SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material under Rule 14a-12
GOLDEN WEST FINANCIAL CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
GOLDEN WEST FINANCIAL CORPORATION
1901 HARRISON STREET, OAKLAND, CALIFORNIA 94612
March 12, 2004
Dear Stockholder:
On behalf of the Board of Directors, we invite you to attend the Annual
Meeting of Stockholders of Golden West Financial Corporation to be held on
Tuesday, April 27, 2004, commencing at 11:00 a.m. Pacific Time on the fourth
floor of the Company's headquarters located at 1901 Harrison Street, Oakland,
California 94612. The management and Directors of Golden West Financial
Corporation look forward to meeting with you at that time.
The formal notice of the meeting, proxy statement and form of proxy are
enclosed with this letter. If you are unable to attend the meeting in person, it
is very important that your shares be represented, and we request that you
complete, date, sign and return the enclosed proxy at your earliest convenience.
A prepaid return envelope is provided for that purpose. If you attend the
meeting in person, you may revoke your previously mailed proxy and cast your
votes personally at the meeting.
Sincerely yours,
/s/ HERBERT M. SANDLER /s/ MARION O. SANDLER
- ---------------------- ---------------------
HERBERT M. SANDLER MARION O. SANDLER
Chairman of the Board and Chairman of the Board and
Chief Executive Officer Chief Executive Officer
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
GOLDEN WEST FINANCIAL CORPORATION
The Annual Meeting of Stockholders of Golden West Financial Corporation
will be held on the fourth floor of the Company's headquarters located at 1901
Harrison Street, Oakland, California on Tuesday, April 27, 2004, commencing at
11:00 a.m. Pacific Time, for the following purposes:
(1) To elect three Directors to hold office for three-year terms and until
their successors are duly elected and qualified;
(2) To approve an increase in the number of authorized shares of Common Stock
of the Company from 200,000,000 to 600,000,000;
(3) To ratify the selection of independent outside auditors; and
(4) To transact other business as may properly come before the meeting or any
adjournments or postponements thereof.
The close of business on March 1, 2004 is the record date for determining
the stockholders entitled to vote at this meeting or any adjournments or
postponements of this meeting. A list of stockholders entitled to vote will be
available at the time and place of the meeting and, during ten days prior to the
meeting, at the office of the Secretary of Golden West Financial Corporation,
1901 Harrison Street, Oakland, California.
By order of the Board of Directors
/s/ MICHAEL ROSTER
------------------
MICHAEL ROSTER
Executive Vice President and Secretary
Oakland, California
March 12, 2004
IMPORTANT: We want to assure that you are represented at the meeting. Please
complete, date, sign and mail the enclosed proxy promptly in the
return envelope, which we have provided.
GOLDEN WEST FINANCIAL CORPORATION
PROXY STATEMENT
FOR 2004 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors of Golden West Financial Corporation, a Delaware
corporation (the "Company"), is soliciting the enclosed proxy for use at the
Annual Meeting of Stockholders on April 27, 2004, or at any adjournments or
postponements of the meeting ("Annual Meeting").
The Company will mail or deliver this proxy statement and the enclosed
proxy to stockholders beginning March 12, 2004. The Company will pay the expense
of soliciting proxies. Regular employees of the Company may solicit proxies
either in person or by telephone or other electronic media. The Company will,
upon request, reimburse persons holding shares in their names, or in the names
of their nominees, but not owning the shares beneficially, for reasonable
expenses of forwarding proxy materials to their principals.
The principal executive offices of the Company are located at 1901
Harrison Street, Oakland, California 94612.
VOTING
Only stockholders of record at the close of business on March 1, 2004
("Record Date") will be entitled to vote at the Annual Meeting. On the Record
Date there were outstanding 152,306,589 shares of Common Stock of the Company,
$.10 par value. Stockholders are entitled to one vote for each share held,
except that each stockholder has cumulative voting rights for the election of
Directors. These cumulative voting rights entitle each stockholder to as many
votes as equal the number of shares held by the stockholder multiplied by the
number of Directors to be elected (three), which votes the stockholder may cast
for a single candidate or distribute among any or all candidates. The three
candidates for Director receiving the highest number of votes will be elected.
Consistent with Delaware law, abstentions and broker non-votes will not be
counted for the election of Directors, except that shares owned by stockholders
submitting signed proxies will be counted to determine if a quorum of
stockholders is present at the Annual Meeting. For all other matters that
properly come before the meeting, approval will require the affirmative vote of
a majority of the shares present at the Annual Meeting, in person or by proxy;
accordingly, abstentions will have the same effect as a vote against any other
proposal but broker non-votes will have no effect in determining whether a
matter has been approved. A majority of the voting power on the Record Date,
either in person or by proxy, is required for a quorum to be present at the
Annual Meeting.
A proxy will be voted in the manner specified in the proxy, or if no
manner is specified, it will be voted (a) to elect the nominees named below for
Directors, (b) to approve the increase in the number of authorized shares of
Common Stock of the Company from 200,000,000 to 600,000,000, and (c) to ratify
the selection of Deloitte & Touche, LLP as the Company's independent outside
auditors for 2004. Management of the Company knows of no other business to be
transacted at the Annual Meeting. If any other matter properly comes before the
meeting, the shares represented by proxy will be voted in accordance with the
best judgment of the person voting the proxy, and the discretionary authority to
do so is included in the proxy.
Any stockholder may revoke his or her proxy at any time before the shares
are voted by filing with the Secretary of the Company a written revocation or
duly executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. If a stockholder wants to vote at the Annual Meeting but his
or her shares are held by an intermediary, such as a broker or bank, the
stockholder must present proof of ownership as of March 1, 2004 from the
intermediary.
ITEM 1: ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, as provided in the
Company's Certificate of Incorporation. Each class of Directors consists of
three Directors. Class II Directors are being elected at the 2004 Annual Meeting
and will serve until the 2007 Annual Meeting. Class III Directors will serve
until the 2005 Annual Meeting. Class I Directors will serve until the 2006
Annual Meeting.
Three Directors are to be elected at the 2004 Annual Meeting. Patricia A.
King, Marion O. Sandler and Leslie Tang Schilling are nominees for Class II
Directors. All three nominees were elected Class II directors by a vote of the
stockholders at the 2001 Annual Meeting.
The Board of Directors recommends a vote FOR each of these nominees.
Each of these nominees has agreed to serve as a Director if elected, and
management of the Company has no reason to believe that any nominee will be
unable or unwilling to serve. However, if any nominee is unable or unwilling to
serve as a Director at the time of the Annual Meeting, the proxy holders may
vote the proxies for the election of a substitute nominee designated by the
Board of Directors. If one or more persons other than those named above are
nominated for the office of Director, the proxy holders may cumulate votes and
the enclosed proxy may be voted in favor of any one or more of the nominees
named above, to the exclusion of others, and in the order of preference as the
proxy holders may determine in their discretion.
The chart below identifies information about the Class II nominees and the
other members of the Board of Directors who will continue in office and whose
terms will expire at the 2005 Annual Meeting (Class III) and the 2006 Annual
Meeting (Class I).
Common Stock Beneficially Owned
as of February 29, 2004 (1)
-------------------------------
Nominees/Continuing Directors Age Business Experience During Past Five Number Percent
Years and Other Information of Shares of Class
- ----------------------------- ----- -------------------------------------------------------- ----------------- -------------
Louis J. Galen 78 Private Investor 3,147,005 (2) 2.0%
Director Since 1959
Class III
Antonia Hernandez 56 President and Chief Executive Officer of the 5,110 *
Director Since 1995 California Community Foundation; Former President and
Class III General Counsel of the Mexican American Legal Defense
and Educational Fund
Maryellen C. Herringer 60 Attorney-at-Law; Former Executive Vice President, 6,000 *
Director Since 1996 General Counsel, and Secretary of APL Limited;
Class I Director, ABM Industries Incorporated
Patricia A. King 61 Professor of Law, Georgetown University; Adjunct 450 *
Director Since 1994 Professor, School of Hygiene and Public Health, Johns
Class II Nominee Hopkins University
Bernard A. Osher 76 Private Investor; Chairman of Butterfield and 6,303,809 4.1%
Director Since 1970 Butterfield, Auctioneers, until October 1999
Class III
Kenneth T. Rosen 55 Professor of Business Administration, Haas School of 9,000 *
Director Since 1984 Business; Chairman of the Fisher Center for Real
Class I Estate and Urban Economics, University of California,
Berkeley; Chairman of the Rosen Consulting Group, a
real estate and mortgage market consulting firm; Chairman
of Lend Lease Rosen Real Estate Securities, a registered
investment adviser; Director, The PMI Group, Inc.;
Director, Avatar Holdings Inc.
Herbert M. Sandler 72 Chairman of the Board and Chief Executive Officer of 15,534,904 (3) 10.1% (3)
Director Since 1963 the Company and World Savings Bank, FSB
Class I
Marion O. Sandler 73 Chairman of the Board and Chief Executive Officer of 16,601,944 (3) 10.8% (3)
Director Since 1963 the Company and World Savings Bank, FSB; Chairman of
Class II Nominee the Board, Chief Executive Officer and President of
Atlas Assets, Inc. and Atlas Insurance Trust,
registered investment companies
Leslie Tang Schilling 49 President of L.T.D.D., Inc.; Chairperson of Union 3,014 *
Director Since 1996 Square Investment Company
Class II Nominee
All Directors and executive officers as a group (16 persons) 28,092,487 (4) 18.3%
- ---------------
* Less than 1%.
(1) Held directly with sole voting and investment powers unless otherwise noted, subject to community property laws where
applicable.
(2) Includes 1,853,005 shares held in a revocable trust with Mr. Galen as trustee with sole voting and investment powers, 1,000,000
shares held in a grantor retained annuity trust with Mr. Galen as trustee with sole voting and investment powers, 212,100
shares held in a qualified terminal interest trust with Mr. Galen as trustee with sole voting and investment powers, and 81,900
shares held in a charitable remainder trust with Mr. Galen and his spouse as co-trustees with shared voting and investment
powers.
(3) Without counting the same shares twice, Herbert M. Sandler and Marion O. Sandler control or have the right to acquire an
aggregate of 17,127,144 shares, representing 11.1% of the Company's stock. Mr. and Mrs. Sandler are each separately deemed by
Securities and Exchange Commission rules to beneficially own those shares that together they hold with shared voting and
investment powers. Accordingly, the share numbers reported in these columns for Herbert M. Sandler and for Marion O. Sandler
each include the same block of shares, as follows: 14,720,080 shares with shared voting and investment powers held jointly by
Mr. and Mrs. Sandler as co-trustees and 289,624 shares with shared voting and investment powers held in trusts for the benefit
of Mr. and Mrs. Sandler's descendants with Mr. and Mrs. Sandler as co-trustees. Mr. Sandler also is the beneficial owner of
2,700 shares with voting and investment powers held by him as trustee for the benefit of his sister-in-law, and 522,500 shares
which Mr. Sandler may acquire upon exercise of employee stock options exercisable as of February 29, 2004, or within 60 days
thereafter. Mrs. Sandler also is the beneficial owner of 1,069,740 shares with voting and investment powers held by her as
trustee in trusts for the benefit of Mr. and Mrs. Sandler's descendants as well as 522,500 shares which Mrs. Sandler may
acquire upon exercise of employee stock options exercisable as of February 29, 2004, or within 60 days thereafter.
(4) Includes 17,411,254 shares as to which Directors and executive officers share with others voting and/or investment powers. Also
includes 1,533,925 shares that executive officers may acquire upon the exercise of employee stock options exercisable as of
February 29, 2004, or within 60 days thereafter.
Herbert M. Sandler and Marion O. Sandler are husband and wife. Bernard A. Osher
is the brother of Mrs. Sandler. The business address for Mr. and Mrs. Sandler is
1901 Harrison Street, Oakland, California 94612.
BOARD OF DIRECTORS AND ITS COMMITTEES
During 2003, the Company's Board of Directors held four regular meetings.
The Board of Directors has four standing committees described below. Each
Director attended at least 75% of the meetings of the Board and of the
committees on which the Director served. The Board of Directors has adopted a
written charter for each committee, all of which are available on the Company's
website at www.gdw.com. The Audit Committee Charter is included in this proxy
statement as Appendix A.
Audit Committee
The members of the Audit Committee in 2003 were Kenneth T. Rosen (Chair),
Louis J. Galen, and Maryellen C. Herringer. The principal function of the Audit
Committee is to assist the Board of Directors in overseeing the corporate
financial reporting process and the internal and the independent outside audits
of the Company. The Audit Committee had four regular meetings and met by
telephone between regular meetings three times during 2003. The report of the
Audit Committee with respect to the year 2003 begins on page 8 below.
Compensation and Stock Option Committee
The members of the Compensation and Stock Option Committee in 2003 were
Patricia A. King (Chair), Antonia Hernandez, and Kenneth T. Rosen. The principal
functions of the Compensation and Stock Option Committee are to approve and
evaluate the executive officer compensation plans and policies of the Company,
to determine the compensation of the Company's senior executive officers, and to
oversee the administration of the Company's compensation plans. The Compensation
and Stock Option Committee had three regular meetings and met by telephone
between regular meetings two times during 2003. The report of the Compensation
and Stock Option Committee with respect to the year 2003 begins on page 8 below.
Nominating and Corporate Governance Committee
The members of the Nominating and Corporate Governance Committee in 2003
were Maryellen C. Herringer (Chair), Louis J. Galen, and Leslie Tang Schilling.
The principal functions of the Nominating and Corporate Governance Committee are
to identify and propose qualified individuals as potential candidates for the
position of Director, to review and reassess the adequacy of the Company's
Corporate Governance Guidelines, and to lead the Board of Directors in an annual
review of its performance. The Nominating and Corporate Governance Committee had
three regular meetings and met by telephone between regular meetings four times
during 2003.
Executive Committee
The members of the Executive Committee in 2003 were Herbert M. Sandler
(Chair) and Marion O. Sandler. The Executive Committee has any of the powers and
authority of the Board of Directors in the intervals between meetings of the
Board, subject to the control of the Board and subject to limitations under the
Company's by-laws and Delaware law. The Executive Committee does not schedule
regular meetings and takes action by unanimous written consent, which actions
are subsequently reviewed and acted upon by the full Board of Directors.
Determinations about Director Independence
The Board of Directors has determined that Louis J. Galen, Antonia
Hernandez, Maryellen C. Herringer, Patricia A. King, Kenneth T. Rosen, and
Leslie Tang Schilling satisfy the independence standards of the New York Stock
Exchange's corporate governance rules and, therefore, a majority of the
Directors and each member of the Audit Committee, the Compensation and Stock
Option Committee, and the Nominating and Corporate Governance Committee is
independent of management and the Company. In addition, each of the Audit
Committee members satisfies the independence standards set forth in Rule 10A-3
under the Securities Exchange Act of 1934.
In making these determinations, the Board of Directors evaluated whether a
Director had any direct or indirect material relationships with the Company that
could interfere with the exercise of the Director's independence from management
and the Company and whether a Director failed any of the NYSE's bright-line
tests that would automatically disqualify a director from being regarded as
independent.
In addition, the Board of Directors considered, among others factors,
whether a Director, or an organization with which the Director is affiliated,
has entered into any commercial, consulting, or similar contracts with the
Company; whether a Director receives any compensation or other fees from the
Company, other than the Director fees described below under "Director
Compensation"; whether the Director has ever been employed by the Company and,
if so, the duration and circumstances relating to such employment; and whether
the Company and/or any of its affiliates makes substantial charitable
contributions to organizations with which a Director is affiliated.
As described in the Company's Corporate Governance Guidelines, the Board
of Directors has determined that a Director will be considered independent,
absent other circumstances, as long as the aggregate contributions from the
Company and/or its affiliates to a nonprofit organization of which a Director is
an executive officer do not exceed the greater of $1 million or 2% of the annual
consolidated revenues of the nonprofit organization. In addition, the Board of
Directors has determined that a Director will be considered independent, absent
other circumstances, if a Director serves or is designated to serve as a
non-compensated trustee of a trust established by an executive officer or
another Director of the Company.
Determinations about Audit Committee Financial Expertise
The Securities and Exchange Commission requires that boards of directors
of stock exchange listed companies determine whether one or more of their audit
committee members qualify as "audit committee financial experts." Under the
SEC's rules, an audit committee financial expert is an individual who has
obtained the attributes described below by means of certain experience or
education.
The SEC requires that an audit committee financial expert have the
following attributes: an understanding of generally accepted accounting
principles (GAAP) and financial statements; the ability to assess the general
application of GAAP in connection with the accounting for estimates, accruals,
and reserves; experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the Company's financial statements, or
experience actively supervising one or more persons engaged in these activities;
an understanding of internal controls and procedures for financial reporting;
and an understanding of audit committee functions.
The SEC's rules also require that, in order to qualify as an audit
committee financial expert, the individual have obtained these attributes
through education and experience as, or supervision of, a principal financial
officer, principal accounting officer, controller, principal accountant,
auditor, or person performing similar functions; experience overseeing or
assessing the performance of companies or public accountants with respect to the
preparation, auditing, or evaluation of financial statements; or other relevant
experience.
Prof. Rosen has actively supervised principal financial officers,
principal accounting officers, controllers, public accountants, auditors, or
persons performing similar functions, including through his experience as
Chairman of Lend Lease Rosen Real Estate Securities, a registered investment
advisor. He is also Professor of Business Administration and Chairman of the
Fisher Center for Real Estate and Urban Economics at the University of
California, Berkeley, and Chairman of a real estate and mortgage market
consulting firm. Prof. Rosen is also a member of the audit committee of Avatar
Holdings Inc., a public company.
Mr. Galen is a former Chief Executive Officer and Chairman of Trans-World
Financial Corporation, at which he actively supervised the company's principal
financial officers, principal accounting officers, controllers, public
accountants, auditors and persons performing similar functions, is a former
Chairman of Trans-World Bank, and has other relevant experience as a private
investor.
Ms. Herringer has relevant experience as a former partner in the corporate
and business law departments at two of the nation's major corporate law firms in
which she advised clients (including chief executive officers, underwriters,
principal financial officers, principal accounting officers, and other persons
performing similar functions) about securities laws, corporate transactions,
corporate governance, and other matters. She also served previously as Senior
Vice President and General Counsel of Transamerica and as an Executive Vice
President and General Counsel of APL Limited. The internal audit function at APL
reported to Ms. Herringer during part of her tenure there. Ms. Herringer is also
a member of the audit committee of ABM Industries Incorporated, a public
company.
The Board of Directors has determined that, based on the factors discussed
above, all three Audit Committee members qualify as audit committee financial
experts. The Board of Directors has also determined that each member of the
Audit Committee possesses other attributes that are particularly relevant to the
Audit Committee performing its financial oversight function. These attributes
are described in the Company's Corporate Governance Guidelines and evaluated
annually by the Company's Nominating and Corporate Governance Committee, and
include possessing the highest standards of personal and professional integrity;
understanding sound business practices; having strong analytical skills and
being financially literate to be able to ask sophisticated questions relevant to
the Company's activities and gauge the quality of the answers; and understanding
the Company's business, including the unique issues and risks in the banking,
housing, mortgage lending, real estate, and related industries. The Board of
Directors has also determined that, as long-standing members of the Company's
Board of Directors, the Audit Committee members have developed over time
valuable insights into the Company to enable them to fulfill their roles as
Directors and members of the Audit Committee.
Board Nominations
Each year the Nominating and Corporate Governance Committee reviews with
the Board of Directors the composition of the Board of Directors as a whole and
makes a recommendation whether to renominate the Directors whose terms expire at
the upcoming Annual Meeting and whether to consider any new persons to be added
to the Board of Directors. In assessing qualifications for nominees, the
Nominating and Corporate Governance Committee expects candidates to meet the
qualifications described in the committee's charter and the Company's Corporate
Governance Guidelines, including having high ethical standards and the
competence, experience, and integrity required of a director of a federal
savings bank by section 574.7 of the regulations of the Office of Thrift
Supervision. In addition, the Nominating and Corporate Governance Committee
considers, among other factors, whether a candidate understands financial
statements and reports, has experience with housing and real estate markets, has
other professional experiences that would be beneficial to the Company, has
knowledge of community affairs (including in markets served by the Company),
and/or would qualify as an independent director under New York Stock Exchange
and other applicable regulations.
The Nominating and Corporate Governance Committee will consider
stockholder recommendations for nominees who, in the committee's determination,
meet the qualifications referred to in the preceding paragraph. A stockholder or
stockholder group can recommend a nominee by sending a letter addressed to the
Corporate Secretary at the Company's headquarters at 1901 Harrison Street,
Oakland, CA 94612. The letter should identify the nominee, including contact
information and other biographical information that would help the Nominating
and Corporate Governance Committee assess the nominee's qualifications. The
letter should also provide information about the number of shares of the
Company's stock held by the stockholder or stockholder group making the
recommendation and the length of time those shares have been held. The Corporate
Secretary will promptly forward stockholder recommendations to the Chair of the
Nominating and Corporate Governance Committee.
Communications with Directors
Stockholders wishing to communicate with one or more Directors should send
written correspondence addressed to the Director(s), care of the Corporate
Secretary at the Company's headquarters at 1901 Harrison Street, Oakland,
California 94612. The Corporate Secretary, or his or her designee, will forward
such communications to the relevant Director(s). Stockholders are encouraged to
interact with Directors at the Annual Meetings of Stockholders. The Company
expects Directors to attend the Annual Meetings, absent scheduling or other
similar conflicts. All of the Directors attended the Annual Meeting in 2003.
Director Compensation
The only compensation or remuneration that non-employee Directors receive
from the Company are an annual retainer and fees for attending regular Board of
Directors and committee meetings. In 2003, the non-employee Directors received
an annual retainer of $25,000, paid monthly on a pro rata basis, and a fee of
$4,000 for each regular Board of Directors meeting attended. In addition, the
Chair of the Audit Committee received $3,000, each of the other members of the
Audit Committee received $2,500, the Chairs of the Nominating and Corporate
Governance Committee and the Compensation and Stock Option Committee received
$1,500, and each of the other members of those committees received $1,000 for
each regular committee meeting attended in 2003.
Other Corporate Governance Matters
The non-employee Directors meet in executive session without management at
each regular meeting of the Board of Directors. At least once a year, the
independent Directors also meet separately from the other Directors. The
non-employee Directors selected Kenneth T. Rosen as their presiding director
during 2003 and again for 2004.
The Board of Directors has adopted Corporate Governance Guidelines and
codes of conduct and ethics for Directors, financial officers and employees that
are available, along with Board of Directors committees' charters, on the
Company's website at www.gdw.com.
ITEM 2: INCREASING AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved a proposed amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 200,000,000 to 600,000,000 and, together with the 20,000,000
shares of Preferred Stock already authorized, a corresponding increase in the
total number of authorized shares of stock from 220,000,000 to 620,000,000. The
proposed amendment is subject to stockholder approval at the Annual Meeting. If
approved by the stockholders, the amendment will become effective upon the
filing of a certificate with the Delaware Secretary of State.
As of February 29, 2004, approximately 152 million shares of the Company's
200 million authorized shares of Common Stock were issued and outstanding, and
the Company had approximately 6.4 million options outstanding and approximately
1.6 million shares reserved for issuance under the Company's 1996 Stock Option
Plan. The Board of Directors and management have no current plans to issue any
of the Company's already authorized but unissued shares or any of the additional
shares being considered in this proposal. The increase in the number of
authorized shares, however, would provide the Board of Directors and management
with flexibility that may be in the best interests of the Company and its
stockholders. With only a limited number of shares currently available for
issuance, the Board and management are constrained from pursuing corporate
transactions that may be advisable in the future, such as stock splits or
acquisitions, without the expense and delays associated with a stockholder
meeting. Unnecessary expense or delay could be detrimental to the Company and
its stockholders if and when the Board and management determine to effect any
such transactions. If this proposal is approved, any or all of the authorized
shares could be issued without further stockholder action, unless approval is
required by the Company's Certificate of Incorporation, applicable law, or
regulatory authorities.
The Board of Directors recommends a vote FOR this proposal to increase
the authorized shares of the Company's Common Stock.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process. The Company's independent
outside auditors are responsible for expressing an opinion on the conformity of
our audited financial statements to accounting principles generally accepted in
the United States of America.
In this context, the Audit Committee has reviewed and discussed with
management and the independent outside auditors the audited financial
statements. The Audit Committee has discussed with the independent outside
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees). In addition, the Audit Committee
has received from the independent outside auditors the written disclosures and
letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and discussed with them their independence
from the Company and its management. In addition, the Audit Committee has
considered whether the independent outside auditor's provision of non-audit
services to the Company is compatible with the auditor's independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the audited financial statements be included in the Company's Annual Report
on SEC Form 10-K for the year ended December 31, 2003, for filing with the
Securities and Exchange Commission.
Submitted by the Audit Committee:
Kenneth T. Rosen, Chair
Louis J. Galen
Maryellen C. Herringer
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee's primary functions are to
review, and to recommend for approval by the Board of Directors, the salaries
and other compensation of the Company's Chief Executive Officers, President and
Senior Executive Vice President (the "Senior Executive Officers"), and to
administer the Company's Incentive Bonus Plan (the "Incentive Plan"). The
Committee also approves the grants of stock options pursuant to the Company's
Stock Option Plan, including grants of stock options to executive officers of
the Company.
During 2003, the Committee met to (a) review and recommend to the Board of
Directors the salaries of the Company's Chief Executive Officers for 2003, (b)
determine the incentive awards payable to the Chief Executive Officers under the
terms of the Incentive Plan for the Company's 2002 performance, and (c) set
performance criteria under the Incentive Plan for 2003. Incentive awards payable
under the Incentive Plan are tied to specific Company performance criteria. The
Committee also met to recommend to the Board of Directors the salaries, for the
period from May 1, 2003 through April 30, 2004, for the Company's President and
Senior Executive Vice President. In January 2004, the Committee met to (a)
certify the Company's 2003 performance under the Incentive Plan, (b) determine
the amount of incentive awards payable to the Chief Executive Officers for 2003,
(c) review and recommend to the independent directors on the Board the salaries
of the Company's Chief Executive Officers for 2004, and (d) set performance
criteria under the Incentive Plan for 2004.
The cash compensation of the Company's other executive officers was
determined through normal annual reviews by their respective managers, who
included one or more of the Senior Executive Officers. The compensation of each
executive officer was determined in his or her annual review according to the
officer's individual performance in his or her area of responsibility and the
relevant manager's assessment of the officer's contribution to the performance
of the Company.
Compensation Goals and Criteria
The Committee's goals were to provide compensation that (a) reflects both
the Company's and the executives' performance, (b) compares reasonably with
compensation in the relevant market, and (c) attracts and retains high quality
executives. In evaluating compensation for the Senior Executive Officers, the
Committee compared the Company's performance, according to the criteria set
forth below, to the performance of a peer group and the compensation of the
Company's Senior Executive Officers to the compensation of executives in the
peer group. The Committee selected a peer group consisting of the top performing
regional bank holding companies with between $30 billion and $90 billion in
assets as of December 31, 2002 and a primary bank operating subsidiary with a
rating from Moody's of Aa3 or better and from Standard and Poor's of AA- or
better (Bank of New York Company, Inc., Fifth Third Bancorp, Mellon Financial
Corp., Northern Trust Corp., and State Street Corp.), and the holding company
for the nation's largest savings association (Washington Mutual, Inc.).
The criteria according to which the Committee compared the performance of
the Company to the peers included the following: total assets, yearend stock
prices, net earnings, fully diluted net income per share, return on average
assets, return on average equity, capital levels, the ratio of non-performing
assets and troubled debt restructured to period-end loans, the ratio of net
charge-offs to average loans and leases, loan loss coverage, the ratio of
general and administrative expenses to interest income and other income, the
ratio of non-interest expenses to pretax earnings, and the ratio of pretax
earnings to net interest income and non-interest income.
Additional factors considered by the Committee in evaluating compensation
included: compliance with long-term plans and budgets, attainment of positive
regulatory examination ratings by the Company and its operating subsidiaries,
World Savings Bank, FSB and World Savings Bank, FSB (Texas), attainment of
regulatory capital standards by the operating subsidiaries, strategic
accomplishments of the Company, and the general assessment of the executives by
peers, equity analysts, and others.
With respect to total compensation, the Committee considered annual
compensation of the Company's Senior Executive Officers relative to executives
in the peer group for the period 2000 through 2002, including (i) salary,
bonuses, and other forms of cash compensation and (ii) equity-based
compensation, including restricted stock and stock options. The Committee
concluded that while exact comparisons could not be made, the compensation of
the Company's Senior Executive Officers was reasonable in light of the Company's
performance and the compensation of peer group executives.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code limits the federal income tax
deductibility of compensation paid to the Company's two Chief Executive Officers
and to each of the other three most highly compensated executive officers. The
Company generally may deduct compensation paid to an executive officer only to
the extent that any such compensation in excess of $1 million during the
relevant fiscal year is based on the attainment of performance goals determined
by a compensation committee of the board of directors. The Company's Incentive
Plan is designed to assure that certain cash compensation is "performance-based"
and therefore deductible. The Incentive Plan, as amended and restated, was
approved at the 2002 Annual Meeting. Non-qualified stock options granted under
the Company's Stock Option Plan qualify as "performance-based" under Section
162(m). Even without the provisions of Section 162(m), however, incentive stock
options granted under the Company's Stock Option Plan generally would not
entitle the Company to a tax deduction.
2003 Compensation for the Chief Executive Officers
The performance standards established by the Committee upon which the 2003
targets were based included return on average assets, return on average equity,
diluted earnings per share, general and administrative expenses to average
assets, and non-performing assets to total assets. In January 2004, the
Committee met to certify the Company's 2003 performance under the Incentive Plan
and to determine the amount of incentive awards payable to the Chief Executive
Officers for 2003. At that time, the Committee also reviewed the salaries of the
Company's Chief Executive Officers for 2004 and determined that continuation of
the 2003 salaries was appropriate in light of the Company's performance and the
existence of the Incentive Plan. With respect to the Incentive Plan, during the
year ended December 31, 2003 (the "2003 Plan Year"), the Company's results
substantially exceeded four of the five performance standards, and the Company
significantly exceeded the aggregate performance target, previously established
by the Committee. As a result of the Company's performance during the 2003 Plan
Year, the Committee confirmed an award under the Incentive Plan to each Chief
Executive Officer in the amount of $473,526.
Submitted by the Compensation and Stock Option Committee:
Patricia A. King, Chair
Antonia Hernandez
Kenneth T. Rosen
BENEFICIAL OWNERSHIP
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and Directors, along with persons who beneficially
own more than 10% of the Company's Common Stock, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission.
Based on a review of copies of filed ownership reports and written
representations from certain persons that he or she was not required to file
ownership reports, all of the Company's officers, Directors and greater than 10%
beneficial owners filed all reports required by Section 16(a) on a timely basis
during 2003, except for Antonia Hernandez. Ms. Hernandez, a Director of the
Company, filed a late report on Form 4 in November 2003 covering a purchase of
shares transacted by her spouse in October 2003.
Securities Ownership of Certain Beneficial Owners and Management
The following table identifies the beneficial ownership, as of the dates
indicated, of each stockholder, in addition to Herbert M. Sandler and Marion O.
Sandler, known to the Company to beneficially own more than 5% of the Company's
Common Stock. The table also identifies the beneficial ownership, as of February
29, 2004, of each of the executive officers of the Company named in the Summary
Compensation Table on page 13 below who are not also Directors of the Company.
The address of each executive officer below is 1901 Harrison Street, Oakland, CA
94612.
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------------------ ---------------------- -----------------
Davis Selected Advisors, L.P. 15,015,595 (1) 9.9%
2949 East Elvira Road, Suite 101
Tucson, AZ 85706
FMR Corp
82 Devonshire Street
Boston, MA 02109 12,068,285 (2) 7.9%
Dodge & Cox
One Sansome Street, 35th Floor 10,556,174 (3) 7.0%
San Francisco, CA 94104
Wellington Management Company, LLP
75 State Street 7,874,222 (4) 5.2%
Boston, MA 02109
Russell W. Kettell
President and Chief Financial Officer of the Company
and Senior Executive Vice President and Chief Financial 1,224,710 (5) *
Officer of World Savings Bank, FSB
James T. Judd
Senior Executive Vice President
of the Company and President and 110,000 (6) *
Chief Operating Officer of
World Savings Bank, FSB
Michael Roster
Executive Vice President, General Counsel
and Secretary of the Company and 76,500 (7) *
World Savings Bank, FSB
- ---------------
* Less than 1%.
(1) Includes 15,015,595 shares with sole voting and sole dispositive power, based upon SEC Schedule 13G filed as of
February 11, 2004.
(2) Includes 12,068,285 shares with sole voting and sole dispositive power, based upon SEC Schedule 13G filed as of
February 17, 2004.
(3) Includes 10,566,174 shares with sole dispositive power, 9,853,749 shares with sole voting power and 111,600 shares
with shared voting power, based upon SEC Schedule 13G filed as of February 17, 2004.
(4) Includes 7,874,222 shares with shared dispositive power and 4,649,224 shares with shared voting power, based upon
SEC Schedule 13G filed as of February 12, 2004.
(5) Includes 289,250 shares that Mr. Kettell may acquire upon exercise of employee stock options exercisable as of
February 29, 2004, or within 60 days thereafter.
(6) Includes 80,000 shares that Mr. Judd may acquire upon exercise of employee stock options exercisable as of
February 29, 2004, or within 60 days thereafter.
(7) Includes 76,500 shares that Mr. Roster may acquire upon exercise of employee stock options exercisable as of
February 29, 2004, or within 60 days thereafter.
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return (stock
price appreciation plus reinvested dividends) on the Company's Common Stock
against the cumulative total stockholder return of the Standard & Poor's 500
Stock Index and the Standard & Poor's 500 Banks Index for the five years ended
December 31, 2003. The graph assumes an initial investment of $100 on December
31, 1998 in each of the Company's Common Stock, the S&P 500 Stock Index, and the
S&P 500 Banks Index and that all dividends were reinvested.
[CHART}
1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- -------
GOLDEN WEST FINANCIAL CORPORATION $100.00 $110.28 $223.38 $195.65 $239.80 $346.06
S&P 500 STOCK INDEX 100.00 121.04 110.02 96.95 75.52 97.18
S&P 500 BANKS INDEX 100.00 86.22 102.58 102.59 101.53 128.58
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The compensation paid to each of the two Chief Executive Officers and to
the three most highly compensated executive officers of the Company for services
in all capacities to the Company and its subsidiaries is set forth below:
SUMMARY COMPENSATION TABLE
For the Years Ended December 31, 2003, 2002, and 2001
Long Term
Annual Compensation Compensation
------------------------------------------------ ------------------
Other Annual Options All Other
Name and Principal Position Year Salary Bonus (A) Compensation (B) (# of Shares) (C) Compensation(D)
- --------------------------- ------- -------------- ------------- ---------------- ------------------ ---------------
HERBERT M. SANDLER..................... 2003 $900,000 $473,526 $10,450 50,000 $5,834
Chairman of the Board and Chief 2002 950,004 358,116 15,871 -- 5,500
Executive Officer of the Company 2001 950,004 295,825 29,903 60,000 5,250
and World Savings Bank, FSB
MARION O. SANDLER...................... 2003 900,000 473,526 8,497 50,000 5,834
Chairman of the Board and Chief 2002 950,004 358,116 15,761 -- 5,500
Executive Officer of the Company 2001 950,004 295,825 22,400 60,000 5,250
and World Savings Bank, FSB
JAMES T. JUDD.......................... 2003 812,352 -- 7,870 50,000 105,834(E)
Senior Executive Vice President 2002 773,664 -- 13,119 -- 5,500
of the Company and President and 2001 756,274 -- 26,815 60,000 5,250
Chief Operating Officer of World
Savings Bank, FSB
RUSSELL W. KETTELL..................... 2003 737,558 -- 6,548 50,000 5,834
President and Chief Financial 2002 702,464 -- 9,392 -- 5,500
Officer of the Company and 2001 680,247 -- 14,898 60,000 5,250
Senior Executive Vice President
and Chief Financial Officer of
World Savings Bank, FSB
MICHAEL ROSTER......................... 2003 402,756 -- -- 12,000 5,834
Executive Vice President, 2002 383,576 -- -- -- 5,500
General Counsel, and Secretary 2001 364,584 -- -- 3,000 5,250
of the Company and World Savings
Bank, FSB
(A) Amounts shown are the performance-based bonuses awarded to the Chief
Executive Officers pursuant to the Company's stockholder-approved
Incentive Bonus Plan.
(B) Amounts shown are the cash reimbursement for income taxes on account of
certain fringe benefits provided to such individuals.
(C) Options granted are under the Company's stockholder-approved 1996 Stock
Option Plan.
(D) Except for James T. Judd in 2003, amounts shown are the Company's
contributions on behalf of each of the executive officers to the Company's
401(k) plan.
(E) The amount shown for James T. Judd in 2003 includes $100,000 paid to Mr.
Judd pursuant to a deferred compensation agreement and $5,834 for the
Company's contribution on behalf of Mr. Judd to the Company's 401(k) plan.
Indebtedness of Management
The following table sets forth information relating to all loans
outstanding to each individual who was a Director or executive officer of the
Company during 2003:
Range of
Highest Unpaid Interest Rates
Indebtedness Balance as of from Jan. 1, 2003
Name Since Dec. 31, 2002 Feb. 29, 2004 to Feb. 29, 2004
- --------------------------- ------------------------------------- ----------------------- ----------------------------
Carl M. Andersen $254,958 $242,824 3.12 to 3.68%
William C. Nunan 245,124 229,978 2.82 to 3.38%
Both of the above loans are secured by first deeds of trust on
single-family residences. Carl M. Andersen is a Group Senior Vice President and
the Tax Director of the Company and World Savings Bank, FSB. William C. Nunan is
a Group Senior Vice President and the Chief Accounting Officer of the Company
and World Savings Bank, FSB.
In the ordinary course of its business as a residential real estate
lender, World Savings Bank, FSB may from time to time enter into real estate
loans in excess of $60,000 with immediate family members of Directors and
executive officers of the Company. Any such loans would be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable residential real estate loans, and would not involve
more than the normal risk of collectability or present other unfavorable
features.
Deferred and Retirement Compensation
The Company has entered into deferred compensation arrangements with three
of its five most highly compensated executive: James T. Judd,
Russell W. Kettell, and Michael Roster.
The agreements provide for benefits payable in monthly installments over
ten years upon retirement at age 65 or upon the death of the employee (paid to
his or her beneficiary). The agreements contain vesting schedules that provide
for full vesting by ages ranging from 58 to 65, depending upon the age of the
employee at the time the agreement was executed, or immediately upon the death
of the employee. The vesting schedules provide that one-third of the benefits
vest during the first half of the vesting period and two-thirds vest during the
second half.
The annual installments payable upon the earlier of retirement at age 65
or death to Messrs. Judd, Kettell, and Roster are $300,000, $375,000, and
$200,000, respectively. The amounts that vested during 2003 for Messrs. Judd,
Kettell, and Roster were $0, $0, and $133,200, respectively. As of December 31,
2003, Messrs. Judd, Kettell, and Roster had accumulated vested benefits which
would entitle them to annual benefits payable, as described above, of $300,000,
$375,000, and $51,615, respectively. In addition, as of December 31, 2003, Mr.
Judd had $300,000 in fully vested benefits remaining from a separate deferred
compensation agreement that originally provided for an aggregate of 120 monthly
installments of $8,333 each, to be paid to him at his election.
The Company carries life insurance policies in amounts estimated to be
sufficient to cover its obligations under the agreements. If assumptions as to
mortality, future policy dividends, and other factors are realized, the Company
will recover an amount equal to all retirement payments under the agreements,
plus the premiums on the insurance contracts and the interest that could have
been earned on the use of the premium payments.
Stock Options
The Company granted stock options to the two Chief Executive Officers and
the three most highly compensated executive officers of the Company during 2003,
as shown below:
OPTION GRANTS TABLE
Option Grants in the Year Ended December 31, 2003
Individual Grants
--------------------------------------------------------------
Number of Potential Realizable Value at
Securities % of Total Assumed Annual Rates of Stock Price
Underlying Options Granted Exercise or Appreciation for Option Term
Options to Employees in Base Price Expiration -------------------------------------
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
- ---- ----------- ---------------- ----------- ---------- ---------------- -----------------
Herbert M. Sandler......50,000 3.18% $85.04 08/19/2013 $2,674,000 $6,776,500
Marion O. Sandler.......50,000 3.18% 85.04 08/19/2013 2,674,000 6,776,500
James T. Judd...........50,000 3.18% 85.04 08/19/2013 2,674,000 6,776,500
Russell W. Kettell......50,000 3.18% 85.04 08/19/2013 2,674,000 6,776,500
Michael Roster..........12,000 0.76% 85.04 08/19/2013 641,760 1,626,360
- ---------------
The Company did not grant any stock appreciation rights.
Information about exercises of stock options by these individuals during
2003 and certain information about unexercised stock options is set forth below:
OPTION EXERCISES AND YEAREND VALUE TABLE
Aggregated Option Exercises in the Year Ended December 31, 2003 and
December 31, 2003 Yearend Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares December 31, 2003 (#) December 31, 2003 (B)
Acquired on Value -------------------------------- ------------------------------
Name Exercise (#) Realized (A) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- ------------- ------------- ---------------- --------------- -------------
Herbert M. Sandler............... 50,000 $3,070,558 442,500 170,000 $36,271,725 $8,973,900
Marion O. Sandler................ 0 0 442,500 170,000 36,271,725 8,973,900
James T. Judd.................... 0 0 20,000 170,000 1,120,800 8,973,900
Russell W. Kettell............... 48,000 3,611,797 219,250 170,000 17,131,284 8,973,900
Michael Roster................... 0 0 76,500 13,500 5,648,310 310,860
- ---------------
(A) Market value of underlying securities at exercise date less the option price.
(B) Market value of unexercised "in-the-money" options at yearend less the option price of such options.
ITEM 3: APPROVAL OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has selected Deloitte & Touche LLP to serve as the Company's independent outside
auditors for the year ending December 31, 2004, subject to stockholder approval
at the Annual Meeting. If the stockholders do not vote in favor of the selection
of Deloitte & Touche LLP, the Board of Directors will consider the selection of
other auditors.
Deloitte & Touche LLP has served as the Company's independent outside
auditors since 1963 and was selected by the Board of Directors to serve in 2003,
which selection was ratified and approved by the stockholders of the Company on
April 28, 2003.
Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting and will be available to respond to appropriate questions. They will be
given the opportunity to make a statement, if they desire to do so.
The Board of Directors recommends a vote FOR the selection of
Deloitte & Touche LLP to serve as the Company's independent outside auditors
for the year ending December 31, 2004.
Independent Outside Auditors' Fees
The following is a summary of the fees billed to the Company by Deloitte &
Touche LLP for services rendered for the years ended December 31, 2003 and 2002:
Independent Outside Auditors' Fees For the Years Ended December 31, 2003 and 2002
2003 2002
---- ----
Audit Fees
For services rendered for the audit of the Company's yearend financial
statements; the attestation of management's assessment of the internal controls
of the Company's subsidiary federal savings banks as required by the Federal
Deposit Insurance Corporation Improvement Act of 1991; the reviews of the
Company's quarterly interim financial statements; and the reviews of
registration statements and issuances of comfort letters in connection with the
Company's debt offerings........................................................ $727,450 $711,288
Audit-Related Fees
For audit-related services rendered for the audits of the Company's employee
benefit plans and attestations of the Company's COSI Index calculation.......... 41,750 41,150
Tax Fees (1)
For services rendered for the reviews of federal and state tax returns; federal,
state and local tax compliance and planning; and the licensing of software for
enterprise zone credit determinations and tax
return preparation.............................................................. 59,204 97,303
All other Fees
None............................................................................ 0 0
Total...........................................................................------------- ------------
$828,404 $849,741
============= ============
- ---------------
(1) In 2000, Deloitte & Touche LLP filed on the Company's behalf amended Florida tax returns for the years
1996-1999, seeking approximately $4 million in refunds. Deloitte & Touche LLP will receive 30% of any
refunds received by the Company.
Audit Committee Pre-Approval Policy
All services performed by the independent outside auditors for the Company
in 2003 were pre-approved by the Audit Committee in accordance with its
pre-approval policy adopted on October 24, 2002, which policy was amended most
recently on January 27, 2004. The policy describes the audit, audit-related,
tax, and other services permitted to be performed by the independent outside
auditors, subject to the Audit Committee's prior approval of the services and
related fees. Requests for the independent outside auditors to perform services
are submitted jointly by both management and the independent outside auditors.
Any pre-approved services that would exceed 120% of the initially approved fee
amount require specific additional pre-approval by the Audit Committee. At each
of its regular committee meetings, the Audit Committee reviews summaries of the
pre-approved services being provided, along with the related fees being charged,
by the independent outside auditors.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Under applicable proxy rules, stockholder proposals intended to be
presented at the Company's 2005 Annual Meeting must be received by the Company
no later than November 12, 2004 (not later than 120 days prior to the
anniversary of this year's mailing date), in order to be included in the
Company's Proxy Statement and proxy relating to the meeting. If a stockholder
fails to submit a proposal by that date, the Company will not be required to
provide any information about the proposal in its Proxy Statement or in the form
of proxy. If a stockholder intends to submit a proposal at the Company's 2005
Annual Meeting, which proposal is not intended to be included in the Company's
Proxy Statement and proxy relating to that meeting, the stockholder should
submit the proposal to the Company no later than January 27, 2005 (not later
than 45 days prior to the anniversary of this year's mailing date). If a
stockholder fails to timely submit a proposal, the proxy holders designated in
the proxy relating to that meeting will be allowed to use their discretionary
voting authority if the proposal is raised at the meeting. Proposals should be
addressed to the Company at 1901 Harrison Street, Oakland, California, 94612,
Attention: Corporate Secretary.
GOLDEN WEST FINANCIAL CORPORATION
Oakland, California
March 12, 2004
APPENDIX A
Audit Committee Charter
Golden West Financial Corporation
(Amended and Restated on July 31, 2003)
(Amended January 27, 2004)
Purpose
The Audit Committee is appointed by the Board to assist the Board in
monitoring (1) the integrity of the financial statements of the Company, (2) the
independent outside auditors' qualifications and independence, (3) the
performance of the Company's internal audit function and independent outside
auditors, and (4) the compliance by the Company with legal and regulatory
requirements.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (the "Commission") to be included in the
Company's annual proxy statement.
The Audit Committee does not itself prepare financial statements or
perform audits, and its members are not auditors or certifiers of the Company's
financial statements. Accordingly, 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 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 outside auditors.
Membership
The Audit Committee shall consist of no fewer than three members. The
members of the Committee shall meet the independence requirements of the New
York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), the rules and regulations of the Commission, and the
standards of the Federal Deposit Insurance Corporation. At least one member of
the Audit Committee shall be an "audit committee financial expert" as defined by
the Commission. The members of the Committee shall be financially literate, as
interpreted by the Board in its business judgment, or must become financially
literate within a reasonable period of time after his or her appointment to the
Committee. At least two members of the Committee shall have banking or related
financial management expertise as required by Section 36(g) of the Federal
Deposit Insurance Act. At least one member shall have accounting or related
financial experience as required by the NYSE.
The members of the Audit Committee may not receive any compensation from
the Company other than director's fees. Committee members shall not
simultaneously serve on the audit committees of more than two other public
companies.
The members of the Audit Committee shall be appointed by the Board on the
recommendation of the Nominating and Corporate Governance Committee. Audit
Committee members may be replaced by the Board.
Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint or replace
the independent outside auditors (subject, if applicable, to shareholder
ratification). The Committee shall be directly responsible for the compensation,
evaluation and oversight of the independent outside auditors (including
resolution of disagreements between management and the independent outside
auditors regarding financial reporting) for the purpose of preparing or issuing
an audit report or related work. The independent outside auditors shall report
directly to the Committee.
The Audit Committee shall pre-approve all auditing services and permitted
nonaudit services (including the fees and terms thereof) to be performed for the
Company by its independent outside auditors, subject to the de minimus
exceptions for nonaudit services described in Section 10A(i)(l)(B) of the
Exchange Act which are approved by the Committee prior to the completion of the
audit. The Committee shall consider whether the provision of permitted nonaudit
services is compatible with maintaining the auditors' independence. The
Committee may form and delegate authority to subcommittees consisting of one or
more members when appropriate, including the authority to grant pre-approvals of
audit and permitted nonaudit services, provided that decisions of such
subcommittee to grant pre-approvals shall be presented to the full Committee at
its next scheduled meeting. The Chair of the Audit Committee is authorized to
execute approved engagements of the independent outside auditors.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide for appropriate funding, as determined by
the Committee, for payment of compensation to the independent outside auditors
for the purpose of rendering or issuing an audit report and to any advisors
employed by the Audit Committee.
The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Committee shall meet periodically with
management, the internal auditors and the independent outside auditors in
separate executive sessions. The Committee may request any officer or employee
of the Company or the Company's outside counsel or independent outside auditors
to attend a meeting of the Committee or to meet with any members of, or
consultants to, the Committee.
The Audit Committee, to the extent required by law or otherwise as it
deems necessary or appropriate, shall:
Financial Statement and Disclosure Matters
1. Review and discuss with management and the independent outside auditors
the annual audited financial statements, including disclosures made under
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," and recommend to the Board whether the audited financial
statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the independent outside auditors
the Company's quarterly financial statements prior to the filing of its
Form 10-Q, including the results of the independent outside auditors'
review of the quarterly financial statements.
3. Review and discuss with management and the independent outside auditors
major issues regarding accounting principles and financial statement
presentations including any significant changes in the Company's selection
or application of accounting principles, and any major issues as to the
adequacy of the Company's internal controls and any special audit steps
adopted in light of material control deficiencies.
4. Review and discuss with management and the independent outside auditors
analyses setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial
statements, including analyses of the effects of alternative generally
accepted accounting principles (GAAP) methods on the financial statements.
5. Review and discuss reports from the independent outside auditors on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments, if any, of financial information within GAAP
that have been discussed with management, ramifications of the use of such
alternative disclosures and treatments, and the treatment preferred by the
independent outside auditors.
(c) Other material written communications, if any, between the independent
outside auditors and management, such as any management letter or schedule
of unadjusted differences.
6. Discuss with management the Company's earnings press releases, including
the use of "pro forma" or "adjusted" non-GAAP information, if any, as well
as financial information and earnings guidance provided to analysts and
rating agencies. Such discussion may be done generally (consisting of
discussing the types of information to be disclosed and the types of
presentations to be made).
7. Discuss with management and the independent outside auditors the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures, if any, on the Company's financial statements.
8. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
9. Discuss with the independent outside auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit, including any difficulties encountered in the course
of the audit work, any restrictions on the scope of activities or access
to requested information, any significant disagreements with management,
and management's response.
10. Review disclosures made to the Audit Committee by the Company's CEO(s) and
CFO during their certification process for the Form 10-K and Form 10-Q
about 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 Company's internal
controls.
Oversight of the Company's Relationship with the Independent Outside Auditors
11. Obtain and review a report from the independent outside auditors at least
annually regarding (a) the independent outside auditors' internal
quality-control procedures, (b) 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 respecting one or more independent audits
carried out by the firm, and any steps taken to deal with any such issues,
and (c) all relationships between the independent outside auditors and the
Company.
12. Evaluate the qualifications, performance and independence of the
independent outside auditors, including an evaluation of the lead partner,
taking into account the opinions of management and internal auditors. The
Audit Committee shall present its conclusions with respect to the
independent outside auditors to the Board.
13. Ensure the rotation of the audit partners as required by law. Consider
whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the independent auditing firm on
a regular basis.
14. Set policies for the Company's hiring of employees or former employees of
the independent outside auditors who participated in any capacity in the
audit of the Company.
15. Discuss with the independent outside auditors issues on which they
consulted with their national office and matters of audit quality and
consistency.
16. Meet with the independent outside auditors prior to the audit to discuss
the planning and staffing of the audit.
Oversight of the Company's Internal Audit Function
17. Review the appointment and replacement of the senior internal audit
executive.
18. Review the significant reports to management prepared by the internal
audit department and management's responses.
19. Discuss with the independent outside auditors and management the internal
audit department responsibilities, budget and staffing and any recommended
changes in the planned scope of the internal audit.
Compliance Oversight Responsibilities
20. Obtain from the independent outside auditors assurance that the firm is
unaware of information indicating an illegal act has or may have occurred
that gives rise to the procedures set forth in Section 10A(b) of the
Exchange Act.
21. Review reports and disclosures of insider and affiliated party
transactions. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations and
with applicable provisions of the Company's Code of Conduct and Ethics for
Financial Officers and Code of Business Conduct and Ethics for All
Employees.
22. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
23. Discuss with management and the independent outside auditors any
correspondence with regulators or governmental agencies and any published
reports which raise material issues regarding the Company's financial
statements or accounting policies.
24. Discuss with the Company's General Counsel legal matters that may have a
material impact on the financial statements or the Company's compliance
policies.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board delegates to it. The Committee shall
have the power to investigate any matter falling within its jurisdiction.
Reports
The Audit Committee shall make regular reports to the Board.
Review
The Audit Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval. The
Committee shall annually review the Committee's own performance.