A. O. Smith Corporation

 

Audit Committee Charter 

 

The Audit Committee will assist the Board of Directors in fulfilling the BoardŐs oversight responsibilities relating to (i) the integrity of the CompanyŐs financial statements and the financial reporting process, (ii) the CompanyŐs compliance with legal and regulatory requirements, (iii) the independent auditorŐs qualifications and independence and (iv) the performance of the CompanyŐs internal audit function and independent auditors.  The Committee will ensure that there is free and open communication among the Committee, internal and independent auditors and management of the Company. The Committee will prepare the Report of the Audit Committee to be filed in the CompanyŐs annual proxy statement.  The Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company and the power to retain outside counsel or other experts for this purpose.  In carrying out its responsibilities, the Committee is not providing any expert or special assurance as to the CompanyŐs financial statements or any professional certification as to the work of the CompanyŐs independent auditors.

 

The Committee will be annually appointed by the Board of Directors and will consist of at least three independent Directors.  Members of the Committee will be considered independent if they have no relationship that may interfere with the exercise of their independence from management and the Company.   All Committee members will be financially literate, and at least one member will be a financial expert.

 

The Audit Committee will:

 

1.        Review and assess the adequacy of this Charter annually and recommend any proposed changes to the Board.

 

2.        Appoint the CompanyŐs independent  auditors, which may be subject to shareholdersŐ approval.  The Committee will approve audit fees and provide oversight of the independent auditors. The Committee, together with the Board, shall have the ultimate authority and responsibility to evaluate and, where appropriate, replace the independent auditors.  The independent auditors are accountable to the Board and the Audit Committee, as representatives of the CompanyŐs shareholders.

 

3.        Pre-approve all auditing services (including statutory audits and comfort letters in connection with securities offerings) as well as non-audit services (including tax services) to be provided by the independent auditor.

 

4.        Obtain and review an annual report by the independent auditor describing: the firmŐs internal quality-control procedures; any material issues raised by the most recent internal 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, and any steps taken to deal with any such issues; and all relationships between the independent auditor and the Company.

 

5.       Discuss the annual audited financial statements and quarterly financial statements with management and the independent auditor, including the CompanyŐs disclosures under ŇManagementŐs Discussion and Analysis of Financial Condition and Results of OperationsÓ, and make a recommendation to the Board of Directors as to the inclusion of the annual audited financial statements in the Annual Report on Form 10-K. 

 

6.       Discuss with management of the Company and the independent auditors the quarterly earnings release, including financial information and earnings guidance provided to analysts and rating agencies as well as any matters required to be communicated to the Committee by the independent auditors.

 

7.        Meet periodically with management to review the CompanyŐs major business and financial risk exposures and steps management has taken to monitor and control such exposures.

 

8.        Meet separately with (i) management, (ii) the internal auditors and (iii) the independent auditors on a periodic basis.

 

9.        Review with the independent auditor (i) any difficulties the auditor encounters in the course of their audit work, including any restrictions on the scope of the independent auditorŐs procedures or on access to requested information, and (ii) any significant disagreements with management. 

 

10.      Discuss with the internal auditors and the independent auditors the overall scope and plans for their respective audits including the adequacy of staffing.    Discuss results of audits and review significant reports that are issued.

 

11.      Discuss with management, the internal auditors, and the independent auditors the adequacy and effectiveness of the accounting and financial controls. The Committee will review the independent auditorsŐ management letter and recommendations and managementŐs response.   The Committee will set clear hiring policies for employees or former employees of the independent auditors.  The Committee will also review annually Company processes and reports related to conflicts of interest, illegal acts, codes of conduct or ethics, complaints and related items.

 

12.       Perform an annual self-assessment of the CommitteeŐs effectiveness.

 

While the Committee has the responsibilities and powers set forth above, it is not the duty of the Committee to plan or conduct audits, and the Committee is not responsible for the preparation, content, integrity or objectivity of the CompanyŐs financial statements.  These are the responsibility of management and the CompanyŐs independent public accountants.  It is not the duty of the Committee to assure compliance with laws and regulations or the CompanyŐs rules, policies and procedures, or to conduct investigations.