Audit Committee Charter
Approved by the Board of Directors and
effective as of February 9, 2004 .
This Charter governs the operations of the
Audit Committee (the “Committee”) of the Board of Directors of
Baldor Electric Company (“Baldor”). The Committee shall review
and reassess the Charter at least annually and obtain the
approval of the Board of Directors of any changes. The
Committee shall be members of, and appointed by, the Board of
Directors and shall comprise at least three directors, each of
whom is independent of management and Baldor. Members of the
Committee shall be considered independent as long as they do
not accept any consulting, advisory, or other compensatory fee
from, and are not an affiliated person of, Baldor or its
subsidiaries, and meet the independence requirements of the
New York Stock Exchange listing standards. All Committee
members shall be financially literate, and at least one member
shall be an “audit committee financial expert,” as defined by
the Securities and Exchange Commission (“SEC”) regulations.
The Committee shall provide assistance to the
Board of Directors in fulfilling its oversight responsibility
to the shareholders, potential shareholders, the investment
community, and others relating to:
- the integrity of the Baldor's financial statements;
- the financial reporting process;
- the systems of internal accounting and financial
- the performance of Baldor's internal audit function and
- the independent auditor's qualifications and
- Baldor's compliance with ethics policies and legal and
In so doing, it is the responsibility of the
Committee to maintain free and open communication between the
Committee and the independent auditors, the internal auditors,
and management of Baldor.
In discharging its oversight role, the
Committee is empowered to investigate any matter brought to
its attention with full access to all books, records,
facilities, and personnel of Baldor and with the authority and
funding to engage independent counsel and such other advisors
as it determines necessary to carry out its duties.
Duties and Responsibilities
The primary responsibility of the Committee
is to oversee Baldor's financial reporting process on behalf
of the Board of Directors and report the results of their
activities to the Board. While the Committee has the
responsibilities and powers set forth in this Charter, it is
not the duty of the Committee to plan or conduct audits or to
determine that Baldor's financial statements are complete and
accurate and are in accordance with generally accepted
accounting principles. Management is responsible for the
preparation, presentation and integrity of Baldor's financial
statements and for the appropriateness of the accounting
principles and reporting policies that are used by Baldor. The
independent auditors are responsible for auditing Baldor's
financial statements and for reviewing Baldor's unaudited
interim financial statements.
In carrying out its responsibilities, the
Committee's policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances.
The Committee should take appropriate actions to set the
overall corporate “tone” for quality financial reporting,
sound business risk practices, and ethical behavior.
The following shall be the principal duties
and responsibilities of the Committee. These are set forth as
a guide with the understanding that the Committee may
supplement them as appropriate.
The Committee shall be directly
responsible for the appointment, retention and termination
of the independent auditors, and the independent auditors
shall report directly to the Committee.
The Committee also shall be directly
responsible for the oversight of the work of the independent
auditors, including resolution of disagreements between
management and the independent auditors regarding financial
The Committee shall pre-approve all audit
and non-audit services provided by the independent auditors,
or any other audit firm, and shall not engage the
independent auditors to perform the specific non-audit
services proscribed by law or regulation.
The Committee may delegate pre-approval
authority to a member of the Committee. The decisions of any
Committee member to whom pre-approval authority is delegated
must be presented to the full Committee at its next
At least annually, the Committee shall
obtain and review a report by the independent auditors
- The independent auditing firm's internal quality
- 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 firm, and any steps taken to
deal with any such issues.
- All relationships between the independent auditing
firm and Baldor (to assess the independent auditing firm's
The Committee shall set hiring policies
at Baldor for employees or former employees of the
independent auditors; such policies shall be in accord with
SEC regulations and New York Stock Exchange listing
The Committee shall discuss with the
internal auditors and the independent auditors the overall
scope and plans for their respective audits, including the
adequacy of staffing and compensation.
The Committee shall discuss with
management, the internal auditors and the independent
auditors the adequacy and effectiveness of Baldor's
accounting and financial controls, including Baldor's
policies and procedures to assess, monitor, and manage
business risk, and legal and ethical compliance programs,
such as Baldor's
Code of Ethics and Business Conduct
The Committee shall meet separately
periodically with management, the internal auditors and the
independent auditors to discuss issues and concerns
warranting Committee attention. The Committee shall provide
sufficient opportunity for the internal auditors and the
independent auditors to meet privately with the Committee.
The Committee shall review with the independent auditor any
audit problems or difficulties and management's response.
The Committee shall receive a report from
the independent auditor, prior to the filing of its audit
report with the SEC, concerning.
- All critical accounting policies and practices of
- All material alternative treatments of financial
information within generally accepted accounting
principles that have been discussed with management,
including the ramifications of the use of such alternative
treatments and disclosures and the treatment preferred by
the independent auditor.
- Other material written communications between the
independent auditor and management.
The Committee shall review management's
assertion on its assessment of the effectiveness of internal
controls as of the end of the most recent fiscal year and
the independent auditors' report on management's assertion.
The Committee shall review and discuss
earnings press releases, as well as financial information
and earnings guidance provided to analysts and rating
The Committee shall review the interim
financial statements and disclosures under Management's
discussion and Analysis of Financial Condition and Results
of Operations with management and the independent auditors
prior to the filing of Baldor's Quarterly Report on Form
10-Q. The Committee shall discuss the results of the
quarterly review and any other matters required to be
communicated to the Committee by the independent auditors
under generally accepted auditing standards.
Committee shall review with management
and the independent auditors the financial statements and
disclosures under Management's Discussion and Analysis of
Financial Condition and Results of Operations to be included
in Baldor's Annual Report on Form 10-K (or the annual report
to shareholders if distributed prior to the filing of Form
10-K), including their judgment about the quality, not just
the acceptability, of accounting principles, the
reasonableness of significant judgments, and the clarity of
the disclosures in the financial statements. The Committee
shall discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing
The Committee shall establish procedures
for the receipt, retention, and treatment of complaints
received by Baldor regarding accounting, internal accounting
controls, or auditing matters, and the confidential,
anonymous submission by employees of Baldor of concerns
regarding questionable accounting or auditing matters.
The Committee shall receive corporate
attorneys' reports of evidence of a material violation of
securities laws or breaches of fiduciary duty.
The Committee shall prepare its report to
be included in Baldor's annual proxy statement, as required
by SEC regulations.
The Committee shall perform an evaluation
of its performance at least annually to determine whether it
is functioning effectively.