Charter of the Audit Committee of the Board of Directors of Seagate Technology
January 27, 2005
The Audit Committee (the “Committee”) of the Board of Directors of Seagate Technology (the “Company”) shall:
Provide assistance to the Board of Directors in fulfilling its responsibility to the Company’s shareholders, potential shareholders and the investment community with respect to its oversight of:
The quality and integrity of the Company’s financial statements;
The Company’s compliance with legal and regulatory requirements;
The independent auditors’ qualifications and independence; and
The performance of the Company’s internal auditors and its independent auditors.
Prepare the report that the rules of the Securities and Exchange Commission (the “SEC”) require to be included in the Company’s annual proxy statement.
COMPOSITION AND POLICIES:
The following are the primary operating policies of the Committee:
The Committee shall be composed of three (3) or more members of the Board of Directors and shall elect a Chairman from among their its members to serve in that capacity until a new Chairman is elected. Each Committee member shall be “independent” under the rules of the SEC and the New York Stock Exchange, Inc. , as affirmatively determined by the Board of Directors. Each Committee member shall be financially literate [ and have a working familiarity with basic finance and accounting practices ] (or become financially literate [ or acquire such familiarity ] within a reasonable period after his or her appointment) and at least one member must be a n “ audit committee financial expert” under the rules of the SEC [ See NYSE Section 303A.7(a) ]. No member of the Committee may serve on the audit committee of more than three (3) public companies (including the Company) unless the Board of Directors (i) determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee and (ii) discloses such determination in the Company’s annual proxy statement.
No member of the Committee shall receive compensation other than (i) directors’ fees (which fees may take the form of cash, securities or other consideration) for service as a director of the Company, including reasonable compensation for serving on the Committee and regular benefits that other directors receive and (ii) a pension or similar compensation for past performance, provided that such compensation is not conditioned on continued or future service to the Company.
The Committee shall hold such meetings as it deem s ed necessary but shall meet a minimum of four (4) times per calendar year. The Committee shall, to the extent required by applicable exchange listing standards, and may, to the extent it otherwise deems appropriate, periodically meet separately with each of management, the director of the Company’s internal auditing department and the Company’s independent auditors to discuss any matters that the Committee or each of these groups believe would be appropriate to discuss privately. In addition, the Committee shall, to the extent required by applicable exchange listing standards, and may, to the extent it otherwise deems appropriate, meet with the Company’s independent auditor s and management quarterly to review the Company’s financial statements. Minutes of all Committee meetings shall be taken and shall be approved at subsequent meetings.
Upon the request of the Company’s independent auditors, the Chairman of the Committee shall convene a meeting of the Committee to consider any matters such auditors believe should be brought to the attention of the Committee, the Board of Directors or the Company’s shareholders.
The Committee has the authority to direct and supervise an investigation into any matter, including the authority to retain such legal, accounting or other advisors as the Committee deems necessary or advisable to carry out its duties. The independent auditors are ultimately accountable to the Board of Directors and the Audit Committee. The Committee has the ultimate power to hire or remove the independent auditors.
The Committee has the authority to approve (i) the payment of compensation to, or other terms of retention of, any legal, accounting or other advisor retained by the Committee and (ii) the payment of ordinary administrative expenses of the Committee that are necessary or appropriate to carry out its duties.
The Committee has the ultimate power to hire or remove the Company’s independent auditors. The independent auditors are ultimately accountable to the Board of Directors and the Audit Committee.
Two (2) members of the Committee shall be necessary to constitute a quorum, and in every case the affirmative vote of two (2) members shall be necessary for the taking of any action.
FUNCTIONS AND DUTIES:
The Committee is charged with the responsibility for:
Reviewing and discussing with management and the independent auditors prior to public dissemination the annual audited financial statements to be included in the Company’s annual report (Form 10-K) and the quarterly financial statement s to be included in the Company’s quarterly reports (Form 10-Q) filed with the Securities and Exchange Commission (the “SEC”), in each case including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations , and recommending to the Board of Directors whether the annual audited financial statements should be included in the Company’s Form 10-K [ See S-K Item 306 ];” (1)
Reviewing and discussing with the Company’s independent auditors and management the Company’s earnings press releases (paying particular attention to the use of any “pro forma” or “adjusted” non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies. The Committee’s discussion in this regard may be general in nature (i.e., discussion of the types of information to be disclosed and the type of presentation to be made) and need not take place in advance of each earnings release or each instance in which the Company may provide earnings guidance;
Retaining and terminating the Company’s independent auditors and approving all compensation of the independent auditors, including all audit engagement fees and terms [ See Exch a n g e Act Rule 10A-3(b ) and NYSE Section 303A.7(c) (iii) ];
Informing each registered public accounting firm performing work for the Company that such firm shall report directly to the Committee;
Overseeing the work of any registered public accounting firm employed by the Company, including the resolution of any disagreement between management and the auditor regarding financial reporting, for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;
Approving in advance any audit or non-audit engagement or relationship between the Company and its independent auditors (other than “prohibited non-audit ing services”, which may not be provided by its independent auditors); provided, however, that pre-approval is not necessary for minor services other than audit, review or attest services under specified circumstances;
The Committee shall , at least annually, review confirm the independence , performance and qualifications of the Company’s independent auditors by such methods as it deems appropriate or are required by applicable exchange listing standards [ See Commentary to NYSE Section 303A.7(c)(iii)(A) ]. Among other things, such methods should shall include obtaining from the independent auditors at least annually a written statement outlining (i) their relationships with the Company and any matters that might reasonably be expected to affect their independence and determine or their qualifications, (ii) the independent auditing firm’s internal quality control procedures, and (iii) any material issues raised by the most recent internal quality control review, or peer review, of the independent auditing firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent auditing firm, and any steps taken to deal with such issues; (2)(3)(4)
Ensuring that there be a rotation of the lead audit partner of the Company’s independent auditing firm at least every five years;
Considering whether there should be a regular rotation of the Company’s independent auditing firm;
Confirming with the independent auditing firm retained to provide audit services for any fiscal year that the lead audit partner, or the audit partner responsible for reviewing the audit, has not performed audit services for the Company in each of the five previous fiscal years of the Company;
Reviewing annually the audit plans of the independent auditors and internal auditors;
Meeting with the independent auditors at the completion of their annual audit to review their evaluation of the financial reporting and internal controls of the Company and any changes required in the originally planned audit program;
Meeting with the internal auditors on an ongoing basis to review:
Audit results ;
Reports on exposures/controls, irregularities and control failures;
The disposition of recommendations for improvements in internal controls made by internal and external auditors; and
Any changes required in the originally planned audit program;
Reviewing the reports of examinations by regulatory authorities , if any;
Monitoring the Company’s policies and procedures for the review of expenses and perquisites of selected members of senior management;
Overseeing the monitoring of the Company’s code of business conduct and ethics;
Performing any special reviews, investigations or oversight responsibilities required by the Board of Directors or its Chairman such as investment policies and periodic oversight of certain budgetary measures;
Reporting regularly to the Board of Directors on the results of the activities of the Committee as well as reporting to shareholders as required in the Company’s annual meeting prox y ies statement;
Considering comments by the independent auditors suggesting improvements in internal accounting controls and the response by management to such comments;
Monitoring policies and address conflicts of interest, unethical, questionable or illegal activities by Company employees;
Reviewing periodically legal and related matters that could have a significant impact on the Company’s financial statements with the Company's General Counsel; and
Establish ing clear hiring policies for employees or former employees of the Company’s independent auditors.
FINANCIAL REPORTING PROCESS
In connection with performing its duties under Section III of this Charter, the Committee should obtain and discuss with the Company’s management and its independent auditors reports from management and the independent auditors regarding:
All critical accounting policies and practices to be used by the Company;
Analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the independent auditors;
Major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles;
Major issues as to the adequacy of the Company’s internal controls and any specific audit steps adopted in light of material control deficiencies; and
Any other material written communications between the Company’s independent auditors and the Company’s its management.
The Committee shall, to the extent required by applicable exchange listing requirements, and may, to the extent it otherwise deems appropriate, review periodically the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company.
The Committee shall review with the Company’s independent auditors:
Any audit problems or other difficulties encountered by the independent auditors in the course of the audit process, including any restrictions on the scope of the independent auditors’ activities or on access to requested information;
Any significant disagreements between the independent auditors and management; and
Management’s response to any issues raised by the independent auditors.
Without excluding other possibilities, the Committee may wish to review with the independent auditors (i) any accounting adjustments that were noted or proposed by the independent auditors but were “passed” (as immaterial or otherwise), (ii) any communications between the audit team and the independent auditing firm’s national office respecting auditing or accounting issues presented by the engagement, and (iii) any “management” or “internal control” letter issued, or proposed to be issued, by the independent auditor to the Company.
The Committee shall, to the extent required by applicable exchange listing requirements, and may, to the extent it otherwise deems appropriate, review and discuss with the independent auditors the responsibilities, budget and staffing of the Company’s internal audit function.
The Committee shall review any disclosures made to it by the C ompany’s Chief Executive Officer or Chief Financial Officer in connection with their certifications of the Company’s Form 10-K and Form 10-Q regardin g any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the C ompany’s internal controls. [ See Section 302 of Sarbanes-Oxley ]
The Committee shall, to the extent required by applicable exchange listing requirements, and may, to the extent it otherwise deems appropriate, discuss with the Company’s management and its independent auditors the Company’s guidelines and policies with respect to risk assessment and risk management.
The Committee shall, to the extent required by applicable exchange listing requirements, and may, to the extent it otherwise deems appropriate, discuss the Company’s major financial risk exposures and the steps the Company’s management and has taken to monitor and control such exposures.
The Committee shall, to the extent required by applicable exchange listing requirements, set clear hiring policies for employees or former employees of the Company’s independent auditors. At a minimum, these policies shall provide that any registered public accounting firm may not provide audit services to the Company if the Company’s Chief Executive Officer, Controller, Chief Financial Officer, Chief Accounting Officer or any person serving in an equivalent capacity for the Company was employed by the registered public accounting firm and participated in the audit of the Company within one year of the initiation of the current audit.
The Committee shall, to the extent required by applicable exchange listing requirements or the rules of the SEC and may, to the extent it otherwise deems appropriate, establish procedures for:
The receipt, retention and treatment of complaints received by the Company regarding accounting, internal audit accounting controls, or auditing matters; and
The confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
The Committee shall prepare or review all reports required to be prepared by audit committees and included in annual proxy statements in accordance with the applicable rules and regulations of the SEC.
The Committee shall, to the extent required by applicable listing requirements or is requested by the Board of Directors, and may, to the extent it otherwise deems it appropriate, regularly report to the full Board of Directors, including with respect to any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the independence, performance and qualifications of the Company’s independent auditors and the performance of the Company’s internal audit function.
The Committee shall, to the extent required by applicable listing requirements, perform a review and evaluation, at least annually, of the performance of the Committee and its members, including by reviewing the compliance of the Committee with this Charter.
The Committee’s discussion with the Company’s independent auditors shall include all matters required to be discussed by Statement of Auditing Standards No. 61, the Committee’s judgments about the quality and acceptability of the accounting principles applied by the independent auditors, the reasonableness of significant judgments made by the independent auditors, and the clarity of the related disclosures. Also, the Committee shall discuss the results of the annual and quarterly audits and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards, and the Committee shall take into account the opinions of the Company’s internal auditors and management as well as those of the independent auditors in assessing the quality of the Company’s annual and quarterly audits. Back to the text.
The Committee may delegate to one or more of its members the authority to approve in advance all audit or non-audit services to be provided by the independent auditors so long as it is presented to the full Committee at a later time its next regularly scheduled meeting [ See Exchange Act Sec t ion 10A(i)(3) ]. Back to the text.
The following shall be “prohibited non-audit ing services:” (i) bookkeeping or other services related to the accounting records or financial statements of the audit client Company; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, providing fairness opinions or preparing contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment advisor or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service that the Public Company Accounting Oversight Board prohibits through regulation . Back to the text.
Pre-approval for minor non-audit services is not necessary if (i) the aggregate amount of all fees paid for such non-audit services provided to the Company constitutes not more than five percent of the total amount of revenues paid by the Company to its independent auditor s during the fiscal year in which the non-audit services are provided; (ii) such services were not recognized by the Company at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by one or more members of the Committee to whom authority to grant such approvals has been delegated by the Committee. Back to the text.