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Conflict Minerals June 12, 2014. Agenda  What is Conflict Minerals?  How does a company ensure Conflict Minerals Compliance?  What is the impact CM.

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Presentation on theme: "Conflict Minerals June 12, 2014. Agenda  What is Conflict Minerals?  How does a company ensure Conflict Minerals Compliance?  What is the impact CM."— Presentation transcript:

1 Conflict Minerals June 12, 2014

2 Agenda  What is Conflict Minerals?  How does a company ensure Conflict Minerals Compliance?  What is the impact CM Supply Chain & Suppliers?  Q & A 2

3 What is Conflict Minerals? The four conflict minerals, also referred to as “3TG metals” or “3TGs” are: Tantalum Tin Tungsten Gold The SEC’s Conflict Minerals rule requires public companies to determine: 1.whether “conflict minerals” are contained in their products, and 2.if so, whether they are sourced from the DRC or surrounding countries (together, the “Covered Countries”). DRC Adjoining Countries Angola Republic of the Congo Tanzania BurundiRwandaUganda Central African Republic South SudanZambia 3 (Dodd-Frank Section 1502) % world-supply from DRC 15-20% 5% 3% 2%

4 Electronics Industry is in the middle this: 4

5 5 Conflict Minerals Rule Compliance Overview First of the annual SEC filings is due no later than May 31, for previous calendar year. Compliance requirements include: Step 1 : Determine whether each product is subject to conflict minerals rules Yes, if conflict minerals are “necessary to production or functionality” of a product that we sell and that we manufacture or “contract to manufacture” Step 2 : Develop and conduct reasonable country of origin inquiry (“RCOI”) If we know or have reason to believe that conflict minerals in our products originated in the covered countries, and did not come from scrap or recycled sources, must proceed to Step 3 (Supply Chain Due Diligence) Step 3 : Exercise due diligence on the source and chain of custody of our conflict minerals (follow recognized framework UN OECD) Must ultimately determine whether our purchase of parts/components containing 3TGs is financing the rebel groups in the DRC

6 The process of determining if products are covered under the conflict minerals rules involves multiple validations. Note – products that cannot be ruled out must be left in-scope. Product A Product C Product B Product D Enter “Stream of Commerce”? Product A Product B Manufacture or Contract to Manufacture Product? Product D Contain 3TG? Product B Product D Product E Product B Product sold to a customer, during the reporting year For service companies this is more difficult in that primarily services are being sold, Product Applicability Considerations If manufacture, or contract with a 3 rd party to manufacture, a component or product, then it remains in scope and needs to be examined for conflict minerals. If some influence over the manufacturing or design of any components or parts, they should remain in consideration. If unknown whether components/products contain CM, then must inquire of suppliers (reasonable country of origin inquiry (RCOI)). necessary to functionality; necessary to production : if the 3TG is contained in a product that we manufacture or that is manufactured for us, and is intentionally added, it is in scope. In-Scope Products Step 1 -- Determining Product-Level Applicability 6

7 Companies are required to conduct and inquiry to the suppliers of the 3TG parts as to the source and status of the minerals. Requesting a response at the part level is needed to know your source mineral for products sold. 7 Step 2 --Conducting Reasonable Country of Origin Inquiry

8 Step 3 –Due Diligence – Smelter Certifications 8 As a result of the RCOI, companies who knew some or all of their mineral sources would list them.

9 Step 2 –Why Conflict Free is so hard to achieve 9 Example : Part containing 3TG – Supplier response at Company Level This supply chain remains undetermined, this response is not for a part, rather for all the parts from a supplier. Even with the Smelters listed and Conflict Free, it still does not tell what sources and origins for a particular part.

10 Step 3 Due Diligence 10 We are required to perform due diligence on any suppliers responses that source from the DRC or adjoining countries according to a specific recognized framework. OECD DD Guidance is 5 step process.

11 5 Steps StepConsists of: 1. Conflict Minerals Framework Conflict Mineral Policy Management Teams (both to execute and to resource) Communications to Executives Supplier Engagement Company Grievance System Step 2: Identify & Assess Risks in Supply Chain Products Sold to 3rd Parties Parts contain 3TG Tier 1 Suppliers ($ and Risk) RCOI DRC /CC Smelter Certifications Step 3: Strategy to Respond to Risks CM Policy Alignment with Suppliers Assert Leverage Tier 1 Supplier to source Conflict-Free Tier 1 Supplier to confirm source of mineral – CF smelter certifications Non-compliant Tier 1 Suppliers – reevaluate relationship Step 4: Commitment to 3rd Party Audit of Smelters/ Refiners DD Practices Require Upstream Suppliers to obtain CF Certifications Priority in the DRC/ CC Conflict Region Step 5: Reporting File & Publish on or Before May 31 Form Special Disclosure (SD) and Conflict Minerals Report (CMR) Independent Private Sector Audit as Needed 11

12 Independent Private Sector Audit (ISPA)*  Each company that is required to furnish a conflict minerals report must also obtain and furnish an independent audit of the report. (to start 2 yrs. for big, 4 yrs. for small cos. - no audit needed)  Option for an Attestation or Performance Audit (done by CPA or by certified non-CPA auditor)  „„Auditor to examine the design of the due diligence framework described is accordance with a nationally or internationally accepted framework and that the due diligence described is actually what the company undertook. 12 * * Intel is the only company I am aware of that had an ISPA.

13 Wall Street Journal June 2, 2014 “Conflicted Disclosure” 13 File DateNo. of Filers* 5/28/201421 5/29/201477 5/30/2014386 6/2/2014800 6/3/20149 6/4/20145 6/5/20147 Total1305 *expected no. to be 5,000 to 6,000

14 Conflict Minerals Impact on Supply Chain and Suppliers  Suppliers of Conflict Minerals must : – Comply with Company CM Policies – RFX will include CM Conflict Free parts as a requirement – Source Minerals from Certified Smelters – Participate in providing transparency even if not subject to rule – Project target date when conflict free souring is realized  Supply Chains will: – Begin to organize around conflict-free sources – Smelters not certified may lose business to certified 14

15 Final Rule: UN OECD Guidance: Conflict Free Initiative: (EICC/ GeSI Template and Smelter Program) Q&A 15

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