After announcing disappointing quarterly results, KHI\u2019s president,\u00a0Mr Yoshinori Kanehana, said the company\u00a0is reviewing options\u00a0for its rolling stock division, including quitting the business or forming an alliance with another company if the restructuring exercise is unsuccessful.\r\n\r\n\u201cWe expect a decline in earnings of approximately Yen 16.5bn ($US 145m) compared with the forecast announced in July, mainly due to losses in North American operations,\u201d KHI said in a statement on October 19.\r\n\r\nKHI\u2019s US subsidiary, Kawasaki Rail Car, secured a contract for 92 commuter cars in 2013 from Long Island Rail Road (LIRR) and Metro North Railroad. KHI started manufacturing on the assumption that options for 584 additional cars would be exercised. \u201cKHI expects a further increase of costs in the base contract due to non-achievement of revenue improvement targets, higher-than-anticipated increases in material costs for procured goods and lower-than-expected improvements in production efficiency at our North America plants,\u201d KHI says. As a result, it expects a decline in earnings of around Yen 2.5bn in FY2018.\r\n\r\nKHI says it has been negotiating with LIRR on the terms to exercise its options scheduled for the third quarter FY2018, including a request for a price increase. As KHI will now only supply 110 additional cars, it intends to record a loss on the option of about Yen 6bn in FY2018.\r\n\r\nKHI has also recorded a Yen 5bn loss on its $US 2bn contract for 748 metro cars for Washington Metropolitan Area Transit Authority (WMATA), which it secured in 2010. In May 2018, defects in the wiring of some of the 7000 series cars in production were revealed, and 548 of about 600 cars already delivered will require rewiring.\r\n\r\nKHI has also decided to record a provision for a second-quarter loss of Yen 3bn on construction contracts for railway operators in Japan due to the non-achievement of cost reduction targets, higher-than-expected increases in material costs, and disputes with customers over specifications.