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Even before we got our first cup of coffee this morning, we went to SEC’s website and perused the recent filings for Form SDs/CMRs. Over the past 48 hours (at least as of about 10am eastern time), close to 150 filings were submitted. And there will certainly be more than that by the time this article is published.
We semi-randomly selected 15 company filings to compare and contrast. In selecting the companies, we tried to select large, well known companies across a range of industries. We excluded companies with whom Elm worked on their program or filing.
Below is summary information of the 15 filings that includes the company name and industry, the link to their SEC filings, excerpts from the documents that we felt we particularly interesting or important, and our comments. Our general observations are that
- There is, as expected, wide variability in length, publication of metrics, listing smelters and interpretations of “may have reason to believe CM may have originated in Covered Countries”;
- Most issuers have defined due diligence to include the RCOI;
- Most issuers did not include the scrap disclosure in the Form SD;
- Percentage of direct spend was a common risk screening factor; and
- Supplier response rates, when identified, varied greatly from 0% to 100%
Company: Apple Computers
Industry: Electronics, Consumer Goods, Computers
Key excerpts from filing: Based on its due diligence efforts, Apple does not have sufficient information to conclusively determine the country of origin of the Subject Minerals in its products or whether the Subject Minerals are from recycled or scrap sources. However, based on the information provided by Apple’s suppliers, smelters, and refiners, as well as from other sources, Apple believes that the countries of origin of the Subject Minerals contained in its products include the countries listed in Annex II below, as well as recycled and scrap sources.
Our comments: Some may express disappointment that Apple did not file a lengthier disclosure. However, a careful reading of the content will show that Apple actually did far more than just reviewing spreadsheets and looking at smelter lists.
Industry: Electronics, Consumer Goods, Computers
Key excerpts from filing: We have determined that with respect to our 2013 products containing necessary conflict minerals we know or have reason to believe that some of the necessary conflict minerals originated or may have originated in the Covered Countries. Further, we know or have reason to believe that these necessary conflict minerals may not be conflict minerals from recycled or scrap sources. Accordingly, we conducted due diligence on the source and chain of custody of those necessary conflict minerals and have prepared this Conflict Minerals Report.
Our comments: Severalof the issuers in our review took the position that suppliers’ company-level disclosures could not be definitively linked to specific parts/materials provided to the issuer, and therefore it was not possible to identify smelters/countries of origin applicable to the issuer. HP does not appear to have taken this path and disclosed on a broader basis. We offered our views on this point earlier.
Company: Ford Motor Company
Key excerpts from filing: The majority of our in-scope suppliers have provided a company-level completed CMRT that does not identify the smelters or refiners used for a particular part, component, or business customer. In cases where suppliers provided a part-level report, the identification of the smelters and refiners that support our specific products could not be determined due to lower tier suppliers reporting on a company basis. Therefore, we are unable to identify with certainty the specific facilities used to process the 3TG in our products.
However, due to our position in the supply chain, we are unable to identify with certainty the specific facilities used by our suppliers to process the conflict minerals in our products; therefore, it is not possible for us to determine with certainty the origin of the conflict minerals used in our products. As a result, for the 2013 reporting period, our automobiles and automotive components and service parts are DRC conflict undeterminable.
Our comments: Ford did not provide a list of identified smelter/refiners or countries of origin based on their inability to link suppliers’ company-level declarations to the specific parts/materials purchased by Ford.
Industry: Consumer Products
Key excerpts from filing: As a result of the Company’s RCOI, the Company has reason to believe that some suppliers in its supply chain of in-scope products or components of such products may be sourcing 3TG from Covered Countries. However, the Company was unable to determine the specific source of the 3TG due to insufficient information. Additionally, some suppliers have claimed the 3TG in their products comes from recycled or scrap sources, but they have not provided sufficient evidence to support their claim. Accordingly, the Company undertook the due diligence process described below.
Responses to the CMRT received from targeted suppliers identified 45 unique smelters, 19 of which could be verified to exist, as they were validated against the standard smelter list published by CFSI. Eighteen of the valid smelters could be verified as conflict-free using information published by CFSI. The majority of respondents did not provide smelter information; further, responding suppliers often provided their responses at a company-wide level, rendering the Company unable to conclude whether 3TG from smelters that may have been identified were actually used in the Company’s in-scope products.
Our comments: Although the CMR states that scrap was identified as a source, NewellRubbermaid did not include the scrap disclosure in the Form SD itself. Also, the company did not provide a provide a list of identified smelter/refiners or countries of origin based in part on their inability to link suppliers’ company-level declarations to the specific parts/materials purchased by NewellRubbermaid.
Industry: Retail, Apparel
Key excerpts from filing: The Company identified fifty-seven (57) of its vendors/suppliers who are required to complete the Template and Certification process outlined in 1.4 above. We have relied on these vendor’s/supplier’s responses to provide us with information about the source of conflict minerals contained in the merchandise sold to us.
As noted above, following its RCOI for the 2013 calendar year, the Company has concluded that based on that inquiry it has no reason to believe that any of the 3TG in its supply chain may have originated in the Covered Countries, or may not have originated from recycled or scrap resources, as the case may be.
Our comments: By only filing a Form SD and not conducting due diligence, NeimanMarcus demonstrated that it had enough faith in the credibility and completeness of its suppliers’ initial representations.
Company: Signet Jewelers
Industry: Jewelry, Retail
Key excerpts from filing: Signet has reasonably determined that supplies of Products containing 3TGs to Signet are “DRC conflict-free” as defined in Section 13(p) of the Exchange Act and Form SD thereunder.
Signet determined through this due diligence process, that some of its necessary conflict minerals originated or may have originated in the Covered Countries, but nevertheless qualified as “DRC conflict free”
Our comments: In accordance with a DRC Conflict Free designation, an IPSA was conducted and filed. The auditor was not a CPA firm and stated that the IPSA was conducted in accordance with GAO Performance Audit standards. At the same time, the auditor chose to offer comments beyond the objective by judging an aspect of effectiveness: “It is clear that Signet has established strong management systems for Conflict Minerals supply chain due diligence and reporting compliance in its supply chain through the implementation of their SRSPs and the integration of these into daily business practices.”
The CMR contains a very long detailed description of the design of Signet’s due diligence measures that includes words that we are unsure how the auditor was able to audit, such as: “conducting a careful review”, “large amounts of gold and/or 3TG,” “suppliers that supply significant amounts of Products containing 3TG”. Such ambiguous words are not considered auditable and are to be avoided.
Company: Anheuser-Busch (AB InBev)
Industry: Food and Beverage
Key excerpts from filing: AB InBev has determined that it manufactures only one product employing necessary conflict minerals within the scope of Form SD. The product in question is a line of glass bottles manufactured by AB InBev’s Mexican subsidiary that utilize the coating Certincoat® TC100, which contains the conflict mineral tin necessary for its functionality. AB InBev is supplied Certincoat® TC100 by a single supplier.
Based on the documentation it has received from its supplier, AB InBev has no reason to believe that its necessary conflict minerals may have originated in the DRC or an adjoining country.
Our comments: By only filing a Form SD and not conducting due diligence, Anheuser Busch demonstrated that it had enough faith in the credibility and completeness of its suppliers’ initial representations. Also, the tin-containing product appears to be necessary for the production of the glass bottles, and the tin is in organotin form. This disclosure is in contrast to the position taken on organotin by the American Apparel and Footwear Association in their due diligence guidance document.
Company: Armstrong World Industries
Industry: Building Materials, Flooring
Key excerpts from filing: … we concluded that our products containing Conflict minerals are “DRC conflict undeterminable”
Our products and suppliers were assessed by in-house subject matter experts in order to identify our Conflict Mineral scope and risk. Then, as part of our RCOI, all suppliers deemed to be within the scope of the Rule were surveyed using a variation of the EICC/GeSI Conflict Minerals Reporting Template. Based on our reviews, 191 of our 1,550 raw and sourced material suppliers were in scope for having provided materials that potentially contained tin that was not from scrap or recycled sources. We surveyed all 191 suppliers and achieved a 100% response rate, with 97% of respondents reporting the materials they sell us do not contain tin.
We received completed questionnaires from six of our suppliers that said that the materials they sell to us contain tin. To date, only three of those suppliers have provided us with smelter lists. Based on the information provided regarding the smelters we have determined that none of the smelters are located in the Covered Countries.
Notwithstanding our efforts to obtain information from the three suppliers that did not identify the names and locations of the smelters or other sources of the tin, we have, thus far, been unable to identify the smelters or sources for the tin supplied to us by those other three suppliers and, therefore, have been unable to determine the country of origin of that tin. Based on the location of the facilities used to process the tin, we have no reason to believe the source of the tin is from a Covered Country although we can’t exclude that possibility. We are still working closely with our suppliers to obtain the remaining smelter lists and mine locations to assist with a final determination of the country of origin of the tin.
Our comments: The tin in Armstrong’s products is in organotin form. This disclosure is in contrast to the position taken on organotin by the American Apparel and Footwear Association in their due diligence guidance document. It is also interesting that although Armstrong received an exceptional response rate, the completeness rate of those responses appears to be quite low.
Company: Eli Lilly
Industry: Medical Devices, Pharmaceuticals
Key excerpts from filing: The current supplier that uses 3TG (specifically gold and tin) (and its respective suppliers) have represented to us that they conducted their own due diligence for the medical device which they manufacture. The supplier was unable to provide complete documentation regarding the country of origin or the smelters from which the gold and tin that is incorporated into the medical device is sourced. As a result of our supplier’s inability to provide us with this information, we had insufficient information from this supplier and were unable to conduct any diligence to determine the mine location of origin for the 3TG minerals used in the Lilly device.
Our comments: Although Eli Lilly stated they were unable to conduct due diligence, they did file a CMR describing their due diligence activities.
Industry: Automotive Parts
Key excerpts from filing: BorgWarner therefore declares itself “DRC conflict undeterminable” as defined by paragraph (d)(5) of the instructions to Item 1.01 for all products manufactured by BorgWarner.
Our comments: BorgWarner provided detailed numerical metrics on the number of suppliers queried and the response rate. No smelter or country of origin list was disclosed, including the names or number of CFS smelters/refiners.
Industry: Automotive, Truck Manufacturing
Key excerpts from filing: For 2013, this approach focused on those suppliers providing material to our North America Truck operating segment, which accounted for approximately 63% of our net sales and revenues for 2013.
We surveyed 125 suppliers of the North America Truck operating sector as of April 21, 2014. This population represents over 70% of the segment’s supplier related expenditures for our most recent full fiscal year. Based on our initial and follow-up efforts, we received responses from 72% of those surveyed.
Based on these initial survey results, Navistar was unable to determine the origin of 3TG in all our North American Truck segment products and therefore cannot exclude the possibility that some 3TG in such products may have originated in the Democratic Republic of the Congo or an adjoining country and are not from recycled or scrap resources for the 2013 calendar year.
Our comments: Navistar’s disclosure includes a smelter list, which identified one CFS smelter, but no countries of origin were disclosed.
Key excerpts from filing:
(i) Conflict minerals’ country of origin: Because sufficient information to identify a portion of the smelters/refiners and the countries of origin of conflict minerals was not provided by its suppliers, Toyota was unable to determine any of its products to be “DRC conflict free”, as defined by Form SD.
(ii) Facilities used to process conflict minerals: During the course of our due diligence on the source and chain of custody of the necessary conflict minerals, Toyota has collected information on some, but not all, of its smelters/refiners. Among those smelters/refiners, we found some of them processed minerals sourced in the Covered Countries. However, through our due diligence, we were unable to obtain sufficient information to determine whether those conflict minerals were from mines which financed or benefited any armed group.
(iii) Efforts to determine the conflict minerals’ mines or locations of origin: Through its participation in CFSP and the RCOI survey completed by its suppliers, Toyota has determined that its efforts to seek information about the conflict minerals smelters/refiners in its supply chain represents the most reasonable effort Toyota can make to determine the mines or locations of origin of the necessary conflict minerals contained in its supply chain.
Our comments: No smelter or country of origin list was disclosed, including the names or number of CFS smelters/refiners.
Company: Vishay Intertechnology Inc.
Industry: Electronics, Electronic Components
Key excerpts from filing: Vishay obtained survey responses from In-scope Suppliers representing 80% of the dollar value of 2013 in-scope procurement activities. Based on the survey responses obtained, we have reason to believe that some of our supplies of 3TG may have originated in the Covered Countries, some from outside of the Covered Countries, some from recycled/scrap materials, and some from sources that are currently unknown.
Our comments: Vishay included a smelter list that identified CFS and Non-CFS smelters, but the company did not include a disclosure of the identified countries of origin.
Company: Baker Hughes
Industry: Oil and Gas
Key excerpts from filing: … secured initial responses from 35.9% of the identified suppliers, each of which registered on the supplier engagement web portal; received completed questionnaires from 34.9% of the identified suppliers
Our comments: Although we had no involvement with BakerHughes in any way, their disclosure is aligned with guidance Elm provided clients regarding the structure and headings of the CMR, the definition of due diligence measures undertaken and listing smelter identified by suppliers, including differentiating between CFS and non-CFS smelters/refiners. However, the company provided no list of countries of origin. The supplier response rate appears low.
Industry: Medical Devices
Key excerpts from filing: The suppliers surveyed represent approximately 42% of our direct material expenditures in 2013. In addition, the suppliers surveyed account for approximately 43% of all electronic and metal expenditures in 2013, which we have determined are categories that have the most potential to contain 3TG.
As of May 15, 2014, we have received responses from 24% of the suppliers surveyed.
The large majority of the responses received provided data at a company, division, or product category level or were unable to specify the smelters or refiners used for components supplied to Medtronic. Based on the information received in the due diligence process, we do not have sufficient information to determine the country of origin of the 3TG in any of our products.
… the Company has reasonably determined that each of the products is “DRC conflict undeterminable,” as defined in the Rule.
Our comments: Medtronics chose to use the “DRC Conflict Undeterminable” language. No smelter or country of origin list was disclosed, including the names or number of CFS smelters/refiners.