Part 3 - Kawasaki Statements and Certifications

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Part 3 - Kawasaki Statements and Certifications
f{Kawasaki
M a s sach u
setts Bay Tra n s po rtatio n Auth ority
New Orange and Red Line Vehicles
RFP No. CAP 27-10
1: GERTIFICATE OF GOOD STANDING
Kawasaki Rail Car lnc. Certificates of Good Standing from the Secretary of State of the
APPENDIX
Commonwealth of Massachusetts is included in this appendix:
Qual ifications and Certifications
Questions Concerning Eligibility
May 15,2014
ØÊ,6MgfM
JeutrnJrgfúr,6M
Jtoø %¿¿te, Øouor,
/mÆsnúilÆette 02/33
W'illiam Francis Galvin
Secretary
ofthe
Commonwealth
Date: April 01,2014
To Whom It May Concern
:
I hereby certiff that according to the records of this office,
KAWASAKT RArL CAR, rNC.
a corporation organized under the laws
of
NEW YORK
on February 17r1989 was qualified to do business in this Commonwealth on
March 31, 1989 under the provisions of the General Laws, and I further certiff that said
corporation is still qualified to do business in this Commonwealth.
I also certiff that said corporation is not delinquent in the filing of any annual reports required to
date.
S
(tir 5
In testimony of which,
s
I have hereunto affixed the
Great Seal of the Commonwealth
3
(t)
on the date first above written.
Þ
Secretary of the Commonwealth
Certifi cate Num ber: I 40 468937 20
Veriff this Certificate
Processed by: jmu
al: http:llcorp.sec.state.ma.us/CotpV/eb/Certificates/Verify.aspx
I{Kawasaki
APPENDIX
2:
Massachuseffs Bay Transportation Authority
New Orange and Red Line Vehicles
RFP No. CAP 27-10
GURRENT CODES OF BUSINESS ETHICS
Kawasaki Rail Car lnc. current codes of business ethics of equivalent are included in this
appendix:
Qual ifications and Certifications
Questions Concerning Eligibility
May 15,2014
KAWASAKIRAIL
C
n\c.
Code of Conduct
REPORTING VIOLATIONS
Violations or possible violations of law or of this Code should be reported
to the KRC Compliance Offrcer, whose contact information is:
Michael J. Doyle, Sr.
Kawasaki Rail Car, Inc.
29 Wells Avenue, Building4
Yonkers, New York 10701
914-376-4700 ext. t524
or
914-441-5459 (cell phone)
Issued: February 2006
Kawasaki Rail Car, fnc.
Code of Conduct
Kawasaki Rail Car, Inc. values its employees and expects all employees to observe the
highest standards of business conduct and ethics. KRC has built an excellent reputation for
honesty and integrity with employees, customers, suppliers, stockholders and the general public.
Our reputation is a valuable asset, and we must all work together to protect it. Compliance with
laws and regulations must take precedence over all other considerations at all times. Breaking
the law and engaging in unethical business activities are prohibited.
Our Code of Conduct has been adopted by KRC's Board of Directors to provide guidance
to all employees in several areas of critical importance, and to reaffirm KRC's historic
commitment to the highest personal and corporate standards of business conduct and ethics.
This Code applies to all employees, of KRC and any affiliates in the United States or abroad,
including officers and directors. All employees are required to read this Code carefully and to
follow it in performing their duties for KRC. Every employee has a responsibitíty to act in an
ethical, honest, and socially responsible manner and should not allow conflicts of interest
between the workplace and personal business.
No Code can cover all situations, and each individual must take responsibility for
knowing the laws, regulations and companypolicies that apply to an individual employee's job
responsibilities. More detailed policies and practices to guide the conduct of employees on
specific topics willbe made available.
Michael J. Doyle, Sr. has been designated as KRC's compliance officer and has overall
responsibilities for overseeing compliance with this Code. All violations or suspected violations
of this Code should be reported to the Compliance Officer by calling one of the phone numbers
that appears above under "Reporting Violations." Alternatively, employees may make reports of
'Work
Environment matters, to their Supervisors or
Code violations, particularly with respect to
to the Senior Manager of Human Resources who will in turn report to the Compliance Officer,
as needed. No disciplinary or other retaliatory action will be taken against any person as a result
of reporting in good faith any known or suspected violation. Reports may be made
anonymously. All employees are encouraged to bring into the open any wrongdoing if
observed.
Dated: February 2006
Hiroji Iwasaki
Chief Executive Officer
Kawasaki Rail Car, Inc.
Business Practices
FaÍr and Ethical DealÍns
Each employee should endeavor to deal fairly and ethically with KRC's customers, suppliers,
competitors and other employees. No employee should take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, false statements or other unfair
practices.
Loyalty and Conflicts of Interest
All
employees of KRC have a duty of loyalty to the Company. Employees shall not have any
relationship with any other business which conflicts with (or creates the appearance of
conflicting witÐ the proper performance of their Company duties or responsibilities, or which
might affect their independent judgment with respect to transactions between KRC and another
business.
o
Outsíde fnterests
Employees must advise either the Senior Manager of Human Resources or the Compliance
Officer of any outside business activities which might create a conflict of interest (or appearance
of conflict) or which might improperly influence or appear to improperly influence their actions.
For example, an employee may not have outside employment or business activities with a
customer, supplier or competitor of KRC without the written approval of KRC management.
.
Personøl Finøncìøl fnturests
Every employee must avoid any outside financial interests which might improperly influence
his or her corporate decisions or actions. Such outside financial interests include:
II a personal financial interest (including an interest of a spouse, minor
children, or relatives living in the same household) in any customer,
supplier or competitor of KRC; or
Þ a personal financial gain or advantage in connection with actions taken
by an employee on behalf of KRC.
Open market investments in publicly traded companies that do business with KRC âre not
prohibited by this Code, when the employee does not have any material inside information and
so long as such investments are not of a size to influence the employee's judgment on Company
matters.
o
fmproper Personal BeneJì'ts
Conflicts of interest would also arise if an employee, offi.cer or directorreceives improper
personal benefits as a result of his or her position with KRC. For example, services performed
by other Company employees at personal residences or unauthorized personal travel at Company
-)-
expense is prohibited. Loans to employees, or guarantêes of obligations for their benefit, are
permitted only in accordance with applicable personnel policies and procedures.
.
GíÍts, Gratuìtíes and Entertainment
Employees should not accept payments, gifts, entertainment, personal discounts, or other
favors that may appear to place them under some obligation to a third party dealing or desiring to
deal with KRC. Similarly, employees should not give any sueh payrnents¡gifts, entertainment;
personal discounts, or other favors to customers or suppliers. For example, this rule prohibits the
payrnent or receipt of bribes, kickbacks or illegal payrnents of cash. Certain customary business
courtesies, such as covering the bill for a lunch or dinner in connection with a business meeting
normally would not violate this policy. Employees, however, should try to keep such courtesies
on a reciprocal basis in order to show that no gift or favor is sought or granted.
Compliance with Laws
It is KRC's policy to comply fully with all laws and regulations that apply to its business. As
you conduct the Company's business, you may encounter avaiety of legal issues. If you have
any questions on specific laws or regulations, contact the Compliance Officer or your
Supervisor.
The corrimitment of KRC to the highest ethícal and legal standards extends to its business
dealings throughout the world. KRC must obey U.S. and local laws of countries in which we do
business in developing and maintaining intemational markets for its services. In countries where
common practices might indicate standards less stringent than our own, employees should follow
our standards as outlined in this Code. Employees should not take any improper actions intended
to circumvent the application of local laws. If you have questions regarding specific laws or
regulations, you should contact the Compliance Officer.
o
fnside Informatìon and. the Securities Laws; Outsíde Inquiríes
It is illegal under the laws of the U.S. and many other countries for someone who possesses
nonpublic, material information about Kawasaki Heavy Industries, Ltd. (KIIÐ or about any
publicly-traded company with which KRC does business to buy or sell stock of such company,
pass that information on to anyone else who does so or otherwise use such information for his or
her own financial benefit. "Material information" means facts that would be likely to have an
effect on the market price of a company's stock and could include information as to potential
acquisitions, acquisition or loss of a major contract, business strategies, important financing
transactions or internal financial information.
Inquiries about KHI, KRC, or other KHI subsidiaries, such as Kawasaki Motors
Manufacturing Corp., U.S.A. (KMM), from the financial press or other news media, investment
analysts, or financial institutions should be responded to by an appropriate representative of the
Company. Any such inquiries should be referred to the CEO of KRC, or the Compliance
Officer.
4
.
Environmentøl Laws
We believe that protecting the environment is important, and we must exercise good judgment
with regard to the environmental aspects of our use of buildings and land, our manufacturing
processes and our products themselves. It is therefore KRC's policy that our products and
operations will meet or exceed all federal, state, local and local country environmental
requirements, including:
Þ
Proper processing of waste and pollutants
'We
will strive to minimize and properly process waste and pollutants at each step of our
activities, in development, production, logistics, sales, service, and, ultimatel¡ disposal.
Þ
Efficient
use of
natural resources and recycling
We will strive to make efficient use of energy and other natural resources, and continue to
advance our recycling efforts.
o Legally required measurements, recording and reporting
W'e will conduct measurements, recording and reporting on the environment related to soil,
underground water, air, noise, smells, etc., as required by environmental laws or company rules.
Any environmental issues should be reported by employees to their supervisor, the Senior
Manager of Human Resources, or the Compliance Offtcer.
o
Antítrust ønd Competítíon Laws
Laws governing competition exist in the United States, as well as in most of the industrialized
countries in which KRC does business. The pu{pose of competition laws - which also may be
known as antitrust, monopoly, fair trade or cartel laws - is to prevent interference with a
competitive market system. It is the Company's policy to comply fully with all of the antitrust
laws of the United States and other countries, while at the same time competing aggressively in
the markeþlace.
It is a violation of the antitrust laws for competitors to enter into an agreement or
understanding, however informal, that unreasonablyrestrains tade. Price-fixing and allocation
of products, markets, territories or customers are the clearest and most often prosecuted tSpes of
agreements among competitors that unreasonably restrain trade. In these cases, not onlymay
KRC suffer large damage awards and heavy fines, but the individuals involved in the activity
may be sent to jail.
No Company employee should agree with a competitor to fix prices, rigbids, or divide up
customers or territories. No Company employee should ever discuss with an employee of a
competitor:
n the prices at which either company will sell its products;
n the territories in which either company
5
will sell its products; or
u the customers to whom either company
will offer its products.
In addition, agreements between two or more companies not to do business with (or boycott)
some third company may violate the antitrust laws. Company employees should not discuss with
others any companies or individuals with whom we will or will not do business, and should not
attempt to persuade any other company to deny business to others.
It should be noted that antitrust íssues often arise in conjunction with trade association
activities. Company employees who attend trade association meetings must familianze
themselves with antitrust principles and legal pitfalls involved in trade association programs, and
conduct themselves accordingly.
Political Contributions & Activities
Political contributions by corporations in connection with federal elections are unlawful in the
United States. úr addition, state and local political contributions are in many cases prohibited or
are otherwise carefully regulated by law. Each employee is individually free to pursue political
activities including contributions he or she deems appropriate; however, individual contributions
must not be made with KRC's funds, or be reimbursed by the Company. Employees who
participate in partisan political activities should not in any way suggest or state that they speak or
'Where
act on behalf of the Company.
corporate political contributions to political candidates are
allowed under state or local laws, such contributions shall be made only from funds allocated for
such a putpose with the prior authonzation of the Company's Board of Directors.
Work Environment
.
Polícy Agøínst Sexuøl & Other Hørassment
KRC strives to provide all employees with a health¡ safe and productive work environment.
The Company's work climate must be free from discrimination and harassment based on race,
color, creed, age, sex, sexual orientation, marital status, religion, national origin, disabilit¡
veteran status or any other class protected by applicable law. KRC will not tolerate harassment
by any employee of the Compan¡ including supervisors and co-workers or any other person
doing business with or for the Company. Prohibited conduct includes sexual advances, actions
or comments of a sexual nature, derogatory or explicit jokes, comments, e-mails, gestures or
pictures and any other conduct in the worþlace that creates an intimidating, hostile or otherwise
offensive environfirent.
If you believe that you have been unlawfully
harassed, you should inform your own or any
other supervisor, the Human Resources Department or the Compliance Officer as you feel
comfortable and deem appropriate. Employees who are found to have engaged in harassment or
discrimination, or to have misused their positions of authority in this regard, are subject to
disciplinarymeasures, up to and including dismissal.
.
Víolence-free & Drug-free llorkplace
KRC seeks to promote a safe work environment for all its employees. Some activities that are
prohibited because they clearly are not conducive to a safe work environment are: (i) threats and
intimidation; (ii) violent behavior; (iii) possession of weapons of any type; and (iv) the use,
6
distribution, sale or possession of illegal drugs, any other controlled substance (excluding
prescribed medication) or alcohol. Any such activity should be brougþt to the attention of your
ó*n ot any other Company supervisor, the Human Resources Department or the Compliance
Officer as you deem appropriate. Any violent threats or assaults that require immediate attention
should be reported to Company security or the police.
Possession, sale, use or delivery of illegal drugs on Companyproperty or on Company time is
strictly prohibited. Alcoholic beverages are not to be brought on Company premises without
authorization and are not to be consumed before or during the workday. Violations of this policy
will normallyresult in suspension or immediate discharge.
Use of Companv and Customer Resources
o
Gènerøl
The ability of KRC to meet its broad commitments to customers, suppliers, employees,
stockfiolders and communities depends on ethically and efficientlyutilizing Company and
customer resources. These resources include technolog¡ data, buildings, land, equipmqnt, cash
and the time and talent of employees.
Employees may not make improper use of Company or customer resources nor permit others
to do so. Improper use includes unauthoized appropriation, possession or use of Company or
customer assets. Examples range from taking office supplies home for personal use, to padding
business travel expense reports, to failing to legitimately track hours worked.
o
fnfurnal Controls
KRC has established fînancial and operating control standards and procedures to ensure that
all Company assets are protected and properly used and that financial records are accurate and
reliable. Iniernal controls are everyone's responsibility. All employees share in the
responsibility for maintaining and complying with required internal controls and ensuring that
Company assets are not misused.
o
fnformatíon ønd Communicøtíon Systems
KRC's information and communication systems, including e-mail, maybe used only for
authorized business puq)oses. Employees may not use the Company's information or
commgnication systems for unauthorized purposes, such as advertisement, solicitation,
harassment, personal profit, or for anyunlawful or r¡rethical purpose. Employees should not
have any expectation of privacy regarding any material stored, created, received, sent or accessed
using any Cõmpany information technologyresources, including e-mail and web site visits.
trRCresLrves and will exercise its authority to monitor, intercept and disclose any such materials
for any legitimate business reason, including evaluating work performance, detecting crime, and
investigating unauthorized use of resources consistent with applicable local laws'
.
Propríetøry ConJïdentialfnformatìon
Company records, documents, and mail are to be kept confidential. Keeping the details
KRC's busiàess confidential is vital to its success and should be treated as Proprietary
All
-7-
of
Confidential lnformation. It should onlybe used for the benefit of the Company in the ordinary
course of employment. KRC Proprietary Confidential lnformation includes unannounced
products, sales and pricing dat4 customer lists, proposed acquisitions or dispositions of
businesses, procurement plans, financial information, information regarding business needs of
customers, knowledge about business opportunities, designs, engineering and manufacturing
know-how and processes, the contents of intemal databases, patent applications, copyrighted
material and other information useful to KRC's business that is not known to ils competitors.
To avoid unintentional disclosure of KRC Proprietary Confidential Information, never discuss
with any unauthorized person KRC information that has not been made public by KRC. Care
must also be taken when discussing proprietary information with authorized Company
employees in the presence of others who are not authorized. Inaddition, you should be careful
not to disclose KRC Proprietary Confidential Information when discussing work related matters
with family members and friends, since the potential exists for information revealed during those
discussions to be innocently or inadvertently disclosed to someone else.
Implementation of C ompliance
The KRC Compliance Officer has overall responsibility for overseeing compliance with this
Code. The Compliance Officer's contact information is:
Michael J. Doyle, Sr.
Kawasaki Rail Car,Inc.
29 Wells Avenue, Building 4
Yonkers, New York 10701
914-376-4700 ext.1524
or
914-441 -5459 (cell phone)
All calls will be treated confidentially.
All reports received by KRC will be promptly and thorougþly evaluated. The Compliance
Officer will take appropriate actions to investigate allrqlorts, whích may include, among other
things, review of appropriate records and interviews with employees,utilizinga third-party
auditor or doing nothing further if a report is deemed frivolous.
Training programs may periodically be held either in person or electronically to keep
employees aware of and sensitive to this Code's content as well as more detailed information on
topics relevant to particular departments or employees. ,Remember, however, that each KRC
employee is responsible for his or her own actions.
Integrity is a personal responsibility. No employee can justify or escape the
consequences of an illegal or unethical act or a violation of this Code by claiming it was
ordered by someone in higher management. No one, regardless of positÍon wÍthin KRC, is
ever authorned. to direct an employee to commit an illegal or unethical act or to violate this
Code.
-8-
Any employee violating this Code willåe subject to disciplinary action, up to and including
discharge, and could be subject to civil or criminal legal proceedings.
Reportine Possible Violations
Honest differences of opinion conceming appropriate business conduct and ethics are inherent
in any large organtzation. You may therefore be faced with a circumstance or situation that you
think (but are not sure) may violate this Code. In general, you are expected to discuss and
attempt to resolve these matters through normal management channels.
All violations or suspected violations of this Code should be reported to the Compliance
Officer by calling one of the phone numbers that appears above under "Reporting Violations."
Alternatively, employees may make reports of Code violations, particularly with respect to Work
Environrnent matters, to their Supervisors or to the Senior Manager of Human Resources who
will in tum report to the Compliance Officer, as needed. No disciplinary or other retaliatory
action will be taken against any person as a result of reporting in good faith any known or
suspected violation. All such reports will be treated confidentially and may be made
anon)rmously. Employees are also expected to cooperate fully in any investigation of a violation
or possible violation of this Code that is conducted by KRC and to maintain the confidentiality of
the proceedings. All emptoyees are encouraged to bring into the open any wrongdoing if
observed.
Reprisal or retaliation of any kind against an employee who discusses or reports a violation of
this Code, or what he or she honestly believes may be a violation of this Code, with management
or the Compliance Officer is forbidden. Reprisal or retaliation of any kind against an employee
who cooperates in any investigation of a violation or possible violation of this Code that is
,conducted by the Company or legal authorities is also forbidden.
Possible Sanctions
The policies in this Code are important to KRC and mustbe taken seriouslyby all of us as
employèes. Accordingly, violations of these policies will not be tolerated and may result in one
or more of the following sanctions, as appropriate and in accordance with local country laws:
wammg;
a reprimand (which will be noted in individual's permanent personnel record);
probation;
demotion;
temporary suspension;
dismissal;
required reimbursement of losses or damages; and/or
referral for criminal prosecution or civil action.
a
-9-
Conclusion
No written Code can cover every situation that might arise or set forttr a rule to follow in all
situations. Obviously there are other Companypolicies and practices, as well as common sense
standards of conduct and individual conscience, to which you are expected to adhere. Each
employee is specifically given notice that KRC will enforce the rules set forth in this Code.
-10-
I{Kawasaki
APPENDIX
Ma ssach usefús
Bay Transportation Authority
New Orange and Red Line Vehicles
RFP No. CAP 27-10
3:
FINANC¡AL STATEMENTS
Kawasaki Rail Car, lnc. financial statements are included in this appendix.
Qual ifications and Certifications
Questions Concerning Eligibility
May 15,2014
c0ilrl[illllt
I(awnsaki R¡ll Car' Inc.
Kawæ
.s.4.)
FnqnNcw, Stnrnvæwrs
Year EndedMaroh 31' 2013
with Report of Independent Auditors
[0ilrffiilï[t
Kawasaki Rail Car,Inc.
(A Wholly-Or¡'ned Subsidiaryof Kawæaki Motors lraa¡ufactqring Corp., U.S.A")
Financial Statements
Year Ended March 31, 2013
Contçnts
I
Report of ftrdependent Auditors-,,...........,........,.!i.,¡r....,...
Balance Sheet..,.,..,....
Statement of Operations
Statement of Stockltolder's Equity,.
F1ows...,......,
Statemerit of Cash
Notes to Financial Statements...
3
4
{
,........ô'.¡r'....¡
6
7
¡
MAII.SI-IZ.AJ<A& I{TDA
t0ilfl[tilTl[t
CERTÍ FIED PUBLIC ACCOUNTANTS
455 CENTRÁL PARK AVENUE, SUITE 3 I5
SCARSDALE, NEW YORK I0563
TELEPHoNE (91A',t -t22-644O I F^X (El4) 722-6445
To the Directors and Stockholder
Kawasaki Rail Car, Inc.:
of
We have audited the accompanying financial statements of Kawasaki Rail Car, Inc. (a
wholly-or,r'ned subsidiary of Kawasaki Motor Manufacturing Corp., U.S.A.; the "Company"),
which comprise the balance sheet as of March 31,2013, and the related süatements of
operatiorx, stockholder's equity md cash flows for the year then ended, ærd the related notes
to the financial statements,
Management's Responsíbìlíly
for
the Financìal Statemenß
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United
States of America; this inciudes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or enor,
A
udìtor's Respons ib ìlity
Our responsibility is to express an opinion on these financial statements based on our audit.
We con{ucted ou¡ audit in accordance with auditing standards generally acceptecl in the
United States of America, Those standards require that we plan and perform the audit to
obtain reasonable assuranpe about whether the financial statements are ftee of material
misstatement.
t0l{fl0ttlllllt
An audit involves performing
procedures
to obtain evidence about the amountlatld
statements, The procedr-res selected depend on the auditor's
judgrnent, i-ncluding the assessment of the risks of material misstatemelrt of the ftnancial
.tat"ments, whether due to fraud or error. In making those risk assessments, the auditor
disclosures
in the financial
to the entity's preparation and faír presentation of the
financial statements in order üo design audit procedures that æe appropriate in the
circumstances, but not for the pwpose of expressing an opinion on the eflectiveness of the
considers intemal confrol relevant
entity's internal control. Accordingly, \ re express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of
signíficant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufTicient and approprìafe to provide a
basis for our audit opinion.
Opinion
to above present fairly, in all material
I Car, Inc. as of March 31,2013, and the
respects, the financial position of K
results of íts operations and its cash flows for the year then ended in accordance wíth
In our opinion, the financial
statements refened
accounting principles generally accepted ín the United States of America.
April I1,2013
lkrL
2
c0ilfl[tllTllt
a
Kawasaki Rail Car,Inc'
(A Wholly-owned subsidiary of Kawæaki Motors Manufacturing cory., u.s.A,)
Balance Sheet
March 31,
2013
Assets
$
Cash and cash equivalents
Accounts and retention receivable, net
Costs and recognized profit in excess of billings
2,812,552
t42,190215
24r,604,721
33,679,488
Advance payments
Prepaid expenses
Property and equipment, net
44367
1,196,699
Other assets
503303
Total assets
$ 422,031,405
LiabilitÍes and Stockholder's Equþ
Liabilities:
Short-term loan
Accounts and retention PaYable
Billings in excess of costs and recognized profit
Accrued expenses on long-term contracts
Anticipated losses on uncompleted contacts
$
68¿50,000
103,720,814
rs2006371
19,355,718
24314,127
43,51 7,499
Other liabilities
4l
Total liabilities
Commitments a¡rd contingencies
Stockholder's equity:
Conrmon stock - authorized ó20,000 shares of $l
par value and 600,000 shares of$100 par value;
issued and outstanding 600,000 shares of $l par
value and 600,000 sha¡es of$100 pæ value
Additional paid-in caPital
Accumulated deficit
Total stockJrolder's equitY
Total liabilities and stockholder's
60,600,000
21,924r434
.s58)
equþ
$ 422,03 1,405
See accomparrying notes
3
[0ilfl0r]llTtfir
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidíary of Kawasaki Motors Manufactu¡ing Corp., U.S.A.)
Year ended
March 3I,
2013
Revenues:
$ 347,197,191
Conbact revenues earned
Service conûact income
28,167,714
375,364,905
Costs:
358,934,184
Cost ofconhact revenues earned
24,386Éq8
Cost of service contracts
(7,955,86Ð
Gross loss
7,686140
General and adminishative expenses
erating loss
05"642,50Ð
Other income and expense:
Interest expense
Other income
(6r4¿11)
760
(547,451)
(16,1898s8)
Loss before credit for income tø<es
(1o3J4s)
Creditfor income taxes
Net loss
Se
e ac co mpany
#
$
116.086.013)
ing not e s.
4
[0ffi[illnt
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp.' U'S'A')
Statement of Stockholder's Equity
Year Ended Marcb 31.2013
Common
AddÍtional
Paid-ln
Accumulated
Stockholderts
Dcllcit
Balanse, March
3l,2012
$2
$(s5,571,54s)
Net loss
Balance,March3l,2013
See
accomPønYing note s.
5
I
[0lllilDt]lllllt
Kawasaki Rail Car,lnc.
(A Wholly-owned subsidiary of Kawasaki Motors Manufacturing corp., u.s.A.)
Statement of Cash Flows
Yearended
March 31,
2013
Cash flows from opereting actlvities:
Net loss
$
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation zurd amoftization
551,660
9278,137
Anticipaûed losses on uncompleted conFacts
Changes in operating assets and liabilities:
Accounts and retention receivable
Advanse payments
(17$20,554)
141804,149
46,124
(387,070)
hepaid expenses
Otlrer æsets
Accounts and retention PaYable
Billings in excess ofcosts and recognízed profif net
Accrued expenses on long-term contracts
Other liabilities
Net cash used by operating aotivities
(75,871,089)
(159,382,972)
(716¡0Ð
25"506p86
(e2J77þ&r
Cash flows from investing activities:
ofpropefy and equipment
Net cash used by investing activities
(446,0391
Purchase
Cash flows from financing activities:
Short-term loan
Collections on loans receivable fiom relakd pady
Net cash provided by financing activities
Net increase in cash and cæh equivalents
Cash and cash equivalents, beginning ofyear
Cash and cash equivalents, end ofyeæ
(16,086,013)
68"2$,000
93¿50,000
26,914
$
2,812¡552
$
614¿lr
Supplemental dlsclosurrc of cash llow informstÍon:
Cash paid
Se
for interest exPense
e ac co mp anying no t es.
6
I
[0ltlfl0tRlTtil.
Kawasaki Rail Car,lnc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U.S,A,)
Notes to Financial Statements
l. Organization
and Description of Business
Kawasaki Rail Car, Inc, (the "Company') was incorporated under the laws of the State of
New york on February 17, 1989, and wæ a wholly-owned subsidiary of Kawasaki Helv}
Industries, Ltd, (the "Uitimate Parent" or "KHI"), a Japanese corporation' On March 30,2001,
KFII contíbuted the stock of the Company to Kawasaki Motors Manufacflûing Corp', U,S.A'
(,,the Parenf' or "KMM'), The contribution made the Company a wholly-owned subsidiary
of KMM. The principal business of the Company is to manufacture rail and subway ca$ on a
contacilal Uasis. fnõ principal ctætomers of the Company are cþ and stâte fransit authorities
located in the United States.
The Company has been dependent on the Ultimate Parent for financial support, and the
Ultimate Pare* has committed to provide continued financial support to the Company'
Effective for fiscal 2013, the Company changed its fiscal yeæ end ûom December
3l
to
March 31.
2. Summary of Significant AccountÍngPolicies
Operating Cycle
The Company,s work is performed under fixed-price contracts with modification by penalty
provisions. itre tengttr of the Company's contracts varies but is typically about five years,
'Therefore,
und liabilities are not classified as current and noncurrent because the
contract-related items in the balance sheet have realization and liquidation periods extending
*..t.
beyond one year,
Cash and Cash Equlvalents
with
Cash and cash equivalents consist of cash and short-term interest bearing investments
purchased.
original maturities of three months or less when
The Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such accounts.
The Company believes it is not exposed to any signifrcant credit risk on cash a¡rd cash
equivalents.
!
[0ilil0rrllilil
Kawasaki Rail Car, lnc.
(A Wholly-owned subsidiary of Kawasaki Motors Manufacturing corp., u.s.A,)
Notes to Financial Statements (continued)
2. Summrry of SignÍficant Accounting Policies (continued)
Accounts Receivable
The Company estimates an allowance for doubtñ¡l accounts based on the credit worthiness of
its customers, æ well as general economic conditions, Consequently, an adverse change in
policy,
these factors could affeet the Company's estimate of bad debts. The Company, as a
for
doubtful
allowance
had
an
The
Company
does not require collateral from its customers.
accounts of $120,145 at March 31, 2013.
Advance Payments
The Company makes advance payments to related and unrelated parties for the procwement
of supplies prior to the sta¡t of their respective contacts,
Property and Equipmcnt
property and equipment are statcd at cost, Depreciation is computed by the straíghtJine
method ove¡ the estimated useful lives of the assets, rarrging from three to seven years.
Leasehold improvements are arnortized by the staight-line method over the estimated useful
lives of the improvements or the term of the lease, whichever is shofler'
The Company follows the provisions of the Financiat Accounting Standards Board ('FASB")
Accounting Søndards Codification (.'ASC") on accounting for the impairment or disposal of
long-lived-assets, It requires that long-lived assets and cefain identifiable intångibles be
whenever events or changes in circumstances indicate that the
revlewed for impairment
-of
an asset may not be recoverable. Recoverability of assets to be held and
carrying arnount
urç,j ir-rr*ured by a comparison of the carrying amount of an asset to frrture net cash flows
expected to be generated by the asset, if such assets are considered to be impaired, the
impairment to be recognized is measu¡ed by the amount by which the carrying amount of the
assets exceeds the fair value ofthe assets. Assets to be sold or disposed ofare reported at the
iower of the carrying amount or i'air value iess cosis io seil There were no impairments
recorded dwing the year ended Ma¡ch 3 I , 201 3 '
8
[0ilfl0trllÏrlt
Kawasaki Rail Car,Inc.
(A Wholty-Owned Subsidiary of Kawasaki Motors Manufacûuing Corp,, U,S,A.)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting PolicÍes (continued)
Conditional Asset Retirement Obligations
U.S. generally accepted accounting principles require the Company to recognize the fair
valuJ of its tegal obligation to perform an asset retirement activity, even though
gncertainty exists about the timing and/or method of settlement, if and when the
fairvalue of the liability can be reasonably estimated, As of March 31, 2013, the
Company does not have suffrcient information to reasonably estimate the fair value
of any asset retirement obligations.
Costs and Recognized Profit in Excess of Billings
Costs and recognized profit in excess of billings are comprised of costs and accrued profits
related to revenues onlong-term contacts that have been recognized for accounting purposes
but not yet billed to customers. As revenues are recognized, customer advances and progress
puym"nt are reflected as an offset to costs and recognized profit in excess of billings.
Billings in Excess of Costs and Recognized Profit
Billings in excess of costs and recognized profit represents advances and progress payments
from customers itr excess of costs incuned on certiain contracts.
Accrued Expenses on Long-Term Contr¡cts
Accrued expenses on long-term conhaots represent accrued fuh¡re costs of the contracts in
which rail and subway cars have been already delivered but a¡e still in the retention period.
The futu¡e c.osts consist of unbüled material costs, direct wananty expenses (both spare parts
and labor) a¡rd indirect warranty expenses, such as engineering, pwchasing, and quality
conúol.
Anticipated Losses
The Company records a provision for anticipated losses on wrcompleted contracts when such
losses become evident.
9
!
t0ÍllilDt[lIlAL
Kawasaki Rail Car,lnc.
(A Wholly-Owned Subsidiary of Kawæaki Motors Manufacturing Corp,, U,S,A')
Notes to Financial Statements (continued)
2. Summary of SÍgnificant Accounting Policies (continued)
Foreign Currency Transactions
Realized gains or losses ûom foreign currency transactions are reflected in current operating
results.
Revenue and Cost Recognition
The Company uses the unit-of-delivery method, an acceptable modification of the percentage
of completion method, for the recognition of revenues under long-term construction contracts.
Under this method" the Company estirnates the total contract costs and gtoss profit expected
for each long-term conhact. Revenues and the portion of gross profit to be recognized are
calculated on the basis of the number of rail and subway cars delivered and accepted by the
customers, When adjusûnents in contract value or estimated costs a¡e determined, any
charrges from prior year estimates are reflected in earnings in the curent period.
Contract costs include all subcontactor costs for materials, slúpping, labor and indirect costs
related to contract performance, sr¡ch as inswance and engineering consultants' fees. Precontact costs and general and administrative costs are charged to expense æ incurred.
Revenue from spare parts sales is recogrrized when a product is delivered and accepted by a
customer. The cost of sale is calculated based on the total contact cost and gross profit
expected on each spare parts project.
Service contract income primarily consists of service fees and expense teimbursements from
the Ultimate Pa¡ent,
fncome Taxes
Defened income tax assets and liabilities are computed based on enacted tax law t.ix
t€mporary differences between the financ.ial statement and ta>c bases of assets and liabilities,
and for operating loss carryforwards, Changes in enacted tax rates are reflected in the tax
provisions as they occur.
10
I
[Ûttltl0ttìlTlIt
Kawasaki Rail Car, Inc.
(A Mrolly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U,S,A.)
Notes to Financial Statements (continued)
2. Summary of SÍgnificant Accounting Polícies (continued)
Accounting for Uncertain Tax Positions
The Company follows the provisions of the FASB ASC, as revised, on "Uncertainty in
Income Tãxes". The guidance imposes a th¡eshold for determining when an income tax
benefit can be recognized for financial statement purposes. The threshold now imposed
for financial statement reporting generally is higher than the threshold imposed for
claiming deductions in income tax returns. Under the revised guidance, the tax benefit
from an-r.urcertain tax position can be recognized for financial statement purposes only if
it is more likely than not that the tax position will be sustained upon examination by the
taxing authorities including the resolution of appeals or litigation processes,.if any. The
revisðd rules also provide grridance on classification of curent and defened income tax
assets and liabilitiãs, accoqnting for interest and penalties associated with tax positions,
and income tax disclosures. Management believes there \ryere no material uncertain tax
positions as of March 31, 2013.
The Company provides deferred income taxes resulting from temporary differences
between tÍre finância statement and tax bases of assets and liabilities and for operating
loss oarryforwards. Defened tax assets or liabitities at the end of each period are
determinåd using the tax rate expected to be in effect when taxes are actually paid or
recovered, Valuation allowances are established when necessary to reduce defened tax
assets to the amount that is more than 50 percent likely of being realized.
The Company files U.S. federal income tax retums and state and local income tax retums
in New York. Returns filed in these jurisdictions for tur years ended on or after
December 31, 2009 are subject to examination by the relevant taxing authorities.
Use of Estimatqs
The preparation of frnancial statements in conformþ with accountìng principles generally
*..it"á in the United States of America requires management to make estimates and
ass,.rmptions that affect the reported amounts of assets and liabitities and disclosue of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revJnues and expenses during the reporting period, Actual results could differ from those
estimates.
1l
[0ffit0rlllTt[t
Kawasaki Rail Car,Inc.
(A Wholty-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U,S.A,)
Notes to Financial Statements (continued)
3. Fair value measurement
The FASB ASC on faìr value measwement defines fair value, establishes a framework for
measuring fair value, and establishes a faír value hierarchy which prioritizes the inputs to
valuatìon techniques, Fair value is the price that would be received to sell an asset or paid to
transfer a liability ìn an orderly transaction between ma¡ket participants at the measu¡ement
date. A fair value measurement assumes that the tansaction to sell the asset or transfer the
liability occurs in the principal market for the a.sset or liability or, in the absence of a principal
ma¡ket, the most advantageous rnarket. Valuation techniques that are consistent with the
market, income or cost approach, as specified by these standards are used to measure fair
value.
The Company's financial inshuments consist of cash equivalents, accounts and retention
receivable, advance payments, accounts and retention payable and short-term debt. The
carrying amount of these financial instruments approximates fair value due to the short
maturities of those instruments. Finærcial instruments, which potentially expose the
Company to a concentration of credit risk, consist primarily of cash and cash equivalents md
accounts receivable.
4. Significant Long-Term Contracts
PATH PA-5 Project
On May 10, 2005, the Port Auttrority Trans-Hudson Corporation ("PATH") awarded the
Company a project to supply 340 subway railcars. In addition, the Company is obligated to
supply contacfual deliverables such as spare parts. The Company also is obligated to
purchase 70 PA-4 railcars and dispose of 239 PA-I, PA-2 and PA-3 railcars under the same
conúact. As of March 31, 2013, 340 railcars were delivered to PATH and have been
conditionally accepted. On September 3, 2010, PATH awæded the Company an option
project to supply l0 subway railcæs, As of March 31,2013,10 railcars were also delivercd to
PATH a:rd have been conditionally accepted.
t2
[0lllfl0rl|ilfl
Kawasaki Rail Car,Inc.
(A Wholty-owned subsidiary of Kawasaki Motors Manufacturing corp., u.s.A,)
Notes to Financial Statements (continued)
4. Significant Long-Term Conhacts (continued)
MNRM-8 Proiect
On Augrrst 21, 2006, Metro-North Commuter Railroad Company ("MNR") awa¡ded the
Company a project to supply 300 passenger railcars. On August 31, 2011, MNR awarded the
Company an option to supply 25 single cars, which brought the total conhact nu'nber to 325
At of March 31, 2013, 194 railca¡s were delivered to MNR and have been
p*.*g.t
"uo.
conOitiãnaily accepted. 107 railcars are planned to be delivered to and accepted by MNR in
fiscal year 2014.
In February and Ma¡ch 2011, MNR offered additional proposals of 80 pæsenger
The contact prices and schedules are under negotiation.
Çars
in total.
I{YCT Rl88 Project
On May 28, 2010, New York City Transit (.IIYCT) awarded the Company a project to
supply'10 conversion cars and 23 ne\¡y passenger railcars. As of March 31, 2013, l0
conversion and 23 new p¿¡ssenger cars \¡rere delivered and have been accepted by NYCT. On
December 27,2011, NICT awa¡ded the Company option projects to supply 370 conversion
cars and 103 new passenger railca¡s. 69 new pa.ssenget railcars and 30 conversion cals are
planned to be delivered and accepted in fiscal year 2014.
\ryMATAProiect
On July 26,2010, Washìngton Metropolitan Area Transit Authority (.'WMATA') awarded
the Company a project to supply 364 passenger railcars. As of March 31, 2013, final design
review has bed completed and production for 9 pilot cars is in process at KHI and KMM.
These pìlot caß are planned to be delivered to and accepted by
WMATA in fiscal year 2014'
PATH Damaged Car RePair Project
2l,20|2,PATH issued a purchæe order to the Company for a project to repair
which were damaged by flooding caused by suporsûorm Særdy. Since
railcars
54 passenger
ttris is a fúvt¿ funded project for PATH, the contract will be on a time and material basis. As
of March 31,2013, 12 ôari were delivered and have been accepted by PATH' The remaining
42 carcare plarured to be delivered and accepted in fiscal yeat2014.
On Novemb et
13
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[0l\lt¡DIrllTtAr.
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing CoIp-, U,S'4,)
Notes to Financial Statements (continued)
5. Retention Rcceivable and Retention Payable
At March 31,2013, a gross retention receivable of approximately
$38,110,000, relating to
in
accourts and retention
included
was
contractual
deliverables,
delivery of railcars and other
practice,
a fixed percentage of
industry
As
an
receivable in the accompanying balance sheet.
approximately 3% of the total contact value, is withheld by the customets as retention for the
contact. The retention receivable serves to protect the customen against any liquidated
damages or other claims arising f¡om the customers. These retention receivables were not
discounted because the Company believes tlrat the retention receivables will be released
witlfn a reasonable period of time based on the recent history of early releases by the
customers.
payable of approximately $13,277,000, relating to
subcontracts to purchase parts required for the production of railcars in prime contracts, was
At March 31, 2013, a gross retention
included in accorurts and retention payable in the accompanying balance sheet, The Company
enters into various agreements with subcontractors to purchase parts required for the
production of rail and subway ca¡s in its prime contracts. After the receipt of the parts from
ihe subcontractors, the Company withholds a fixed percentage of the total subconhact price æ
retention for the contract. The retention payable serves to protect the Company against any
liquidate.d damages or other claims arising from the subcontacts. The retention is generally
payable upon the release of retention receivable by ttre customers, These retention payables
were not discounted because substantially all ofthese retention payables are expected to tle
paid within areasonable period of time.
6. Costs nnd Recognized Profit on Uncompleted Contraets
Costs and recognized profit on uncompleted contracts at Ma¡cli 31,2013 consisted
of
the
following:
March 31,
20t3
Costs
s
Net
1,416,879n331
)
Recognized loss
Total costs and recognized loss
Less billings to date
1J82,564,(D0
(1,292,96517401
$
t4
t0lllfl0rililil
Kawasaki Rai[ Ca¡, fnc.
(A Whotly-owned subsidiary of Kawasaki Motors Manufacturing corp., u.s,A,)
Notes to Financial Statements (continued)
6. Costs and Recognized Profit on uncompleted contracts (continued)
Included in the accompanying balance sheet at March 31, 2013 under the following cåptions
were:
March 31,
2013
Costs and recognized profit in excess of billings
Billings in excess of costs ancl recognized profit
$
Net
$
241,604,121
(152,006'3711
Costs include purchased materials and parts, æ well æ allocated payroll and other overhead
costs. The Company ha.s accrued anticipated
losses
on
uncompleted contracts of
$24,314,127 atMarch 31, 2013.
7. Property and EquiPment
Property and equipment at March 3t,2013 consisted of the following:
March 31,
20r3
Machinery and equipment
Office fumitu¡e and equipment
Leasehold improvements
Softwa¡e
Properfy and equipment, at cost
Less accumulated depreciation and amortization
Property and equipment, net
s
9F77,595
2,830,ó20
3,925,455
20209336
(19,0r2,63Ð
$
8. Related Party Transactions
The Company has several contractual and service agreements with related parties' Inoluded in
the financiat statements were the following balances and hansactions as of and for the yeæ
ended Marc.h 31,2013:
15
[0ffiilrMnt
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Ma¡rufactudng Corp., U.S,A.)
Notes to Financial Statements (continued)
8. Related Party Transactions (continued)
¡.
KHI
March 31,
2013
Accounts receivable
Advance payments
Accourts and retention payable
Service contract income
lnterest expense (net)
$13,311,448
12¡53,536
94,426,115
141,87,451
575,326
In August 2005, ttre Company and KHI entered into an agreement whereby the Company
would serve as KIfI's exclusive railcar business sales representative in the United States. In
connection therewith, the Company receives remwrerafion based on the arurual amount of new
railcar contracts multiplied by a basic rate percentage (ranging from .5% Io 2%) and an
adjustment parameúer percentage (ranglng from l0% to 50%). During the year ended March
31,2013,the Company ea¡ned $1,074,954 under this agreement.
b. KMM
March 31,
2013
Accounts receivable
Accounts payable
$
192,081
21,693
After sales income
277,,3O7
Service conüact income
Interest income
106,910
53,144
l6
t0tllflDtl\lIlil,
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U'S.A.)
Notes to Financial Statements (continued)
9. Income Taxes
As of March 31, 2013, the Company had net defened tÐ( assets of
approximately
anticipated losses
$30,540,000, which resulted mainly from net operating loss carryforwards,
established a
Company
The
amortization'
and
on uncompleted contracts, and depreciation
because
2013
3l'
March
as
of
tot
assets
defened
valuation ullo*un"" for the amount of the
the
re
will
be
tax
assets
defsrred
management believes it is not likely that the
future. For the year ended Mæch 31, 2013 the valuation allowatrce
approximately $7,000,000. As of March 31, 2013, the Company had net o
c'arÐ,forwarOs of approximately $72,715,000 expi
2020 through December 31, 2030' The effective
federal income tax rate due principally to the non
forese--eable
by
oss
1'
U
es
and changes in the valuation allowance.
10. Employee Benelit Plan
except
The Company has a 401(k) invesünent retirement plan covering all eligible employees
Parent'
llltimate
the
temporary, part-time employees and those temporarily transfened from
ffrËpf*'provides that'the Company will contibute a percentage of each participant's
*-pintution which is discretionary and may vary from year to yeæ, Upon the termination of
is ûrlly vested
empioyment for reasons other than retirement, disabilþ or death, a participant
year ended
for
the
was
$781,000
contribution
n.,r" years of seryice, The company's
otË,
March 31, 2013,
11. Commitments and Contingencies
Lease Commitments
The Company leases office and manufac¡¡ring premises, as well as office equipment under
noncancellabie operating leases. Certain leases contain escalation clauses'
As of Ma¡ch 31, 2013, minimum rental commitnents under noncancellable leases for office
and manufacnuing premises were as follows:
Fiscal year ending March
20t4
3l
_L_l4l-000
t7
[0f\lflDrt\Iilfir
I
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U.S.A.)
Notes to Financial Statemenls (continued)
11. Commitments and Contingencies (continued)
Rent expense under the nonca¡rcellable operating leases for the yeæ ended March 31, 2013
wæ approximately $3,61 4,000.
Building Purchase
The Company has entered into a conftact to purchase the building which it utilizcs for its
current operations in Yonkers, New Yorþ and expects the closíng to occur in the near future.
Letters of Credit
The Company has committed letters of credit with furancial institutions to support the release
retention receivables ûom significant long-term contacts. The Company also has
committed letters of credit with financial irstitutions to support the Company's performance
in signifìcant long-term contracts. The total available balance of the letters of credit was
approximately $788,627,000 at March 31, 2013. Anrual fees are calculated by multiplying tlte
available balance ofthe letters ofcredit by a fixed percentage ranging from 0.15% to 0.5% per
of
year.
Line of Credit
The Company has a line of credit totaling $70,000,000 with a financial institution.
Bonowings under this line are unsecured and beæ interest at a prime rale (3.25Vo as of March
31,2013),
Concentration of Credit Risk
Net revenues, whether direct or indirpct, from MTA/NYCT and MTA/Metro-North toüaled
$319,287,000 or 85.0% of toøl revenues for the years ended March 31, 2013; while the same
customers accounted for approximateìy $61,027,000 or 42.9% of total accounts and retention
receivable at March 31, 2013, Any changes in these customers' business may affect the
Company's operating results.
12. Subsequent Events
The Company has evaluated subsequent events through April 11, 2013 which is the date these
financial statements were available úo be issued, noting no matters of sigrtificance.
l8
Kawasaki Rail Car' fnc.
(A Wholly-Owned Subsidiary of
Kawasaki Motors Manufacttlring Corp., U.S.A.)
FnIANcIAL Srerruml¡:rs
Years Ended December 3 1, 201
I
and 2010
with Report of Independent Auditors
I
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T
CONFIDENTIAL
saki Rail Car,Inc.
(A WholþOvvned Subsidiary of Kawasaki Motors Manufacnuing Cotp., U.S.A.)
Financial Statements
Years Ended December
3l,20ll
and2010
Contents
ReportoflndependentAuditors
Balance Sheets
Statements oflncome
Statements of Stockholder's Equity.....
Statements of CastrFlows
Notesto Financial Statements..
I
............-.......
2
3
4
5
6
MEtsr¡z.Aß-A& I{rna
CONFIDENTIAL
CERTI FI ED PUBL¡C ACCOUNTANTS
455 CENTRAL PARK AVENUEI SUITE 3I5
SCARSDALË, NEw YoRK 10583
TELEpHoNE (914) 7?2-g'440 / FAx (914) 722-6445
Report of IndePer-rdent Auditq{s
To the Directors and Stocktrolder
Kawasaki Rail Car, lnc':
of
'We
have audited the accompanying balance sheets of Kawasaki Rail Car, Inc. (a whollyowned subsidiary of Kawasaki Moior Manufacturing Cory., U.S.A.; the "Company") as of
December 31,2}ll and 2010, and the reiated statements of income, stocklrolder's equity and
of the
cash flows for the years then ended- These financial statements are the responsibiJity
financial
these
on
Company's management. Our responsibility is to express an opinion
statements based on onr audits.
We conducted our audits in accordance with auditing standards generally.accepted in the
United States of America. Those standards require that we plan and perforur the audíts to
obtain reasonable assurance about whether the ñnancial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit aiso includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluatinfthe overali f,rnancial statement presentation. We believe that oru audits provide
a reasonable basis for our opinion.
present fairly, in all material
respects,-thefinancialposition ofKawasaki Rail Car, [nc. as ofDecember 3I,201t and2010,
of its operations and its cash flows for the years then ended in conformity with
-á th" results
accounting principles generally accepted in the United States ofAmerica.
In our opinion, the financial
March 9,2012
statements referred
to above
4 k'L
1
CONFIDENTIAL
awasaki Rail Car, Inc.
(A'Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U,S.A,)
Balance Sheets
December3l,
2011
2010
Assets
Cash and cash equivalents
s
Accounts and retention receivable, net
Loans receivable from related party
Costs and recognized profit in excess ofbillings
Advance payments
24J38,115
119,341,064
$
96,000,000
61,983,288
106,736,553
Prepaid expenses
Property and equipment, net
Other assets
5,848,729
745,571,761
97,104
159,081,336
312,773,540
641,997
lr4361669
I,568,755
1L6,232
Total assets
$ 410,049,025
1I4,230
9625,540,239
Liabilities and Stockholder's Equify
Liabilities:
Short-term loan
$
$
Accounts and retention þayable
Biilings in excess of costs and recognized profit
Accrued expenses on long-term conftacts
Anticipated losses on uncompleted contracts
179,803,850
367,946,102
151,6711649
139,787,448
17,I40,I31
22,652,585
14,870,393
Other liabilities
22,905,391
LLs32.648
2,777,537
380531,125
Total liabilities
46,400,000
596,256,599
Commitnents and contingencies
Stockholder's equity:
Common stock - authorized 620,000 shares of $1
par value and 600,000 shares of$100 par value;
issued a¡rd outstanding 600,000 sha¡es oi$l par
value and 600,000 shares of$100 par value
Additional paid-in capital
Accumulated defi.cit
Total stockholder's equþ
Total liabilities and stockholder's equity
Se
60,600,000
60,600,000
21,924,434
27,924,434
(53,240,795)
(53,006,534)
29,517,900
s
410,049,025
29,283,639
625,540,239
S
e ac c omp anying no t e s.
2
CONFIDENTIAL
saki Rail Car, Inc.
(A Wholty-Owned Subsidiary of Kawasaki Motors Marurfacnring Cotp., U.S.A)
Statements oflncome
Year ended December3l,
20tt
Revenues:
Contract revenues eamed
Service conhact income
s 342,110,550
27,192,346
2010
$ 381,204,030
24,369,715
369,302,896
405,573,745
338,155,410
371,752,275
21.226,839
Costs:
Cost ofcontract revenues earned
Cost of service contracts
23,039289
36L,194,699
392,979,174
12,594,63r
Gross profit
8,108,197
General and administrative expenses
7,431299
7294.174
676,898
Operating income
5,300,457
Otherincome:
Provision for income taxes
Se
56'^847
598,739
(385,790) (166,359)
291,108 5,134,098
Income before provision for income taxes
Net income
76,677
(153,053)
(13,306)
(462,467)
Interest expense
Other income (loss)
s
234,261
$
4,535,359
e a c c omp arrying not e s.
J
I
T
t
t
t
I
CONFIDENTIAL
Kawasaki Rail Car, [rc.
(A Wholly-Or¡ned Subsidiary of Kawasaki Motors Manufacturing Corp., U.S.A.)
Statements of Stocktrolder' s Equity
Additional
Common
Stock
Balance, Decernber
3
l, 2009
s60,600,000
Paid-in
Capital
s2t,824,434
Netincome
Balance, December 31, 2010
60,600,000
21,924,434
T
$60.600.000
921.924,434
Stockholder's
Eouitv
J76,154)
s24,748280
4-535.3s9
(53,240,795)
4-535^359
s(57
234,261
Net inconre
Balance, December 31, 2011
Accumulated
Deficit
$ts3.006.534)
29283,639
234.261
s29s17.900
t
:
;
T
I
!
I
!
!
See accompanying no tes.
¡
I
I
4
CONFIDENTIAL
aki Rail Car, Inc.
(A Wholty-Owned Subsidiary of Kawasaki Motors Manufach:ring Corp-, U.S'A')
Statements of Cash Flows
Year ended December3l,
2011
Cash flows from operating activities:
Net income
Adjustnents to reconcile net income to net cash provided
(used) by operating activities:
23426r $
$
Depreciation and amortization
Anticipated losses on uncompleted confacts
Changes in operating assets and liabilities:
Accounts and retention receivable
4,535,359
6721193
(2934988)
705,280
(6,039,228)
26,170,697
(68,965,100)
206,036,987 (6,084,910)
Advance payments
(89,434\
s44:t83
(2,003) (112,930)
í88,LA252\ 7,022,645
L09,582249 (62,062,219)
5,512,454 3,883,266
8,755,112 1,288,775
Prepaid expenses
Other assets
Accounts and retention payable
Billings in excess of costs and recognized profit net
Accrued expens€s on long-term conÙacts
Other liabilities
Net cash provided (used) by operating activities
t6t369Ags
Cash flows used in investing activities:
Purchase of properly and equipment
Net c¿sh used by investing activities
Cash flows from financing activities:
Short-term loan
Repayment (issuance) of loans receivable from related party
Net cash provided (used) by financing activities
025.918.496)
(480.107)
1488261)
t480.107)
1488.261)
(46,400p00)
46,400,000
(96.000.0001
54.300_000
1142.400.000)
100.700.000
18,489p86
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end ofyear
$
Supplemental disclosure of cash llow information:
Cash paid for income hxes
Cash paid for interest expense
S e e ac c ompanying
2010
s.E48.729
Q.5,706,75'l)
31.sss.486
24¡38,115
$
$.
56,847
$
598,739
s
600"516
$
376.r74
5.848,729
not es.
5
CONFIDENTIAL
awasaki Rail Car, Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U.S.A.)
Notes to Financial Statements
1.
Organization and Description of Business
Kawasaki Rail Car, Inc. (the "Company") was incorporated under the laws of the State of
New York on February 17,1989, and was a whoþ-owned subsidiary of Kawasaki Heavy
Industries, Ltd. (the "Llltimate Parenf' or "KFil,"), a Japanese coryoration. On March 30, 2001,
KHI contributed the stock of the Company to Kawasaki Motors Manufacturing Cotp., U.S.A.
('the Parenf'or "KN¡flVI'). The contibution made the Company a wholly-owned subsidiary
of KMM. The principal business of the Company is to manufacture rail and subway cars on a
contacilal basis. The principal customers of the Company are city and state tuansit authorities
iocated inthe United States.
The Company has been dependent on the Ultimate Parent for financial support, and the
Ultimate Parent has committed to provide continued financial support,to the Company.
2. Summary of Significant Accounting Policies
Operating Cycle
The Company's work is performed under fixed-price confracts with modification by penalty
provisions. The length of the Company's conftacts va¡ies but is typically about five years.
Therefore, assets and liabilities are not classified as current aird noncurrent because the
conûact-related items in the balance sheets have realization and liquidation periods extending
beyond one year.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term interest bearing investnents
original maturities of three months or less when purchased.
with
Accounts Receivable
The Company estimates an allowance for doubtful accounts based on the creditwothiness of
its customers, as well as general economic conditions. Consequently, an adverse change in
these factors could affect the Company's estimate of bad debts. The Compan¡ as a policy,
does not require collateral from its customers. The Company had an allowance for doubtfi-il
accounts of 5333,724 and $306,863 at December 37,2011 and 2010, respectively.
6
CONFIDENTIAL
Kawasaki Rail Car, Lrc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufactruing Corp., U.S.A.)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Advance Payments
The Company makes advance payments to related and unrelated parties for the procurement
of supplies prior to the start of their respective contracts.
Financial Instruments and Concentration of Credit RÍsk
The Company's financial insffuments consist of cash equivalents, accounts and retention
receivable, related party loans receivable, accounts and retention payable and short-term debt.
The carrying amount of these financiat instrtrments approximates fair value due to the short
maturities of those instrrments. Financial instruments, which potentiallyexpose the Company
to a concenhation of credít risk, consist primarily of cash and cash equivalents and accor¡¡rts
receivable.
The Company maintains its cash in bank deposit accounts whicll at times, may exceed
federally insured limits. The Company has not experienced any losses in such accounts.
The Company believes it is not exposed to any significant credit risk on cash and cash
equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by the staight-line
method over the estimated useftrl lives of the assets, ranglng from three to seven years.
Leasehold improvements a¡e amortized by the sraight-line method over the estimated usefül
lives ofthe improvements or the term of the lease, whichever is shorter.
The Company follows the provisions of the FASB Accounting Standards Codification on
accounting for the impairment or disposal of long-lived assets. It requires that long-lived
a.ssets and certain identifiable íntangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an assetmay not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to futr.re net cash flows expected to be. generated by tlre asset. If such
assets a¡e considered to be impaired the impairment to be recognized is measured by the
¿rnount by which the carrying aÍiormt of the assets exceeds the fair vaiue of the assets. Assets
to be sold or disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. There \¡/ere no impairments recorded during the years ended December 37,2077
or 2010,
7
CONFIDENTIAL
Káwasaki Rail Car, Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manrrfacturing Corp., U.SA.)
Notes to Financial Statements (continued)
2. Su mmary of Significant Accountin g Policies (continued)
Conditional Asset Retirement Obligations
U.S. generally accepted accoì¡nting principles require the Company to recognize the fair
value of its legal obligation to perform an asset retirement activity, even though
uncertainty exists about the timing and/or method of settlement if and when the
fairvalue of the liability can be reasonably estimated. As of December 31,2011, the.
Company does not have sufFrcient information to reasonably estimate the fair value
of any asset retirement obligations.
Costs and Recognized Profit in Excess of Billingg
Costs and recognized profit in excess of billings me comprised of costs and accrued profits
related to revenues on long-term contracts that have been recognized for accounting pulposes
but not yet billed to customers. As revenues are recognized, customer advances and progress
payments are reflected as an offset to costs and recognized profit in excess of billings.
þillings in Excess of Costs and Recognized Profit
Billings in excess of costs and recopized profit represents advances and progress payments
from cutomers in excess of costs incurred on certain conbacts.
Àccrued Txpenses on Long-Tem Contracts
Accrued expenses on long-term contacts represent accrued future costs of the contracts in
whieh rail and subway cars have been already delivered but are still in the retention period.
The future costs consist of unbilled material costs, direct wananty expenses (both spare parts
and labor) and indirect warranty expenses? such as engineering purchasing, and quality
conhol.
.{nticþated Losses
The Company records a provision for anticipated losses on r:ncompleted contracts when such
losses become evident.
I
CONFIDENTIAL
asaki Rail Car,Inc.
(A Wholly-Owned Subsidiary ofKawasaki Motors Manufactuing Corp., U.S.A.)
Notes to Financial Statements (continued)
2. Summary of SignÍficant Accounting Policies (continued)
Foreign Currency Transactions
Realized gains or losses from foreign cuüency transactions a¡e reflected in cunent operating
results.
Revenue and Cost Recognition
The Company uses the unit-of-delivery method, an acceptable modification of the percentage
of completion method, for the recognition of revenues under long-term constn¡ction conbacts.
Under this method, the Company estimates the total conûact costs and gross profit expected
for each long-term contact. Revenues and the portion of gross profit to be recognized are
calculated on the basis of the number of rail and subway cars delivered a¡rd acceptd by the
c¡stomers. When adjushnents in contact value or estimated costs are detennined, any
changes from prior year estimates are reflected in earnings in the cunent period.
Contract costs include all subcontactor costs for materials, shipping, labor and indirect costs
related to conftact performance, such as insurance and engineering consultants' fees. Pre-
contact costs and general and administative costs are charged to expense as inctlrred.
Revenue from spare parts sales is recognized when a product is delivered and accepted by a
customer. The cost of sale is calculated based on the total contact cost and gross profit
expected on each sparc parts project
Service contact income primariiy consists of service fees and expense reimbursements ftom
the Ultimate Parent.
Income Taxes
Defened income tax assets and liabilities are computed. based on enacted tax law for
temporary diferences between the financiai statement and tax bases of assets and liabilities,
and for operating loss carryforw'ards. Cha¡ges in enacted ta.\ ratÊs are reflected ín the tar
provisions
as they occur.
9
CONFIDENTIAL
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacnring Corp., U.S.A.)
Notes to Financial Statements (continued)
2. Summarï of Significant Accounting Policies (continued)
Accounting for Uncertain Tax Positions
The Company follows the provisions of the Financial Accounting Standards Board
Codification, as revised, on "lJncertainty in Income Taxes". The guidance imposes a
threshold for determining when an income tax benefrt can be recognized for fina¡cial
statement purposes. The threshold now imposed for financial statement reporting
generally is higher than the threshold imposed for claiming deductions in income tax
retums. Under the revised guidance, the tax benefit from an ¿nsert¡in tax position can be
recognized for financial statements purposes only if it is more likely than not that the tax
position will be sustained upon examination by the taxing authorities including the
resolution of appeals or litigation processes, if any. The revised rules also provide
guidance on classification of cunent and defened income ta.r assets and liabilíties,
accounting for interest and penalties associated with tax positions, and income tax
discloswes. Management believes there were no material uncertain tax positions at either
December 31,2011 or 2010.
The Company provides defered íncome taxes resulting from temporary differences
between the financial statement and tax bases of assets and liabilities and for operating
loss ca:ryforwards. Deferred tax assets or liabilities at the end of each period are
deterrnined using the tax rate expected to be in effect when taxes are actually paid or
recovered. Valuation allowances are established when necessary to reduce deferred tax
assets to the amount that is more than 50 percent likely of being realized.
The Company files U.S. federal income tax retums and state and local income tar returns
in New York. Returns filed in these jurisdictions for tax years ended on or after
December 31, 2008 are subject to examination by the relçvant taxing authorities.
10
CONFIDENTIAL
saki Rail Car,Inc.
(A Wholly-Owned subsidiary of Kawasaki Motors Manufacturing corp., u.s.A.)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The prepæation of financial statements in conformity with accounting principles generally
acceped in the United States of America requires management to make estimates and
assumptions that affect'the reported amounts of assets and tiabilities and disclosr¡re of
contingent assets and tiabilities atthe date of the financial statements and the reported arîoutrts
of revenues and expenses duríng the reporting period. Actual results could differ from those
estimates.
Recent Accounting Pronouncements
Dgring 2010 and 2011, the Financial Accounting Standards Board issued various updates to
tlre fÃSg Acco¡nting Standards Codificatior¡ including revised guidance on consolidation
of variabie interest entities, fair value disclosures, presentation of other comprehensive
income and goodwill impairment testing. These, and other updates, a¡e either not yet
effective for the Company's financial statements oç when effective, will not or did not have a
material impact onthe Company's financial statements upon adoption.
11
CONFIDENTIAL
Kawasaki Rail Car, úrc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufactruing Corp., U.S.A.)
Notes to Financial Statements (continued)
3. Significant
Long-Tem Contracts
PATIIPA-S Project
On May 10, 2005, the Port Authority Trans-Hudson Corporation (PAT¡[) awarded the
Company a project to supply 340 subway railcars. In addition, the Company is obligated to
supply contach¡al deliverables such as spare paxts. The Company also is obligated to
purchase 70 PA4 railcars and dispose ot239 PA-l, PA-2 and PA-3 railca¡s r.mder the same
contact. As of December 31, 2011, 340 railcars were delivered to PATH and have been
conditionally accepted- on September 3, 2070, PATH awarded the Company an option
project to supply 10 subway railcars. 1n2072, the Company plans to deliver 10 option
subway railcars to PATH.
MNRM-EProject
On August 21, 2006, Met'o-North Commuter Railroad Company CAitr{R) awa¡ded the
Companyaprojecttosupply300passengerrailca¡s. OnAugust3l,20ll,MNRawardedthe
Company for an option to supply 25 single cæs, which brings the total contuact number to 325
passenger cars. As of December 3t,2011,60 railcars were delivered to MNR and have been
conditionally accepted. 160 railcars are planned to be delivered to and accepted by MNR in
2012.
úr February and March 20 i 1, MNR offered additional proposals of 80 passenger cars in total.
The contactprices and schedules are under negotiation.
rrSl¿CT R188
Project
On May 28, 2010, New York Cþ Transit (\lYCl') awarded the Company a project to
supply 10 conversion cars and 23 new passengff railca¡s. As of Decemtrer 31, 2011, 10
conversion cars were delivered and have been accepted by NYCT. On Decemb er 27 , 2011,
NYCT awarded the Company option projects to supply 370 conversion cars and 103 new
passenger railcars. 23 new passenger railcars are planned to be delivered and accepted in
2012. Thereafteç 1 03 new passenger railcars will be produced.
t2
CONFIDENTIAL
Kawasaki Rail Car,Inc.
(A WholþOwned Subsidiary of Kawasaki Motors Manufacturing Corp', U.S'A.)
Notes to Financial Statements (continued)
3. Significant
Long-Tem Contmcts (Continued)
Wiu-r*TAProject
On July 26,2010, Washington Metopolitan Area Transit Authority (WMATA) awarded the
Company a project to supply 364 passenger railca¡s. As of December 31,2Q11, preliminary
design review has been completed and final design revierv is in process, First mockup review
is planned to be done by WMATA nearly 2012.
4. Retention Receivable and Retention Payable
At December 31, 2011 and 2010, a gross retention receivable of approximately S32,108,000
and $31,972,000, respectively, relating to delivery of railcars and other contractual
deliverables, was included in accou¡rts and retention receivable in the accompanþg balance
sheets. As an industry practice, a fixed percentage, rangrng from 3% lo SVo, of the total
conhact value is withheld by the customers as retention for the contract. The retention
receivable serves to protect the customers against any liquidated darnages or other claims
arising from the customers. These retention receivables were not discounted because the
Company believes that the retention receivables will be released within a reasonable period of
time based on ttre recent history of early releases by the customers.
At December 31, 2011 and 2010, a gross retention payable of approximately $24,138,000 and
$28,032,000, respectively, relating to the subcontuacts to purchase parts required for the
production of railcars in its prime contracts, was included in accounts and retention payable in
ttre accompanying balance sheets. The Company enters into various agreements with
subcontractors to purchase parts required for the production of rail and subway ca¡s in its
prime contracts. After the receipt of the parts from the subcontactors, the Company
withholds a fixed percentage of the total subcontact price as retention for the contact. The
retentíon payable seryes to protect the Company against any liquidated damages or other
claims mising from the subcontracts. The retention is generally payable upon the rele¿se of
retention receivable by the customers. These retention payables were not discounted because
substantially all of these retention payables are expected to be paid v/ithin a reasonable period
oftime.
13
CONFIDENTIAL
Kawasaki Rail Car, Úrc.
(A Wholly-Owned Subsidiary ofKawasaki Motors Manufacturing Corp., U.S.A.)
Notes to Financial Statements (continued)
5. Costs and Recognized
Profit on Uncompleted Contracts
Costs and recognized profit on uncompleted contacts at December 31,2011 and 2010
consisted of the following:
I)ecember 31,
20tt
Costs
2010
$
s 957,620,741
Ql,7gg,gl5l
9341602rL42
740,582,777
(720,688,889)
Recognized loss
Total costs and recognized profit
Less billings to date
(J.fi24290,503)
Net
$
(89,688,361)
in the accompanying balance sheets at December
following captions were:
Included
762,391,692
(23,018,605)
3l,20Il
S
19,893,888
and 2010 under the
December3l,
20tL
Costs and recognized profit in excess of billings
Billings in excess of costs and recognized profit
Net
20r0
s 61,983288 $
s (89,688,361)
$
159,081,336
87
19,893,888
Costs include purchased materials and parts, as well as allocated payroll and other overhead
costs. The Company has accrued anticipated losses of approximately $14,870,000 and
$22,805,000 at December 31,2071 and 2010, respectively.
1,4
CONFIDENTIAL
av/asaki Rail Car,Inc.
(A Wholly-Owned Subsidiary ofKawasaki Motors Manufachring Cotp., U.S.A.)
Notes to Financial Statements (continued)
6.
Property and Equipment
Property and equipment at December
3I,20LI
and 2010 consisted
ofthe following:
December3l,
20t0
20tt
Machinery and equipment
Ofñce fi:miture and equipment
Leasehold improvements
Softwa¡e
Properly and equipment, at cost
Less accumulated depreciation and amortization
Property and equipment, net
$9¡10,253
2,738208
3,808,761
3,906,075
$ 9,165,739
2,591,653
3,729,002
3,806,796
t9,763297
19,283,190
(18326,628\
(17,714,435)
s 1,436,669 $ 1,568,755
7. Related PaÉy Transactions
The Company has several contractual and service agreements with related parties. Included in
the financial statements were the following balances and tansactions as of and for the years
ended December 3 1, 201 1 and 2010 with related parties:
a. KIII
December3l,
2011
2010
Accounts receivable
Advance payments
$16,180,265
87,470,351
294,732,83I
Accounts and retention payable
Service contact income
lnterest income
160,565,847
t7?75,997
338,351,893
13,309,485
85"588
213,954
$12,388,985
15
CONFIDENTIAL
awasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufactruing Corp., U.S.A.)
Notes to Financial Statements (continued)
7. Related Parfy Transactions (continued)
In August 2005, the Company and KHI entered into an agreemeut whereby the Company
would serve as KHI's exclusive railcar business sales representative in the United States. ln
connection therewitlU the Company receives remuneration based on the arurual amount of new
railcar contacts multiplied by a basic rate percentage (rrngng from SVo to 2%) and an
adjustnent pararneter percentage Gangng from 10% fo 50Yo). Duríng the years ended
December 3L,2011and 201O the Company eamed $4,150,000 and $4,000,000, respectively,
underthis agreementb.
KMM
December 31,
2010
20LL
Accounts receivable
Loans ¡eceivable
Accounts payable
Service contract income
Interest income
$
185,454
g6,000,ooo
g
207,582
4376
97,043
374,550
52,461
477,359
30,493
During the year ended December 31, 2011, the Company made loarn totaling $96,000,000 to
The loans bea¡ interest at rat€s rang¡g from 0.28% to 0.58%. These loars a¡e
expected to be repaid ilr full by Mæch 26,2012.
KMM.
r6
CONFIDENTIAL
Kawasaki Rail Car,Inc.
(A Wholly'-Owned Subsidiary of Kawasaki Motors lvlanufacturing Corp, U.S.A.)
Notes to Financial Statements (continued)
S.Income Taxes
For the year ended December 31,2071, current ta< expense was reduced to $0 by the tax
benefit of an operating loss carryforward. As of December 31, 2011 and 2010, the Company
had net defened tÐ( assets of approximately $19,704,000 and $17,751,000, respectivel¡
which resulted mainly from net operating loss carrj¡forwards, anticipated losses on
uncompleted conhacts, and depreciation and amortization. The Company established a
valuation allowance for the amount of the defened tæ< assets as of December 31, 2011 and
2010 because management believes it is not likely that the deferred tax assets will be realized
in the foreseeable futue. For the years ended December 3l,z}Ll and 2010, the valuation
allowance increased (decreased) by approximately $1,953,000 and $(10,275,000),
respectively. At December 31, 2011, the Company had net operating loss carryforwards of
approximateþ $46,914,000 expiring during the years ending December 31,2020 tbrough
December 31,2030. The effective income tax mtes varied from the statutory federal income
tax Ìate due principally to the nondeductibility of certain exp€nses and losses and changes in
the valuation allowance.
9. Employee Benefit Plan
The Company has a a01ft) investment retirement plan covering all eligible employees except
temporary, part-time empþees and those temporarily tansfened from the Ultimate Parent.
The plan provides that the Company will contribute a percentage of each participant's
compensation which is discretionary and may vary from year to year. Upon the tennination of
employment for reasons other than retiremen! disability or deatl¡ a participant is fully vested
afrer five years of service. Thè Company's contributions were $?60,672 and$708,595 forthe
years ended December 3l , 2077 and 201 0, respectively.
t7
CONFIDENTIAL
Kawasaki Rail Car,Inc.
(A Wholly-Owned Subsidiary of Kawasaki Motors Manufacturing Corp., U.S.A.)
Notes to Financial Statements (continued)
10. Commitments and Contingencies
Lease Commitments
The Company leases offce and manufachring premises as well as office equipment r:nder
noncanceliable operating leases. Certain leases contaín escalation clauses.
As of December 31,2017, minimum rental commitnents r:rrder noncancellable leases for
office andmanufacttring premises were as follows:
Years ending December
3l:
2012
2013
s
399,686
s
399,686
799,372
Rent expense under the noncancellable operating leases for the years ended December 31,
2011 and 2010 was approximately $2,600,000 and.$2,588,000, respectively.
Building Purchase
The Company has agreed in principal to purchase the building which it utilizes for its cunent
operations in Yonkers, New York A contactual agreement is expected in the near futr:re.
Letters of Credit and Performance Bonds
The Company has committed letters of credit with financial in*itutions to support the release
of retention receivables ftom significant long-tenri contracts. The Company also has
committed letters of credit with finmcial institutions to support the Company's performance
in significant long+erm contacts. The total available balance of the letters of credit was
approximately$635,690,000 and $615,326,000 at December 31, 2011 and 2010, respectively.
Annual fees are calculated by multiplying the available balance of the letters of credit by a
fixed percentage ranging ûom 0.15%to 0.5Yoper year.
l8
I
I
CONFIDENTIAL
Kawasaki Rail Car, Úrc.
l
t
I
(AWholly-Owned Subsidíary of Kawasaki Motors Manufactuing Corp', U.S.A.)
Notes to Financial Statements (continued)
10. Commitments and Contingencies (continued)
I
I
The Company also has performance bond arangements with a financial institr¡tion to support
the Company's performance in significant long-tenrr contracts. The total face value of the
performance bonds was approximately $6,447,000 at December 31, 2011 and 2010. All fees
for the performance bonds are paid upon the inception of the contracts and included in the
I
Line of Credit
I
contract costs.
The Company has a line of credit totaling $70,000,000 with a financial institution
Borrowings under this line are unsecured and bear interest at a prime rate (3,25% as of
December
3
a
I
i
T
l,
201
3l,20tl).
The Company had no bonowings under the line of credít at December
l.
Concentration of Credit Risk
Net revenues, whether direct or indirect, from MTA/IrIYCT and PATH were approximateþ
5345,299,000 and $382,212,00A or 93.6Yo arÅ94.3% of total revenues for the years ended
December 31, 2OIl and 2010, respectively; ulhile the same customers accounted for
approximately $57,862,000 and $49,145,000 or 73.1o/o and 33.7%o, of total accounts and
retention receivable at December 31, 2011 and 2010, respectively. Any changes in these
customers' business may affect the Company's operating resfß.
11. SubsequentEvents
The Company has evaluated subsequent events through March 9,2012 which is the date these
financial statements were available to be issued, noting there to be none.
19
I

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