FLOTEK INDUSTRIES, INC. (Exact name of registrant as specified in its charter) |
Delaware | 90-0023731 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
10603 W. Sam Houston Parkway N., Suite 300 Houston, TX | 77064 | |
(Address of principal executive offices) | (Zip Code) |
x | Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for the reporting period from January 1 to December 31, 2015. |
FLOTEK INDUSTRIES, INC. | ||
By: | /s/ Robert M. Schmitz | |
Robert M. Schmitz | ||
Executive Vice President and Chief Financial Officer |
• | Adopt and commit to a supply chain policy for minerals originating from conflict-affected and high-risk areas: The Company adopted a formal policy that reflects Flotek’s desire to procure DRC Conflict Free minerals for its products over time. |
• | Structure internal management systems to support supply chain due diligence: Flotek has established a governance model to oversee the implementation and ongoing management of the Conflict Minerals Compliance Program. The objective |
• | Establish a system of controls and transparency over the mineral supply chain: Flotek implemented a process to evaluate parts and suppliers in the supply chain for potential conflict minerals risk. Flotek uses a standardized documentation format to capture key program decisions, processes, and procedures. In accordance with its document retention policy, Flotek maintains conflict minerals records for a minimum of five years. |
• | Strengthen company engagement with suppliers: Flotek continues to communicate its policy regarding conflict minerals to all suppliers, provides at risk suppliers one-on-one compliance training, and reviews supplier responsibilities within the supply chain. |
• | Establish a company level grievance mechanism: Through the Company’s existing Whistleblower Hotline and feedback mechanism on its website, Flotek has in place a company level grievance mechanism, managed by a third party ombudsman, available to all interested parties to provide information or voice their concerns regarding the Company’s sourcing and use of conflict minerals in its products. |
• | Identify high risk parts and suppliers: Flotek analyzes products for conflict minerals and assesses the risk that they may contain conflict minerals from the affected areas. |
• | Survey the suppliers: Flotek requests that suppliers complete the Conflict Minerals Reporting Template (“CMRT”) developed by the Conflict-Free Sourcing Initiative (“CFSI”). |
• | Collect responses: Flotek conducts a review of supplier responses to determine if all required questions and sections of the CMRT are complete. Flotek follows up with any supplier that does not complete all required questions. Survey responses are validated for completeness and sufficiency and assigned a conflict minerals status code. Vendor corrective actions depend on factors such as vendor size, risk level, and vendor capabilities. In 2015, unresponsiveness to the prior year’s conflict minerals inquiries contributed to Flotek’s decision to cease doing business with non-strategic suppliers. |
• | Aggregate supplier survey responses: Flotek reviews aggregate supplier survey responses and reports key metrics as part of a weekly conflict minerals reporting process. |
• | Review and assess smelter information: Flotek conducts a review of summary smelter information to determine if the smelter is certified as conflict free or presents a “red flag” as defined by the OECD Guidance. To make the determination of each smelter’s conflict status, Flotek relies upon information provided by the CFSI. CFSI conducts a Conflict Free Smelter Program, in which it certifies smelters and refiners worldwide as being conflict free after confirming specific information including country of origin for conflict minerals that the smelter/refiner may purchase for its operations. CFSI makes available to the public the list of smelters/refiners that have been certified by CFSI as conflict free. |
• | Report findings to designated senior management outlining the information gathered and the actual and potential risks identified in the supply chain risk assessment: Flotek completes an OECD gap analysis and provides a summary of the identified risks and gaps to the Steering Committee with recommended action plans to reduce these risks and close the gaps. |
• | Devise and adopt a risk management strategy: Flotek maintains a risk mitigation strategy with the goal of systematically reducing the extent of exposure to the identified risks and the likelihood of their occurrence. |
• | Implement the risk management plan, monitor and track performance of risk mitigation, report back to designated senior management, and consider suspending or discontinuing engagement with a supplier after failed attempts at mitigation: As part of the risk management plan, Flotek performs Quarterly Supplier reviews. Unresponsive suppliers may be evaluated for corrective action that may include removal from the Company’s list of approved vendors. |
• | Undertake additional fact and risk assessments for risks requiring mitigation, or after a change of circumstances: Additional fact finding, risk assessments, and changes in circumstances take place as part of Flotek’s annual review of our Conflict Minerals compliance strategy and as part of our on-going compliance efforts. |
• | Plan an independent third party audit of the smelter/refiner’s due diligence for responsible supply chains of minerals: In accordance with the OECD Guidance, Flotek intends to participate and contribute through industry organizations or other suitable means to appoint auditors and define the terms of the audit in line with the standards and processes set out in the OECD Guidance. Given the nature of Flotek’s business with conflict minerals accounting for our position within the |
• | Annually report or integrate, where practical, into annual sustainability or corporate responsibility reports, additional information on due diligence for responsible supply chains of minerals from conflict-affected and high-risk areas: On an annual basis, Flotek summarizes, reviews, and approves the compliance results, completes the Form SD Specialized Disclosure Report and the Conflict Minerals Report, and files this report with the Securities and Exchange Commission. |
• | Flotek intends to incorporate conflict minerals annual reporting requirements into the Supplier Code of Conduct, identifying an annual submission of a Supplier’s CMRT as a requirement of conducting business with Flotek. |
• | Flotek will formally add Conflict Minerals responsiveness as a measure in the Quarterly Supplier Reviews. |
• | Flotek intends to actively cooperate and participate with industry associations to enhance transparency and traceability in the supply chain. |
• | Flotek is unable to determine and to identify the facilities used to process those necessary conflict minerals. |
• | Suppliers responding to our inquiries indicated that the information provided was at a company or divisional level, and we were unable to determine the country of origin of the products specifically sold to Flotek. |
• | Consistent with the OECD Guidance for downstream companies such as Flotek, we attempted to determine the mine or location of origin of necessary conflict minerals with the greatest possible specificity as part of the due diligence measures described above, including a review of whether the smelters reported to be in the supply chain of our direct suppliers were verified as compliant with the Conflict Free Smelter Program. The results of this effort were inconclusive. |
Smelters* | Tin | Tungsten | Tantalum | Gold |
Number of Smelters | 73 | 28 | 36 | 90 |
Number of Smelters and Refiners listed as “compliant” by the CFSI | 52 | 22 | 35 | 51 |
* | 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 are included. |