AUDIT/FINANCE COMMITTEE CHARTER
Contact Board AUDIT/FINANCE COMITTEE
The Audit/Finance Committee (the "Committee") is a standing committee of the Board of Directors established pursuant to Section 3.1 of the Company's Bylaws. The Committee's purpose shall be to assist the Board of Directors in fulfilling its oversight responsibilities with respect to audit matters and finance oversight. The audit duties focus on (1) the integrity of the financial statements of the Company; (2) the qualifications and independence of the External Auditor (as defined in Article II), (3) the performance of the Company's internal audit function and External Auditor; and (4) the Company's compliance with legal, regulatory, ethical and business conduct requirements. The finance duties of the Committee entail review of certain actions and recommendations to the Board of Directors relating to the Company's capital structure, pension and asset management, and dividend policy.
The Committee shall consist of only non-management directors who at all times shall meet the independence and experience requirements of the New York Stock Exchange ("NYSE") and the Securities and Exchange Commission ("SEC"), as well as other applicable legal requirements and other criteria as may be established by the Board of Directors. The Committee shall number at least three; one of whom shall be selected as Chairperson by the Corporate Governance Committee and approved by the Board of Directors. A non-management director is a director who is neither a current nor a former employee of the Company or its affiliates. Each Committee member shall be, or shall become within a reasonable period of time after appointment to the Committee, financially literate, as determined by the Board of Directors in its business judgment. At least one member of the Committee shall qualify as an "Audit Committee Financial Expert" (or any equivalent term as may be in effect from time to time) within the meaning of the rules promulgated by the SEC. Unless otherwise approved by the Board of Directors, none of the Committee members shall serve on the Committee for more than four consecutive years. A Director may be re-appointed to the Committee after a lapse of membership on the Committee for a period of at least one year. The terms of the Committee members shall be staggered so that at least one new member is appointed to the Committee at each Annual Meeting of the Board. The Committee shall meet at least four times annually with additional meetings held upon the call of the Committee Chairperson or any two members of the Committee. The Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Corporate Controller, Manager-Internal Audit, the Treasurer, General Counsel and Secretary, and a representative from the External Auditor may attend each Committee meeting. The Secretary shall prepare minutes of the meetings. The Committee Chairperson may excuse any Non-Committee attendee from attendance at any meeting or portion of any meeting of the Committee.
III. Duties and Responsibilities for Audit Function
A. Relationship With Internal and External Auditor
The firm employed by the Company as the independent public accountants to examine and report upon the consolidated financial statements of the Company is referred to as the "External Auditor." The External Auditor is directly accountable to the Board of Directors and the Committee. The Committee has the authority and responsibility to select, evaluate, propose for stockholder ratification and, where appropriate, replace the External Auditor. The Committee shall also maintain a direct and separate line of communication between itself and the Manager-Internal Audit and the External Auditor.
B. To accomplish its purposes, the Committee shall:
1. Be directly responsible for the appointment, compensation, oversight of the work, evaluation and termination of any accounting firm employed by the Company (including resolving disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. Such auditor shall report directly to the Committee.
(a) Resolve any disagreements between management and the External Auditor regarding financial reporting.
(b) Approve the appointment of other external auditors employed for specific audit purposes other than that listed in 1.a.
2. Review and preapprove all auditing services (which may entail providing comfort letters in connection with securities underwritings) and all permissible non-audit services ("Permissible Services") provided to the Company by the External Auditor pursuant to such processes and policies as the Committee shall determine to be advisable.
The preapproval requirement set forth above, shall not be applicable with respect to the provision of Permissible Services, if:
(a) the aggregate amount of all such non-audit services provided to the Company constitutes not more than 5 percent of the total dollar amount paid by the Company to the External Auditor during the fiscal year in which the non-audit services are provided;
(b) such services were not recognized by the Company at the time of the engagement to be non-audit services; and
(c) such services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Chairperson of the Committee or, in the absence of the Chairperson of the Committee, by the member of the Committee having the longest period of service on the Board of Directors. The decisions of any member to whom authority is delegated to preapprove a Permissible Service under this subsection shall be presented to the full Committee at its next scheduled meeting.
For purposes of this Section, the External Auditor shall not be permitted to provide to the Company, contemporaneously with the audit, any of the following non-audit services, which shall not constitute Permissible Services:
(a) bookkeeping or other services related to the accounting records or financial statements of the Company;
(b) financial information systems design and implementation;
(c) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
(d) actuarial services;
(e) internal audit outsourcing services;
(f) management functions or human resources;
(g) broker or dealer, investment adviser, or investment banking services;
(h) legal services and expert services unrelated to the audit; and
(i) any other service that the Public Company Accounting Oversight Board established under the Sarbanes-Oxley Act of 2002 determines to be impermissible.
3. Meet with the External Auditor prior to the commencement of the annual audit examination each year and discuss:
(a) The adequacy of the scope of the audit.
(b) The adequacy of the Company's accounting principles, policies, data security and practices, and any contemplated material changes thereto.
(c) New developments in accounting principles or reporting practices which may materially affect the Company.
(d) The audit and non-audit fees paid to the External Auditor.
(e) The planning and staffing of the audit.
4. Review the scope and associated expenses of the internal audit program to be performed each year. Review the appointment or replacement of any senior internal auditing personnel.
5. Establish policies and procedures to facilitate:
(a) the receipt, retention, and treatment of complaints received by the Company from third parties regarding accounting, internal accounting controls, or auditing matters; and
(b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
6. Review all internal and external audit reports and any written management responses thereto.
7. Review annually:
(a) A written report from the External Auditor regarding (i) the External Auditor's internal quality-control procedures, (ii) any material issues raised by the most recent quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years concerning one or more independent audits carried out by the firm, (iii) any steps taken to deal with any such issues, and (iv) all relationships, both direct and indirect, between the External Auditor and the Company. Taking into account the opinions of management and the internal auditor, evaluate the qualifications (including the qualifications and experience of senior members of the External Auditor team assigned to the Company), performance and independence of the External Auditor including considering whether the External Auditor's quality controls are adequate and the provision of non-audit Permissible Services is compatible with maintaining the External Auditor's independence.
(b) The adequacy of the Audit/Finance Committee charter and the fulfillment of the Committee's duties thereunder.
(c) A report of the Company on environmental matters.
(d) The External Auditor's comment upon the technical competence and adequacy of the Company's Financial Department staff.
(e) The expense reports of the Chairperson of the Board and Chief Executive Officer.
(f) Prior to submitting the annual consolidated financial statements to the Board of Directors for final approval, the following with the External Auditor and Company financial management:
(i) The results of the completed annual audit.
(ii) The External Auditor's overall evaluation of the annual financial statements.
(iii) Financial management's overall evaluation of the annual financial statements.
(iv) Matters relating to the conduct of the annual audit that are required to be communicated to the Committee under generally accepted auditing standards.
(g) Prior to filing the Company's Annual Report on Form 10-K, the following with the External Auditor, the internal auditors and management, as applicable:
(i) The adequacy of internal accounting controls and procedures.
(ii) Suggestions for improvements in accounting, information systems, and financial and operating controls, as expressed in the External Auditor's annual letter to management.
(iii) The extent to which any previously identified control and procedural weaknesses have not been corrected and the reasons therefor.
(iv) The adequacy of the Company's annual and interim reporting practices and the External Auditor's views concerning the quality of financial reporting to the stockholders and the Securities and Exchange Commission.
(v) Disclosures made in management's discussion and analysis of financial condition and results of operation included in the Company's Annual Report on Form 10-K.
8. Prior to filing each of the Company's Forms 10-Q, the Chairperson of
the Committee, and if the Chairperson deems it advisable the Committee,
review and discuss the following with the External
Auditor and management:
(a) Matters that are required to be communicated to the Committee under generally accepted auditing standards.
(b) The adequacy of the Company's interim reporting practices and the External Auditor's views concerning the quality of financial reporting to the stockholders and the Securities and Exchange Commission.
(c) Disclosures made in management's discussion and analysis of financial condition and results of operation included in the Company's Form 10-Q, including the results of the External Auditors' reviews of the quarterly financial statements.
9. Periodically review the following:
(a) The aggregate amount of non-audit Permissible Services performed by the External Auditor.
(b) Compliance with conflicts of interest statements, the Guidelines of Business Conduct and codes of conduct and ethics applicable to directors and employees.
10. Discuss with management and the External Auditor significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including (i) any significant changes in the Company's selection or application of accounting principles, (ii) any major issues as to the adequacy of the Company's internal controls, (iii) the development, selection and disclosure of critical accounting policies and estimates, (iv) analyses of the effect of alternative assumptions and policies, estimates or methods under generally accepted accounting principles ("GAAP") on the Company's financial statements, (v) analyses and disclosure of financial trends, and (vi) presentation of the financial statements and notes thereto.
11. Discuss with management the Company's earnings press releases, including the use of "pro forma", "adjusted" or other non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.
12. Discuss with management and the External Auditor the effect of accounting initiatives as well as off-balance sheet structures on the Company's financial statements.
13. Discuss with management the effect of regulatory initiatives on the Company's financial statements.
14. Discuss with management the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company's financial risk assessment policies.
15. Meet in separate executive sessions periodically with the Manager-Internal Audit, the External Auditor and management to discuss any matters that the Committee or these groups believe should be discussed privately with the Committee.
16. Discuss with management, the External Auditor and the Company's General Counsel, as applicable, the Company's compliance with applicable laws and regulations, legal matters that may have a material impact on the Company's financial statements, any significant or material correspondence with governmental agencies, and any employee complaints or published reports that raise material issues regarding the Company's financial statements or accounting policies and review management's replies to such correspondence, complaints, or reports.
17. Prepare a report for inclusion in the Company's proxy statement, as required by the rules of the Securities and Exchange Commission. Such report shall contain a statement regarding the Committee's recommendation as to whether the audited financial statements should be included in the Company's Annual Report on Form 10-K.
18. Approve the Company's hiring of employees or former employees of the External Auditor who were engaged on the Company's account.
19. The Committee may examine and consider such other matters in relation to the internal and external audits of the Company's accounts and in relation to corporate accounting and reporting matters, as the Committee in its own discretion, determines to be desirable.
20. It shall not be the duty or responsibility of the Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and in accordance with GAAP.
IV. Duties and Responsibilities of Finance Function
A. Review all proposed changes to the capital structure of the Company, including the issuance of long-term indebtedness and the issuance of additional equity securities, and make recommendations to the Board of Directors. Periodically review the Company's cash management strategies and financing requirements (at least annually) with respect to cash utilization, including short-term borrowings, consistent with sound financial policy and return on investment goals, as outlined in the short-term and long term business plan.
B. Select, appoint, or remove trustees and investment managers for each of the Company's employee benefit plan funds. Review and approve Investment Policy Guidelines to be followed by each investment manager and trustee. Review and monitor the performance of the investment managers and trustees in relation to the requirements of the Investment Policy Guidelines and the Employee Retirement Income Security Act (ERISA). Review and approve the asset allocation for the pension funds and the associated actuarial assumptions. Review projected annual pension fund contributions for each plan year and approve the appropriate percentage allocation of such payments to the investment managers and trustees.
C. Review dividend practice.
D. Review each capitalized long-term lease over $1,000,000.
E. Perform such other functions which from time to time may be assigned to it by the Board of Directors.
V. Miscellaneous Powers and Responsibilities
A. The Committee shall have the power to investigate any matter brought to its attention within the scope of its duties. The Committee shall also have the authority without the consent of management or the Board, at the Company's expense, to the extent it deems necessary or appropriate, to contact or access the Company's General Counsel, outside legal counsel or retain special independent legal, accounting or other consultants, with due regard to the reasonableness of the attendant costs, to advise or assist the Committee in connection with fulfilling its obligations.
B. The Committee shall have the responsibility to submit the minutes of all meetings of the Committee to the Board of Directors.
VI. Good Faith Reliance
The Committee, and each member of the Committee in his or her capacity as such, shall be entitled to rely, in good faith, on information, opinions, reports or statements, or other information prepared or presented to them by (i) officers and other employees of the Company or its affiliates whom such member believes to be reliable and competent in the matters presented, and (ii) counsel, public accountants or other persons as to matters which the member believes to be within the professional competence of such person.