The balance of treasury stock recorded in the shareholders’ equity section as of March 31, 2001 includes treasury stock purchased for the purpose of reissuance upon the exercise of stock options granted to directors and key employees. As of March 31, 2001, stock options for 93 thousand shares have been granted and are exercisable through June 30, 2006. Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Semi-annual interim dividends may also be paid upon resolu- tion of the Board of Directors, subject to limitations imposed by the Code. Under the Code, the amount available for dividends is based on retained earnings as recorded on the Company’s books. At March 31, 2001, retained earnings recorded on the Company’s books were ¥95,273 million. Such retained earnings included ¥80,869 million which is designat- ed as general and specific reserves but is available for future dividends subject to approval by shareholders and legal reserve requirements. The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 42% for the years ended March 31, 2001 and 2000. The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2001 and 2000 are as follows: 9. Income Taxes Millions of yen 2001 2000 Deferred tax assets: Inventories.................................................................................................. ¥04,975 ¥03,625 Pension and severance costs....................................................................... 665 486 Tax loss carryforwards ................................................................................. 335 1,007 Bonus payment reserve ............................................................................... 1,291 932 Reserve for warranty.................................................................................... 849 589 Software..................................................................................................... 2,542 1,630 Property and equipment............................................................................... 1,100 965 Other.......................................................................................................... 1,937 829 Total deferred tax assets ......................................................................... ¥13,694 ¥10,063 Deferred tax liabilities: Deferred gains on sales of property .............................................................. ¥02,240 ¥02,240 Unrealized gain on available-for-sale securities .............................................. 3,474 Other.......................................................................................................... 462 218 Total deferred tax liabilities ...................................................................... 6,176 2,458 Net deferred tax assets ....................................................................... ¥07,518 ¥07,605 2001 2000 Normal statutory income tax rate ........................................................................... 42.0)% 42.0)% Permanent non-deductible expenses...................................................................... 2.5 4.1 Losses of consolidated subsidiaries ...................................................................... 0.5 0.5 Utilization of loss carryforwards of consolidated subsidiaries ................................... (1.2) (1.3) Difference in subsidiaries’ tax rates....................................................................... (3.9) (3.3) Other—net........................................................................................................... 0.7 1.3 Actual effective income tax rate......................................................................... 40.6)% 43.3)% The actual effective income tax rates reflected in the accompanying statements of income dif- fered from the normal statutory rates for the following reasons: FINANCIAL HIGHLIGHTS MANAGEMENT PERSPECTIVE TOPICS REVIEW OF OPERATIONS FINANCIAL SECTION CORPORATE DATA 36 DAIKIN INDUSTRIES, LTD. ANNUAL REPORT 2001 10. Research and Development Costs Research and development costs charged to income were ¥24,039 million and ¥21,111 million for the years ended March 31, 2001 and 2000, respectively.