Compliance Issues When Disposing of
Capital Assets
Things to Consider
by
Larry Miramontes, CPPM
Value Through Professional Asset Management
2012 NPMA Fall Conference
Identification of Excess
 Identification of Excess Equipment Requires
Cooperation
• Manufacturing, Test Areas, Labs, Quality, Etc.
 Excess determination is based on current and projected
use, not capability.
• Size is not justification for retention.
• Historical use is not justification for retention.
• Original Acquisition Cost is not justification for retention.
 Removal of excess equipment frees floor space and
reduces the asset base.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Identification of Excess
 Evaluation of excess begins after declaration, not
before.
• Results of the evaluation determine the process(es) to
which the excess will be applied.
• Determination of compliance requirements is established
during the evaluation based upon the process(es) chosen.
• Specialists are required to ensure the correct path is
taken and that compliance requirements are met.
 Asset Managers are not usually qualified to make all the
disposal decisions.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Evaluation of Excess
Who Needs to Participate?
Environmental
Manufacturing
Finance
Disposal
Team
Plant
Maintenance
Accounting
Laboratory
Value Through Professional Asset Management
Asset
Management
2012 NPMA Fall Conference
4
Evaluation of Excess
 Evaluation performed by disposal team.
• Potential for reutilization or relocation.
 Do not screen outside the team.
• Excess in one area may represent an upgrade in another
area.
 Plant Maintenance has a lot of insight on which
machines are better than others as well as how they
are applied.
• Review disposition options. Consider the following:
scrap, waste, sale, donation and cannibalization.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Disposition paths are determined based upon resources,
return on disposal investment, contaminants, condition
and location.
 Resources to consider include internal labor, budget,
and external contractors.
• Removal of capital equipment may impact power grids,
air, water, waste removal and other aspects associated
with disconnection.
• Priorities or regulations may prohibit internal resources
from working a project, external contractors may be
required.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Complying with Scrap Processes
 Equipment should be clean and free of contaminants.
 Equipment must be “suitable for public consumption”.
 Disposal Team should monitor scrapping actions to
ensure they are in accordance with internal procedures
and processes.
 Proceeds from scrap should be handled in accordance
with the company’s disclosure statement.
 Return on disposal investment is determined by
calculating the handling process and subtracting it from
the net proceeds of the scrap sales.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Establishing the return on disposal investment involves
calculating the cost of the disposal activities.
• Costs to consider include:
 Labor costs for disconnect and preparation.
 Costs of movement, internal and external.
 Laboratory costs for evaluating contaminants.
 External disposal costs.
 Administrative cost for sale of assets.
 Cost for disrupting production if impacted.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Contamination is the #1 compliance factor.
• Polychlorinated Biphenyls (PCB’s)
 Before 1974 used in capacitors, transformers,
plasticizers, surface coatings, inks, adhesives,
pesticide extenders and carbonless duplicating paper.
 After 1974 used in capacitors and transformers only.
 After 1979, not used
 PCB’s are either oily liquids or solids and are colorless
to light yellow in color with no known smell or taste.
 Detection requires laboratory testing.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Equipment with PCB contamination must be cleaned
prior to scrapping, sale or donation.
• Exceptions allowed for buyers who know the risks and are
equipped to handle the contaminant.
• Equipment that cannot be properly cleaned due to
configuration must be placed in the waste stream.
• Testing requirements are predicated on the volume of
area to be tested. The quantity of sample wipes can
range from 1 to 40 or more. Area samples that do not
pass the minimum requirement must be cleaned and
retested.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Asbestos contamination is costly.
• Added to products to strengthen them and to provide heat
insulation and fire resistance.
• Zero tolerance for exposed asbestos.
• Requires certified contractor to remove and dispose.
• Requires special microscope to detect asbestos.
 When in doubt, perform laboratory testing.
• Products containing non-exposed asbestos may be sold
and donated, but not scrapped.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Methylenedianiline (MDA) is a chemical used to produce
polymeric isocyanates which are used to manufacture
polyurethane foams.
 MDA is also used as a curing agent for epoxy resins and
urethane elastomers, corrosion preventative for iron,
antioxidant for lubricating oils, rubber processing,
manufacture of elastomeric fibers and preparation of azo
dyes.
 Test to determine level of contamination.
 Difficult to clean. Recommend waste stream disposal.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Condition of the asset will occasionally dictate the
disposition path.
• Equipment in poor condition with no exposure to
contaminants may be immediately scrapped.
• Large equipment in operating condition is generally
subject to sale or donation.
• Capital equipment that has net book value may only be
subject to sale and not donation depending upon the
company’s procedures.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Disposition Path
 Equipment locations may also dictate the disposition
path.
• Equipment located in prime manufacturing areas may be
subject to sale or donation with removal at the buyer’s or
receiver’s expense.
• Equipment located in condemned buildings may be
scrapped during demolition processes.
• Equipment located in hazardous locations may be
submitted to the waste stream based on the hazards
involved.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Determining Waste Stream Path
 As good corporate citizens, waste stream determination
should be the last option for disposition path.
 Use the waste stream if it is cost prohibitive to use
another method or if it is required by regulation or law.
• Generally, the use of the waste stream is an expense with
the return on investment being measured in real estate
gained.
• Compliance with waste stream processes must be
described in internal procedures. Ensure there are no
exposed liquids and equipment is properly protected.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Establishing When to Sell or Donate
 Equipment must be “suitable for public consumption”.
• Buyers with proper credentials may buy PCB
contaminated assets.
 Level of contamination should be clearly described in
the sale prospectus.
• Equipment market may have influence on the value of
assets and the profitability of a sale.
• The profit from sales may be so low that the company can
benefit more from the donation of the asset.
Value Through Professional Asset Management
2012 NPMA Fall Conference
Case Study #1
 7 Axis Milling Machine located in an enclosed Transite
room in a prime manufacturing building.
 Mill is in operating condition, but hasn’t been used for 5
years.
 Mill used to machine asbestos impregnated parts
 The milling machine was purchased prior to 1985
• Cost Analysis:
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Cost for Asbestos Remediation - $25,000
Cost for PCB Analysis and cleaning - $5,000
Cost for disconnect and removal from building - $10,000
 Scrap, Sell, Donate, or Waste?
Value Through Professional Asset Management
2012 NPMA Fall Conference
Case Study #1
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Answer: Sell
Sales proceeds - $40,000
Net result - $0.00
Waste Steam costs would have been $40,000 because
asbestos remediation, testing and removal costs were
not avoidable. Transportation and disposal costs would
have been and additional $4,000.
• Cost Avoidance = $4,000
Value Through Professional Asset Management
2012 NPMA Fall Conference
Case Study #2
 Small lathe located in an outside covered storage area.
 May or may not be operational. Hasn’t been used for at
least 2 years.
 End use is not known but records show the asset was
acquired prior to 1985.
• Cost Analysis:
• Cost for PCB Analysis and Cleaning- $1,450
• Re-sampling costs (based on experience) - $400
 Scrap, Sell, Donate, or Waste?
Value Through Professional Asset Management
2012 NPMA Fall Conference
Case Study #2
 Answer: Place it in the Waste Stream.
 Waste Stream costs
• $65 per ton for disposal
• $130 equipment rental at Waste Site
• $2,500 transportation cost (8-10 assets per load)
• Average cost for disposal = $425 per asset
• Scrap value less than $100, Sale value zero.
 Scrap action - $1, 850 - $100 = $1,750 (cost)
 Waste Stream - $425 - $1,750 = $1,325 (cost
avoidance)
Value Through Professional Asset Management
2012 NPMA Fall Conference
Case Study #3
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Microprobe located in chemical laboratory.
20 years old but fully operational.
Manufacturer not interested in buy-back.
No known sale source.
Contains radioactive component.
 What would you do?
Value Through Professional Asset Management
2012 NPMA Fall Conference
Case Study #3
 Here’s what we did.
• Contacted the maintenance company that had been
maintaining the asset.
• Found source with an interest in obtaining the item.
 University
 Willing to pick-up and transport asset across the
country.
 Arranged for the maintenance company to disconnect
and package the asset.
 Answer: Donate – Win-Win!
Value Through Professional Asset Management
2012 NPMA Fall Conference
Thank You for Attending
Questions?
Value Through Professional Asset Management
2012 NPMA Fall Conference