Kubota : Investigation Results of Inappropriate Conduct Relating to Inspection Report and Recurrence Prevention Measures

November 29, 2018

Kubota Corporation

Investigation Results of Inappropriate Conduct Relating to Inspection Report and Recurrence Prevention Measures

We sincerely apologize again for causing concern and inconvenience to all our customers and parties concerned regarding "Kubota Corporation's Statement on its Rolling Mill Roll Inspection Process" announced on September 12, 2018.

Upon receipt of the results of the investigation conducted by an external law firm, the Company-wide Risk

Management Committee of Kubota Corporation ("Kubota") has established the recurrence prevention measures based on the results. Thus, we will announce the "Report regarding Inappropriate Conduct Relating to Inspection Report (the "Report")." Summary of the Report is as follows. The Report was prepared by Kubota in consideration of the investigation results reported by the external law firm.

We accept with sincerity the investigation results and Kubota Group will implement the recurrence prevention measures and strive fully to recover the trust of our customers and parties concerned as we work to make sure this type of misconduct never occurs again.

Description

• 1. Some cases in which values different from actual measurement results were written in the inspection report (the "Inappropriate Conduct") were newly discovered with respect to "shell thickness" and "dimension" of rolling mill rolls (sales in 2017: approximately 4.4 billion yen).

• 2. The Inappropriate Conduct was discovered with respect to "hardness" and "tensile strength" of "compressor cylinder liner" (sales in 2017: approximately 4 million yen, the number of customers: 2) manufactured in the same with rolling mill rolls division (Roll Manufacturing Section)."

• 3. With respect to the products other than two (2) products above, no inappropriate conduct was found relating to the official standards and the specifications agreed with the customers.

• 4. Based on the results of the investigation conducted by the external law firm, "Company-wide Risk Management Committee" of Kubota has established the recurrence prevention measures of the roll business and the entire company.

• 5. We will conduct internal action in order to clarify the management responsibility for quality assurance relating to the Inappropriate Conduct.

• 6. The Inappropriate Conduct has a minor impact on the performance.

1. Outline of Investigation

(1) Investigator

Nagashima, Ohno & Tsunematsu (the "Investigation Team")

• (2) Investigation period August 10, 2018 to November 27, 2018

• (3) Method of investigation

  (i) Quality inspection

With the involvement of the Investigation Team, with respect to all products manufactured in Hanshin Plant (Amagasaki Division and Mukogawa Division) and cast steel products manufactured in Hirakata Plant under the umbrella of the same business unit, as well as rolling mill rolls, we confirmed (i) the specifications agreed with the customers and the official standards to be satisfied and (ii) whether the inspection report matched the actual inspection results (the "Quality Inspection"). [Table 1] shows the scope of the Quality Inspection.

[Table 1] The Scope of the Quality Inspection

Unit	Office	Division	Name of Product	Subject Period	Subject to be inspected	Existence of Inappropriat e Conduct
Materials Business Unit	Hanshin Plant Amagasaki Division	Roll Manufacturin g Section	Rolling mill rolls	October 2008 to September 2013	Sample	Exists
				October 2013 to July 2018	All
			Cylinder liner for compressor	September 2008 to September 2018	All
		TXAX Manufacturin g Section	Potassium titanate	October 2015 to February 2018	Sample	None
				March 2018 to September 2018	All
	Hirakata Plant	Materials Manufacturin g Section	Cast Steel Products for Iron and Steel Industries	January 2016 to September 2018	Sample
			Cast Steel Products for Paper Manufacture
			Cracking coil, Reformer tube

Pipe System Business Unit

Hanshin Plant Mukogawa Division

Manufacturin g Section

Soft-seal valve

October 2015 to September 2018

- Employees of Kubota compared the inspection report with the actual inspection results following the designated method under the direction, supervision and in the presence (in some cases) of the Investigation Team.

• (ii) Review of internal materials

  The Investigation Team broadly collected and carefully reviewed the materials determined to be necessary for the investigation including the minutes of the internal meetings at Amagasaki Division, records regarding the quality audit of rolling mill rolls, manuals regarding the Quality Inspection and the internal rules.

• (iii) Analysis and review of electronic data

  The Investigation Team analyzed and reviewed electronic data saved in PCs and electronic mail servers, etc. that were used in the course of rolling mill rolls business, in order to investigate whether or not employees who are currently working or previously worked at Amagasaki Division were aware of or even concealed the Inappropriate Conduct.

• (iv) Interviews with concerned persons by the Investigation Team

  The Investigation Team conducted the interviews with the employees or former employees, etc. who have experience of working for manufacturing, technology development, quality assurance or sales of rolling mill rolls and who were possibly aware of or involved in the Inappropriate Conduct.

• (v) Internal questionnaires

  In the entire Kubota Group, with the help of the Investigation Team, we conducted internal questionnaires asking employees (approximately 3,700 employees, mainly employees belonging to divisions of development, manufacturing and quality assurance) who were involved in public standards certification and inspection, etc., questions regarding whether or not they know any other instances similar to the Inappropriate Conduct.

2. Outline of Facts

(1) Rolling mill rolls and cylinder liners for compressor

• - In addition to "hardness," "component" and "micrograph" of rolling mill rolls at Amagasaki Division announced on September 12, 2018, the Inappropriate Conduct was newly discovered with respect to "shell thickness" and "dimension."

• - In addition, with respect to "hardness (including "hardness measured based on the method designated by the customers" as well as general "hardness;" hereinafter the same)" and "tensile strength" of "cylinder liners for compressor" manufactured in the division same with rolling mill rolls (Roll Manufacturing

Section), the Inappropriate Conduct was newly discovered.

• - Based on the interviews with the concerned persons including former-employees, it can be said that the Inappropriate Conduct regarding "hardness" of rolling mill rolls started from 1977 at the latest. In addition, with respect to "hardness" and "tensile strength" of cylinder liners for compressor, the Inappropriate Conduct started from 2008 at the latest.

• - [Table 2] and [Table 3] show the number of rolling mill rolls and cylinder liners for compressor relating to the Inappropriate Conduct we found.

[Table 2] Percentage of the number of rolling mill rolls (the number of products relating to the Inappropriate Conduct / the number of products shipped) and the Inappropriate Conduct

Shipping Period	Subject Item (Unit : roll)
	Hardness	Component	Photo	Shell thickness	Dimension
October 2008 to September 2013 *Sampling Investigation	900/4,833 (18.6%)	237/4,833 (4.9%）	1,727/1,741 (99.2%)	172/1,685 (10.2%)	16/4,833 (0.3%)
October 2013 to July 2018 *Investigation covering all products	3,521/16,770 (21.1%)	121/16,670 (0.7%)	898/1,473 (61.0%)	181/6,988 (2.6%)	26/16,670 (0.2%)
Year when the Inappropriate Conduct started	1977	1991	1995	2001	2002

[Table 3] Percentage of the number of cylinder liners for compressor (the number of products relating to the Inappropriate Conduct / the number of products shipped) and the Inappropriate Conduct

Shipping Period	Subject Item (Unit : roll)
	Hardness	Hardness based on the method designated by the customers	Tensile strength
September 2008 to September 2018 *Investigation covering all products	10/164 (6.1%)	2/135 (1.5%)	22/151 (14.6%)
Year when the Inappropriate Conduct started	2008

- At this point, although no quality incidents in the customer's production have been confirmed with regards to the use of the products in question, we will sincerely respond to the customers' requests in the future.

(2) Other products

- As described in [Table 1], no Inappropriate Conduct was found with respect to the products subject to the

Quality Inspection other than rolling mill rolls and cylinder liners for compressor.

- With respect to the major products of Kubota, such as agricultural machinery, construction machinery and engines, no inappropriate conduct was found relating to the official standards and the specifications agreed with the customers as a result of internal quality audit sequentially conducted by the Quality Assurance Headquarters and internal questionnaires conducted by Kubota in cooperation with the external law firm.

3. Analysis of the Causes of the Inappropriate Conduct

We believe that the main causes of the Inappropriate Conduct and its long continuance are a combination of the matters (1) through (5) below.

• (1) Low levels of awareness in respect of compliance with the customer specifications

  - The persons who were involved and participated in the Inappropriate Conduct misunderstood that, if just product functions and performance are secured, product quality is automatically secured. They lacked the basic understanding that any request for quality assurance includes compliance with the specifications agreed with the customers.

• (2) Setting of the specifications that did not match the manufacturing capacity and the management system being insufficient where the content of the specifications that were agreed with the customers were not reflected in the manufacturing process

  • - Although we did not sufficiently consider whether or not it was possible to manufacture products satisfying the specifications demanded by the customers from the beginning in light of the plant's manufacturing capacity, we agreed the specifications with the customers. Especially with respect to the results of the hardness measurements, etc., despite the fact that there were some cases where the customer specifications were not satisfied, we hesitated to discuss adjusting the specifications with the customers because we were overly conscious of the competitive environment with other companies.

  • - The management system with respect to chemical components was insufficient where the targets and internal standards were set and changed without sufficiently confirming the specifications agreed with the customers and there were some instances where the component analysis results did not meet the customer specifications.

• (3) Procedural and organizational insufficiencies with respect to securing the appropriateness of the quality assurance operations

  • - During the period from the inspection until the preparation of the inspection reports in respect of the manufacturing process for the rolling mill rolls and cylinder liners for compressors in the Amagasaki Division, there were many handwritten and manual input procedures and therefore, it was easy to rewrite reports.

  • - The inspection reports were prepared alone by the person in charge and such reports were not double-checked, etc. by his superiors or other employees.

  • - The person in charge of preparing the inspection reports belonged to the development divisions of products other than the rolling mill rolls and the Quality Assurance Section managers, who were