The Securities and Exchange Commission’s (the Commission or SEC) Division of Corporation Finance provided answers to questions regarding the Commission’s rules adopted in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring certain public companies to disclose on a new Form SD their use of conflict minerals originating in the Democratic Republic of the Congo (the DRC) or an adjoining country.
This News Alert summarizes information and answers provided by the Division of Corporation Finance in its May 30, 2013 release of 12 Frequently Asked Questions (FAQs) regarding the Commission’s conflict minerals rules. You can find the full text of the Division’s Frequently Asked Questions here.
Note that these FAQs are not rules, regulations or statements of the Commission. Further, the Commission has neither approved nor disapproved the FAQs.
Are voluntary filers subject to the conflict minerals disclosure rules?
Yes. All issuers filing reports under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, including voluntary filers, must comply with the conflict minerals reporting obligations.
Are activities customarily associated with mining within the manufacturing exception applicable to mining companies?
Yes. An issuer that only engages in activities customarily associated with mining, including gold mining of lower grade ore, is not considered to be manufacturing those minerals.
Does the rule apply to consolidated subsidiaries?
Yes. An issuer must make required conflict minerals disclosures for itself and all of its consolidated subsidiaries.
Is etching an issuer’s logo on a third-party manufactured product considered “contracting to manufacture” the product?
No. Etching or otherwise marking a generic product that is manufactured by a third party, with a logo, serial number or other identifier is not considered to be “contracting to manufacture.”
If an issuer includes a generic component containing conflict minerals in a product that it manufactures or contracts to manufacture, is the issuer required to conduct a reasonable inquiry regarding the country of origin for the conflict minerals in the generic product?
Yes. There is no distinction between the components of a product that an issuer directly manufactures or contracts to manufacture and the “generic” ones it purchases to include in a product. This is the case even if the issuer does not contract to manufacture the generic product.
Do conflict minerals contained in product packaging cause an issuer’s product to come within the rule?
No. Only a conflict mineral that is contained in the product would be considered “necessary to the functionality or production” of the product. The packaging or container sold with a product is not considered part of the product, even if a product’s package is necessary to preserve the usability of that product. If, however, an issuer manufactures and sells packaging or containers independent of the product, the packaging would be considered a product.
Are issuers that manufacture the equipment they use in providing a service they sell required to report on the conflict minerals in that equipment?
No. The staff does not interpret equipment used to provide services to be “products” under the rule. For example, issuers that operate cruise lines are not required to file reports regarding the conflict minerals in the cruise ships they manufacture or contract to have manufactured.
Does an issuer have to file a Form SD for the later sale of tools, machines or other equipment containing conflict minerals that it contracts to manufacture for use in producing its products?
No. The tools, machines, or other equipment are not considered products of that issuer, and the staff will not view their later entry into the stream of commerce as transforming them into products of that issuer.
What type of description is required for products that are not “DRC conflict free” or are “DRC conflict undeterminable”? Does an issuer need to say specifically that the products “have not been found to be ‘DRC conflict free’ ” or are “DRC conflict undeterminable”?
The rule permits an issuer to describe its products based on its own facts and circumstances. An issuer is not required to describe its products using model numbers. However, the description in the Conflict Minerals Report must state clearly that the products “have not been found to be ‘DRC conflict free’ ” or are “DRC conflict undeterminable,” as applicable.
If products containing conflict minerals from the DRC or an adjoining country are nonetheless “DRC conflict free,” is the issuer required to file a Conflict Minerals Report and obtain an independent private sector audit?
Yes. However, the issuer is not required to disclose the products because they are “DRC conflict free.”
Does the Form SD reporting grace period for acquisitions by an issuer also apply to IPOs?
Does the failure to timely file a Form SD regarding conflict minerals cause an issuer to lose its eligibility to use Form S-3?
You can find the full text of the SEC’s Frequently Asked Questions here.
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