Universal Instruments
Corporation
Global Finance Manual
Issued September 6, 2002
This manual supersedes any and all previous versions or policies written or unwritten.
Universal Instruments Corporation
Global Finance Manual – Table of Contents
Introduction ___________________________________________________________________ 1
Section 1 - Description of Accounts ________________________________________________ 1
Purpose ___________________________________________________________________________ 1
Balance Sheet ______________________________________________________________________ 2
Cash ___________________________________________________________________________________ 2
Marketable Securities _____________________________________________________________________ 2
Accounts and Notes Receivable _____________________________________________________________ 2
Inventory _______________________________________________________________________________ 3
Prepaid Expenses _________________________________________________________________________ 3
Property, Plant & Equipment and Accumulated Depreciation____________________________________ 3
Investments _____________________________________________________________________________ 4
Advances Due from Affiliates _______________________________________________________________ 4
Notes Receivable from Affiliates ____________________________________________________________ 4
Intangible Assets _________________________________________________________________________ 5
Goodwill ________________________________________________________________________________ 5
Deferred Charges and Other Assets _________________________________________________________ 5
Notes Payable ____________________________________________________________________________ 6
Accounts Payable _________________________________________________________________________ 6
Accrued Compensation & Employee Benefits _________________________________________________ 6
Accrued Insurance _______________________________________________________________________ 6
Other Accrued Expenses ___________________________________________________________________ 7
Federal and Other Taxes on Income _________________________________________________________ 7
Long-term Debt __________________________________________________________________________ 7
Advances Due to Affiliates _________________________________________________________________ 7
Notes Payable to Affiliates _________________________________________________________________ 8
Deferred Taxes ___________________________________________________________________________ 8
Deferred Compensation ___________________________________________________________________ 8
Minority Interest _________________________________________________________________________ 8
Other Non-Current Liabilities ______________________________________________________________ 9
Equity Accounts __________________________________________________________________________ 9
Income Statement __________________________________________________________________ 9
Sales ___________________________________________________________________________________ 9
Sales, General and Administrative Expenses _________________________________________________ 12
Interest Expense ________________________________________________________________________ 13
Interest Income _________________________________________________________________________ 13
Loss on Goodwill Impairment _____________________________________________________________ 13
Gain (Loss) on Fixed Asset ________________________________________________________________ 13
Foreign Exchange Gain (Loss) _____________________________________________________________ 13
Other Income ___________________________________________________________________________ 14
Other Expense __________________________________________________________________________ 14
Federal and Other Taxes on Income ________________________________________________________ 14
Section 2- Specific Account Guidance _____________________________________________ 15
Balance Sheet _____________________________________________________________________ 15
Cash __________________________________________________________________________________ 15
Cash Concentration Companies ___________________________________________________________ 15
Other Cash Considerations ______________________________________________________________ 15
Accounts Receivable _____________________________________________________________________ 16
Employee Loans and Advances ____________________________________________________________ 16
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Advances Due from Affiliates ______________________________________________________________ 17
Notes Receivable from Affiliates ___________________________________________________________ 17
Property, Plant & Equipment and Accumulated Depreciation___________________________________ 18
Depreciation __________________________________________________________________________ 18
Accumulated Depreciation _______________________________________________________________ 18
New Plants and Expansion _______________________________________________________________ 18
Fully Depreciated Fixed Assets ___________________________________________________________ 18
Fixed Asset Disposals ___________________________________________________________________ 19
Goodwill Amortization for U.S. Tax Purposes ________________________________________________ 19
Notes Payable ___________________________________________________________________________ 19
Advances Due to Affiliates ________________________________________________________________ 19
Notes Payable to Affiliates ________________________________________________________________ 20
Income Statement _________________________________________________________________ 20
Revenue Recognition - A Review of SAB 101 _________________________________________________ 20
Sales Shipped in Place ____________________________________________________________________ 23
Buybacks and Trade-ins __________________________________________________________________ 24
Other Creative Discounts and Financing Arrangements ________________________________________ 24
Sales With Recourse _____________________________________________________________________ 24
Customer Rebates _______________________________________________________________________ 25
Long-Lived Asset Impairment _____________________________________________________________ 25
Discontinued Operations _________________________________________________________________ 27
Discontinued Operations Criteria _________________________________________________________ 27
Discontinued Operations Presentation Issues ________________________________________________ 27
Restructuring Charges ___________________________________________________________________ 28
Involuntary Termination Plan Criteria______________________________________________________ 29
Exit Plan Criteria ______________________________________________________________________ 30
Foreign Exchange Gains and Losses ________________________________________________________ 31
Transaction Gains and Losses ____________________________________________________________ 31
Translation in Financial Statements ________________________________________________________ 32
Foreign Exchange Contracts _____________________________________________________________ 33
Exchange Rates _______________________________________________________________________ 33
Balance Sheet Translation _______________________________________________________________ 33
Statement of Profit and Loss Translation ____________________________________________________ 33
Intercompany Items ____________________________________________________________________ 34
Income Tax Rates _______________________________________________________________________ 34
Federal and Foreign Taxes ______________________________________________________________ 34
State Taxes ___________________________________________________________________________ 34
Flash Earnings __________________________________________________________________________ 34
Organschaft Protocol ____________________________________________________________________ 34
Dover’s Passive Income Companies _________________________________________________________ 35
REVOD ______________________________________________________________________________ 35
Delaware Capital Formation (DCF) _______________________________________________________ 35
Section 3 – Global Policies ______________________________________________________ 36
General Concerns _________________________________________________________________ 36
Financial Reporting Guidance _____________________________________________________________ 36
Financial Manager Responsibilities _________________________________________________________ 37
Receivables and Sales Concerns ______________________________________________________ 39
Transfer Pricing ________________________________________________________________________ 39
Sales/Sales Cut-Off ______________________________________________________________________ 41
Credit Risk Management _________________________________________________________________ 41
Billing & Invoicing ______________________________________________________________________ 43
Sales, Use and Value Added Tax Guidance___________________________________________________ 44
Bad Debt Write-Off and Reserves __________________________________________________________ 45
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Inventory and Cost of Sales Concerns _________________________________________________ 46
Inventory Valuation _____________________________________________________________________ 46
Obsolete Inventory Reserve ______________________________________________________________ 47
Excess Inventory Reserve ________________________________________________________________ 47
Standard Cost Systems ___________________________________________________________________ 48
Physical Inventories _____________________________________________________________________ 48
Merchandise Returns Procedure ___________________________________________________________ 49
Fixed Asset and Depreciation Concerns _______________________________________________ 49
Capitalization / Depreciation ______________________________________________________________ 49
Capitalization of Software Costs ___________________________________________________________ 52
Capital Equipment Authorization __________________________________________________________ 54
Accounts Payable, Payroll and Expense Concerns ______________________________________ 55
Check Request Authorization _____________________________________________________________ 55
Blank Check Stock Guidance ______________________________________________________________ 56
Employee Business Expense Reporting ______________________________________________________ 57
Payroll Processing _______________________________________________________________________ 57
Income Tax Concerns ______________________________________________________________ 58
Accounting for Federal, State & Other Taxes ________________________________________________ 58
Deferred Taxes __________________________________________________________________________ 59
Business Activities or “Nexus” Questionnaires ________________________________________________ 60
Other Concerns ___________________________________________________________________ 61
Insurance Claim Reporting _______________________________________________________________ 61
General Liability, Property and Business Interruption Insurance __________________________________ 61
Marine and Cargo Transport Insurance _____________________________________________________ 62
Petty Cash _____________________________________________________________________________ 64
Subsidiary Internal Control Reviews _______________________________________________________ 65
Government Reports Guidance ____________________________________________________________ 66
Export Compliance ______________________________________________________________________ 66
Confidentiality of Company Records, Financial and Operating Information _______________________ 67
Record Retention ________________________________________________________________________ 68
Section 4 - Binghamton and Corporate Office Policies _______________________________ 70
General Concerns _________________________________________________________________ 70
General Ledger Account Reconciliations ____________________________________________________ 70
General Ledger Transactions ______________________________________________________________ 70
Check Signing Controls __________________________________________________________________ 72
Inventory and Cost of Sales Concerns _________________________________________________ 72
Inventory Standard Costing and Full Absorption Methods _____________________________________ 72
Standard Cost Variances _________________________________________________________________ 73
Consignment Inventory __________________________________________________________________ 74
Product Development Reporting ___________________________________________________________ 74
Fixed Asset Concerns ______________________________________________________________ 75
Other Fixed Asset Matters ________________________________________________________________ 75
Income Tax Concerns ______________________________________________________________ 76
Extraterritorial Income Regime (ETI) Tax Credit _____________________________________________ 76
Research and Development Tax Credit Compliance ___________________________________________ 77
Expatriate Taxes ________________________________________________________________________ 80
Other Concerns ___________________________________________________________________ 81
Employee Business Expenses ______________________________________________________________ 81
Personal Employee Purchases _____________________________________________________________ 83
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Section 5 – Appendix of Exhibits _________________________________________________ 84
Exhibit 1 – Document Retention Policy ________________________________________________ 84
Exhibit 2 – Worldwide Chart of Accounts _____________________________________________ 87
Exhibit 3 – Fixed Asset Defaults _____________________________________________________ 88
Exhibit 4 – Marine Insurance Claims Procedures _______________________________________ 89
Exhibit 5 – Promissory Note _________________________________________________________ 99
Exhibit 6 – Security Agreement _____________________________________________________ 101
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Introduction
Universal Instruments operates a number of subsidiaries and autonomous business units that
generate their own financial results. The sum of the results of each subsidiary and business unit
are the consolidated results for the entire Company. This manual defines some of the policies and
procedures to be used when making accounting and finance decisions. In the absence of any
specific policy or procedure for a given financial situation, consideration should be given to local
statutory law, U.S. Generally Accepted Accounting Principles (GAAP) and/or the CFO at the
Corporate Office in Binghamton, New York. These policies and procedures should be read in
conjunction with the policies and procedures illustrated in the Quality Systems database contained
in Lotus Notes.
For the purposes of this document, Dover Corporation and its independent subsidiary, Dover
Technologies, will be referred to as “Dover” and Universal Instruments Corporation will be
referred to as “Universal”. “Corporate Office” will refer to Universal’s corporate offices in
Binghamton.
Section 1 - Description of Accounts
Purpose
The principal purpose of the uniform general ledger chart of accounts is to permit accurate
consolidation and comparison of the financial data throughout Universal Instruments and the
Dover organization. The Manager of Corporate Financial Services in Binghamton should approve
any deviations from the accounts listed in this general ledger chart of accounts.
Section 1 of this document has been designed to provide guidance on the contents of specific
general ledger accounts. Section 2 is presented to give additional guidance when certain
conditions apply. These conditions are company and country specific.
Other Sources of Reference
Section 3 – Financial Reporting Guidance
Exhibit 2 – Worldwide Chart of Accounts
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Balance Sheet
Cash
(Account Range 1000-1999)
These accounts should include cash in banks and petty cash. Overdrafts should be included here
as negative cash. On a monthly basis, all negative cash balances should be reclassified as accounts
payable. Each subsidiary shall maintain its own bank accounts for cash used in its operations, plus
separate payroll accounts as required.
Valuation: Cash is recorded at its stated value.
Other Sources of Reference
Section 2 - Cash
Section 3 - Petty Cash
Marketable Securities
(Account Range - none)
Only Dover and its wholly owned independent subsidiaries should have short-term investments in
marketable securities. Exceptions may occur in the case of non-U.S. Cash Concentration
Companies whereby excess cash will not be transferred to the United States. In such cases,
investments must be authorized in advance by Dover. It is Universal Instruments’ policy that no
subsidiaries hold short-term investments in marketable securities without prior consent from the
Corporate Office and Dover Corporation. If approved, any investments would likely be short-term
in nature and denominated in U.S. dollars.
Accounts and Notes Receivable
(Account Range 3000-3999)
Accounts Receivable
Include trade, intercompany, and other Dover affliate accounts and receivables from officers and
employees. The balance in each general ledger account should be supported by subsidiary
records.
Notes Receivable
Include short-term notes of trade customers and others. Long-term notes with terms in excess of
one year should be included in the Investments or Other Assets accounts. Subsidiary records
should support the general ledger total.
Allowance for Doubtful Accounts
Include provisions accumulated against estimated losses on accounts and notes.
Valuation: The allowance for doubtful accounts should include a reserve for any customer
balance that shows evidence of potential risk of non-payment. The balance of the trade
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receivables coupled with the allowance for doubtful accounts should state the net accounts
receivable balance at its anticipated realizable value.
Other Sources of Reference
Section 2 – Accounts Receivable
Section 3 – Credit Risk Management
Bad Debt Write-Off and Reserves
Billing & Invoicing
Inventory
(Account Range 4000-4999)
Include normal inventories, supplies and reserves for inventory adjustments. Inventory reserves
often represent temporary differences for tax purposes. The differences between book and tax
should be treated as deferred tax items.
Valuation: Inventory is to be valued at the lower of cost or market value.
Other Sources of Reference
Section 3 – Inventory Valuation
Physical Inventories
Section 4 – Inventory Standard Costing and Full Absorption Methods
Standard Cost Variances
Consignment Inventory
Prepaid Expenses
(Account Range 5000-5999)
Prepaid expenses occur when payment is made prior to incurring the expense. Generally, the
following items should be classified as prepaid expenses:




Prepaid Interest
Prepaid Insurance
Prepaid Taxes
Prepaid Rent
Only prepaid expenses amounting to $20,000 or more should be capitalized and amortized.
Amounts less than $20,000 should be expensed when paid, where locally acceptable.
Valuation: Prepaids are to be valued at cost, and amortized or expensed over a period not to
exceed one year from the date the asset was acquired.
Property, Plant & Equipment and Accumulated Depreciation
PP&E (Account Range 6000-9999)
Accumulated Depreciation (Account Range 10000-10999)
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Include the usual fixed assets, leasehold improvements and fixed assets under construction.
Subsidiary records should be maintained by class of asset.
Valuation: Assets should be recorded at their historical cost on the date acquired. Any additional
costs (shipping, freight, installation, etc.) to place that asset into service should be included in the
capitalized value. The assets should be depreciated (expensed) over the asset’s economic useful
life.
Other Sources of Reference
Section 2 – Long-Lived Asset Impairment
Property, Plant & Equipment and Accumulated Depreciation
Section 3 – Capitalization / Depreciation
Capitalization of Software Costs
Capital Equipment Authorization
Investments
(Account Range 11000-11999)
Only investments in Universal or Dover consolidated subsidiaries should be reflected in this
category. Investments in unconsolidated affiliates, long-term accounts and notes receivable from
customers and others not due within one year, should be included under Deferred Charges and
Other Assets. Notify the Corporate Office of any change in this account.
Advances Due from Affiliates
(Account Range 12000-12999)
Include advances of cash or credit to affiliated Universal or Dover companies on terms other than
normal trade terms, subject to the conditions described in Section 2. Advances Due from
Affiliates generally have a repayment term of less than one year.
Valuation: Advances are to be recorded at their historical cost. All Dover/Universal
intercompany balances must be confirmed monthly.
Other Sources of Reference
Section 2 – Advances Due from Affiliates
Notes Receivable from Affiliates
(Account Range 12000-12999)
Include loans of cash or credit to affiliated Universal or Dover companies on terms other than
normal trade terms, subject to the conditions described in Section 2. Notes Receivable from
Affiliates would have a repayment term of greater than one year.
Valuation: Notes receivable are to be recorded at their historical cost. All Dover/Universal
intercompany balances must be confirmed monthly.
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Other Sources of Reference
Section 2 – Notes Receivable from Affiliates
Intangible Assets
(Account Range 13000,13006,13014-13100)
Include capitalized cost of developing patents, purchase price of patents and all other amortizable
intangibles.
Valuation: Assets should be recorded at historical cost. All intangible assets should be amortized
over their useful life in an account separate from the gross asset cost.
Other Sources of Reference
Section 2 – Goodwill Amortization for U.S. Tax Purposes
Section 3 – Fixed Asset and Depreciation Concerns
Goodwill
(Account Range 13001-13005,13101-13199)
This classification is reserved for the excess of purchase cost over the fair value of the identifiable
assets.
Valuation: Assets should be recorded at historical cost. An impairment analysis will be
performed on a recurring basis by Dover and reviewed by DTI and Corporate. No goodwill
should be expensed until evidence of impairment exists.
Deferred Charges and Other Assets
(Account Range 14000-14999)
Include investments in unconsolidated affiliates. Deferred charges should include only those costs
that arise from the Company's financial transactions and certain other actions, which are properly
chargeable to the earnings of future periods. These costs include bond discounts, expenses
incurred in obtaining long-term financing and cost of moving a company from one location to
another. These costs do not occur frequently. The Corporate Office should be consulted before
any significant expenditure is classified as a deferred charge. These accounts should also include
miscellaneous investments, accounts and notes receivable not due within one year, and other
assets.
Deferred tax assets should not be shown here; they should be classified as a negative liability.
Valuation: Deferred charges and other assets are recorded at their historical cost.
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Notes Payable
(Account Range 20000-20999)
A note payable is a loan to the Company supported by a written promissory note. The repayment
terms will include interest and the term of the note can not to exceed one year.
Valuation: All liabilities are to be recorded at their historical cost.
Other Sources of Reference
Section 2 – Notes Payable
Accounts Payable
(Account Range 22000-22999)
Include trade accounts payable and amounts withheld from employees. Subsidiary records should
be maintained in support of each general ledger account. Trade Notes Payable, which are not
intercompany in nature, should be classified under Accounts Payable.
Valuation: All liabilities are to be recorded at their historical cost.
Other Sources of Reference
Section 3 – Check Request Authorization
Employee Business Expense Reporting
Section 4 – Employee Business Expenses
Accrued Compensation & Employee Benefits
(Account Range 23000-23999)
Include all accrued salaries, bonuses and employment related expenses (e.g. Federal and state
taxes withheld and not yet paid, 401K withholding, performance program, accrued vacation, etc.).
Include accrued commissions here. The current portion of deferred compensation agreements
should be included.
Valuation: All liabilities are to be recorded at their historical cost or a reasonable estimate when
the historical cost is unknown.
Other Sources of Reference
Section 3 – Blank Check Stock Guidance
Payroll Processing
Accrued Insurance
(Account Range 23000-23999)
Include all accrued insurance expenses (e.g. health, life, supplemental life, general liability, auto,
worker's compensation, etc.).
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Valuation: All liabilities are to be recorded at their historical cost or a reasonable estimate when
the actual historical cost is unknown.
Other Accrued Expenses
(Account Range 23000-23999)
Include all other accrued expenses here. In addition to normal accruals, this classification should
include audit and legal fees and a reserve for contingencies. However, the Corporate Office
should approve the establishment of all contingency reserves.
Valuation: All liabilities are to be recorded at their historical cost or a reasonable estimate when
the actual historical cost is unknown.
Federal and Other Taxes on Income
(Account Range 25000-25999)
This refers to Federal, foreign, state and local income taxes and applicable tax credits as provided
under local tax law. The accrual of taxes, other than those based on or measured by income,
should be included in Accrued Expenses.
Valuation: All liabilities are to be recorded at their historical cost or a reasonable estimate.
Other Sources of Reference
Section 3 – Accounting for Federal, State & Other Taxes
Section 4 – Research and Development Tax Credit Compliance
Long-term Debt
(Account Range - none)
Universal’s sole borrowing source is Dover; therefore, no long-term debt should exist or be
recorded.
Valuation: All liabilities are to be recorded at their historical cost.
Advances Due to Affiliates
(Account Range 26000-26999)
Include advances of cash or credit to affiliated Dover companies on terms other than normal trade
terms, subject to the terms and conditions in Section 2. Advances due to affiliates would generally
have a repayment term of less than one year.
Valuation: Advances are to be recorded at their historical cost. All Dover/Universal
intercompany balances must be confirmed monthly.
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Other Sources of Reference
Section 2 – Advances Due to Affiliates
Notes Payable to Affiliates
(Account Range 26000-26999)
Include loans of cash or credit from affiliated Dover companies on terms other than normal trade
terms, subject to the conditions described in Section 2. Notes payable to affiliates would have a
repayment term of greater than one year.
Valuation: Notes receivable are to be recorded at their historical cost. All Dover/Universal
intercompany balances must be confirmed monthly.
Other Sources of Reference
Section 2 – Notes Payable to Affiliates
Deferred Taxes
(Account Range 27000-27999)
All deferred tax liabilities net of deferred tax assets should be reported here even if the balance is a
debit (deferred tax asset).
Valuation: All liabilities are to be recorded at their historical cost or a reasonable estimate.
Other Sources of Reference
Section 3 – Deferred Taxes
Deferred Compensation
(Account Range 28000-28999)
Include the long-term portion of deferred compensation. These amounts should be reported
throughout the year, not only at year-end. Income deferred in excess of one year should also be
included here.
Valuation: All liabilities are to be recorded at their historical cost or a reasonable estimate.
Minority Interest
(Account Range - none)
Include the applicable percentage of equity owed to minority owners. This account should also
include the minority owner’s share of other income. Generally, this classification will not apply to
Universal or its subsidiaries.
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Other Non-Current Liabilities
(Account Range 28800)
Include all long-term portions of current liabilities and any other liabilities expected to be paid in a
period longer than twelve months from the most recent balance sheet date.
Valuation: All liabilities are to be recorded at their historical cost or a reasonable estimate thereof.
Equity Accounts
(Account Range 29000-31999)
Include Capital Stock, Additional Paid in Capital, Currency Translation Account and Retained
Earnings.
No adjustments should be made to the “Capital Stock”, “Add’l Paid in Capital”, or “Retained
Earnings” account balance without prior approval from the CFO.
Valuation: All equity accounts are valued at historical cost/stated value.
Income Statement
Sales
Gross Sales – Trade & Intercompany
(Account Range 300000, 300005, 300010, 300015)
Revenue is generally recognized and earned when all of the following circumstances are satisfied:
1.
2.
3.
4.
Persuasive evidence of an arrangement exists;
The price is fixed and determinable;
Collectibility is reasonably assured; and
Delivery has occurred or services have been rendered.
Generally, a sale of goods should only be recognized at the point where title to the goods passes to
the customer. For Universal, this generally occurs upon shipment from a Universal dock or
delivery to a customer-designated location. This condition is generally dictated by International
Commercial (INCO) terms on the sales transaction. However, in some cases performance and
contract clauses relating to customer acceptance can delay revenue recognition. Pre-production
machines and those engineered for special applications fall into this category. In these situations,
revenue should be recognized only after customer acceptance occurs. Illustrated below is the
revenue impact (if any) for various machines in the development life cycle as well as other types
of revenue generated by Universal.
Product Development Beta Machines
Universal consigns newly developed (beta) machines or machines with additional features to
customers for use in their facility. The goal of this program is to gather “real world” performance
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(test) data and customer feedback from these machines. The data gathered is used to further
advance the development of the machine and its features. Title of the goods remains with
Universal during the beta test period. At the end of the period, the machines are either sold to the
customer or removed from their facility and returned to the Product Development department. If
the customer intends to purchase the machine, they already have possession of the goods and are
fully aware of the equipment’s technical capabilities, therefore the delivery and performance
clauses of the sale contract have been satisfied. Title of the machine and revenue recognition
occurs upon acceptance of the customer’s purchase order and issuance of the customer invoice.
Preproduction Machines
Preproduction machines are generally the first five or ten machines produced during the initial
production. The machines are built with the intent to sell directly to a customer. Generally they
involve a new platform, a new head or another option which significantly changes or enhances
machine functionality. It is assumed the customer is purchasing this new product because of the
performance derived from the new feature and its ability to satisfy their specific application. As
this is a new product, the reliability and predictability of the machine’s technical and operational
capabilities is not known or supported by extensive previous experience in an assembly
environment. The lack of previous experience in an assembly environment would suggest that
customer acceptance is not assured at the time of shipment, therefore revenue should not be
recognized until it is clear that acceptance has occurred.
Items to consider when determining if the customer has accepted the machine includes customer
feedback, the timing between shipment and receipt of the signed customer acceptance form and
the timing between shipment and payment. Repeat orders of the same machine by a customer may
be evidence of customer acceptance, while frequent visits by field service engineers to repair
machines would not suggest customer acceptance. It is the responsibility of the product team,
business unit controller and corporate finance to evaluate the evidence supporting revenue
recognition, make a determination of the timing associated with recognizing revenue on these first
few machines and determine the number of machines that are subjected to individual review. In
some cases, evaluating the first five may be appropriate while in others evaluating the first twenty
five may be necessary. Title of the machine and revenue recognition occurs after it is determined
that the machine is producing predictable results within the promised technical parameters in an
assembly environment.
Machine and Spare Parts Revenue
Sale of a mature machine or spare part is recognized at the point where title to the goods passes to
the customer, generally upon shipment from a Universal dock or delivery to a customer-designated
location. Passage of title is dictated by INCO terms governing the transaction. Revenue
recognition for a machine engineered for special applications can be delayed if the contract has
performance and contract clauses that relate to customer acceptance which can’t be satisfied at
Universal’s facility prior to shipment.
Consignment Machines
In certain cases, Universal will consign (loan) machines or parts to customers for use in their
facility. Generally, customers will have use of the equipment for up to 90 days at no cost to them
upon execution of a consignment agreement. Title of the goods remains with Universal during the
consignment period. The goal of this program is to introduce customers to the technical
capabilities of the machine and its adaptability and functionality in their operating environment.
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At the end of the consignment period, the machines are either sold to the customer or removed
from their facility and returned to stock. If the customer intends to purchase the machine, they
already have possession of the goods and are fully aware of the equipment’s technical capabilities,
therefore the delivery and performance clauses of the sale contract have been satisfied. Title of
the machine and revenue recognition occurs upon acceptance of the customer’s purchase order and
issuance of the customer invoice.
Rental, Service and Long-Term Contract Revenue
Revenue earned over a period of time should be recorded over the term of the contract. This may
apply to a rental or service invoice where the invoice is recorded at the beginning of the contract
period but the service is delivered over a number of months. In this case, the sale will be
recognized over the period of the contract in equal proportions or in another suitable manner that
corresponds to the amount of services being provided. On long-term contracts, a sale should only
be recognized at the point where it has been earned.
In both circumstances, unrecognized revenue should be recorded as Deferred Revenue on the
balance sheet until such time the circumstances dictate that sufficient evidence exists to record a
portion/all of the contract as revenue in the profit and loss statement.
On Demand Training or Service Revenue
Revenue derived from the performance of on-demand services or training should be recognized
only after all contract conditions have been satisfied. This does not preclude Universal from
recognizing revenue as it is earned (as service or training is provided).
Freight Revenue
All shipping and handling fees charged to customers are included as revenue without deducting
any related costs. All related costs should be classified as cost of goods sold.
Executive Summary
Revenue Type
Revenue Recognition Trigger
Product Development Beta Machines
Title passage, acceptance of a valid
customer purchase order
Preproduction Machines
Customer acceptance, evaluated by various
evidence including, timing between shipment,
receipt of acceptance certificate and payment,
customer feedback, field engineering
involvement and repeat orders.
Machine and Spare Parts Revenue
Title passage, generally upon shipment,
assumes customer acceptance is assured
or occurred at Universal facility
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Consignment Machines
Title passage, acceptance of a valid
customer purchase order
Rental, Service and Long-Term
Contract Revenue
As rent, service or other long-term contract
revenue is earned due to the passage of
time or performance of other contract
milestones
On Demand Training or Service
Revenue
Upon completion of training or service
Freight Revenue
Upon shipment, as costs are incurred
Other Sources of Reference
Section 2 – Revenue Recognition - A Review of SAB 101
Sales Shipped in Place
Other Creative Discounts and Financing Arrangements
Sales With Recourse
Adjustments to Sales
(Account Ranges 300001-300004, 300006-300009, 300011-300014, and 300016-300020)
Include cash discounts allowed, sales returns, allowances and other adjustments to both trade and
intercompany sales.
Other Sources of Reference
Section 2 – Other Creative Discounts and Financing Arrangements
Cost of Sales
(Account Range 400000–459999)
Include cost of products sold, manufacturing variances, cash discounts taken and scrap sales.
The Financial Manager or Business Unit Controller must ensure that the cost of sales correctly
matches sales recorded during the accounting period. If in doubt, the Financial Manager or
Business Unit Controller is urged to be conservative and to record all expenses estimated to be
appropriate given the circumstances. This could be done by recording an accrual that may or may
not be subsequently released, depending on future events.
Sales, General and Administrative Expenses
(Account Range 701112-709999)
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Proper care should be taken to ensure that the correct department is charged for any business
expenses incurred by that department. Expenses should be recorded in the period in which they
occur. The expenses shall be categorized into appropriate classifications so that analysis of
Company costs/spending can be properly made. When necessary, accruals should be recorded to
ensure that these expenses properly reflect all the financial transactions of the Company. For
example, bonus accruals should be recorded on a monthly basis in equal amounts (if possible) to
permit an even distribution of expenses over the period in which the bonus is generated.
Interest Expense
(Account Range 500000, 500010, 500013, 500015-500016)
Expenses related to borrowing cash should be recorded in this category.
Interest Income
(Account Range 500001, 500011, 500014)
Income derived from loaning cash should be recorded in this category.
Loss on Goodwill Impairment
(Account Range-None)
When goodwill is considered impaired, it should be immediately expensed.
Other Sources of Reference
Section 2 – Long-Lived Asset Impairment
Gain (Loss) on Fixed Asset
(Account Range 500002, 500020-500023)
Gains or losses associated with the sale or disposal of a fixed asset. The amount represents the
difference between the amount received at sale or disposal less the net book value (gross value less
accumulated depreciation).
Foreign Exchange Gain (Loss)
(Account Range 500006, 500008, 500024-500026, 500030, 500031, 500999)
Include gains or losses that have actually been realized on foreign exchange transactions and
unrealized gains and losses on the revaluation of receivables and payables denominated in a
currency other the Company’s functional currency. Do not report translation gains or losses. Note
that gains/losses on foreign exchange contracts are properly recorded as part of the cost of the
underlying transaction and should not be reported here.
Other Sources of Reference
Section 2 –Foreign Exchange Gains and Losses
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Other Income
(Account Range – various)
Include income arising from transactions not resulting from day-to-day operations such as
intercompany management fees, and miscellaneous items.
Other Expense
(Account Range – various)
Similar to Other Income. Include such expenses as intercompany management fees, minority
owner’s share of net income and miscellaneous items.
Federal and Other Taxes on Income
(Account Range 600000-600999)
Federal, state and foreign income taxes are to be recorded separately. Credits against Federal
taxes (R&D) should be recorded separately, as designated by the Corporate Office and Dover.
Other Sources of Reference
Section 2 – Income Tax Rates
Section 4 – Research and Development Tax Credit Compliance
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Section 2- Specific Account Guidance
Balance Sheet
Cash
Cash Concentration Companies
Dover no longer intends to repatriate all excess cash generated by its overseas operations back to
the United States. Rather, some excess cash will be retained and invested at certain designated
Cash Concentration Companies (“CCC’s”) in those non-U.S. jurisdictions as may be necessary or
appropriate to support Dover’s global business operations. In general, it is anticipated that each
CCC will be operated on an individual country basis, although there may be situations where such
arrangements will operate within a larger common political area.
Each CCC has a chief financial officer responsible for the operation of the common cash
management system, including any borrowings and investments.
Cash transfers will be made between a CCC and those operating entities which share a common
legal ownership structure. That is, cash will be transferred to the common parent CCC and cash
needs will be met by the CCC for that particular group. The following legal entities, and their
related areas of involvement, are designated as Dover’s CCC’s (at present):

Dover UK Holdings Limited - most United Kingdom operating companies.

Dover Europe GmbH - most German operating companies.

Dover Corporation Canada (Holdings) Ltd. - most Canadian operating companies.

Dover France Holdings SARL – most French operating companies.

Dover Brazil – most Brazilian operating companies.

Dover Asia – most Asian operating companies.
In-country advances between the CCC parent and its legal entities need not be interest bearing
unless required by local tax law. All cross-border advances to other Dover entities must be
interest bearing.
Other Cash Considerations
It is the policy of the Company to attain optimum utilization of cash. In other words, the
Company's net cash position should be that which achieves the highest possible after tax return
within the guidelines established by the Board of Directors.
The financial manager at each foreign sales office or subsidiary CFO should establish a bank
relationship that best suits the subsidiary’s needs at the lowest cost. Services may be compensated
directly. Otherwise, adequate balances should be maintained at banks sufficient to compensate for
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the services provided by the bank. Bank fees paid in lieu of compensating balances should be
classified as interest expense. Bank accounts may not established until the CFO, Manager of
Treasury Operations and the Board of Directors has passed a resolution authorizing it.
Within the limits imposed by the need to maintain compensating and/or minimum balances,
excess funds should be transferred to the CCC or the Corporate Office (tax consequences
permitting) even though the excess may exist for only a short period.
All cash transfers between the Corporate Office and its subsidiaries should be by wire service,
either through the Federal Reserve (Federal Funds) or the bank's wire system, in order to make
funds available on a same-day basis.
Subsidiaries may not borrow funds (short or long) without specific authorization from the
Corporate Office.
To facilitate the borrowing and/or investing of funds, subsidiaries should apprise the Corporate
Office of anticipated significant needs or surpluses. Cash forecasts should be submitted to the
Corporate Office monthly.
Accounts Receivable
Intercompany Accounts Receivable from Affiliates denominated in currencies other than the local
currency should be revalued in the local currency, with the resulting exchange gains and losses
credited or charged to the profit and loss statement (P&L).
Employee Loans and Advances
Prior approval from the Corporate Office is required for the following loans or advances:

To any Corporate Officer.

To other employees in the amount of $5,000 or more (routine travel advances are exempt)

To non-employees of Dover.
The VP of Finance and the President of Universal Instruments must approve all employee loans.
In addition, aggregate loans to employees may not exceed $175,000 for Universal Instruments and
its subsidiaries without prior approval from Dover.
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Advances Due from Affiliates
Advances of cash or credit between subsidiaries and non-U.S. companies must be supported by
interest bearing notes or a revolving credit agreement. A suggested note format is illustrated
below.
Prior to using this account, you should review the tax laws of all applicable jurisdictions (U.S.,
country, state, etc.) with the Corporate Office. In addition, where the advances are across country
borders, you should review the currency of denomination (generally U.S. dollars) and the duration
and nature of the advance with the Corporate Office. Generally, items that give rise to adverse tax
situations or are long-term and capital in nature are classified as Notes Payable from Affiliates.
Items that are short-term or long-term but not capital in nature are classified as Advances Due
from Affiliates.
Intercompany Advances Due from Affiliates denominated in currencies other than the local
currency should be revalued in the local currency, with the resulting exchange gains and losses
credited or charged to the P&L.
On occasion the company is requested to convert a trade receivable to an interest bearing
promissory note. In the US, when that is the case, the following documents should be executed:
Exhibit 5 – Promissory Note and Exhibit 6 – Security Agreement.
Notes Receivable from Affiliates
Generally, items are classified as Notes after reviewing the tax laws of all applicable jurisdictions
(U.S., country, state, etc.) with the Corporate Office. In addition, in situations where the advances
are across country borders, the review with the Corporate Office will generally have determined
that these advances are long-term and capital in nature.
Advances of cash or credit classified as Notes Receivable from Affiliates must be supported by
interest bearing notes or revolving credit agreements. A suggested note format is illustrated
above.
Since all Notes Receivable from Affiliates are considered long-term and capital in nature, notes
denominated in currencies other than the local currency should be revalued in the local currency,
with the resulting exchange gains and losses credited or charged to the balance sheet in the Equity
Adjustment–Currency Translation account.
The notes should be denominated in the currency that gives rise to the most favorable tax
treatment. Most notes, therefore, would be denominated in non-U.S. currency since the U.S. does
not tax the currency gains and losses until the note is repaid, whereas many non-U.S. taxing
jurisdictions tax the currency gains and losses as they occur.
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Property, Plant & Equipment and Accumulated Depreciation
Depreciation
Effective January 1, 1981 with the enactment of the Economic Recovery Tax Act (ERTA) of
1981, a new tax depreciation system was adopted in the United States.
Historical Background -- Prior to 1981, Universal's financial accounting, or book depreciation, and
tax depreciation were synonymous. Moreover, our policy had been to maximize cash flow by
using rapid depreciation methods coupled with minimum allowable asset lives. (This continues to
be our policy in those countries outside the United States where financial accounting depreciation
and tax depreciation are the same). Effective January 1, 1981, ERTA introduced Accelerated Cost
Recovery System (ACRS) for tax purposes.
Under ERTA, the ACRS method for tax depreciation provides a less complicated and somewhat
quicker method of depreciation than the various tax depreciation systems it replaced. ACRS was
significantly revised by the Tax Reform Act of 1986 which is effective for tax years beginning
after 1986. Modified ACRS (MACRS) is similar to ACRS but has somewhat longer class lives.
Since ACRS and MACRS are not considered acceptable under Generally Accepted Accounting
Principles, our financial accounting depreciation policy remains unchanged. In summary, we
continue to have two separate systems in the United States for determining depreciation:
Estimated useful lives for book purposes and ADR for tax purposes.
Accumulated Depreciation
The double declining balance method of depreciation should be applied to all new fixed assets
other than buildings. The 150% declining balance method should be applied to all previously
owned fixed assets other than buildings. New buildings should be depreciated using the 150%
declining balance method. Previously owned buildings should be depreciated using the straightline method. Salvage value of 10% or less may be ignored. That is, only the excess (if any) of
estimated salvage value over 10% should be deducted from the cost of the asset in computing
depreciation. The declining balance method should be changed to the straight-line method during
the year in which such a change produces increased depreciation.
Research & Development property and semiconductor equipment are eligible for the 5-year, 200%
declining-balance method.
New Plants and Expansion
With new plant construction and expansions of existing plants, Dover’s procedure is to separately
identify all building construction eligible for faster depreciation as 7-year or 5-year properties.
The most effective way to identify these items and their related costs is to direct the contractor to
itemize the allocations.
Fully Depreciated Fixed Assets
As long as an asset is in use, although fully depreciated, the original cost and the accumulated
depreciation should remain in the respective general ledger control accounts and should not be
written off.
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Fixed Asset Disposals
The Corporate Office and Dover should be notified in advance if losses on planned dispositions
will exceed $100,000.
Goodwill Amortization for U.S. Tax Purposes
The Revenue Reconciliation Act of 1993 added Sec. 197 to the Internal Revenue Code.
Effective for intangible property acquired in applicable acquisitions after August 10, 1993, tax
amortization of all intangibles, including goodwill, will be permitted over a 15-year life using the
straight-line method. A full month’s amortization in the month of acquisition is also permitted for
tax purposes.
When acquiring a U.S. trade or business, applicable types of acquisition include the following:



Asset Acquisitions
Stock Acquisitions where Universal elects to write-up the acquired assets for tax purposes
(rarely done).
Certain intangibles in stock acquisition where we elect not to write up the assets for tax
purposes (protective carryover election). For example, if we buy patents directly from the
individual shareholders or have covenants not to compete with employees or shareholders, we
can amortize these items over 15 years for tax purposes.
Notes Payable
Subsidiaries of Universal are not permitted to borrow from banks without specific authorization
from the Corporate Office, Dover Technologies and Dover Corporation. Existing short-term bank
borrowings (e.g. those of a new acquisition) should be included under this caption.
Advances Due to Affiliates
Advances of cash or credit between U.S. Operating Companies or Independent Subsidiaries and
non-U.S. Operating Companies must be supported by interest bearing notes or revolving credit
agreement. A suggested note format is illustrated above in the Advances Due from Affiliates
section.
Prior to using this account, you should review the tax laws of all applicable jurisdictions (U.S.,
Country, State, etc.) with the Corporate Office. In addition, where the advances are across country
borders, you should review the currency of denomination (generally U.S. dollars) and the duration
and nature of the advance with the Corporate Office. Generally, items that give rise to adverse tax
situations or are long-term and capital in nature are classified as Notes Payable to Affiliates. Items
that are short-term or long-term but not capital in nature are classified as Advances Due to
Affiliates.
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Intercompany Advances Due to Affiliates denominated in currencies other than the local currency
should be revalued in the local currency, with the resulting exchange gains and losses credited or
charged to the P&L.
Notes Payable to Affiliates
Generally, items are classified as Notes after reviewing the tax laws of all applicable jurisdictions
(U.S., country, state, etc.) with the Corporate Office. In addition, in situations where the advances
are across country borders, the review with the Corporate Office will have determined that these
advances are long-term and capital in nature.
Since all Notes Payable to Affiliates are considered long-term and capital in nature, notes
denominated in currencies other than the local currency should be revalued in the local currency,
with the resulting exchange gains and losses credited or charged to the Equity Adjustment –
Currency Translation Account in the balance sheet.
The notes should be denominated in the currency that gives rise to the most favorable tax
treatment. Most notes, therefore, would be denominated in non-U.S. currency since the U.S. does
not tax the currency gains and losses until the note is repaid, whereas many non-U.S. taxing
jurisdictions tax the currency gains and losses as they occur.
Advances of cash or credit classified as Notes Payable to Affiliates must be supported by interest
bearing notes or revolving credit agreements. A suggested note format is illustrated above in the
Advances Due from Affiliates section.
Income Statement
Revenue Recognition - A Review of SAB 101
The prevailing guidance in the United States on the recognition of revenue was issued by the SEC
in its Staff Accounting Bulletin (SAB) 101 in 2000. SAB 101 was issued to clarify existing
guidance and to prevent companies from engaging in earnings management. One of the most
common earnings management tools is reporting revenue before the sales transaction has occurred
or before the seller has performed under the terms of a sales contract.
There are four specific components of revenue recognition that SAB 101 addresses.
It is the position of the accounting community that revenue can only be recorded when all of the
following criteria have been met:




Section 2
Persuasive evidence of an arrangement exists,
The seller’s price to the buyer is fixed or determinable,
Collectibility is reasonably assured, and
Delivery has occurred or services have been rendered.
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Below is a discussion of the four criteria as it relates to Universal’s operating activities:
1.
Persuasive evidence of an arrangement exists – Universal meets this requirement several
times through the order process. For every machine order, a quote is generated and sent to
the customer. The quote contains pricing, terms, and delivery estimates, etc. The customer
then sends a purchase order that references Universal’s quote. The purchase order is then
entered as a booking. Each purchase order is acknowledged with an “Order
Acknowledgement” letter and an “Order Confirmation” letter drafted on our terms and
conditions letterhead. These letters reference the quote, confirm pricing, estimate delivery
and outline other important terms related to the sale.
2.
The seller’s price is fixed or determinable – This requirement is satisfied through the
process outlined above. The price of the machine is outlined in the initial quote and
confirmed through the “Order Acknowledgement/ Confirmation” sent to the customer after
the order has been placed.
3.
Collectibility is reasonably assured – This requirement is satisfied through Universal’s
credit policy. There are three different tiers of credit a customer can have. The highest
level is unlimited, the next level is greater than 1 million dollars but not unlimited, and the
lower level is a credit line less than 1 million dollars. Each customer’s credit is reviewed
periodically. SAP can systematically put a credit hold on a customer for several reasons:
Long outstanding invoices, exceeding their credit limit, or an overdue credit review. When
a customer has a credit hold on their account, no additional deliveries of machines, parts or
services can be made until the credit hold has been lifted. If Universal cannot or will not
issue credit, we may require the customer to obtain a letter of credit from a bank to
guarantee payment for the goods. This credit policy is embedded into SAP and is an
integral part of the sales order process.
4.
Delivery has occurred or services have been rendered – There are two important
components of delivery related to SAB 101: “Title” and “Customer Acceptance”.
Title - The transfer of title is an important component of delivery. Universal sells its
equipment to customers throughout the world. The transfer of goods to the customer
occurs through various methods of shipment, and title can transfer from the seller to the
buyer at different points during shipment. Risk of Loss is a key factor when determining
title transfer from the buyer to the seller. INCO terms (International Commercial terms)
issued by the International Chamber of Commerce govern the risks and responsibilities of
both the buyer and the seller for goods in transit. Different INCO terms outline different
points during transit where risk of loss passes. To ensure compliance with SAB 101,
Universal Binghamton performs a manual process quarterly to identify all sales where the
goods are in transit and where the risk of loss (title) remained with Universal. We exclude
all significant sale transactions to accurately reflect revenue in accordance with SAB 101.
Customer Acceptance – Another important component of delivery is customer acceptance.
SAB 101 prohibits recording revenue until the customer accepts the goods (i.e. the goods
satisfy the customer requirement as outlined in the sales contract). All Universal machines
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are built and tested to engineering and other technical specifications. As part of our quality
process, each machine is tested to ensure that performance meets the minimum standards
for placement speed and accuracy outlined by the technical specifications. Machines are
not shipped to customers unless they meet those standards. As a machine model matures
in its production life cycle, less testing is required to ensure that machines meet the
technical specifications. An older machine model may be tested for twenty hours where a
new model (beta/pre-production) may be tested for well over a hundred hours. Customers
are invited to Binghamton to participate in the quality testing of the machines. Not all
customers participate in this process, but those who do are able to test the machine’s
performance based on the customer’s intended use.
Acceptance – Standard Mature products
The majority of Universal machines are sold based on the standard technical specifications.
Our position is that revenue recognition will not be held up for an actual customer
acceptance once the machine is installed in the customer facility because that step is
perfunctory. We record revenue when title passes because we extensively test each
machine to meet the customer acceptance criteria before it leaves the factory and because
historical evidence supports that what we promise, from a technical standpoint, is
consistent with the capabilities of the machine.
Acceptance - New Products and Machine Models
Pre-production machines are generally the first machines produced during the initial
production. Customers purchase these new products because of the performance derived
from a new platform, a new head or another option that significantly changes or enhances
machine functionality. As this is a new product, the reliability and predictability of the
machine’s technical and operational capabilities is not known or supported by extensive
previous experience in an assembly environment. The lack of previous experience in an
assembly environment would suggest that customer acceptance is not assured at the time of
shipment, therefore revenue is not recognized until acceptance has occurred.
Items considered when determining if acceptance has occurred include: Customer
feedback, the timing between shipment and receipt of the signed customer acceptance form
and the timing between shipment and payment. The product team, business unit controller,
and corporate finance evaluate the evidence supporting revenue recognition and determine
the number of machines that are subjected to individual review. In some cases, evaluating
the first five may be appropriate while in others evaluating the first twenty five may be
necessary. Title of the machine and revenue recognition occurs after it is determined that
the machine is producing predictable results within the promised technical parameters in an
assembly environment.
Acceptance – Customer Requires Enhanced Performance
In rare cases, customers request performance in the sales contract that exceeds the standard
technical specifications. Universal will test the machine to the higher standard before it is
shipped to the customer. If it does not meet those standard specifications, the customer
must sign a waiver that acknowledges their understanding that they are purchasing a
machine that did not meet their original specification. Note that before we accept a
contract with the higher performance standard, we generally know that the performance
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can be achieved. Similar to a mature product, Universal records revenue when title passes
because the machine has been extensively tested to meet the customer specification before
it leaves the factory.
Sales Shipped in Place
The Securities and Exchange Commission (SEC) continues to devote substantial attention to Ship
in Place, sometimes referred to as “bill and hold” transactions. Their views concerning revenue
recognition with respect to these transactions are highlighted as follows:
1. The risk of ownership must have passed to the buyer;
2. The customer must have a fixed commitment to purchase the goods, preferably reflected in
written documentation;
3. The buyer, not the seller, must request in writing the transaction be on a bill and hold basis.
The buyer must have a substantial business purpose for ordering the goods on a bill and hold
basis;
4. There must be a fixed schedule for delivery of the goods. The date of delivery must be
reasonable and must be consistent with the buyer’s business purposes (e.g. storage periods are
customary in the industry);
5. The seller must not have retained any specific performance obligations such that the earnings
process is not complete;
6. The ordered goods must have been segregated from the seller’s inventory and not subject to
being used to fill other orders ; and
7. The equipment must be complete and ready for shipment.
Additionally, the following factors should also be considered:
1. The date by which the seller expects payment, and whether it has modified its normal billing
and credit terms for this buyer;
2. The seller’s past experience with and pattern of bill and hold transactions;
3. Whether the buyer has the expected risk of loss in the event of a decline in the market value of
the goods;
4. Whether the seller’s custodial risks are insurable and insured;
5. Whether extended procedures are necessary in order to assure that there are no exceptions to
the buyer’s commitment to accept and pay for the goods sold; i.e. that the business reasons for
the bill and hold have not introduced a contingency to the buyer’s commitment.
When a bill and hold transaction is evident, a written agreement from the customer that addresses
the factors outlined by the SEC is required. Additionally, the facts and circumstances associated
with the seller’s responsibilities should support revenue recognition. If one or both factors are not
addressed, a sale should not be recorded until the items are shipped to the customer or other facts
and circumstances exist that suggest that the earnings process is complete.
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Buybacks and Trade-ins
There are a number of accounting pronouncements that concern revenue and expense recognition
relating to buybacks and trade-ins of equipment. Generally, the implications of these
pronouncements are unfavorable to timely recognition of revenue and expense. Consequently, the
CFO should be notified and approve all sales contracts that include the buyback of customer
equipment without a customer trade-in and any contracts that contain a guaranteed repurchase
option.
A guaranteed repurchase option exists when Universal commits to repurchase equipment in the
future, at a price other than a mutually agreeable fair value. Items subject to a guaranteed
repurchase option require periodic analysis for the existence of a liability equal to the difference
between the guaranteed repurchase price and the anticipated fair market value at the time of
repurchase. The corresponding expense should be charged to cost of sales in the period in which it
is identified.
On occasion, trade-ins are permitted in which the trade-in discount provided exceeds the fair value
of the equipment received. As this transaction actually represents a sale inducement, a discount
should be recognized and net sales reduced by the amount the discount exceeds the equipment’s
fair value. For example, if a customer is provided a trade-in allowance of $80,000 for equipment
worth $50,000, a discount should be recorded for $30,000 and the equipment should be capitalized
into inventory at its fair value.
Other Creative Discounts and Financing Arrangements
Competitive pressures often require sales engineers to explore various creative discount methods
and financing arrangements. The CFO should be notified and approve all sales contracts that
include discounts and financing arrangements that are non-standard. As with all sales contracts,
the substance of the transactions should be considered when recording the financial impact not just
the “form”.
Sales With Recourse
Universal generally doesn’t accept sales to a customer that permit future recourse via co-signing a
bank loan or other forms of financing. These transactions may expose Universal to a significant
level of future exposure. Before any sale with recourse is considered, conversations and approvals
with the CFO, VP of Sales and the President are required. If accepted, the development of a
procedure to monitor the ongoing activities of the customer is required. The adequacy of these
procedures requires review with the Manager of Corporate Financial Services and the CFO.
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Customer Rebates
Rebates contingent upon the volume of purchases should be accrued over the period the rebate is
earned. The accrual should be based upon a reasonable estimate of anticipated purchases.
Accordingly, a liability should be established and the respective discount should be charged to
sales discounts as a reduction in net sales.
Long-Lived Asset Impairment
Long-lived assets should be tested for impairment whenever circumstances indicate that the
carrying value of the assets may not be recoverable. All long-lived assets classified as Held for
Sale must be tested for impairment once the criteria outlined below have been met. Impairment
losses for assets or Asset Groups categorized as Held for Sale and qualifying for discontinued
operations treatment should be recognized below operating income in discontinued operations on
the Income Statement.
Qualifying Held for Sale assets are segmented on the balance sheet and are not depreciated. The
criteria for determining when long-lived assets qualify for Held for Sale treatment along with the
procedures required to test, measure and present potential impairments are outlined below.
Held for Sale Criteria & Considerations
1) Management must determine if long-lived assets or asset groups qualify as Held for Sale based
on the following criteria:
a) Management must commit to a plan to dispose of, abandon or sell the long-lived assets.
b) The assets must be immediately available for sale to a purchaser (no significant
contingencies in place prior to sale).
c) Management must engage in an active sales program to find a buyer.
d) The asset sale must be completed within one year (with some exceptions).
e) The assets must be actively marketed at or around Fair Value.
f) The plan of sale must be likely to happen.
2) Held for Sale long-lived assets are not depreciated and must be separately identifiable on the
balance sheet or in the notes to the financial statements.
3) The remaining useful life of an asset group is determined based on the remaining useful life of
the primary asset of the group. This is relevant for assets qualified as Held and Used or when
a plan to sell an asset Held for Sale fails. In both cases, the remaining useful life of the
primary asset becomes the life of the entire asset group for continued depreciation.
4) If a plan to sell a Held for Sale asset fails, the asset should be reclassified as Held and Used
and the carrying value should be adjusted to the lower of the a) asset carrying value less
previously unrecognized depreciation or b) currently-determined fair value.
Impairment Testing, Measurement and Presentation
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Testing
1) Once a long-lived asset qualifies as Held for Sale, it must be immediately tested for
impairment.
2) Both long-lived asset categories, Held for Sale and Held and Used, must be tested for
impairment when management has determined that new market circumstances indicate that the
carrying value of the asset may not be recoverable.
3) The carrying amount is not recoverable when the net cash flows expected to be generated from
the use of the asset over its life (undiscounted and without interest charges) are less than the
carrying value (Recoverability Test).
4) Goodwill that is a component of a long-lived asset group is subject to the following treatment:
a) If goodwill is a part of an asset group that is defined as a reporting unit, then goodwill and
other intangibles not being amortized are tested for impairment.
b) All other identifiable goodwill that is a part of a long-lived asset group at a level of
distinction lower than the reporting unit should not be included in the asset group for
impairment testing.
c) Estimates of future cash flows used to test the lower-level asset group for recoverability
shall not be adjusted for the effect of excluding goodwill from the group.
Measurement
1) The amount of the impairment loss for long-lived assets that is ultimately recognized in the
financial statements is determined using the Lower of Cost or Market method.
2) The impairment loss is the amount by which the carrying amount exceeds market (fair) value.
Market Value = Current market price (or other determination of Fair Value) less costs to sell
(which include legal, broker, closing, etc. fees but exclude future losses expected while asset is
classified as Held for Sale).
Fair Value = 1) Quoted market prices or estimates using similar asset sales, 2) Other accepted
third-party valuation techniques; or 3) Present Value measure of Future Cash Flows (See
Future Cash Flows definition)
Presentation
1) Impairment losses determined under the Lower of Cost or Market approach for long-lived
assets Held for Sale are recognized below the loss from discontinued operations when the asset
qualifies for discontinued operations treatment.
2) Impairment losses determined under the Lower of Cost or Market approach for long-lived
assets deemed Held and Used and for Held for Sale assets that do not qualify for discontinued
operations treatment are recognized in income from continuing operations before income
taxes.
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3) Impairment losses are allocated to each specific long-lived asset when they are specifically
identifiable or the losses are prorated among the different components of the related asset
group.
4) The following information related to long-lived asset impairments (both Held for Sale and
Held and Used) is required for disclosure:
a) Description of asset;
b) Amount of impairment loss;
c) Identification of where impairment loss is located in the financial statements; and
d) Identification of the Fair Value method used in LCM measurement.
5) Long-Lived Assets Held for Sale must be classified separately on the Balance Sheet.
6) The major classes of assets and liabilities related to a qualified discontinued operation can not
be netted together on one line in the Balance Sheet. As a result, new balance sheet accounts
will be required to segregate these items from continuing assets and liabilities. The major
asset and liability classes from assets Held for Sale must be identified in the notes to the
financial statements.
Discontinued Operations
Discontinued Operation is defined as the results of operations of a "component of an entity" that
either has been disposed of or has qualified for classification as Held for Sale. This definition is
more expansive than the previous definition of a "segment of a business" under current U.S.
accounting pronouncements as it allows for a lower level of the business to be treated as a
discontinued operation.
A "component of an entity" is defined as a) Reportable Segment or operating unit, b) Operating
Segment, c) Reporting Unit, d) Subsidiary, or e) Asset Groups
Discontinued Operations Criteria
The results of operations for a "component of an entity" that either have been disposed of or are
classified as Held for Sale shall be treated as discontinued operations in the income statement
when both:
a) The operations and cash flows of the component have been or will be eliminated from the
ongoing operations of the entity as a result of the disposal transaction, and
b) The entity has no significant continuing involvement in the operations of component after the
sale.
Discontinued Operations Presentation Issues
In the current and corresponding prior periods when a "component of an entity" either has been
disposed of or is classified as Held for Sale, its results of operations must receive discontinued
operations treatment.
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1) The results of operations for qualifying discontinued operations including gains or losses on
impairment of assets Held for Sale, net of taxes (benefit), should be presented on the income
statement as a separate component of income, after continuing income, and before
extraordinary items, and cumulative effect accounting changes.
2) Gains or losses on disposals of "components of an entity" only, are reported as a component of
discontinued operations.
3) Gains or losses on all other disposals, including assets Held for Sale but not qualifying as a
"component of an entity" are reported as a component of income from continuing operations.
4) Long-Lived Assets Held for Sale are classified separately on the Balance Sheet. Offsetting
assets and liabilities on one line is no longer permissible. The major classes of assets or
liabilities must be disclosed in the footnotes.
5) Adjustments to amounts previously reported in discontinued operations are separately
classified as discontinued operations in the current period under certain circumstances related
to the resolution of purchase-price contingencies or employee-benefit obligations.
6) Disclosures required in the period in which a long-lived asset has been disposed of or is
classified as Held for Sale are as follows:
a)
b)
c)
d)
e)
f)
description of facts & circumstances;
timing and manner of disposal;
carrying amount of assets for disposal;
impairment gain or loss if not presented on face;
revenue & pre-tax profit from discontinued operations;
identification of the segment in which long-lived asset exists.
Abandonments and Spin-Offs that qualify for discontinued operations treatment are categorized as
Held and Used until the actual date of abandonment or distribution (i.e. at the transaction date).
Accordingly, these assets should continue to be depreciated and any impairment charges would
flow through operating income until the date of abandonment.
If management actively attempts to sell the assets and then decides to abandon, the assets would
qualify as Held for Sale from the point when the "Held for Sale" criteria was met and would
continue in that classification until the date of abandonment (if the sales attempt failed). This
would permit discontinued operations treatment (when the asset is deemed a "component of an
entity"). If the asset is not a component of an entity, it would be classified as Held for Sale,
depreciation would cease and any impairment would flow through continuing operations.
Restructuring Charges
Restructuring Charges typically result from the consolidation and/or relocation of operations or
the disposition or abandonment of operations or productive assets. Restructuring charges may be
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incurred in connection with a business combination, a change in an enterprise's strategic plan, or a
managerial response to the declines in demand, increasing costs, or other environmental factors.
Restructuring plans include costs for both I) Involuntary Termination and II) Other Exit costs.
The accrual requirements for both individual types of costs are outlined below; however, one
comprehensive Exit plan may be used to incorporate the requirements of both individual plan
requirements. In order for I) Involuntary Termination Costs and/or II) Other Exit Costs to qualify
for liability recognition in the current period, several very specific criteria must be met. If these
hurdles are not crossed, the costs related to those activities must be expensed as incurred in future
periods.
Involuntary Termination Plan Criteria
All of the following requirements must be satisfied prior to the financial statement date in order
for involuntary termination costs to qualify for accrual:






Management must commit to a Termination Plan.
The Termination Plan must be approved at the appropriate management level.
The Termination Plan must identify the number, job classification and location of the
employees to be terminated.
The Termination Plan must identify the benefit formula that will be applied to determine the
benefits that current employees will receive upon separation.
The Termination Plan must be communicated to the employees impacted in sufficient detail
for them to recalculate the type and amount of benefits they will receive.
The Termination Plan must be completed within one year of the commitment date (except
when certain circumstances occur that are beyond the control of management)
What to Accrue
Salary, benefit and bonus payments required as a result of a plan to terminate employees or exit a
business may be accrued. Employee costs that benefit operations in the future must be accrued
over the future service period. Only accrue costs that can be reasonably estimated and supported.
What NOT to Accrue
The following are examples of employee costs that provide future benefits and are therefore NOT
a part of a restructuring accrual as of the commitment date:






Employee relocation
Retraining for remaining employees
Business reengineering/reorganization
Incremental Worker's Comp and Health & Welfare costs for injuries and illness that occur
after the commitment date
Higher unemployment premiums in the future
Stay bonuses (must be accrued over the future service periods as earned unless the employee is
only working on exit activities)
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Exit Plan Criteria
All of the following requirements must be satisfied prior to the financial statement date in order
for exit costs other than involuntary termination costs to qualify for accrual:





Management must commit to an Exit Plan.
The Exit Plan must be approved at the appropriate management level.
The Exit Plan must specifically identify all significant actions to be taken to complete the Exit
Plan, and activities that will not be continued, including the method of disposition and location
of those activities.
The Exit Plan must be completed within one year of the commitment date (except when
circumstances occur that are beyond the control of management).
The company must be able to estimate reliably the nature, timing and amount of the exit costs.
What to Accrue
 Exit Costs that do NOT benefit continuing operations or generate revenues beyond the
commitment date.
 Exit Costs that are incremental to other costs incurred by the enterprise and a direct result of
the exit plan. (e.g. increase in worker's comp for claims before commitment date; increase in
warranty costs for products sold before commitment date)
 Exit Costs that include contractual obligations that existed prior to the commitment date and
continue after the exit plan with no benefit to future operations. (e.g. lease cancellation
penalties; noncancellable lease fees; lease charges for unused space)
What NOT to Accrue
 Costs to sell assets (including environmental contamination treatment)
 Results of operations after the commitment date of an activity that will not be continued
 Asset impairment losses
 Inventory write-downs
 Cost of new equipment, computers and software that benefit future operations
 Outside consulting for new goals, strategies and structures
 Relocation of viable inventory & equipment from closed facilities
 Incremental Worker's Comp and Health & Welfare for claims after the commitment date
 Unfavorable overhead variances while completing outstanding orders
 Increased warranty costs and deductions for productions sold after commitment date
All restructuring accruals should be evaluated on a quarterly basis and any subsequent reversals
should be recorded in the same income statement line item that was used when the liability was
initially recorded.
The following information should be reported for all material Involuntary Termination plans in all
periods (including interim periods) until the plan is complete:



Amount of involuntary termination benefits accrued and charged to expense and their income
statement classification
Number of employees to be terminated
Description of employee groups to be terminated
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

Actual amount of benefits paid and number of employees actually terminated
Amount of any adjustment to the liability account
The following information should be reported for all material Exit plan activities in all periods
(including interim periods) until the plan is complete:





Description of the exit plan
Description of costs accrued and income statement classification
Description of types and amounts of exit costs paid against the liability
The amount of any adjustments to the liability
Revenue and net operating income from activities that will not be continued if separately
identifiable
Other considerations for Restructuring presentation:






Restructuring charges should NOT be presented as extraordinary items on the Income
Statement
Income Statement recognition in income from continuing operations on the line item that most
closely relates to the type of charge involved (typically SG&A or COGS)
If material – Restructuring charges are separately disclosed as a component of continuing
operations (can NOT show a subtotal "income from continuing operations before restructuring
charges")
EPS impact should NOT be disclosed on the face of the financial statements or selected
financial data – only in MD&A
Taxes related to the restructuring by component, (Fed, State and Foreign) should be quantified
and included in the exit plan analysis
The following information should be disclosed in the MD&A for each separately identifiable
and material exit plan:
 Discussion of events that gave rise to the exit plan and the likely effects on financial
position, future operating results and liquidity
 Quantify and qualify costs expected to be incurred
 Discussion of trends and circumstances impacting exit plans
 Material revisions to an exit plan
 Quantify and disclose expected effects on future earnings and cash flow
Foreign Exchange Gains and Losses
Transaction Gains and Losses
Transaction gains and losses result from a change in the exchange rate between the date a
particular transaction occurs or is originally measured and the next balance sheet date or date of
settlement, whichever occurs sooner. Transaction gains and losses include those attributable to
intercompany items (e.g. accounts payable/receivable, etc.). Transaction gains and losses should
be reflected in net income for the period, as measured in functional currency, prior to translation
into U.S. dollars. These gains and losses should be reported in the P&L. For two exceptions to
this general rule, see below.
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The following two types of transaction gains and losses are not included in net income:


A foreign currency transaction that is designated as, and is effective as, an economic hedge of
a net investment in a foreign entity.
Intercompany foreign currency transactions and balances that are of a long-term financing or
capital nature. Examples include intercompany dividends and intercompany advances if of a
long-term nature.
Gains and losses attributable to the above are deferred by inclusion in the Equity Adjustment Current Translation account on the balance sheet. These transactions will only occur upon
instruction from the Corporate Office.
Translation in Financial Statements
Dover's policy of translating financial statements to U.S. dollars is in conformity with FASB #52
(issued December 1981).
Under this standard, the term "functional currency" is introduced. Universal has determined that
for Dover's foreign subsidiaries, the functional currency is the currency of the country wherein the
subsidiary is domiciled, unless otherwise indicated by the Corporate Office or Dover.
The standard also requires that all elements of financial statements be measured in terms of
functional currency prior to translation into U.S. dollars. This is not a problem unless we are
dealing with accounts denominated in a currency other than functional currency.
See below for further explanation and for an example of measurement and translation.
Accounts denominated in a currency other than the functional currency must first be measured in
the functional currency and then translated into U.S. dollars. Thus, a foreign company's accounts
payable due to Universal or another Dover company and denominated in U.S. dollars falls into this
category. Also included are U.S. dollar denominated investments held by a foreign company.
A change in the exchange rate causes a gain or loss to be realized on items denominated in a
currency other than the functional currency. These gains and losses are reflected in the functional
currency statements and translated into U.S. dollars.
Example – Universal GmbH invests 942,507 euro on September 1, 20XX when the exchange rate
is 1.0610 and acquires 1,000,000 U.S. dollars of commercial paper. This investment is not
denominated in Universal GmbH’s functional currency (i.e. euro) and thus when Universal GmbH
prepares its euro balance sheet as of September 30, 20XX the 1,000,000 U.S. dollar investment
must be measured in terms of euro. This measurement is done using the exchange rate of
September 30, 20XX. Assuming this to be 1.0580, the investment measures 945,180 in euro.
Universal GmbH would reflect a transaction gain of 2,673 on its P&L. Universal GmbH would
then translate the 945,180 euro investment and the 2,673 transaction gain to U.S. dollars along
with all other amounts on its financial statements.
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Foreign Exchange Contracts
The Financial Manager at subsidiary companies may enter into Foreign Exchange Contracts
provided they hedge a firm commitment (i.e. sale or purchase of goods at a fixed future date).
Foreign Exchange Contracts should not be entered into in connection with intercompany payables,
receivables, advances, loans or equity investments. The Corporate Office should be advised of all
Foreign Exchange Contracts, and should be notified annually of all existing hedge programs.
Additionally, the Corporate Office will notify Dover as to the existence of all contracts. The
Corporate Office and Dover will generally approve hedge programs for special transactions
completed within one year, e.g. where costs are incurred in one currency and sales are made in
another, or payment of a different currency is to be received in future.
Exchange Rates
An exchange rate table will be distributed to subsidiaries on or about the 25th of the month except
at year-end, when it will be distributed on the second workday of the new year.
When preparing the U.S. dollar P&L, the average monthly exchange rate (referred to in the Dover
Reporting System [DRS] as the “Y” rate) should be applied against the monthly figures. The
average rate for the month is determined by adding the current and prior months' period-end rates
and dividing by two. Thus, the current year-to-date results will be determined by adding the
current month to the previous year-to-date calculations. Bookings are also translated at the
average monthly exchange rate.
When preparing the U.S. dollar year-end schedules, the average yearly earnings rate (referred to in
DRS as the “Q” rate) should be applied against the detail figures. The totals are based on the
accumulated monthly amounts translated using the applicable monthly average as indicated above.
These amounts are determined during the year as part of the monthly closing process. The yearly
average is determined by adding each of the monthly averages and dividing by twelve. The
difference between the sum of the detail translated at the yearly average and the total arrived at by
accumulating each month's activity translated at the monthly average (i.e. the balancing figure) is
classified as an exchange or conversion difference.
Balance Sheet Translation
All assets and liabilities should be translated using the current month-end rate of exchange.
Backlog is also translated at the month end or period end rate.
Advances to/from affiliates should be revalued in terms of functional currency. Beginning
retained earnings should be translated at the rate of exchange prevailing when originally issued,
received or earned. Dividends paid should be translated at the rate of exchange prevailing on the
date of declaration.
Statement of Profit and Loss Translation
The monthly portion of the operating statement should be translated using the average of the
beginning and ending monthly exchange rates. The year-to-date portion is then arrived at by
adding the current month as translated above to the prior month’s year-to-date statements.
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Intercompany Items
The elimination of intercompany items (e.g. sales, profit in inventory, bookings, etc.) is based on
exchange rates in existence at date of sale, bookings, etc. The use of an average rate is acceptable.
Income Tax Rates
Federal and Foreign Taxes
U.S. companies should provide for federal income taxes by accruing 35% of taxable income.
Foreign companies should accrue for taxes based on the statutory rates in the country in which
they are domiciled.
The tax rate for U.S. capital gains is the same as the rate for ordinary income. The Corporate
Office and Dover should be informed of large capital gains and losses. Should circumstances
require alternative tax treatment, you will be advised by Dover.
State Taxes
U.S. companies should provide for state income taxes by accruing at the rates prevailing in the
states in which they do business. This may involve the allocation of taxable income. The
Corporate Office will advise each subsidiary of the proper state tax rate to be used where it has a
responsibility for filing a tax return. Note that all state tax returns are prepared by Dover
Technologies. However, estimated tax payments should be prepared and filed by the subsidiary.
Flash Earnings
Flash earnings is Dover’s identifier of management earnings or operating, controllable earnings.
Flash earnings is the sum of pretax earnings, interest, foreign exchange, acquisition write-offs and
flash adjustments. Flash adjustments include management fees, royalties, Organschaft transfers
and any other amounts approved by Dover for inclusion or exclusion from flash earnings.
Organschaft Protocol
Several of Dover’s German companies are part of the Organschaft, a tax sharing agreement
whereby the earnings of a Universal subsidiary are pooled for consideration with the earnings of
several of Dover’s operating companies for tax planning, expense and payment purposes. The
operating protocol associated with membership in the Organschaft is highlighted below:
Monthly
The subsidiary should report monthly and year-to-date earnings before taxes (EBT), nonOrganschaft earnings and any permanent book/tax differences to the Controller of Dover
Germany, by the end of the third business day. The Controller will use this information to
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calculate the current tax provision for the Organschaft on a consolidated basis. The subsidiary
should not record any current tax expense. The assumed ROI for monthly reporting purposes is
35.37%.
Annually
In December, the subsidiary should record other income/expense on the P&L equal to EBT to
ensure that adjusted EBT is zero. A corresponding flash adjustment should also be recorded. The
amount of the adjustment should be communicated to Dover Germany and a corresponding
receivable/payable should be recorded. The receivable/payable should not be paid until Dover has
granted approval.
Organschaft transfers are not recorded for Operating Plan purposes.
Dover’s Passive Income Companies
In an effort to provide focus to financing and investing activities under the Dover “umbrella”,
Dover has formed two passive income companies. The primary function of these companies is to
act as Dover’s bank and Dover’s intellectual property manager, respectively. More detailed
information about each company is provided below.
REVOD
Permits operating companies to carry no operating debt as all cash needs are provided by Dover.
A reasonable amount of intercompany debt is allocated to each U.S. company via a note payable
from REVOD. The amount allocated is designed to achieve a capitalization ratio of 75% debt and
25% equity. Interest is charged on the note at the U.S. Prime Rate, however there is no charge to
flash earnings for this interest.
Delaware Capital Formation (DCF)
Dover requires its subsidiaries to transfer ownership of all its intellectual property to DCF. Each
company that transfers items to DCF is then charged a royalty fee, which is calculated as a percent
of sales. The fee charged does not have an effect on flash earnings.
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Section 3 – Global Policies
General Concerns
Financial Reporting Guidance
PURPOSE:
To define Universal’s policy regarding the reporting of financial and operating information.
This policy is applicable to all finance employees, in all facilities worldwide. The policy is
applicable to the reporting of financial and operating information to both internal (Universal’s
management and other personnel) and external (Dover Corporation, Dover Technologies,
independent public accountants, etc.) customers.
RESPONSIBILITY:
Each employee is responsible for the accurate and timely recording and /or reporting of various
financial and operating information and business metrics related to their respective daily job
responsibilities.
The directors, managers and supervisors are responsible for ensuring that all financial and
operating information created, recorded and reported by his/her staff:






is accurate and reliable, so as to enhance management decisions,
is delivered in a timely fashion (i.e. meets any agreed upon deadlines),
meets or exceeds the internal or external customers’ needs,
is provided in the most efficient and effective manner,
is in compliance with each international location’s local statutory requirements and/or other
local laws and regulations, and
is in compliance with U.S. GAAP and the Dover Accounting Manual when communicated
externally to Dover, DTI or the independent public accountants.
The Chief Financial Officer (CFO) is responsible for ensuring that the Company’s consolidated
financial statements present fairly, in all material respects, the financial position of the
Company and its subsidiaries, and the results of its operations and its cash flows in conformity
with GAAP.
The CFO is further responsible for ensuring that Universal’s financial reporting complies with
all legal (SEC) and Dover requirements as well as the individual needs of Universal’s business
units. The CFO shall ensure that this policy and its corresponding procedures and work
instructions are maintained and updated in a timely manner.
The supervisors, managers, directors and CFO shall ensure that this policy is adequately
executed and appropriately interpreted, including the related procedures and work instructions.
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DESCRIPTION:
The Finance Organization includes the Corporate Financial Services (CFS) department,
Corporate Financial Planning & Analysis (“CFP&A”), Business Unit Controllers, Area
Operations Controller and the Treasury Operations department. The Finance Organization is
the internal and external supplier of worldwide financial and operating information.
The CFS department covers the billing, cost accounting, general accounting, payroll and accounts
payable functions. It is primarily responsible for the compilation, recording and reporting of
financial and operating information to the finance organization’s external customers, which
include Dover, Dover Technologies Inc (DTI), PricewaterhouseCoopers (PwC), various state tax
authorities, the Federal Government and various vendors, consulting firms, etc.
CFP&A facilitates internal management reporting, the Operating Plan, financial and operational
support of various business units and support organizations. The CFP&A department is
primarily responsible for the compilation, recording and reporting of financial and operating
information to the finance organization’s internal customers, which include every department
within each of Universal’s business units, all of Universal’s foreign subsidiaries and various
worldwide sales locations.
Financial Manager Responsibilities
PURPOSE:
To define the job responsibilities and expectations of a Financial Manager employed by
Universal at one of its foreign subsidiaries. Generally, Financial Managers work as a liaison
between the Finance organization located at the Corporate Offices in Binghamton, and
Universal’s foreign subsidiary. This policy is applicable to all Financial Managers employed by
Universal in all facilities worldwide.
RESPONSIBILITIES:
The Manager of Corporate Financial Services and the CFO shall ensure that this policy is
adequately executed and appropriately interpreted. Additionally, the CFO shall ensure that this
policy and its corresponding procedures and work instructions are maintained and updated in a
timely manner.
DESCRIPTION:
The Financial Manager directs and coordinates all financial and accounting activities of the
subsidiary, including assisting in the development of business strategy, preparation of various
financial and operational reports, customer credit evaluation and collections, and compliance
with statutory regulations. He/she directs and manages subordinate accounting and credit
personnel. All Financial Managers report directly to the CFO of Universal.
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Accounting and Reporting
Accounting and Reporting covers the correct recording of the basic financial transactions of the
business. It consists of, but is not limited to:












Developing and auditing sound procedures to ensure that financial records are properly
maintained;
Regular checking and reconciliation of subsidiary ledgers (e.g. payables, receivables, fixed
assets, payroll) and all other relevant accounts to ensure integrity of the financial records;
Timely collection of debts and payments to creditors;
Correct payments and deductions of all taxes;
Maintaining financial records in accordance with U.S. Generally Accepted Accounting
Principles (GAAP) unless prohibited by local law;
Timely preparation and reporting of the monthly and yearly financial schedule through the
Dover Reporting System (DRS); and other monthly and annual reports which summarize
and forecast company business activity and financial position in areas of income, expenses,
tax position and earnings based on past, present, and expected operations.
Preparation and completion of the annual statutory audit and tax return;
Completion of government and other statutory returns as required;
Interface with appointed independent accounting firm for annual audits, and required
corrective actions;
Maintaining the accuracy of Universal’s statutory books (e.g. Company Secretary Records,
Shareholder Records etc.);
Ensure adherence to the Delegation of Authority Approval Matrix both at the corporate and
subsidiary level; and
Employing and administering the policies established in the Global Finance Manual.
Financial Planning and Analysis
This covers the sound financial management of the business and such elements as:




Preparation of annual budgets along with monthly analysis of variances. Identification of
significant financial trends and performance through management reports.
Forecasting cash flow, and planning for the distribution of excess funds to the cash
concentration company or the Corporate Office while maintaining adequate funds to meet
outstanding commitments;
Margin analysis and expense forecasting; and
Advice to management on the financial effect of management decisions.
General Management
General Management covers the skills and expertise that the Financial Manager as an individual
brings to the business. It covers such things as:


Support of the subsidiary’s Managing Director in the achievement of the Managing
Director's goals and the aims of the business;
Advice and contribution to the strategies and tactics employed by the business in the
achievement of its objectives;
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








The setting of those objectives in consultation/agreement with the other managers of the
business;
Review of terms and conditions of sales and purchases;
Negotiations with and presentations to customers regarding terms of payment and
alternative financing, e.g. leasing;
Performance of credit evaluation of customers including investigation of payment practices
and the analysis of the customer's financial statements to establish their capacity and
willingness to repay credit sales, resulting in establishment of credit limits;
Assignment of collection responsibilities and review of all collection activities. Preparation
of monthly collection reports for the evaluation of collection efficiency and to determine the
collectibility of accounts receivable.
Supervision and management of accounting/finance staff in accordance with Universal's
policies and applicable local laws and regulations, including interviewing, hiring, training
employees, planning, assigning and directing work and appraising performance. Also
analysis and resolution of work problems, or assistance to employees in resolving workrelated problems.
Assurance of efficient and economical utilization of materials, improvement of methods,
and elimination of wasteful practices within the department; may include budget
development and control.
Ensure the CFO is provided copies of all significant correspondence with accountants, tax
authorities and the Board of Directors (e.g. Statutory audit reports, tax returns, management
letters, board minutes, etc.) for inclusion in the Corporate Office correspondence file.
Adherence to Universal’s Quality System policies and procedures and use of Total Cycle
Time principles and standard problem solving tools for continuous improvement to work
processes.
Receivables and Sales Concerns
Transfer Pricing
PURPOSE:
To define Universal’s worldwide policy with respect to transfer pricing.
RESPONSIBILITY:
The Corporate Operations Controller, Manager of Corporate Financial Services, subsidiary
Financial Managers and the CFO shall ensure that the policy is adequately executed and
appropriately interpreted, including the related procedures and work instructions. Additionally,
the CFO shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
DESCRIPTION:
Transfer pricing of equipment sales is discounted 20% from the proper zone list price (i.e.
PR00). If no PR00 exists, the final quote price is used. The 20% discount is recognition of the
following costs to be incurred by the purchasing (distributing) subsidiary:
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Selling effort
Installation
Warranty
15%
3%
2%
Transfer pricing for spare parts is discounted 20% from domestic price list.
Trade discounts and/or Vendor Purchase Agreement (VPA) discounts will be borne by the
distributing subsidiary (i.e. the subsidiary that invoices the customer). There is no discount
sharing with Binghamton or other sourcing subsidiaries.
Subsidiaries will not override commission for sales made by representatives under their
responsibility. The representatives place their order with the responsible subsidiary and the
appropriate commission is paid by the subsidiary to the representative. When a joint selling
effort between two subsidiaries takes place, the selling effort allowance is split 50/50. This split
is fixed and not negotiable between subsidiaries. The subsidiary that did not collect the revenue
will invoice the selling subsidiary for its share of the sales effort allowance. If there is a
distributor or representative involved in a team sale, the subsidiary will receive 50% of the
selling effort allowance. The representative commission for a team sale will always be
negotiated individually, prior to the order being placed.
If the selling subsidiary does not provide warranty or installation coverage on a particular
shipment, the subsidiary performing the warranty and installation effort will invoice the revenue
collecting subsidiary 5%.
If there is a joint selling effort by two subsidiaries, and a VPA or trade discount is involved, the
following example describes how the split is to be made (example assumes a 5% discount is
provided to the end user):
PR00 price
Net price (5% discount)
Transfer price
$100,000
95,000
80,000
The $15,000 difference between transfer price and customer selling price is presumed to cover
$5,000 (5%) of installation and warranty costs, while the remaining $10,000 of selling effort is
split $5,000 to each subsidiary.
Equipment refurbished in one subsidiary and sold to another would be transferred at purchase
order price less 20%, with the price to be agreed upon by both subsidiaries.
Products developed in one subsidiary and sold to another would be transferred at PR00 less
20%. The appropriate Business Unit in Binghamton will determine PR00 prices.
The Consignment Inventory policy guidelines address how consignment machine transfers are
handled between subsidiaries.
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Sales/Sales Cut-Off
PURPOSE:
The purpose of this procedure is to further clarify and support Universal's invoicing policy.
This policy applies to all Universal facilities worldwide.
RESPONSIBILITIES:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is adequately executed and appropriately interpreted, including the related
procedures and work instructions. Additionally, the CFO shall ensure that this policy and its
corresponding procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
The sales records for Universal’s Binghamton locations are updated at the beginning of the each
workday. At international locations, updates may be performed less frequently.
Current month sales for all Universal locations worldwide closes at noon of the first work day
of the new month.
Universal’s sales to foreign subsidiaries for parts and machines include all shipments through
the last workday of the current month. The last billing transactions for the current month take
place the first work day of the following month.
Credit Risk Management
PURPOSE:
To provide structure and uniform procedures to the evaluation of customers’ credit worthiness.
This policy is applicable in all Universal Instruments’ facilities worldwide.
RESPONSIBILITY:
Ownership of this procedure, its deployment and continuous improvement is the responsibility
of Universal’s Manager of Corporate Financial Services and the CFO. Additionally, the CFO
shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
DESCRIPTION:
1.
Customers are assigned credit limits based upon financial strength and other factors
influencing credit worthiness. Each individual assessing a customer’s creditworthiness
should exhibit a high degree of skepticism when evaluating credit. Tools available, that
should be considered when evaluating credit include, relationship history, bank
references, trade references, Dun and Bradstreet reports, available public financial
information and if necessary private financial information. There is no substitute for an
appropriate level of credit review diligence.
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Customers are classified in the following manner:
Tier 1 – Large multi-national customers with strong financial condition.




Credit limits = Unlimited.
Credit limit analysis and assignment by the Subsidiary Finance Manager or
Corporate Credit Analyst and the Manager of Corporate Financial Services.
Credit limit review every three years/or sooner as required.
All ongoing or new account credit reviews are subject to review and approval by
the Manager of Corporate Financial Services and the CFO
Tier 2 – Smaller multi-national customers and large national companies.






Credit limits = greater than US$1m but less than unlimited, as assigned.
Credit limit review bi-annually/or sooner as required.
Credit limit assignment is the responsibility of the Subsidiary Finance Manager,
Corporate Credit Supervisor or Corporate International Credit Analyst up to $1.0
million.
All new customer account credit reviews with credit lines greater than $1.0
million are subject to review and approval by the Manager of Corporate
Financial Services and the CFO.
All existing customer credit reviews with credit lines greater than $1.0 million
but less than $5.0 million are subject to review and approval by the Manager of
Corporate Financial Services. The CFO will also be advised.
All existing customer credit reviews with credit lines greater than $5.0 million
are subject to review and approval by the Manager of Corporate Financial
Services and the CFO. The President will be advised.
Tier 3 – all first time customers and others not included in Tier 1 or Tier 2




Credit limits = US$1 to US$1m.
Credit limit review annually or as required
Credit limit assignment is the responsibility of the Subsidiary Finance Manager,
Corporate Credit Supervisor or Corporate International Credit Analyst up to
US$1m maximum.
Credit limit review annually or as required
Tier 4 – customers with a credit hold on their account.
2.
Within each customer Tier, customers undergo another segmentation, based on the risk
of the country from which payment originates. Countries are classified according to
geo-political and economical stability, as well as currency volatility.
Countries are classified as:
“A” – Minimal risk
“B” – Some risk
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“C” – High risk business environment
Assembly, maintenance and distribution of the country and customer classification lists
are the responsibility of Corporate Financial Services.
3.
New orders (transactions) entered by customers will be administered by the local
Subsidiary Finance Manager, provided the following criteria are met:



The sum of the values of the new order, the customer’s outstanding accounts
receivable, and any already present order backlog for the customer (total UIC
investment) do not exceed 110% of the assigned credit limit for the customer.
The customer payment will originate from an “A” or “B” country.
The customer is a Tier 3 and the order value is equal to or less than US$1m.
Otherwise, orders will be reviewed for credit approval by both the local subsidiary
financial manager and the Manager of Corporate Financial Services.
Billing & Invoicing
PURPOSE:
To clarify Universal Instruments Corporation's policy regarding invoicing customers for
chargeable items. This policy applies to all Universal facilities worldwide.
RESPONSIBILITY:
Each billing department employee is responsible for preparing invoices using the appropriate
procedures. The billing supervisor is responsible for ensuring that the Accounts Receivable
department is provided with all of the pertinent customer and transaction details to enable the
effective and efficient collection of receivables. The billing supervisor shall ensure that this
policy is adequately executed and appropriately interpreted, including the related procedures
and work instructions. The CFO is responsible for ensuring that this policy and its
corresponding procedures are maintained and updated in a timely manner.
DESCRIPTION:
The billing department generates an invoice based on information received from the sales and
service departments. When the shipping department does a goods release, the delivery appears
on the billing due list. Based on the information submitted, the billing department generates an
invoice in a timely manner.
Machine invoicing is based on SAP order entry and is invoiced daily from a billing due list as a
billing type “F2” by the order specialist responsible for a particular region. At the end of the
month, the billing department is responsible for making sure that all machine shipments have
been invoiced for the current month.
WPSD (parts) invoicing is based on SAP order entry and is invoiced daily from the billing due
list as a billing type “F1” by the billing department. Parts invoices are created and printed every
morning.
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Training orders are entered into the SAP system by the training department. They are entered
as a “ZOR” order type and appear on the billing due list as a billing type “F2”. The billing
department is responsible for printing the training invoices.
Field Engineering orders are entered by the regional offices. They are entered through the
Service Management System and appear on the billing due list as a billing type “F6”. The
billing department is responsible for printing these invoices each day.
Rental orders are entered into SAP by the order specialist responsible for that region. These
individuals are responsible for invoicing from the billing due list as a billing type “F3” for
machines.
WPSD enters rental billings for feeders only and the billing department is responsible for
invoicing from the billing due list as a billing type “F2”.
Consortium orders are entered by the Customer Order Center as a quote and then transferred to
the order specialist that handles who region. The billing department supervisor is responsible
for recording the earned portion of deferred revenue.
The billing department is responsible for printing intercompany invoices as a billing type “IV”
under sales organization US01.
The department manager who requested the initial invoice shall be the authorizing manager
with respect to generating a credit memorandum. The billing department is responsible for
ensuring that a correct credit memorandum is sent in a timely manner.
Sales, Use and Value Added Tax Guidance
PURPOSE:
The purpose of this procedure is to further clarify and support Universal's invoicing policy.
This policy applies to all Universal facilities worldwide.
RESPONSIBILITIES:
All billing personnel have the responsibility for collecting and reviewing sales tax certificates
and/or ensuring Value Added Tax (VAT) is properly billed and accounted for. The Manager of
Corporate Financial Services, subsidiary Financial Managers and the CFO shall ensure that the
policy is adequately executed and appropriately interpreted, including the related procedures
and work instructions. Additionally, the CFO shall ensure that this policy and its corresponding
procedures and work instructions are maintained and updated in a timely manner.
Subsidiary financial managers are responsible for ensuring that VAT is billed and remitted to
the appropriate tax authorities.
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DESCRIPTION:
Sales tax exemption certificates are obtained from customers who purchase equipment, parts or
service that qualify for a manufacturing exemption. Resale certificates are obtained from the
customer if the property is purchased for resale.
Sales tax certificates must contain the following elements:
1.
2.
3.
4.
5.
The signature of the purchaser or an agent or employee of the purchaser.
The name and address of the purchaser.
The number of the seller's permit held by the purchaser.
A description of the property purchased.
Date of execution of document.
If an exemption certificate is not obtained, sales tax is to be charged to the customer.
Bad Debt Write-Off and Reserves
PURPOSE:
To define Universal’s policy with respect to providing reserves for doubtful accounts and the
subsequent write-off of uncollectible customer accounts. This policy applies to all Universal
facilities worldwide.
RESPONSIBILITY:
The supervisors, managers, directors and CFO shall ensure that this policy is adequately
executed and appropriately interpreted, including the related procedures and work instructions.
The Manager of Corporate Financial Services, Chief Financial Officer and each location’s
Finance Managers are responsible for ensuring the bad debt reserve is maintained at a level that
is adequate, but not excessive. The CFO shall ensure that this policy and its corresponding
procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
Customer accounts receivable where the collectibility is in question and may be considered
“bad debts” are to be separated according to U.S. dollar value and applicable aging of the
specific receivable. The aging of a receivable is as follows:





Current (less than 30 days old)
30 - 59 days old
60 - 89 days old
90 - 119 days old
120 days or older
Each Managing Director, Finance Manager and Sales & Marketing Manager should examine
the accounts receivable aging and, based on past experience and sound business judgment,
decide which accounts are likely uncollectible.
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The establishment of a bad debt reserve does not stop subsequent collection efforts. Once all
reasonable avenues have been pursued, including use of a collection agent or other legal action,
the account should be considered for write-off.
The bad debt reserve shall be established and maintained as follows, unless local statutory
requirements dictate differently:
The calculation of the required reserve level will be derived from the percentage of a 3-year
annual average of gross trade A/R. The future bad debt exposure percentage is calculated
by dividing the 3-year annual average net bad debt write-offs/recoveries by the 3-year
annual average of gross trade A/R. The resulting percentage is applied to the current net
A/R balance to derive the general bad debt requirement. Additionally, management has the
discretion to adjust the reserve for accounts specifically identified as uncollectable.
While the above reserve percentages provide general guidelines for the establishment of bad
debt reserves, each individual accounts receivable account should be reviewed for the
appropriate level of specific reserves and the bad debt reserve should be adjusted accordingly.
For example, if the Company is aware of a recent bankruptcy filing by a customer with a
receivable 100 days old, the reserve percentage should be 100%.
Compliance to this policy shall be monitored by all Managing Directors and Financial
Managers of area operations, the Manager of Corporate Financial Services, the Chief Financial
Officer and Vice-President of European and Asian Operations. Compliance with this procedure
will be evaluated through comparison of monthly write-off reports with monthly accounting
reports, as well as a periodic review of each locations accounts receivable aging.
Inventory and Cost of Sales Concerns
Inventory Valuation
PURPOSE:
To define Universal’s policy regarding inventory valuation. This policy applies to all Universal
facilities worldwide.
RESPONSIBILITY:
Ownership of this procedure, its deployment and continuous improvement is the responsibility
of Universal’s Manager of Corporate Financial Services and the CFO. Additionally, the CFO
shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
The Financial Manager in each location is responsible for reporting inventory values.
DESCRIPTION:
Inventories will be valued in accordance with U.S. GAAP and conform to all legal and Dover
requirements. Reserves for excess and obsolete inventory will be calculated consistent with
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provisions outlined below. Should other general reserves be required for facts and
circumstances that affect inventory valuation, they should be discussed with the CFO for
potential inclusion in either a local reserve or a general corporate reserve maintained by the
Corporate Office.
GUIDELINES:
Obsolete Inventory Reserve
Criteria to compute obsolete inventory:
1. No planned requirements for the next 12 months and no planned issues, miscellaneous
issues, pick complete or sale transactions during the prior 18 months.
2. If the activity dates checked in the first step are zero, check the last date the part was
maintained. If this date is older than 18 months, this item will be deemed as obsolete.
Excess Inventory Reserve
Criteria to compute excess inventory:
Establish value class ranges as summarized:
Value Class
A
B
C
D
Weeks of Inventory Allowed
26
42
42
78
Take the greater of:
A) Planned requirements over the next 12 months or,
B) Actual usage from the prior 18 months
Divide the higher of the two numbers by 50 and carry out four (4) decimal places. (Assume 250
workdays in a year divided by 5 days) Apply a 15% reserve percentage for each year’s excess
amounts.
Example: Part number XX.XXXX.XXX
Value class B Planned requirements over the next
12 months 1,700 units (the higher of the 2 criteria)1,700/50 = 34 x 42 = 1,428
Quantity on hand is 8,000 at a standard cost of $ 4.00 each
Year 1
(8000 - 1,428) x
Year 2
(8000 – 2,856) x
Year 3
(8000 – 4,284) x
Year 4
(8000 – 5,712) x
Year 5
(8000 – 7,140) x
Excess Reserve Calculation
Section 3
4.00
4.00
4.00
4.00
4.00
x 15% = 3,943.20
x 15% = 3,086.40
x 15% = 2,229.60
x 15% = 1,372.80
x 15% = 516.00
$11,148.00
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Standard Cost Systems
PURPOSE:
To define Universal’s policy regarding standard cost systems. This policy applies to all Universal
facilities worldwide.
RESPONSIBILITY:
Ownership of this procedure, its deployment and continuous improvement is the responsibility
of Universal’s Manager of Corporate Financial Services and the CFO. Additionally, the CFO
shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
The Financial Manager in each location is responsible for accurately reporting Cost of Sales.
The appropriate Financial Manager in each location will ensure that their standard cost systems
use U.S. GAAP to conform to all legal, local statutory and Dover requirements.
DESCRIPTION:
Cost of Sales will be reported at standard cost with any variances reported in the financial
statements as a period cost.
Physical Inventories
PURPOSE:
To define Universal’s policies with regard to physical inventory procedures. This policy applies
to all Universal facilities worldwide.
RESPONSIBILITY:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is appropriately interpreted and properly executed, including the related
procedures and work instructions. This policy also effects others who have the custodial
responsibilities for inventory.
DESCRIPTION:
All of the Universal’s locations containing Universal Instruments’ inventory will participate in
periodic cycle count procedures. These procedures will be subject to observation at the
discretion of Dover’s appointed independent public accountants.
Each reporting area will establish valuation reserves to cover losses for obsolete or excess
inventory.
All financial reporting locations will report their inventory positions on a monthly basis.
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Merchandise Returns Procedure
PURPOSE:
The purpose of this procedure is to further clarify and support Universal's invoicing and return
policy. This policy applies to all Universal facilities worldwide.
RESPONSIBILITIES:
Customer Order Specialists are responsible for issuing return authorizations (RA). Billing
personnel have the responsibility for the remaining portion of the process. The Manager of
Corporate Financial Services, subsidiary Financial Managers and the CFO shall ensure that the
policy is adequately executed and appropriately interpreted, including the related procedures
and work instructions. Additionally, the CFO shall ensure that this policy and its corresponding
procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
The Customer Order Specialist assigns a Returned Material (RM) number for machines and
parts. Returned machines or parts arrive at the Universal Instruments Corporation designated
location for processing. Receiving personnel will review the RM in SAP, verifying the material
received.
The order person responsible for the return of parts and machines is notified of a return through
the billing due list with a billing type “F7” in SAP.
The returns for intercompany invoices are processed daily by the Billing Department with a
billing type “IG”.
Fixed Asset and Depreciation Concerns
Capitalization / Depreciation
PURPOSE:
To define Universal Instruments’ accounting policy for the capitalization and depreciation of
tangible and intangible assets. All Universal locations are required to follow this policy unless
local statutory law prohibits such treatment. Local statutory law or tax law is to be followed
in the event local laws conflict with this policy.
RESPONSIBILITY:
The Financial Manager and finance staff in each location are responsible for ensuring
compliance with this policy. The subsidiary Finance Managers along with the Manager of
Corporate Financial Services and CFO shall ensure that this policy is adequately executed and
appropriately interpreted including the related procedures and work instructions. The CFO is
further responsible for ensuring that this policy and its corresponding procedures are maintained
and updated in a timely manner.
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DESCRIPTION:
The accounting treatment for all fixed and intangible assets should be in accordance with U.S.
GAAP. Universal follows GAAP due to the fact its parent (Dover) is a publicly traded U.S.
Company that prepares U.S. GAAP consolidated financial statements.
Note that all fixed assets are subject to the Capital Equipment Acquisition Request (CEAR)
process outlined in the Capital Equipment Authorization policy.
Capitalization
All purchases of fixed assets used by Universal for business purposes that have an economic
value greater than or equal to $4,000 and a useful life greater that one year must be capitalized
and depreciated. Fixed assets are described as tangible property, plant and equipment including
any significant improvements to existing plants or equipment. Fixed assets are recorded on the
balance sheet at historical cost. Freight, taxes, and installation costs incurred to place that asset
into service can be added to the historical cost and depreciated over the economic useful life of
the asset. Note that internally produced tooling must have an economic value of $5,000 or
greater before it is capitalized.
All fixed assets that do not have a useful life of greater than one year or an economic value of
greater than $4,000 should be expensed as incurred.
Repairs and maintenance costs that do not extend the economic useful life of a fixed asset are to
be expensed in the period incurred. Costs that are substantial and extend the useful life of the
asset can be capitalized by adding those costs to the asset’s remaining book value and
depreciating them over the new economic life of the asset.
Intangible assets are also capitalized and amortized (depreciated) over their useful economic
lives. Intangible assets include patents, goodwill and trademarks used by a business.
Depreciation and Amortization
Depreciation is the process of periodically allocating a portion of the historical cost of the fixed
asset to the periods in which the asset is used to generate revenue. Depreciation expense is
recorded in the P&L with the offset to accumulated depreciation. Accumulated depreciation is a
contra-asset that when viewed in conjunction with the asset’s historical cost, shows the asset’s
remaining book value (the portion of the historical cost still remaining to be expensed through
the P&L).
Universal uses both the double declining balance (200%) and the 150% declining balance
methods of depreciation depending on the type of fixed asset. Universal uses these accelerated
depreciation methods as required by Dover to maximize the amount of depreciation expense in
the first few years that an asset is in service. Intangible assets, however, are depreciated using
the straight-line method.
The following chart outlines the book method of depreciation and amortization for each type of
asset. Please note that depreciation methods and an asset’s depreciable life may vary from this
schedule for tax purposes.
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For further information, refer to Exhibit 3 – Fixed Asset Defaults
Asset Type
Depreciation Method
Depreciable Life
Not Applicable***
200% declining balance
Not Applicable***
10 year life
150% declining balance
Straight-line method
150% declining balance
25 year life
15 year life
15 year life
200% declining balance
150% declining balance
200% declining balance
200% declining balance
200% declining balance
8 year life
5 year life
5 year life
4 year life
3 year life
200% declining balance
150% declining balance
8 year life
5 year life
Automobiles/Vehicles
200% declining balance
3 year life
Office Equipment
-New
-Used
-PCs, computers, etc.
-R&D
-Software
-Fax/Copiers, other
200% declining balance
150% declining balance
200% declining balance
200% declining balance
200% declining balance
200% declining balance
8 year life
5 year life
5 year life
4 year life
3 year life
5 year life
Leasehold Improvements
200% declining balance
3 or 4 year life
TANGIBLE ASSETS
Land
Land Improvements
Buildings
-New
-Used
-Improvements
Machinery & Equipment
-New
-Used
-UIC produced
-R&D
-Tooling
Furniture & Fixtures
-New
-Used
*** Land is not depreciated under U.S. GAAP
Section 3
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Asset Type
Deprec/Amort Method
Deprec/Amort Life
Straight-line method
Straight-line method
7 years
5 years
Straight-line method
5 years
INTANGIBLE ASSETS
Patents
Trademarks
Covenants not to
Compete
Purchased software costs and certain internally developed software costs (see below) should be
capitalized according to the Capitalization of Software Costs policy. Capitalized software
should be written off over three years, for both book and tax purposes.
Any equipment that is deemed consigned equipment is exempt from this process. However,
equipment manufactured for internal use that will be consumed internally over its entire
economic useful life may be deemed a fixed asset rather than a consignment asset (inventory).
If deemed a fixed asset, it should be subject to the Capital Equipment Authorization process.
Capitalization of Software Costs
PURPOSE:
To define Universal’s policy regarding capitalization of software costs. This policy is
applicable to both internally developed and externally purchased computer software. This
policy applies to all Universal facilities worldwide.
RESPONSIBILITY:
The Financial Manager in each location is responsible for ensuring compliance with this policy.
The CFO is further responsible for ensuring that this policy and its corresponding procedures
are maintained and updated in a timely manner.
DESCRIPTION:
Purchased software costs and certain internally developed software costs (see below) should be
capitalized in accordance with Universal’s capitalization policy. Capitalized software should
be expensed over three years, for both book and tax purposes.
Guidelines for book treatment of software developed/obtained for internal use:
1. Preliminary Project Stage – Normally includes development of scope specifications, system
requirement analysis and vendor selection /allocation of internal resources. Costs in this
stage, both internal and external, should be expensed as incurred.
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2. Application Development Stage – Costs during this stage of development are normally
capitalized, including:

Cost of material and services

External direct costs for developing or obtaining software. These include travelrelated costs directly attributed to development.

Payroll (including benefits) for employees working directly on the development
project.
3. Post implementation – Costs are expensed as incurred.
4. Upgrades and Enhancements – Application developments costs (see 2 above) should be
capitalized if the modification increases the overall functionality of the product. Training or
preliminary project type costs (see 1 above) should be expensed.
Note: Training costs and general administrative overhead costs should not be capitalized.
For U.S. tax purposes, all internal software development costs must be expensed.
Where computer software costs are part of a hardware package and the software is not
separately itemized, the entire package should be capitalized.
All taxes paid in connection with fixed asset purchases should be capitalized.
In view of the large dollar expenditures for enterprise systems (such as SAP & Oracle, etc.) and
system upgrades being made, the recommended accounting and tax treatment is as follows:
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Enterprise Systems
Enterprise Systems typically involve substantial outlays for 1) the software package, 2) an
outside integrator, 3) additional outside consultants for additional programming, 4) internal
labor and 5) training:
Typical
Enterprise
System Costs
Tax Treatment
Accounting
Treatment
Software
Capitalize
3-yr amortization
Capitalize
3-yr amortization
Outside
Integrator
Expense as R&D and take
R&D tax credit for 65% of
expense.
Capitalize
3-yr amortization
Outside
Consultant
Expense as R&D and take
R&D tax credit for 65 % of
expense.
Capitalize
3-yr amortization
Internal Labor
Expense as R&D and take
R&D tax credit for 100% of
expense.
Capitalize direct
costs; expense as
R&D administration
and overhead costs.
Training Costs
Expense - generally not R&D
Tax credit eligible.
Expense as training
Systems Upgrades
Most labor-based system upgrades should be expensed as incurred for U.S. tax purposes.
Therefore, Universal will realize a 100% R & D tax credit for our own costs and 65% of
amounts paid to third parties.
Capital Equipment Authorization
PURPOSE:
To define Universal’s policy regarding the authorization and approval of the purchase of fixed
assets and the processing of various capital expenditures.
This policy applies to all Universal facilities worldwide. The policy is applicable to the
procurement of all non-inventory goods for use in the normal course of business. This policy
does not apply to the purchase of computer software. See Capitalization of Software Costs
policy for guidance related to such expenditures.
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RESPONSIBILITY:
Each employee is responsible for the execution and adherence to this policy when procuring
non-inventory goods. The supervisors, managers, directors and CFO shall ensure that this
policy is adequately executed and appropriately interpreted, including the related procedures and
work instructions.
DESCRIPTION:
The following approval and authorization levels are to be adhered to, consistent with
Universal’s Delegation of Authority Policy:
Amount of Capital Expenditure
Level of Required Approval
$4,000 - 5,000
$5,001 - 99,999
$100,000 - 249,000
Managing Director and Financial Manager
President of Universal
President of Universal (Also requires Profit
Improvement Form and DTI review)
President of DTI
DTI Board of Directors
Dover Corporation Board of Directors
$250,000 - 999,999
$1,000,000 - 5,000,000
Greater than $5,000,000
Accounts Payable, Payroll and Expense Concerns
Check Request Authorization
PURPOSE:
To define Universal’s policy regarding the controls used for authorization and processing of
check requests to procure goods and services. This policy applies to all Universal facilities
worldwide.
RESPONSIBILITIES:
Each employee is responsible for preparing the appropriate documentation of reasonable and
necessary goods and services being procured via a check request and incurred on behalf of or
while conducting company business. The originator of the request is responsible for the
appropriate general ledger account coding of expenditures.
The manager/supervisor, based on his/her authorization levels, is responsible for the necessity
and propriety of business related expenses, including the approval, review and authorization of
such goods and services. The manager/supervisor shall ensure that the internal controls and
approval requirements for business related goods and services are followed by his/her staff.
The supervisors, managers, directors and CFO shall ensure that this policy is adequately
executed and appropriately interpreted, including the related procedures and work instructions.
The CFO shall ensure that this policy and its corresponding procedures and work instructions
are maintained and updated in a timely manner.
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APPROVAL LEVELS:
Please refer to the delegation of authority matrix in the Quality Systems database for the latest
version.
DESCRIPTION:
An authorized manager or Corporate Vice President must sign the check request or approve via
a Lotus Notes Database based upon their level of approval authority.
Accounts Payable will verify each check request to ensure the above is filled out properly. Any
errors on the check request will cause it to be returned to the originator to be corrected. An
error slip noting the error condition or conditions will be attached to the check request. Check
requests will be processed in conjunction with normal Accounts Payable check runs.
Use of multiple check requests to circumvent the approval levels is strictly prohibited. All
checks should clearly indicate the appropriate payee; no checks should be payable to “bearer”.
Blank Check Stock Guidance
PURPOSE:
To define Universal’s procedure for handling blank check stock. This policy applies to all
Universal facilities worldwide.
RESPONSIBILITIES:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is adequately executed and appropriately interpreted, including the related
procedures and work instructions. Additionally, the CFO shall ensure that this policy and its
corresponding procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
The blank check stock is to be kept in a secured area.
Check stock is not numbered. The SAP system automatically generates the check numbers.
SAP does not allow the same check number to be used twice.
A designated printer uses a special check signing plate to sign the checks as they are issued. If a
check needs to be replaced, the original check has a stop payment placed on it by the bank. A
program in SAP will issue a new check.
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Employee Business Expense Reporting
PURPOSE:
To define Universal’s worldwide policy with respect to the reimbursement of employees for
reasonable expenses incurred while carrying out authorized work assignments. This policy is
applicable to all Universal employees worldwide.
RESPONSIBILITY:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is adequately executed and appropriately interpreted, including the related
procedures and work instructions. Additionally, the CFO shall ensure that this policy and its
corresponding procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
In order to ensure that reasonable diligence is exercised prior to the payment of business related
expenses, each subsidiary’s policy and procedures should address the following:

The policy should clearly define the general nature and types of business expenses eligible
for reimbursement. Personal expenses incurred while employees are not conducting
company business are not reimbursable under any circumstances.

Original receipts should support business expenses. If local law permits, a threshold may be
established for incidental expenditures under a designated dollar amount (e.g. $25) to reduce
the level of receipt retention and record keeping burden. Under no circumstances shall
employees seek reimbursement for expenses in excess of those actually incurred.

Employees should indicate the nature and purpose of each business expense on their
submitted expense report.

Expense reports should be subject to review by a supervisor or another designated
individual. The level of review necessary should be consistent with the level of authority
outlined in the local country’s Delegation of Authority Approval Matrix.
Payroll Processing
PURPOSE:
To define Universal’s policy regarding the payment of wages to employees. This procedure
applies to all employees worldwide.
RESPONSIBILITIES:
Each Financial Manager is responsible for ensuring that this policy is followed and that Human
Resource policies are followed as they apply to the payroll function. In addition, each Financial
Manager is responsible for ensuring that local government rules and regulations are applied.
They are also responsible for communicating this policy to the payroll organization and making
sure that sufficient funds exist at the banking institution to cover all wages paid.
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DESCRIPTION:
It is the responsibility of those doing the payroll to receive all necessary information from all
outside sources in order to ensure that this policy is followed. An accurate payroll shall include
the payment for hours worked, overtime hours per the Company’s policy, vacation pay,
performance bonuses and extra pay types as so designated by the Company and the Human
Resource policies. Payment of wages shall be made only to active employees. It is Universal’s
policy to insure that employees are paid accurately and consistently.
Income Tax Concerns
Accounting for Federal, State & Other Taxes
PURPOSE:
To define Universal’s policy regarding the accounting for Federal income taxes, state income
taxes, state sales & use taxes, franchise taxes, property taxes and other miscellaneous federal,
state and local taxes, including taxation at the international locations. This policy is applicable
to all finance employees, in all facilities worldwide.
RESPONSIBILITY:
Each finance employee is responsible for the execution and adherence to this policy and for
ensuring that each of Universal’s locations remains in compliance with the regulations of the
applicable U.S. Federal, U.S. state, local and foreign tax authorities, as such regulations apply to
the employee’s job responsibilities.
The finance organization supervisors, managers, directors and CFO shall ensure that this policy
is adequately executed and appropriately interpreted, including the related procedures and work
instructions. The supervisors, managers, and directors are responsible for ensuring that each of
their respective departments remain in compliance with the regulations of the applicable U. S.
Federal, U.S. state, local and foreign tax authorities. This includes ensuring that all required
filings (i.e. returns, reports, extensions, surveys, etc.) and processing of payments are performed
in a timely manner to avoid unnecessary assessment of penalties and interest.
The Manager of Corporate Financial Services, the Manager of Corporate Financial Planning &
Analysis and the CFO are responsible for ensuring the Company’s tax provisions, tax liabilities
and deferred taxes reflected on the consolidated financial statements are in conformity with U.S.
GAAP promulgated by Statement of Financial Standard No. 109 - Accounting for Income Taxes
and the Dover Accounting Manual.
The CFO is further responsible for ensuring that this policy and its corresponding procedures are
maintained and updated in a timely manner.
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DESCRIPTION:
The accounting for income taxes includes U.S. Federal, foreign statutory, U.S. state and local
income and other taxes and the related tax credits as provided under current tax law. For U.S.
Federal tax purposes, Universal files as part of the Dover Corporation consolidated federal tax
return. Reference is made here to the Dover Corporation tax sharing agreement. Universal files
on a stand-alone basis for all other tax-related filings.
The Manager of Corporate Financial Services and the CFO are responsible for ensuring the tax
liabilities and related provisions are calculated at the current U.S. Federal, state and local rates
or at the statutory rates of the country in which the Company is domiciled. The current U.S.
Federal corporate tax rate is 35%. The prevailing corporate tax rate varies by state and local tax
jurisdiction.
All Federal, foreign, state and local tax planning, issues, strategies, audits, etc. should be
coordinated with DTI and the tax department at Dover in New York.
Deferred Taxes
PURPOSE:
To define Universal’s worldwide policy with respect to the calculation of deferred taxes.
RESPONSIBILITY:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is adequately executed and appropriately interpreted, including the related
procedures and work instructions. Additionally, the CFO shall ensure that this policy and its
corresponding procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
Deferred taxes should be recorded when the reporting value of an asset or liability differs from
its tax value as a result of temporary book vs. tax differences. The nature of the deferred tax
item will determine whether it gives rise to a deferred tax asset or a deferred tax liability.
An item giving rise to a deferred tax asset is one that was expensed in the current period, or in a
prior period for book purposes but will not be deductible for tax purposes until a later period.
Some examples of these in the U.S. include the reserve for bad debts, warranty reserves,
inventory obsolescence reserves, etc. Net operating loss carryforwards are also considered
deferred tax assets as they serve to reduce future taxable amounts.
An item giving rise to a deferred tax liability is one that was deducted for tax purposes in the
current period or in a prior period, but will not be expensed in the books of record until a later
period. Some example of items that give rise to this in the U.S. include accelerated tax
depreciation, retainage amounts, etc.
All items giving rise to deferred tax assets and liabilities are added together and the net effect is
multiplied by the enacted statutory tax rate. For non-U.S. companies this rate may be the sum
of the country and local tax rates. For U.S. companies it should be the Federal tax rate of 35%.
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The sum of those items at the applicable rate is the amount that should be recorded. All
deferred tax balances are recorded in the liability section of the balance sheet. Deferred tax
assets will be bracketed amounts in the liability section.
See an example calculation below:
Future Tax Expenses
Bad debt reserve
Warranty reserve
Inventory obsolescence reserves
Total
(50,000)
(200,000)
(400,000)
(650,000)
Future Book Expenses
Difference between book and tax
accumulated depreciation
300,000
Net Future Tax Expenses (Deductions)
Enacted statutory tax rate
Net Deferred Tax Asset
(350,000)
35%
(122,500)
The entry to record/revise the estimate of deferred taxes is a balance sheet reclassification only.
Adjustments to the account should increase or decrease the amount of current taxes payable.
If you are currently operating in a significant loss position, no deferred tax asset or liability
should be recorded, as it is uncertain that you would have the ability to utilize your deferred tax
items to offset future income.
Permanent differences (i.e. differences resulting from something other than the mere timing of
recognition of income or a deduction) do not give rise to deferred taxes.
The deferred tax balance should be reviewed on a regular basis, at least quarterly to ensure
significant misstatements do not occur.
Business Activities or “Nexus” Questionnaires
PURPOSE:
To define Universal’s worldwide policy with respect to jurisdictional business activities and
“Nexus” concerns for all locations worldwide.
RESPONSIBILITY:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is adequately executed and appropriately interpreted. Additionally, the
CFO shall ensure that this policy and its corresponding procedures are maintained and updated
in a timely manner.
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DESCRIPTION:
On occasion, certain tax jurisdictions (country, state, province, canton, etc.) will send out
questionnaires to companies. It is extremely important that all tax inquiries, concerning our
business activities, are carefully completed and reviewed by the Corporate Office and the Dover
tax department.
The business activities questionnaires are generally designed to entice taxpayers to describe as
many business contacts as the jurisdiction can elicit. It is in a taxpayer’s best interest to
minimize contacts based on a true presentation of the facts.
For example, if the question is “Do we ship products into the jurisdiction in our own vehicles?”
and we have done so only once in three years, then the proper response is no, with an asterisk
indicating we had had one such shipment in the last three years. If we answer yes, the positive
response would weigh heavily against us.
The subsidiary should complete a draft questionnaire, a copy of which should be sent to the
Corporate Office for a complete review and then to Dover's New York tax department for final
review.
After it is reviewed, the completed questionnaire should be filed directly by the subsidiary that
received it.
Other Concerns
Insurance Claim Reporting
General Liability, Property and Business Interruption Insurance
PURPOSE:
To define Universal’s worldwide policy with respect to reporting insurance claims covered
under Dover’s General Liability, Property and Business Interruption Insurance Policies.
RESPONSIBILITY:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is adequately executed and appropriately interpreted, including the related
procedures and work instructions. Additionally, the CFO shall ensure that this policy and its
corresponding procedures and work instructions are maintained and updated in a timely manner.
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DESCRIPTION:
There are a variety of deductibles and policy ceiling limitations that apply to the General
Liability, Property and Business Interruption insurance policies. The deductibles are as follows:
General Liability
Property
Business Interruption
$250,000
$50,000
$50,000
The ceiling limitations are quite large and are generally not a concern at the subsidiary level. If
questions arise because of a large claim, they should be communicated to the Corporate Office
and Dover’s Risk Management Group.
Generally, subsidiaries will not be affected by insurable business interruptions. However, if an
event occurs that appears to affect a subsidiary’s ability to operate normally, the Manager of
Corporate Financial Services should be contacted. He/she will work with Dover to determine
whether the event is insurable.
Claim Filing
Because the deductibles are quite large, most events are not insurable. However, if a loss
occurs that is insurable, a claim should be filed. All insurance claims should be reported to the
subsidiary Finance Manager if the claim event occurs outside of the U.S., or the Manager of
Corporate Financial Services if it occurs within the U. S. It is their responsibility (or an
appropriate designee) to compute, report and manage the claim with the local insurance
broker/company. Additionally, the Manager of Corporate Financial Services should be notified
of any claim that occurs so that Dover can be notified, if necessary. In all cases, efforts should
be taken to expedite the claim reimbursement process.
Accounting Treatment
If a general liability claim occurs, a liability should be recorded when a claim is probable and
estimable. The portion that is uninsured should be expensed. For example, if a probable claim
exists that aggregates to $400,000, then the subsidiary should record an expense and
corresponding liability for $250,000, as the deductible portion will be paid by Universal while
the remaining $150,000 will be reimbursed by the insurance company and therefore is not
expensed. Additionally, if a property loss occurs, the value of the asset impaired should be
recognized. For example, if inventory of $125,000 has been damaged in a fire, the equipment
should be scrapped and the scrap loss may be offset by the insurance company receivable less
the insurance deductible. In this example, the net P&L effect would be $50,000, the amount of
the deductible.
Marine and Cargo Transport Insurance
PURPOSE:
To define Universal’s worldwide policy with respect to reporting insurance claims covered
under Dover’s Global Marine and Cargo Transport Policy.
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RESPONSIBILITY:
The Manager of the Customer Support Center, Manager of Corporate Financial Services,
subsidiary Financial Managers and the CFO shall ensure that the policy is adequately executed
and appropriately interpreted, including the related procedures and work instructions.
Additionally, the CFO shall ensure that this policy and its corresponding procedures and work
instructions are maintained and updated in a timely manner.
DESCRIPTION:
When a Universal representative is notified of damage, the Customer Support Center (CSC)
should be contacted immediately. The CSC will ensure that the machine is replaced as soon as
possible to avoid customer interruptions. Additionally, the CSC will review the terms of sale,
as they indicate who is responsible for insurance coverage and ultimately the claim. If it is
determined that the customer is responsible (e.g. order was Ex works, Binghamton, NY, USA),
then they must file a claim to recover damages directly, without involvement from Universal.
If, however, the terms are such that Universal is responsible, (e.g. DDP, Customer Site, Mexico)
Universal is required to file a claim.
Claim Filing
To file a claim, the subsidiary Financial Manager should contact our insurance broker, Marsh
Marine & Energy, directly. Instructions for filing a claim are included in Exhibit 4 – Marine
Insurance Claims Procedures. Concurrent to contacting Marsh, an e-mail notification of claim
filing should be sent to the Manager of Corporate Financial Services. The Manager of
Corporate Financial Services is the risk management liaison between Universal and Dover. If
no finance representative exists in the local sales office, the Manager of the CSC and/or the
Manager of Corporate Financial Services can support this effort from Binghamton.
Claim Substantiation
The process for claim substantiation will be based on the amount of damage and/or what the
insurance adjuster requires. The sales order and the shipping documentation is always required.
If the goods are assessed initially by the insurance adjuster as a total loss, then the sales order
and shipping documentation is all that will be required for Universal to recover the customer
sales order value. However, if the loss is something other than a total loss, then Universal will
recover the cost to retrofit the items (or replace them). These claims require greater effort to
support the amounts claimed. In these instances, the insurance company will typically require a
written assessment. If a written assessment is required, the Business Unit Product Manager
should be consulted. The Product Manager will aid in making the decision whether the damage
assessment can take place locally by a Field Engineer or Technical Engineer.
If an on-site inspection cannot be done, the product needs to be returned to Binghamton. A
CSC representative will need to issue a Return Authorization. The Product Team Manager (or
designee) should manage this assessment process.
The assessment should result in a report that specifies what needs to be done to the machine, as
well as the cost for parts and labor, to bring the machine up to the original salable specification.
This report should then be sent to the original requester (the subsidiary Finance Manager or the
Manager of the CSC). They will ensure that the report is sent to Marsh or the insurance claims
adjuster for a final decision.
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Release of damaged product for resale, scrap, etc.
Nothing can be done with the machine (product) until the insurance company has made its final
report. This includes but is not limited to selling or scrapping the machine. The subsidiary
Financial Manager, Manager of the CSC, or the Manager of Corporate Financial Services will
notify the product team when this occurs.
Accounting Treatment
There is no deductible or relevant policy ceiling limit provision in the Dover Marine and Cargo
Transit policy. Therefore, all of our losses are insurable. The impact of insurable losses must
be recorded to the extent that the loss impairs the value of the asset (the equipment). For
example, if a machine with a cost of $150,000 and a selling price of $300,000 is damaged
beyond repair, and the total loss has been acknowledged by the insurance company, then the
equipment may be scrapped and the scrap loss may be offset by the insurance company
receivable equal to the cost of the equipment, or $150,000. However, the gain on insurance
reimbursement (i.e. the difference between the selling price and its standard cost) should be
deferred until payment receipt. If the equipment is repairable, the machine should remain in
inventory at its standard cost and the incremental cost to repair the machine should be offset by
the amount of the insurance company receivable.
Petty Cash
PURPOSE:
To define Universal’s policy regarding the establishment of petty cash funds, the processing of
transactions, and the authorization and approval of such transactions. This policy applies to all
Universal facilities worldwide.
RESPONSIBILITY:
Each employee is responsible for the execution and adherence to this policy when disbursing or
receiving petty cash for business transactions. The supervisors, managers, directors and the
CFO shall ensure that this policy is adequately executed and appropriately interpreted, including
the related procedures and work instructions. The supervisors, managers, directors and CFO are
responsible for the propriety of the petty cash disbursement, including the authorization, review
and approval of all petty cash transactions.
The CFO is also responsible for ensuring that this policy and its corresponding procedures are
maintained and updated in a timely manner.
DESCRIPTION:
Petty cash is intended to be used for cash purchases of miscellaneous operating or office
supplies where it is not possible or cost effective, because of the circumstances involved, to
utilize another procurement method. It is not intended for the procurement of goods or services,
unless an emergency condition exists. The petty cash fund is not to be used to cash personal
checks.
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A petty cash voucher must be signed by the appropriate manager or supervisor. The use of
multiple petty cash vouchers to circumvent approval levels is strictly forbidden. The total
amount allowed for disbursement varies by location based on that location’s fund limit.
Where the petty cash receipts precede the actual expenditure, the petty cash disbursement will
be reconciled to the actual business expenses incurred and the excess or shortage will be
collected from or paid to the employee.
The necessity of petty cash funds and their respective funding limits are to be approved by the
CFO. The necessity of such funds at each of Universal’s locations will be reviewed annually.
One custodian at each location will administer petty cash. That custodian will be supported by
one back up person in the event the custodian is absent from that location. The petty cash funds
will be secured in a safe location at the end of each workday and safeguarded throughout each
workday.
Petty cash is replenished via a check request by the custodian to the Accounts Payable
department. The check request must detail the expenses incurred, including receipts for
documentation purposes. The check request will go through the normal accounts payable check
approval process. (See Section 3 - Check Request Authorization)
An independent employee will audit the petty cash funds (via a physical cash count)
periodically, at the discretion of the CFO.
Subsidiary Internal Control Reviews
PURPOSE:
To define Universal’s worldwide policy with respect to Internal Control Reviews performed at
Universal’s subsidiaries.
RESPONSIBILITY:
The Area Operations Controller and the CFO shall ensure that the policy is adequately executed
and appropriately interpreted, including the related procedures and work instructions. The
subsidiaries’ General Manager and Finance Manager are responsible for ensuring compliance
with Company policies and procedures at their facility. Additionally, those individuals are
responsible for adequately preparing for the review to ensure that it can be performed
effectively and efficiently. The CFO shall ensure that this policy and its corresponding
procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
Dover is one of the few Fortune 500 companies that does not maintain a Corporate Internal
Audit Group. This is a direct result of other effective mitigating operating and internal control
procedures at the Corporate Office and subsidiary level. One of the strongest mitigating
controls is an effective Internal Control Review process.
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Members of the Global Finance Team perform Universal’s Internal Control Reviews on a
periodic basis, typically bi-annually. The main objective of the review is to ensure that
corporate policies and procedures are adequately designed, documented and functioning
properly. While in general, any area of compliance may be subject to review, those typically
reviewed include the following:






General accounting
Cash receipts
Accounts receivable
Inventory
Cash disbursements
Information technology
Upon completion of the review, an informal summary of observations is provided to the
subsidiary’s General Manager and Financial Manager. These observations are designed to
initiate a dialogue of potential enhancements in the design and function of internal controls at
the subsidiary. The subsidiary General Manager and Financial Manager should take these items
seriously and take appropriate steps to address observations of serious concern.
Government Reports Guidance
PURPOSE:
To define Universal’s procedure regarding sales and expense information provided by request
from government agencies. This policy applies to all Universal facilities worldwide.
RESPONSIBILITY:
The Corporate Operations Controller, Manager of Corporate Financial Services, subsidiary
Financial Managers and the CFO shall ensure that the policy is adequately executed and
appropriately interpreted, including the related procedures and work instructions. Additionally,
the CFO shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
DESCRIPTION:
Information requested from government agencies concerning sales and expense information will
be provided in an accurate and consistent basis. Care should be taken to protect specific
product line sales and margin information. All financial data provided should be at the highest
possible level of summarization.
Export Compliance
PURPOSE:
To define Universal’s procedure regarding compliance with the U. S. Department of
Commerce’s policy with regard to Embargoed Countries. This policy applies to all Universal
facilities worldwide.
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RESPONSIBILITY:
The Corporate Operations Controller, Manager of Corporate Financial Services, subsidiary
Financial Managers and the CFO shall ensure that the policy is adequately executed and
appropriately interpreted, including the related procedures.
DESCRIPTION:
It is Universal’s policy to comply with all the laws of the United States of America.
Periodically it is the wishes of the U.S. Government to restrict exports to designated countries.
Refer to the “International Trade” database, Item E.2 “TDO & SDN List” and Item H.
“Embargoed/Restricted Countries”. No export sales should occur between any Universal
subsidiary and a potential customer located in those countries.
Additionally, the U.S. government maintains anti-boycott laws. Refer to the “International
Trade" database, Item I. “Anti-boycott Restrictions” for further details. If there are any
questions about the application of these policies, they should be directed to the Export/Import
Administrator.
Confidentiality of Company Records, Financial and Operating
Information
PURPOSE:
To define Universal’s policy regarding the confidentiality of Company records, financial and
operating information, including the privacy of employee records and personnel files. The
policy is made to ensure the protection of all Company information with which each employee
works or to which the employee has access. This policy applies to all Universal facilities
worldwide.
RESPONSIBILITY:
Each employee is responsible for the execution of and adherence to this policy when working
with Company financial and operating information. The employee is responsible for
safeguarding confidential information from unauthorized oral or written disclosure to other
employees or to any outside person or entity. Special care should be given to employee records
and payroll-related information.
The supervisors, managers, directors and CFO shall ensure that this policy is adequately
executed and appropriately interpreted, including the related procedures and work instructions.
The supervisors, managers, directors and the CFO are responsible for the review, approval and
the necessity of employee access to specific Company information. The CFO is further
responsible for ensuring that this policy and its corresponding procedures are maintained and
updated in a timely manner.
DESCRIPTION:
Any and all information obtained by, originated by, produced by or used by an employee during
the normal course of business is the property of the Company. Information includes facts, data,
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summaries, analyses, notes, drawings, sketches, descriptions, records, articles, payments, lists,
billings, invoices, purchase orders, financial statements of analyses, operating analyses, tax
returns or related correspondence, etc.
No information which is the property of the Company may be copied by facsimile, replica,
recording, photograph, electronic or other means, except as required in the normal course of job
related performance and then in the necessary number of copies only.
Various Company information is classified and identified as “confidential” and shall be
restricted to authorized employees only. This classification is for the purposes of criminal or
civil litigation in the event of theft.
Record Retention
PURPOSE:
To define Universal’s worldwide policy with respect to the retention of the Company’s financial
documents. Financial records should not be retained any longer than required by law or needed
for possible reference.
RESPONSIBILITY:
The Manager of Corporate Financial Services, subsidiary Financial Managers and the CFO shall
ensure that the policy is interpreted and executed properly. Additionally, the CFO shall ensure
that this policy and its corresponding procedures and work instructions are maintained and
updated in a timely manner.
DESCRIPTION:
Maintaining and storing records is a costly responsibility of business. In order to keep these
costs to a minimum, financial records should not be retained any longer than required by law or
needed for possible reference. Exhibit 1 outlines the required length of time that financial
documents must be maintained by the Company before they can be disposed of. This policy is
to be followed unless there are instances where this policy contradicts local law. In the
event local law requires document retention that exceeds the time outlined by this policy,
local law is to be followed.
Retention of these items can take various forms from hardcopy to microfiche to system-based
media. Again as noted above, local laws should be considered when determining the
appropriate medium to utilize.
Documents that no longer fall within the guidelines of this policy should be disposed of. The
method of disposal is at the discretion of the Manager of Corporate Financial Services and the
subsidiary’s Financial Manager, however the method of disposal should correspond to the
sensitivity of the data involved. All Company information is to be safeguarded from
unauthorized disclosure to any outside person or entity. Special care should be given to the
disposition of payroll and other employee information.
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For guidance as to the nature of the documents covered under this policy and the required
retention period, see Exhibit 1 – Document Retention Policy
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Section 4 - Binghamton and Corporate Office Policies
General Concerns
General Ledger Account Reconciliations
PURPOSE:
To state Universal’s policy for maintaining accurate financial records and define the process for
general ledger account reconciliations.
RESPONSIBILITY:
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is
appropriately interpreted and properly executed, including the related procedures and work
instructions. The Manager of Corporate Financial Services will review all account
reconciliations on a regular basis to ensure the accuracy of the Company’s financial records.
DESCRIPTION:
All balance sheet general ledger accounts should be reconciled on a regular basis by the
individual responsible for the account. A reconciled account is one where the general ledger
balance is in agreement with the subsidiary ledger, if one exists. The individual must be able to
identify the proper types of transactions that should reside in the account. All amounts that are
misclassified should be adjusted into the correct general ledger account when identified.
For consistency purposes, all account reconciliations should include Universal Instruments’
name, the general ledger account name and number, and the date for which the reconciliation
was prepared.
A matrix of all the appropriate balance sheet accounts was created to assign specific account
responsibility to individuals in the Binghamton Finance department. All balance sheet account
reconciliations should be prepared as of the last day of the month, and all account reconciliations
should be provided to Corporate Financial Services by the 20th of the following month for
inclusion in the monthly account reconciliation binder.
General Ledger Transactions
PURPOSE:
To define Universal’s corporate policy with respect to processing consolidated journal control
sheets and journal entries.
RESPONSIBILITY:
The supervisors, managers, directors and CFO shall ensure that this policy is adequately
executed and appropriately interpreted, including the related procedures and work instructions.
The Manager of Corporate Financial Services, Manager of Corporate Financial Planning &
Analysis, CFO and each subsidiary’s Financial Manager are responsible for ensuring that all
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journal entries recorded on Universal’s books and records are authorized, approved, accurate,
and complete. All journal entries shall be consistent with the requirements of GAAP, SEC
reporting requirements, and any other local laws and regulations of the subsidiary locations.
The CFO shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
DESCRIPTION:
General Procedures
1. A “Journal Entry Input” document must be submitted for all entries listed on the Journal
Entry Control Sheet. If there is no entry for the month, write NONE on the “Journal Entry
Input” document and submit it.
2. Each standard (for the current period) and correcting (for current and/or prior period(s))
journal entry must be prepared in its entirety.
3. During preparation of the Journal Entry, it is the responsibility of the preparer to ensure the
general ledger account(s) are valid.
4. Each standard and/or correcting journal entry must be reviewed and initialed by the
supervisor/manager. The person preparing an individual Journal Entry shall not also approve
such entry.
5. After approval has been obtained, the party responsible for the journal entry preparation must
submit the journal entry to Corporate Financial Services and log said entry on the control
sheet.
6. Upon completion of the journal entry input process, Corporate Financial Services will record
the system assigned document number on the entry.
7. The Journal Entry Control Sheet must be given to Corporate Financial Services for final
review before the end of the 3rd workday.
8. Corporate Financial Services will perform the Journal Entry validation process through
comparison of the actual entries to the control sheets submitted when filing the Journal
Entries in the record retention book.
Control Procedures
1. Distribute the Journal Entry Control Sheets to the necessary preparers after the prior month is
closed.
2. Prior to distributing the closing schedule, establish that the chronological timetable stresses
maximum input/output at the beginning, not end, of the closing period.
3. During the closing period, monitor the preparation and status of the Journal Entry Control
Sheets with the preparers.
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4. Correcting journal entry numbers (after XX05__) are to be assigned by each area. Note that
a control sheet has been printed to log these entries.
Each supervisor must ensure the duplicate control numbers are not used in any one closing
period.
See Section 5, Exhibit 2 – Worldwide Chart of Accounts
Check Signing Controls
PURPOSE:
To define Universal’s policy regarding the controls used for the access of the signature plates,
MICR signature pont and signing of the payroll checks.
RESPONSIBILITIES:
Each Financial Manager is responsible to insure that this policy is followed and communicated to
the organization. It is the responsibility of the Financial Manager and the CFO to control the
usage of the signature plate.
DESCRIPTION:
Access to the signature plate shall be denied to anyone other than those designated by the
Financial Manager or the CFO. The MICR signature pont resides in the designated check
printer. Access is restricted to authorized payroll personnel. After completion of a check cycle
in SAP, system assigned check numbers are generated. The check print program prints check
numbers, MICR data and authorizing signatures on the check. If a check needs to be replaced,
the Financial Manager must authorize it. The voided check is retained by the Financial Manager.
Inventory and Cost of Sales Concerns
Inventory Standard Costing and Full Absorption Methods
PURPOSE:
To define Universal’s procedure regarding standard cost and full absorption methods.
RESPONSIBILITY:
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is
appropriately interpreted and properly executed, including the related procedures and work
instructions.
The CFO shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
DESCRIPTION:
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Standard costs of manufactured items will be based on bills of material, routings, standard
overhead rates and standard values for purchased components.
Where no standard bill of material or routing exist for a manufactured item, the overhead and
materials charged to a manufacturing order will be the standard cost.
Items in inventory which have a market value lower than the standard cost of the item should
have their standards reduced to the market value in accordance with GAAP requirements
regarding the lower of cost or market valuation. The value of the write down will be charged to
the direct manufacturing costs of the area owning the item. All lower of cost or market changes
should be reviewed and approved by the CFO.
Overhead rates will be utilized in valuing inventory in accordance with Internal Revenue Service
regulations regarding Full Absorption Methods. Overhead variances will be included in Cost of
Sales and reported as direct manufacturing costs.
Standard Cost Variances
PURPOSE:
To define Universal’s procedure regarding standard cost variances. All Universal locations that
manufacture product are required to follow these procedures.
RESPONSIBILITY:
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is appropriately
interpreted and properly executed, including the related procedures and work instructions.
The CFO shall ensure that this policy and its corresponding procedures and work instructions are
maintained and updated in a timely manner.
DESCRIPTION:
 Actual costs of purchased items will be compared to their standard costs and the difference
will be entered in the purchase price variance account in the general ledger.

Differences between the accumulated costs on a manufacturing order and the standard costs
of the items received into stock from the manufacturing order will be entered in the
manufacturing variance account in the general ledger.

Differences between the manufacturing overhead incurred and the manufacturing overhead
applied will be recorded in the ledger as an overhead variance.

Standard cost variances will be reported as direct manufacturing costs and therefore
accounted for as period costs.
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Consignment Inventory
PURPOSE:
To define Universal’s corporate procedure on consignment inventory.
RESPONSIBILITY:
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is
appropriately interpreted and properly executed, including the related procedures and work
instructions.
DESCRIPTION:
The customer or the sales engineer initiates an agreement to consign a machine for a period of
time at no charge. If the machine is to be used solely for training or demonstration purposes, for
its entire useful life, it should be evaluated for potential capitalization as a fixed asset.

Consignment inventory (comprised of demo, training, rental, and customer evaluation
equipment) shipped from any location will be accounted for as inventory under a specific
product line. Generally, all consigned inventory is recorded on Binghamton’s general ledger
(SAP company code US01).

Equipment shipped to a subsidiary for either training/demo or rental purposes will not result
in a sales transaction for the division at this time. Once the equipment is sold to a trade
customer, the division will be credited with that revenue.

A monthly amortization of the standard cost value of consigned equipment assigned to each
subsidiary will be charged to them through the advance account.

Reports of all equipment on consignment will be maintained. The reports will give
consignment data by business unit and list both the gross cost and the net cost.
Product Development Reporting
PURPOSE:
To define Universal’s procedure regarding product development reporting. All U.S. business
units involved with product development activities should follow these procedures.
RESPONSIBILITY:
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is
adequately executed and appropriately interpreted, including the related procedures and work
instructions. Additionally, the CFO shall ensure that this policy and its corresponding
procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
 All jobs need Corporate “Starts Control” team approval.
 All costs associated with product development will be accumulated and recorded under a
specific product development job number in SAP.
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
All reports will identify product development data to a business unit and a product code.
Fixed Asset Concerns
Other Fixed Asset Matters
PURPOSE:
To define Universal’s policy for the physical inspection of significant fixed assets, fixed asset
impairment and accounting for fixed asset disposals. All U.S. Universal locations are required to
follow this policy.
RESPONSIBILITY:
The Manager of Corporate Financial Services and CFO shall ensure that this policy is adequately
executed and appropriately interpreted including the related procedures and work instructions.
The CFO is further responsible for ensuring that this policy and its corresponding procedures are
maintained and updated in a timely manner.
DESCRIPTION:
Physical Inspection of Fixed Assets
On a periodic basis, as determined by the Manager of Corporate Financial Services and the CFO,
a physical inspection of significant fixed assets should occur. The frequency of the inspection
should be not less than every five years. This inspection should be performed in connection with
the Corporate Financial Services department and the Business Unit Controller assigned to the
functional business. The process should include establishing a reasonable scope of items to
review, verification of an asset’s existence and a physical inspection of its continued use and
economic utility. If the asset is either unlocatable or has experienced a perceived loss in its
economic utility, it should be disposed of and any undepreciated value expensed.
Business Unit Controllers should pay close attention to any events that could impact the carrying
value of an asset. Additionally, it is their responsibility to notify Corporate Financial Services
whenever an event occurs that significantly impairs the economic utility of a fixed asset. Events
that could impact an asset’s economic utility include the following: Damage due to fire, theft,
misuse, outsourcing activities rendering a machine or building idle, discontinuance of a product
line, etc.
Disposal Process
All fixed asset disposals should be requested via an Asset Disposition Approval Request. This
document highlights various information including: Asset description, reason for disposal, brass
tag number, requesting party and cost center in which the equipment is located. Additionally,
this document requires the approval of the requesting party, Corporate Finance and the Business
Unit Vice President. After all approvals have been obtained, the fixed asset will be removed
from the fixed asset ledger.
If an asset is disposed of in connection with a trade-in for a new asset and results in a gain, the
gain should be deferred for income tax purposes. This is accomplished by reducing the
capitalized value of the new item by the amount of the deferred gain.
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Income Tax Concerns
Extraterritorial Income Regime (ETI) Tax Credit
PURPOSE:
To define Universal’s domestic policy with respect to Extraterritorial Income Regime (ETI) tax
deduction compliance. The ETI program replaces the Foreign Sales Corporation (FSC) tax
credit which was phased out in 2001. The ETI program was created to ease WTO concerns with
the FSC.
RESPONSIBILITY:
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is
adequately executed and appropriately interpreted, including the related procedures and work
instructions. Additionally, the CFO shall ensure that this policy and its corresponding
procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
Dover Corporation maintains a Foreign Sales Corporation in an effort to maximize available tax
benefits afforded to U.S. companies. Accordingly, any U.S. company that manufactures a
product which is more than 50% U.S.-sourced (parts & labor) and is to be consumed or used
outside the United States is eligible to participate in the ETI Regime.
The amount of the tax deduction a company is will receive is based on one of the following:
Foreign trade income, foreign gross receipts or leasing income. The company is able to choose
the calculation method that provides the largest tax benefit. The Company’s standard calculation
for the credit is contained in DRS schedule S0226. The S0226 rate should be applied to export
sales on a monthly basis and the credit should be recorded in the profit and loss statement.
Listed below are additional details with regard to the credit.
Export Sales
An ETI opportunity exists whenever a sale is generated and the resulting product is expected to
be consumed outside the United States. The following sales qualify:






Sales of qualifying foreign trade property
Leasing and rental of qualifying foreign trade property
Related and subsidiary services
Sales to domestic companies where the goods will have an ultimate destination outside the
United States
Engineering and architectural services for foreign construction projects
Managerial services for unrelated parties in producing foreign trade gross receipts
Calculation of Tax Deduction
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ETI Deduction = 15% of Foreign Trade Income (FTI)
Example
Foreign Trading Gross Receipts
(minus) Cost of Goods Sold
Gross Margin
(minus) Allocated &
Apportioned Expenses
Foreign Trade Income
$1,000
(400)
600
Deduction = (15% of 400) or $60
(200)
$400
Note: The ETI Regime provides an enhanced benefit for leasing and licensing income derived
outside the U.S. The ETI provides for an additional 15% benefit of Foreign Trade Income
derived from leasing and licensing activities. In the example above, if all of the Gross Receipts
are related to leasing and licensing transactions, the deduction would be $120. If half of the FTI
was normal sales and half was leasing/licensing, the deduction would be $90 (15% of 200 &
30% of 200).
If the Company is operating with a Foreign Trade Loss, Universal will not receive a tax benefit
or tax decrement from the “normal” ETI calculation, however we will still receive a 30% benefit
of leasing and licensing gross margin.
Quarterly Deliverables
The following items are required on a quarterly basis:

A calculation of profit on all qualified ETI shipments, the details of which are reported in
DRS schedule S0226 and provided to Dover.

A copy of all sales orders executed during the quarter, sent to Dover Exports, LTD in Canada
for approval.
Annual Deliverables
Customer addressed statements and envelopes must be sent to JP Morgan Chase in the Virgin
Islands annually. Typically, these items are due in December of the current ETI reporting year.
Research and Development Tax Credit Compliance
PURPOSE:
To define Universal’s domestic policy with respect to the Research and Development (R&D) tax
credit compliance.
RESPONSIBILITY:
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is
adequately executed and appropriately interpreted, including the related procedures and work
instructions. Additionally, it is the responsibility of the Manager of Corporate Financial Services
to keep the business unit product development groups informed of current IRS documentation
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requirements. The CFO shall ensure that this policy and its corresponding procedures and work
instructions are maintained and updated in a timely manner.
DESCRIPTION:
Dover actively pursues calculating and documenting the R&D tax credit to minimize income tax
expense. The basis of the credit centers on the concept of qualified R&D activities. Qualified
activities are defined as the following:
The development of a new or improved business component which is technological in nature,
involves the process of experimentation where uncertainty is eliminated and the ultimate purpose
is a new or improved function, performance, reliability or quality (permitted purpose.)
A business component may be a product, process, computer software, technique, formula or
invention.
The “Four Tests”
The following four tests are used to determine R&D tax credit eligibility. Note that the first and
last tests are generally very easy to meet. Brief descriptions of scientific or engineering
principals involved should satisfy the Technological in Nature test, while the Permitted Purpose
test is almost assured. The most important element is to demonstrate that the Process of
Experimentation and Eliminating Uncertainty tests are met.
1. Technological in Nature
Fundamentally rely on principles of:
Physical Science
Biological Science
Computer Science
Engineering
2. Process of Experimentation
- Evaluation of alternatives
- Confirmation of hypothesis through testing
- Modification of hypothesis through testing
- Evidence of process of experimentation can include:
 Failure
 Cost overrun
3. Eliminating Uncertainty
This is based upon the premise that the information is not generally known to the
development group.
Capability Uncertainty
- Are we capable?
Will generally not apply– it is assumed that
we believe we will be able to accomplish the
objective.
Methodology Uncertainty
- Do we know how?
Do we know the best way to do this? Cost
effective, efficient, etc. – probably most
common.
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Appropriateness of Product Design
Uncertainty
- Do we know what it will look like?
Do we really know where this project will
lead or what the ultimate outcome will be?
4. Permitted Purpose
New or Improved:





Function
Performance
Reliability
Quality
Significant cost reduction
If Universal has activities that meet all four tests, then the activities are deemed qualified and
subject to inclusion in the R&D tax credit. The standard calculation for the credit is contained in
DRS schedule S0208 and should be recorded in the profit and loss statement monthly.
Additionally, an R&D binder should be established annually to maintain a copy of the
calculation and any relevant supporting documentation. Generally, the Product Development
process and the related documentation maintained by the product development groups (both
within the R&D group and the separate business units) document the consideration of the “four
tests”. In the event of an IRS audit, this information will be solicited from the product
development groups to support the tax credit.
Prototype Builds (Alpha Machines)
In the process of developing a new machine, prototype (Alpha) machines are built. This
development process is the implementation of the engineering designs to create working models.
The labor and material content for these machines should be charged to product development for
inclusion in the R&D tax credit. Generally, the first five machines built are considered
prototypes and should be charged to product development. In certain cases, additional machines
could be considered Alpha machines if the process of building prototypes produces significant
design changes. (Please consult the Manager of Corporate Financial Services if you feel these
circumstances apply.) In the event an Alpha machine is sold to a customer, the cost to build that
machine (standard labor & materials) should be removed from product development expense. It
is the business unit controller’s responsibility to convey this information to Corporate Financial
Services to ensure these transactions are treated properly for the R&D tax credit calculation.
Pre-production Builds (Beta machines)
Prior to normal production, several (Beta) machines are built for testing purposes. Generally,
they are requisitioned through the Capital Expenditure Approval Request (CEAR) process and
treated as fixed assets and depreciated. These machines are often sent to customers for fieldtesting and to gather performance data and user feedback. In other cases, these machines are
kept in-house and used by product development for testing activities. Beta machines should not
be charged to product development and should be excluded from the R&D tax credit. In the
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event a Beta machine is sold to a customer, the cost to build that machine (labor & materials)
should be removed from the fixed asset system and reclassified to Cost of Goods Sold.
Expatriate Taxes
PURPOSE:
To define Universal’s domestic policy with respect to expatriate taxation and the responsibility
of the Finance Department.
RESPONSIBILITY:
The Payroll Administrator, the Manager of Corporate Financial Services and the CFO shall
ensure that the policy is adequately executed and appropriately interpreted, including the related
procedures and work instructions. Additionally, the CFO shall ensure that this policy and its
corresponding procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
Occasionally, Universal solicits domestic employees to participate in foreign assignments.
Consequently, participants may incur additional and varying liabilities for foreign and U. S.
income taxes which are directly attributable to the foreign assignment. Refer to the Tax
Equalization Policy maintained by Corporate Financial Services.
The tax equalization concept is such that employees will continue to accrue tax liabilities while
working on a foreign assignment equal to what would have been incurred if they had continued
to work in the U. S. Some of the provisions outlined in the Tax Equalization policy include the
following:

Employees subject to tax equalization will be notified of their participation by reference in
their assignment offer letter.

Employee tax returns and the tax equalization calculation will be prepared and reviewed with
participants by Universal’s tax advisor (currently PricewaterhouseCoopers).

Estimated tax payments will be made on the employee’s behalf by Universal. Any refunds of
these amounts are due and payable back to Universal.

The theoretical U.S. tax liabilities will be borne by the employee, while the liability for
excess taxes will be borne by Universal.

The employee portion of taxes will be withheld from their weekly pay at an estimated rate
which will equal the standard withholding as prescribed by the Federal and state withholding
tax tables which are published annually, less any allowances the employee claims on
submitted U.S. form W4.
As the amount of withholding is an estimate, differences between the employee’s actual tax
liability and the amounts withheld are to be expected. Amounts owed by the employee to
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Universal are due at the time of the receipt the tax equalization calculation from Universal’s tax
advisor, or the receipt of Federal or State income tax refund, whichever comes later.
Other Concerns
Employee Business Expenses
PURPOSE:
To further clarify Universal’s corporate policy regarding expense report authorization and
reimbursement of employee business expenses. This policy is applicable to all domestic
employees.
RESPONSIBILITY:
Each employee is responsible for preparing the appropriate documentation of reasonable and
necessary expenses incurred while conducting company business.
The originator is responsible for the appropriate account coding of each expenditure including
cost center and general ledger account to be charged. Accounts Payable will return an expense
report if it is missing any information. An error slip noting the error condition(s) will be attached
to the expense report.
The manager/supervisor is responsible for the propriety of business expenses, including the
approval, review and authorization of such expenses. The manager/supervisor shall ensure that
his/her staff follows the internal controls and reporting requirements for employee business
expenses.
The CFO is responsible for:
 Ensuring that this policy complies with all legal and Dover requirements as well as
Universal’s business needs,
 Ensuring this policy and the corresponding procedures are maintained and updated in a
timely manner, and
 Ensuring this policy is adequately executed and appropriately interpreted, including the
related procedures and work instructions.
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DESCRIPTION:
General
Reasonable and necessary expenses incurred while conducting company business are
reimbursable if they represent out-of-pocket expenditures beyond those which employee(s)
would have incurred had they remained at their normal reporting location. In general,
reimbursable expenses shall not be for any personal benefit or gain. Reimbursement or
settlement of advances shall be based on the submission of expense reports, which shall be
signed by the reporting employee and bear the signature of approval of the designated approving
authority. The expense report shall explain the business purpose of the trip or expense in
sufficient detail. The approving authority shall have the primary responsibility for ascertaining
that the completed expense report is in full accordance with Universal’s policy before giving
approval. Under no circumstances shall employees seek reimbursement for expenses in excess
of those actually incurred.
Procedures
The immediate supervisor or manager (approval authority) shall have the primary responsibility
for ensuring that expense reports submitted for reimbursement are in full compliance with the
Company’s policy, as evidenced by the signature of approval. All requests for reimbursement of
business expenses must meet the “rule of reason” as interpreted by the approving authority. In
the event that there is a question as to the propriety of a business expense as defined in the
policy, the approving authority will bear sole responsibility for interpreting whether the intent of
the policy shall allow reimbursement of the expense.
Expenses of spouses or other family members accompanying an employee on business trips are
not reimbursable without prior written approval of the area Vice President or President of the
Company. In accordance with Internal Revenue Service or local regulations, if applicable, any
reimbursed spousal or family member expenses will be included in all U.S. employees’ W-2
taxable income for the year.
Example: Employee A’s normal commuting distance to the Bevier Street location is
approximately 30 miles each way.
Employee A travels directly from home to the Conklin South Location, a distance of 45 miles
directly from Employee A’s home.
Employee A may submit for reimbursement 15 miles (each way) at the local standard mileage
rate for the current year. The reimbursement is for the mileage beyond that which Employee A
would travel to the normal reporting location (Bevier Street) or 45 miles traveled less 30 miles
normal commute.
Verification
Corporate Financial Services will periodically and randomly audit expense reports for
compliance with Universal’s policy and the related procedures herein.
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Personal Employee Purchases
PURPOSE:
To define Universal’s corporate policy and procedures in processing employees’ personal
purchases.
RESPONSIBILITY:
This procedure is should be followed by Universal’s Accounts Payable and Payroll departments.
The Manager of Corporate Financial Services and the CFO shall ensure that the policy is
adequately executed and appropriately interpreted, including the related procedures and work
instructions. Additionally, the CFO shall ensure that this policy and its corresponding
procedures and work instructions are maintained and updated in a timely manner.
DESCRIPTION:
Employees can purchase safety shoes, safety eyeglasses or tools for use on the job. All other
employee purchases will be given to the Human Resource Department for authorization.
The supervisor must first approve the employee purchase. A purchase order must be generated
with the exception of safety shoes and safety eyeglasses. Safety shoe and safety eyeglass
purchases must have a completed and signed authorization form.
When an invoice is received, it is verified for a purchase order or authorization form.
The invoice is processed for payment.
The Employee Personal Purchase Deduction form is completed and forwarded to the Payroll
Department. The Payroll Department then enters information from the deduction form into the
employee deduction system for repayment to the Company.
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Section 5 – Appendix of Exhibits
Exhibit 1 – Document Retention Policy
Department
Responsible
Section 5
Retention Document
Years
Finance
Cash receipt books, audited financial
statements and the general books of
account (general ledger)
Permanent
Finance
Certificate of incorporation, corporate
charter, constitution & bylaws, deeds,
patents, and minutes of board of directors
meetings
Permanent
Accounts
Payable
Check Register
Permanent
Inventory
LIFO Index Calculations
Permanent
Payroll
Retirement and pension plan
records - including deduction
authorization
Permanent
Finance
All documents including appraisals,
closing documents, acquisition
worksheets and journal entries relating to
purchase accounting of a subsidiary.
Permanent
Finance
Tax records (Copies of schedules and
returns to authorities tax purposes and
records or appeal)
Finance
Contracts and agreements
Finance
Headcount - budget and actual, by month/
by year, and by company code
10 years
Finance
Bookings - budget and actual, by month/
by year, and by company code
10 years
Finance
Sales - budget and actual, by month/ by
7 years
84
15 years
10 years after
contract
terminated
03/07/16
year, and by company code
Section 5
Finance
Earnings - budget and actual, by month/ by
year, and by company code
7 years
Finance
Profit and Loss - budget and actual, by
by month/ by year, and by company code
7 years
Finance
Selected Balance Sheet items - budget
and actual by month/ by year, and by
company code
7 years
Finance
Divisional/ Departmental Spending budget and actual
7 years
Finance
Leases, mortgages, time payments
contract and promissory notes
6 years after
contract
terminated
Payroll
Payroll registers (Gross & Net), payments
and Reports to Gov't, includes Federal
State and municipal authorities covering
payments and reports to income tax
withholdings, contributions to FICA, state
unemployment, workers' compensation &
reports on employees
6 Years
Payroll
Individual Emp. Earnings Record
6 Years
Finance
All Capital Asset records
Finance
Bank statements, reconciliations, stop
payment notices, void checks, deposit
slips & cancelled payroll checks. Also
included budgetary comparisons, expense
analysis, journal entries, balance sheet
reconciliations and internal F/S.
4 Years
Finance
Authorizations and appropriations for
expenditures, & Gov't contracts
4 Years
Accounts
Payable
All accounts payable items including A/P
invoices, credits, drafts paid, checks, &
4 Years
85
Maintain all records
for current use assets
and for 3 years after
disposal
03/07/16
employee expense reports except the
check register
Accounts
Receivable
Uncollectible accounts - records and
reports regarding uncollected accounts,
& authorization for writing off
4 years
Accounts
Receivable
Sales invoices
7 years
Payroll
All payroll documents including timecards
& timesheets, investment plan forms
employees deduction authorizations,
status change forms and unclaimed wage
records
4 Years
Payroll
Dover Savings and Investment
Plan valuations
4 Years
Finance
Business licenses by Federal, state
and local authorities
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86
Retain until
license expires
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Exhibit 2 – Worldwide Chart of Accounts
Click here for official listing: Chart of accounts
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Exhibit 3 – Fixed Asset Defaults
Click here for information on UIC asset classes and SAP default information:
Fixed Asset Matrix
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Exhibit 4 – Marine Insurance Claims Procedures
CONTENTS
PAGE
WHAT TO DO WHEN A LOSS OCCURS......................................................
1
CONTACT MARSH WHEN AN INTERNATIONAL / DOMESTIC CARGO LOSS
OCCURS........................................................................................................
2
HOW TO FILE A CLAIM.................................................................................
3-4
CLAIMS ON SHIPMENTS TO CUSTOMERS OVERSEAS............................
5
GENERAL AVERAGE CLAIMS......................................................................
5
RIGHTS OF SUBROGATION.........................................................................
6
SUBROGATION DOCUMENTS…………………………………………….
6
MAKING EXCEPTIONS AT TIME OF DELIVERY…………………………..
6
FILING CLAIM AGAINST CARRIERS………………………………………
7
EXAMPLES OF NOTICE OF CLAIM LETTERS TO CARRIERS.....................
8
OCEAN / TRUCK / RAIL SHIPMENTS…………………………………………
9
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PROCEDURES
FOR MARINE
CLAIMS
WHAT TO DO WHEN A LOSS OCCURS
To receive proper compensation for loss or damage to goods insured under your Marine Policy,
it is necessary to follow certain procedures in filing claims against the responsible parties and in
demonstrating the nature and extent of loss. Failure to follow these procedures can result in
costly delays in the adjustment of the loss, and may reduce the amount of claim payment.
STEPS TO TAKE UPON DISCOVERY OF LOSS OR DAMAGE
If damage is evident at the time of delivery, the person receiving the damaged
merchandise should:
Section 5
1.
Note the exact condition of the goods on the delivery receipt. If the carrier
will not make a delivery unless a clean receipt is given, written notice
should be filed immediately against the transport carrier, describing the
condition of the goods as received and holding the carrier liable for any
loss or damage that a subsequent survey may disclose.
2.
Preserve the container, packing and contents in the condition they were
received.
3.
On claims in the United States, contact the Marine Department of Marsh
in New York to obtain the name of a surveyor. Marsh will report the loss
to the insurers and will work closely with Dover Corporation in order to
present and settle claims.
4.
Immediately file claim upon the carrier in writing. When filing a claim,
be sure to identify the shipment by vessel, the Bill of Lading number and
the date and state the carrier who will be held responsible for the damage
or loss.
1
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CONTACT MARSH WHEN AN
IMPORT OR DOMESTIC CARGO LOSS OCCURS
Contact Marsh office at once. Our claims specialists will begin the claims processing procedure
which will assist the insurance company in expediting settlement.
When you contact Marsh office by telephone, fax or email, be sure you:
1.
Fully describe the shipment, the type of loss and how the loss occurred.
2.
Estimate the extent of loss, as accurately as possible.
3.
Provide exact location of the damaged cargo, including person to contact and telephone
number.
4.
Provide the name of the vessel or carrier, port of loading and destination.
5.
Provide the bill of lading number and date.
Prompt reporting of this information as soon as a loss is discovered will assist in
protecting your claim and subrogation right.
The Marsh address is listed below:
Marsh Marine & Energy
1166 Avenue of the Americas, 5th Flr.
New York, NY 10036-2774
Tel. #::
Fax #:
Email:
Mr. Thomas Connelly
Senior Vice President
212-345-3249
212-345-0106
thomas.m.connelly@marsh.com
Tel. #
Fax #
Email
Mr. William Canavan
Senior Vice President
212-345-5948
212-345-0106
william.canavan@marsh.com
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HOW TO FILE A CLAIM
International Marine Transit
In order to secure payment of a claim, it is necessary to present proof of loss, documents
indicating the value of the goods and the extent of loss, and confirmation that proper
notice was given to the party responsible for the loss. In order to make a proper
judgment, a loss adjuster must receive the following documents:
1.*
Ocean bill of lading, air, rail or truck waybill, post office receipt or other
evidence of contract of carriage.
2.*
Original or duplicate copy of insurance certificate, if applicable.
3.
A copy of the claim filed against the carrier(s) and their reply, if any.
4.
A legible copy of the shipper's invoice covering the entire shipment, together with
the packing list if itemized invoice not used.
5.
A legible copy of delivery receipt(s) showing exceptions, if any, or the carrier's
inspection report.
6.
Confirmation of non-delivery from the carrier.
7.
A survey report, if one was issued.
*In the event of non-delivery of an entire shipment, the original and
duplicate copies of the insurance certificate and all original bills of lading
(usually three) must be submitted.
Once these documents have been accumulated, they should be forwarded to Marsh.
Depending upon the circumstances of the loss, additional documentation may be required.
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If more than five (5) business days will be needed to obtain full documentation, a
preliminary notice of claim should be submitted. In order to expedite adjustment of your
claim, all correspondence should clearly state the following information:
1.
Assured's Name.
2.
Vessel name and Voyage number.
3.
Bill of Lading date and number.
4.
Marsh reference or claim number, if one has been assigned.
Domestic / Inland Transportation
1)
Inland bill of lading
2)
Shipper's invoice & packing list
3)
Delivery receipts showing exceptions, if any, or carriers inspection report
4)
If U.P.S. or similar package service:
- Tracer request
- Tracer reply
- Settlement check
5)
For concealed damage / loss claims:
- Customer debit memo
- Dover credit memo
6)
Claim filed against carrier and their reply, if any
FAILURE TO SUBMIT THE PROPER DOCUMENTS MAY RESULT IN
DELAYS IN ADJUSTING CLAIMS.
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CLAIMS ON SHIPMENTS TO CUSTOMERS OVERSEAS
In case of loss or damage to cargo overseas, the consignee should immediately contact
the local survey agent of the insurance company as indicated on the back of the insurance
certificate. If no agent is indicated for a specific port, the local American Institute of
Marine Underwriters Agency should be contacted. Once the contact has been made, a
surveyor will be assigned to investigate the loss and issue a survey report for submission
to the insurance company. In order to obtain the survey report, the survey fee must be
paid by the party requesting the survey but the cost is added into the claim.
Once the survey report has been completed and the final claim amount can be
determined, the report along with all of the supporting documentation should be
forwarded to the local agent of the insurer who will either pay the claim locally if they
have settlement authority or forward it to the insurers for payment.
GENERAL AVERAGE CLAIMS
Under the conditions for General Average, certain sacrifices or expenses that are
voluntarily made or incurred to save a vessel and cargo from an impending peril must be
borne jointly by the owners of the cargo and the owners of the vessel. Each contributes
in proportion to the value, at destination, which their goods bear to the total value of
interests involved.
When General Average sacrifices are made, a lien is placed on cargo for its pro-rata share
of the total amount to be made good. Before any cargo is released by the carrier, each
cargo owner (usually the consignee named in the Bill of Lading) is required to sign a
General Average Bond, or Guarantee, plus pay a cash deposit as security. If the goods
are insured, however, an Average Adjuster will accept a Guarantee signed by a
recognized insurance company in lieu of a cash deposit.
In order to obtain prompt release of cargo, the assured or consignee should immediately
contact the Loss Department of Marsh and submit the following documents:
1.
2.
3.
4.
Copy of the Commercial Invoice.
Copy of the Ocean Bill of Lading.
Copy of the Insurance Certificate, or declaration if no Insurance
Certificate has been issued.
Copies of any correspondence received from vessel owners / average
adjusters.
It is imperative that these documents be submitted as General Average Guarantees cannot
be issued without verification of values.
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RIGHTS OF SUBROGATION
One of the purposes of insurance is to relieve you of the time and expense involved in
pursuing recovery from the party, or parties, responsible for loss or damage.
Underwriters, however, only attain rights of subrogation through claim payment. Until
such time, it is your duty to take all steps necessary to preserve these rights.
SUBROGATION DOCUMENTS
Once your claim is settled, underwriters will then proceed to subrogate against the
responsible third party carrier. In order to obtain a recovery from the carrier,
underwriters may require additional documentation such as the Original Ocean Bill of
Lading or legible copies (front and back) for ocean shipments. In addition, they may
require a copy of the contract with the inland carrier for domestic inland movements.
Additional documentation and/or Dover’s assistance may also be required to assist
insurer’s recovery efforts when subrogating against liable carriers and these will be
addressed on a case by case basis. Finally, in the event that Dover receives payment of a
claim from a carrier after settlement has been made by ACE, and then the proportionate
amount would naturally be due back to the underwriters.
MAKING EXCEPTIONS AT TIME OF DELIVERY
Accepting delivery of goods without noting evident damage of shortage on the carrier's
delivery receipt (giving a CLEAN RECEIPT) will, more often than not, negate any
subsequent claim against the carrier. It may also jeopardize your right to collect under
your insurance policy. In order to preserve your rights of subrogation, and those of
underwriters, you should instruct all receiving personnel to take the following steps when
merchandise is tendered for delivery:
1.
Inspect the external condition of all packages.
2.
If merchandise is delivered in containers, check the condition and number of the
seal.
3.
Where possible, count the actual number of packages.
Any discrepancies discovered should be noted on the delivery receipt. The marks and
numbers of each package damaged and its actual condition should be shown.
All damaged packages should be opened immediately to ascertain the condition of the
contents and to prevent enhancement of loss. Containers and packages delivered in an
apparent sound condition should be opened and contents inspected for damage or
shortage. Damaged merchandise and their packing, as well as shipping containers should
be retained for inspection by the surveyor. When container or airline igloos are opened,
if it is apparent there has been a breakdown of stowage within, a surveyor should be
contacted before the contents are removed.
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FILING CLAIM AGAINST CARRIERS
The liability of carriers is governed by law and most contracts of carriage will spell out
their liability. One of the first steps in preserving your rights of subrogation is filing
notice of claim against the carrier responsible for the loss.
The maximum limits for filing notice of claim against carriers involved in foreign trade
with the United States are governed by the Carriage of Goods by Sea Act (COGSA) and
the Warsaw Convention (steamship and air freight respectively). Failure to file claim
within these time periods relieves the carriers of liability and underwriters will normally
deduct expected recovery from the amount of claim.
Loss, Damage
or Delay
Concealed
Damage
Steamship
1 Year from delivery
or scheduled delivery
Report in
writing within
3 days of
delivery
1 Year from
scheduled delivery
Air Freight
Damage 14 days from
delivery.
Delay 21 days
14 Days from
delivery
120 Days from
shipping date
UPS
9 months from
acceptance by U.P.S.
15 days of delivery
9 months from
acceptance by U.P.S.
Truck
9 months from
delivery
15 days of delivery
9 months after a
"reasonable time" for
delivery
Non-Delivery
The notice of claims to carriers should be dated and the full address of the carrier should
appear on the letter. Also, any reply/acknowledgment from the carrier should be
forwarded with the claim.
EXAMPLES OF NOTICE OF CLAIM LETTERS TO CARRIERS
To protect the right of recovery, a prompt written notice of claim must be made against
the carrier of goods at the time of taking delivery of the shipment.
The form of the Notice of Claim is not important but it should identify the vessel or
conveyance, date of shipment, bill of lading number, briefly describe the loss and
specifically state that the carrier will be held responsible for loss or damage. Suggested
letters are as follows:
Ocean Vessel
Air/S.S./R.R.
B/L No.
Dated
Claim Amount___________
From
To
Shipment
We received this shipment in a damaged condition and/or with apparent shortage. We
hereby make a formal claim against you for the loss we have sustained on these goods.
They are available for inspection.
Very truly,
Alternative form to be used where one or more packages did not arrive:
Ocean Vessel
Claim Amount
Air/S.S./R.R.
From
B/L No.
To
Of the shipment, the following packages have not been delivered. We hereby make a
formal claim against you for the loss we have sustained.
Very truly,
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Ocean Shipments
A)
Common carrier shipments to or from the U.S. - these shipments are subject to the
U.S. Carriage of Goods by Sea Act of 1936. Generally speaking, this sets the
carriers limit of liability at $500.00 per package or Customary Freight Unit unless
a higher AD VALOREUM freight rate is paid. In addition, the limit of liability
may be extended to the stevedores by inclusion of the so-called "HIMALAYA
CLAUSE" in to the bill of lading.
Claims must be settled or brought into suit within one year from the date of
delivery or extensions of suit time for specified periods of time must be granted
by the carrier in order to prevent the claims from becoming time-barred.
B)
Common carrier shipments between U.S. Ports - these shipments are subject to
the Harter Act of 1893. Although the Harter Act itself does not specifically
establish a limit of liability, it provides for incorporation of same into the bill of
lading. The same is true to statute of limitations, whereas the Act itself does not
set a specific time frame, it provides that one can be inserted into the bill of lading
so long as both parties agree.
Truck Shipments - truckers are liable by law for the full value actual loss of the cargo
while in their possession, unless the shipper accepts a lower freight rate or "Released
Value" in exchange for a lesser limit of liability for the trucker. Under common law,
inland carriers are entitled to the following exemptions from liability: Act of God,
inherent vice, fault of the shipper, war and loss of market. Claims against truckers must
be filed within 9 months of delivery and suits must be commenced within two years and 1
day following a carrier's declination. In addition, certain other time limits should be
adhered to. For example, claims for concealed damage should be reported to the carrier
within 15 days or the claimant will have the burden of proving it did not cause the
damage.
Rail Shipments - like truckers, railroads are also considered to be common carriers liable
for the full value of the cargo unless an alternative limit is agreed to in exchange for
lower rate. The same exemptions from liability also are available to rail carriers. The
same is time for the statute of limitations - 9 months from date of delivery to present
claims and two years plus one day from and declination to file a lawsuit.
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Exhibit 5 – Promissory Note
$ ____________
Binghamton, New York
Date: _________ 200_
For value received, the undersigned hereby promises to pay to the order of UNIVERSAL
INSTRUMENTS, INC. (hereinafter the "Company") at its offices at Binghamton, N.Y.
__________________________ and interest at a per annum rate of ____% in monthly
principal and interest installments of $ ___________ each, commencing on __________ 200_
and continuing on the last day of each month thereafter and a final installment of $ _________
on ____________ . The foregoing interest rate shall be computed for the actual number of days
elapsed on the basis of a 360-day year, but in no event shall be higher than the maximum
permitted under applicable law. Payments of principal and interest will be made via electronic
funds transfer to the Company’s bank account. The required information is provided below:
Bank Name
ABA Number
Account Number
Account Name
JP Morgan Chase
021-000021
401-2911386
Universal Instruments Corporation
If any principal of this note is paid prior to the scheduled payment and/or maturity dates set forth
above (whether by acceleration, prepayment or otherwise) there will be no interest penalty.
Undersigned authorizes the Company to deliver to others a copy of this note as written
notification of the undersigned's transfer of a security interest in the Collateral.
In the event of a default in the prompt payment when due of any payment of any portion of this
Promissory Note or a representation, warranty or statement of the undersigned proving false in
any material respect when made or furnished or default under the Security agreement given to
secure this Promissory Note (an "Event of Default"), the Promissory Note shall forthwith
become due and payable in full without notice or demand and notwithstanding anything to the
contrary contained herein or in any other instrument. Further, acceptance of any payments shall
not waive or affect any prior demand or acceleration of this Promissory Note, and each such
payment made shall be applied first to the payment of accrued interest, then to the aggregate
unpaid principal or otherwise as determined by the Company in its sole discretion. The
undersigned hereby irrevocably consents to the in personam jurisdiction of the federal and/or
state courts located within the State of New York over controversies arising from or relating to
this note and irrevocably waives trial by jury and the right to interpose any counterclaim or offset
of any nature in any such litigation. The undersigned further irrevocably waives presentment,
demand, protest, notice of dishonor and all other notices or demands of any kind in connection
with this note.
The Company may, at its option, at any time after the occurrence of an Event of Default, proceed
to enforce payment of the same and exercise any of or all the rights and remedies afforded the
Company by the Uniform Commercial Code as in effect from time to time (the "Code''). Any
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requirement of the Code for reasonable notice to the undersigned shall be deemed to have been
complied with if such notice is mailed, postage prepaid, to the undersigned and such other
persons entitled to notice, at the addresses shown on the records of the Company at least four (4)
days prior to the time of sale, disposition or other event requiring notice under the Code.
The undersigned has received all the necessary approvals pursuant its corporate bylaws to
enter into this Agreement.
The provisions of this note shall be construed and interpreted and all rights and obligations
hereunder determined in accordance with the laws of the State of New York. If any of the
provisions of this Note are found unenforceable all other provisions remain in effect.
Insert Borrower’s Name Here
Name:
_____________________
Signature: _____________________
Address: _____________________
_____________________
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Exhibit 6 – Security Agreement
This Agreement, made this fifth day of ________ 200_, between UNIVERSAL
INSTRUMENTS, INC. (herein called the "Company'') and __________________ . (herein
called the "Borrower''), (the "Agreement'').
1.
DEFINITIONS OF TERMS USED HEREIN. (a) "Borrower'' includes all
individuals executing this agreement as parties hereto (b) “Promissory Note” refers to the
installment payment note executed February 5, 2002 (c) "Proceeds'' includes whatever is
received when Collateral is sold, exchanged, leased, licensed, collected or otherwise disposed of
and includes all distributions on account thereof, rights and claims arising therefrom and the
account arising when the right to payment is earned under a contract. (d) "Security Interest''
means a security interest, lien or other interest in Collateral which secures payment of a liability
or performance of an obligation. (e) "Collateral'' means the property described in Appendix A.
All terms used herein which are also defined in the New York or any other applicable Uniform
Commercial Code as in effect from time to time shall also have at least the meanings herein as
therein defined.
2.
SECURITY INTEREST. As security for the payment of the Promissory Note
made by the Company to the Borrower, the Borrower hereby grants to the Company an exclusive
Security Interest in the above-described Collateral.
The Borrower represents and warrants that it is the sole lawful owner of the Collateral, free and
clear of any liens and encumbrances, and has the right and power to pledge, sell, assign and
transfer absolute title thereto to the Company and that no financing statement covering the
Collateral, other than the Company’s, is on file in any public office. The Borrower authorizes
the Company to deliver to others a copy of this Agreement as written notification of the
Borrower’s transfer of a Security Interest in the foregoing property.
3.
USE OF COLLATERAL. Until default, the Borrower may use the Collateral in
any lawful manner consistent with its intended purpose and so long as it is properly maintained.
4.
INSURANCE. The Borrower will have and maintain insurance on the Collateral
until this Agreement is terminated against all risks to which it is exposed, including, but not
limited to fire, theft or collapse, and those which the Company may designate, such insurance to
be payable to the Company and the Borrower as their interest may appear; all policies shall
provide for thirty (30) days' written minimum cancellation notice to the Company. The
Company should be listed as an additional insured and evidence of this listing should be
provided to the Company within thirty (30) days of this Agreement.
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5.
DEFAULT. Default shall exist hereunder: (1) if the Borrower shall fail to pay any
amount of the Promissory Note when due or if the Borrower shall fail to keep, observe or
perform any provision of this Agreement; or (2) if the Borrower shall or shall attempt to: (a)
remove or allow removal of the Collateral from the county where the Collateral now resides or
change the location of its chief executive office or principal place of business or the jurisdiction
under which it is incorporated or otherwise organized; (b) sell, encumber or otherwise dispose of
or assign the Collateral or any interest therein or permit any lien or Security Interest (other than
the Company's) to exist thereon or therein, (c) conceal, hire out or let the Collateral, (d) misuse
or abuse the Collateral, or (e) use or allow the use of the Collateral in connection with any
undertaking prohibited by law; or (3) if bankruptcy or insolvency proceedings shall be instituted
by or against the Borrower; or (4) if the Collateral shall be attached, levied upon, seized in any
legal proceedings, or held by virtue of any lien or distress; or (5) if the Borrower shall make any
assignment for the benefit of creditors; or (6) if the Borrower shall fail to pay promptly all taxes
and assessments upon the Collateral or the use thereof; or (7) if the Company with reasonable
cause determines that its interest in the Collateral is in jeopardy; or (8) if the Borrower should
fail to keep the Collateral suitably insured . In the Event of Default or the breach of any
undertaking of or conditions to be performed by the Borrower: (1) the Promissory Note shall
become immediately due and payable in full; and (2) the Borrower agrees upon demand to
deliver the Collateral to the Company, or the Company may, with or without legal process, and
with or without previous notice or demand for performance, enter any premises wherein the
Collateral may be, and take possession of the same, together with anything therein, and the
Company shall have the rights and remedies of a secured party after default under the Uniform
Commercial Code and, in addition, may sell, lease, license, collect, redeem, setoff, offset, debit,
charge or otherwise dispose of or liquidate into cash, publicly or privately, the Collateral and to
apply the Collateral or the Proceeds thereof to repay the Promissory Note. The Company may
modify or disclaim any warranties or other representations or recourse in connection with any
such disposition or liquidation. If the Collateral is sold at public sale, the Company may
purchase the Collateral at such sale. The Company, provided it has sent the statutory notice of
default, may retain from the proceeds of such sale all reasonable costs incurred in the said taking
and sale and also, all sums then owing by the Borrower, and any surplus of any such sale shall be
paid to the Borrower.
6.
GENERAL AGREEMENTS. (a) The Borrower agrees to allow the Company
through any of its officers or agents, at all reasonable times, to examine or inspect the Collateral.
(b) The Borrower will promptly pay when due all taxes and assessments upon the Collateral or
for its use of operation or upon the proceeds thereof or upon this Agreement or upon any note or
other instrument or agreement evidencing the Promissory Note. (c) At its option, the Company
may discharge taxes, liens or Security Interests or other encumbrances at any time levied or
placed on the Collateral, and may pay for the maintenance and preservation of the Collateral, and
the Borrower agrees to reimburse the Company on demand for any payment made or any
expense incurred by the Company pursuant to the foregoing authorization, including outside or
in-house counsel fees and disbursements incurred or expended by the Company in connection
with this Agreement. (d) The Borrower hereby authorizes the Company to file financing
statements and any amendments thereto without the signature of the Borrower. Such
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authorization is limited to the Security Interest granted by this Agreement. (e) The Borrower
agrees to pay or reimburse the Company on demand for all costs and expenses incurred by it in
connection with the administration and enforcement of this Agreement and the administration,
preservation, protection, collection or realization of any Collateral (including outside or in-house
attorneys' fees and expenses). (f) The Company shall not be deemed to have waived any of its
rights hereunder or under any other agreement, instrument or paper signed by the Borrower
unless such waiver is in writing and signed by the Company. No delay or omission on the part of
the Company in exercising any right shall operate as a waiver thereof or of any other right. A
waiver upon any one occasion shall not be construed as a bar or a waiver of any right or remedy
on any future occasion. All of the rights and remedies of the Company, whether evidenced
hereby or by any other Agreement, instrument or paper, or at law, shall be cumulative and may
be exercised singly or concurrently. (g) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. The Borrower and the Company each waive
trial by jury in connection with this Agreement or any dispute or other matters. If any of the
provisions of this agreement are found unenforceable all other provisions remain in effect. (h)
The Borrower has received all the necessary approvals pursuant its corporate bylaws to enter into
this Agreement. (i) This Agreement, and the Security Interests, obligations, rights and remedies
created hereby, shall inure to the benefit of the Company and its successors and assigns and be
binding upon the Borrower and its heirs, executors, administrators, legal representatives,
successors and assigns.
7.
EXECUTION BY THE COMPANY. This Agreement shall take effect
immediately upon execution by the Borrower, and the execution hereof by the Company shall
not be required as a condition to the effectiveness of this Agreement. The provision for
execution of this Agreement by the Company is only for purposes of filing this Agreement as a
security agreement under the Uniform Commercial Code as in effect from time to time, if
execution hereof by the Company is required for purposes of such filing.
Insert Company Name Here
By:
_____________________________________
(Name and Title)
Address: _____________________________________
(Number, Street, City)
UNIVERSAL INSTRUMENTS, INC.
By:
_____________________________________
(Name and Title)
Address: _____________________________________
(Number, Street, City)
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