Rakuten, Inc. andConsolidated Subsidiaries
Consolidated Financial Statements for theYears Ended December 31, 2011 and 2010

Rakuten, Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets
December 31, 2011 and 2010

Millions of Yen
2011
2010

ASSETS
CURRENT ASSETS:
Cash and deposits (Note 6,17)
Notes and accounts receivable — trade
Accounts receivable — installment (Note 6,17)
Accounts receivable — installment sales — credit guarantee(Note 8)Beneficial interests in securitized assets (Note 7,17)
Cash segregated as deposits for securities business (Note 17)
Margin transactions assets for securities business (Note 17)
Operating loans (Note 6,7,17)
Short-term investment securities (Note 17,18)
Securities for banking business (Note 6,17,18)
Loans for banking business (Note 17)
Deferred tax assets (Note 22)
Other (Note 6)
Allowance for doubtful accounts (Note 17)
Total current assets
NON-CURRENT ASSETS:
Property, plant and equipment
Intangible assets
Goodwill (Note 9)
Other
Total intangible assets
INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 6,18)
Deferred tax assets (Note 22)
Other (Note 6)
Allowance for doubtful accounts
Investments assets and other assets
Total non-current assets

TOTAL ASSETS

2

72,86645,354
100,909$ 1,144,711
638,898
851,803

2,153

2,466

27,69988,960207,503
115,634
62,38776,600537,791
155,678
33,319189,815(14,385)
1,660,332

66,601
223,114
126,779
156,950
35,510535,087
125,881
13,340151,586(27,012)
1,629,432

1,144,324
2,669,194
1,487,440
802,507985,336
6,917,811
2,002,547
428,598
2,441,664(185,038)
21,357,494

15,80521,890203,303

115,064
58,223
173,287

127,456
54,041
181,496

1,480,114
748,9442,229,059

20,68525,731
33,630(14,908)
65,138254,230

67,83425,45926,454(3,049)116,698
320,084

266,078
330,988432,597(191,766)
837,897
3,270,258¥ 1,914,561¥ 1,949,517$ 24,627,752¥

88,99049,66866,219¥Thousands of
U.S. Dollars(Note 1)2011

Rakuten, Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets
December 31, 2011 and 2010

Millions of Yen
2011
2010

LIABILITIESCURRENT LIABILITIES:
Short-term debts (Note 5,6,17)
Current portion of long-term debts (Note 5,15)
Notes and accounts payable — trade (Note 6)
Deposits for banking business (Note 17)
Accounts payable — credit guarantee (Note 8)
Income taxes payable (Note 22)
Deposits received for securities business (Note 17)
Margin transactions liabilities for securities business (Note 5,6,17)
Guarantee deposits received for securities business (Note 17)
Borrowings secured by securities for securities business (Note 6,17)
Provisions (Note 8)
Other (Note 6)
Total current liabilities
NON-CURRENT LIABILITIES:Long-term debts (Note 5, 6,15,17)
Deferred tax liabilities (Note 22)
Other non-current provisions (Note 20)
Other
Total non-current liabilities
RESERVES UNDER THE SPECIAL LAWS:
Reserve for financial instrument transaction liabilities
Reserve for commodities transaction liabilities
Total Reserves under the special laws
TOTAL LIABILITIESNET ASSETSSHAREHOLDERS’ EQUITY
Common stock
Authorized: 39,418,000 shares
Issued: 13,194,578 shares in 2011
and 13,181,697 shares in 2010
Capital surplus
Retained earnings
Treasury stock—at cost,
60,079 shares in 2011 and 60,079 shares in 2010
Total shareholders’ equity
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Total accumulated other comprehensive (loss) income
SUBSCRIPTION RIGHTS TO SHARESMINORITY INTERESTSTOTAL NET ASSETSTOTAL LIABILITIES AND NET ASSETS

See notes to consolidated financial statements.

3

Thousands of
U.S. Dollars(Note 1)
2011

97,04259,03059,202
741,501
2,295
3,981
139,483
38,23079,81828,73518,988204,530
1,472,835¥ 143,507
92,57336,835713,273
2,466
17,590145,973
55,32977,77332,775
15,686
209,980
1,543,760$ 1,248,290
759,326
761,537
9,538,222
29,527
51,206
1,794,222
491,764
1,026,729
369,629244,251
2,630,946
18,945,649

192,425
4,762
1,434
6,246
204,867

134,256
4,694
10,5695,027
154,546

2,475,244
61,25318,44480,346
2,635,287

1,839
35
1,874
1,679,576

1,965
13
1,977
1,700,283

23,653452
24,104
21,605,040

107,959

107,779

1,388,720

120,0319,420

119,851
13,183

1,544,003
121,168(3,626)(3,626)(46,637)

233,784

237,188

3,007,254

2,433
54(7,854)(5,367)
1,185
5,384
234,986

6,001
(198)
(4,694)
1,109
958
9,979
249,234,

31,303693(101,035)(69,039)
15,242
69,256
3,022,712¥1,914,561¥1,949,517$ 24,627,752¥

Rakuten, Inc. and Consolidated Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2011 and 2010

Millions of Yen
2011
2010
NET SALESCOST OF SALES
Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 10)
Operating income
OTHER INCOME (EXPENSES):Interest income
Dividend income
Foreign exchange (loss) gain
Equity in earnings of affiliates
Interest expense
Commission fee expense
Gain on negative goodwill
Gain on step acquisitions
Reversal of reserve for financial instruments transaction liabilities
Gain on change in equity
Gain on sales of subsidiaries and affiliates' stocks
Loss on disposal of non-current assets (Note11)
Loss on disaster (Note11)
Loss on business restructuring (Note11)
Provision of allowance for doubtful accounts (Note11)
Loss on investment securities (Note11)
Impairment loss (Note11)
Other — net
Other expenses — net(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTERESTSINCOME TAXES
Income taxes — current
Income taxes — deferred
INCOME TAX (BENEFIT) EXPENSE(LOSS) INCOME BEFORE MINORITY INTERESTSMINORITY INTERESTS IN INCOME
NET (LOSS) INCOME

See notes to consolidated financial statements.

4

Thousands of
U.S. Dollars(Note 1)2011

¥ 379,901¥ 346,144$ 4,886,811

75,23275,251

967,740

304,669

270,8933,919,071

233,325

207,127

3,001,347

71,344

63,766

917,724

105
137
(25)
399
(1,677)(1,717)
124
–
126
177
374
(1,157)(1,725)(77,122)(2,151)––(1,672)(85,806)

65
209
17
(337)
(1,629)
(369)
1,700
764
107
262
(409)
–
–
–
(1,867)(1,303)(942)(3,050)

1,350
1,760
(324)
5,132
(21,575)(22,091)
1,597
–
1,618
2,272
4,809
(14,883)(22,196)(992,051)(27,665)––(21,512)(1,103,757)(14,462)

60,717(186,033)

6,979(21,418)(14,439)(24)
1,116¥ (1,140)

25,888(760)
25,12835,589633¥ 34,956

89,775(275,505)(185,730)(303)
14,356$ (14,659)

Rakuten, Inc. and Consolidated Subsidiaries
Consolidated Comprehensive Income Statement
Year Ended December 31, 2011
Thousands of
U.S. Dollars(Note 1)
2011

Millions of Yen
2011
2010
Loss before minority interests
OTHER COMPREHENSIVE LOSS
Valuation difference on available-for-sale securities
Deferred gains on hedges
Foreign currency translation adjustments
Share of other comprehensive loss of affiliates accounted
for using equity method
TOTAL OTHER COMPREHENSIVE LOSS (Note 12)
COMPREHENSIVE LOSS (Note 12)(Comprehensive income (loss) attributable to)
Owners of the parent
Minority interests(3,557)264(3,222)

—
—
—
—
—

(20)

—

(255)

(6,536)¥ (6,559)——(84,070)$ (84,373)¥ (7,616)
1,056

—
—

$ (97,962)
13,589

¥

(24)

$

(303)
(45,757)
3,392(41,450)

See notes to consolidated financial statements.

Consolidated Statement of Changes in Net Assets
Year Ended December 31, 2011
Million of yen
As of Dec.
31, 2010
Issuanceof lcommon
stockCommon stock
Capital surplus
Retained earnings
Treasury stock
Shareholders' equity

Changes in fiscal year 2011
Net changes
Cashin items otherNet
dividends
than those in
loss
paid
shareholders'equity－－－As of Dec.
31, 2011
Total ofchanges infiscal 2011

¥107,779

¥ 180

¥180

¥107,959

119,851

180

－

－

－

180

120,031

13,183(3,626)
237,188－－360¥ (2,624)－(2,624)¥ (1,140))－(1,140)－－－(3,764))－(3,404))9,420(3,626)
233,784

Valuation difference on
available-for-salesecurities

6,001

－

－

－

¥ (3,567)(3,567)

2,433

Deferred gains orlosseson hedges

(198)

－

－

－

252

252

54

Foreign currencytranslation adjustments(4,694)－－－(3,161)(3,161)(7,854)

Total accumulated othercomprehensive
income(loss)

1,109

－

－

－

(6,476)(6,476))(5,367)

958

－

－

－

227

227

1,185

9,979

－

－

－

(4,595)(4,595))

5,384

Net assets¥249,234¥360
Net assets,Dec.31,2011
thousands of
U.S.dollars (Note 1)$3,205,993$4,630See notes to consolidated financial statements.

¥ (2,624)¥ (1,140))¥ (10,844))¥ (14,248))¥234,986$(33,758)$(14,659)$(139,494)$183,281$3,022,712

Subscription rights tosharesMinority interests5

Rakuten, Inc. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2011 and 2010

Millions of Yen
2011
2010

NET CASH PROVIDED BY OPERATING ACTIVITIES(Loss) income before income taxes and minority interests
Depreciation and amortization
Amortization of goodwill
Decrease in allowance for doubtful accounts
Loss on valuation of securities for banking business
Loss on business restructuring
Other loss
Increase in notes and accounts receivable - trade
Decrease (increase) in accounts receivable - installment
Increase in beneficial interests in securitized assets
Decrease in operating loans receivable
Increase in notes and accounts payable - trade
Increase in accounts payable - other and accrued expenses
Increase in deposits for banking business(Increase) decrease in call loans for banking business
Increase in loans for banking business
Decrease (increase) in operating assets for securities business
Decrease in operating liabilities for securities business(Decrease) increase in borrowings secured by securities for securities
business
Other-net
Subtotal
Increase in guarantee deposits for business operation
Decrease in guarantee deposits for business operation
Income taxes paid
Payments for business restructuring
Other
Net cash provided by operating activities
See notes to consolidated financial statements.

6

Thousands of
U.S. Dollars(Note 1)2011

¥ (14,462)
16,934
7,848
(769)
2,214
77,122
5,513(4,266)
13,539(88,644)
22,697
21,21821,77028,229(24,000)(29,797)
28,983(21,544)¥ 60,717
16,813
7,035(10,889)
2,935
—
7,941
(5,986)(7,798)(43,405)
20,847
6,697
3,696
14,9194,000(33,004)(16,192)(11,664)$ (186,033)
217,826
100,952(9,887)28,477
992,051
70,913(54,881)
174,155(1,140,268)
291,964
272,936
280,034
363,119(308,721)(383,291)
372,821(277,130)(4,040)22,663(51,973)(8,356)50,187(392)
2,176(23,165)(1,220)—¥ 27,586

14,23953,563(5,540)3,333(20,801)—(250)¥ 30,305(107,491)
645,573(5,036)27,995(297,986)(15,696)—$ 354,849

Rakuten, Inc. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2011 and 2010
Thousands of
U.S. Dollars(Note 1)
2011

Millions of Yen
2011
2010

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES(9,946)
Increase in time deposits
5,573
Decrease in time deposits(390,828)
Purchase of securities for banking business
455,813
Proceeds from sales and redemption of securities for banking business(7,497)Purchase of investments in subsidiaries
Purchase of investments in subsidiaries resulting in change in(7,483)scope of consolidation
Proceeds from sales of investments in subsidiaries resulting in change in
33,554scope of consolidation (Note 14)(3,825)Purchase of property, plant and equipment(15,163)
Purchase of intangible assets(6,499)Other payments
2,207
Other proceeds
445Interest and dividends received
56,351
Net cash provided by (used in) investing activities
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIESNet (decrease) increase in short-term loans payable(Decrease) increase in commercial papers
Proceeds from long-term loans payable
Repayment of long-term loans payable
Redemption of bonds
Interest paid
Cash dividends paid
Other
Net cash (used in) provided by financing activities
EFFECT OF CHANGE IN EXCHANGE RATES ON CASH AND CASH
EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATEDSUBSIDIARIESCASH AND CASH EQUIVALENTS AT END OF THE YEAR (Note 1, 13)
See notes to consolidated financial statements

7(7,351)
11,001(370,844)
372,267(18,825)(127,934)
71,688(5,027,370)
5,863,302(96,438)(40,159)(96,258)—

431,618(5,758)(14,947)(4,435)
17,764
748(60,538)(49,206)(195,042)(83,600)
28,388
5,724
724,871(19,235)(30,200)
173,350(143,538)(4,800)(1,575)(2,630)(6,020)(34,648)

29,032
31,40083,385(92,550)(18,280(1,639)(1,314)(2,425)27,609(247,429)(388,474)
2,229,869(1,846,383)(61,749)(20,262)(33,831)(77,435)(445,695)(1,172)(984)(15,074)

48,117100,737(3,609)103,618

618,951
1,295,817

898

727

11,554¥149,752¥100,737$1,926,321

Rakuten, Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 2011 and 2010
1.

BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in Japan, which are different in certain respects as to application and disclosure requirements under International
Financial Reporting Standards, and have been compiled from the consolidated financial statements prepared by Rakuten, Inc.
(the "Company") and consolidated subsidiaries and affiliates as required by the Financial Instruments and Exchange Law ofJapan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company isincorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥77.74 to $1, the approximate rate of exchange at
December 31, 2011. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.
Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s presentation.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Consolidation — The consolidated financial statements as of December 31, 2011 include the accounts of the Company
and its 75 (54 in 2010) significant subsidiaries (together, the "Group"). Under the control or influence concept, thosecompanies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated.
Investments in 8 (9 in 2010) affiliates are accounted for using the equity method. Those companies over which the Group
has the ability to exercise significant influence in terms of their operating and financial policies are accounted for using theequity method.
Investments in the remaining 33 (30 in 2010) 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 theaccompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized
profit included in assets resulting from transactions within the Group is eliminated.

b.

Cash and Cash Equivalents — Cash and cash equivalents as stated in the consolidated statements of cash flows
consist of cash on hand, securities and deposits that can be converted to cash at any time, and short-term liquid
investments with a maturity not exceeding three months at the time of purchase and whose value is not subject tosignificant fluctuation risk. In addition, the scope of cash and cash equivalents for a certain consolidated subsidiary that
operates a banking business consists of the cash and deposits components within cash and due from banks on the
consolidated balance sheets.

c.

Securities — Marketable and investment securities are classified and accounted for, depending on management's intent,
as follows: (1)-1 trading securities, which are held for the purpose of earning capital gains in the near term are reported atfair value, and the related unrealized gains and losses are included in earnings, (1)-2 held-to-maturity debt securities,
which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized
cost, (1)-3 available-for-sale securities, which are not classified as either of the aforementioned securities, are reported atfair value with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The costof available-for-sale securities sold is computed by the moving average method and (1)-4 non-marketableavailable-for-sale securities are stated at cost determined by the moving average method. (2)-1 Held-to-maturity debt
securities for the banking business are amortized on a cost basis using the moving average method (straight-line
amortization). (2)-2 Available-for-sale securities for the banking business are stated at fair value and using mark-to-market
method based on the market price at the closing date (Valuation differences are reported as a component of net assets,
and are primarily calculated as costs of sales using the moving average method.) (2)-3 Non-marketable available for salesecurities are stated at cost using the moving average method or amortized cost using the moving average method.

d.

Property, Plant and Equipment — Property, plant and equipment are stated at cost. Depreciation of property, plant andequipment is computed mainly using the straight-line method.

e.

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

f.

Leases — Leased assets under finance leases that transfer ownership of the leased assets are depreciated using thesame method that is applied to fixed assets. Assets leased in finance leases that do not transfer ownership of the leased
assets are depreciated by the straight-line method over the estimated useful lives of the each asset, which is deemed tobe the lease period, with zero residual value.

8g.

Allowance for Doubtful Accounts — An allowance equal to estimated losses is established to prepare for losses fromcredit guarantees. The method of estimating the allowance is based on the credit loss ratio for general credit, and thelikelihood of collection for doubtful accounts. Allowance for doubtful accounts of certain consolidated subsidiary that
operates a banking business is provided for in accordance with internally developed standards for write-offs andprovisions to allowance for loan losses, as follows. Claims considered normal claims or claims requiring caution as
stipulated in the “Practical Guidelines for Self-assessment Valuation of Assets and Audits for Write-offs and Reserves for
Allowance for Asset Losses of Banks and Similar Institutions” (Report No. 4 of Ad Hoc Committee for Audits of Banks of
the Japanese Institute of Certified Public Accountants) are classified into specific classes and then an allowance isprovided based on reasonable calculations of estimated loss ratios. Provisions for claims considered potentially bankrupt
are made for the amount deemed necessary after subtracting the expected collectable amounts of collateral andguarantees. For claims considered bankrupt or substantially bankrupt, the amount remaining after subtracting the
expected collectable amounts of collateral and guarantees is transferred to the reserve. Following the company’s asset
self-assessment standards, operating departments conduct an asset assessment, and an asset audit department which is
independent of operations then audits the assessment results. The provisions mentioned above are then made for all
claims based on these assessments.

h.

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

i.

Reserve for Points — An amount equivalent to points that are earned by customers and are expected to be used in the
future is recorded as a reserve for the fiscal year. Provision for points is included in selling, general and administrative
expenses.

j.

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

k.

Allowance for Loss on Interest Repayments — A certain consolidated subsidiary has calculated and recorded anallowance for expected loss on interest repayments based on factors such as the actual ratio of repayments made andaverage amount of repayments over the reasonable estimate period.

l.

Reserve for Financial Instrument Transaction Liabilities — At a certain consolidated subsidiary, provision is made forpossible loss resulting from securities transaction accidents. The amount of the reserve is determined based on Article
175 of the Cabinet Order Concerning Transactions in Financial Instruments, which is based on the provisions of Article 465 of the Financial Instruments and Exchange Law.

m. Reserve for Liabilities on Transaction in Commodities — A certain consolidated subsidiary allocates the amounts
stipulated in the Commodity Derivatives Act to provide for loss resulting from contingencies related to commodity
transactions, in accordance with the provisions of Article 221 of the Commodity Derivatives Act.
n.

Derivatives and Hedging Accounting
Hedge accounting:Deferred hedge accounting has been adopted. However, a special method is used for transactions which meet certain
conditions.
Hedging instruments and hedged items:
Hedging instruments comprise currency forward agreements and interest rate swaps. Hedged items comprise foreigncurrency-denominated prospective transactions, foreign currency deposits, foreign currency-denominated securities andloans.
Hedging policies:
Interest rate swaps are used to establish hedges for exposure to interest rate volatility risk associated with borrowings.
Hedged items are identified by individual contract.
Holdings of foreign currency deposits and foreign currency-denominated securities carry the risk of exchange rate andprice fluctuations. To avoid this risk, currency forward agreements and interest rate swaps are used, subject to specificrules.
Method for evaluating effectiveness of hedging activities:
For interest rate swaps, the effectiveness of the hedge is determined based on comparison of the cumulative changes incash flows of the hedged items and hedging instruments every three months, along with other items. However, thisevaluation is not performed for interest rate swaps accounted for by the special method.
For currency forward agreements, the effectiveness is determined by the currency, amount and settlement date of thehedged item based on the management data.

9

3.

o.

Goodwill — The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiaries atthe date of acquisition is called goodwill. Goodwill is amortized over the estimated effective period. However, if theamount is immaterial the entire amount is amortized at the date of acquisition.

p.

Consumption Taxes － The tax-excluded method is used in consumption tax accounting for national and local
consumption taxes.

q.

Foreign Currency Financial Statements — Balance sheet accounts of the consolidated foreign subsidiaries aretranslated into Japanese yen at exchange rates as of the balance sheet date except for net assets, which is translated athistorical rates. Revenue and expenses accounts of consolidated foreign subsidiaries are translated into Japanese yen at
average rates of exchange over the applicable fiscal periods.
Differences arising from such translation are shown as "Foreign currency translation adjustments" in a separate
component of net assets.

r.

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 are measured by applying currently enacted tax laws to the temporary differences.

s.

Retained earnings — The Corporation Law of Japan provides that an amount equal to 10% of the amount to be
distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal
reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve andthe legal reserve equals 25% of the common stock amount.

CHANGES IN ACCOUNTING POLICYa.

Application of the Accounting Standard for Equity Accounting Method, etc — Effectively on January 1, 2011, theCompany adopted the Accounting Standard for Equity Method of Accounting for Investments (Accounting Standards
Board of Japan (“ASBJ”) Statement No.16, March 10, 2008) and the Practical Solution on Unification of Accounting
Policies Applied to Associates Accounted for Using the Equity Method (ASBJ Practical Issues Task Force No.24, March
10, 2008) .
There was no effect on operating income, ordinary income, net income before income taxes and minority interests as aresult of the adoption.

b.

Application of the Accounting Standard for Asset Retirement Obligation, etc — Effectively on January 1, 2011, theCompany adopted the Accounting Standard for Asset Retirement Obligations (ASBJ Statement No.18, March 31, 2008)
and the Guidance on the Accounting Standard for Asset Retirement Obligations (ASBJ Guidance No.21, March 31,2008) .
As a result of the adoption, extraordinary losses by this application amounted to ¥383 million were recorded whereas theeffect on operating income and ordinary income was immaterial and the amount of Asset Retirement Obligation
recognized was ¥1,384 million.

c.

Change in Depreciation Method for Tangible Fixed Assets (Excluding Leased Assets) — Depreciation of tangible
fixed assets (excluding leased assets) other than buildings (excluding ancillary facilities) acquired after April 1, 1998 were
calculated using the declining-balance method at Rakuten, Inc. and some of its consolidated subsidiaries in prior years.
On January 1, 2011, the Company elected to change its method of depreciation of those assets to the straight-line
method. The purpose of this change is to reflect the pattern in which those tangible fixed assets are used and theeconomic benefits of those assets are consumed more appropriately in light of accelerated expansion of the Company’s
overseas operation..
As a result of this change, depreciation expense has been decreased by ¥1,057 million, operating income and ordinary
income have been increased by ¥1,057 million, and net loss before income taxes and minority interests has been
decreased by ¥1,057 million..

10

4.

5.

SUPPLEMENTAL INFORMATIONa.

Application of the Accounting Standard for Presentation of Comprehensive Income — The Accounting Standard for
Presentation of Comprehensive Income (ASBJ, Statement No. 25, issued June 30, 2010) is adopted starting from thefiscal year ended December 31, 2011. For the numbers of fiscal year ended December 31, 2010, valuation and translation
adjustments and total valuation and translation adjustments are presented as accumulated other comprehensive income
and total accumulated other comprehensive income, respectively.

b.

Allowance for Doubtful Accounts — , The Company carried out restructuring of credit card business in the current
financial reporting period. As a result, the Rakuten Group’s credit card business has shifted to a business model based on
unsecured credit and settlement operations through the Internet. In line with the change in business model, the Company
changed organizational structure related to credit control aiming to concentrate more resources on collection ofdelinquent loans in early-stage whereas establishing collection system and policies for long-term delinquent loans fromcost-effectiveness viewpoint given the limited human resources after the restructuring. The Company reviewed
classification of debtor and allowance ratio In connection with these changes and recorded an additional allowance for
doubtful accounts.
As a result of the change in these estimates, additional allowance for doubtful accounts of ¥11,870 million andcorresponding extraordinary loss of the same amount were recorded which resulted in the increase of loss before income
taxes and minority interests and net loss by ¥11,870 million and ¥7,003 million, respectively.

SHORT-TERM AND LONG-TERM DEBT AND CORPORATE BONDS
Short-term debt at December 31, 2011 and 2010 consisted of notes to banks, bank overdrafts, corporate bonds, commercial
paper and lease obligations. Short-term and long-term debt at December 31, 2011 and 2010 consisted of the following:
Corporate bonds
Millions of Yen
2011
2010
Rakuten, Inc. (due in 2012 with interest rate of 1.68%)
FUSION COMMUNICATIONS CORPORATION(due in 2012 with interest rate of 0.78%)
FUSION COMMUNICATIONS CORPORATION(due in 2013 with interest rate of 0.54%)
FUSION COMMUNICATIONS CORPORATION(due in 2015 with interest rate of 0.64%)¥ 4,000¥ 8,000

494

987

100

167

960

1,200

Total

¥ 5,553¥ 10,354

The amounts of corporate bonds due for redemption in each of the five years after the consolidated balance sheet date areas follows:
Millions of
Yen
Years Ending
December 31

2011

2012
2013
2014
2015
2016

¥ 4,800
273
240
240
－

Total

¥ 5,55311

Borrowing and others
Millions of Yen
2011

2010

Short-term bank loans
Long-term bank loans, due within one year
Long-term bank loans, due after one year
Other debt with interest
Commercial paper
Margin transaction liabilities
Lease obligation, due within one year
Lease obligation, due after one year

¥ 77,242
53,480190,747¥ 93,507
86,932
127,483

19,80018,331749
926

50,00013,331
840
1,220

Total

¥ 361,275¥ 373,314

Weighted average interest rates of loans as of December 31, 2011 and 2010 were as follows:
2011
Short-term bank loans
Long-term bank loans, due within one year
Long-term bank loans, due after one year
Commercial paper
Margin transaction liabilities
Lease obligation, due within one year
Lease obligation, due after one year

2010

1.25%
2.01%
1.45%
0.80%
0.77%
－
－

1.52%
1.76%
1.68%
1.12%
0.77%
－
－

Annual maturities of long-term bank loans and lease obligations at December 31, 2011 were as follows:
Millions of
Yen
Year Ending
December 31

2011

2012
2013
2014
2015
2016
2017 and after¥ 54,230
62,63749,96732,02425,53921,505

Total¥ 245,902

Unused commitment lines for financing at December 31, 2011 and 2010 amounted to ¥134,337 million and ¥69,758 million,
respectively.

6.

PLEDGED ASSETS
a. Assets pledged as collateral:
The carrying amounts of assets pledged as collateral at December 31, 2011 and 2010 were as follows:
Millions of Yen
2011
2010
Deposits
Accounts receivable - installment and operating loans
Receivable from lease contracts
Investment securities¥ 1,000
18,5475－¥ 100
46,974
15
1,448

Total

¥19,552¥48,537

12

Securities in custody from customers in the amount of ¥1,843 million and ¥1,363 million were pledged as collateral for
short-term bank loans at December 31, 2011 and 2010, respectively. Securities in the amount of ¥21,699 million and¥27,189 million were pledged as collateral for short-term bank loans and margin transaction liabilities at December 31,
2011 and 2010, respectively. Loaned securities were pledged as collateral for borrowings in the amount of ¥28,735 millionand ¥32,775 million at December 31, 2011 and 2010, respectively.
Securities for banking business, which were pledged as collateral for foreign exchange settlements, derivative trading andother transactions, and for commitment line of credit agreements, were ¥75,420 million and ¥74,953 million at December
31, 2011 and 2010, respectively. Other collateral included in current assets consists of ¥9,557 million and ¥8,402 million for
initial margins related to futures trading and ¥1,470 million and ¥2,721 million for guarantees pledged by a consolidated
subsidiary in the banking business, and ¥11,538 million and ¥14,540 million of short-term guarantee deposits pledged by acertain consolidated subsidiary in the securities business at December 31, 2011 and 2010, respectively.
In addition, investment securities of ¥1,003 million were pledged for deposits for e-money business in accordance withlaws concerning settlement of funds at December 31, 2011.
b. Liabilities for which assets were pledged as collateral:
Millions of Yen
2011
2010
Short-term bank loans
Long-term bank loans, due within one year
Borrowings related to margin transactions
Long-term bank loans, due after one year
Accrued liabilities
Accounts payable
Deposits¥ 1,822
22,514
18,331
21,781－－
8,215¥ 19,571
38,024
13,33130,444
117
992
－

Total

¥ 72,662¥102,479

c. Fair value of marketable securities pledged as collateral:
Millions of Yen
2011
2010
Securities loaned on margin transactions
Securities pledged for loans payable for margin transactions
Loaned securities
Other marketable securities pledged as collateral¥ 20,342
18,47928,918154¥ 45,606
13,28833,014－d. Fair value of marketable securities received as collateral:
Millions of Yen
2011
2010
Securities pledged for loans receivable for margin transactions
Securities borrowed on margin transactions
Substitute securities for guarantee deposits received on futures

7.

¥ 99,230
3,543
203,573¥ 112,633
12,614
212,029

LINE-OF-CREDIT AGREEMENTS
Certain subsidiaries make loans to customers who have credit card or loan card issued by the subsidiaries. Unused lines ofcredit granted to customers amounted to ¥1,474,923 million and ¥1,613,494 million at December 31, 2011 and 2010,
respectively.

13

8.

CONTINGENCIES
Guarantee contracts where certain consolidated subsidiaries do not provide certain services for collection are not recorded as
accounts receivable-installment sales-credit guarantee and accounts payable-credit guarantee in the consolidatedbalance sheet. The balance as of December 31, 2011 and 2010 were as follows:
Millions of Yen
2011
2010

9.

Credit guarantee
Provision for loss on guarantees¥ 22,307(70)¥ 26,020
(57)

Total

¥ 22,237¥ 25,962

GOODWILL
Changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 were as follows:
Millions of
Yen
Balance at December 31, 2009
Goodwill acquired during the year
Amortization
Impairment
Balance at December 31, 2010
Goodwill acquired during the year
Amortization
Impairment
Foreign currency translation adjustment¥ 87,047
48,054(7,035 )(610 )¥ 127,456
11,523(7,848 )(14,540 )(1,526 )Balance at December 31, 2011

¥ 115,064

Goodwill acquired during fiscal 2011 mainly consisted of goodwill related to the acquisition of Play Holdings Limited and
Rakuten Deutschland GmbH. Goodwill of Rakuten KC Co., Ltd. was impaired in fiscal 2011 due to the difficulty in recovery of
the companies’ net assets based on estimated future financial performance in conjunction with sale of shares of thesubsidiary.
Goodwill acquired during fiscal 2010 mainly consisted of goodwill related to the acquisition of Buy.com Inc. and
PRICEMINISTER S.A.S.. Goodwill of Net's Partners Co., Ltd. and Rakuten Shashinkan, Inc. were impaired in fiscal 2010 due
to the difficulty in recovery of the companies’ net assets based on estimated future financial performance under the current
business environment.

10.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses comprise the following:
Millions of Yen
2011
2010
Point costs
Advertising and promotion expenses
Personnel expenses
Provision for bonuses
Depreciation
Communication and maintenance expenses
Outsourcing expenses
Provision of allowance for doubtful accounts
Provision for loss on interest repayment
Other
Total selling, general and administrative expenses¥ 10,111
40,571
53,746
2,964
15,677
14,692
25,254
13,773
4,264
52,273¥ 10,074
26,01349,3742,710
15,422
14,70624,75013,244
3,713
47,121¥ 233,325¥ 207,127

Research and development cost in general and administrative expenses for the year ended December 31,2011 and 2010
were ¥540 million and ¥365 million yen respectively.

14

11.

EXTRAORDINARY LOSSES
A.

Loss on disposal of non-current assets

The losses on disposal of non-current assets for the year ended December 31, 2011 and 2010 were as follows:
Millions of Yen
2011
2010
Tools, equipment and fixtures
Software
Other
Total loss on disposal of noncurrent assets

B.

¥ 195
942
19

¥ 113
261
28

¥ 1,157¥ 402

Loss on disaster

The loss on the Great East Japan Earthquake is presented as a loss on disaster for the year ended December 31, 2011 asfollows:
Millions of
Yen
2011

C.

Provision of allowance for doubtful accounts
Donations and other contributions
Repair-related expenses
Other

¥ 753
313
567
93

Total

¥ 1,725

Loss on business restructuring
The loss on the restructuring of credit card business was shown as a loss on business restructuring for the year ended
December 31, 2011 was as follows:
Millions of
Yen
2011

D.

Loss on sale of businessImpairment loss *Provision of allowance for doubtful accounts
Other¥ 48,862
14,231
11,8702,159

Total* Goodwill for Rakuten KC Co., Ltd. was fully impaired.

¥ 77,122

Provision of allowance for doubtful accounts

Provision of allowance for doubtful accounts consists of bad debt expense of ¥568 million and a provision of allowance for
doubtful accounts of ¥1,582 million recorded against advances paid as a result of customers’ insufficient funds arising fromrapid market change after the Great East Japan Earthquake.

15

E.

Loss on investment securities
The Company recognized a loss on write-down of the carrying value of shares in Tokyo Broadcasting System Holdings, Inc.
to the selling price ruled by the Tokyo High Court, net of legal expense and net interest received under Article 786,
paragraph 4 of the Corporate Law of Japan in the fiscal year ended December 31, 2010.
The individual amounts are as follows:
Millions ofYen
2010
Difference between carrying value and selling price
Legal expense
Interest received
Total

F.

¥2,64451(828)¥1,867

Impairment loss

The Rakuten Group recorded the following impairment losses in the year ended December 31, 2010:
Main assets for which impairment losses were recognized:
Unit

Business use

Net's Partners Co., Ltd.

Online supermarkets
business

Rakuten, Inc.

Advertising business

Rakuten Shashinkan, Inc.

Photography service
business

Rakuten KC Co. Ltd.

Idle assets

bitWallet, Inc.
―

Type of asset
Goodwill
Software and other
Goodwill
Software
Goodwill
Other
Telephone subscription
rightsOther
Long-term prepaid
expense
Other
Other

e-money business―
Total

Impairment loss
(Millions of yen)
¥303
150
150
117
155
57
106
55
115
36
58
¥1,303(A) Asset grouping method
The Rakuten Group generally groups its assets by business unit except for idle assets and real estate for rent, which areassessed by individual properties.
(B) Background information on recognition of impairment losses
a. Net's Partners Co., Ltd.
Impairment losses have been recorded concerning goodwill and software assets pertaining to this company, to reflect
its income position and future outlook, based on the business environment and the fact that initial income forecasts
seem unlikely to be achieved.
b. Rakuten, Inc.
Impairment losses have been recorded concerning goodwill and software assets pertaining to the Rakuten Pitatto Ad
service, which has been terminated.
c. Rakuten Shashinkan, Inc.
Impairment losses have been recorded concerning goodwill, etc., following a decision that it would not be possible torecover future earnings from the photography service business.
d. Rakuten KC Co., Ltd.
Impairment losses have been recorded in respect of communication lines shut down as a result of the consolidationand closure of outlets, and land, etc., the recoverability of which has been significantly reduced.
e. bitWallet, Inc.
Impairment losses have been recorded concerning assets provided to affiliated merchants, to reflect a decision thatthe value of these items is unlikely to be fully recoverable.

16(C) Method used to estimate recoverable amounts
The recoverable amount of business assets for which there are sales agreements has been calculated based on theagreed sale price.
The recoverable amount of a part of business assets has been calculated according to utility value, and estimated future
cash flows have been discounted by 8.99%. The recoverable amount of other business assets, idle assets and goodwill
are deemed to be zero.

12.

COMPREHENSIVE LOSS
Effectively on January 1, 2011, the Accounting Standard for Presentation of Comprehensive Income (ASBJ, Statement No.
25, June 30, 2010) was adopted.
Comprehensive income for the fiscal year ended December 31, 2010 consists of as follows:
Millions ofYen2010
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to minority interests¥ 35,804
500

Total

¥ 36,304

Other comprehensive income for the fiscal year ended December 31, 2010 consists of as follows:
Millions ofYen
2010
Valuation difference on available-for-sale securities
Deferred gains on hedges
Foreign currency translation adjustments
Share of other comprehensive loss of affiliates accounted forusing equity method¥ 4,063105(3,445)
(8)

Total

13.

¥ 715

CASH AND CASH EQUIVALENTS
The reconciliation between the year-end balance of cash and deposits stated in the consolidated balance sheets and cash
and cash equivalents stated in the consolidated statements of cash flows in the years ended December 31, 2011 and 2010
were as follows:
Millions of Yen
As of December 31

2011

2010

Cash and deposits
Securities
Time deposit over three months’ maturity
Due from foreign banks
Deposits with restrictions
Cash in trust¥ 88,990
76,600(12,358)(1,665)(1,214)(600)¥ 72,866
35,510(5,223)(1,699)(718)－

Cash and cash equivalents¥ 149,752¥ 100,737

17

14.

MAIN CONSOLIDATED ASSETS AND LIABILITIES OF THE COMPANY REMOVED FROM THE SCOPE OF
CONSOLIDATION THROUGH A SALE OF SHARES.
Rakuten KC Co., Ltd., was removed from the scope of consolidation by a sale of shares. Book value of assets and liabilities
which were removed from consolidated balance sheet and the proceeds from the sale were as follows.
Millions of
Yen
Current assets
Non-current assets
Current liabilities
Non-current liabilities(amount of loan receivables of the Company to the subsidiary forsale included in above liabilities)
Business transfer loss

¥ 93,402
8,620(22,893)(38,817)(Proceeds from the sale of shares of the subsidiary)(Proceeds from the sale of loan receivables of the Company tothe subsidiary)

4,450

50,000(48,862)
41,45037,000Cash and cash equivalents(8,461)

Net proceeds from sale of shares15.

¥ 32,989

LEASES - Lessee’s accounting
A.

Finance leases other than those which transfer ownership of the leased assets to the lessee

Finance leases other than those which transfer ownership of the leased assets to the lessee with commencement dates
before the effective date of the revised Accounting Standards for Leases continue to be accounted for as an operatinglease. Those leases for the years ended December 31, 2011 and 2010 are as follows;a. Acquisition cost and accumulated depreciation

VehiclesMachinery

Millions of Yen
2011
Tools,
equipment
and fixtures

SoftwareTotal

Acquisition costLess: Accumulated depreciation
Impairment loss－－－

¥ 2,6652,486
38¥ 3,046
2,569
12

¥ 174
167
1

¥ 5,885
5,222
51

Net amount

－

¥ 141

¥ 465

¥ 6

¥ 612

VehiclesMachinery

Millions of Yen
2010
Tools,
equipment
and fixtures

Acquisition costLess : Accumulated depreciation
Impairment loss

¥ 10
2
－

¥ 4,252
3,337
140¥ 6,4695,099
33

Net amount

¥ 8

¥ 775

¥ 1,337

18

Software

Total

¥

479
412
7

¥ 11,210
8,850
181

¥ 59

¥ 2,180

b. Obligations under finance leases:
Millions of Yen
2011
2010
Due within one year
Due after one year

¥ 498
168

¥ 1,797
569

Total

¥ 666

¥ 2,365

Payables from unexpired leases related to subleased items other than those listed above amount to ¥143 million and ¥793
million at December 31, 2011 and 2010, respectively.
c.

Lease payment, depreciation expense, deemed interest expense and other information under finance leases:
Millions of Yen
2011
2010
Lease payments
Reversal of impairment of leased assets
Depreciation expense
Deemed interest expense¥ 1,646
54
1,484
37

¥ 2,824
85
2,548
104

d.

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

B.

Finance leasea. Finance leases that transfer ownership
Description of leased assets
I. Tangible assets
These assets consist mainly of computer servers, etc. (tools, equipment and fixtures), used in the Internet
Services segment.
II. Intangible assets
These assets consist mainly of a SPAN (standard portfolio analysis of risk) system (software) for guarantee
funds used in the Internet Finance segment.
b. Finance leases that do not transfer ownership
Description of leased assets
I. Tangible assets
These consist mainly of computer servers (tools, furniture and fixtures) used in the Internet Services segment
and system-related equipment (tools, furniture and fixtures) in the Internet Finance segment.
II.

Intangible assets
These consist mainly of a front-end system (software) for foreign futures used in the Internet Finance.

c. Obligations under operation leases:
Millions of Yen
2011
2010
Due within one year
Due after one year
Total

19

¥ 999
2,835

¥ 897
3,231

¥ 3,833¥ 4,128

16.

LEASED ASSETS - Lessor’s accounting
Finance leases with commencement dates before the effective date of the revised accounting standards for leases other thanthose which transfer ownership of the leased assets to the lessee continue to be accounted for as an operating lease. Thoseleases for the years ended December 31, 2011 and 2010 are as follows;A.

Acquisition cost, accumulated depreciation of tools, equipment and fixtures
Millions of Yen
2011
2010
Acquisition costLess : Accumulated depreciation
Net amountB.

¥ 4,338
4,316¥ 5,474
5,424

¥ 22

¥ 50

The aggregate receivables from the lessees, which were not recorded on the books of account, as ofDecember 31, 2011 and 2010, were as follows:
Millions of Yen
2011
2010
Due within one year
Due after one year

¥ 6
0

¥ 31
8

Total

¥ 6

¥ 39

Receivables from unexpired leases related to subleased items other than those listed above amount to ¥146 million and¥796 million at December 31, 2011 and 2010, respectively.
C.

Receivables lease fees, depreciation and deemed interest income as of December 31, 2011 and 2010 were as follows:
Millions of Yen
2011
2010
Receivable lease fees
Depreciation
Deemed interest income

¥ 31
56
1

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

20

¥ 106
89
5

17.

FINANCIAL INSTRUMENTS
A. Matters pertaining to financial instruments
a. Matters pertaining to the status of financial instruments
I. Policy toward financial instruments
The investment policy of the Group calls for measures to ensure the security of principal and the efficient utilization offunds, giving due consideration to credit risk, market risk, liquidity risk and other forms of risk. The policy concerning
the raising of funds requires the selection of the most appropriate funding method, including direct or indirect
financing, based on prevailing economic conditions and other factors.
A certain subsidiary engaged in the banking business is mainly involved in deposit services, remittance services andloan services to individuals. It provides ordinary deposit services to both of individual and corporate customers, andtime deposit and foreign currency deposit services to individual customers. Using these financial liabilities as its main
source of funds, it also provides unsecured card loans and housing loans to individual customers, purchases
marketable securities and monetary claims bought, establishes monetary trusts, is engaged in market transactions,such as call loans, and undertakes derivative and foreign exchange transactions and other transactions that are
incidental to sales of financial instruments to customers. It remains constantly aware of the social responsibilities andpublic mission of bank and exercises strict prudence to avoid investment activities such as the pursuit of excessive
returns that exceed its managerial and financial capacity, it exercises particular diligence with regard to the security ofdeposits held on behalf of customers. It aims to optimize their asset and liability structures across their entire range ofinvestment and funding activities, and to maintain its capital adequacy at appropriate levels by applying asset andliability management (ALM), taking into account interest sensitivity, funding liquidity, market liquidity and other factors.
A certain subsidiary engaged in the securities business is primarily involved in stock brokerage services for individual
investors. Deposits and guarantee deposits received from customers are held in separate customer trust accounts,
etc., as required under the Financial Instruments and Exchange Act. It gives priority to security when investing funds,
which are placed in bank deposits and financial assets with high liquidity. It procures funds primarily by borrowing
from financial institutions.
The investment of funds by subsidiaries engaged in the consumer credit business (credit card purchases, installment,
credit guarantees and lending) is limited to short-term deposits, etc. These companies procure funds by borrowing
from banks and other financial institutions, and through direct finance in the form of issuance of commercial paperand securitization of receivables.
Transactions in derivatives are approached with caution. It is the policy of the Group that derivatives should not be
used as a speculative means of procuring income.
II. Description of financial instruments and risk profiles
The financial assets held by the Group consist mainly of installment receivables, operating loans, marketablesecurities, investment securities, and banking-related assets held by subsidiary engaged in the banking business, andsecurities business-related assets held by subsidiary engaged in the securities business.
Installment receivables and operating loans include card and loan receivables, consumer loans and secured loans,etc., held by subsidiary engaged in the consumer credit business, all of which are exposed to the credit risk anddefault risk of the respective debtors.
Marketable and investment securities include stocks and negotiable certificates of deposit, etc., which are exposed tomarket risk, risk of fluctuation in foreign exchange rate and other risks.
Banking-related assets include marketable securities and loan receivables, etc., relating to the banking business.
Marketable securities relating to the banking business consist primarily of stocks, Japanese government bonds,
municipal bonds, foreign securities and other marketable securities, as well as monetary claims bought. Marketablesecurities are exposed to the credit risk of respective issuers, and to interest rate fluctuation risk, market risk, risk offluctuation in foreign exchange rate and liquidity risk. Monetary claims bought consist mainly of beneficial interests intrust, which are exposed to credit risk of respective issuers and underlying assets, as well as interest rate fluctuation
risk and other types of risk. Loans relating to the banking business include unsecured card loans and housing loans to
individual customers. These are exposed to the credit risk of individual customers.
Assets relating to the securities business include cash segregated as deposits and margin transaction assets. Cashsegregated as deposits for securities business consists mainly of money in separate customer trust accounts which isinvested in bank deposits and it is exposed to credit risk of the respective institutions. Margin transaction assets are
exposed to credit risk of the respective customers.
Financial liabilities held by the Group consist mainly of loans and banking-related liabilities. Loans are exposed tovarious risks, including deterioration of financing terms with the financial institutions, resulting from changes in thecredit status of the Group and in the market condition.
Liabilities relating to the banking business consist of deposits, including ordinary deposits from individual andcorporate customers, time deposits and structured time deposits held by individual customers, and foreign currency
ordinary and time deposits. Structured time deposits are exposed to interest rate fluctuation risk, which is hedged byusing appropriate interest rate swap contracts. Foreign currency ordinary and time deposits are exposed to the risk offluctuation in foreign exchange rate, which is hedged by using appropriate forward exchange contracts.
Derivatives used by the Group are forward exchange contracts, interest rate swaptions, interest rate swaps, interest
rate caps, foreign exchange margin transactions, contracts for difference, commodity derivatives and derivatives
incorporated into hybrid financial instruments.
When dealing foreign exchange margin transactions, subsidiary engaged in the securities business handling over-thecounter derivatives transactions, hedges risks arising from their position in relation to the customer, in principle,
by obtaining full coverage for each position from counterparty. Contracts for difference are provided in the form of ASP

21

services, and in principal, the Group is not exposed to the risk of fluctuation in exchange rates or price fluctuation risk.
III. Risk management for financial instruments
The Group implements specific risk management processes and procedures as stipulated in risk management rules
formulated by each group company.
i) Credit risk management
Under its credit risk management rules, the Group manages credit risk by setting credit limits for individualtransactions, monitoring the credit status of customers, due dates and outstanding balances on regular basis andaims to achieve early detection and minimization of collection problems caused by deteriorating financial conditionof customers. Credit risk of derivative instruments is deemed negligible, since the Group deals with selectedfinancial institutions with high credit ratings. However, it is exposed to a risk of economic losses in the event of nonperformance by counterparties to the derivative instruments.
ii) Market risk management
Decisions concerning investments in financial instruments exposed to market risks, such as investment securities,
are made by the meeting of Board of Directors, and such investments are being monitored in accordance withspecific rules to ensure that they are valued appropriately. To limit losses on foreign currency denominatedreceivables for customer sales, the Group’s own positions are managed through position limit and loss limit andday-to-day monitoring of sales and other factors. For financial assets with fair value held by subsidiary engaged
primarily in the banking business, in principle, risk is measured according to the value-at-risk (VaR) method, basedon the most recent data available, and the results are used as amount of capital used to cover market risk. The
amount of capital used to cover credit risk on financial assets without fair value is measured by using the standard
calculation method for Pillar 1 (minimum capital adequacy ratio) of Basel II, as stipulated in Notification 19 (March
27, 2006) of the Financial Services Agency.
iii) Liquidity risk management
Liquidity risk relating to procurement of funds and other activities is managed through cash flow planning and othermeasures in accordance with the policy formulated by each group company, with the aim of maintaining
appropriate levels of liquidity at hand. Liquidity risk of investment securities and other assets is managed bykeeping the acquisition of such assets to the minimum and monitoring the financial condition of issuers.
Ⅳ. Quantitative information related to market riski) Management of interest rate risk
For subsidiaries engaged in the financial business, major financial assets subject to interest rate risk are mainly
securities for banking business, monetary claims bought, and loan receivables for banking business.
The financial liabilities subject to interest rate risk include ordinary deposits from individual and corporate
customers, time deposits and structured time deposits held by individual customers, foreign currency ordinary andtime deposits, and interest rate swaps.
A certain subsidiary engaged in the banking business calculates the fair value of these financial assets andliabilities and uses their net position(“Present Value”) for quantitative analysis in the management of interest rate
fluctuation risk.
Fluctuation in the Present Value is calculated by separating the applicable financial assets and liabilities into a fixedinterest group and a variable interest group, then allocating the balances among the corresponding accrual periods
and then applying the interest rate fluctuation applicable to each accrual period. As of December 31, 2011,
assuming that all risk variables other than interest rate risk are held constant, if all index interest rates rise by 10
basis points (0.1%), present value would decrease by ¥667 million; conversely, if all index interest rates fall by 10
basis points, present value would increase by ¥667 million. The correlation between interest rates and other risk
variables is not considered in the calculation of the effect, foreign-currency-denominated assets and liabilities aretranslated into Japanese yen using the exchange rates as of December 31, 2011 and the effect of negativeinterest rates in the case that interest rates fall by 10 basis points is not excluded from the calculation .
ii) Management of foreign exchange risk
For subsidiaries engaged in the financial business, major financial assets subject to foreign exchange risk aremainly securities denominated in foreign currency and foreign currency.
Financial liabilities subject to foreign exchange risk are mainly foreign currency ordinary and time deposits,
currency forward agreements, and foreign currency swaps. A certain subsidiary engaged in the banking businesscalculates the fair value of these financial assets and liabilities and uses their net position (“Present Value”) for
quantitative analysis in the management of foreign exchange risk.
Fluctuation in the Present Value is calculated by separating the applicable financial assets and liabilities intocurrency group, and then applying the foreign exchange rate fluctuation to each currency group. As of December
31, 2011, assuming that risk variables other than foreign exchange are held constant, if the yen appreciates by
10% against all other currencies, the present value would decrease by ¥22 million. Conversely, if the yen
depreciates by 10% against other currencies, the present value would increase by ¥22 million. The correlation
between exchange rates and other risk variables is not considered in the calculation of the effect, and thefluctuations in the Present Value denominated in foreign currency are translated into Japanese yen using theexchange rates as of December 31, 2011.

22

Ⅴ. Supplementary information concerning fair value of financial instruments and other matters
The fair value of financial instruments are recorded as market prices or prices reasonably estimated where market
price is not available. The valuation is based on certain assumptions, and the values may vary if it is based on
different assumptions. The contract value of derivatives in the note of derivatives does not in itself represent market
risk relating to the derivatives.

23

B. Matters pertaining to fair value financial instruments
The carrying amount of financial instruments as of December 31, 2011 and 2010, the fair value of those items, and thevariance between carrying amount and fair value is as follows. Items for which it would be extremely difficult to establish
fair value are not included in the following table. (See Note 2.)
Millions of Yen
December 31, 2011

Carrying Value

1) Cash and deposits

Fair Value¥ 88,990¥ 88,990¥ －65,224430

87,71886,550(1,168)207,503

207,503－

115,634

115,634－

66,697

13,241

2) Accounts receivable-installment

66,219Allowance for doubtful accounts(1,426)64,7933) Beneficial interests in securitized assets

Variance

88,960Allowance for doubtful accounts(1,242)

4) Cash segregated as deposits for securities
business
5) Margin transactions assets for securities
business6) Operating loans

62,387

Allowance for doubtful accounts(8,931)53,4567) Marketable and investment securities
1. Trading securities

139

139

－

2. Held to maturity securities

1,004

1,003

(0)

3. Available-for-sale securities

80,96080,960－4. Stocks in subsidiaries and affiliates

5,072

6,350

1,278

8) Securities for banking bushiness
1. Marketable securitiesi ) Held-to-maturity debt securities

19,26919,828559ii) Available-for-sale securities

300,145

300,145－

218,30727

153,932

156,227

2,295¥ 1,396,893¥ 1,413,555¥ 16,662

1) Deposits for banking business

741,501

741,9222) Short-term debts

130,722

130,722420－3) Deposits received for securities business

139,483

139,483

2. Monetary claims bought

218,305

Allowance for doubtful accounts(26)

218,279
9) Loans for banking business

155,678

Allowance for doubtful accounts(1,746)

Total assets

4) Margin transactions liabilities for securities
business5) Guarantee deposits received for securities
business6) Borrowings secured by securities forsecurities business
7) Long-term debts
Total liabilities
Derivatives－－

38,23038,23079,81879,81828,73528,735

190,747

190,720(27)¥ 1,349,236¥ 1,349,629

¥ 393

5,445

5,445

－

91

(1,022)(1,113)¥ 5,536¥ 4,423¥ (1,113)－－*1

1. Items not applicable under hedge
accounting criteria
2. Items applicable under hedge accounting
criteria
Total derivatives

24Millions of Yen
December 31, 2010

Carrying Value

1) Cash and deposits

Fair Value¥ 72,866¥ 72,866¥ －96,9782,671

63,63964,265626

223,114

223,114－

126,779

126,779－

153,350

10,1342) Accounts receivable-installment

100,909

Allowance for doubtful accounts(6,602)

94,3063) Beneficial interests in securitized assets

Variance

66,601

Allowance for doubtful accounts(2,963)

4) Cash segregated as deposits for securities
business
5) Margin transactions assets for securities
business6) Operating loans

156,950

Allowance for doubtful accounts(13,733)

143,2167) Marketable and investment securities
1. Trading securities

91

91

－

2. Available-for-sale securities

91,97091,970－3. Stocks in subsidiaries and affiliates

4,828

8,191

3,363

8) Securities for banking bushiness
1. Marketable securitiesi ) Held-to-maturity debt securities

11,08911,523434ii) Available-for-sale securities

337,539

337,539－

185,300

167

2. Monetary claims bought

186,366

Allowance for doubtful accounts(1,233)

185,134
9) Loans for banking business

125,881

Allowance for doubtful accounts(1,432)

124,449

126,292

1,843¥ 1,479,021¥ 1,498,258¥ 19,237

1) Deposits for banking business

713,273

714,4821,2092) Short-term debts

180,439

180,439－3) Deposits received for securities business

145,973

145,973－

55,32955,329－77,77377,773－32,77532,775－

Total assets

4) Margin transactions liabilities for securities
business5) Guarantee deposits received for securities
business6) Borrowings secured by securities forsecurities business
7) Long-term debts
Total liabilities

127,483

127,477(6)¥ 1,333,044¥ 1,334,248¥ 1,204

5,849

5,849

－

(353)

(1,300)(947)¥ 5,496¥ 4,549¥ (947)

Derivatives*1
1. Items not applicable under hedge
accounting criteria
2. Items applicable under hedge accounting
criteria
Total derivatives*1. Net amount of receivables and liabilities

25

Note 1: Items pertaining to the calculation of fair value of financial instruments, and marketable securities and derivatives
Assets1) Cash and deposits
Since these items are mostly settled in a short period of time, their fair value approximates their book value
including the fair value of deposits with no maturity date.
2) Accounts receivable-installment
The fair value of accounts receivable-installment is measured by discounting future cash flows for each unit that is
expected to generate similar cash flows based on product type and customer profile, by the rate of return expectedby the market. Since receivables with a maturity date within one year or less will be settled in a short period of time,
their fair value approximates their book value.
3) Beneficial interests in securitized assets
The fair value of beneficial interests in securitized assets is measured by each securitization scheme. The fairvalue of subordinated beneficial interests with maturity greater than one year is measured by discounting future
cash flows of each unit expected to generate similar cash flows, based on product type and customer profile, by therate of return expected by the market. Since subordinated beneficial interests with a maturity date within one year
or less will be settled in a short period of time, their fair value approximates their book value. The fair value ofmoney trusts, which are cash reserved at the start of securitization schemes, approximates their book value.
4) Cash segregated as deposits for securities business and,
5) Margin transactions assets for securities business
Since these items are settled in a short period of time, their fair value approximates their book value.
6) Operating loans
The fair value of operating loans is measured by discounting future cash flows of each unit that is expected togenerate similar cash flows, based on product type and customer profile, by the rate of return expected by themarket. The amount of doubtful accounts is estimated for operating loans that are deemed unrecoverable such as
re-contract loans and delinquent loans. Accordingly, their fair value is stated at the carrying amount as of balance
sheet dates, net of the allowance for doubtful accounts. Since operating loans with a maturity date within one year
or less are settled in a short period of time, their fair value approximates their book value.
7) Marketable and investment securities
The fair value of stocks is based on quoted prices on stock exchanges. Since negotiable certificates of deposit are
settled in a short period of time, their fair value approximates their book value. Please refer to the notes “Securities”,
for information by each category of securities.
8) Securities for banking bushiness
The fair value of stocks is measured at quoted price on stock exchanges and the fair value of bonds is measured ateither quoted price on stock exchanges or quoted prices by the financial institutions trading the bonds. The fairvalue of mutual funds is stated at using constant value. The fair value of certain corporate bonds is stated at thereasonably estimated value of underlying assets
Since it is deemed that market prices do not represent fair value of the floating-rate Japanese Government Bonds,
these are stated at reasonably estimated value. On this basis, in comparison with statement at market value, thefair values of securities for the banking business and the valuation differences on available for sale securities are
increased by ¥1,248 million and ¥803 million, respectively, and the fair value of deferred tax assets is decreased by¥445 million as of December 31, 2011, securities for the banking business, valuation differences on available forsale securities and deferred tax liabilities increased by ¥5,215 million, ¥3,093 million and ¥2,122 million,
respectively as of December 31, 2010.
Floating-rate Japanese’s Government Bonds were previously stated at market value in the consolidated balance
sheets. However, as a result of examination of recent market conditions, the Company determined that the market
value can no longer be regarded as a fair value. Therefore, the bonds are stated at reasonably estimated value inthe balance sheets as of the end of the current fiscal year. As a result of the change, securities for banking
business increased and valuation difference on available-for-sale securities increased by ¥1,248 million and ¥803
million, respectively
The estimated value of floating-rate Japanese Government Bonds is the sum of present value of future interest
payments based on the forward curve of Japanese Government Bonds and the present value of principle payment
at maturity (after adjustment for convexity). The major variables used to estimate their value are the Japanese
Government Bond yields and the volatility of 10-year interest swaptions.
For monetary claims bought, trust beneficiary rights with multiple claimholders that are divided qualitatively into
preferred, subordinate, and other classes are stated at quoted prices from financial institutions. The fair value ofother monetary claims bought is calculated using the same method as the one described in “Loans for banking
business” below as of December 31, 2011.
Please refer to the notes “Securities for banking business” for information by each category of securities held bybanking subsidiary.

269) Loans for banking business
The fair value of fixed rate loans is measured by discounting future cash flow of principal and interest payment byinterest rates that would be offered for new loans for each category of loan based on loan type and period. The fairvalue of loans with maturity date within one year or less approximates their book value due to their short maturity.
The allowance for doubtful accounts is estimated for loans to bankrupt debtors, substantially bankrupt debtors anddoubtful debtors based on the estimated amount recoverable through collateral and guarantees. Accordingly, fairvalue of those loans approximates their carrying amounts, net of allowance for doubtful accounts, as of balance
sheet date,
Liabilities
1) Deposits for banking business
The fair value of demand deposits is measured at the amount payable if payment was demanded at balance sheet
date (book value). The fair value of time deposits is measured at the present value of future cash flows by eachcategory based on their maturity. The discount rate used is the interest rate that would be offered for new deposits.
The fair value of deposits with a maturity date within one year or less approximates their book value due to theirshort maturity
2) Short-term debts
Short-term debts include short-term bank loans and long-term bank loans due within one year or less. Since thesedebts are settled in a short period of time, the fair value of those debts approximates their book value.
3) Deposits received for securities business,
4) Margin transactions liabilities for securities business,
5) Guarantee deposits received for securities business and,
6) Borrowings secured by securities for securities business
Since these items are settled in a short period of time, their fair value approximates their book value.
7) Long-term debts
The fair value of long-term debt is measured by each category of debts. Because debts subject to variable interest
rates reflect market interest rates in a short period, and because there has been no significant change in the
Company’s credit situation since the debts were incurred, fair value approximates book value. The fair value ofdebts subject to fixed interest rates is measured by discounting future cash flows by the rates of return expected by
the market. The fair value of long-term debts being accounted for by the special method permitted for interest rate
swaps are measured using the variable interest rates without applying the interest rate swaps. Accordingly, it ismeasured at the book value.
Derivatives
Please refer to the notes “Derivatives”.
Note 2: Financial instruments whose fair value is extremely difficult to determine
Millions of Yen
Balance sheet amount
2011
2010
Available-for-sale securities
Unlisted equity securities
Unlisted foreign securities
Deemed securities
Other
Stocks in subsidiaries and affiliates¥ 2,628
70
－
395
9,327

¥ 1,465
76
16
440
5,954

Total

¥ 12,420¥ 7,950

Since there are no market prices for the above items, it is extremely difficult to determine fair value. Accordingly, these items
are not included in “7) Marketable and investment securities ” or “8) Securities for banking business.”

27

Note 3: Schedule of redemption of monetary claims and marketable securities with a maturity date.
Millions of Yen
1 year or less

December 31, 2011
Cash and deposits*2*3

Accounts receivable-installment
Beneficial interests in securitized assets
Operating loans*4

Over 1 year to
5 years

Over 5 years toOver 10 years
10 years¥ 87,709

¥－

¥－

¥－

50,51180,09826,156

10,821
8,861
20,187

1,882
－
1,306

600
－
294

76,650

502

502

－

－
54,26924,91023,624

11,069123,122
148,835
57,1268,200
109,11136,813
41,902

－
9,222
7,747
32,256¥ 423,928¥ 380,523¥ 199,717¥ 50,120

Marketable and investment securities
Available-for-sale maturity securities
Securities for banking bushiness
Marketable securities
Held-to-maturity debt securities
Available-for-sale maturity securities
Monetary claims bought
Loans for banking business*5
Total

Millions of Yen
1 year or less

December 31, 2010
Cash and deposits*2*3

Accounts receivable-installment
Beneficial interests in securitized assets
Operating loans*4

Over 1 year to
5 years

Over 5 years toOver 10 years
10 years¥ 72,118

¥－

¥－

¥－

55,567
51,10149,85041,666
15,50084,593

－
－
235

－
－
266

35,50050－－－
46,54330,361
26,106

11,089123,339
74,16948,901－106,077
72,52831,096－57,267
9,308
19,008¥ 367,147¥ 399,307¥ 209,936¥ 85,849

Marketable and investment securities
Available-for-sale maturity securities
Securities for banking bushiness
Marketable securities
Held-to-maturity debt securities
Available-for-sale maturity securities
Monetary claims bought
Loans for banking business*5
Total*1 The amount scheduled for redemption is based on the carrying amount in the consolidated balance sheets.
Monetary claims with maturity date within one year or less are excluded.
*2 Cash and deposits with restrictions are not included in cash and deposits.
*3 Accounts receivable-installment do not include ¥2,405 million and ¥3,676 million with no due date at December 31, 2011
and 2010, respectively.
*4 Operating loans do not include operating loans of ¥7,004 million and ¥5,572 million which are deemed unrecoverableand ¥7,440 million and ¥16,433 million with no due date at December 31, 2011 and 2010, respectively.
*5 Loans for banking business does not include loans to bankrupt debtors, substantially bankrupt debtors and doubtful
debtors of ¥770 million and ¥770 million at December 31, 2011 and 2010, respectively.

28

Note 4: Payment schedule of deposits for the banking business and long-term debts
Millions of Yen
December 31, 2011
Deposits for banking
business*1
Long-term debts
Total

1 year or lessOver 1 year Over 2 years Over 3 years Over 4 years
to 2 years
to 3 years
to 4 years
to 5 years

Over 5years¥ 619,981¥ 23,558¥ 11,496¥ 5,763¥ 4,459¥ 76,245－

62,10849,69531,92625,511

21,505¥ 619,981¥ 85,667¥ 61,191¥ 37,689¥ 29,970¥ 97,750

Millions of Yen
December 31, 2010
Deposits for banking*1business
Long-term debts
Total

1 year or lessOver 1 year Over 2 years Over 3 years Over 4 years
to 2 years
to 3 years
to 4 years
to 5 years

Over 5years¥ 608,072¥ 23,661¥ 14,130¥ 9,106¥ 6,156¥ 52,148－

62,95042,371

15,7686,386

7¥ 608,072¥ 86,612¥ 56,501¥ 24,874¥ 12,542¥ 52,155*1 Deposits for the banking business include demand deposits in maturities of one year or less.

18.

SECURITIES
A. Securities
a. Held to maturity securities with fair value at December 31, 2011 were as follows:
Millions of Yen
December 31, 2011
JGB, local government bonds and others

Value on balance
sheets¥ 1,004

Total¥ 1,003

Unrealized
losses¥ 0¥ 1,003¥ 0

Fair value¥ 1,004b. The acquisition costs, unrealized gains and losses and aggregate fair value of marketable securities at December 31,
2011 and 2010 were as follows:
Millions of Yen
Unrealized
gains

Cost
December 31, 2011

Unrealized
lossesValue onbalancesheetsMarketable securities classified as
Trading

¥

－

¥

－

¥

5

¥

139

Available-for-sale
Equity securities

2,544

2,101

335

4,310

Other

76,6500－76,65029Millions of Yen
Unrealized
gains

Cost
December 31, 2010
Marketable securities classified as
Trading
Available-for-sale
Equity securities
Other

¥

－
51,28535,515¥

Value onbalancesheets

Unrealized
losses

¥

－
5,332
－

1

¥

157
4

91
56,45935,510Note:
1. The acquisition values shown above are the amounts after adjustment for impairment losses. A valuation loss on
investment securities of ¥100 million and ¥165 million were recognized in fiscal 2011 and 2010, respectively.
2. Impairment loss is recognized if the fair value is less than 50% of the acquisition cost. If the fair value is less than theacquisition cost by an amount between 30% and 50% of the acquisition cost, impairment loss is recognized as deemednecessary in consideration of the recoverability of the impairment.
c. The total value of available-for-sale securities sold during the fiscal year ended December 31, 2011 and 2010 were as
follows:
Millions of Yen
2011
2010
Amount soldTotal gains
Total losses¥ 84,573
3－¥ 68,571
50

B. Securities for banking bushinessa. Trading securities at December 31, 2011 and 2010 : Noneb. Held to maturity securities with fair value at December 31, 2011 and 2010 were as follows:
Millions of Yen
December 31, 2011
Local government bonds
Other securities

Value on balance
sheets¥ 7,069
12,200Total¥ 19,269

7,145
12,683

Unrealized
gains
¥ 76
483

¥ 19,828¥ 559

Fair value¥

Millions of Yen
December 31, 2010
Local government bonds
Other securities

Value on balance
sheets¥ 7,089
4,000

Total

¥ 11,089

30

7,193
4,330

Unrealized
gains
¥ 104
330

¥ 11,523¥ 434

Fair value¥

c. The costs, unrealized gains and losses and aggregate fair value of marketable securities for banking business at
December 31, 2011 and 2010 were as follows:

December 31, 2011

Cost

Millions of Yen
Unrealized
Unrealized
gains
lossesValue onbalance

Available-for-sale
Bonds
JGB
Short-term corporate bondCorporate bonds
Others¥ 139,537
7,496
24,979329,275¥ 1,519
0
129
3,080

¥

24
2
31
1,974

¥ 141,032
7,494
25,077
330,381

Total¥ 501,287¥ 4,728¥ 2,032¥ 503,984

Millions of Yen
Unrealized
Unrealized
gains
lossesValue onbalance

December 31, 2010

Cost

Available-for-sale
Bonds
JGB
Short-term corporate bondCorporate bonds
Others¥ 151,593
18,395
19,767305,202¥ 3,259
0
139
3,588

¥

204
2
114
1,501

¥ 154,647
18,393
19,792
307,290

Total¥ 494,957¥ 6,986¥ 1,820¥ 500,122

Notes:
1. If the fair value of an available-for-sale security for which fair value accounting applies has declined by 50% or more fromthe purchase cost, then, in the absence of any reasonable evidence to the contrary, such decline in value will be regarded
as material to the extent that recovery cannot be expected. The security will be reported on the consolidated balance
sheets at the corresponding fair value, and the valuation differences will be treated as an impairment loss in the same
consolidated fiscal year. Furthermore, if the fair value has declined by less than 50%, but has depreciated by at least
30%, an assessment is made of the likelihood that the asset will recover its fair value and any required losses for
impaired assets will be recorded. Impairment losses of ¥2,169 million and ¥3,317 million were recognized in fiscal 2011
and 2010, respectively.
2. An amount of ¥100 million was reflected in the income statement due to the treatment of embedded derivatives as part ofa hybrid security in fiscal 2010.
d. Other securities sold during the fiscal 2011 and 2010 were as follows:
Millions of Yen
2011
2010
Amount soldTotal gains
Total losses¥ 37,744
1,170
339

31

¥ 32,074
323
134

19.

DERIVATIVES
A. Derivatives that do not qualify for hedge accounting
a. The fair value of foreign currency transactions as of December 31, 2011 and 2010 were as follows:
Millions of Yen

December 31, 2011
Type of party

Valuation gains

Contract
value

Fair value

Short positions¥ 113,528¥ 6,333¥ 6,333

Long positions

21,598

(165)

(165)

Short positions

21,433－－

Long positions

107,194－－

Short positions

33,852

12

12

Long positions

78,446(790 )(790)¥ 376,050¥ 5,390¥ 5,390

Type of trade(losses)

Foreign exchange margin trading
Customers

Foreign exchange margin trading
Counterparties

Foreign exchange forward contracts
OTC

Total

Millions of Yen

December 31, 2010
Type of party

Valuation gains

Contract
value

Fair value

Short positions¥ 143,842¥ 5,453¥ 5,453

Long positions

24,800

83

83

Short positions

24,883－－

Long positions

138,389－－

Short positions

35,946

109

109

Long positions

73,571107

107¥ 441,431¥ 5,752¥ 5,752

Type of trade(losses)

Foreign exchange margin trading
Customers

Foreign exchange margin trading
Counterparties

Foreign exchange forward contracts
OTC

Total

Notes:
Method for calculating fair value: The fair value of foreign exchange margin trading is calculated based on foreign currency
spot markets. The fair value of foreign exchange forward contracts is calculated based on foreign exchange futures
markets and trading prices submitted to financial trading institutions

32

b. Interest rate derivatives as of December 31, 2011 and 2010 were as follows:
December 31, 2011
Type of party

Millions of Yen
Type of trade

Contract value

Valuation gains

Fair value(losses)Interest rate swap options
OTC

Short positions¥ 92,895¥ 1,115¥ 1,115

Long positions

92,032(1,060 )(1,060)¥ 184,927

¥ 54

¥ 54

Total

December 31, 2010
Type of party

Millions of Yen
Type of trade

Contract value

Valuation gains

Fair value(losses)Interest rate swap options
OTC

Short positions¥ 74,147¥ 1,732¥ 1,732

Long positions

70,743(1,735 )(1,735)¥ 144,890

¥ (3)

¥ (3)

Total

Notes:
1. Interest rate swap transactions presented in this table were classified in groups including those with complex provisions.
2. Fair value was calculated using discount cash flow method, option pricing models and other means.
c. Commodity derivatives as of December 31, 2011 were as follows:
December 31, 2011
Type of party

Millions of Yen
Type of trade

Contract value

Valuation gains

Fair value(losses)Commodity rate swap options
OTC

Short positions

¥ 864

¥ 22

¥ 22

Long positions

864

(22 )

(22)

¥ 1,729

¥ 0

¥ 0

Total

Notes:
Estimates of fair value were based on the data submitted by trading institutions.
d. Other derivatives as of December 31, 2011 and 2010 were as follows:
December 31, 2011
Type of party

Millions of Yen
Type of trade

Contract value

Valuation gains

Fair value(losses)

Balance settlements
Customers

Short positions

¥ 377

¥ 5

¥ 5

Long positions

892

(20 )

(20)

Short positions

892

20

20

Long positions

377

(5 )

(5)

¥ 2,538－－

Balance settlements
Counterparties

Total

33

December 31, 2010

Millions of Yen

Type of party

Type of trade

Contract value

Valuation gains

Fair value(losses)

Balance settlements
Customers

Short positions¥ 1,112¥ (50)¥ (50)Long positions

1,290

45

45

Short positions

1,290

(45)

(45)

Long positions

1,112

50

50

¥ 4,804－－

Balance settlements
Counterparties

Total

Notes:
Fair value was based on the closing market price on markets or exchanges that handle the given financial instruments.
B. Derivatives that qualify for hedge accounting
a. The fair value of foreign currency transactions as of December 31, 2011 and 2010 were as follows:
December 31, 2011
Hedge
accounting
methodDeferredhedgeaccounting

Type of derivatives
Foreign exchange
forward contracts
transactions
Long positions

Millions of Yen
Main hedged
items
Foreigncurrencydenominatedprospective
transactions

Total

Contract
value

Appropriation
methodType of derivatives

Fair value¥ 21,948－¥ 91¥ 21,948－¥ 91

December 31, 2010
Hedge
accounting
methodContract
value over
one year

Millions of Yen
Main hedged
items

Contract
value

Contract
value over
one year

Fair value

Foreign exchange
forward contracts
transactions
Long positions

Accounts
payable-trade

Total

¥ 198

¥ 198
Notes:
Estimates of fair value were based on data submitted by financial trading institutions.

34－¥ (25)－¥ (25)

b. Interest rate derivatives as of December 31, 2011 and 2010 were as follows:
December 31, 2011
Hedge
accounting
methodType of derivatives

Millions of Yen
Main hedged
items

Contract
value

Contract
value over
one year

Fair value

Interest swaps
SpecialmethodFloating ratereceived, fixed ratepaidLong-term
borrowings andforeigncurrencydenominated
bonds

Total

¥ 63,404¥ 44,490¥ (1,113)¥ 63,404¥ 44,490¥ (1,113)

December 31, 2010
Hedge
accounting
methodType of derivatives

Millions of Yen
Main hedged
items

Contract
value

Contract
value over
one year

Fair value

Interest swaps
SpecialmethodFloating ratereceived, fixed ratepaidLong-term
borrowings¥53,900¥37,367¥(947)

Long-term
borrowings

20,833

12,500(327)¥74,734¥49,867¥(1,275)

Interest swap
Method usedin principle

Floating ratereceived, fixed rate
paid
Total

Notes:
Estimates of fair value were based on data submitted by financial trading institutions.

35

20.

RETIREMENT AND PENSION PLANS
Certain consolidated subsidiaries have a lump-sum retirement plan as a defined benefit plan, and also have a pension plan
as a defined contribution plan as of December 31, 2011. Tax-qualified pension plan was abolished on July 30, 2011
a. Information concerning retirement benefit obligation:
Millions of Yen
2011
2010
Projected benefit obligation
Fair value of plan assets
Unfunded retirement benefit obligation
Unrecognized actuarial loss
Unrecognized past service liability

¥ 274
－
－
－
－

¥ 3,921(2,948 )973
583
1

Allowance for retirement benefits

¥ 274

¥ 392

Notes:
Certain consolidated subsidiaries that have a retirement benefit plan use the simplified method for calculating retirement
benefit obligations.
b. Retirement benefit expense:
Millions of Yen
2011
2010
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gain
Amortization of past service liability
Other

¥ 106
45
(37)
88
(0)
46

¥ 143
78
(62)
140
(0)
53

Total retirement benefit expense

¥ 248

¥ 351

Notes:
1. Retirement benefit expense at consolidated subsidiaries using the simplified method is included in “Service cost.”
2. “Other” consists of contributions made to defined contribution pension at consolidated subsidiaries.
c. Basis for calculating retirement benefit obligations and others:

Allocation between fiscal years of the estimated amount of
retirement benefits
Discount rate
Expected rate of return on plan assets
Amortization period for past service liability
Amortization period for actuarial differences

2011

2010

Allocation
method based on
years of service
mainly 2.00%
mainly 2.00%
mainly 10 years
mainly 10 years

Allocation
method based on
years of service
mainly 2.00%
mainly 2.00%
mainly 10 years
mainly 10 years

Notes:The retirement benefit obligations are attributed to each period by the straight-line method over the estimated years ofservice of employees.
Because certain consolidated subsidiaries use a simplified method, the basic ratios are not disclosed.

36

21.

STOCK-BASED COMPENSATION PLANS
The Company has stock-based compensation plans as an incentive program for directors, auditors and employees of theCompany, subsidiaries and affiliates.
From 2001, in accordance with approval at shareholders’ meetings, the Company has granted stock acquisition rights andstock options to directors, auditors and certain employees of the Company, subsidiaries and affiliates. These options vest
over approximately two to four years and expire within ten years from the grant date. Some subsidiaries have the same typeplans.
The following is a summary of the Company's stock-based compensation:
Grant Date

April 30, 2002
July 14, 2003
August 29, 2003
September 7, 2004
December 15, 2005
February 13, 2006
April 20, 2006
December 14, 2006
January 19, 2009
February 12, 2010

Exercisable Period
From March 29, 2006
to March 27, 2012
From March 28, 2007
to March 26, 2013
From March 28, 2007
to March 26, 2013
From March 31, 2008
to March 29, 2014
From March 31, 2009
to March 29, 2015
From March 31, 2009
to March 29, 2015
From March 31, 2010
to March 29, 2016
From March 31, 2010
to March 29, 2016
From March 28, 2012
to March 26, 2018
From March 28, 2013
to March 26, 2019

Exercise Price

Number of outstanding
stock options
as of Dec.31 2011

¥ 11,000*

810

19,300*20,05027,500*1,810

75,500*35,63091,30054,410103,8482,000

101,000

30,00055,90011,50556,30033,05070,695

11,989* Exercise price has been adjusted to reflect the stock splits.
The following is a summary of Rakuten Securities, Inc.'s stock-based compensation:
Grant Date

Exercisable Period

September 15, 2005

From September 19, 2007
to September 18, 2012

ExercisePrice¥ 1,380,000

Number of outstanding
stock options
as of Dec.31 2011164

The following is a summary of FUSION COMMUNICATIONS' stock-based compensation:
Grant Date

July 12, 2001
June 29, 2002
June 30, 2003

Exercisable Period
From July 12 , 2001
to July 10, 2012
From June 29, 2004
to June 28, 2012
From July 1, 2005
to June 30, 201337

Exercise Price

Number of outstanding
stock options
as of Dec.31 2011

¥ 155,792

225

219,388425

219,388

90

The following is a summary of Net’s Partners Co., Ltd.’s stock-based compensation:
Grant Date

July 30, 2005
April 28, 2006

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

Exercise Price

Number of outstanding
stock options
as of Dec.31 2011

¥ 38,000

380

38,000120

The following is a summary of Dot Commodity, Inc.’s stock-based compensation:
Grant Date

July 1 , 2005
July 1 , 2006

Exercisable Period
From July 1 , 2007
to May 31, 2015
From July 1, 2008
to May 31, 201638

Exercise Price

Number of outstanding
stock options
as of Dec.31 2011

¥ 50,000

220

50,000250

22.

INCOME TAXESThe 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, 2011 and 2010.
The tax effects of significant temporary differences and tax loss carry forwards which resulted in deferred tax assets andliabilities at December 31, 2011 and 2010 were as follows:
Millions of Yen
2011
2010
Deferred tax assets:
Tax loss carry forwards
Excess of depreciation
Loss on valuation of investment securities
Excess of allowance for doubtful accounts
Reserve for points
Asset reconciliation
Impairment loss
Allowance for loss on interest repayment
Allowance for bonuses
Loss on valuation of investment securities for banking business
Other
Less valuation allowance¥ 74,637
1,764
－
6,035
6,268
6,676

¥ 55,398
2,493
20,462
4,421
5,144

－
－
1,088
2,410
4,500
(32,171 )

－
1,225
4,121
1,012
6,781
7,254
(57,196)

Total¥71,207¥51,115

Deferred tax liabilities:
Tax-deductible loss due to transfer of shares
Valuation difference on available-for-sale
Intangible fixed assets
Other¥ 7,568
1,767
6,732
910

¥ 8,465
4,542
6,189
530

¥ 16,976¥ 54,231¥ 19,726¥ 31,389

Total
Net deferred tax assets

Reconciliation of the difference between the statutory tax rate and the actual effective tax rate is not disclosed for the year
ended December 31, 2011 and 2010 due to the loss before income taxes and minority interests recorded for the year ended
December 31, 2011 and immateriality of the difference for the year ended December 31, 2010.
Subsequent changes in tax rates (after the consolidated balance sheet date) are as follows:
Income tax rates will change from fiscal year beginning on or after April 1, 2012, in accordance with the “Act for Partial
Amendment of the Income Tax Act, etc. for the Purpose of Creating a Taxation System Responding to Changes in SocioEconomic Structures” (Act No. 114 of 2011) and the “Act on Special Measures for Securing Financial Resources Necessary
to Implement Measures for Reconstruction following the Great East Japan Earthquake” (Act No. 117 of 2011), which were
promulgated on December 2, 2011. As a result, the effective statutory tax rates used in the calculation of deferred tax assets
and liabilities for the respective periods in which temporary differences are reversed are as follows:
Until December 31, 2012
January 1, 2013 to December 31, 2015
January 1, 2016 and after

41.00%
38.00%
36.00%As a result of these changes in the tax rates, deferred tax assets decreased by ¥1,424 million and deferred income taxes
presented as expenses in the financial statements for the current fiscal year increased by ¥1,669 million for the year ended
December 31, 2011.

39

23.

BUSINESS COMBINATION
In accordance with a resolution approved at a Board of Directors meeting on June 2, 2011, the Company entered into
agreements to transfer all of its shares and loan receivables of Rakuten KC Co., Ltd. (“Rakuten KC”) to J Trust Co., Ltd. (“JTrust”) and to succeed the Rakuten Card-related portion of Rakuten KC’s business to Rakuten Credit Co., Ltd. (“Rakuten
Credit,” a consolidated subsidiary) by means of an absorption-type company split. The transfer was carried out and thebusiness names of Rakuten KC and Rakuten Credit changed, to KC Card Co., Ltd. and Rakuten Card Co., Ltd. respectively
on August 1, 2011.
A. Sale of investments in a subsidiarya. Summary of transaction
i. Names and business of the subsidiary and the purchaser
Subsidiary: Rakuten KC (business description: legacy credit card, money card, and real estate businesses)
Purchaser: J Trust (business description: holding operations, debt purchasing operations)ii. Main reasons for sale
Rakuten KC, which conducts the credit card business in the Rakuten Group, is a “credit card company with an
Internet foundation” and its mainstay product, Rakuten Card, has been expanding through healthy growth both in thenumber of its membership and its usage.
However, the environment for the credit card business has been undergoing drastic changes, driven by factors suchas strengthened regulations related to the Money-Lending Control Law. In response, the Company is concentrating
more resources in the core Rakuten Card and related businesses, where synergy with group companies and future
growth are promising. For this purpose, the Company reorganized its credit card business and transferred the
Rakuten Card-related business to Rakuten Credit, a group subsidiary, in an absorption-type split. In order for the
Rakuten KC businesses after the split (legacy credit card, money card, and real estate) to keep operating smoothly,
they were transferred to J Trust, a company that possesses know-how in the consumer finance and real estatebusiness in the group.
iii. Date of divestiture (share transfer date)August 1, 2011
ⅳ. Legal form of the transaction and other information of the transactions
Business transfer through sale of shares and transfer of loan receivables

b. Summary of accounting treatment
In accordance with the Accounting Standard for Business Divestitures (ASBJ, Statement No. 7, issued December 26,2008), the Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business
Divestitures (ASBJ Guidance No.10., issued December 26, 2008), and the Accounting Standard for Consolidated
Financial Statements (ASBJ Statement No. 22, issued December 26, 2008), Loss on business transfer of ¥48,862
million was recognized as an extraordinary loss in the fiscal year ended December 31, 2011.
c. Business segment for applicable subsidiaries
Internet Finance segment
d. Approximate amounts of profit and loss pertaining to the divested businesses included in the consolidated statements ofincome for the fiscal year ended December 31, 2011 were as follows;.
Net sales¥10,756 million
Operating loss
¥ 1,170 million

40

B. Transactions under common control
a. Summary of transaction
i. Name and description of business
Rakuten KC’s business related to Rakuten Card businessii. Date of business combination
August 1, 2011iii. Legal form of business combination
An absorption-type company split in which Rakuten KC is the split company and Rakuten Credit is the successor
company.
ⅳ. Name of business after business combination
Rakuten Card Co., Ltd.
ⅴ. Summary and purpose of the transaction
See A. “Sale of investments in a subsidiary, a. Summary of transaction, ii. Main reasons for sale.”b. Summary of accounting treatment
The absorption-type company split was accounted for as a transaction under common control in accordance with the
Accounting Standard for Business Combinations (Corporate Accounting and Disclosure Division of Financial Services
Agency, issued December 26, 2008) and the Guidance on Accounting Standard for Business Combinations andAccounting Standard for Business Divestitures (ASBJ Guidance No.10., issued December 26, 2008).

C. Business combination resulting from acquisition
Business combination with Play Holdings Limiteda. Summary of business combinationi. Name and business of the acquired company
Name: Play Holdings Limited (“Play Holdings”) and its 10 subsidiaries
Type of business: Business management of an e-commerce website operator
ii. Main reasons for business combination
The Play Holdings, with its subsidiaries, operates an e-commerce website Play.com, and is the fourth largest ecommerce operator in the UK. With the acquisition of Play Holdings, the Company will have footprints in the UK, oneof the largest e-commerce markets in Europe, and Play Holdings will be a centerpiece for the Company’s European
business strategy along with the existing businesses in France and Germany.
iii. Date of business combination
October 3, 2011
ⅳ. Legal form of business combination
Share acquisitionⅴ. Name of company after business combination
Unchanged
ⅵ. Percentage of voting rights acquired
100.0%
ⅶ. Reason for determination of acquiring company
Rakuten, Inc. acquired all shares of Play Holdings by means of consideration in cash.

b. Period of the financial results of the acquired company which was included in the consolidated financial statements
From October 1 to December 31, 201141

c. Acquisition cost of the acquired company
Consideration in cash
Direct expenditure incurred for acquisition
Acquisition cost

¥2,916 million¥ 113 million¥3,029 million

d. Amount of goodwill recognized, cause of goodwill, amortization method and period
i. Amount of goodwill£33 million
ii. Cause of goodwill
The goodwill was recognized based on a reasonable estimate of the ability to generate excess earnings from futurebusiness development.
iii. Amortization method and period
The straight-line method and 20 years* Procedures for the purchase price allocation of Play Holdings are in progress on the date of submission of the
Securities Report (the Yukashoken-Hokokusho) to the Japanese government (March 30, 2012), the amount of goodwill issubject to change.
e. Assets acquired and liabilities assumed on the date of business combination
i. Assets
Current assets
Non-current assets
Total assets£30 million£35 million£64 million

ii. Liabilities
Current liabilities
Non-current liabilities
Total liabilities£65 million£ 8 million£73 millioniii. Estimated amount of effect on consolidated income statements if the business combination had been completed at
the beginning of the current fiscal year.
Net sales¥22,002 million yen
Net loss¥ 1,284 million* These estimates were calculated on the basis of Play Holding’s profit and loss for the period from January 1, 2011
to September 30, 2011. The estimated amount of effect was not audited.

42

24.

SEGMENT INFORMATIONThe Accounting Standard for Disclosures about Segments of an Enterprise and Related Information (ASBJ Statement No. 17,
March 27, 2009) and the Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and RelatedInformation (ASBJ Guidance No. 20, March 21, 2008) were adopted as of January 1, 2011. Segment information for the year
ended December 31, 2010 has been retrospectively applied of such a change in accounting standards for comparative
purposes.

A Segment
a. Reportable segment overview
The Rakuten Group, a provider of wide-range of internet related services, has aligned its businesses along two main axes,
Internet services and Internet financial services, and reports its financial results by three reportable segments: Internet
Services, Internet Finance, and Others.
The reportable segments of the Group are components for which discrete financial information is available and whose
operating results are regularly reviewed by the Board of Directors to make decisions about resource allocation and toassess performance..
Activities in Internet Services segment consist of the operation of e-commerce sites, including the Rakuten Ichiba Internet
shopping mall, travel booking sites, portal sites and other sites, as well as services based on these sites, such as advertisingand content.
Activities in Internet Finance segment involve internet banking and securities services via the Internet, credit card services,e-money services and other financial services.
Activities in Others segment mainly consists of IP telephony services and the management of a professional baseball team.
b. Calculation of Sales and Operating Income (Loss) by Segment
The accounting policies of the reportable segments are substantially the same as those described in the summary ofsignificant accounting policies in note 2 above. The presented sales and segment income or loss of reportable segments
are those before the elimination of inter-segment transactions except for certain consolidated subsidiaries. Segment income
or loss is calculated based on operating income after allocations of company-wide expenses. The Group does not allocate
its assets to the business segments.
Intersegment sales and intersegment transfers are recorded at based current market value.
c. Segment Sales, Segment Income (Loss), and Other Items.
Millions of Yen

December 31, 2011
Internet
Services

Internet
Finance

OthersTotal

Amount inconsolidated
Adjustments
financial*1statements
*2

Sales
Sales to customers
Intersegment
and transfers
Total sales
Segment income(loss)
Other items

sales¥ 219,985¥ 126,527¥ 33,389¥ 379,901

8,583

14,634786

228,568

141,161

65,783

13,326¥－¥ 379,901

24,003(24,003)－34,175403,903(24,003)379,901

1,142

80,251(8,907)

71,344

Depreciation
8,086
6,819
1,831
16,736198
16,934
Goodwill
21
447
170
638
7,225
7,863
amortization
Notes:
1. The ¥8,907 million adjustment to segment loss consists mainly of ¥7,225 million for goodwill amortization not allocated toreporting segments and ¥1,191 million for elimination of internal transactions.
2. Segment income has been reconciled to operating income in the consolidated income statements for the current fiscal year.

43December 31, 2010

Millions of Yen
Internet
Services

Internet
Finance

OthersTotal

Amount inconsolidated
Adjustments
financial*1statements
*2

Sales
Sales to customers
Intersegment sales
and transfers¥ 185,013¥ 125,629¥ 35,502¥ 346,144¥ －¥ 346,144

5,836

11,605960

18,401(18,401)－

Total sales

190,849

137,235

36,462364,546(18,401)

346,144

58,12812,012

194

70,334(6,568)63,766

Operating income(loss)
Other items

Depreciation
7,471
7,093
1,597
16,163650
16,813
Goodwill
21
234
170
426
6,652
7,078
amortization
Notes:
1. The ¥6,568 million adjustment to segment loss consists mainly of ¥6,652 million for goodwill amortization not allocated toreporting segments and ¥1,307 million for elimination of internal transactions.
2. Segment income has been reconciled to operating income in the consolidated income statements for the fiscal year.

B. Related Informationa. Products and Services
December 31, 2011

Sales to customers

Millions of Yen
Rakuten Ichiba

Rakuten Card

Rakuten Bank

¥ 85,921¥ 62,404¥ 35,223

OthersTotal¥ 196,353¥ 379,901

b. Geographical Segments
i. SalesDisclosure of sales by geographic segment is omitted because over 90% of the value of consolidated net sales is toexternal Japanese customers.
ii. Property, Plant and Equipment
Disclosure of property, plant and equipment by geographic segment is omitted because such assets are negligible, both
inside and outside Japan.
c. Major Customers
Disclosure of sales to major external customers is omitted because net sales to any customer do not exceed 10% ofconsolidated net sales.

44

C. Impairment Loss of Non-current Assets
Disclosure of impairment losses in the year ended of fiscal year 2011 is omitted because the value is negligible. As a result of
the credit card business reorganization in the Internet Finance segment, an impairment loss to goodwill of ¥14,231 million has
been recorded as an extraordinary loss for loss on business restructuring for the former Rakuten KC Co., Ltd..

D. Goodwill Amortization and Carrying Value
December 31, 2011

Millions of Yen
Internet Services Internet Finance

OthersTotal

Amortization *1¥ 4,472¥ 3,212¥ 164¥ 7,848

Carrying value *2

70,82041,452

2,792

115,064

Notes:
1. As stated in A-c “Segment Sales, Operating Income (Loss), Assets, Liabilities, and Other Reported items,” goodwill
amortization costs are included in the adjustments to operating income.
2. As stated in A-b “Estimation of Sales, Operating Income (Loss), Assets, Liabilities, and Other Reported items by Segment,”
the carrying value of goodwill is not included in reporting business segments because assets are not allocated to segments.

E. Negative Goodwill
In the Internet Finance segment, effective December 1, 2011, the issuance of Edy cards and Edy e-money by Toyota FinanceCorporate and their rights and obligations were transferred to the Group as a result of an absorption-type split. In conjunction
with this transfer, negative goodwill of ¥124 million was recognized.

45

25.

RELATED PARTY TRANSACTIONSTransactions during the years ended December 31, 2011 and 2010 with related party were as follows :December 31, 2011
Type ofrelated party

Name ofcompany or
personRelated party
in which major
shareholders
hold majorityof voting rights

CrimsonFootball
Club, Inc.

Millions of Yen
BalanceTotal
as ofamount ofDecembertransaction
31, 2011

Percentage ofvoting rights
held by major
shareholders

Description ofbusiness or
occupation

Type oftransaction

100%

Professional
football club
operator

Sponsor fee
and joint
appointment
as officer

December 31, 2010

¥ 236

¥ 17

Millions of Yen
BalanceTotal
as ofamount ofDecembertransaction
31, 2010

Type ofrelated party

Name ofcompany or
personPercentage ofvoting rights
held by major
shareholders

Related party
in which major
shareholders
hold majorityof voting rights

CrimsonFootball
Club, Inc.

100%

Professional
football club
operator

Sponsor fee

¥ 239

¥ 15

Executive

Atsushi
Kunishige－

Director

Trading of
stock

27

－

Description ofbusiness or
occupation

Type oftransaction

Note:
1. Hiroshi Mikitani, Chairman and CEO indirectly owns100% of voting rights in Crimson Football Club, Inc.
2. Sponsor fee is determined on an arm’s length basis.
3. The trading value of stock is determined based on an appraisal value by a third-party appraiser.

26.

AMOUNTS PER SHARE
Yen
Net assets
Net income (loss)
Basic
Diluted

2011

2010

¥ 17,390.59¥ 18,160.62¥ (86.80)－¥ 2,666.28
2,657.43

Yen
2011
Cash dividends applicable to the year

250.002010
200.00Net income per diluted share was not disclosed because of net loss per share for the fiscal year ended December 31,
2011.Basic net income per share is computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income
per share of common stock assumes full conversion of the dilutive stock options. Listed cash dividends per share
applicable to the respective years include dividends to be paid after the end of the year.

46

27.

SUBSEQUENT EVENT

A. Dividend
The following distributions of retained earnings at December 31, 2011 were approved at the Board of Directors’ meeting held
on February 13, 2012:
Millions of Yen
Year-end cash dividends, ¥250 per share¥ 3,284

B. Acquisition of Shares in Kobo Inc.
At an extraordinary meeting on November 9, 2011, the board of directors approved a resolution to acquire the shares of Kobo
Inc. (Toronto, Canada)(“Kobo”), a company that operates an e-books business in numerous countries throughout the world,
for the purpose of making Kobo a wholly owned subsidiary of the Company. The acquisition was completed by the payment
made on January 11, 2012.
a. Name and business description of company acquired, major reasons for business combination, effective date of businesscombination, legal form of business combination and name of business after combinationi. Name of company acquired: Kobo Inc.
ii. Business description: Sales and related activities of electronic readers and contentsiii. Reasons for combination:
Among its full-fledged ventures towards the eBook era that will be shortly upon us, the Company, by making Kobo into
a wholly owned subsidiary, will not only obtain the eBook reader product line under the Kobo eReader brand, it will alsoacquire a network, focused on North America and Europe, of rights holders including overseas publishers, retailvendors for the sale of specialty terminals, and original design manufacturers (ODMs). In addition, Kobo will strive for
integration of services between Kobo and existing worldwide e-commerce business of the Group as well as further
growth and expansion of its business.,. The Group aims to provide digital contents and new e-commerce transaction
services compatible with a variety of mobile devices to users throughout the world.
ⅳ. Effective date: January 11, 2012v. Legal form of business combination: Acquisition of shares
vi. Name of business after combination: No changeb. Detailed of Acquisition Costs
Consideration for the acquired share: maximum US$285 million* The funds for consideration were borrowed from financial institutions.
C. Introduction of share split and change in basic share trading unit
The Company, at the meeting of the Board of Directors held on February 20, 2012, adopted resolutions for a share split and achange in basic share trading unit.
a. Objective of share split and adoption of unit share system
Based on the "Action Plan for Consolidating Trading Units" released by the Japanese Stock Exchanges Conference inNovember 2007, the Company intended to increase the convenience of trading and liquidity of the Company’s publicly
traded shares by the 1:100 share split and adoption of unit share system changing basic share trading unit from one shareto one hundred shares.
There is no change in the investment unit required for the Company’s share as a result of the share split and the adoptionof unit share system,b. Ratio of share split
Split tone ordinary share into one hundred sharesc. Change in basic share trading unit
One hundred ordinary shares as one share trading unit
d. Date of share split and adoption of unit share system
July 1, 201247