2012 NPMA Fall Conference Value Through Professional Asset Management Compliance Issues When Disposing of Capital Assets Things to Consider by Larry Miramontes,

2012 NPMA Fall ConferenceValue Through Professional Asset Management

Compliance Issues When Disposing of Capital Assets

Things to Consider

by

Larry Miramontes, CPPM


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.


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.


Evaluation of ExcessWho Needs to Participate?

Disposal Team

Environmental

Manufacturing

Accounting

Asset Management

Laboratory

Plant Maintenance

Finance

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.


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.


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.



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.



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.



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.



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.



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.



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.



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.


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.


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.


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: 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?


Case Study #1

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


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?


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)


Case Study #3

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?


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!


Thank You for Attending

Questions?

Documents

2012 NPMA Fall Conference Value Through Professional Asset Management Compliance Issues When Disposing of Capital Assets Things to Consider by Larry Miramontes,