Significant components of deferred tax assets and liabilities as of December 31, 2009 and 2008 were as follows: Millions of yen Thousands of U.S. dollars 2009 2008 2009 Deferred tax assets: Loss on valuation of investment in securities.................. \ 957 \ 1,344 $ 10,401 Elimination of unrealized profit..... 1,437 1,448 15,605 Accrued retirement benefits........... 1,413 1,604 15,342 Accrued enterprise tax....................... 147 112 1,597 Allowance for doubtful receivables.... 2,416 2,336 26,240 Accrued bonuses................................... 57 68 620 Net operating loss carried forward.... 1,654 1,599 17,961 Impairment loss on property, plant and equipment........................ 1,470 1,288 15,964 Nondeductible loss on discontinued operations......... 198 . 2,158 Other.............................................................. 1,226 717 13,313 Gross deferred tax assets................... 10,978 10,520 119,205 Valuation allowance............................. (6,067) (6,118) (65,879) Total deferred tax assets.......................... 4,911 4,402 53,325 Deferred tax liabilities: Reserve under Special Taxation Measures Law........................................ (419) (444) (4,552) Undistributed earnings of overseas partnerships....................... (509) (509) (5,527) Gain on contribution of securities to retirement benefit trust............... (795) (805) (8,637) Unrealized holding gain on securities............................................ (758) (469) (8,236) Unrealized gain on hedging derivatives.................... . (0) . Other.............................................................. (6) (2) (65) Total deferred tax liabilities.................... (2,488) (2,232) (27,018) Net deferred tax assets.............................. \ 2,422 \ 2,170 $ 26,306 12. Capital Surplus and Retained Earnings The new Corporation Law of Japan (the “Law”), which superseded most of the provisions of the Commercial Code of Japan, went into effect on May 1, 2006. The Law provides that an amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve or the legal reserve until the sum of the capital reserve and the legal reserve equals 25% of the capital stock account. Such distributions can be made at any time by resolution of the shareholders or by the Board of Directors if certain conditions are met. The legal reserve amounted to \3,990 million (U.S.$43,322 thousand) and \3,990 million as of December 31, 2009 and 2008, respectively. 13. Research and Development Costs Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended December 31, 2009 and 2008 were \4,472 million (U.S.$48,560 thousand) and \4,753 million, respectively. 14. Leases The following amounts represent the acquisition cost, accumulated depreciation and net book value of finance lease transactions before December 31, 2008, except for the lease agreements which stipulate the transfer of ownership of the leased assets to the lessee, as of December 31, 2009 and 2008: Millions of yen Thousands of U.S. dollars 2009 2008 2009 Acquisition cost: Buildings and structures.................... \ 38 \ 38 $ 417 Machinery and equipment.............. 699 842 7,596 Other intangible fixed assets.......... 8 22 89 \746 \903 $8,103 Accumulated depreciation: Buildings and structures.................... \ 30 \ 23 $ 326 Machinery and equipment.............. 520 541 5,647 Other intangible fixed assets.......... 5 3 62 \555 \569 $6,036 Net book value: Buildings and structures.................... \ 8 \ 14 $ 90 Machinery and equipment.............. 179 300 1,949 Other intangible fixed assets.......... 2 18 26 \190 \334 $2,066 Lease payments relating to finance lease transactions accounted for as operating leases amounted to \154 million (U.S.$1,644 thousand) and \185 million, respectively, which were equal to the depreciation expense of the leased assets computed by the straight-line method over the respective lease terms, for the years ended December 31, 2009 and 2008, respectively. Future minimum lease payments (including the interest portion thereon) subsequent to December 31, 2009 for non-cancelable operating leases and finance leases accounted for as operating leases were summarized as follows: Millions of yen Thousands of U.S. dollars Year ending December 31, Operating leases Finance leases Operating leases Finance leases 2010............................................ \112 \102 $1,218 $1,114 2011 and thereafter.......... 58 87 638 955 Total............................................ \171 \190 $1,857 $2,069 15. Derivative Transactions The Company intends to utilize derivative financial instruments for the purpose of hedging its exposure against adverse fluctuations in foreign currency exchange rates and interest rates, but does not enter into such transactions for speculation or trading purposes. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the derivative financial instruments, but any such loss would not be material because the Company enters into transactions only with financial institutions holding high credit ratings. The notional amounts of the derivative financial instruments do not necessarily represent the amounts exchanged by the parties and, therefore, are not a direct measure of the Company’s risk exposure in connection with derivative financial instruments. Disclosure of fair value information for derivatives as of December 31, 2009 has been omitted since all the derivatives as of that date have been accounted for as hedges. 34 Annual Report 2009