income. As a result of adopting this new standard, net periodic benefit costs as compared with the prior method increased by ¥570 million and income before income taxes decreased by ¥570 million for the year ended March 31, 2001. 

Directors and corporate auditors are not covered by the aforementioned plans. The Company makes provision for severance indemnities to its directors and corporate auditors based upon management’s estimates of amounts which will be payable, subject to the approval of sharehold- ers, for services rendered to date. 

## Research and Development 

Research and development costs are charged to income as incurred. Research and development costs amounted to ¥24,039 million and ¥21,111 million for the years ended March 31, 2001 and 2000, respectively. 

## Stock and Bond Issuance Expenses 

Stock and bond issuance expenses are charged to income as incurred. 

## Foreign Currency Translations 

Prior to April 1, 2000, short-term receivables and payables denominated in foreign currencies were translated into Japanese yen at the current exchange rates at each balance sheet date, while long-term receivables and payables denominated in foreign currencies were translated at historical rates. 

Effective April 1, 2000, the Group adopted a revised accounting standard for foreign currency transactions. In accordance with the revised standard, all short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from trans- lation are recognized in the consolidated statement of income to the extent that they are not hedged by forward exchange contracts. 

## Foreign Currency Financial Statements 

The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rates as of the balance sheet date except for sharehold- ers’ equity, which is translated at the historical rates. Revenue and expense accounts of the Company’s consolidated foreign subsidiaries are translated into Japanese yen at the average exchange rate. 

Prior to April 1, 2000, differences arising from such translations were shown as “Translation adjustments” as either an asset or liability in the balance sheets. Effective April 1, 2000, such differences are shown as “Foreign currency translation adjustments” in a separate component of shareholders’ equity in accordance with the revised accounting standard for foreign currency transactions. 

## Income Taxes 

Effective April 1, 1999, the Group adopted an accounting method for interperiod allocation of income taxes based on the asset and liability method. The cumulative effect of the application of interperiod tax allocation in prior years in the amount of ¥3,127 million is included as an adjust- ment to retained earnings as of April 1, 1999. Such cumulative effect is calculated by applying the income tax rate stipulated by enacted tax laws as of April 1, 1999. 

Deferred income taxes are recorded to reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These deferred taxes are measured by applying currently enacted tax laws to the temporary differences. 

## Derivative Financial Instruments 

The Group uses derivative financial instruments to manage its exposures to fluctuations in for- eign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps are utilized by the Group to reduce foreign currency exchange and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes. 

