EXHIBIT 99.1
HILLENBRAND INDUSTRIES, INC. (THE "COMPANY")
AUDIT COMMITTEE CHARTER
(As approved by Board of Directors on September 14, 2006)
MISSION STATEMENT
The Audit Committee ("Committee") shall assist the Board of Directors of the
Company ("Board") in fulfilling its oversight responsibilities regarding
financial reports and financial controls of the Company. In discharging that
role, the Committee shall review the Company's financial reporting process, its
system of internal controls regarding accounting, legal and regulatory
compliance and ethics that management or the Board, as the case may be, have
established and the internal and external audit processes of the Company. The
Committee will endeavor to maintain effective working relationships with the
Board, management, and the internal and external auditors. Each Committee member
will maintain an understanding of the requirements of membership which are
necessary to meet and fulfill Committee responsibilities.
ORGANIZATION
The Board shall arrange that:
1. The Committee shall be comprised of at least three members of the Board,
each of whom must meet the independence criteria set forth in the
Company's Corporate Governance Standards for the Board of Directors and as
required by the New York Stock Exchange, the Securities Exchange Act of
1934 and the rules and regulations of the Securities Exchange Commission
at all times during his or her tenure on the Committee. No member of the
Committee may, other than in his or her capacity as a member of the
Committee, the Board or any other committee of the Board,
(a) accept, directly or indirectly(1), any consulting, advisory or
other compensatory fee from the Company or any of its subsidiaries,
provided that, unless the rules of the New York Stock Exchange provide
otherwise, compensatory fees do not include the receipt of fixed amounts
of compensation under a retirement plan (including deferred compensation)
for prior service with the Company (provided that such compensation is not
contingent in any way on continued service); or
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(1) Payments by the Company of the following sort will be deemed to constitute
indirect acceptance of compensatory payments and accordingly will render a
member of the Board ineligible for service on the Committee: (a) payments
to an entity in which the member is a partner, member, officer such as a
managing director occupying a comparable position or executive officer, or
occupies a similar position (except limited partners, non-managing members
and those occupying similar positions who, in each case, have no active
role in providing services to the Company) and which provides accounting,
consulting, legal, investment banking or financial advisory services to
the Company or any of its subsidiaries; and (b) payments to the member's
spouse, minor child or stepchild or adult child or stepchild sharing the
member's home.
(b) be an affiliated person(2) of the Company or any of its
subsidiaries.
2. All members of the Committee should possess, at a minimum, basic financial
literacy, as such qualification is interpreted by the Board, or acquire
such literacy within a reasonable period of time from joining the
Committee. At the present time, the Board interprets "financial literacy"
to mean the ability to read and understand audited and unaudited
consolidated financial statements (including the related notes) and
monthly operating statements of the sort released or prepared by the
Company, as the case may be, in the normal course of its business. The
Chair of the Committee shall be available, capable, qualified and
competent in dealing with financial and related issues.
3. At least one member of the Committee shall be an "audit committee financial
expert" (as defined by the Securities and Exchange Commission) who shall have
all of the following attributes:
- an understanding of generally accepted accounting principles and
financial statements;
- the ability to assess the general application of generally accepted
accounting principles in connection with the accounting for
estimates, accruals and reserves;
- experience in 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 in actively
supervising one or more persons engaged in such activities;
- an understanding of internal controls and procedures for financial
reporting; and
- an understanding of the audit committee function.
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(2) An "affiliated person" or "affiliate" of a specified person, means a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the
specified person. The term "control" (including the terms "controlling",
"controlled by" and "under common control with") means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise. A person who is not an
executive officer of the specified person and is not the beneficial owner,
directly or indirectly, of more than 10% of any class of voting equity
securities of a specified person will be deemed not to be in control of
the specified person, and an executive officer, general partner or
managing member of an affiliate, or a director who is also is an employee
of an affiliate, shall be deemed also to be an affiliate.
A Committee member who sits on the board of directors of both the
Company and an affiliate of the Company is exempt from the "affiliated
person" requirement if the Committee member, except for being a director
on each such board of directors, otherwise meets the independence
requirements described in clauses (a) and (b) for both the Company and the
affiliate, including the receipt of only ordinary-course compensation for
serving as a member of the board of directors, audit committee or any
other board committee of the Company or the affiliate.
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An audit committee financial expert must have acquired these attributes
through any one or more of the following:
- education and experience as a principal financial officer, principal
accounting officer, controller, public accountant or auditor or
experience in one or more positions that involve the performance of
similar functions;
- experience actively supervising a principal financial officer,
principal accounting officer, controller, public 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.
4. No director shall be appointed to or remain on the Committee who is
simultaneously serving on the audit committees of two or more other public
companies unless the Board determines that such simultaneous service would not
impair the ability of such member to serve on the Committee and such
determination is disclosed in the Company's annual proxy statement.
5. The members of the Committee shall be elected by the Board annually, based on
a recommendation by the Nominating/Corporate Governance Committee to serve until
the next annual meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is designated by the Board, the members of
the Committee may designate a Chairman by majority vote of the Committee
membership. The Board may remove a member from the Committee with or without
cause. The Committee's Chair will periodically report the Committee's findings
and conclusions to the Board. The Committee will be assisted by the Company's
Chief Financial Officer and General Counsel. The Company's Secretary or any
Assistant Secretary will serve as executive secretary of the Committee.
6. Committee meetings shall be held not less frequently than quarterly, usually
in conjunction with the Company's regular quarterly Board meetings. The
Committee may choose to meet more frequently, if needed. A majority of the
Committee members will constitute a quorum for the transaction of business at
any meeting of the Committee. Action of the majority at any such meeting will be
the action of the Committee.
ROLES AND RESPONSIBILITIES
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this guide
as appropriate under any particular set of circumstances.
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FINANCIAL REPORTING
The Committee shall:
1. Review with management and the external auditors any financial statement
issues and the results of the audit including (a) the initial selection of
or changes in significant accounting policies used in developing the
financial statements, the reasons for and impact of any changes in policy
and reasons alternative treatments were not adopted and (b) any
off-balance sheet transactions, special purpose entities, transactions
with affiliated companies and related parties and the effect of regulatory
and accounting initiatives.
2. Review management's disposition of proposed significant audit adjustments
as identified by the external auditors.
3. Inquire into the fairness of the statements and disclosures by requesting
explanations from management and from the internal and external auditors
on whether:
- Generally accepted accounting principles have been consistently
applied.
- There are any significant or unusual events or transactions.
- The Company's financial and operating controls are functioning
effectively.
- The Company's financial statements contain adequate and appropriate
disclosures.
4. Review with the external auditors their views as to the quality of the
Company's accounting principles and financial reporting practices.
5. Meet to review and discuss with management and the external auditors the
Company's annual audited financial statements and quarterly financial
statements and recommend to the Board the inclusion of the Company's
audited financial statements in its Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q.
6. Prior to the Company's filing of each Annual Report on Form 10-K and
Quarterly Report on Form 10-Q, meet to review and discuss with management
and the external auditors the content of such filing, including the
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and review any exceptions to the
certifications required of the Chief Executive Officer and Chief Financial
Officer in connection with such filings. The Committee shall also discuss
with the external auditors the matters required to be brought to the
Committee's attention by Statement on Auditing Standards No. 61, as well
as other matters that should be communicated to the Committee by the
external auditors. The Committee shall receive annually the Independence
Standards Board Standard No. 1 letter disclosing all relationships between
the external auditor and the Company, discuss it with the external
auditor, assess impacts on the auditor's independence, and make
recommendations needed to the Board for actions to ensure the auditor's
independence.
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7. Discuss with management, prior to their dissemination, earnings press
releases, as well as financial information and earnings guidance provided
to analysts and rating agencies, provided that, if it is not otherwise
practicable for the entire Committee to review revisions to earnings
guidance, such review may be performed by the Chairman of the Committee.
INTERNAL CONTROL
The Committee shall:
1. Review with management, as well as internal and external auditors, the
Company's business risk management process, including the adequacy of the
Company's overall control environment and controls in selected areas
representing significant financial and business risk.
2. Require that the internal and external auditors and management keep the
Committee informed about any significant fraud, illegal acts, or
deficiencies in internal control, and similar significant matters.
3. Create an opportunity that significant findings and recommendations made
by the internal and external auditors can be received and discussed on a
timely basis.
4. Review and discuss with management, as well as the internal and external
auditors, management's report on internal control over financial reporting
and the report of the external auditors on management's assessment of
internal control over financial reporting prior to the filing of the
Company's Annual Report on Form 10-K. Gain an understanding of whether
internal control recommendations made by internal and external auditors
have been implemented by management.
5. Inquire as to the extent to which internal and external auditors review
computer systems and applications and the security of such systems and
applications.
INTERNAL AUDIT
1. The Committee shall review as often as it deems necessary but at least
annually:
- The internal audit charter, annual audit plan, activities and
organizational structure of the internal audit function.
- The qualifications and operational independence of the internal
audit function and, when necessary, participate in the appointment,
replacement, reassignment, or dismissal of the Director of Internal
Audit.
- The effectiveness of the internal audit function including
compliance with the Institute of Internal Auditors' (IIA) Standards
for the Professional Practice of Internal Auditing.
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2. The Committee shall also review periodically as it deems appropriate the
reports prepared by the internal audit staff and management's responses to
such reports.
EXTERNAL AUDIT
1. The Committee shall review:
- The external auditors' proposed audit scope and approach.
- The performance of the external auditors.
2. The Committee shall have the direct responsibility for and the sole
authority to engage, compensate, oversee, retain and terminate (subject,
where applicable, to shareholder ratification) any accounting firm engaged
(including the resolution of any disagreements between management and the
Company's external 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 such firm shall report directly to
the Committee. The Company shall provide appropriate funding (as
determined by the Committee) for payment of compensation to the Company's
external auditors. The Committee shall have ultimate authority to approve
all audit engagement fees and terms.
3. The Committee must approve in advance all auditing services, internal
control-related services and permitted non-audit services performed by the
Company's external auditors, including tax services, subject to the de
minimus exception for non-audit services described in Section 10A(i)1(B)
of the Securities Exchange Act of 1934. The Committee may delegate to its
Chairman the authority to pre-approve such non-audit services between
regularly scheduled meetings provided that such approvals are reported to
the Committee at the next committee meeting. Notwithstanding the
foregoing, the Company's external auditors may not provide the following
services to the Company: bookkeeping or other services related to the
accounting records or financial statements of the Company; financial
information systems design and implementation; appraisal or valuation
services, fairness opinions or contribution-in kind reports; actuarial
services; internal audit outsourcing services; management functions or
human resources; broker or dealer, or investment adviser or investment
banking services; legal services and expert services unrelated to the
audit; and any other service that the applicable federal oversight
regulatory authority determines, by regulation, is impermissible.
Non-audit services approved by the Committee and performed by the
Company's external auditors must be disclosed to investors in the
Company's reports on Form 10-K and/or proxy statements for its annual
meetings of shareholders.
4. The lead (or coordinating) audit partner and the concurring or reviewing
partner associated with the Company's external auditors must be changed at
least every five years.
5. The Committee cannot engage external auditors to perform audit services
for the Company if the Company's Chief Executive Officer, Chief Financial
Officer, Chief Accounting Officer or any person in an equivalent position
was employed by such external auditors within one year preceding the
initiation of the audit.
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6. The Committee may not engage external auditors to perform audit services
for the Company if the external auditors are otherwise not independent
with respect to the Company in accordance with Rule 2-01 of Securities and
Exchange Commission Regulation S-X (or any successor rule), any
independence standards adopted by the Public Company Accounting Oversight
Board and any other applicable standards.
7. The Committee shall, at least annually, use its best efforts to obtain and
review a report from the external auditors addressing: (a) the auditors
internal quality-control procedures; (b) any material issues raised by the
most recent internal quality-control review, peer review or Public Company
Accounting Oversight Board review of the external auditors 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 external auditors and any steps taken to deal with any
such issues; and (c) the independence of the external auditors, including
a discussion of any relationships or services that may impact their
objectivity and independence.
8. The Committee shall obtain from the external auditors in connection with
any audit a timely report relating to the Company's annual audited
financial statements describing all critical accounting policies and
practices to be used; all alternative treatments within generally accepted
accounting principles for policies and practices related to material items
that have been discussed with management, including ramifications of the
use of such alternative disclosures and treatments and the treatment
preferred by the external auditors; and any material written
communications between the external auditors and management, such as any
management letter or schedule of unadjusted differences.
OTHER RESPONSIBILITIES
The Committee shall:
1. Meet at least quarterly, with the external auditors, Director of Internal
Audit, and management (including the Company's Chief Executive Officer,
Chief Financial Officer and General Counsel) in separate executive
sessions to discuss any matters that the Committee or these groups believe
should be discussed privately.
2. Update the Board about Committee activities and make appropriate
recommendations, as often as the Board deems appropriate.
3. Annually review and assess the continuing adequacy of this Charter and the
performance of this Committee and its members and, if appropriate,
recommend changes for the approval of the Board.
4. Prepare a report to shareholders to be included in the Company's proxy
statements as required by the Securities and Exchange Commission.
5. Perform any other activities consistent with this Charter, the Company's
Code of By-laws and governing law, as the Committee or the Board deems
necessary, appropriate or desirable.
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6. As appropriate, obtain advice and assistance from outside legal,
accounting or other advisors without the necessity for prior authorization
by the Board.
7. Establish policies for the hiring by the Company of present or former
employees of the Company's external auditors.
8. Review with management the policies and procedures with respect to
officers' expense reports and perquisites, including their use of
corporate assets, and consider the results of any review of these areas by
the internal auditor or the independent accountants.
ETHICAL, LEGAL AND REGULATORY COMPLIANCE
The Committee shall:
1. Review and assess at least annually the Company's Code of Ethical Business
Conduct (the "Policy Statement"), recommend to the Board of Directors
changes in the Policy Statement as conditions warrant and confirm that
management has established a system to monitor compliance with the Policy
Statement by officers and relevant employees of the Company.
2. Review management's monitoring of the Company's compliance with the Policy
Statement, and confirm that management has a review system in place to
maximize the likelihood that the Company's financial statements, reports
and other financial information disseminated to governmental organizations
and the public satisfy applicable legal requirements.
3. Review, with the Company's counsel, legal and regulatory compliance
matters including corporate securities trading policies.
4. Review, with the Company's counsel, any legal or regulatory matter that
could have a significant impact on the Company's financial statements.
5. The Committee shall establish procedures for (a) the receipt, retention
and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters and (b) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
6. The Committee shall promote an organizational culture that encourages
commitment to compliance with the law and use good faith efforts to assure
that corporate information and reporting systems exists that are adequate
to assure that appropriate information as to compliance matters comes to
its attention in a timely manner as a matter of ordinary operations.
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OPERATIONS
The Committee shall conduct its operations in accordance with the procedures set
forth in Article 4 of the Company's Code of By-Laws applicable to the operations
of the Board, except to the extent that such procedures are modified on
superseded by the terms of this Charter. The Committee shall have the authority
to adopt such additional procedures for the conduct of its business as are not
inconsistent with those referred to in the preceding sentence. Except as
otherwise expressly provided herein, the Committee shall have no authority to
delegate its responsibilities to any subcommittee.
GENERAL LIMITATIONS
The Committee's responsibility is oversight, and it and the Board recognize that
the Company's management is responsible for preparing the Company's financial
statements. Additionally, the Committee recognizes that financial management,
the internal audit staff, and the external auditors, have more knowledge and
more detailed information about the Company than do the members of the
Committee. Consequently, in carrying out its oversight responsibilities the
Committee is not providing any expert or special assurance as to the Company's
financial statements or any professional certification of the financial
statements prepared by management or the audit work performed by the internal or
external auditors.
The Board recognizes that the members of the Committee will discharge the
foregoing oversight responsibilities by evaluating (a) reports given to them,
(b) presentations made to the them and (c) other significant financial reporting
decisions which are reported to them by management, internal auditors and
external auditors. Within the bounds of sound business judgment and assessment,
and to the extent permitted by the Indiana Business Corporation Law, each member
of the Committee shall be entitled to rely on the integrity of the individuals
and organizations from whom they receive such information. In discharging his or
her duties as a member of the Committee, each member is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, that is prepared and presented by either (i) one or more
officers or employees of the Company who the member reasonably believes to be
reliable and competent in the matters presented or (ii) legal counsel, external
independent auditors or other persons as to the matters the member reasonably
believes are within the person's professional or expert competence. The
Committee may also retain independent counsel, accountants or other outside
advisors, as it deems appropriate, and the Company shall provide appropriate
funding (as determined by the Committee) for payment of compensations to such
advisors retained by the Committee. Furthermore, in fulfilling their
responsibilities hereunder, it is recognized that members of the Committee are
not full-time employees of the Company and are not, and do not hold themselves
out to be, accountants or auditors by profession or experts in the fields of
accounting or auditing.
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