1. The Board of Directors (the "Board") of Quanex
Corporation (the "Company") shall establish an Audit Committee (the
2. The primary purpose of the Committee is to assist the Board in fulfilling
its responsibility to:
(a) monitor the integrity of the Company's financial reporting
process, including review of the financial reports and other financial
information provided by the Company to the public and governmental and
(b) review the Company's system of internal financial and disclosure
controls, and review the performance of the Company's internal audit
(c) review the annual independent audit of the Company's financial statement,
and monitor the public accountant's qualifications and independence; and
(d) review compliance with applicable laws and regulations which may
represent material financial exposure to the Company.
3. In discharging its role, the Committee is empowered to
investigate any matters brought to its attention, with full access to all
books, records, facilities and personnel of the Company and the power to
retain outside counsel.
4. The Committee shall review and reassess the adequacy of this Charter on an
annual basis, and shall prepare the report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
5. The membership of the Committee shall meet the independence, experience
and financial expertise requirements of the New York Stock Exchange and
Section 10A of the Securities Exchange Act of 1934, as amended by the
Sarbanes-Oxley Act of 2002, and the rules promulgated thereunder.
Director fees, including committee fees, are the only compensation that an
Audit Committee member may receive from the Company.
6. Members of the Committee shall be elected annually by a vote of a majority
of the Board based on the recommendation of the Chairman & Chief
Executive Officer and reviewed by the Nominating & Corporate Governance
Committee, and shall serve until their successors are appointed and qualify.
COMMITTEE AUTHORITY & RESPONSIBILITIES
7. The Audit Committee shall have the sole authority to appoint or replace
the public accountants, and shall approve all audit engagement fees and terms
and all non-audit engagements with the public accountants. The Committee
shall consult with management but shall not delegate these responsibilities,
except that pre-approvals of non-audit services may be delegated to a single
member of the Committee. In its capacity as a committee of the Board, the
Committee shall be directly responsible for the oversight of the work of the
public accounting firm for the purpose of preparing or issuing an audit
report or related work, and the public accounting firm shall report directly
to the Committee.
8. Review and concur in the appointment, replacement, reassignment, or
dismissal of the Director - Internal Audit.
9. The Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain special legal, accounting or other consultants to
advise the Committee and carry out its duties, and to conduct or authorize
investigations into any matters within its scope of responsibilities.
10. The Committee shall meet periodically
with management, the internal auditors and the registered public accountants
in separate executive sessions in furtherance of its purposes.
11. The Committee shall make regular reports to the Board, and annually review
the Committee's own performance.
12. In performing its functions, the Committee shall undertake those tasks
and responsibilities that, in its judgment, would most effectively contribute
and implement the purposes of the Committee. The following functions are
common recurring activities of the Committee in carrying out its oversight
a) Review and discuss with management and the public accountants
the Company's annual audited financial statements, including disclosures made
in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the matters required to be discussed
pursuant to Statement on Auditing Standards No. 61, and recommend to the
Board whether the audited financial statements should be included in the
Company's Form 10-K.
b) Review and discuss with management and the public accountants the
Company's quarterly financial statements, including disclosures made under
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" or similar disclosures, and the matters required to be
discussed pursuant to Statement on Auditing Standards No. 61, prior to the
filing of its Form 10-Q, including the results of the public accountants'
review of the quarterly financial statements to the extent applicable.
c) Review and discuss with management and the public accountants, as
applicable (1) major issues regarding accounting principles and financial
statement presentations; (2) analyses prepared by management or the public
accountants setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial
statements; (3) any management letter provided by the public accountants and
the Company's response to that letter; (4) any problems, difficulties or
differences encountered in the course of the audit work, including any
disagreements with management or restrictions on the scope of the public
accountants' activities or on access to requested information and
management's response thereto; (5) the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures, on the financial
statements of the Company; and (6) earnings press releases as well as
financial information and earnings guidance provided to analysts and rating
d) Review and discuss with management and the Director - Internal Audit (1)
significant findings on internal audits during the year and management
responses therto; (2) any difficulties the Internal
Audit team encountered in the course of their audits, including any
restrictions on the scope of their work or access to required information;
(3) any changes required in the scope of their internal audit; (4) the
Internal Audit budget and staffing; and (5) the Internal Audit charter.
e) Discuss with management on an annual basis the Company's major financial
risk exposure and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management
f) Obtain and review a report from the public accountants at least annually
regarding (1) the registered public accountants' internal quality-control
procedures; (2) any material issues raised by the most recent quality-control
review, or peer review, of the firm; (3) any steps taken to deal with any
such issues; (4) all relationships between the public accountants and the
Company. Evaluate the qualifications, performance and independence of the
public accountants, including a review and evaluation of the lead partner of
the registered public accountant.
g) Ensure that the lead audit partner of the public accountants and the audit
partner responsible for reviewing the audit are rotated at least every five
years as required by the Sarbanes-Oxley Act of 2002.
h) Discuss with the public accountants any communications between the audit
team and the audit firm's national office respecting auditing or accounting
issues presented by the engagement.
i) Discuss with the public accountants the internal
audit department and its audit plan, responsibilities, budget and staffing.
j) Review procedures for the confidential, anonymous submission, retention,
and treatment of complaints received by the Company regarding questionable
accounting or auditing matters. Review any submissions that have been
received, the current status, and the resolution if one has been reached.
k) Review disclosures made by the Company's principal executive officer or
officers and principal financial officer or officers regarding compliance
with their certification obligations as required under the Sarbanes-Oxley Act
of 2002 and the rules promulgated thereunder,
including the Company's disclosure controls and procedures and internal
controls for financial reporting and evaluations thereof.
l) Review any reports of the registered public accountants mandated by
Section 10A of the Securities Exchange Act of 1934, as amended, and obtain
from the public accountants any information with respect to illegal acts in
accordance with Section 10A.
13. The Committee shall monitor and review the establishment of actuarial
assumptions and investment objectives, policies, and performance criteria for
the management of the Company's retirement and benefit plans.
14. The Committee shall review annually the performance of the Company's
retirement and benefit plan asset investments.
LIMITATIONS OF THE AUDIT COMMITTEE'S ROLE
15. While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to prepare financial statements,
plan or conduct audits or to determine that the Company's financial
statements and disclosures are complete and accurate and are in accordance
with generally accepted accounting principles and applicable rules and
regulations. These are the responsibilities of management and the registered