Audit Committee Charter
July 19, 2004
The primary purpose of the Audit Committee (the "Committee") of the Board of Directors (the "Board") of Simpson Manufacturing Co., Inc. (the "Company") is to provide independent and objective oversight of the accounting functions and internal controls of Simpson Manufacturing Co., Inc., and its subsidiaries and to ensure the integrity of the Company's financial statements and compliance with applicable legal and regulatory requirements. The Committee is responsible for preparing a report of its findings, to be included in the Company's annual proxy statement. The Committee has the sole authority and responsibility to select, evaluate the qualifications and independence of, and, where appropriate, replace the independent accountants. Also, the Committee evaluates the performance of the Company's internal audit function.
The Committee's role is one of oversight and review. It is not expected to audit the Company, to define the scope of the audit, to control the Company's accounting practices, or to define the standards to be used in preparation of the Company's financial statements.
In the following eleven areas, the Audit Committee shall perform these functions:
In the following eleven areas, the Audit Committee shall perform these functions:
- Independent Accountants. Exercise sole authority to retain and terminate the Company's independent auditors and approve all audit engagement fees and terms, as well as all significant non-audit engagements with the independent auditor. The independent auditors shall report directly to the Committee.
- Plan of Audit. Consult with the independent accountants regarding the plan of audit. The Committee also shall review with the independent accountants their report on the audit and review with management the independent accountants suggested changes or improvements in the Company's accounting practices or controls.
- Accounting Principles and Disclosure. Review significant developments in accounting rules. The Committee shall review with management recommended changes in the Company's methods of accounting or financial statements. The Committee also shall review with the independent accountants any significant proposed changes in accounting principles and financial statements. The Committee shall review with management and the independent auditor any correspondence with regulators and any published reports that raise material issues regarding the Company's accounting practices.
- Internal Accounting Controls. Discuss the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures. The Committee consults with the independent accountants regarding the adequacy of internal accounting controls. Where appropriate, consultation with the independent accountants regarding internal controls shall be conducted out of management's presence.
- Financial Disclosure Documents. Review with management and the independent accountants the Company's financial disclosure documents including all interim and annual financial statements and reports filed with the Securities and Exchange Commission or sent to stockholders and interested parties and following the satisfactory completion of each year-end review recommend to the Board the inclusion of the audited financial statements in the Company's filing on Form 10-K. Discuss with management the type and presentation of information to be included in the Company's earnings press releases (paying particular attention to any use of "pro forma" or "adjusted" non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies. The review shall include any significant problems and material disputes between management and the independent accountants and a discussion with the independent accountants out of management's presence of the quality of the Company's accounting principles as applied in its financial reporting, the clarity of the Company's financial disclosures and degree of aggressiveness or conservatism of the Company's accounting principles and underlying estimates, and a frank and open discussion of other significant decisions made by management in preparing the financial disclosure and reviewed by the independent accountants.
- Internal Control Systems. Conduct separate meetings quarterly with management, internal auditors, and independent auditors to review the Company's internal control systems intended to ensure the reliability of financial reporting and compliance with applicable codes of conduct, laws, and regulations. The review shall include internal audit summaries of and, as appropriate, copies of its significant reports to management and management's responses as well as any significant problems and regulatory concerns.
- Ethical Environment. Consult with management on the establishment and maintenance of an environment that promotes ethical behavior, including the establishment, communication, and enforcement of codes of conduct to guard against dishonest, unethical, or illegal activities. The Committee shall establish procedures for the receipt, retention, and treatment of complaints received by the Company from its employees regarding accounting, internal accounting controls, and auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
- Oversight of Independent Accountants. Evaluate qualifications, performance and independence of the independent accountants on an annual basis and where appropriate retain a replacement for the independent accountants. In such evaluation, the Committee shall annually obtain and review a report of the independent auditor's internal quality-control procedures, any material issues raised by their internal quality-control review or any external review occurring within the preceding five years with respect to one more independent audits carried out by the independent auditor, and steps taken to resolve any such issues. With regard to the evaluation of independence, the Committee shall ensure that the independent accountants deliver to the Committee a formal written statement delineating all relationships between the accountants and the Company. The Committee shall engage in a dialogue with the accountants with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent accountants and in response to the independent accountant's report take, or recommend that the Board take, appropriate action to satisfy itself of the independent accountant's independence. The Committee shall review management's response to any audit problems or difficulties.
- Hiring Policies for Employees or Former Employees of the Independent Auditor's Accounting Firm. Ensure compliance with the following hiring policies: Any employee or former employee of the independent auditor is eligible for hire if they have no influence over the accounting firm's operations or financial policies; have no capital balances in the accounting firm; have no financial arrangement with the accounting firm; and have not been a member of the audit engagement team within the year preceding the employment date. In addition, a formal hiring request must be received and reviewed by the Chief Financial Officer for all proposed employment candidates who were audit supervisors and above of the independent auditor. The Chief Financial Officer must discuss the formal hiring request with the Audit Committee Chairman before an offer is extended.
- Audit Committee Review and Charter Amendments. Perform a self evaluation of the Committee's performance on an annual basis in order to assess and insure effectiveness. Also, the Committee will review this Charter annually, to assess its adequacy and propose appropriate amendments to the Board.
- Whistleblower Communications. Ensure that the Company has appropriate procedures for receiving and responding to complaints about the Company's accounting, internal accounting controls or auditing matters. To carry out this responsibility the Committee posts on the Company's internal website the procedures for two formal means by which employees may confidentially or anonymously express directly to the audit committee their concerns about accounting or auditing matters. The two formal means are US mail sent directly to an Audit Committee PO Box and interoffice mail sent by sealed envelope to the chair of the audit committee. Committee procedures concerning the handling and consideration of complaints are appended to this charter, along with a statement of the informal means by which employees may express concerns about accounting or auditing matters.
III. COMPOSITION & INDEPENDENCE
The Committee shall consist of not less than three independent members, who shall be appointed by the Board of Directors. Members of the Committee shall be financially literate or become financially literate within a reasonable period of time after appointment to the Committee and at least one member of the Committee shall have accounting, related financial management expertise, or any other comparable experience or background that result in the individual's financial sophistication. No member of the Committee shall be employed or otherwise affiliated with the Company's independent accountants. Each member of the Committee shall meet the independence and experience requirements of the New York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulation of the Securities and Exchange Commission.
In the event that a Committee member faces a potential or actual conflict of interest with respect to a matter before the Committee, that Committee member shall be responsible for alerting the Committee Chairman, and in the case where the Committee Chairman faces a potential or actual conflict of interest, the Committee Chairman shall advise the Chairman of the Board of Directors. In the event that the Committee Chairman, or the Chairman of the Board of Directors, concurs that a potential or actual conflict of interest exists, an independent substitute Director shall be appointed as a Committee member until the matter, posing the potential or actual conflict of interest, is resolved. The Board may, at any time and in its complete discretion, replace a Committee member.
IV. QUORUM AND MEETINGS
A quorum of the Committee shall be declared when a majority of the appointed members of the Committee is in attendance. The Committee shall meet on a regular basis. Meetings shall be scheduled at the discretion of the Chairman. The Committee may ask members of management or others to attend the meeting and provide pertinent information as necessary.
The Committee will report to the Board regularly with respect to its activities and its recommendations. When presenting any recommendation or advice to the Board, the Committee will provide such background and supporting information as may be necessary for the Board to make an informed decision. The Committee will keep minutes of its meetings and will make such minutes available to the full Board for its review.
The Committee shall report to shareholders in Company's proxy statement for its annual meeting whether the Committee has satisfied its responsibilities under this Charter.
VI. OTHER AUTHORITY
The Committee is authorized to confer with Company management and other employees to the extent it may deem necessary or appropriate to fulfill its duties. The Committee is authorized to conduct or authorize investigations into any matters within the scope of Committee responsibilities. The Committee is also authorized to seek outside legal or other advice to the extent it deems necessary or appropriate, provided it shall keep the Board advised as to the nature and extent of such outside advice. The Committee shall have the authority to delegate any of its responsibilities to subcommittees or individual(s) as the Committee may deem appropriate in its sole discretion. The Company shall provide appropriate funding, as deemed necessary by the Committee, to compensate any independent auditor, outside legal counsel, or any other advisors employed by the Committee, and to pay ordinary Committee administrative expenses that are necessary and appropriate in carrying out its duties.