Significant components of deferred tax assets and liabilities as of December 31, 2012 and 2011 were as follows: Millions of yen Thousands of U.S. dollars 2012 2011 2012 Deferred tax assets: Loss on valuation of investment securities ....................... \1,064 \1,065 $12,293 Elimination of unrealized profit .... 2,413 2,737 27,875 Accrued retirement benefits .......... 824 991 9,525 Accrued enterprise tax ...................... 336 31 3,890 Net operating loss carry forwards ... 89 197 1,030 Impairment loss on property, plant and equipment ....................... 1,304 1,663 15,070 Accrued costs of removing facilities .............................. 1,008 742 11,642 Other ............................................................. 1,087 1,007 12,558 Gross deferred tax assets .................. 8,128 8,437 93,886 Valuation allowance ............................ (2,616) (3,017) (30,215) Total deferred tax assets.......................... 5,512 5,419 63,670 Deferred tax liabilities: Reserve under Special Taxation Measures Law ....................................... (323) (344) (3,741) Undistributed earnings of overseas partnerships ...................... (159) (133) (1,843) Gain on contribution of securities to retirement benefit trust .............. (621) (640) (7,183) Unrealized holding gain on available-for-sale securities ... (684) (549) (7,901) Other ............................................................. (57) (81) (669) Total deferred tax liabilities ................... (1,847) (1,750) (21,340) Net deferred tax assets ............................. \3,664 \3,669 $42,330 Following the promulgation of the “Act for Partial Amendment of the Income Tax Act, etc. for the Purpose of Creating a Taxation System Responding to Changes in Economic and Social Structures” (Act No. 114, 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, 2011), on December 2, 2011, the corporate income tax rate will be lowered and a special restoration surtax will be imposed from fiscal years beginning on April 1, 2012. As a result, the domestic statutory tax rates to calculate deferred tax assets and liabilities will be reduced from the current 40.54% to 37.87% for temporary difference expected to reverse from consolidated fiscal years beginning from January 1, 2013 through January 1, 2015, and 35.49% for temporary differences expected to reverse from fiscal years beginning on or after January 1, 2016. As a result of these changes in the tax rate, deferred tax assets (net of deferred tax liabilities) increased \39 million, unrealized holding gain on securities \77 million and deferred income taxes \37 million as of and for the year ended December 31, 2011 compared with the amounts that would have been recorded under the previous tax regulations. 25. Investment and Rental Property Disclosures about the fair values of investment and rental property have not been presented as the total amount of the property is immaterial. 26. Capital Surplus and Retained Earnings The Corporation Law of Japan 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.$46,084 thousand) and \3,990 million as of December 31, 2012 and 2011, respectively. 27. Research and Development Costs Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended December 31, 2012 and 2011 were \4,360 million (U.S.$50,361 thousand) and \4,603 million, respectively. 28. Leases The following amounts represent the acquisition cost, accumulated depreciation and net book value of finance lease transactions entered into on or 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, 2012 and 2011: Millions of yen Thousands of U.S. dollars 2012 2011 2012 Acquisition cost: Machinery, equipment and other ... \172 \270 $1,991 \172 \270 $1,991 Accumulated depreciation: Machinery, equipment and other ... \165 \233 $1,914 \165 \233 $1,914 Net book value: Machinery, equipment and other ... \ 6 \ 36 $ 76 \ 6 \ 36 $ 76 Lease payments relating to finance lease transactions accounted for as operating leases amounted to \19 million (U.S.$226 thousand) and \58 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, 2012 and 2011. Future minimum lease payments (including the interest portion thereon) subsequent to December 31, 2012 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 2013 ........................................... \47 \3 $553 $43 2014 and thereafter.......... 6 2 74 33 Total ........................................... \54 \6 $628 $76 Toagosei Co., Ltd. 45