Form SD ESCO TECHNOLOGIES INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM SD

SPECIALIZED DISCLOSURE REPORT

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report:  May 26, 2016

ESCO TECHNOLOGIES, INC.

(Exact name of the registrant as specified in its charter)

 

9900A Clayton Road

St. Louis, Missouri 63124-1186

(Address of principal executive offices) (Zip code)

(314) 213-7200

 (Name and telephone number, including area code, of the person to contact in connection with this report)

Check the appropriate box to indicate the rule pursuant to which this form is being filed, and provide the period to which the information in this form applies:

☒	Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for the reporting period from January 1 to December 31, 2015.

 

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Item 1.01 Conflict Minerals Disclosure and Report

 

In accordance with Rule 13p-1 of the Securities Exchange Act of 1934, ESCO Technologies Inc. (“ESCO”) is filing this Specialized Disclosure Form (Form SD) and the associated Conflict Minerals Report.  This Form SD and the Conflict Minerals Report, as well as ESCO’s Conflict Minerals Policy, are posted and publicly available on ESCO’s corporate website www.escotechnologies.com.  Information contained on ESCO’s website does not constitute part of this Form SD or its Exhibits.

 

Item 1.02 Exhibit

 

The Conflict Minerals Report required by Item 1.01 is provided as Exhibit 1.01.

 

 

Item 2.01 Exhibits

 

Exhibit No.

Description

 

1.01

Conflict Minerals Report of ESCO Technologies Inc. for Calendar Year 2015

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the duly authorized undersigned.

 

 

 

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EXHIBIT 1.01

 

This is the Conflict Minerals Report of ESCO Technologies Inc. (“ESCO”) for calendar year 2015, provided in accordance with Rule 13p-1 under the Securities Exchange Act of 1934 (the “Conflict Minerals Rule”).  The Conflict Minerals Rule requires ESCO to perform certain procedures and disclose information about the use and origin of “Conflict Minerals” which are necessary to the functionality or production of products ESCO manufactures or contracts to have manufactured.  “Conflict Minerals” are defined for purposes of the Conflict Minerals Rule as cassiterite, columbite-tantalite, wolframite, their respective derivatives tin, tantalum and tungsten, and gold.

 

ESCO is a producer of engineered products and systems sold to customers worldwide, primarily for utility, industrial, aerospace and commercial applications.  During 2015, ESCO conducted its business in three operating segments, through a number of wholly-owned direct and indirect subsidiaries. These segments, together with the significant domestic and foreign operating subsidiaries within each segment during 2015, were as follows:

 

Crissair, Inc.

PTI Technologies Inc.

Thermoform Engineered Quality LLC

VACCO Industries

 

Beijing Lindgren ElectronMagnetic Technology Co., Ltd.

ETS-Lindgren Inc.

ETS-Lindgren OY

 

Doble Engineering Company

Doble PowerTest Ltd.

Doble TransiNor AS

 

ESCO’s products require a wide variety of components and materials, and Conflict Minerals that are necessary to the functionality or production of ESCO’s products are common across its product portfolio.  ESCO sources its components and subassemblies from a global supply base that includes distributors, value-added resellers, original equipment manufacturers and contract manufacturers.

ESCO’s Reasonable Country of Origin Inquiry

In accordance with the Conflict Minerals Rule, ESCO has performed a “reasonable country of origin inquiry” (“RCOI”) on Conflict Minerals in its supply chain to determine whether these Conflict Minerals were sourced from the Democratic Republic of Congo (“DRC”) or adjoining countries or were from recycled or scrap sources.

 

As a result of its RCOI process, ESCO has concluded in good faith that during 2015:

 

·

Conflict Minerals were necessary to the functionality or production of many of the products ESCO manufactured or contracted to have manufactured; and

 

·

ESCO was not able to reach a conclusion as to all sources of the Conflict Minerals necessary to the functionality or production of the products it manufactured or contracted to have manufactured.

Description of ESCO’s Due Diligence

 

ESCO designed and performed its due diligence measures to conform in all material respects with the Organisation for Economic Cooperation and Development (“OECD”) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High Risk Areas (the “OECD Guidance”) and related Supplements for each of the Conflict Minerals.

 

ESCO’s due diligence measures were based on the OECD Guidance.  Because ESCO is many steps removed from the mining of Conflict Minerals and does not purchase raw ore or unrefined Conflict Minerals, the due diligence included extensive communications with its suppliers.  ESCO focused its efforts for the second reporting year on its suppliers and contract manufacturers in an effort to continue to build Conflict Mineral awareness, assess the transparency of its supply chain and identify the smelters/refiners in its supply chain.

 

ESCO maintains a system of internal procedures and controls to identify and trace Conflict Minerals within its supply chain.  A summary of ESCO’s activities, which are in line with the OECD Guidance, are outlined below.

Step 1:  Establish strong company management systems

 

·

ESCO maintains a formal policy that reflects its desire to achieve a “DRC conflict free” determination over time.

 

·

ESCO maintains a governance model to oversee the implementation and ongoing management of its Conflict Minerals Compliance Program, including a Conflict Minerals Core Team with representatives from each significant subsidiary, led by its Assistant General Counsel, to develop policies, standards and processes that relate to the identification of Conflict Minerals risk in its supply chain.  The Core Team solicits the participation of leadership from the various ESCO business units to maintain a governance structure which enables sustainable compliance and actively mitigates the risk of not meeting regulatory requirements.  The Core Team is responsible for developing policies and standards as well as developing and maintaining a project charter, compliance project plan, communication strategy, awareness training, project status report, and standard retention policy.

 

·

ESCO maintains an annual process to evaluate parts and suppliers in its supply chain for potential Conflict Minerals risk.  In alignment with the OECD Guidance, each of ESCO’s subsidiaries identifies and assesses the risks in its supply chain by conducting a risk-rated analysis of its products, parts, and suppliers.

 

·

Supplier agreements requires suppliers to provide information on their use and source of Conflict Minerals.

 

·

ESCO continues to adapt its internal processes, procedures and systems to accommodate the capture, maintenance, retrieval and reporting of Conflict Minerals supplier and parts status, thereby improving transparency and the ability to certify its status in forthcoming years.

 

·

ESCO communicates its policy regarding Conflict Minerals to all suppliers and annually provides compliance training for at-risk suppliers.

 

·

ESCO provides a feedback mechanism on its website at www.escotechnologies.com which is available to all interested parties to provide information or voice their concerns regarding ESCO’s sourcing and use of Conflict Minerals in its products.

Step 2:  Identify and assess risks in the supply chain

 

·

On an annual basis, ESCO performs due diligence to identify the parts within each of its subsidiary’s active bills of materials (“BOMs”) that are known or are likely to contain Conflict Minerals using a risk based approach and to further identify the supplier from who those parts are sourced.

 

·

ESCO requires suppliers to complete a survey at the supplier and part level using the Conflict-Free Sourcing Initiative’s (CFSI) Conflict Minerals Reporting Template (CMRT).

 

·

ESCO reviews survey responses received from suppliers for completeness, validates for sufficiency and follows up with any supplier that did not complete the survey, through an outreach program.

 

·

ESCO reviews aggregated supplier survey responses and reports key RCOI metrics as part of a bi-monthly Conflict Minerals reporting process.

 

·

ESCO conducts a review of summary smelter information to determine if the smelter was certified as conflict free or if supporting information presents a “red flag” as defined by the OECD Guidance.

Step 3:  Design and implement a strategy to respond to identified risks

 

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Annually, ESCO completes an OECD Gap Analysis at the conclusion of its due diligence and provides a summary of the identified risks and gaps to senior management with recommended action plans to reduce risks and close gaps.

 

·

ESCO maintains a risk mitigation strategy with the goal of systematically reducing the extent of exposure to Conflict Minerals risks and the likelihood of their occurrence.

 

·

Conflict mineral reporting requirements are being integrated into ESCO’s broader internal control procedures.

 

·

ESCO continues to integrate its policies, procedures and systems modifications in a systematic and deliberate manner that will make them integral to ESCO’s business and establish the capability to routinely obtain, maintain, and retrieve the key data required to demonstrate reasonable efforts for compliance.

 

·

As ESCO reviews supplier responses to the RCOI, any risks identified will be evaluated, and opportunities to mitigate risks will be addressed.  ESCO will address unresponsive suppliers and determine options for corrective actions.

 

·

Additional fact finding, risk assessments, and changes in circumstances will take place as part of ESCO’s annual review of its Conflict Minerals compliance program.

Step 4:  Carry out independent third-party audit of smelters’/refiners’ due diligence practices

 

·

ESCO cooperates and participates with industry associations to enhance transparency and traceability in the supply chain and supports independent third-party audits of smelters’/refiners’ due diligence by independent industry associations who perform these audits.

 

·

Given the nature of ESCO’s businesses, their positions in the supply chain, the associated cost, and the current lack of transparency in the supply chain, ESCO is not in a position to audit smelters/refiners directly.

Step 5:  Report annually on supply chain due diligence

 

·

ESCO performs due diligence on its conflict minerals supply chain annually, maintains a process to summarize, review, and approve compliance results and completion of the Form SD and the Conflict Minerals Report and assure timely filing of these documents with the SEC.

Risk Mitigation and Future Due Diligence Measures

 

ESCO will continue to improve its due diligence efforts through increasingly focused efforts including (but not limited to):

 

·

Continue to require suppliers to identify the 3TG contained in the products they supply and when requested on an annual basis, to provide current, accurate and complete information on the smelters and refiners used in the manufacture of parts supplied to ESCO.

 

·

In an effort to improve supplier response rates for parts purchased from third party distributors, ESCO will strive to identify and survey the manufacturer of parts.

 

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Determination

 

Based on the process described above, ESCO received responses from 437 direct material suppliers, representing48% of the active parts surveyed that were used in its 2015 manufactured goods.

 

Based on the information provided by ESCO’s suppliers utilized during 2015, ESCO believes that the facilities that may have been used to process 3TG’s in ESCO’s products include the smelters and refiners listed in Appendix I, starting on page 6. The supplier responses included Conflict Free, Known and Unknown smelters, but based on the absence of reliable information on the Unknown smelters, only the Conflict Free and Known smelters have been included.

 

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Based on the due diligence efforts and the absence of full supply chain visibility throughout the supply base, ESCO is unable to determine the source of origin of the conflict minerals and does not have sufficient information to conclusively determine the countries of origin of 3TG’s contained in ESCO’s products.

 

APPENDIX I

 

 

 

 

 

 

 

 

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