
exceed expectations, it could damage the results of opera-

2. Credit and Payment Business(1) Laws and Regulations
The Credit and Payment Business is regulated by the Law
Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits (hereinafter referred
to as the “Contributions Law”) and the Moneylending
Business Restriction Law (hereinafter referred to as the“Moneylending Law”).
In the June 2000 revision of the Contributions Law, theceiling on interest rates that are not subject to penalties or totions of this business segment.
Furthermore, under the Revision Law, a ceiling has been
set on the total balance of borrowings of individual debtors inthis business. With the enforcement of this law, the growth inthe outstanding balance of loans will be thus restricted andcould have a detrimental effect on the profits of the business.
In addition, with the enforcement of the Special Conciliation
Law or the revisions of the Practicing Attorney Law and Judicial
Scriveners Law and the Bankruptcy Law, it is possible thatthe number of loans that the Rakuten Group cannot collecton will increase.

prohibition was reduced from 40.004% per annum to 29.2%
per annum. In December 2006, the government promulgatedthe Law to Revise a Portion of the Regulations of the Moneylending Business (hereinafter referred to as the “Revision Law”),
in which the interest rate ceiling under the Contributions Law is
to be further reduced to 20.0%. The enforcement of the Revision
Law, therefore, could adversely affect the profits of our Credit
and Payment Business.
The portion of the interest charged under the Contributions Law that is in excess of the interest rate ceiling under theInterest Rate Restriction Law is considered to be effectively a(2) Business Environment
EconomyBecause the business deals with individual consumers, should
the economy deteriorate and the demand for loans decline
due to stagnant consumption or should a higher unemployment rate lead to an increase in the number of personal bankruptcies or consumers with excessive indebtedness spreadamong multiple creditors, it could have a negative impact on
the results of operations.

legal payment of interest (deemed payment) under the
Moneylending Law if the debtor pays the amount voluntarily

23

Competitionin the number of users, and the greater use of the Internet by

In addition to major consumer finance companies, the con-corporations in their business activities. Nevertheless, insumer finance industry comprises a diverse range of players,addition to competing with other media in the advertising busi-

such as bank-related, foreign-capital-related and Internet-

ness, Internet advertising and all other advertising media are

related consumer finance companies. The credit card industry

exposed to the high sensitivity of the advertising market tois also characterized by intense competition with bank-related,economic trends. If the business climate should worsen, it

retail-related, and “shinpan” consumer finance-related com-

could cause deterioration in the results of operations.

panies vying with major credit card companies. Among thesecompetitors, there are companies that are superior to Rakutenin terms of financing, marketing, customer base, credit assessment, brand recognition, facilities, and network. The actions ofthese competitors could be damaging to the Rakuten Group’sbusiness, results of operations, and financial condition.

(2) Customer Acquisition Power of Web Sites
The value of Internet advertising as an advertising medium
depends primarily on the ability of Web sites to attract customers. The Rakuten Group targets improvement in this areaby providing users with content and other services that suit
their needs. Going forward, the Rakuten Group plans to in-

Financing
Working capital for the business is primarily raised throughborrowings from financial institutions. However, because theinterest rates can fluctuate depending on market conditions orother factors, it is possible that the Rakuten Group’s financing
costs could rise due to changes in interest rates or in the credit
ratings of the Rakuten Group. Should these financing costs
rise, they could adversely affect results of operations.

crease its advertising revenues by improving and expanding
its advertising products displayed along with search results
as well as offering a variety of content. However, should there
be a change in the trend toward the establishment of Internet
advertising as an advertising medium or should some obstacle
arise in the provision of content that appeals to users, it might
have a detrimental effect on the results of operations.
In operating its sites, the Rakuten Group utilizes thirdparty vendors for its Web search engine and some of the con-Credit Risk Management and Loan Collection
To conduct its Credit and Payment operations the Rakuten
Group believes it is essential to acquire credit management
systems and personnel with loan collection know-how to reduce the risk of loan defaults. Should a major problem occur
with the maintenance or operation of the necessary systems

tent on its news pages. If for some reason there should be aninterruption in the supply of the Web search engine or content services, or sufficient popular content cannot be offeredon the site, it could create a barrier to site operations, whichmight have a negative impact on the execution of the business and on results of operations.

or the acquisition of skilled staff, it could create an obstacle
to the continuation and future development of the business.

(3) Competition

3. Portal and Media BusinessWe compete directly with other portal site operators, including Yahoo! Japan Corporation, Google, Inc., Microsoft Co.,

(1) Internet Advertising Market

Ltd. and EXCITE Japan Co., Ltd. In addition, we believe it is

The Portal and Media Business focuses on the operation andlikely that there will be additional entrants to the Internet

management of portal sites, with Internet advertising revenues

advertising market. Should competition with these compa-

accounting for a high proportion of sales.

nies lead to a reduction in our ability to attract customers, our

The Internet advertising market is expected to expand
based on the higher penetration of the Internet, the increase24

advertising volume, or unit prices for advertising, it may havean adverse effect on results of operations.

4. Travel Business

Securities, Inc. might also have its Securities Business license

The Rakuten Group plans to strengthen and expand its Travel

revoked. Consequently, a decline in its capital ratio could haveBusiness by collaborating with travel-related companies inside

a detrimental impact on Securities Business and on the re-and outside the Rakuten Group, such as airlines. Althoughsults of operations or financial condition of the Rakuten Groupthe travel-related Internet services market has been expand-as a whole.

ing in recent years, travel-related services are easily affectedby economic trends, conditions both in and outside Japan,(2) Business Environment and Strategy

and variations in consumer preferences. Changes in any ofBecause the principal source of revenues for the business isthese factors could impact negatively on our operations or

brokerage commissions on the execution of customer trades,

results of operations.

it is influenced by the performance of the stock market. The

There are many competing services and companies instock market is affected by economic conditions, market

the Travel Business, and the intense competition could result

trends in other countries, political or regulatory trends, andin lower commission rates. Moreover, there is no guarantee

investor sentiment. When markets are bearish, investmentthat accommodation providers will continue their contrac-

sentiment declines in the market among Rakuten Securities,

tual relationships with the Rakuten Group. Should theInc. existing customers and potential customers, and such a

Rakuten Group’s accommodation providers break their con-trend could cause deterioration in results of operations due

tracts and form new ones with competitors, it might have a

to lower trading volume and trading value. Furthermore, thedamaging effect on the operations or results of operations

online brokerage business is highly competitive, with manyof the Travel Business.

companies entering the market in addition to existing securities companies. Brokerage commissions, the primary revenue

5. Securities Business(1) Laws and Regulations
In addition to the Securities and Exchange Law, this businessis governed by the rules and regulations of self-regulatoryorganizations such as stock exchanges and the Japan Securities Dealers Association. Additions or changes to the laws
and regulations related to the business or to their practicalapplication or interpretation could have an impact on theoperations or results of operations of the business.
Under the Securities and Exchange Law and the Cabinet
Ordinance Regarding the Capital Adequacy Regulations for
Securities Companies, securities companies are required tomaintain their capital ratio above a certain level. If the capitalratio of Rakuten Securities, Inc. should fall below this level
due to an increase in risk assets (including the expansion inloans related to increased margin transactions) or to deterioration in its financial position, Rakuten Securities, Inc. could
be forced to change its business methods or face a completeor partial suspension of its operations. In addition, Rakuten

source of the business, have been deregulated. Should pricecompetition become more intense, it might have a damaging
effect on the business’s ability to attract customers and on its
results of operations.
In recent years, the proportion of revenues related tomargin transactions has continued to rise. Any sudden change
in the direction of market prices, a decrease in margin transactions in reaction to higher interest rates or the occurrenceof uncollectible outstanding balances on margin transactions
could result in a decline in results of operations. Foreignexchange trading based on cash collateral is exposed to thesame risks as margin transactions.
In addition to traditional brokerage services, the business has also ventured into investment banking and fundmanagement services. These new operations have different
risks than the business the Rakuten Group has conducted in
the past. If the Rakuten Group cannot predict or avoid theserisks due to a lack of know-how or experience, it could have anegative impact on the business, brand, and results of operations of the Rakuten Group.

25

(3) System Interruption
During the fiscal year 2005, there were multiple failures of

7. Risks Related to the Implementation of Measures toIncrease Gross Transaction Value (GTV)

Rakuten Securities’ trading system due to the overloading ofConcentrating mainly on its E-Commerce and Travel Busi-

the system by a sudden increase in trading volume related tonesses, the Rakuten Group uses GTV on its sites as a man-market conditions. In November 2005, Rakuten Securities, Inc.

agement performance indicator and is strengthening its

received an operational improving order from the Financial

marketing strategies aimed at increasing GTV. To expand GTV,

Services Agency in this regard. Rakuten Securities, Inc. rein-

the Rakuten Group has introduced aggressive marketing andforced its trading system by upgrading and adding hardware

system development strategies aimed at increasing the num-and strengthening its trading management system. Should

ber of new customers and raising the ratio of repeated use by

Rakuten Securities, Inc. experience another system interrup-

existing customers. Strategies include establishing thetion, it might damage the public’s trust in Rakuten Securities,“Rakuten eco-system;” use of the groupwide “Rakuten Super

Inc. or the Rakuten Group as a whole, and the loss of cus-

Point,” rewarding program; and optimizing the information

tomers and other repercussions could result in a deteriora-

displayed on sites according to such purchaser attributes astion in the results of operations of the business and of thegender and age (“personalization”).

Rakuten Group. In addition, the business could be the targetof administrative discipline by the authorities.

Recently, the Rakuten Group has noticed a growth trend
in GTV and the number of unique purchasers* against the
backdrop of expansion in B-to-C (business to consumer) sales.

6. Professional Sports BusinessIn this business we are taking steps to strengthen the operating base of the baseball club by adding facilities for spectators and strengthening our player roster and by establishing astrong home crowd base of customers. Based on these measures, we expect higher depreciation expenses related to ourcapital investments and signing fees for baseball players. If
the revenues of the business do not perform as planned, thesehigher expenses might have an adverse effect on the club’s
results of operations.
We hope that the greater brand recognition of the Rakuten
Group anticipated as a result of operating the Tohoku Rakuten
Golden Eagles professional baseball club will create synergies
that will contribute to performance growth for all our businesses.
However, if the baseball team is not popular there is a possibility that the benefits of running the club will be limited.
Since the business is subject to the regulations of theJapan Professional Baseball Agreement signed with the Professional Baseball Organization of Japan, there is a possibility that restrictions could arise in the operation of the business.

26

However, should the GTV of the Rakuten Group’s sites notachieve steady growth due to external factors, such as trends
in the economy, legal restrictions on the use of the Internet,
and growing awareness of security issues, particularly in
relation to personal information, as well as competition withother companies and other factors, it could have a detrimental effect on the results of operations of the Rakuten Group.
Going forward, the Rakuten Group intends to implement
measures to expand GTV, such as rebranding its services
under the Rakuten brand, integrating its different membership databases, and integrating member IDs by means of the
Rakuten Super Point program. It is possible that these measures could result in a decline in the support of existing members or in their termination of membership. Should thesemeasures not provide the expected benefits, they might havean adverse impact on the GTV of the Rakuten Group and on
its results of operations.
* Number of unique purchasers: Total number of purchasers who havepurchased something from Rakuten Ichiba at least once during agiven time period.

II. Risks of Internet-related Businessperson or legal entity whose rights have been infringed as a

1. Risk of Legal Regulations Affecting Internet andresult of distribution of information via the Internet to request

E-Commerce Operations
As information distribution and e-commerce via the Internet—
the main businesses the Rakuten Group is involved with—the disclosure of information regarding the perpetrator of theact. The law also clarifies the obligations of the service provider
that has received such a request, and the related procedures.

continue to proliferate and expand, there is still a wide rangeof related controversy and new legal regulations are being(3) Used Goods Dealing Law (Revised and enforced May 2005)

prepared. The Rakuten Group’s legal obligations and condi-

This law has been revised to prevent the sale of stolen items,

tions of exemption are steadily being clarified in this area.

etc., as used goods over the Internet and to enable such goods

Summaries of the major legal regulations applicable to theto be identified quickly. As arrangers of used goods auctions,business domains of the Rakuten Group are given below.

operators of auctions, etc. are now obligated to submit URLs,

If in the future a social movement should arise callingetc. In addition, the operators are obligated to make efforts tofor more comprehensive legal regulations covering interme-establish the true identity of those submitting items in auc-

diaries in the provision of information, the Rakuten Grouptions, etc., and to report items suspected of being stolen, etc.,

might face new restrictions or the tightening of existing re-to the police, and to endeavor to create and keep records ofstrictions on its businesses, either as a result of new laws or

the sales arranged.

the voluntary adoption of rules within the Rakuten Group.
These restrictions could have a damaging effect on the business, results of operations or financial condition of the
Rakuten Group.

(4) Law Regarding Regulations on the Solicitation ofChildren Using Online Dating Businesses(Partially enforced in December 2003)
This law places an obligation on operators of online dating(1) Unauthorized Computer Access Law

sites to try to prevent the use of their sites by children.

(Enforced February 2000)
This law prohibits unauthorized computer access or actions
that assist such unauthorized access. It also places an obligation on access managers, who have added access control
functions to PCs attached to a telecommunications line, toestablish a certain level of preventative measures regarding
unauthorized access.

(5) Act on the Protection of Personal Information(Enforced in April 2005)
This law places an obligation on businesses that handle thepersonal information of more than a certain number of individuals not to use such information for purposes other than
the initial purpose for which it was acquired or provide theinformation to a third party without the approval of the indi-(2) Law Concerning Limitation of Damages to Electronic

vidual. They are also required to take necessary and appro-

Communications Service Providers and Disclosure of

priate measures to ensure the secure management of personal

Sender Information (Enforced May 2002)

information being held, and to conduct necessary and appro-

This law places a limitation on the responsibility of a person

priate supervision of employees and commissioned service

or legal entity to compensate another person or legal entity

vendors in that respect. The government minister in charge

whose rights have been infringed as a result of distribution ofwill, as necessary, provide guidance regarding the handlinginformation via the Electronic Communications such as theof personal information using the escalating stages of requir-Internet due to omission by the service provider. It also places

ing reports, providing advice, warning, and giving orders. Ina limitation on the responsibility of a service provider to com-

particular, the law provides for monetary fines to be assessedpensate for damage to a sender who has been prevented fromon handlers of personal information that violate orders, refuse

sending information over the Internet due to an action of theto give reports or make false reports.

service provider. In addition, the law clarifies the right of a27

2. Risks Related to Handling Personal Information

4. Risks Related to the Possibility of Legal Suits

Presently, the Rakuten Group allocates IDs to users of Rakuten

In pursuing the development of its businesses, as mentioned

Ichiba and other services and has access to their addresses,

previously, the Rakuten Group could be caught up in illegal

telephone numbers, credit card numbers, and other informa-actions or problems caused by merchants on its sites, pur-tion that enables the Rakuten Group to identify them. In man-chasers of items, participants, or other users of its services or

aging this information, the Rakuten Group takes the utmost

cause damage to merchants on its sites, purchasers of items,

care to maintain users’ privacy and protect personal informa-

participants, other users of its services or consumers as ation and pay close attention to the information security of eachresult of system failures or other incidents and could be suedof its services.

or have other claims brought against it. In addition, Internet

In July 2005, there was an incident where customer

businesses have a short history and new, or hitherto latent, busi-

information was leaked by the operator of registered merchantsness risks could arise that could result in unforeseen legal suits.

on Rakuten Ichiba, and again in October 2005, a leakage ofIn such a case, depending on the nature of the legal action andcustomer information was discovered at Rakuten KC., Ltd.

the amount of the claim, it could have a damaging effect on the

The Rakuten Group has set up a security department andotherwise implemented and strengthened measures to pre-business, results of operations, and financial condition of the
Rakuten Group.

vent the leakage of customers’ personal information, and todeal with such leakage if it should occur. The Rakuten Groupintends to continue pursuing these policies. However, theRakuten Group cannot say that there is no longer any possibility of the leakage or abuse of information. It is possible that
the Rakuten Group could become embroiled in a legal disputeor that its credibility could be damaged over such an incident.
If it did occur, it might have a detrimental effect on the Rakuten
Group’s business or results of operations.

5. Risks Related to Competition
The rapid spread of continuous, high-speed Internet connection via broadband (ADSL and optical fiber) and an increasein mobile phone-based Internet access has led to continued
expansion in the use of e-commerce services by the general
consumer. As a result, many companies have entered the
e-commerce market offering a wide variety of merchandise
categories and forms of service.
The Rakuten Group aims to maximize transaction volume

3. Risks Related to Intellectual Property Rights

on the sites that it operates. Measures include upgrading its

The Rakuten Group strives to protect its patents, trademarks,

capabilities with a view to strengthening the mobile phone-copyrights, domain names, and other intellectual property

based e-commerce business, which offers further growth

rights and the licenses we have obtained. In the advent that

potential, as well as reinforcing marketing activities with a

we cannot protect our intellectual property rights from infringe-

focus on retaining users. In addition, the Rakuten Group isment by third parties or are required to spend large sums oftaking steps to strengthen and expand e-commerce sites othermoney to protect those rights, it could have an adverse affectthan the Rakuten Ichiba site, including Rakuten Auction,on the business, results of operations, and financial condition

Rakuten Business, Rakuten Books, and Rakuten Travel.

of the Rakuten Group. Moreover, if another party should con-Among other strategies, the Rakuten Group is using M&A to

tend that the technology or content used by the Rakuten Group

broaden its business domains and to expand its business

represents an infringement of their intellectual property rights,

content through alliances between its businesses.

expenses or losses could arise from our defense against theGoing forward, the Rakuten Group plans to continue tocharge or from the settlement of the dispute or restrictions

build its business by responding to the needs of customers.

could be placed on the provision of specific content or offer-

Measures to this end will include integrating the customer ID

ing of services or use of certain technologies that could result

systems for its individual services and inter-service collabo-

in a negative impact on the Rakuten Group’s business, results

ration. However, it is possible that the Rakuten Group’s salesof operations or financial condition.

will decline due to a lack of success with those measures,

28

the appearance of a competitor with a breakthrough service

an error in the hardware or software of the Rakuten Group or

based on strong system development capabilities, or otherits merchants, purchasers, participants or other users could

forms of competition. It is also possible that the Rakuten

prevent the proper processing of transactions or could cause

Group could face a price war or be forced to increase its

the system to shut down entirely. Furthermore, due to computersales promotion and advertising expenses. Such situations

viruses, criminal activities such as unauthorized intrusion by acould cause deterioration in the Rakuten Group’s businesshacker, or malpractice by employees or managers, the Webor results of operations.

pages of the Rakuten Group or its merchants could be overwritten or not work properly, or important data could be erased

6. Risks Related to Technological Progress in the Industry
Technology, industry standards, customer demands and competition change rapidly in the Internet industry, to which the
Rakuten Group belongs, resulting in the frequent introduction of new products and services as well as the appearanceof new competitors. Progress and change is particularly
notable in Internet technology, and the Rakuten Group’s businesses must keep up with these changes. Recently, theRakuten Group has recognized a need to fully adapt its services to Web 2.0 and mobile services, among other advances.
If the Rakuten Group should for some reason fall behindin its responses to technological progress, its services could
become obsolete and its competitiveness decline. It is pos-or improperly accessed.
The Rakuten Group commissions some of its key Internetrelated operations including connection services and dataserver management to third-party providers. If problems
should occur with those operations within the Rakuten Groupor the third-party providers, the Rakuten Group could directly
incur damage. In addition, an interruption in trading due to aserver defect, failure or other cause could lead to loss of confidence in the Rakuten Group’s systems or compensation
claims. If such conditions occurred, it might have an adverse
effect on the Rakuten Group’s business (See I above (Risks
Relating to Our Businesses), section 5. (Securities Business),paragraph (3) (System Interruption).

sible that even if the Rakuten Group is able to rectify the situation, it could incur increased costs for improving existing
facilities and new development. Industry trends and the
Rakuten Group’s response to them could therefore have an
impact on the business performance of the Rakuten Group.
In addition, a technology that impedes the businesses of the
Rakuten Group could emerge, and if it became widely used,
could be damaging to the business and results of operations.

III. Risks Related to Group Branding
Since the Rakuten’s founding, the Rakuten Group has invested
substantial business resources in establishing its brandthrough its business development and sales promotion andadvertising. The Rakuten Group believes that it has achieved
a certain degree of brand recognition among consumers andintends to continue to invest its business resources in marketing and sales promotion and advertising to maintain and7. Risks Related to System Failure
Many of the Rakuten Group’s businesses depend on the communications networks that connect computer systems. If these
networks were to be interrupted by a natural disaster or accident, it would be difficult for the Rakuten Group to operate its
businesses. Moreover, if a network were to become overloaded

further develop this brand recognition.
Nevertheless, there is no guarantee that such efforts willturn out as intended or lead to income for the Rakuten Group.
If problems arise in the development of the Rakuten Group’sbusinesses, they could lower trust in the brand name and havea negative impact on Rakuten Group’s results of operations,financial condition or stock price.

temporarily due to a high level of traffic, the servers of the
Rakuten Group or the Internet provider could fail. In addition,

29

IV. Risks Related to the Group’s Operational Structure
1. Risks Related to Dependence on Hiroshi Mikitani
The driving force behind the Rakuten Group’s businesses is
Hiroshi Mikitani, the CEO, and Chairman of Rakuten, Inc. Mr.
Mikitani has been the CEO of Rakuten since its founding andhas played an important role in driving the business in termsof marketing, technology, and finance, in addition to determining policy and strategy.
As of December 31, 2006, Mr. Mikitani and his family
members directly and indirectly owned 45.4% of the sharesissued by Rakuten. Consequently, the influence of Mr. Mikitanion the final decisions concerning the Rakuten Group, including the selection of directors, could be considered substantial, and it is possible for Mr. Mikitani to exert a strong impact
on the direction of the Rakuten Group through these decisions. In light of this situation, the Rakuten Group undertook
organizational improvements to create a management structure that did not depend excessively on Mr. Mikitani. Rakuten
introduced an executive officer system in March 2003 and achief officer system on November 1, 2006. Despite these
efforts to establish a more appropriate structure, however, if
Mr. Mikitani were to leave his post at this point in time, it could
adversely affect the Rakuten Group’s business, results ofoperations, and financial condition.

V. Risks Related to Expanding Business
Through M&A
M&A-related Policy and Achievements
The technologies, business models, and other aspects of theInternet industry, in which the Rakuten Group is developing
its businesses, change rapidly. In this business environment,
the Rakuten Group actively uses M&A and joint venture strategies in Japan and overseas to enter new businesses, acquire
new users, expand existing businesses, and obtain related
technologies, and the Rakuten Group considers these activities to be an important management issue. The Rakuten Group
believes that acquisitions enable shorter leadtimes thanstarting new businesses or expanding or developing existing
businesses, and it intends to continue evaluating potential
acquisitions as a business development strategy.
When making an acquisition, the Rakuten Group strives
to avoid risk as far as possible by undertaking a detailed due
diligence process regarding the target company’s financial
position and business and legal contracts. Nevertheless, there
are cases where, due to the nature of the deal, fully adequate
due diligence cannot be achieved. It is also impossible tocompletely discount the possibility that following the acquisition some contingent liability may arise or some previously
unrecognized liability might be discovered. Moreover, whendeveloping a new business, the very nature of the situation

2. Risks Related to Securing Human Resources
The Rakuten Group’s businesses require engineers to build
and maintain computer systems as well as specialists in its
different business fields and the Rakuten Group believes itwill be necessary to continue hiring such staff as its businesses expand. Presently, the Rakuten Group is not aware ofany major obstacles to its acquisition of the necessary personnel for its businesses. However, should the competition
for human resources heat up in any of its business fields causing difficulties in acquiring talented new employees, or should
current employees leave in substantial numbers, it could havea negative impact on the Rakuten Group’s business, resultsof operations, and financial condition.

30

makes it difficult to predict accurately the impact of the new
business on the Rakuten Group’s existing businesses or performance. Changes in the business environment can cause
the business to develop differently than originally planned,
which could have a negative impact on the results of operations of the Rakuten Group as a whole and lead to the investment in the new business becoming unrecoverable. It may
also prove difficult to integrate the information or internal control systems of the acquired company with those of the
Rakuten Group, or the Rakuten Group could lose officers,
employees or customers from the acquired company as aresult of the acquisition. Moreover, future investment might
be large compared with the current size of the business,

making it possible that the risk to the Rakuten Group, includ-

were being used as collateral) and Rakuten Strategic Partners,

ing its financial condition, could increase. Meanwhile, devel-

Inc. held 6,369,500 shares of TBS, for a total of 36,270,700

opment of operations overseas may be difficult because thecommon shares of TBS held by the Rakuten Group.

Rakuten Group has little overseas business experience and

The book value of these shares stated in the balance sheet

will face differences in language, regional factors and legal

at the end of December 2006 amounted to ¥143,994 million.

and taxation systems, as well as economic and political con-

Should the market price of TBS shares change in future, it

cerns, and different business practices.

could therefore have a substantial impact on the results ofWhen commencing new businesses that it has not been

operations and financial condition of the Rakuten Group.

involved with in the past, the Rakuten Group faces the risks
inherent in the particular businesses. It is possible that

VII. Risks Related to Interest-bearing Debt

acquisitions could create risk factors for the Rakuten GroupAs previously mentioned, the Rakuten Group operates Credit

other than those mentioned previously.

and Payment and Securities Businesses. The capital used to
run these businesses is primarily raised through borrowings

VI. Risks Related to Discussions About a Capitaland Business Alliance With TBS

from financial institutions and through issuing corporate bonds.

As of December 31, 2006, the Rakuten Group held slightlyinterest-bearing debt (the total of short- and long-term bor-over 19% of the shares of common stock issued by Tokyo

rowings and corporate bonds) was ¥546,499 million, which is

Broadcasting System, Inc. (TBS)equivalent to 42.2% of total consolidated assets and reflects

At December 31, 2006, the balance of consolidated

By creating a strong business partnership with TBS, thethe Rakuten Group’s continued high dependency on interest-

Rakuten Group plans to become the leading company in abearing debt for financing. For this reason, the Rakuten Group’s

media group capable of succeeding in the global market. To

results of operations are sensitive to movement in interest rates,

this end, on October 13, 2005 the Rakuten Group proposed

which could have an adverse effect on the fund raising capa-

a business integration with TBS based on a joint holding

bilities and financial condition of the Rakuten Group.

company.

In credit agreements signed by the Rakuten Group, such

Following the proposal, on November 30, 2005, withas loan and credit commitment line agreements, there are

Mizuho Corporate Bank, Ltd. acting as witness, the Rakuten

cases where the agreements include covenants and collat-

Group and TBS signed a memorandum of understanding out-eral provision replacement. Should the results of operations,lining the basic framework for a tie-up, and agreed to begin

financial condition or perceived creditworthiness of the

discussions regarding a capital and business alliance. How-

Rakuten Group deteriorate, a portion of the Rakuten Group’s

ever, the validity of the memorandum and related agreements

outstanding debt may have to be repaid in a lump sum or

expired on February 28, 2007.

new collateral may be demanded in accordance with theseWith a view to maximizing corporate and shareholder

provisions. Future changes in the business environment orvalue, the Rakuten Group plans to continue pursuing the pos-business strategies of the Rakuten Group could result in thesibility of a capital and business tie-up with TBS in good faith.

Rakuten Group requiring more capital than expected andinterest-bearing debt could rise further. In addition, there is

TBS Shares Held by the Rakuten Groupno guarantee that the Rakuten Group will be able to obtain

At December 31, 2006, Rakuten Media Investment, Inc. held

the conditions it wishes in financing its operations, which could

29,901,200 shares of TBS (of this number, 16,715,700 shares

restrict the Rakuten Group’s operation of its businesses.

31

Financial Section

Consolidated Five-year Financial Summary

33

Results of Operations and Financial Condition

34

Consolidated Balance Sheets

36

Consolidated Statements of Income

38

Consolidated Statements of Changes in Net Assets

39

Consolidated Statements of Shareholders’ Equity

40

Consolidated Statements of Cash Flows

41

Notes to Consolidated Financial Statements

43

Report of Independent Auditors

59

32

Consolidated Five-year Financial Summary
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31

Thousands of
U.S. dollars

Millions of yen

2002

2003

2004

2005

2006

2006

For the Year:Net Sales

45,568¥ 129,775¥ 203,272$ 1,708,164

Gross Profit

¥

7,243

9,895

¥

16,52718,083¥41,066

115,553

175,970

1,478,739

Operating Income

2,551

4,750

15,06034,88529,149244,948

Net Income (loss)(3,277)(52,644)(14,271)

19,4502,703

22,711

Total Assets

34,055

188,016

307,557

1,657,709

1,296,063

10,891,285

Total Shareholders’ Equity

30,22026,36545,85376,550

–

–

–

–

–

–

203,197

1,707,535¥30,092.66¥ 23,570.48¥ 38,814.92¥ 6,464.58¥14,492.23

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

1,642.50

212.03

1.78

Diluted

–––1,626.19

193.09

1.62–

At Year-End:Total Net Assets
Per Share (in yen and U.S. dollars):
Total Net Assets$

121.78Net Income (loss):

Other Information:
Equity Ratio (%)

88.7

14.0

14.9

4.6

14.6

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

31.8

2.0

9,070

¥ (38,058)¥ (16,567)

Cash Flow from Operating Activities

¥

2,351

¥

2,224

¥

–
$

(139,221)

Cash Flow from Investment Activities(3,287)(59,925)(30,040)(149,566)(41,735)(350,711)

Cash Flow from Financing Activities(696)

63,881

27,404225,427

76,614

643,816

19,672

25,791

32,39070,701

89,219749,748

481

809

958

3,709

3,430

–

Outstanding Amount of Cash andCash Equivalents
Employees

Notes: 1. See notes to consolidated financial statements.
2. U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥119 to U.S.$1, the approximate rate of exchange at
December 31, 2006.

33

Results of Operations and Financial Condition(1) Overview of Operations andConsolidated Financial Overview

a wide range of marketing activities. The company has also
launched several ventures which encompass the operations of
the entire Rakuten Group, such as “Rakuten Magazine,” which

During the fiscal year ended December 2006, the Japanesebrings together e-commerce and the functions of a free maga-

economy continued on a gradual expansionary track despite thezine, as well as the specialty site “Rakuten Company Life,” which

impact of sluggish consumer spending and a deceleration of theprovides a comprehensive assortment of products and services

U.S. economy. Exports and capital expenditure remained firm andfor business users. The company also introduced a “platinum

there was steady improvement in employment conditions.

member” status as part of its “Rakuten Point Club” membership

In the domestic market for Internet-related services, served

service, in an effort to further promote customer loyalty.

by Rakuten’s main business domain, the number of Japanese

Examples of new or enhanced services introduced by the

consumers with Internet access rose to an estimated 85.29

company this year include “Rakuten Auction,” an Internet auc-

million, for a market penetration rate of 66.8%. The number oftion site, and “ANA Raku Pack,” which offers domestic travelsubscribers to optical fiber-based services increased dramati-

packages featuring a choice of airline tickets and hotel

cally, and the number of users accessing the Internet via mobile

accommodations. Rakuten has initiated new business alli-phone outnumbered those accessing from a PC for the first time,ances in the Internet banking and mortgage loan businesses,

reflecting the ongoing shift to broadband and mobile-based

and is aggressively pursuing other new ventures, as demon-

services*. Meanwhile, the concept of an “open systems” plat-

strated by the launch of the “Rakuten Money Service.” Theform and a degree of user participation unseen in conventional

company also upgraded its “Rakuten Institute of Technology,”

services — the so-called “Web 2.0” — attracted a great deal ofwhich is conducting research and development targeting new

attention as network technology advanced and the number oftechnologies to improve the technical level of its services.

Internet users grew. More and more people are now frequenting

To improve group profitability, Rakuten has abolished its“user-generated content” sites, such as blogs and social net-former “internal company” structure, establishing a new,working services (SNS).

growth-oriented business structure. To achieve this, the com-

Rakuten is responding to these changes in the businesspany introduced a “growth management program” (GMP) toenvironment with efforts to enhance synergy through coopera-

pursue a number of goals, such as establishing a more effec-

tion among group companies, develop new services and improve

tive group growth strategy and making strategic investments

the level of service offered, in order to boost total Internet-related

to cultivate new businesses. The GMP also provides agross transaction value (GTV) to a target level of ¥1 trillion. The

framework for reorganizing the corporate structure and revising

company is also making progress in efforts to boost profitability

methods of allocating personnel in order to enhance flexibility,

by improving the business structure.

elevate productivity and reduce costs. Rakuten is focusing on

The progress that the company continues to make in switch-

all Internet-based and closely related business sectors as it

ing to an integrated Rakuten member ID system provides one

works to lay the groundwork for future growth, and to thisgood example of the type of synergy that it is fostering among

end, it has initiated dramatic restructuring measures, such asgroup companies. As the ID system is unified and centralized, thetransferring the credit operations of Rakuten KC Co., Ltd. tocompany can leverage its database of user information to conduct

Orient Corporation.

34

As a result of these aggressive efforts, in fiscal 2006 the com-

Net Assets

pany was able to elevate total GTV on Internet sites operated by

Net assets at the end of fiscal 2006 amounted to ¥203,197 million.

the Rakuten Group by 48.5% year on year to ¥836,496 million.

The accounting standard relating to net assets was changed.

Net sales for the year soared 56.6%, to ¥203,272 million. The

The amount corresponding to the conventional “shareholders’company booked operating losses during the period as part of aequity” in the balance sheet is ¥188,442 million at the end offull restructuring of its Credit and Payment Business, as well as

fiscal 2006, an increase of ¥111,892 million year on year (fromother steps to address a changing business environment, and as¥76,550 million). This mainly reflects increases in capital througha result, net operating income declined by 16.4% year on year, topublic offerings.

¥29,149 million. At the net income level, Rakuten recorded a loss
on restructuring business of ¥20,766 million on the transfer of thecredit operations of Rakuten KC, and a ¥4,332 million loss on(3) Consolidated Cash Flows

special retirement benefits. As a result, net income declined by
86.1% year on year, to ¥2,703 million.
* Source: Fiscal 2006 White Paper on Information and Telecommunications in Japan

Cash flows from operating activities were affected by a decline in
net income generated for fiscal 2006, as well as an increase inincome tax payments and a rise in loan receivables for certain
consolidated subsidiaries, mainly related to credit card operations.
The company recorded a net cash outflow from operating activi-(2) Analysis of Consolidated Financial
Conditions

ties of ¥16,567 million (compared with an outflow of ¥38,058 million in fiscal 2005). Cash flows from investing activities showed a
net cash outflow of ¥41,735 million (compared with an outflow of

Assets¥149,566 million in fiscal 2005). Major items in this account in-

Total assets at the end of fiscal 2006 stood at ¥1,296,063

cluded the acquisition of servers and other capital expenditures,

million, a decline of ¥361,646 million year on year (fromas well as the purchase of real estate and buildings by Rakuten’s¥1,657,709 million at the end of fiscal 2005). This mainly reflects

limited partnership real estate investment business, which was

the restructuring of Rakuten KC, as well as a decline in trading

newly consolidated in fiscal 2006. Cash flows from financing ac-

assets from margin transactions.

tivities showed a net cash inflow of ¥76,614 million (comparedwith an inflow of ¥225,427 million in fiscal 2005), reflecting a capi-

Liabilities

tal increase through public offerings, among other items. The bal-

Total liabilities stood at ¥1,092,866 million at the end of fiscal

ance of cash and cash equivalents rose by ¥18,561 million during

2006, a decline of ¥479,509 million (from ¥1,572,375 million).

fiscal 2006 (compared with an increase of ¥38,310 million in fiscal

This mainly reflects the restructuring of Rakuten KC as well as a2005), to a total of ¥89,219 million at the end of fiscal 2006 (andecline in trading liabilities from margin transactions, and a decline

increase of 26.2% year on year).

in borrowings.

35

Consolidated Balance Sheets
Rakuten, Inc. and Consolidated Subsidiaries
December 31, 2006 and 2005

Thousands of
U.S. Dollars(Note 1)Millions of Yen

ASSETS
CURRENT ASSETS
Cash
Trade notes and accounts receivable
Installment accounts receivable
Installment accounts receivable, guarantee contracts
Allowance for doubtful accounts
Beneficial interests in securitized assets
Deposits for security brokerage businessMargin transactions assets for security brokerage business
Short-term guarantee deposits for security brokerage business
Trade loans receivable
Deferred tax assets (Note 11)
Other
Total current assets

FIXED ASSETSPROPERTY, PLANT AND EQUIPMENT
Land
Other
Gross property, plant and equipment

2006¥ 111,182
16,71563,356
5,053(31,083)
73,214
235,866
220,606
9,773
186,794
13,638

2005¥

82,038
11,907
143,824
301,154(28,785)
68,837
239,439
285,358
28,648168,280
7,750

2006

$

934,303
140,461
532,40742,458(261,203)
615,240
1,982,066
1,853,829
82,1281,569,698
114,606

59,784

46,149502,395

964,898

1,354,599

8,108,388

31,67744,2938,491
39,280266,193372,21075,97047,771

638,403(27,030)(27,219)(227,141)

48,94020,552

411,262

64,795
18,29456,8688,741

544,498
153,727

83,08965,609698,225

INVESTMENTS AND OTHER ASSETS
Investment securities (Note 4)
Deferred tax assets (Note 11)
Other169,776
14,077
16,318170,233
4,625
42,584

1,426,693
118,297
137,129

Allowance for doubtful accounts(1,035)(493)(8,709)Total investments assets and other assets

199,136

216,949

1,673,410

Total fixed assets

331,165

303,110

2,782,897¥1,296,063¥1,657,709$10,891,285

Accumulated depreciation
Net property, plant and equipment

INTANGIBLE ASSETS
Goodwill (Note 6)
Other
Total intangible assets

TOTAL ASSETS
See notes to consolidated financial statements.

36

Thousands of
U.S. Dollars(Note 1)Millions of Yen

LIABILITIES AND NET ASSETS

2006

2005

2006

CURRENT LIABILITIESShort-term debt (Note 7)
Current portion of long-term debt (Note 7)
Trade notes and accounts payable
Accounts payable, guarantee contracts
Advances received
Income taxes payable (Note 11)
Deferred installment income
Deposits received for security brokerage businessMargin transactions liabilities for security brokerage business
Guarantee deposits received for security brokerage business
Allowances
Other
Total current liabilities¥ 184,588
105,748
6,258
5,053
36,555
1,710
909
152,387
138,211
95,627
6,124
73,650806,820¥ 375,774
126,255
6,358
301,154
10,885
13,532
9,857
155,280
231,759
92,441
3,497
35,2881,362,080$ 1,551,160
888,639
52,59042,458307,188
14,3697,638
1,280,560
1,161,439
803,588
51,462618,906
6,779,997

LONG-TERM LIABILITIESLong-term debt (Note 7)
Allowance for retirement benefits (Note 8)
Allowance for directors’ retirement benefits (Note 8)
Allowance for interest repayments
Deferred tax liabilities (Note 11)
Other
Total long-term liabilities
STATUTORY RESERVE FOR SECURITY BROKERAGE BUSINESS
Total liabilities

256,163
146
22
3,548
22,303722
282,904
3,142
1,092,866

196,476
139
159–
10,231
978207,983
2,312
1,572,375

2,152,630
1,227
186
29,815
187,417
6,074
2,377,349
26,4049,183,750

MINORITY INTERESTS

–

8,784

–

NET ASSETS (Note 9)
Common stock—authorized, 39,418,000 shares;
issued, 13,013,493 shares in 2006
Capital surplus
Accumulated deficit
Less treasury stock—at cost, 1,060 shares in 2006
Total shareholders’ equity

107,295
116,639(56,895)(12)
167,027–––––

901,636
980,160(478,106)(100)
1,403,590

VALUATION, TRANSLATION ADJUSTMENTS AND OTHERS
Unrealized holding gain on investment securities
Unrealized gain on derivatives
Translation adjustments
Total valuation, translation adjustments and others
STOCK ACQUISITION RIGHTS

21,056137359
21,552
11

–
–
–
–
–

176,943
1,150
3,015
181,10889

MINORITY INTERESTS
Total net assets

14,607203,197––

122,748
1,707,535–––¥1,296,063–$10,891,285

SHAREHOLDERS’ EQUITY
Common stock—authorized, 39,418,000 shares;
issued, 11,837,893 shares in 2005
Capital surplus
Accumulated deficit
Unrealized holding gain on investment securities
Translation adjustments
Less treasury stock—at cost, 1,060 shares in 2005
Total shareholders’ equity

–
–
–
–
–
–
–

54,13563,479(58,265)
16,975238(12)76,550

–
–
–
–
–
–
–

COMMITMENTS AND CONTINGENCIES (Note 14)

–

–

–

TOTAL LIABILITIES, MINORITY INTERESTS ANDSHAREHOLDERS’ EQUITY–¥1,657,709–

COMMITMENTS AND CONTINGENCIES (Note 14)
TOTAL LIABILITIES AND NET ASSETS

37

Consolidated Statements of Income
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31, 2006 and 2005

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2006

2005

2006

NET SALESCOST OF SALES¥203,272
27,302¥129,775
14,222$1,708,164
229,425

Gross profit

175,970

115,553

1,478,739

146,82180,6681,233,791

29,14934,885244,948

1,324
11,314
244
854
1,495
(1,616)(1,216)(20,766)(6,465)(3,005)(4,332)
(663)
(602)
–
–
(830)

877
335
225
1,042
3,515
(368)
(909)
–
–
–
–
(138)
(62)
(1,022)(910)(1,099)11,125
95,075
2,048
7,178
12,560(13,582)(10,218)(174,503)(54,328)(25,253)(36,401)(5,569)(5,061)––(6,974)(1,674)(2,094)(14,062)

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES)Interest and dividend income
Gain on sales of securities
Foreign exchange gain
Equity in earnings of affiliates
Gain on changes in equity interests of subsidiary and affiliates
Interest expenses
Commission expenses
Loss on restructuring business
Provision for allowance for doubtful accounts
Provision for allowance for interest repayments
Special retirement benefits (Note 8)
Loss on sales or disposal of fixed assets
Stock issuance costs
Provision for points reserve
Amortization of start-up costs
Provision for statutory reserve for security brokerage business
Other—net(25,938)(608)(217,965)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTSOther expenses—net

3,211

34,277

26,983

INCOME TAXES (Note 11)
Current
Deferred

10,610(6,154)

16,103(2,542)

89,164(51,714)

Total income taxes

4,456

13,56137,4503,948(1,266)33,1782,703¥ 19,450

MINORITY INTERESTS IN NET LOSS (INCOME)
NET INCOME
See notes to consolidated financial statements.

38

¥

$

22,711

Consolidated Statements of Changes in Net Assets
Rakuten, Inc. and Consolidated Subsidiaries
Year Ended December 31, 2006

Millions of yen
Dec. 31,
2005

As of

As
previously
reported

Reclassification(Note 3)

Common stock
Capital surplus
Accumulated deficit
Unrealized holding gain on
investment securities
Translation adjustments
Treasury stock¥54,135
63,479(58,265)–––

Total shareholders’ equity

76,550Net
incomeChangesin thescope ofconsolidation

Changesin thescope ofequitymethodNet changes
in items
other thanthose inshareholders’equityIssuance ofcommonstock

Cashdividends
paid

Bonuses todirectors
andauditors¥54,135 ¥ 53,160
63,47953,160(58,265)
–

–
–
(592)

–
–
(133)

–
–
2,703

–
–
(620)

–
–
12

–
–
–

¥ 53,160
53,1601,370¥107,295
116,639(56,895)

As
restated

Total ofchangesin fiscal
2006

–
–
(12)

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
(12)

(17,213)59,337

106,320

(592)

(133)

2,703

(620)

12

–

107,690167,027–––

16,975–238

16,975
–
238

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

4,081
137
121

4,081
137
121

21,056137
359

Total valuation, translation
adjustments and others–

17,213

17,213

–

–

–

–

–

–

4,339

4,339

21,552

Stock acquisition rights
Minority interests

–
–

–
8,784

–
8,784

–
–

–
–

–
–

–
–

–
–

–
–

11
5,823

11
5,823

11
14,607

Total net assets (Note 9)––¥85,334 ¥106,320¥(592)¥(133)¥2,703¥(620)¥12¥10,173¥117,863¥203,197

Total net assets, Dec. 31, 2006
Thousands of U.S. dollars (Note 1)–– $717,090 $893,438$(4,973) $(1,119) $22,711$(5,203)$105$85,486$990,445 $1,707,535

Unrealized holding gain on
investment securities
Unrealized gain on derivatives
Translation adjustments

16,975 (16,975)
238
(238)
(12)
–

Dec. 31,2006

Changes in fiscal 2006

See notes to consolidated financial statements.

39

Consolidated Statements of Shareholders’ Equity
Rakuten, Inc. and Consolidated Subsidiaries
Year Ended December 31, 2005

Millions of yen

For the year ended

Common stock
Balance at beginning of the year
Net change during the year
Balance at end of the year
Capital surplus
Balance at beginning of the year

2005
Dec. 31, 2005

¥54,05976
54,13562,863

Net change during the year

616

Balance at end of the year

63,479

Accumulated deficit
Balance at beginning of the year
Net income
Cash dividends paid
Bonuses to directors and auditors
Changes in the scope of equity method
Other
Balance at end of the year
Unrealized holding gain on investment securities
Balance at beginning of the year

(77,312)
19,450
(295)
(25)
(83)
–
(58,265)
6,372

Net change during the year

10,603

Balance at end of the year

16,975

Translation adjustments
Balance at beginning of the year(48)

Net change during the year

286

Balance at end of the year

238

Treasury stock
Balance at beginning of the year
Net change during the year
Balance at end of the year

Total shareholders’ equity
See notes to consolidated financial statements.

40

(81)
69
(12)

¥76,550

Consolidated Statements of Cash Flows
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31, 2006 and 2005

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2006

OPERATING ACTIVITIESIncome before income taxes and minority interests
Adjustments for:Payments of income taxes
Amortization of goodwill
Equity in earnings of affiliates
Depreciation and amortization
Loss on sales or disposal of fixed assets
Amortization of start-up costs
Gain on sales of securities
Increase (decrease) in allowance for doubtful accounts
Allowance for loss on interest repayments
Gain on changes in equity interests of subsidiary and affiliates
Interest and dividend income
Interest expenses
Other non-cash expenses
Decrease in accounts receivable(Increase) decrease in beneficial interests in securitized assets
Increase (decrease) in accounts payable
Decrease in loan accounts payable, guarantee contracts
Increase (decrease) in other accounts payable and accrued expenses
Increase in advances received
Decrease in deferred installment income
Decrease (increase) in deposits for security brokerage business(Decrease) increase in deposits received for security brokerage business
Increase in statutory reserve for security brokerage business
Decrease in deposits marketable securities forsecurity brokerage business
Increase in trade loans receivable
Other—net
Net cash used in operating activities

¥

2005

2006

3,211

¥ 34,277$

26,983(27,634)
3,012
(854)
6,951
663
13
(11,314)
15,0993,548(1,495)(1,324)
1,616
3,803
104,119(15,588)
1,985(141,603)
9,877
1,046
(308)
86,818(93,465)830(3,077)910(1,042)
4,064
139
910
(335)
(556)
–
(3,515)
(877)
368
1,584
104,515
10,963(558)(103,935)(1,531)
1,119(616)(351,291)
282,377
1,099(232,216)
25,307(7,178)58,412
5,569
113(95,075)
126,884
29,815(12,560)(11,125)
13,582
31,956874,946(130,990)
16,680(1,189,939)
82,9998,793(2,588)729,562(785,423)
6,974

24,7097,891(11,495)
21,213(15,361)(5,580)207,640(96,595)
178,253¥ (16,567)¥ (38,058)$ (139,221)(Continued on following page)41

Thousands of
U.S. Dollars(Note 1)Millions of Yen

INVESTING ACTIVITIESPayments for time deposits
Proceeds from withdrawal from time deposits
Acquisition of securities
Proceeds from sales and redemption of securities
Acquisition of shares of consolidated subsidiaries
Acquisition of property, plant and equipment
Proceeds from sales of property, plant and equipment
Acquisition of intangible assets
Receipts of interests and dividends
Other
Net cash used in investing activities
FINANCING ACTIVITIESNet increase (decrease) in short-term debt
Proceeds from long-term debt
Repayments of long-term debt
Proceeds of investments from minority shareholders
Repayments of investments to minority shareholders
Proceeds from issuance of stock
Proceeds from minority shareholders pursuant to increase in capital
Payment of interest expenses
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by financing activities

2006

2005

2006

(1,744)
3,856(20,506)
37,441(5,573)(33,316)
2,339(12,236)
1,573(5,619)15(178,801)
55,176(9,502)(2,927)120(5,448)417(14,658)
32,406(172,321)
314,630(46,831)(279,964)
19,653(102,820)
13,219(13,569)(2,997)(114,025)(41,735)(149,566)(350,711)(203,203)
184,844(14,483)
6,200
(794)
105,7171,770(1,496)(585)(1,356)

145,752
86,860(10,670)
–
–
89
4,015
(287)
(288)
(44)

(1,707,588)
1,553,314(121,709)
52,101(6,673)
888,378
14,873(12,568)(4,916)(11,396)

76,614225,427

643,816

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
EFFECT OF CHANGE OF THE SCOPE OF CONSOLIDATION ON CASH
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

42

249

507

2,097

18,561

38,310155,981(43)
70,701–
32,391(356)
594,123¥ 89,219¥ 70,701$ 749,748

Notes to Consolidated Financial Statements
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31, 2006 and 2005

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally acceptedin Japan, which are different in certain respects as to application and disclosure requirements of International Financial ReportingStandards, and have been compiled from the consolidated financial statements prepared by Rakuten, Inc. (the “Company”) andconsolidated subsidiaries as required by the Securities and Exchange Law of Japan.
On December 27, 2005, the Accounting Standards Board of Japan (“ASBJ”) published a new accounting standard for the statement of changes in net assets which is effective for fiscal years ending on or after May 1, 2006.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience ofreaders outside Japan and have been made at the rate of ¥119 to $1, the approximate rate of exchange at December 31, 2006. Suchtranslations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at thator any other rate.

2. Summary of Significant Accounting Policies
a. Consolidation—The consolidated financial statements as of December 31, 2006 include the accounts of the Company and its 42(33 in 2005) 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, and those companies over which the Group has the ability to exercise significant influence interms of their operating and financial policies are accounted for by the equity method.
Investments in 12 (11 in 2005) affiliates are accounted for by the equity method.
Investments in the remaining non-consolidated subsidiaries and affiliates are stated at cost. 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. The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date ofacquisition is being amortized over the periods of the estimated useful economic lives (20 years or less). If the amount is immaterial,
the amount is fully amortized in the initial year recorded.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated.
b. Cash Equivalents—Cash and cash equivalents as stated in the consolidated statements of cash flows consist of cash on hand,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 of purchase and whose value is not subject to significant fluctuation risk.
The reconciliation between the year-end balance of cash stated in the consolidated balance sheets and cash and cash equivalents stated in the consolidated statements of cash flows is as follows:
Millions of Yen

December 31

2006

2005

Cash
Time deposits over three months’ maturity
Deposits separately kept
Deposits with restrictions¥111,182(3,337)(4,700)(13,926)¥82,038(5,449)(4,700)(1,188)Cash and cash equivalents¥ 89,219¥70,701c. 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 therelated 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 the moving-averagemethod and (4) non-marketable available-for-sale securities are stated at cost determined by the moving-average method.
For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.

43

d. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, 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 to buildings.
e. Intangible Assets—Amortization on intangible assets is computed by the straight-line method. Software for internal use is amortized on a straight-line basis over its estimated useful life (mainly 5 years).
f. Stock Issuance Costs—Stock issuance costs are charged to income as incurred.
g. Allowance for Doubtful Accounts—An allowance equal to estimated losses is established to prepare for losses from credit guarantees. The estimation method of an allowance for doubtful accounts at a consolidated subsidiary, Rakuten KC Co., Ltd., waschanged in fiscal 2006. Taking an opportunity of significant changes in the status of loans receivables accompanied with businessrestructuring such as the transfer of its credit business to Orient Corporation by the way of corporate separation in November 2006,
the company reviewed and re-analyzed actual credit losses by categories of loans receivable. As a result, a database for an accurate
estimation of credit risks for change in status of loans receivable was established.
The change in the estimation method of allowance for doubtful accounts is based on the database. The company provides
allowance for estimated credit losses which is reflected from an estimated loss ratio and based on a result of statistical analysis inaddition to the estimation method used in the past.
Furthermore, upon the announcement of the Accounting Treatment for Calculation of Reserves Relating to Losses at Consumer
Finance Companies, etc., Resulting from Interest Repayment Claims by the Japanese Institute of Certified Public Accountants (JICPA)
on October 13, 2006, the company reviewed estimated losses for future interest repayment claims, and decided to provide anallowance for write-off of the excess interest portion of loans receivable as a part of allowance for doubtful accounts accompaniedwith interest repayments from customers. The amount of ¥6,465 million of the provision for allowance for doubtful accounts upon thechange in the estimation method was recorded as an other expense, and included ¥2,881 million for estimated write-off of the excessinterest portion of loans receivable in conjunction with change in the estimation method for interest repayment losses.
h. Reserve for Loss on Restructuring Business—Reserve for loss on restructuring business of Rakuten KC Co., Ltd. was recorded
based on future expenses to be incurred.
i. Allowance for Retirement Benefits—At certain consolidated subsidiaries, provision 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 on astraight-line basis using a fixed number of years (10 years) within the average remaining service period of employees.
At some consolidated subsidiaries, an allowance is posted at the year-end in accordance with each company’s regulations toprovide for directors’ retirement benefits. Additionally, a part of consolidated subsidiaries previously had had a company’s regulations toprovide for directors’ retirement benefits abolished the company’s regulation and decided not to pay retirement bonuses to its directors.
j. Allowance for Loss on Interest Repayments—Accompanied with the announcement of the Accounting Treatment for Calculationof Reserves Relating to Losses at Consumer Finance Companies, etc., Resulting from Interest Repayment Claims by the JapaneseInstitute of Certified Public Accountants (JICPA) on October 13, 2006, a provision was made for a future possible loss for interest
repayment based on the actual ratio of repayment for the number of interest repayment claims and an average amount of repayments
and others for a reasonable estimation period at a certain subsidiary. The amount of allowance for the interest repayment at December
31, 2006 was ¥3,548 million. The expected repayment amount of ¥5,650 million for write-off of the excess interest portion of loans
receivable was included in the allowance for doubtful accounts.
The difference in allowance for the interest repayment calculation at the beginning of fiscal 2006 based on the revised estimation
method and the amount of allowances based on the old estimation method is to be booked as special losses in the period. The
amount of special loss is ¥3,005 million for fiscal 2006.
k. Reserve for Points—An amount equivalent to points that are earned by customers and are expected to be used in the future as of the
fiscal year is recorded.
l. Statutory Reserve for Security Brokerage Business—At a certain consolidated subsidiary, provision is made for possible loss
resulting from securities transaction problems. The amount of the reserve is computed based on Article 35 of the Cabinet Office
Ordinance Concerning Securities Companies as stipulated by Article 51 of the Securities and Exchange Law.
m. Leases—All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases thatdeem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to beaccounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the notes to the lessee’s
financial statements.

44

n. 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.
o. 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 the balance sheet date. The foreign exchange gains andlosses from translation are recognized in the consolidated statements of income to the extent that they are not hedged by forward
exchange contracts.
p. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into
Japanese yen at the current exchange rate as of the balance sheet date except for net assets, which is translated at the historical rate.
Revenue and expense accounts of consolidated foreign subsidiaries are also translated into Japanese yen at the exchange rate of thebalance sheet date.
Differences arising from such translation were shown as “Translation adjustments” in a separate component of net assets.
q. Derivatives and Hedging Activities—The Group uses derivative financial instruments to manage its exposures to fluctuations inforeign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps 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.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives
are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognizedin the consolidated statements of income and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.
For interest rate swaps, deferred hedge accounting has been adopted. However, a special method is used for interest rate swaps
that meet certain conditions.
For foreign currency-denominated guarantee deposits with currency forward agreements, the appropriation method has
been adopted.
Hedging methods are interest rate swaps and currency forward agreements. Hedged items are loans, foreign currency-denominatedguarantee deposits and foreign currency-denominated receivables and payables relating to business transactions.
Interest rate swaps are used to establish hedges for exposure to interest rate volatility risk associated with loans. A hedged item
is identified by each individual contract.
Foreign exchange volatility risk associated with foreign currency-denominated guarantee deposits is, in accordance with thecompany rules, effectively hedged during the holding period by using currency forward agreements.
Foreign exchange volatility risk associated with foreign currency-denominated receivables and payables relating to business
transactions is, in accordance with certain company rules, managed by using currency forward agreements to reduce foreign currency exchange risks within the actual demands of securities transactions.
For interest rate swaps, the company compares every six months the cumulative changes in cash flows of the hedged items andhedging instruments. The effectiveness of the hedge is determined based on the cumulative changes of the hedged items andinstruments, along with 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 and settlement date of the hedged
item based on the company management data.
r. New Accounting Pronouncement—Business combination and business separation—In October 2003, the Business Accounting
Council (“BAC”) issued a statement of opinion, “Accounting for Business Combinations,” and on December 27, 2005 the ASBJ
issued “Accounting Standard for Business Separations” and ASBJ Guidance No. 10, “Guidance for Accounting Standard for Business Combinations and Business Separations.” These new accounting pronouncements are effective for fiscal years beginning on orafter April 1, 2006.
For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an
acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combinations ofentities under common control and for joint ventures. Goodwill, including negative goodwill, is to be amortized over 20 years or lesswith the straight-line method, but is also subject to an impairment test.

45

Under the accounting standard for business separations, in a business separation where the interests of the investor no longer
continue and the investment is settled, the difference between the fair value of the consideration received for the transferred businessand the book value of net assets transferred to the separated business is recognized as a gain or loss on business separation in thestatement of income. In a business separation where the interests of the investor continue and the investment is not settled, no suchgain or loss on business separation is recognized.
The Group adopted the new accounting standard for business combination effective January 1, 2005.
The goodwill is amortized over the period in which such action is deemed effective. However, if the amount is marginal, the entire
account is amortized when it is booked.
During fiscal 2005, the Company purchased a number of companies, including Rakuten KC Co., Ltd. (formerly known as Kokunai
Shinpan Co., Ltd), Rakuten Research, Inc. (formerly known as Cyber Brains Co., Ltd.) and LinkShare Corporation. All companies werepurchased based on their long-term prospects and strong relationships with Group businesses.
For these reasons, goodwill from these purchases has been amortized based on sound estimates using the maximum period of 20
years according to the guidelines for the preparation for the consolidated financial statements and the amortization expense isrecorded as selling, general and administrative expenses.

3. Accounting Changes
Impairment for Fixed Assets—In August 2002, BAC issued a statement of opinion, “Accounting for Impairment of Fixed Assets,”
and in October 2003 the ASBJ issued ASBJ Guidance No. 6, “Guidance for Accounting Standard for Impairment of Fixed Assets.”
These new pronouncements were effective for fiscal years beginning on or after April 1, 2005 with early adoption permitted forfiscal years ending on or after March 31, 2004.
The Group has applied the new accounting standard for impairment of fixed assets effective January 1, 2006.
The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amountof an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or
asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset
exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of
the asset or the net selling price at disposition.
The effect of adoption of the new accounting standard for impairment of fixed assets was to decrease income before income
taxes and minority interests by ¥734 million for the year ended December 31, 2006.
Accumulated impairment loss is subtracted directly from each asset according to new guidelines for the preparation for the
consolidated financial statements.
Presentation of Net Assets—In December 2005, the ASBJ issued “Accounting Standard for Presentation of Net Assets in the Consolidated Balance Sheets” and related guidance.
Effective January 1, 2006, the Group has applied the new accounting standard for presentation of net assets in the consolidatedbalance sheets. The Group presents its net assets in the balance sheets using the new presentation as of December 31, 2006.
The amount corresponding to the conventional “shareholders’ equity” in the balance sheet is ¥188,442 million as of December
31, 2006.
Stock Options—On December 27, 2005, the ASBJ issued “Accounting Standard for Stock Options” and related guidance. The newstandard and guidance are applicable to stock options newly granted on and after May 1, 2006.
This standard requires companies to recognize compensation expense for director, auditor and employee stock options based on
the fair value at the date of grant and over the vesting period as consideration for receiving goods or services. The standard also requires
companies to account for stock options granted to non-employee based on the fair value of either the stock options or the goods orservices received. In the balance sheet, the stock option is presented as a component of net assets until exercised. The standard covers
equity-settled, share-based payment transactions, but does not cover cash-settled, share-based payment transactions.
Effective January 1, 2006, the Group has applied the new accounting standard for stock options to those granted on and after
May 1, 2006. The effect of adoption of this accounting standard was to increase selling, general and administrative expenses by¥10 million and decrease operating income and income before income taxes and minority interests by the same amount for the year
ended December 31, 2006.

46

Bonuses to Directors and Corporate Auditors—Prior to the fiscal year ended March 31, 2005, bonuses to directors and corporate
auditors were accounted for as a reduction of retained earnings in the fiscal year following approval at the general shareholders’ meeting.
The ASBJ issued a new accounting standard for bonuses to directors and corporate auditors on November 29, 2005. Under the
new accounting standard, bonuses to directors and corporate auditors must be expensed and are no longer allowed to be directly
charged to retained earnings. This accounting standard is effective for fiscal years ending on or after May 1, 2006. The companies
must accrue bonuses to directors and corporate auditors at the year-end to which such bonuses are attributable.
Effective January 1, 2006, the Group has applied the new accounting standard for bonuses to directors and corporate auditors.
The effect of adoption of this accounting standard was to increase selling, general and administrative expenses by ¥87 million anddecrease operating income and income before income taxes and minority interests by the same amount for the year ended December
31, 2006.

4. Securities
The carrying amounts and aggregate fair values of marketable securities at December 31, 2006 and 2005 were as follows:
Millions of Yen

December 31, 2006

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

Unrealized
Gains

Cost

Unrealized
LossesFair Value

–

–

–

¥

425

¥117,372
3,766
100¥34,719
9
–

¥462
–
1

151,6293,775
99

117,135
1,527
100

27,6901–

6–
1

144,819
1,528
99

December 31, 2005

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

Available-for-sale securities whose fair value is not readily determinable as of December 31, 2006 and 2005 were as follows:
Millions of Yen

Equity securities of unlisted corporations
Others2006

2005¥5,541
2,051¥ 2,908
19,673

Proceeds from sales of available-for-sale securities for the years ended December 31, 2006 and 2005 were ¥24,262 million and¥915 million, respectively. Gross realized gains on these sales, computed on the moving average cost basis, for the years ended
December 31, 2006 and 2005 were ¥11,314 million and ¥335 million, respectively.
Gross realized losses on these sales were ¥2 million for the year ended December 31, 2005.
The face value of debt securities by contractual maturities for securities classified as available-for-sale securities at December 31,
2006 and 2005, are as follows:
Millions of Yen

Foreign debt securities (Due within one year)

2006

2005

¥3,811¥1,53447

Investment securities to non-consolidated subsidiaries and affiliates are as follows:
Millions of Yen

Investments in affiliates (under the equity method of accounting)
Investment securities (stock etc.)
Investments in non-consolidated subsidiaries and affiliates(not subject to the equity method of accounting)
Investment securities (stock etc.)

2006

2005

¥8,016¥5,741

3,738–

5. Leased Assets
A breakdown of leased assets as of December 31, 2006 and 2005 was as follows:
Millions of Yen

2006

2005

Furniture and fixture
Other¥14,075
144¥17,224
171

Total
Accumulated depreciation

14,219(13,166)

17,395(15,839)

Net leased assets¥ 1,053¥ 1,556

The Company leases furniture and fixtures and other assets to its customers.
The aggregate receivables from the lessees including equipment costs, unearned income and executory costs, which were notrecorded on the books of account, as of December 31, 2006 and 2005, were as follows:
Millions of Yen

2006

2005

Due within one year
Due after one year

¥ 423
693

¥ 550
1,066

Total

¥1,116¥1,616

6. Goodwill
The change in the carrying amount of goodwill for the years ended December 31, 2006 and 2005, is as follows:
Millions of Yen

Balance at January 1, 2005
Goodwill acquired during the year
Amortization–¥57,778(910)

Balance at December 31, 2005
Goodwill acquired during the year
Amortization

56,868
10,939(3,012)

Balance at December 31, 2006

¥64,795

Goodwill acquired during the year ended December 31, 2005 mainly consisted of goodwill related to the acquisition of Rakuten
KC Co., Ltd. (formerly known as Kokunai Shinpan Co., Ltd.), Rakuten Research Inc. (formerly known as Cyber Brain Co., Ltd.) and
LinkShare Corporation. Goodwill acquired during the year ended December 31, 2006 mainly consisted of goodwill related to theacquisition of Rakuten KC Co., Ltd. and Rakuten Securities, Inc.

48

7. Short-term and Long-term Debt
Short-term debt at December 31, 2006 and 2005 consisted of notes to banks, bank overdrafts and commercial paper. Long-term
debt at December 31, 2006 and 2005 consisted of the following:
Millions of Yen

2006

2005

Corporate debentures due 2006 with interest rates ranging from 1.050% to 2.5%
Corporate debentures due 2010 with floating interest rate at 0.525%
Loan from banks and other financial institutions
Collateralized
Unsecured–¥ 10,000¥ 12,000
10,000246,413
105,498

140,967
159,764

Total
Less current portion

361,911(105,748)

322,731(126,255)

Long-term debt, less current portion¥256,163¥196,476

Weighted average interest rates of loans as of December 31, 2006 and 2005 are as follows:

Short-term bank loan
Long-term bank loan, due within one year
Long-term bank loan, due after one year
Commercial paper

2006

2005

1.311%
2.102%
1.895%
0.795%

1.076%
2.187%
2.098%–

Annual maturities of long-term debt at December 31, 2006 were as follows:Year Ending December 31

Millions of Yen

2007
2008
2009
2010
2011
2012 and thereafter¥105,748
83,683
100,71355,132
15,545
1,090

Total

¥361,911

The carrying amounts of assets pledged as collateral for short-term bank loans of ¥90,103 and ¥286,742 million and the above
collateralized long-term debt at December 31, 2006 and 2005 were as follows:
Millions of Yen

2006

2005

Installment accounts receivable and trade loans receivable
Investment securities
Land and buildings
Deposits
Receivable from lease contracts
Other¥155,188
68,751
25,276760
682
20¥254,735
55,624
–
126
1,675
477

Total

¥250,677¥312,637

Securities in custody from customers in the amount of ¥27,272 million and ¥54,378 million pledged as collateral for short-termbank loans at December 31, 2006 and 2005, respectively. Securities deposited by customers as guarantees in the amount of ¥67,921 million and ¥70,384 million pledged as collateral for borrowings related to margin transactions of ¥110,183 million and ¥210,039 million
at December 31, 2006 and 2005, respectively. Securities loaned were pledged as collateral for securities borrowed in the amount of¥32,599 million at December 31, 2006.

49

Total fair value of the securities pledged as collateral at December 31, 2006 and 2005 consisted of the following:
Millions of Yen

Securities loaned on margin transactions
Securities pledged for loans payable for margin transactions
Securities loaned by promissory note collateralized

2006

2005

¥ 29,514
109,679
32,370¥ 24,339
209,522
7,509

Total fair value of the securities received as collateral at December 31, 2006 and 2005 consisted of followings:
Millions of Yen

Securities pledged for loans receivable for margin transactions
Securities borrowed on margin transactions
Substitute securities for guarantee deposits received on futures

2006

2005

¥204,571
4,039
208,428¥293,385
2,365
221,715

As is customary in Japan, the Company maintains substantial deposit balances with banks with which it has borrowings. Suchdeposit balances are not legally or contractually restricted as to withdrawal.
General agreements with respective banks provide, as is customary in Japan, that additional collateral must be provided undercertain circumstances if requested by such banks and that certain banks have the right to offset cash deposited with them against
any long-term or short-term debt or obligation that becomes due and, in case of default and certain other specified events, against allother debt payable to the banks. The Company has never been requested to provide any additional collateral.
Unused commitment lines for financing at December 31, 2006 and 2005 amounted to ¥80,600 million and ¥50,000 million,
respectively.

8. Retirement and Pension Plans
Certain consolidated subsidiaries have retirement and pension plans for employees, directors and corporate auditors.
Certain consolidated subsidiaries, as a defined-benefit program, have a tax-qualified pension plan for employees with at least five
years of service and a lump-sum retirement and pension plans for employees with less than five years of service.
Information concerning retirement benefit obligation:
Millions of Yen

2006

2005

¥(4,365)
4,357¥(4,783)
4,614

Unfunded retirement benefit obligation
Unrecognized actuarial gain (loss)

(8)
(138)

(169)
30

Net retirement benefit obligation as shown on balance sheet

(146)

(139)

Allowance for retirement benefits

(146)

(139)

Projected benefit obligation
Fair value of plan assets

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

Retirement benefit expenses:
Millions of Yen

2006

2005

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gain
Special retirement benefit expenses

¥ 209
72
(72)
24
4,332

¥135
47
(39)
51
–

Total retirement benefit expenses¥4,565¥194

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

50

Basis for calculating retirement benefit liabilities, etc.:
The retirement benefit obligation is attributed to each period by the straight-line method over the estimated years of service of
employees.

Discount rate
Expected rate of return on plan assets
Amortization period of actuarial gains and losses

2006

2005

2%
2%
10 years2%
2%
10 years

9. Net Assets
On and after May 1, 2006, Japanese companies are subject to a new corporate law (the “Corporate Law”) which reformed andreplaced the Commercial Code of Japan (the “Code”) with various revisions that are, for the most part, applicable to events ortransactions occurring on or after May 1, 2006 and for the fiscal years ending on or after May 1, 2006. The significant changes brought
about by the Corporate Law that affect financial matters are summarized below:
a. Dividends—Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria such as: (1) having a Board of
Directors, (2) having independent auditors, (3) having a Board of Corporate Auditors, and (4) having a term of service for directors
prescribed as one year rather than two years as normal term by its articles of incorporation, the Board of Directors may declare
dividends (except for dividends in kind) if the company has prescribed so in its articles of incorporation.
The Corporate Law permits companies to distribute dividends in kind to shareholders subject to a certain limitation and additional
requirements.
The fiscal year in which the last of these directors end their service, within a period of two years following their initial appointment,
will be considered the completion of the terms of office for these directors, and will be viewed as the conclusion of input by theOrdinary General Meeting of Shareholders on this matter.
b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus—The Corporate Law requires that an amount equal
to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (acomponent of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of
aggregate amount of the legal reserve and additional paid-in capital equals 25% of the common stock. Under the Code, the aggregate amount of additional paid-in capital and legal reserve that exceeds 25% of the common stock may be made available fordividends by resolution of the shareholders. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve
may be reversed without limitation of such threshold. The Corporate Law also provides that common stock, legal reserve, additional
paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon
resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights—The Corporate Law also provides for companies to purchase treasury
stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot
exceed the amount available for distribution to the shareholders which is determined by specific formula. The Corporate Law also
provides that companies can purchase both treasury stock acquisition rights and treasury stock. Under the Corporate Law, stock
options, which were previously presented as a liability, are now presented as a component of net assets.
d. Unrealized Gain on Derivatives—Under the Corporate Law, deferred gain on derivatives from hedge transactions, previously
presented as a liability, is now presented as a component of net assets.

51

10. Stock-based Compensation Plans
The Company has a stock option plan as an incentive plan for directors, auditors and employees of the Company, subsidiaries
and affiliates.
From 2001, in accordance with approval at shareholders’ meetings, the Company has granted stock acquisition rights to directors,
auditors and certain employees of the Company, subsidiaries and affiliates every year. These options vest about over two years to four
years and expire in six years to eight years from the date of grant. Some subsidiaries have the same type of plans. For the fiscal year ended
December 31, 2006, the Company recorded the fair value of the stock options granted after May 1, 2006 as a part of their remuneration.
A summary of information for the Company’s stock option plans is as follows:

Grant Date

Exercisable Period

Exercise Price

Numberof Shares

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

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

¥ 11,210*
11,000*19,300*27,500*75,500*91,300103,848
101,000
55,90032,00812,67049,2403,360
35,73054,4102,000
30,00014,340* Exercise price has been adjusted to reflect the stock splits

The remuneration cost recognized for stock-based compensation plans for the year ended December 31, 2006 was ¥10 million.
The weighted-average fair value per share at the date of grant for the stock options granted on December 14, 2006 was ¥29,400.
The fair value of the stock options granted on the date of grant, which is amortized to expense over the vesting period, is estimatedusing the Black-Scholes option-valuation model with the following weighted-average assumptions:
2006

Risk-free interest rate
Expected lives
Expected volatility
Expected dividends yield

1.32%
6.25 years
55.0%
0.09%

A summary of the status of the Company’s options as of December 31, 2006, and changes during the years is as follows:
Numberof Shares

Outstanding at December 31, 2005
GrantedExercised
Expired212,618
46,340(24,500)(700)

Outstanding at December 31, 2006
Exercisable at December 31, 2005
Exercisable at December 31, 2006

233,758
47,97844,67852

11. Income Taxes
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 the years ended December 31, 2006 and 2005.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities
at December 31, 2006 and 2005 are as follows:
Millions of Yen

Deferred tax assets
Excess of depreciation
Impairment loss
Allowance for doubtful accounts
Reserve for points
Tax loss carryforwards
Other
Less valuation allowance
Total
Deferred tax liabilities
Refundable enterprise taxes
Tax-deductible loss due to the transfer of the shares
Unrealized holding gain on securities
Other
Total
Net deferred tax assets

2006

2005

¥

400
1,284
5,897
1,576
21,321
7,657(9,841)¥ 1,249
–
3,982
741
4,470
6,806
(3,742)

28,294

13,506¥––
11,351
10

139
8,465
14,271
111
22,986

11,361¥ 5,308¥ 2,145

Reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying
consolidated statements of income for the year ended December 31, 2006 is as follows:
2006

Normal effective statutory tax rate
Expenses not deductible for income tax purposesTax benefits not recognized on operating losses of subsidiaries
Valuation allowance
Equity in earnings of affiliates
Amortization of goodwill
Other—net

41.0%
6.0
(129.4)172.2(10.9)
38.5
21.4

Actual effective tax rate

138.8%

There is no presentation of reconciliation between the normal effective statutory tax rates and the actual effective tax rates in
the accompanying consolidated statements of income for the year ended December 31, 2005, as a difference between those rates
is immaterial.

53

12. Leases
The Group leases building, furniture and fixtures and software.
Pro forma information of leased property such as acquisition cost, accumulated amortization, obligations under finance lease,amortization expense, interest expense and other information of finance leases that do not transfer ownership of the leased property
to the lessee on an “as if capitalized” basis for the years ended December 31, 2006 and 2005 was as follows:
Millions of Yen

2006

2005

Building

Furniture
andFixtures

Software

Total

Building

Furniture
andFixtures

SoftwareTotal

Acquisition cost
Accumulated amortization¥87
9¥14,641
4,778¥5,918
1,853¥20,646
6,640

¥11
3

¥9,0304,300¥4,1501,806¥13,191
6,109

Net amounts¥78¥ 9,863¥4,065¥14,006¥ 8¥4,730¥2,344¥ 7,082

Obligations under finance leases:
Millions of Yen

2006

2005

Due within one year
Due after one year

¥ 3,668
10,573¥2,134
5,128

Total

¥14,241¥7,262

Amortization expense, interest expense and other information under finance leases:
Millions of Yen

Amortization expense
Interest expense

2006

2005

¥2,952273¥2,062184

Total¥3,225¥2,246

Lease payments¥3,190¥2,277

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

13. Derivatives
The Group enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain assets and liabilities
denominated in foreign currencies. The consolidated subsidiaries also enter into interest rate swap contracts to manage their interest
rate exposures on certain liabilities.
The consolidated subsidiaries use derivatives to hedge risks associated with future changes in foreign exchange rates and interest rates. 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 rates associated with loan increases.
Because the counterparties to these derivatives are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk.
Derivative transactions entered into by the consolidated subsidiaries have been made in accordance with their internal rules which
regulate the authorization and credit limit amount.
Because all derivatives were qualified for hedge accounting for the years ended December 31, 2006 and 2005, the disclosure ofmarket value information has been omitted.

5414. Commitments and Contingencies
A certain consolidated subsidiary guarantees installment accounts receivable but does not provide calculation of payments, request
and collection services for them. The balance of those installment accounts receivable with a guarantee contract of ¥46,143 million
are not shown in the consolidated balance sheets at December 31, 2006.
At December 31, 2006, the Group had guarantees for customers in the amount of ¥239 million.

15. Line-of-credit Agreements
Certain subsidiaries made loans to customers who have credit cards issued by subsidiaries. Unused line of loans given to customers
was ¥852,057 million and ¥668,774 million at December 31, 2006 and 2005, respectively.

16. Amounts per Share
Yen

2006

2005

Net income
Basic
Diluted¥212.03¥193.09¥1,642.50¥1,626.19

Cash dividends applicable to the year

¥ 50.00

¥

50.00

Yen

Net assets

2006

2005

¥14,492.23¥6,464.58

Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average numberof common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common
stock assumes full conversion of the outstanding warrants, stock acquisition rights and stock options at the beginning of the year (orat the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding
warrants. Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to
the respective years including dividends to be paid after the end of the year.
On February 21, 2005, the Company made a stock split by way of a free share distribution at the rate of 10 shares for each
outstanding share and, as a result, 10,635 thousand shares were issued to shareholders of record on December 31, 2004.

17. Supplementary Information to the Cash Flow Statements
a. Noncash Investing Activities —The decrease in assets and liabilities and acquisition of securities due to the transfer of part of thecredit business in Rakuten KC Co., Ltd. on November 1, 2006 are as follows:
Millions of Yen

Current assets
Fixed assets
Current liabilities
Long-term liabilities
Loss on sales of credit business
Sales amount
Consideration—investment securities
Payable¥ 269,022
23,414(284,328)(432)(17,844)(10,168)(10)¥ (10,178)

55

b. Assets and Liabilities of Newly Consolidated Subsidiaries through Acquisition of Shares—Assets and liabilities of LinkShare
Corporation, the acquisition cost and net cash outflow of such acquisition on September 30, 2005 are as follows:
Millions of Yen

Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities¥ 9,430
2,791
42,291(7,287)(5)

Acquisition cost
Cash and cash equivalents

47,220(6,066)

Net cash used for acquisition¥(41,154)

Assets and liabilities of Rakuten KC Co., Ltd., the acquisition cost and net cash outflow of such acquisition on June 30, 2005 are
as follows:
Millions of Yen

Current assets
Fixed assets
Goodwill
Deferred assets
Current liabilities
Long-term liabilities
Minority interest¥ 810,501
61,3657,268
5(700,245)(158,217)(4,906)

Acquisition cost
Cash and cash equivalents

7,508(50,528)

Net cash used for acquisition¥ 43,020

18. Related Party Transactions
Transactions with a company in which the President and CEO owned 100% of its voting shares indirectly for the years ended
December 31, 2006 and 2005 were as follows:
Millions of Yen

Sponsor fee
Purchase of tickets

2006

2005

¥143
1

¥149
1

Sponsor fee and purchase amount of tickets are determined on an arm’s length basis.
The balances due from the company at December 31, 2006 and 2005 were as follows:
Millions of Yen

Sponsor fee

2006

2005

¥15

¥13

The Company purchased 1,173 shares of a subsidiary from a director of the Company in the amount of ¥2,139 million for the year
ended December 31, 2006. The purchase amount was determined based on the valuation by a third party.

56

19. Subsequent Event
The following distributions of retained earnings at December 31, 2006 were approved at the Company’s shareholders’ meeting heldon March 29, 2007:
Millions of Yen

Year-end cash dividends, ¥50 per share¥650

At the same shareholders’ meeting, the Company was authorized to grant additional options to certain directors, auditors andemployees of the Company, subsidiaries and affiliates to purchase up to 60,000 shares of the Company’s common stock in the
period from March 30, 2011 to March 28, 2017.

20. Segment Information
The Company operates in the following industries:
The E-Commerce Business segment consists mainly of Rakuten Ichiba, managed by Rakuten, Inc., along with Rakuten Auction,Inc., Rakuten Books, Inc. and LinkShare Corporation. The business focuses on operating and providing services for websites related
to retailing and other forms of e-commerce, as well as for entertainment-related websites.
The Credit and Payment Business segment consists mainly of Rakuten Credit, Inc., Rakuten KC Co., Ltd. and its consolidated
subsidiaries. The business is primarily concerned with the consumer credit card business and consumer loan businesses.
The Portal and Media Business segment consists mainly of Infoseek, a portal site managed by Rakuten, Inc., Rakuten Greeting,managed by Rakuten, Inc., Rakuten TV Co., Ltd., 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 distributionof broadband content.
The Travel Business segment consists of Rakuten Travel, Inc. and its subsidiaries and affiliates. It focuses on operating travelrelated 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 other services.
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.
(1) Industry Segments
a. Sales and Operating Income

E-Commerce
Business

Credit andPayment
Business

Portal andMedia
Business

Millions of Yen
2006
Professional
TravelSecurities
SportsBusiness
Business
Business

Sales to customers
Intersegment sales¥57,686
1,465¥79,53864¥ 8,5104,568¥10,465262¥40,52531¥ 6,548719¥203,2727,109–¥(7,109)¥203,272–

Total sales
Operating expenses

59,151
41,49379,60285,752

13,078
12,684

10,727
6,068

40,55625,197

7,267
8,663

210,381
179,857(7,109)(5,734)203,272
174,123

Operating income (loss)¥17,658¥ (6,150)¥¥ 4,659¥15,359¥(1,396)¥ 30,524¥(1,375)¥ 29,149

394

Total

Corporate &Internal
Eliminations Consolidated

E-Commerce
Business

Credit andPayment
Business

Portal andMedia
Business

Millions of Yen
2005
Professional
TravelSecurities
SportsBusiness BusinessBusiness

Sales to customers
Intersegment sales¥34,649411¥47,129
11¥7,541
1,898¥7,27097¥26,319183¥6,867518¥129,775
3,118–¥(3,118)¥129,775–

Total sales
Operating expenses

35,06023,387

47,14040,808

9,439
7,509

7,367
4,384

26,502
13,704

7,385
7,228

132,893
97,020(3,118)(2,130)129,775
94,890Operating income (loss)¥11,673¥ 6,332¥1,930¥2,983¥12,798¥ 157¥ 35,873¥ (988)¥ 34,885

Total

Corporate &Internal
Eliminations Consolidated57

b. Total Assets, Depreciation and Capital Expenditures

Total assets
Depreciation andamortization
Capital expenditures

Total assets
Depreciation andamortization
Capital expenditures

E-Commerce
Business

Credit andPayment
Business

Portal andMedia
Business

Millions of Yen
2006
Professional
TravelSecurities
SportsBusiness BusinessBusiness¥257,887¥416,692¥4,466¥8,167 ¥528,322

2,956
7,986

1,651
3,611

358
1,323

440
1,367

832
27,212¥11,784¥1,227,318¥68,745¥1,296,063

712
5,054

6,949
46,553

2
495

6,951
47,048

E-Commerce
Business

Credit andPayment
Business

Portal andMedia
Business

Millions of Yen
2005
Professional
TravelSecurities
SportsBusiness BusinessBusiness¥203,205¥805,516¥4,318¥7,222 ¥591,361

2,185
3,574

363
997

247
228

305
385

395
237

Total

Corporate &Internal
Eliminations Consolidated

Total

Corporate &Internal
Eliminations Consolidated¥7,011¥1,618,633¥39,076¥1,657,709

229
2,955

3,724
8,376

–
–

3,724
8,376

(2) Geographical Segments
Disclosure of geographic segment information is omitted because domestic net sales and assets exceed 90% of consolidated 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% of consolidated net sales.

58

Report of Independent Auditors

59Corporate Data

Board of Directors and Corporate Auditors (As of April 1, 2007)
Chairman and CEO

Hiroshi Mikitani

Executive Deputy President and Representative Director

Atsushi Kunishige

Senior Executive Officers and Directors

Toru Shimada
Ken Takayama
Kazunori Takeda
Masatada Kobayashi
Akio Sugihara
Takao Toshishige
Hiroaki Yasutake

Executive Officer and Director

Manabu Mori

Directors

Kouichi Kusano
Hisashi Suzuki
Muneaki Masuda
Tatsumi Yoda

Corporate Auditors

Kouji Hata
Katsuichiro Masumi
Katsuyuki Yamaguchi
Takeo Hirata

Mr. Kusano, Mr. Suzuki, Mr. Masuda and Mr. Yoda are outside corporate directors stipulated in Paragraph 15, Article 2 of the Corporate Law of Japan.
Mr. Hata, Mr. Yamaguchi and Mr. Hirata are outside corporate auditors stipulated in Paragraph 16, Article 2 of the Corporate Law of Japan.

60

Company Overview (As of December 31, 2006)
Company Name

Rakuten, Inc.

FoundedFebruary 7, 1997

Service Launched

May 1, 1997

IPO

April 19, 2000

Capital¥107,295 million

Main Office

Roppongi Hills Mori Tower, 6-10-1 Roppongi, Minato-ku, Tokyo 106-6118, Japan

Employees

3,430 (Consolidated)
1,172 (Non-consolidated)

Stock Information (As of December 31, 2006)
Stock Code4755 (JASDAQ)

Fiscal Year

January 1 to December 31

Month of Annual General Shareholders’ Meeting

March

Shareholder Record Date

December 31

Transfer Agent

The Sumitomo Trust and Banking Co., Ltd.

Handling Office

The Sumitomo Trust and Banking Co., Ltd.
Stock Transfer Agency Department
1-10 Nikkocho, Fuchu-shi, Tokyo 183-8701, Japan

Number of shares and shareholders
Total number of shares authorized

39,418,000 (common stock)Total number of shares issued

13,013,493 (common stock)

Number of shareholders

155,233

Major Shareholders

Classification by Type of Shareholder

Number ofsharesPercentage of
total shares

Crimson Group, Inc

2,264,190

17.4

Hiroshi Mikitani

2,182,502

16.8

Haruko Mikitani

1,458,750

11.2

534,910

4.1

Shareholders

Securities firms and others

1.4%
Domestic financial institutions

3.8%

State Street Bank and Trust Company

257,944

2.0

Foreign financial
institutions
and individuals

Shinnosuke Honjo

233,890

1.8

21.0%

Kazuyoshi Masuda

200,622

1.5

The Chase Manhattan Bank, N.A. London S.L.
Omnibus Account190,806

1.5

J.P. Morgan Chase Bank 380084

151,351

1.2

State Street Bank and Trust Company 505103

137,190

1.1

Masuda and Partners Inc.

Inquiry

Other domestic
corporations

Individuals

22.2%

51.6%

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

61

Corporate Data

Consolidated Subsidiaries and Affiliated Companies (As of December 31, 2006)
Location

Capital orinvestment(¥ million)

Type of business

Voting rights
or ownership
(%)

Note

Rakuten Auction, Inc.

Minato-ku, Tokyo

1,650

E-Commerce Business

60.0

15

Rakuten Books, Inc.

Minato-ku, Tokyo

495

E-Commerce Business

100.0

15

Rakuten Enterprise Inc.

Minato-ku, Tokyo

10

E-Commerce Business

100.0

Signature Japan Co., Ltd.

Minato-ku, Tokyo

80

E-Commerce Business

100.0

Fine Wine Co., Ltd.

Minato-ku, Tokyo

205

E-Commerce Business

100.0

LinkShare Corporation

U.S.A.

100
U.S. dollars

E-Commerce Business

100.0(100.0)5

LinkShare International

U.S.A.

0
U.S. dollars

E-Commerce Business

100.0(100.0)2
5

LinkShare Ltd.

U.K.

1,000
U.K. pounds

E-Commerce Business

100.0(100.0)2
5

Rakuten USA, Inc.

U.S.A.

100
U.S. dollars

E-Commerce Business

100.0

Keiba Mall, Inc.

Minato-ku, Tokyo

499

E-Commerce Business

100.0

Rakuten Credit, Inc.

Minato-ku, Tokyo

4,450

Credit and Payment Business

96.5

Rakuten KC Co., Ltd.

Fukuoka-shi, Fukuoka

3,055

Credit and Payment Business

95.2

16

Kokunai Shinpan Service Co., Ltd.

Fukuoka-shi, Fukuoka

10

Credit and Payment Business

100.0(100.0)7

Miyazaki Marina Co., Ltd.

Miyazaki-shi, Miyazaki

45

Credit and Payment Business

100.0(100.0)7

Kajiyama Warehouse Co., Ltd.

Kitakyusyu-shi, Fukuoka

240

Credit and Payment Business

100.0(100.0)7

Rakuten TV Inc.

Minato-ku, Tokyo

80

Portal and Media Business

100.0

Target, Inc.

Minato-ku, Tokyo

480

Portal and Media Business

100.0

College Students’ Portal
Community, Inc.

Minato-ku, Tokyo

10

Portal and Media Business

100.0

Rakuten Research, Inc.

Minato-ku, Tokyo

246

Portal and Media Business

99.6

Cyber Brains (Shanghai)Consulting Co., Ltd.

People’s Republicof China

2,763 thousand
RMB

Portal and Media Business

100.0(100.0)

Rakuten Travel, Inc.

Minato-ku, Tokyo

100

Travel Business

100.0

RAKUTEN TRAVELKOREA CO., LTD.

Republic of Korea

350 million
won

Travel Business

100.0(100.0)8

TABIMADO CO., LTD SHANGHAI

People’s Republicof China

1,000 thousand
RMB

Travel Business[100.0]4

Rakuten Bus Services Inc.

Minato-ku, Tokyo

40

Travel Business

88.5(88.5)

8

SIDE B NETWORK, INC.

Minato-ku, Tokyo

12

Travel Business

100.0

Rakuten Securities, Inc.

Minato-ku, Tokyo

6,600

Securities Business

100.0(100.0)9
16

Rakuten Securities Holdings, Inc.

Minato-ku, Tokyo

1,000

Securities Business

96.8

2

Rakuten AssetManagement Co., Ltd.

Minato-ku, Tokyo

10

Securities Business

100.0(100.0)9

Rakuten Strategic Partners, Inc.

Minato-ku, Tokyo

300

Securities Business

100.0(100.0)9

Rakuten Realty Management Co., Ltd.

Chuo-ku, Tokyo

200

Securities Business

100.0

Rakuten Insurance Planning K.K.

Minato-ku, Tokyo

220

Securities Business

90.9

Name

Consolidated Subsidiaries

62

2

15

6

2

Name

Location

Capital orinvestment(¥ million)

Type of business

Voting rights
or ownership
(%)

Note

Rakuten Investment Management, Inc.

Minato-ku, Tokyo

50

Securities Business

100.0(100.0)2
9

Rakuten Financial Frontier
Investment Limited Partnership–

200

Securities Business

–

2
10

Chateldon Investors One
Tokumei Kumiai

–

8,645

Securities Business

–

2
10

Chateldon Investors Two
Tokumei Kumiai

–

9,014

Securities Business

–

2
10

Direct Fund 1 Tokumei Kumiai––

Securities Business

–

2
10

MIS Investors Tokumei Kumiai–

144

Securities Business

–

2
10

RS Fund 1 Tokumei Kumiai––

Securities Business

–

2
10

Rakuten Baseball, Inc.

Sendai-shi, Miyagi

400

Professional Sports Business

100.0

15

Rakuten Sports Properties, Inc.

Minato-ku, Tokyo

150

Professional Sports Business

51.0(51.0)

11

Rakuten Media Investment, Inc.

Minato-ku, Tokyo

10

100.0

Rakuten Financial Solution, Inc.

Minato-ku, Tokyo

500

95.0

2

LAWSON TICKET, Inc.

Shibuya-ku, Tokyo

2,892

E-Commerce Business

17.8

14

LinkShare Japan K.K.

Chiyoda-ku, Tokyo

10

E-Commerce Business

50.0(50.0)

12

SHOWTIME, Inc.

Shibuya-ku, Tokyo

480

Portal and Media Business

50.0

Ctrip.com International, Ltd.

People’s Republicof China

326 thousand
U.S. dollars

Travel Business

20.5

WORLD TRAVEL SYSTEMS INC.

Shinjuku-ku, Tokyo

110

Travel Business

20.0

Rakuten ANA Travel Online Co., Ltd.

Minato-ku, Tokyo

90

Travel Business

50.0. Commodity, Inc.

Shibuya-ku, Tokyo

1,000

Securities Business

42.5

Liaison Partners, Inc.

Minato-ku, Tokyo

3

Securities Business

20.0(20.0)

13

Rakuten Mortgage Co., Ltd.

Minato-ku, Tokyo

500

Securities Business

50.0

2

TRAFFIC GATE, LTD.

Meguro-ku, Tokyo

217

45.9

TECHMATRIX CORPORATION

Minato-ku, Tokyo

1,285

31.2

14

NEXT Co., Ltd.

Chuo-ku, Tokyo

1,979

16.5

14

Equity-method Affiliates

2

Notes:
1. Business segments are used to indicate the type of business.
2. The company became a group member during the fiscal year ended December 31, 2006.
3. Indirectly held voting rights are shown in parentheses.
4. Voting rights held by parties close to Rakuten or that support Rakuten’s policies, but not included in the voting rights percentage, are shown in square brackets.
5. LinkShare Corporation is a subsidiary of Rakuten USA, Inc. In addition, LinkShare International is a subsidiary of LinkShare Corporation, and LinkShare Ltd. is a subsidiary of LinkShare International.
6. Cyber Brains (Shanghai) Consulting Co., Ltd. is a subsidiary of Rakuten Research, Inc.
7. Kokunai Shinpan Co., Ltd., Miyazaki Marina Co., Ltd. and Kajiyama Warehouse Co., Ltd. are subsidiaries of Rakuten KC Co., Ltd.
8. RAKUTEN TRAVEL KOREA CO., LTD. and Rakuten Bus Services Inc. are subsidiaries of Rakuten Travel, Inc.
9. Rakuten Securities, Inc., Rakuten Asset Management Co., Ltd., Rakuten Strategic Partners Co., Ltd. and Rakuten Investment Trust Co., Ltd. are subsidiaries of Rakuten Securities Holdings, Inc.
10. Newly consolidated in conjunction with change in accounting treatment of investment partnerships.
11. Rakuten Sports Properties, Inc. is a subsidiary of Rakuten Baseball, Inc.
12. LinkShare Japan K.K. is an equity-method affiliate of LinkShare Corporation.
13. Liaison Partners, Inc. is an equity-method affiliate of Rakuten Asset Management Co., Ltd.
14. Denotes companies required to submit financial reports and securities registration statements according to Japanese securities and exchange legislation.
15. Denotes a Specified Subsidiary ("tokutei kogaisha")
16. Net sales of Rakuten Securities, Inc. and Rakuten KC Co., Ltd. (excluding internal sales between consolidated subsidiaries) account for over 10% of consolidated net sales.

63