Form Specialized Disclosure (Form SD)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM SD

SPECIALIZED DISCLOSURE REPORT*

 

SolarEdge Technologies, Inc.

 

(Exact name of registrant as specified in its charter)

Commission File No. 001-36894

 

Delaware	20-5338862
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

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, 2017.

---

SolarEdge Technologies, Inc.

Conflict Minerals Report

For the calendar year ended December 31, 2017

 

1.  Introduction

 

SolarEdge Technologies, Inc., together with its wholly-owned subsidiaries (“SolarEdge” or the “Company,” “we,” “our” or “us”), has prepared this Conflict Minerals Report pursuant to Rule 13p-1 under the Securities Exchange Act of 1934 and the requirements of Form SD (collectively, the “Rule”).

We have invented an intelligent inverter solution that has changed the way power is harvested and managed in a solar photovoltaic (“PV”) system. Our direct current (“DC”) optimized inverter system maximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. Our system consists of our power optimizers, inverters and cloud-based monitoring platform, and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations. Since we began commercial shipments in 2010, we have shipped approximately 7.5 gigawatts (“GW”) of our DC optimized inverter systems and our products have been installed in solar PV systems in 125 countries, as of March 31, 2018.

Our systems allow for superior power harvesting and module management relative to traditional inverter systems by deploying power optimizers at each PV module while maintaining a competitive system cost by keeping the alternating current (“AC”) inversion and grid interaction centralized using a simplified DC AC inverter. The entire system is monitored through our cloud-based monitoring platform that enables reduced system operation and maintenance (“O&M”) costs. Our system enables each PV module to operate at its own maximum power point (“MPP”), rather than a system-wide average, enabling dynamic response to real world conditions, such as atmospheric conditions, PV module aging, soiling and shading, and offering improved energy yield relative to traditional inverter systems. In addition to higher efficiency, our system’s installed cost-per-watt is competitive with traditional inverter systems of leading manufacturers and generally lower than comparable microinverter systems of leading manufacturers. Furthermore, our architecture allows for complex rooftop system designs and enhanced safety and reliability. Our technology and system architecture were protected by 126 awarded patents and 169 patent applications filed worldwide, as of March 31, 2018.

We were founded in 2006 and began commercial shipments in 2010. As of March 31, 2018, we have shipped approximately 25.2 million power optimizers and 1,050,000 inverters. We estimate that approximately 618,000 installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud-based monitoring platform.

 

2.  Overview; Applicability of Conflict Minerals Rule to SolarEdge

SolarEdge has performed an internal assessment and determined that certain Conflict Minerals are necessary to the functionality or production of our products. Accordingly, for the purposes of this assessment, all of the products that were in production in the calendar year 2017 were considered (the “Covered Products”).

 

SolarEdge is several levels removed from the mining of minerals (Conflict Minerals or otherwise). We also do not make purchases of raw ore or unrefined minerals and make no purchases in the Democratic Republic of Congo (“DRC”) or an adjoining country (together, the “Covered Countries”). SolarEdge therefore has limited influence over the sourcing of the necessary Conflict Minerals in the products that it manufactures or contracts to manufacture (we sometimes refer herein to these products that contain necessary Conflict Minerals as “in-scope products”). In addition, due to its position in the supply chain, SolarEdge depends upon its suppliers for information concerning the origin of the Conflict Minerals contained in its in-scope products. However, through the efforts described in this Conflict Minerals Report, SolarEdge seeks to ensure that its suppliers source responsibly. Minerals including tantalum, tin, tungsten and gold (“3TG”) are classified as “Conflict Minerals” and are necessary to the functionality or production of certain products that we manufacture or contract to manufacture. As such, we are subject to the Rule with respect to those necessary Conflict Minerals. The Rule requires us to conduct in good faith a reasonable country of origin inquiry (“RCOI”) into those necessary Conflict Minerals to determine whether they originated in the Covered Countries or are from recycled or scrap sources. If, as a result of our RCOI procedures, we know that any of our necessary Conflict Minerals originated in a covered country and are not from recycled or scrap materials, or if we have reason to believe that our necessary Conflict Minerals may have originated in a covered country and have reason to believe that they may not be from recycled or scrap sources, then we are required to exercise due diligence to determine the source and chain of custody of such Conflict Minerals to conclude if they are DRC conflict-free or not.

3.  Description of Product Identification and RCOI Processes

 

We have concluded that, during the 2017 calendar year, we have manufactured and contracted to manufacture products containing certain Conflict Minerals. As such, we conducted an RCOI process to determine whether any of the Conflict Minerals originated, or may have originated, in the Covered Countries and whether such Conflict Minerals originated from recycled or scrap sources.

We conducted an assessment to determine which of our direct suppliers may be providing components of our products that are likely to contain Conflict Minerals. We employed a collaborative process to identify the applicable list of components and suppliers to focus our efforts, consulting with members of our supply chain department including suppliers, senior management and other individuals familiar with the manufacturing and component sourcing processes. We verified with such personnel that the population of components and suppliers was complete and comprehensive for our 2017 products. We then identified the list of suppliers that we directly procured materials from (“tier one” or “direct” suppliers) to survey. This list includes suppliers that supplied components to our third-party equipment manufacturers on our behalf and those suppliers from whom we purchased components directly, all between January 1, 2017 and December 31, 2017.

We used a Conflict Minerals Reporting Template (the “CMRT” or the “Template”), which was developed by the Responsible Minerals Initiative (RMI) (formerly the Conflict-Free Sourcing Initiative) to facilitate disclosure and communication of information regarding smelters that provide material to a company’s supply chain. Our RCOI consisted of surveying tier one suppliers confirmed to have supplied products or components to us that contain Conflict Minerals that are used to manufacture our products.

SolarEdge identified 411 suppliers (the “Suppliers”) that provided components for products manufactured during the calendar year 2017. Of those Suppliers, SolarEdge’s outreach was to 381 suppliers that provided components, parts or products that SolarEdge determined contained or potentially contained necessary Conflict Minerals. In connection with its scoping determination, SolarEdge reviewed product specifications, supply chain records and bills of material, made internal engineering and supplier inquiries, commissioned an independent third-party consultant and made use of other information known to it regarding the materials composition of its products.

4.  Reasonable Country of Origin Inquiry (RCOI)

As required by the Rule, SolarEdge conducted a “reasonable country of origin inquiry” with respect to calendar year 2017. Our outreach included 381 suppliers that provided components, parts or products that SolarEdge determined contained or potentially contained necessary Conflict Minerals incorporated into products manufactured by us. In connection with this examination, SolarEdge reviewed product specifications, supply chain records and bills of material, made internal engineering and supplier inquiries and utilized other information known to us regarding the materials composition of our products.

In order to identify the source of those components, parts and products, SolarEdge sent letters to its suppliers, informing them of the Rule and SolarEdge's policy on Conflict Minerals, asking them to comply with the Rule. We also requested suppliers to use the last CMRT revision for their compliance declaration (version 5.0 or later version) as a method to query and transmit sourcing information along the supply chain. The CMRT includes questions regarding a company’s conflict-free policy, engagement with its direct suppliers, and a listing of the smelters the company and its suppliers use. The total number of suppliers who delivered satisfactory CMRT was 275.

 

We compared the smelters and refiners identified in the surveys against the lists of facilities which have received a conflict free designation by the Responsible Minerals Assurance Process (“RMAP”), a program of RMI, or other independent third-party audit program. We rely on the RMAP as an independent third-party audit solution through which mineral sources are identified and independently evaluated.

When suppliers provided us with chain surveys containing incomplete or potentially inaccurate information, we followed up with such suppliers to seek additional clarifying information. Unresponsive suppliers were contacted on a regular basis both by email and manual outreach.

For 2017, SolarEdge identified 677 smelters and refiners that processed or may have processed the necessary Conflict Minerals contained in our in-scope products, as described in the Smelter and Refiner list attached as Annex A as well as in the Country of Origin Information attached as Annex B.

Pursuant to the Conflict Minerals Rule, based on the results of its reasonable country of origin inquiry, SolarEdge was required to conduct due diligence for 2017. Because we were unable to identify the source of all products in our supply chain, our reasonable country of origin inquiry utilized the same processes and procedures as our due diligence. These processes and procedures are described below.

 

Due Diligence

 

Design of Due Diligence

 

SolarEdge utilizes due diligence measures relating to Conflict Minerals that are intended to conform with, in all material respects, the criteria set forth in the Organisation for Economic Co-operation and Development’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, including the Supplement on Tin, Tantalum and Tungsten and the Supplement on Gold (Third Edition 2016) (the “OECD Guidance”). The OECD Guidance has established a five-step framework for due diligence as a basis for responsible global supply chain management of minerals from conflict-affected and high-risk areas. Our Conflict Minerals due diligence process includes: a Conflict Minerals Policy, a governance charter with cross-functional team members and senior executives, communication to, and engagement of, suppliers, due diligence compliance process and measurement, record-keeping and escalation procedures. We report to the Audit Committee and the Board of Directors with respect to our due diligence process and compliance obligations. Selected elements of our program design are discussed below.

Due Diligence Performed

 

Step 1: Establish Strong Company Management Systems

 

SolarEdge's Code of Conduct defines the company's overall principles and commitment towards legal compliance, ethical conduct, human rights, anti-corruption work and environmental protection. These high expectations extend to SolarEdge's partners, subcontractors and suppliers, whom we encourage to strive beyond merely fulfilling legal compliance. SolarEdge has adopted a Conflict Mineral Policy which provides further clarification to the principles of the Code of Conduct and SolarEdge's human rights approach regarding illegal trade of natural resources.

As part of our policy, SolarEdge is committed to respect human rights and the environment in accordance with accepted international conventions and practices, and we strive to ensure that all materials used in our products come from socially and environmentally responsible sources.

We communicate our policy to our suppliers and it is available at: http://media.corporate-ir.net/media_files/IROL/25/253935/SolarEdge_CM%20Policy_comments_%20v7%20clean.pdf (the “Conflict Minerals Policy”). In addition, in support of our compliance efforts, we have established a steering committee for enforcement of this Conflict Minerals Policy. The steering committee team consists of senior staff under SolarEdge’s legal department, supply chain management group and core technologies. The team members have been made aware of the Conflict Minerals Rule, the OECD Guidance, SolarEdge’s Conflict Minerals Policy and governance charter and have established SolarEdge’s procedures for reviewing and validating supplier responses to its inquiries.

 

The SolarEdge Conflict Minerals Policy includes a grievance mechanism whereby employees and suppliers can report suspected violations of the policy.

SolarEdge also utilizes an independent third-party consultant to advise it on certain aspects of its compliance, as well as a third-party software provider as a basis for to enhance the supplier data collection process and help minimize responsible sourcing risks.

 

The following steps have also been adopted:

 

1.           Implementing a system of controls and transparency over the mineral supply chain through the use of the CMRT.

2.             Maintaining records relating to our Conflict Minerals program for 5 years.

3.

Implementing standard contract language requiring suppliers to agree to timely respond  and conduct an appropriate due diligence inquiry following any request by SolarEdge for information on any goods delivered containing Conflict Minerals, as defined under the Rule.

 

Step 2. Identify and Assess Risks in the Supply Chain

 

To assist us with our supply chain due diligence, we engaged an independent third-party consultant for conducting outreach to our Suppliers and archiving responses from Suppliers. We conducted a supply chain survey requesting direct suppliers to identify smelters and refiners and country of origin, through use of the Template.

We, in conjunction with our independent third-party consultant, reviewed our entire known component and outsourced manufacturing supply chain for the calendar year 2017, which consisted of approximately 411 suppliers. Our outreach included 381 Suppliers that provided components, parts or products that were determined by SolarEdge to contain or potentially contain necessary Conflict Minerals and that were incorporated into products manufactured by us. The responses were reviewed against criteria developed internally and, where necessary, we reached out for further engagement and to receive additional information from our suppliers. These criteria included untimely or incomplete responses, as well as inconsistencies within the data reported in the Template. We worked directly with these suppliers to receive revised responses.

We compared the RMI validated smelter list against those smelters identified by our suppliers and, as described in our Conflict Minerals Policy, SolarEdge does not purchase Conflict Minerals directly from mines, smelters or refiners.  Tracing minerals to their sources is a challenge that requires us to rely on our suppliers in our efforts to achieve supply chain transparency, including for obtaining information regarding the origin of the Conflict Minerals.

 

Step 3. Design and Implement a Strategy to Respond to Identified Risks

 

We work with a significant number of suppliers and they are diverse in terms of size. Based on our research from publicly available data, 62 of our suppliers, which represent 16.3% (62 out of 381 suppliers), are also SEC registrants and subject to the Rule. After SolarEdge receives CMRT responses from Suppliers, it reviews the responses. SolarEdge follows up with Suppliers whose CMRT appears to be incomplete or contain errors or inaccuracies, requesting that the Supplier submit a revised response.  For illustration purposes, the following are some of the steps that SolarEdge takes in this process: 1) verifying smelters according to RMI smelters list; 2) validating questions in the CMRT file and ensuring that the answers are logical and reasonable, and 3) verifying and cross checking between the smelter location and the RMI smelter approved list. Any smelter’s location in the DRC which is not RMI approved is flagged for further review.

If a completed CMRT indicates a smelter or refiner, SolarEdge reviews this information against the Standard Smelter Names tab of the CMRT and the lists of “compliant” and “active” smelters and refiners published by the RMI. If an indicated smelter or refiner is not listed on the Standard Smelter Names tab or the Commerce Department List, or listed as compliant by the RMI, SolarEdge requests the assistance of the supplier or contacts the listed entity to attempt to determine whether that entity is actually a smelter or refiner, the mine or location of origin of the Conflict Minerals processed by the smelter or refiner and whether it is known to obtain Conflict Minerals from sources that directly or indirectly finance or benefit armed groups in any of the Covered Countries.

SolarEdge reports back to senior management, summarizing our risk mitigation efforts.

 

 

Step 4. Independent Third-Party Audit of Smelter/Refiner’s Due Diligence Practices

 

SolarEdge does not have a direct relationship with 3TG smelters and refiners. As a result, SolarEdge does not perform direct audits of these entities within its supply chain, but rather relies on due diligence performed by organizations such as the RMI.

 

Step 5.  Report Annually on Supply Chain Due Diligence

 

SolarEdge files a Form SD and, to the extent required, a Conflict Minerals Report, with the Securities and Exchange Commission and makes these filings publicly available on the Company’s corporate website at http://investors.solaredge.com/phoenix.zhtml?c=253935&p=irol-govHighlights.

Results of Assessment

 

Based on the information obtained through the due diligence process described above, we do not have sufficient information to determine the products containing Conflict Minerals and/or the country of origin of the Conflict Minerals in those products and/or the facilities used to process Conflict Minerals in those products.

Tracing minerals back to the mine of origin is a complex aspect of responsible sourcing in our supply chain. By adopting methodology outlined by the RMI’s joint industry programs and outreach initiatives and requiring that our Suppliers conform with standards that meet the OECD guidelines and report to us using the Template, we have determined that seeking information about 3TG smelters and refiners in our supply chain represents the most reasonable effort we can make to determine the mines or location of origin of the 3TG in our supply chain and responses to such inquiries represent the most reasonable source information available. Through this joint industry effort, we have made reasonable efforts to make a reasonable determination of the mines or locations of origin of the 3TG in our supply chain. We were unable, however, to ascertain the specific country of origin and/or chain of custody of all necessary Conflict Minerals processed by the facilities that contributed to our Covered Products.

 

 

 

 

 

Improvement to Mitigate Risks

 

As we further develop our due diligence program, we intend to enhance supplier communication and escalation processes to improve due diligence data accuracy and completion, and continue to influence additional smelters to be designated as “conflict-free”, where possible. To the extent we are not able to determine in the future that we are sourcing from non-conflict-free smelters, we plan to move toward using conflict-free smelters within a reasonable time frame. We also intend to request of any of our suppliers, that we have reason to believe are supplying us with 3TG from sources that may support conflict in the Covered Countries that they establish an alternative source of 3TG that does not support such conflict, as provided in the OECD guidance.

 

We understand that supply chain due diligence is a dynamic process and requires on-going risk monitoring. Therefore, after implementing our risk mitigation strategy, SolarEdge intends to go back to Step 2 of the OECD guidelines to ensure effective management of risks.

 

 Cautionary Note on Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. Investors are cautioned that statements in this Report that are not strictly historical statements, including without limitation, SolarEdge’s intentions, expectations, and future results regarding further supplier engagement, and risk mitigation efforts and strategy, constitute forward-looking statements that involve risks and uncertainties. Actual results could differ materially from the forward-looking statements. Risks and uncertainties that could cause actual results to differ include, without limitation, risks and uncertainties associated with the progress of industry and other supply chain transparency, and smelter or refiner validation programs for Conflict Minerals (including the possibility of inaccurate information, fraud and other irregularities), inadequate supplier education and knowledge, limitations on the ability or willingness of suppliers to provide more accurate, complete, and detailed information, and limitations on SolarEdge’s ability to verify the accuracy or completeness of any information received from Suppliers or others.

 

 

Annex A

 

Smelter and Refiner list