AUDIT COMMITTEE OVERVIEW
The committee is comprised of four independent directors: Thomas C. Freyman, Roy V. Armes, Denise Gray and Jane L. Warner. All members meet the independence standards for audit committee membership under the NYSE listing standards and applicable SEC rules. Mr. Freyman serves as Chairman.
2. Financial Expertise
The Board of Directors has determined that the chairman of the committee, Messrs. Freyman and Armes qualify as "audit committee financial experts," as defined in the SEC rules, and Mss. Gray and Warner satisfy the NYSE's financial literacy requirements.
The committee has the responsibility, among other things, to: (1) select and approve the compensation of the Company's independent public accountants; (2) review and approve the scope of the independent public accountants' audit activity and all non-audit services; (3) review with management and such independent public accountants the adequacy of the Company's basic accounting system and the effectiveness of the Company's internal audit plan and activities; (4) review with management and the independent public accountants the Company's certified financial statements and exercise general oversight over the financial reporting process; (5) review with the Company litigation and other legal matters that may affect the Company's financial condition and monitor compliance with business ethics and other policies; (6) review the independence, qualifications and performance of the Company's independent auditors; (7) provide an avenue of communication among the independent auditors, management, the internal auditors and the Board of Directors; and (8) prepare the audit-related report required by the Securities and Exchange Commission to be included in the Company's annual proxy statement.
By its Charter, the committee meets at least quarterly and additionally as often as the committee deems appropriate, usually the day before a full board meeting. In practice, the committee generally meets twice per quarter, before the Company's quarterly earnings release and before the Company files its Form 10-K or Form 10-Q, as applicable, with the SEC. Representatives of management, internal audit and the independent auditors are generally invited to attend committee meetings, and the committee periodically meets with these persons privately in executive session.
5. Approval of Audit and Audit-Related Services
The committee has adopted policies and procedures governing the pre-approval of all audit, audit-related, tax and other services provided by the Company's independent auditors.
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6. Process for Handling Accounting Matters and Comlaints
The committee has established a policy for the receipt, retention and treatment of complaints received by the Company and its subsidiaries regarding accounting, internal accounting controls or auditing matters.
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7. Code of Ethics
The committee monitors compliance with business ethics and other policies, and is responsible for granting waivers of the Code of Ethical Conduct for Financial Managers and Statement of Business Principles for directors and executive officers.
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8. Shareholder Ratification
Although the committee has sole discretion in appointing the independent auditors, it has determined that it would be desirable to request that the stockholders ratify the appointment at each annual meeting.
AUDIT COMMITTEE CHARTER
Tenneco Inc. recognizes that sound principles of corporate governance and the integrity of the company’s financial statements and financial reporting processes are essential to obtaining and retaining the trust and respect of investors and other persons and groups interested in the company and its activities, including employees, customers, suppliers, communities in which it does business, government officials and the public generally.
The Board of Directors has approved the following Charter of the Audit Committee that, together with the company’s Corporate Governance Principles, is intended to provide a framework for the governance of the company with respect to the company’s financial statements, financial reporting processes, systems of internal controls and compliance with legal and regulatory requirements.
I. Audit Committee Designation
There is a committee of the Board of Directors of Tenneco Inc. called the Audit Committee.
II. Audit Committee Purpose
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the company's independent auditors. The purpose of the Audit Committee is to:
- Assist the Board of Directors in fulfilling its oversight of (a) the integrity of the company's financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, information systems security, environmental compliance and legal compliance, (b) the company's compliance with legal and regulatory requirements, and (c) the independence, qualifications and performance of the company's independent auditors and internal auditing function;
- Provide an avenue of communication among the independent auditors, management, the internal auditors and the Board of Directors; and
- Prepare the disclosure required by Item 407 (d) (3) (i) of Regulation S-K promulgated by the Securities and Exchange Commission (SEC).
The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as any officer or other employee of the company or its subsidiaries. The Audit Committee has the ability to retain, at the company's expense, special legal, accounting or other consultants or experts it deems necessary in the performance of its duties.
III. Audit Committee Composition and Meetings
The Audit Committee is comprised of three or more directors, as determined by the Board of Directors. The Board of Directors appoints the members of the Audit Committee annually, considering the recommendation of the Nominating and Governance Committee, and further considering the views of the Chairman of the Board of Directors and the Chief Executive Officer, as appropriate. The members of the Audit Committee serve until their successors are appointed and qualify. The Board of Directors has the power at any time to change the membership of the Audit Committee and to fill vacancies in it, subject to the new member(s) satisfying the independence, experience and financial expertise requirements described in this Charter.
Each member of the Audit Committee must be (i) "independent" for purposes of Section 10A of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder and (ii) an independent director as determined under the applicable rules of the New York Stock Exchange (NYSE).
All members of the Audit Committee are required to have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements. Unless otherwise determined by the Board of Directors to be appropriate under the circumstances, at least one member of the Audit Committee is required to be a "financial expert," and at least one member of the Audit Committee is required to have "financial expertise," as determined for purposes of the rules of the SEC and the NYSE, respectively.
If an Audit Committee Chair is not designated by the Board of Directors or present, the members of the Audit Committee may designate a Chair by majority vote of the Audit Committee membership.
The Audit Committee holds regular meetings, at least quarterly and additionally as often as the committee deems appropriate. The Audit Committee Chair approves an agenda in advance of each meeting. The Audit Committee should meet privately in executive session as often as it deems necessary, but at least annually, with management, the Internal Audit Director, the independent auditors and as a committee to discuss any matters that the Audit Committee or any of these groups believe should be discussed.
Except as expressly provided in this Charter, the by-laws of the company or any Corporate Governance Principles of the company, or as otherwise provided by law or the rules of the NYSE, the Audit Committee may fix its own rules of procedure.
IV. Audit Committee Responsibilities and Authority
The Audit Committee has the sole authority to appoint or replace the independent auditors, and must approve in advance all audit engagement fees and terms. The Audit Committee also must approve in advance all non-audit engagements by the Company with the independent auditors, except as otherwise permitted by applicable law. The Audit Committee may consult with management but may not delegate these responsibilities, except that pre-approvals of non-audit services may be delegated to the extent permitted by applicable law. In its capacity as a committee of the Board, the Audit Committee is directly responsible for the oversight of the work of the independent auditors (including resolution of disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and the independent auditors report directly to the Audit Committee.
In performing its functions, the Audit Committee undertakes those tasks and responsibilities that, in its judgment, would most effectively contribute to and implement the purposes of the Audit Committee. The following functions are some of the common recurring activities of the Audit Committee in carrying out its duties:
- The Audit Committee reviews and discusses with management and the independent auditors the company's annual audited financial statements and quarterly financial statements prior to filing or distribution, including the company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other matters required to be reviewed under applicable legal, regulatory or NYSE requirements and, as appropriate, recommends to the Board of Directors whether the audited financial statements should be included in the company's Form 10-K. The Audit Committee's review should include discussion with management and the independent auditors of significant issues regarding accounting principles, practices and judgments, including any items required to be communicated by the independent auditors in accordance with applicable statements on auditing standards.
- The Audit Committee discusses with management and, as appropriate, the independent auditors earnings press releases (paying particular attention to any use of "pro forma" or "adjusted" non-GAAP information) and financial information and earnings guidance provided to analysts and ratings agencies.
- In consultation with management, the independent auditors and the internal auditors, the Audit Committee considers the integrity of the company's financial reporting processes and controls.
- The Audit Committee reviews 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.
- The Audit Committee reviews any reports of the independent auditors mandated pursuant to Section 10A of the Securities Exchange Act of 1934, as amended, and the rules thereunder, and obtains from the independent auditors any information with respect to illegal acts in accordance with Section 10A and the rules thereunder.
- The Audit Committee reviews and discusses with management and the independent auditors, as applicable:a. major issues regarding accounting principles and financial statement presentations, including any significant changes in the company's selection or application of accounting principles, and major issues as to the adequacy of the company's internal controls and any special audit steps adopted in light of material control deficiencies;
b. analyses prepared by management or the independent auditors that set forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements;
c. 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 independent auditors' activities or on access to requested information and management's response thereto;
d. liquidity, off-balance sheet structures and debt covenants; and e. the effect of significant regulatory and accounting initiatives on the financial statements of the company.
- The Audit Committee reviews and discusses with management the company's major financial risk exposures and the steps management has taken to monitor and control those exposures, including the company's risk assessment and risk management policies, and reports to the Board of Directors the results of those discussions.
- The Audit Committee reviews and discusses with management the company's information technology security and risk, and reports to the Board of Directors the results of those discussions.
- The independent auditors are ultimately accountable to the Audit Committee. The Audit Committee reviews the independence, qualifications and performance of the auditors at least annually, including a review and evaluation of the lead partner of the independent auditors and taking into account the opinions of management and the company's internal auditors. At least annually, the Audit Committee appoints the company's independent auditors for the ensuing fiscal year, and will report to the Board of Directors regarding its determinations about the appointment or removal of any independent auditors.
- The Audit Committee obtains and reviews a report from the independent auditors at least annually regarding:
a. the independent auditors' internal quality-control procedures;
b. any material issues raised by the most recent 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 respecting one or more independent audits carried out by the firm; and
c. any steps taken to deal with any such issues.
- On an annual basis, the Audit Committee requires the independent auditors to submit a formal written statement delineating all relationships between the auditors and the company or its subsidiaries or affiliates, and reviews and discusses all significant relationships that could impair the auditors' independence. It is the responsibility of the Audit Committee to take appropriate action in response to the independent auditors' report to satisfy itself of the auditors' independence.
- At least annually, the Audit Committee reviews the independent auditors' audit plan with respect to the ensuing fiscal year, and discusses with them, as determined appropriate, the plan's scope, staffing, locations, reliance upon management and internal audit and general audit approach.
- It is the responsibility of the Audit Committee to ensure that the representatives of the independent auditors who perform work for the company are rotated as required by the Sarbanes-Oxley Act of 2002 and other applicable law, and to further consider rotation of the independent auditor firm itself.
- The Audit Committee discusses with the independent auditors any communications between the audit team and the audit firm's national office regarding any material auditing or material accounting issues presented by the independent auditors' engagement by the company.
- The Audit Committee discusses with management and the independent auditors any accounting adjustments that were noted or proposed by the independent auditors but were not recorded by management (because they were deemed to be immaterial or otherwise were "passed").
- It is the responsibility of the Audit Committee to ensure that the company maintains an internal audit function.
- At least annually, the Audit Committee reviews the company's internal audit plan, activities, organizational structure and staffing. The Audit Committee reviews any significant changes to the company's internal audit plan. The Audit Committee reviews and reassesses the adequacy of the Internal Audit Charter at least annually.
- The Audit Committee reviews significant reports prepared by the internal audit department, together with management's response and follow-up to these reports.
- At least annually, the Audit Committee discusses with the independent auditors the company's internal auditors and their audit plan, responsibilities, budget and staffing.
Environmental and Legal Compliance
- At least annually, the Audit Committee reviews with the company's General Counsel:a. any environmental or legal matters that could have a significant impact on the company's financial statements;
b. compliance by the company and its subsidiaries with applicable laws and regulations; and
c. any inquiries received from regulators or governmental agencies by the company or its subsidiaries.
- The Audit Committee shall oversee the company's compliance program, including monitoring compliance with the company's Code of Conduct. Periodically, the Audit Committee reviews with the company's General Counsel the activities of the company's Compliance Committee and any significant issues addressed by the Compliance Committee.
Other Audit Committee Responsibilities
- It is the responsibility of the Audit Committee to annually prepare a report to stockholders as required by the rules of the SEC. The report is included in the company's annual proxy statement.
- It is the responsibility of the Audit Committee to review and reassess the adequacy of this Charter at least annually and to recommend any proposed changes to the Board of Directors for approval. It is the responsibility of the Audit Committee to cause the Charter to be published in accordance with applicable SEC and NYSE regulations.
- As may be set forth from time to time in the company's Code of Conduct (or other code of business conduct and ethics adopted by the company), the Audit Committee may be responsible for reviewing waivers of the Code of Conduct (or other code of business conduct and ethics) for directors and executive officers subject to approval of any such waivers by the full Board.
- Pursuant to applicable SEC rules, it is the responsibility of the Audit Committee to establish procedures for:a. the receipt, retention and treatment of complaints received by the company and its subsidiaries regarding accounting, internal accounting controls or auditing matters; and
b. the confidential, anonymous submission by employees of the company and its subsidiaries of concerns regarding questionable accounting or auditing matters.
- The Audit Committee shall from time to time establish policies for the company's hiring of employees or former employees of the independent auditors who were engaged on the company's account (recognizing that the hiring by the Company of certain representatives of the independent auditors could jeopardize the auditors' independence or otherwise be prohibited).
- It is the responsibility of the Audit Committee to maintain minutes of its meetings and report, through its Chair, to the Board of Directors on significant results of each meeting.
- It is the responsibility of the Audit Committee to engage in a self-assessment of its performance at least annually.
The Audit Committee shall be given the resources and assistance necessary, including adequate funding, as determined by the Audit Committee, for payment of the compensation of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the company or any advisors employed by the Audit Committee, as well as for payment of ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
VI. Limitations on Audit Committee Responsibilities
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit 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 independent auditors. In carrying out its oversight responsibilities, the Audit Committee is not providing any expert, professional or special assurance as to the company's financial statements or any professional certification. Audit Committee members are not deemed to have accepted a duty of care greater than the duty of other directors. Nothing contained in this Charter is intended to alter the operation of the "business judgment rule" as interpreted under Delaware law.