1. CENTEX CORPORATION
Audit Committee Charter
GENERAL
The Centex Board of Directors created the Audit Committee to assist the Board in its
oversight of:
• The integrity of the Company’s financial statements;
• The Company’s compliance with legal and regulatory requirements;
• The independent auditor’s qualifications and independence; and
• The performance of the internal audit function and independent auditors.
The Committee has the authority of the Board, except as may be prohibited by law, in all
matters encompassed by this Charter. The Committee also has all authority required by
the Securities and Exchange Commission (SEC) and the New York Stock Exchange
(NYSE).
In addition to its engagement of the independent auditors, the Committee will serve in a
Board-level oversight role, providing counsel and direction to management and the
independent auditors through:
• The information it receives;
• Its discussions with management and the independent auditors; and
• The members’ experience in business, financial and accounting matters.
MEMBERSHIP
• The Committee shall consist of at least three people, all of whom are Board
members and whom the Board has determined satisfy the independence
requirements set forth in the NYSE listing standards and in the SEC rules
adopted under Section 10A(m)(3) of the Securities and Exchange Act of 1934
(Exchange Act).
• Each member shall also be:
o “Financially literate,” as determined by the Board, within the meaning of the
NYSE standards, or shall become “financially literate” within a reasonable
period of time after appointment to the Committee.
• At least one member of the Committee shall be:
o A person with “accounting or related financial management expertise,” as
determined by the Board, within the meaning of the NYSE standards; and
o An “audit committee financial expert,” as determined by the Board, within the
meaning of Item 407 of SEC Regulation S-K.
• No member shall serve as an audit committee member of more than two other
public companies unless permitted under the NYSE standards and approved by
the Board.
• If a member serves as an audit committee member of another public company
(or companies), such member shall deliver a written statement to the Board and
the Committee on an annual basis describing:
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2. The time required to serve on the other company’s (or companies’) audit
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committee; and
o Any expected changes in such time commitment during the next year.
• The Board will designate members either at the annual Board meeting or at such
other meeting or time as the Board shall determine. The Corporate Governance
and Nominating Committee will recommend the members of the Committee to
the Board.
• Each member will serve until the next time Committee members are designated,
unless the member resigns, or is removed or replaced.
• The Board may remove or replace any member at any time.
• If for any reason the Board does not designate new members of the Committee
at the annual Board meeting or at such other meeting or time as the Board shall
determine, the current members will continue to serve until the Board names new
members.
• Filling a vacancy is optional, unless there are fewer than three members
remaining on the Committee; then the vacancy must be filled.
• To fill a vacancy or to otherwise replace a member, the Board will designate
another director who meets the requirements for membership to fill the unexpired
term, based on the recommendation of the Corporate Governance and
Nominating Committee.
INTERNAL GOVERNANCE AND PROCEDURES
Criteria for the Chairperson and Committee Rules
• The Board will designate one member to act as the Chairperson until the next
time Committee members are designated.
• The Board can remove or replace the Chairperson at any time.
• If the Chairperson resigns or is removed, the Board will name an existing
member of the Committee to serve as Chairperson for the unexpired term.
• The Chairperson presides over all Committee meetings and reports the
Committee’s findings and conclusions to the Board.
• The Chairperson shall have authority to execute and deliver all documents
requiring signature by the Committee in relation to the Committee’s powers,
duties and obligations as set out in this Charter or as decided by the Committee.
• The Committee may establish rules for business that include meetings, notices,
quorum, voting, agenda preparation, and distribution of materials, as long as they
don’t conflict with the By-Laws, securities laws, SEC rules and regulations, NYSE
standards or other provisions of the Charter.
• If no rules have been set by the Committee, then:
o A majority of the Committee constitutes a quorum;
o If the Committee has an even number of members, one-half the members will
constitute a quorum; and
o As long as the Committee meeting has a quorum, the majority opinion can
approve Committee action.
• The Committee shall review its procedures periodically and make changes.
Guidelines for Committee Meetings
• The Committee will meet at least four times a year, and more often as needed.
• The meetings can be held by phone; any member can call in if needed.
• Special guests may be invited to meetings as needed.
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3. • The Committee can meet as often as necessary with the Company’s
management, consultants or independent auditors and in separate executive
sessions if any Committee member feels privacy is needed.
• Written minutes of the meeting and records of action must be kept.
Guidelines for Subcommittees
• The Committee can delegate specified duties and responsibilities to a
subcommittee.
• The subcommittee can consist of one or more members (unless a specified
number is required), who have been designated by a majority of the Committee.
• The Committee can also delegate to a subcommittee or to any members the
authority to grant pre-approval of audit and permissible non-audit services in
accordance with the “Independent Auditors” subsection below.
• Any decision by the subcommittee must be reported back to the full Committee at
the next scheduled meeting.
• The subcommittee must follow any rules or procedures determined by the
Committee.
DUTIES AND RESPONSIBILITIES
Listed below are the principal duties and responsibilities of the Committee. In order to
fulfill its general purpose, the Committee may have to take actions under its general
power and authority in addition to those described below.
General
• The Committee will perform the duties and responsibilities of an audit committee
described in the Sarbanes-Oxley Act, the NYSE standards and this Charter.
• The Committee will also provide the Board any help needed in the general
oversight of the Company’s financial reporting, legal and regulatory compliance,
internal control and audit functions.
Independent Auditors
• The Committee shall have sole authority over the appointment, retention and
replacement (subject to stockholder ratification if the Board finds ratification
necessary) of any registered public accounting firm performing audit, review or
attest services for the Company (independent auditors).
• The Committee shall also have sole authority over the compensation and
oversight of the independent auditors’ work (including resolution of financial
reporting disagreements between management and the independent auditors),
and the ultimate authority to approve all audit engagement fees and terms.
• The independent auditors shall report directly to the Committee and are
accountable to the Board and the Committee, not the Company’s management.
In order to fulfill its responsibilities, the Committee will at minimum:
a. Independent Auditors
• Meet with the independent auditors prior to the audit to:
o Review the planning and staffing of the audit; and
o Ensure that the Committee or its members are available to the
Company’s independent auditors when requested.
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4. • Obtain and review, at least annually, a report by the independent auditors
(Quality Control Report) describing:
o The independent auditors’ internal quality-control procedures;
o Any material issues raised by the most recent internal quality-control
review, peer review, or Public Company Accounting Oversight Board
review of the independent auditors, or any governmental or professional
authority-led inquiry or investigation, within the last five years, concerning
one or more independent audits conducted by the independent auditors
and any steps taken to deal with such issues; and
o All relationships between the independent auditors and the Company (in
order to assess the independent auditor’s independence).
• Evaluate the independent auditors’ qualifications and performance and
present the conclusions to the Board. Such evaluation may include the
opinions of management and the internal auditors, and also includes:
o Considering the adequacy of the independent auditors’ quality controls in
light of the disclosures made in the Quality Control Report; and
o Reviewing the performance of the independent auditor’s lead partner and
whether rotation of any of the audit partners is appropriate.
• Evaluate the Quality Control Report’s information on the independent
auditors’ independence, together with the written disclosures and the letter
from the independent auditors required by Independence Standards Board
Standard No. 1 (or other applicable standard), and discuss with the
independent auditors any disclosed relationships or services that may impact
their objectiveness or independence. In making such evaluations, the
Committee shall take into account the opinions of management and the
internal auditors and present its conclusions to the Board.
• Obtain and review at least annually the independent auditors’ reports
regarding:
o All critical accounting policies and practices to be used;
o All alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, including:
Ramifications of the use of such alternative treatments; and
The treatment preferred by the independent auditors.
o Other material written communications between the independent auditors
and management, such as any:
Management letter provided by the independent auditors and
management’s response to that letter;
Management representation letter;
Reports on observations and recommendations for internal controls;
Schedule of unadjusted audit differences and a listing of any
unrecorded adjustments and reclassifications;
Schedule of material, uncorrected misstatements that were brought
to management’s attention through audit procedures; and
Engagement or independence letters.
• Discuss with the independent auditors matters relating to the conduct of the
audit that Statement on Auditing Standards No. 114 (or other applicable
standard) requires independent auditors to communicate, including:
o Any problems encountered in the course of the audit work;
o Any restrictions on the scope of activities or access to requested
information; and
o Any significant disagreements with management.
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5. • Pre-approve all audit, review or attest engagements and all permissible non-
audit services, including the services’ fees and terms, that are provided by
the independent auditors and must be brought to the Committee’s attention
and approved by the Committee prior to completion of the audit. Such
services are subject to, and must be in compliance with, Section 10A(i)(1)(b)
of the Exchange Act’s de minimis exceptions for certain non-audit services
and the rules and regulations adopted under such exceptions.
• Confirm the regular rotation of the audit partners and consider whether there
should be a regular rotation of the independent auditing firm.
• Establish hiring policies for the Company’s employment of the independent
auditors’ employees or former employees.
• Obtain assurance from the independent auditors that, in completing their
audit of the Company’s financial statements, they have met their obligations
to identify and report fraud under Section 10A(b) of the Exchange Act.
• Consider and review with management, the independent auditors and the
Company’s internal auditors in accordance with SEC rules:
o Management’s annual assessment of, and report on, the effectiveness of
the Company’s internal control over financial reporting and the
independent auditor’s attestation report on such assessment, prior to the
filing of the Annual Report on Form 10-K;
o The adequacy of the Company’s internal controls and disclosure controls
and procedures;
o Any related significant findings and recommendations of the independent
and internal auditors, along with management’s response; and
o Any other matters the Committee may determine from time to time.
b. Financial Statements and Financial Reporting Processes
• Review and discuss with management and the independent auditors:
o The Company’s annual audited financial statements, the specific
disclosures made in management’s discussion and analysis of financial
condition and the results of operations accompanying such financial
statements, prior to the filing of the Annual Report on Form 10-K;
o The Company’s quarterly financial statements, disclosures made in
management’s discussion and analysis of financial condition and results
of operations accompanying such financial statements, prior to the filing
of the Quarterly Reports on Form 10-Q, including any matters connected
to the quarterly financial statements and provided in Statement on
Auditing Standards No. 100 (or other applicable standard);
o Major issues regarding accounting principles and financial statement
presentations, including any:
Significant changes in the selection or application of accounting
principles;
Major issues regarding the adequacy of the Company’s internal
controls; and
Audit steps adopted to eliminate material control deficiencies.
o Other major issues and judgments made concerning the preparation of
the Company’s financial statements, including the adequacy of
disclosures of changes in internal control over financial reporting;
o Communications or consultations between the audit team and the
independent auditors’ national office regarding auditing or accounting
issues that are presented by the engagement and come to the
Committee’s attention, if considered necessary by the Committee;
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6. Analyses prepared by management and/or the independent auditors
o
concerning significant financial reporting issues and judgments made
during the preparation of the Company’s financial statements, including
analyses of the effects of alternative methods of generally accepted
accounting principles on the financial statements; and
o The effect of regulatory and accounting initiatives and off-balance sheet
structures on the Company’s financial statements.
• Recommend whether the Company’s annual audited financial statements and
accompanying notes should be included in the Annual Report on Form 10-K.
• Prepare and approve the audit committee report that must, under SEC rules
and regulations, be included in the proxy statement for the annual meeting (or
possibly in the Annual Report on Form 10-K).
• Review the chief executive and financial officers’ disclosures made to the
Committee and the independent auditors concerning the certification process
for the Company’s Form 10-K and 10-Q Reports on any:
o Significant deficiencies or weaknesses in the design or operation of
internal control over financial reporting; and
o Fraud involving management or other employees who have a significant
role in the Company’s internal control over financial reporting.
• Discuss in advance with management the information to be disclosed and the
presentations to be made in the Company’s earnings press releases
(including the use, if any, of “pro forma” or “adjusted” non-GAAP financial
measures), and the financial information and earnings guidance provided to
analysts and rating agencies. Review any relevant items with management
prior to the release of any such press releases or earnings guidance. The
discussion and review shall be with the Committee Chairperson or the full
Committee.
• Discuss with management the Company’s major financial risk exposures,
what management has done to monitor and control those exposures, and the
Company’s risk assessment and risk management policies and guidelines.
• Review with management and the independent auditors:
o The internal auditors’ function, responsibilities, budget and staffing,
including the appointment or replacement of the senior internal auditing
executive; and
o Any recommended changes in the planned scope of the internal audit.
• Review the internal auditing department’s significant reports to management
and management’s responses.
• Unless delegated to another Committee or pursuant to the Company’s
Related Person Transactions Policy, review management’s periodic reports
on related party transactions and potential conflict of interest situations.
c. Complaints
• Establish procedures for:
o The receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or auditing
matters, including any “whistleblower” complaints; and
o The confidential, anonymous employee submission of concerns about
questionable accounting or auditing matters.
d. Other Responsibilities
• Make regular reports and recommendations to the Board.
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7. • Review with the Chief Legal Officer matters that may have a material effect
on the Company’s financial condition, results of operations or compliance
policies, and any material reports received from regulators, governmental
agencies or other third parties on matters relating to or affecting the
Committee’s duties or responsibilities.
• Conduct or authorize investigations into appropriate matters within the
Committee’s scope of responsibilities.
• Obtain reports from management, the Company’s senior accounting
executive and the independent auditors concerning:
o The Company’s subsidiaries/foreign affiliated entities’ compliance with
applicable legal requirements; and
o The Centex Way or any other Company code of conduct.
• Advise the Board on the Company’s policies and procedures concerning
compliance with applicable laws and regulations and with The Centex Way.
The Committee shall determine the manner in which such responsibilities and powers
are to be exercised in light of the existing circumstances and conditions. In many cases,
the Committee will discharge its responsibilities by evaluating information and reports
presented or given to it by the Company’s management, internal auditors and
independent auditors.
LIMITATIONS
The following are the responsibilities of management and the independent auditor and
NOT the duty of the Committee:
• Plan or conduct audits to determine whether the Company’s financial statements
and disclosures are complete and accurate or compliant with generally accepted
accounting principles and applicable rules and regulations.
• Assure compliance with applicable laws, regulations, The Centex Way, any other
Company code of conduct, or other policies and procedures.
Also it is not the duty of the Committee to initiate or conduct investigations unless
directed to do so by the Board.
ENGAGEMENT OF ADVISERS AND FUNDING
• The Committee has the authority to get advice and help from independent
counsel and other advisors, such as consultants, as necessary.
• The Company will pay for the cost of advisers, as well as ordinary administrative
expenses necessary for the Committee to carry out its duties.
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8. ANNUAL REVIEW OF CHARTER AND EVALUATION OF THE COMMITTEE
• The Committee will review and reassess the adequacy of this Charter and
recommend changes to the Board as needed, at least annually.
• The Committee will review its own performance annually.
• The Board will conduct an evaluation of the Committee’s performance annually,
and afterward the Board, or a representative, will review it with Committee
members.
As amended and restated through October 8, 2008
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