Rakuten Reports First Half Earnings of Fiscal 2011

TOKYO--(BUSINESS WIRE)--Rakuten, Inc. (JASDAQ:4755):

The following information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Osaka Stock Exchange. This English summary translation is being provided for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with generally accepted accounting principles in Japan.

Rakuten, Inc. (JASDAQ:4755) today announced financial results for its first half ended June 30, 2011. Net sales in the first half grew steadily despite the short-term effect of the earthquake and related damage, amounting to ¥177,645 million for the period (8.2% year-on-year growth). Operating income was ¥29,211 million (up 3.4% year on year) after recording a ¥4,264 million provision as a result of recalculation on interest repayment prior to the reorganization of the Credit Card Business. Ordinary income was ¥29,017 million (up 5.4% year on year). All three results represent record-high results.

Income before income taxes, on the other hand, showed a net loss of ¥51,703 million as a result of the ¥81,380 million in extraordinary losses mainly from the restructuring of the Credit Card Business. Net income showed a loss of ¥41,346 million after realizing ¥13,828 million in deferred income taxes (compared with net income of ¥17,154 million in the same period of the previous year).

Qualitative Information, Financial Statements, etc.
1. Qualitative Information Concerning Consolidated Business Results
(1) Business Results for the Second Quarter of the Fiscal Year Ending December 31, 2011

During the first half (January 1 to June 30, 2011), the Japanese economy went into a temporary stall after the Great East Japan Earthquake, but then picked up as supply chain constraints eased. Looking forward, we see a recovery driven by a post-earthquake return in demand, although the risk of power shortages remains.

In the wake of the earthquake, shoppers are rediscovering the advantages of Internet shopping as something that allows purchase and delivery of essential articles without time or place constraints. Gross merchandise sales (GMS) for the Rakuten Group is recovering as well, making a generally quick return to pre-earthquake levels, while we see continued growth in our Internet Services as the behavioral shift in consumer purchases from “real” stores to the Internet gets even stronger.

Leveraging these conditions, the Rakuten Group aims for more user convenience and better consumer satisfaction, and has initiated such programs as expanded smart phone services and coupon-based flash marketing promotions. Our overseas expansion, which has accelerated since last year, includes the opening of an Internet shopping mall in Indonesia and entry into Brazil.

Internet Finance businesses took advantage of Group synergies to achieve continued growth. To focus resources on businesses related to Rakuten Cards, one of our core businesses, we decided in the first half to restructure the Credit Card Business. The essence of this restructuring is that the Rakuten Card-related business of Rakuten KC Co., Ltd. was transferred to Rakuten Credit Co., Ltd. in an absorption-type split. We also took other financial steps, including selling our Rakuten KC stock. (The absorption-type split and sale of stock came into effect on August 1, 2011.)

(2) Segment Information

The Rakuten Group is an integrated Internet service group with two core business areas: Internet Services and Internet Finance.

Since the first quarter of the fiscal year ending December 31, 2011, we have applied the 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 Related Information (ASBJ Guidance No.20, March 21, 2008). In accordance with this standard, we have identified three reporting segments: Internet Services, Internet Finance and Others. These segments represent the constituent units of the Rakuten Group for which we are able to obtain specific financial data. This segment information will be regularly reviewed as the basis for the assessment of business performance, and for decisions by the Board of Directors concerning the allocation of management resources. The composition of each segment is as described below.

• Internet Services

The flagship Rakuten Ichiba Internet shopping mall suffered a slowdown immediately after the earthquake, but then saw GMS quickly recover as customers realized the convenience of Internet shopping and made greater use of it for daily consumables. The E-Commerce Business promoted marketing including private sales, aggressively expanded services that leverage smart phones and social media, and made great efforts to enrich its listing of Rakuten Ichiba tenants and enhance delivery service. These efforts led to firm growth in unique users and number of orders, leading to another period of high growth with a 16.0% year-on-year rise in domestic e-commerce GMS.

In the Travel Business, a fuller set of products in the Dynamic Packages category and a marketing strategy making successful use of coupons and similar discounts overcame the effect of post-earthquake cancellations to achieve a 14.2% year-on-year increase in gross bookings. In overseas e-commerce, the Rakuten Belanja Online Internet shopping mall, an Indonesian joint venture with PT Global Mediacom Tbk, had its grand opening and Ikeda Internet Software LTDA, a leading e-commerce platform in Brazil, became a consolidated subsidiary in the first half.

These actions helped Internet Services to achieve healthy growth, with net sales rising to ¥99,434 million and operating income amounting to ¥28,543 million.

• Internet Finance

Rakuten Card membership applications from other Rakuten group services showed strong growth along with increased shopping transaction volume and healthy growth in the revolving shopping balance, leading to greater commission revenues. The Banking Business saw positive benefits from effective marketing programs to Rakuten members and solid growth in loan balances, leading to increased interest income from loans. In the Securities Business, we implemented planned enhancements to trading tools, but trading commission income did not develop as planned due to the post-earthquake mood in the stock market. Also during the first half, the Securities Business initiated programs to create synergies with financial services, such as Money Bridge, a service to link accounts between Rakuten Securities, Inc. and Rakuten Bank Co., Ltd.

As a result of the above, the Internet Finances segment reported ¥71,870 million in net sales. Segment results were affected by a ¥4,264 million provision as a result of recalculation of interest repayment prior to the reorganization of the Credit Card Business, but still achieved segment operating income of ¥4,318 million.

• Others

Rakuten began providing new IP telephony services, such as cloud telephony. Together with measures to reduce fixed costs and retroactive settlements on interconnect fees with other carriers, this generated a record high for operating income. However, as for pro-sports related business, the delayed opening of the baseball season reduced the number of official games in the first half, resulting in lower professional sports-related sales.

These factors led to net sales of ¥16,693 million and segment operating income of ¥167 million.

2. Qualitative Information about Consolidated Business Forecasts

In the year ending December 31, 2011, we expect the Great East Japan Earthquake to have a temporary impact, and we anticipate further expansion in the use of our services in Japan including e-commerce and travel, resulting in continued high growth. We will also actively develop our strategy to pursue growth in overseas markets, with the aim of expanding income streams in the medium- to long-term perspective. As for Internet Finance, many factors including financial markets and changes of business environments may affect its business performance, but we expect sustained growth in earnings generated by synergies within the Rakuten Group. We therefore aim to surpass our financial results for the year ended December 31, 2010 through continued efforts to improve existing services and create new ones. We do, however, think that net income for the fiscal year ending December 31, 2011, could possibly come to a net loss, on both a consolidated and unconsolidated basis. This is due to the extraordinary losses associated with the reorganization of the Credit Card Business, even though we expect operating income to be at the same level as the previous fiscal year.

In addition, Rakuten and its group businesses do not disclose earnings forecasts as its business operations include an Internet service business and a securities brokerage business, both of which are characterized by high volatility and uncertainty with regards to results. This precludes us from making earnings forecasts.

3. Other Information

(1) Application of the Accounting Standard for Equity Accounting Method, etc

Since the first quarter of the fiscal year ending December 31, 2011, we have applied the Accounting Standard for Equity Accounting Method (ASBJ Statement No.16, March 10, 2008) and the Present Treatment of Accounting Method for Equity Accounting Method for Affiliated Companies (ASBJ practical report No.24, March 10, 2008).

There is no impact on operating income, ordinary income and net quarterly income before income taxes and minority interests by this application.

(2) Application of the Accounting Standard for Asset Retirement Obligation, etc

Since the first quarter of the fiscal year ending December 31, 2011, we have applied the Accounting Standard for Asset Retirement Obligation (ASBJ Statement No.18, March 31, 2008) and the Guidance on the Accounting Standard for Asset Retirement Obligation (ASBJ Guidance No.21, March 31, 2008).

As a result of this application, although the impact on operating income and ordinary income is small, extraordinary losses by this application amounted to \382 million. Also, changes of the amount of Asset Retirement Obligation by this application amounted to \1,384 million.

(3) Change to Depreciation Method for Tangible Fixed Assets (Excluding Leased Assets)

In the past, Rakuten, Inc. and some of its consolidated subsidiaries applied the declining-balance method of depreciation to the tangible fixed assets (excluding leased assets) other than buildings (excluding ancillary facilities) acquired after April 1, 1998. Starting in the first quarter of the fiscal year ending December 31, 2011, we have switched to straight-line depreciation. The purpose of this change is to reflect the ways in which tangible fixed assets are used more appropriately in light of our overseas expansion, and to link the apportionment of costs more accurately to earnings.

As a result of this change, depreciation expenses has been reduced by ¥514 million while operating income, ordinary income and net quarterly income before income taxes and minority interests are all ¥514 million higher compared with the previous method.

(4) Allowance for Doubtful Accounts

In the first half Rakuten decided to restructure the Credit Card Business. The decision means that this business will shift to a business model based on unsecured credit and settlement operations conducted mainly over the Internet. In line with this change, we will conduct an organizational review of the credit control system, and concentrate more resources on recovery of first-time uncollected receivables. For long-term outstanding receivables, we have set up a collectibles system that aligns collection effectiveness and costs given the limited staffing after restructuring.

In connection with these policies, we have made additional provision to the allowance for doubtful accounts as a result of a review of loan classification and loan loss ratios.

Based on a review of these estimation methods, we have transferred ¥11,700 million to the allowance for doubtful accounts and recorded a corresponding extraordinary loss that had an equivalent negative effect on income before income taxes and contributed to the ¥6,900 million loss charged to net income.

(5) Allowance for Business Transfer Loss

As a result of transferring the Rakuten Card business of the Rakuten KC subsidiary, we recorded a prospective loss based on a reasonable cost estimate prepared in consideration of future likelihoods.

(6) Others

(1) Significant changes in scope of consolidation: No
(2) Adoption of simplified accounting procedures: No
(3) Changes to consolidated accounting rules and procedures concerning the preparation and presentation of the financial statements (major items that provide the basis for preparing financial statements)

Changes in accounting policy: Yes
Other changes: Yes

(4) Number of shares issued (Common stock)
1. Common stock (including treasury stock)

13,188,823 shares (Jun 30, 2011)
13,181,697 shares (Dec 31, 2010)

2. Treasury stock

60,079 shares (Jun 30, 2011)
60,079 shares (Dec 31, 2010)

3. Average number of shares issued during the 2nd Quarter Fiscal 2011 and the 2nd Quarter Fiscal 2010

13,125,565 shares (Jan 1 to Jun 30, 2011)
13,099,081 shares (Jan 1 to Jun 30, 2010)

First Half of Fiscal Year 2011 Financial Results
(1) Consolidated Balance Sheets
(Millions of yen)
	As of	As of
	June 30, 2011	December 31, 2010
(Assets）
Current assets
Cash and deposits	90,689	72,866
Notes and accounts receivable-trade	42,223	45,353
Accounts receivable-installment	108,370	100,908
Accounts receivable-installment sales-credit guarantee	2,310	2,465
Beneficial interests in securitized assets	58,701	66,601
Cash segregated as deposits for securities business	219,407	223,113
Margin transaction assets for securities business	131,195	126,779
Operating loans	147,617	156,949
Short-term investment securities	62,300	35,510
Securities for bank business	546,200	535,087
Loans and bills discounted for banking business	140,929	125,880
Deferred tax assets	50,299	13,340
Other	151,341	151,586
Allowance for doubtful accounts	(36,869)	(27,011)
Total current assets	1,714,718	1,629,432
Noncurrent assets
Property, plant and equipment	23,546	21,890
Intangible assets
Goodwill	112,693	127,455
Other	55,035	54,040
Total intangible assets	167,728	181,496
Investments and other assets
Investment securities	15,481	67,834
Deferred tax assets	1,027	25,458
Other	27,115	26,453
Allowance for doubtful accounts	(5,083)	(3,049)
Total investments and other assets	38,540	116,697
Total noncurrent assets	229,815	320,084
Total assets	1,944,534	1,949,516
(Liabilities)
Current liabilities
Notes and accounts payable-trade	35,007	36,835
Accounts payable-credit guarantee	2,310	2,466
Commercial papers	60,100	50,000
Short term loans payable	202,798	180,439
Deposits for banking business	723,850	713,272
Current portion of bonds	4,800	4,800
Income taxes payable	3,203	17,590
Deferred tax liabilities	91	2,716
Deposits received for securities business	147,653	145,973
Margin transaction liabilities for securities business	42,517	55,328
Guarantee deposits received for securities business	81,918	77,772
Payable secured by securities for securities business	37,676	32,775
Provision for loss on transfer of business	48,400	－
Other Provision	16,516	15,685
Other	172,096	208,103
Total current liabilities	1,578,940	1,543,759
Noncurrent liabilities
Bonds payable	3,153	5,553
Long-term loans payable	136,071	127,482
Deferred tax liabilities	4,659	4,693
Provision for loss on interest repayment	11,259	10,175
Other provision	414	393
Other	8,051	6,246
Total noncurrent liabilities	163,609	154,545
Reserves under the special laws
Reserve for financial products transaction liabilities	1,838	1,964
Reserve for commodities transaction liabilities	35	12
Total reserves under the special laws	1,873	1,977
Total liabilities	1,744,424	1,700,282
(Net assets)
Shareholders’ equity
Capital stock	107,872	107,779
Capital surplus	119,943	119,850
Retained earnings	(30,787)	13,183
Treasury stock	(3,625)	(3,625)
Total shareholders’ equity	193,403	237,187
Valuation and translation adjustments
Valuation difference on available-for-sale securities	2,697	6,000
Deferred gains or losses on hedges	0	(198)
Foreign currency translation adjustment	(3,080)	(4,693)
Total valuation and translation adjustments	(381)	1,108
Subscription rights to shares	1,070	957
Minority interests	6,017	9,979
Total net assets	200,110	249,233
Total liabilities and net assets	1,944,534	1,949,516

(2) Consolidated Income Statements
For the six months ended June 30, 2011
			(Millions of yen)
	Six months ended		Six months ended
	June 30, 2010		June 30, 2011
	(January 1 to June 30, 2010)		(January 1 to June 30, 2011)
Net sales		164,108		177,645
Cost of sales		35,578		36,151
Gross profit		128,529		141,494
Selling, general and administrative expenses	*1	100,281	*1	112,282
Operating income		28,247		29,211
Non-operating income
Interest income		45		23
Dividends income		93		134
Equity in earnings of affiliates		145		326
Foreign exchange gains		76		－
Other		393		333
Total non-operating income		754		818
Non-operating expenses
Interest expenses		788		730
Commission fee		337		91
Foreign exchange losses		－		36
Other		337		153
Total extraordinary losses		1,463		1,011
Ordinary income		27,539		29,017
Extraordinary income
Gain on step acquisitions		1,700		－
Gain on change in equity		－		173
Reversal of reserve for financial products transaction liabilities		763		125
Gain on sale of subsidiaries and affiliates’ stocks		－		351
Other		383		8
Total extraordinary income		2,847		658
Extraordinary loss
Impairment loss		152		－
Loss on disaster		－	*2	1,688
Loss on investment securities		1,866		－
Restructuring loss		－	*3	75,939
Bad debts written off		－	*4	2,209
Other		685		1,543
Total extraordinary losses		2,704		81,380
Income (loss) before income taxes and minority interests		27,682		(51,703)
Income taxes-current		11,054		3,530
Income taxes-deferred		(1,079)		(13,828)
Total income taxes		9,975		(10,297)
Loss before minority interests		17,707		(41,406)
Minority interests in income (loss)		552		(59)
Net income (loss)		17,154		(41,346)

For the three months ended June 30, 2011
(Millions of yen)
	Three months ended		Three months ended
	June 30, 2010		June 30, 2011
	(April 1 to June 30, 2010)		(April 1 to June 30, 2011)
Net sales		84,916		90,724
Cost of sales		17,752		18,187
Gross profit		67,163		72,536
Selling, general and administrative expenses	*1	51,902	*1	57,399
Operating income		15,261		15,137
Non-operating income
Interest income		14		12
Dividends income		79		118
Equity in earnings of affiliates		－		218
Foreign exchange gains		126		27
Other		219		123
Total non-operating income		440		500
Non-operating expenses
Interest expenses		380		364
Commission fee		319		76
Other		102		51
Total extraordinary losses		802		491
Ordinary income		14,899		15,146
Extraordinary income
Gain on step acquisitions		1,700		－
Gain on change in equity		－		173
Reversal of reserve for financial products transaction liabilities		766		135
Gain on sale of subsidiaries and affiliates’ stocks		－		351
Other		494		8
Total extraordinary income		2,961		669
Extraordinary loss
Loss on investment securities		1,866		－
Restructuring loss		－	*2	75,939
Other		340		1,009
Total extraordinary losses		2,206		76,948
Income (loss) before income taxes and minority interests		15,653		(61,132)
Income taxes-current		5,782		(2,399)
Income taxes-deferred		(523)		(9,991)
Total income taxes		5,258		(12,390)
Loss before minority interests		10,395		(48,742)
Minority interests in income (loss)		61		(480)
Net income (loss)		10,334		(48,261)

(3) Consolidated Statements of Cash Flows
(Millions of yen)
	Six months ended		Six months ended
	June 30, 2010		June 30, 2011
	(January 1 to June 30, 2010)		(January 1 to June 30, 2011)
Net cash provided by (used in) operating activities
Income (loss) before income taxes and minority interests		27,682	(51,703)
Depreciation and amortization		7,813	8,249
Amortization of goodwill		3,170	3,809
Increase (decrease) in allowance for doubtful accounts		(4,586)	186
Increase (decrease) in provision for loss on interest repayment		(1,976)	1,083
Loss on valuation of securities for banking business		749	803
Loss on securities for banking business		37	－
Loss on business restructuring		－	75,939
Other loss		2,901	741
Decrease (increase) in notes and accounts receivable-trade		1,264	3,163
Increase in accounts receivable-installment		(14,667)	(7,461)
Decrease in beneficial interests in securitized assets		7,382	7,899
Decrease (increase) in operating loans receivable		(2,615)	9,332
Decrease in notes and accounts payable-trade		(2,370)	(1,781)
Decrease in accounts payable-other and accrued expenses		(3,076)	－
Increase in advances received		1,772	－
Increase in deposits for banking business		6,529	10,577
Increase in call loans for banking business		(18,000)	(2,500)
Increase in cash loans and bills discounted for banking business		(8,697)	(15,048)
Decrease (increase) in operating receivables for securities business		(31,390)	4,103
Decrease in operating payable for securities business		(20,256)	(6,985)
Increase in loans payable secured by securities for securities business		19,880	4,901
Other, net		7,589	(3,994)
Subtotal		(20,861)	41,317
Payments for guarantee deposits for business operation		(4,341)	(333)
Proceeds from guarantee deposits for business operation		3,010	2,088
Income taxes paid		(12,685)	(19,653)
Other, net		(200)	－
Net cash provided by (used in) operating activities		(35,078)	23,418
Net cash provided by (used in) investing activities
Acquisition of securities for banking business		(200,919)	(163,398)
Proceeds from sales and redemption of securities for banking business		208,951	157,607
Proceeds from partial payment due to share purchase demand		8,875	－
Purchase of investments in subsidiaries		(17,488)	(273)
Proceeds from transfer of business		－	4,200
Purchase investments in subsidiaries resulting in change in scope of consolidation		－	(1,678)
Proceeds from purchase of investments in subsidiaries resulting in change in scope of consolidation		7,038	－
Purchase of property, plant and equipment		(3,109)	(2,028)
Purchase of intangible assets		(6,952)	(7,529)
Other payments		(6,214)	(8,838)
Other proceeds		3,920	4,496
Interest and dividends income received		596	276
Net cash used in investing activities		(5,302)	(17,166)
Net cash provided by (used in) financing activities
Net increase in short-term loans payable		62,878	27,812
Increase in commercial papers		28,900	10,100
Proceeds from long-term loans payable		45,400	55,350
Repayment of long-term loans payable		(39,996)	(52,207)
Redemption of bonds		(6,000)	(2,400)
Purchase of treasury stock of subsidiaries in consolidation		(29)	－
Interest expenses paid		(797)	(743)
Purchase of preferred stock of subsidiaries		－	(5,000)
Proceeds from stock issuance to minority shareholders		31	1,250
Cash dividends paid		(1,311)	(2,625)
Cash dividends paid to minority shareholders		(292)	－
Other, net		(12)	(846)
Net cash provided by financing activities		88,770	30,690
Effect of exchange rate change on cash and cash equivalents		(729)	399
Net increase in cash and cash equivalents		47,660	37,341
Cash and cash equivalents at beginning of period		103,618	100,736
Increase in cash and cash equivalents from newly consolidated subsidiary		680	898
Cash and cash equivalents at end of period		151,959	138,976

(4) Business Segment Information
For the six months ended June 30, 2010 (From January 1 to June 30, 2010)
(Millions of yen)
	E-Commerce	Credit Card	E-Money	Banking	Portal Media	Travel	Securities
Sales to customers	64,883	30,562	2,394	16,768	10,945	10,197	12,816
Intersegment sales	1,412	1,574	11	966	3,727	273	93
Total Sales	66,296	32,137	2,406	17,735	14,673	10,470	12,909
Operating Income (loss)	18,555	263	(350)	1,278	1,108	4,110	3,016

	Professional Sports	Telecommunications	Total	Eliminations	Consolidated
Sales to customers	3,773	11,764	164,108	－	164,108
Intersegment sales	254	71	8,385	(8,385)	－
Total Sales	4,027	11,835	172,493	(8,385)	164,108
Operating Income (loss)	(896)	589	27,676	571	28,247

For the three months ended June 30, 2010 (From April 1 to June 30, 2010)
(Millions of yen)
	E-Commerce	Credit Card	E-Money	Banking	Portal Media	Travel	Securities
Sales to customers	33,428	15,647	1,233	8,480	5,458	5,190	6,852
Intersegment sales	893	867	6	485	2,003	131	57
Total Sales	34,321	16,514	1,239	8,965	7,462	5,322	6,909
Operating Income (loss)	9,711	176	(159)	738	348	2,040	1,812

	Professional Sports	Telecommunications	Total	Eliminations	Consolidated
Sales to customers	2,890	5,734	84,916	－	84,916
Intersegment sales	134	44	4,623	(4,623)	－
Total Sales	3,024	5,779	89,539	(4,623)	84,916
Operating Income (loss)	302	59	15,030	230	15,261

For the Six Months Ended Jun 30 of Fiscal 2011（Jan 1 to Jun 30, 2011）

The Rakuten Group is an integrated Internet service group with two core business areas: Internet Services and Internet Finance.

Since the first quarter of the fiscal year ending December 31, 2011, we have applied the 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 Related Information (ASBJ Guidance No.20, March 21, 2008). In accordance with this standard, we have identified three reporting segments: Internet Services, Internet Finance and Others. These segments represent the constituent units of the Rakuten Group for which we are able to obtain specific financial data. This segment information will be regularly reviewed as the basis for the assessment of business performance, and for decisions by the Board of Directors concerning the allocation of management resources. The composition of each segment is as described below.

Internet Services

Activities in this segment consist of the operation of e-commerce sites, including the Rakuten Ichiba Internet shopping mall, travel sites, portal sites and other sites, as well as activities based on these sites, such as advertising and content.

Internet Finance

Activities in this segment involve the provision banking and securities services via the Internet, credit card services, e-money services and other services.

Others

This segment consists of the provision of IP telephony services and the management of a professional baseball team.

For the six months ended June 30, 2011 (From January 1 to June 30, 2011)
(Millions of Yen)
	Reporting Segment				Adjustment (Note 1)	Amount shown in quarterly consolidated statements of income (Note 2)
	Internet Services	Internet Finance	Others	Total
Sales	99,434	71,870	16,693	187,999	(10,353)	177,645
Segment Operating Income	28,543	4,318	167	33,028	(3,817)	29,211

Notes

1. The ¥3,817 million negative adjustment to segment income or losses consist mainly of a negative figure of ¥3,775 million for goodwill amortization that has not been allocated to the reporting segments, and a positive figure of ¥789 million for the elimination of internal transactions.

2. Segment income or losses are reconciled to operating income in the quarterly statements of income.

For the three months ended June 30, 2011 (From April 1 to June 30, 2011)
(Millions of Yen)
	Reporting Segment				Adjustment (Note 1)	Amount shown in quarterly consolidated statements of income (Note 2)
	Internet Services	Internet Finance	Others	Total
Sales	50,999	35,827	9,350	96,178	(5,454)	90,724
Segment Operating Income	15,888	656	685	17,230	(2,092)	15,137

Notes

1. The ¥2,092 million negative adjustment to segment income or losses consist mainly of a negative figure of ¥1,894 million for goodwill amortization that has not been allocated to the reporting segments, and a positive figure of ¥489 million for the elimination of internal transactions.

2. Segment income or losses are reconciled to operating income in the quarterly statements of income.

(Note) Consolidated Financial Statements
		(Millions of yen)
For the six months ended June 30, 2010		For the six months ended June 30, 2011
(From January 1 to June 30, 2010)		(From January 1 to June 30, 2011)
*1 The breakdown of selling, general and administrative expenses is as follows.		*1 The breakdown of selling, general and administrative expenses is as
Point Costs	5,192	follows.
Advertisement and promotion expenses	12,070
Personnel expenses	22,701	Point Costs	5,268
Provision for bonuses	2,214	Advertisement and promotion expenses	14,540
Depreciation	7,073	Personnel expenses	25,300
Communications and Maintenance expenses	7,190	Provision for bonuses	2,425
Outsourcing expenses	12,041	Depreciation	7,634
Expenses for doubtful accounts	8,858	Communications and Maintenance expenses	7,416
		Outsourcing expenses	12,023
		Expenses for doubtful accounts	9,002
		Reserve for loss on interest repayments	4,264
__________________		*2 The effects of the Great East Japan Earthquake are shown as disaster-related losses. They consist of the following items.
		Provision for Doubtful accounts	790
		Donations	305
		Repair-related expenses	263
		Other items	329
		Total	1,688
__________________		*3 The effects of losses from the credit card business reorganization are shown as business reorganization losses. They consist of the following items.
		Allowance for business transfer loss	48,400
		Impairment loss ( * )	14,230
		Expenses for doubtful accounts	11,700
		Other items	1,608
		Total	75,939
		(*) Impairment of goodwill in the consolidated financial statements for the former Rakuten KC
__________________		*4 These figures include losses on doubtful accounts resulting from the payment of substantial advances to cover shortfalls in customers’ settlement funds as a result of price movements after the Great East Japan Earthquake, and provision for doubtful accounts.

For the three months ended June 30, 2010		For the three months ended June 30, 2011
(From April 1, 2010 to June 30, 2010)		(From April 1, 2011 to June 30, 2011)
*1 The breakdown of selling, general and administrative expenses is as follows.		*1 The breakdown of selling, general and administrative expenses is as follows.
Point Costs	2,543	Point Costs	2,064
Advertisement and promotion expenses	5,899	Advertisement and promotion expenses	7,058
Personnel expenses	12,779	Personnel expenses	13,681
Provision for bonuses	285	Provision for bonuses	550
Depreciation	3,622	Depreciation	3,820
Communications and Maintenance expenses	3,651	Communications and Maintenance expenses	3,694
Outsourcing expenses	6,275	Outsourcing expenses	6,008
Expenses for doubtful accounts	5,063	Expenses for doubtful accounts	3,968
		Reserve for loss on interest repayments	4,264
__________________		*2 The effects of losses from the credit card business reorganization are shown as business reorganization losses. They consist of the following items.
		Allowance for business transfer loss	48,400
		Impairment loss ( * )	14,230
		Expenses for doubtful accounts	11,700
		Other items	1,608
		Total	75,939
		(*) Impairment of goodwill in the consolidated Financial statements for the former Rakuten KC

About Rakuten:

Rakuten, Inc. (JASDAQ: 4755), is one of the world’s leading Internet service companies, providing a variety of consumer and business-focused services including e-commerce, travel, banking, securities, credit card, e-money, portal & media, online marketing and professional sports. Rakuten is expanding globally and currently has operations throughout Asia, Western Europe, and the Americas. Founded in 1997, Rakuten is headquartered in Tokyo, with over 10,000 employees worldwide. For more information, visit http://global.rakuten.com/group.