Notice of Inappropriate Conduct by Kawasaki Thermal Engineering Co., Ltd.

Tokyo, June 7, 2022 — Kawasaki Heavy Industries, Ltd. (hereinafter “Kawasaki”) announced today that it was discovered that acts which include inappropriate conduct had been performed in tests of certain absorption chillers manufactured and sold mainly for air-conditioning systems in buildings by Kawasaki Thermal Engineering Co., Ltd. (hereinafter “KTE”), which became a wholly-owned subsidiary of Kawasaki in August 2021. The following is a report of the relevant content and subsequent responses.

We recognize that the acts impair the trust of KTE and sincerely apologize for the significant inconvenience we may have caused our customers and concerned parties.
We confirmed the acts of inappropriate conduct do not have any impacts on the safety of our absorption chillers and the performance of the product is within the allowable performance tolerance as defined by the Japanese Industrial Standards (hereinafter “JIS Standards”)*¹ for the indicated performance for the models currently being sold.

In order to ensure that events such as these acts do not occur again in the future, a thorough investigation to determine its underlying causes will be conducted by a special investigation committee formed from third parties. In addition to carrying out corrective measures, we will further strengthen the test management system and compliance structures of the entire Kawasaki Group, and will strive to carry out recurrence prevention efforts.

As we implement customer support and corrective measures from here on, if there are any impacts on our business performance related to this matter that can be anticipated, we will announce them officially as soon as possible.

1. Performance and quality of absorption chillers currently being sold

Since absorption chillers from KTE are manufactured in succession using identical designs (mass-produced), their performance is confirmed through performance tests*² of first production articles (prototypes or initial units), and their quality is verified by pre-shipment commissioning carried out at plants on each mass-produced machine, so the performance and quality of all products to be sold are ensured.
While performance tests on first production articles confirm that the values specified by the JIS Standards for the refrigeration capacity (hereinafter “cooling capacity”)*³ and Coefficient of Performance (hereinafter “COP”)*⁴ are fulfilled by carrying out commissioning at 100% cooling capacity, pre-shipment commissioning performed on each mass-produced machine consists of commissioning at roughly 90% cooling capacity required for operational confirmation and equipment adjustment.
The reason for this is that in order to reach 100% cooling capacity after production, 30 to 50 hours of break-in operation are required, but since the prescribed performance is confirmed by performance tests of first production articles, we have determined the performance and quality of products can be ensured by pre-shipment commissioning at roughly 90% cooling capacity based on past performance data.

2. Overview of inappropriate conduct

(1) Acts committed during pre-shipment commissioning
[1] Indication of data which was not actually measured on inspection reports
[Duration] 1984 – 2022
[Number of cases] 1,950
In cases where pre-shipment commissioning at 100% cooling capacity was requested by customers, explanations should have been provided to customers stating: “Data at 100% cooling capacity has been confirmed by performance tests on first production articles, and quality has been confirmed through pre-shipment commissioning by commissioning at roughly 90% cooling capacity, so it is not necessary to perform tests again at 100% cooling capacity.” However, data was instead prepared to serve as the results of commissioning at 100% cooling capacity, and that data was indicated on inspection reports.

[2] Inappropriate operation of measuring instruments during witness tests
[Duration] 1984 – 2022
[Number of cases] 334 out of the 1,950 cases indicated in [1] above
When tests were conducted under witness by customers in addition to submission of the inspection reports indicated in [1] above, even though operation at 100% cooling capacity was not performed, measuring instruments were adjusted to make it appear that operation at 100% cooling capacity was performed, and explanations that differed from the facts were given to customers.

(2) Inappropriate indications in catalogs and specifications
[Duration] 1986 – 2009
[Number of applicable models] 6 *⁵
[Number of units currently in operation] 2,944
The JIS Standards for absorption chillers were established in 1986, and included specified criteria for performance (cooling capacity and COP).
The cooling capacity and COP of some of the products being sold at that time did not meet the rated value which was the performance tolerance according to the JIS Standards, but were made available for sale with statements indicating compliance with the JIS Standards in their catalogs and specifications. By 2009, however, sales of the applicable models had been discontinued.

3. Background

At the end of August 2021, a representative from the After-Sales Service Division noticed that the inspection reports submitted to customers by KTE differed from the internal test results, and reported the matter to a supervisor. Item 2 (1) [1] indicated above was then discovered.

After receiving that report, KTE started the investigation into the status of submitted inspection reports (past 5-year period, roughly 1,500 units), and after item 2 (1) [2] indicated above was confirmed, it was verified that the performance of models currently being sold is within the performance tolerances of the JIS Standards. Also, investigations were conducted on models currently in operation (roughly 9,600 units). Under the premise of providing individual explanations to customers, corrective measures and policies for response by explanations were considered, and relevant materials were prepared.

In March 2022, item 2 (2) indicated above was further discovered during the course of internal investigations, and since a general grasp of the relevant acts of inappropriate conduct had been achieved, reports were provided to the business division under the jurisdiction of parent company Kawasaki (Energy Solution & Marine Engineering Company).
After this, Kawasaki has requested KTE for additional detailed investigations and has also conducted other measures including interviews to ascertain the situation.

4. Establishment of special investigation committee

[1] Purpose
To carry out detailed investigations of the facts related to the acts of inappropriate conduct, determine their causes, validate and verify corrective measures, and provide recommendations on recurrence prevention.
[2] Members
Mori Hamada & Matsumoto: Attorney Yasuhiko Fujitsu (Chairperson)

Attorney Mugi Sekido

Attorney Seijun Lee

5. Future responses

Explanations on the content of this matter will be provided from KTE to customers who received deliveries of products subject to the acts of inappropriate conduct, and a sincere stance will be taken to provide responses through individual consultations and discussions.

Also, although corrective measures will be executed based on the results of investigation by the special investigation committee, the following steps will be implemented in advance. (already partially completed at this time)

[1] Responses by KTE
• Information on the performance and quality of absorption chillers will be communicated internally as well to outside parties.

• Internal compliance activities will be strengthened.
[2] Responses by Kawasaki Group
The Kawasaki Group will treat these acts of inappropriate conduct committed by a company affiliated with the Group as an extremely serious matter, and will thoroughly enforce compliance by implementing inspections related to compliance violations throughout the entire Group once again, with the Compliance Committees of all companies assuming a central role.

Overview of Kawasaki Thermal Engineering Co., Ltd.