long-term debt. The discharge of these liabilities of ¥2,871 million was recorded as a gain in the statement of income for the year ended March 31, 2002. corporate operation by reducing fixed costs. The Company request- ed and received approval from certain financial institutions and a company to waive repayment of outstanding liabilities to these enti- ties which consisted of short-term bank loans, notes payable and The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in normal effective statutory tax rate of approximately 42% for the years ended March 31, 2003 and 2002. The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2003 and 2002, are as follows: Deferred tax assets: Tax loss carryforwards ................................................................................................... ¥ 23,231 ¥ 44,918 $ 193,592 Cost of construction contracts....................................................................................... 4,216 4,922 35,133 Retirement benefits....................................................................................................... 896 338 7,467 Allowance for doubtful accounts................................................................................... 1,929 2,606 16,075 Loss on long-term construction contracts ...................................................................... 180 217 1,500 Loss on devaluation of costs of construction contracts in process .................................. 181 928 1,508 Loss on devaluation of property, plant and equipment .................................................. 734 770 6,117 Other ............................................................................................................................ 3,143 1,837 26,191 Less valuation allowance ............................................................................................... (34,224) (56,304) (285,200) Total .................................................................................................................... 286 232 2,383 Deferred tax liabilities........................................................................................................ 18 45 150 Net deferred tax assets...................................................................................................... ¥ 268 ¥ 187 $ 2,233 Millions of Yen 2003 2002 Thousands of U.S. Dollars 2003 Normal effective statutory tax rate .................................................................................... 42% 42% Expenses not deductible for income tax purposes.............................................................. 6 8 Effect of taxation on dividends.......................................................................................... (7) Inhabitant taxes per capita levy ......................................................................................... 3 3 Foreign income taxes ........................................................................................................ 4 32 Valuation allowance for deferred tax assets....................................................................... (19) 77 Equity in earnings of associated companies ....................................................................... (17) (12) Operating losses of subsidiaries......................................................................................... (47) Lower income tax rates applicable to income in certain foreign countries .......................... (1) (5) Other — net ..................................................................................................................... 1 Actual effective tax rate .................................................................................................... 19% 91% 2003 2002 idated financial statements for the year ended March 31, 2003. Under the current Japanese tax regulations, a net operating loss can be carried forward for five years and deducted from any future taxable income. The Company and consolidated subsidiaries have a net operating loss carryforward of approximately ¥55,940 million ($466,167 thousand) at March 31, 2003. On March 31, 2003, a tax reform law concerning enterprise tax was enacted in Japan which changed the normal effective statutory tax rate from 42% to 40%, effective for years beginning on or after April 1, 2004. The effect of this change was to decrease deferred tax assets — non-current by ¥9 million ($75 thousand) and decrease income taxes — deferred by ¥9 million ($75 thousand) in the consol- Reconciliations between the normal effective statutory tax rate and the actual effective tax rates reflected in the accompanying con- solidated statements of income for the years ended March 31, 2003 and 2002, are as follows: 12. INCOME TAXES