LYNNHAVEN, Mass.—GreenMan Technologies Inc. posted earnings of $75,183, or 1 cent per share for its 1999 third quarter ended June 30. That doesn't sound like much until you realize that GreenMan lost nearly $1.8 million, or 35 cents per share, in the third quarter of 1998.
``All it took was seven years of trying,'' said GreenMan President and CEO Robert Davis. This was the Lynnhaven-based tire recycling company's first profitable quarter in seven years of operation.
Sales also showed considerable growth for that quarter, rising 47 percent to $4.1 million from the $2.8 million for the three months ended May 31, 1998.
While GreenMan still lost $2.4 million for the first nine months of 1999, that was a big improvement from the $5.2 million net loss it suffered in the first nine months of 1998. And sales shot up 65 percent in the period, to $12.2 million from $7.4 million.
For GreenMan, which employs about 110 at its headquarters and crumb rubber facilities in South Carolina, Minnesota and Georgia, the light is at the end of the tunnel. And it doesn't appear to be an oncoming train.
GreenMan is a company with ``a really strong base'' in scrap tire collection and tire-derived fuel, particularly because of its acquisitions in those areas, according to Michael Blumenthal, executive director of the Scrap Tire Management Council.
Yet its tendency to make frequent acquisitions also may have been a problem for the company, Mr. Blumenthal said.
``When you expand quickly, your financial situation can become shaky,'' he said.
The path to success
As the record shows, the path to profitability was a rocky one for the expansion-minded GreenMan. Achieving that goal meant revamping the company's financing strategies and product lines while maintaining steady progress in growth of the core business, according to Mr. Davis.
Before joining GreenMan, Mr. Davis was vice president of recycling for Browning-Ferris Industries Inc. of Houston. GreenMan purchased BFI's tire recycling operations for an undisclosed amount in July 1997, bringing Mr. Davis to GreenMan.
``I knew the tire recycling business could be a very good business, and this was a good opportunity for me,'' he said.
The BFI purchase is a prime example of GreenMan's acquisition strategy—buying companies that fit in with its core business.
GreenMan announced a cryogenic crumb rubber processing joint venture with BFI Tire Recyclers of Georgia in the fall of 1996, and GreenMan also purchased much of its crumb rubber from BFI for use in making GEM-Stock, its proprietary blend of recycled rubber and plastics.
GreenMan continued to strengthen its position in the scrap tire processing business when, in September 1998, it completed its purchase of United Tire Services Inc., the tire processing division of Republic Industries Inc. The acquisition gave the company scrap tire facilities in Batesburg, S.C., and Lawrenceville, Ga., just as the BFI purchase brought it plants in Savage, Minn., and Jackson, Ga.
``United Waste and BFI gave us our critical mass,'' Mr. Davis said. ``When we acquired our current facilities, we had a processing capacity of 10 million to 11 million (tires) a year. Now that's up to 20 million.''
Mr. Davis does not expect GreenMan's growth in tire recycling to stop there. Earlier this year, he told the Journal of New England Technology he plans to make the company the No. 1 scrap tire processor in the U.S., with an annual capacity of more than 100 million tires.
Cutting the deadwood
However, GreenMan's most recent filings with the Securities and Exchange Commission tell stories of far less bullish product lines the company followed.
In 1997, the firm still placed great hopes in GEM-Stock, a scrap rubber-scrap plastic blend it said was useful for all sorts of consumer products.
Among other things, GreenMan said it was working out a distribution deal with a major chain of stores for a GEM-Stock trash can, and had started installing equipment at its GEM-Stock facility in Malvern, Ark., to produce corral and picket fencing from the material.
``We could never make everything for which GEM-Stock is suitable,'' Cynthia Barker, GreenMan director of corporate administration and a co-founder of the company, said at the time.
In January 1998, however, the company closed the GEM-Stock plant. In its SEC 10-K filing for fiscal 1998, GreenMan said it believed ``third-party contract manufacturers'' could provide the company with injection molding capacity at equal or less cost than the Malvern plant, should a future need arise.
GreenMan shelved the technology until it could find a more central facility and afford to start up production again, according to Mr. Davis.
``Technically, we proved the products could be made with GEM-Stock,'' he said. ``We made the trash cans, and we made products for Jacuzzi. It was just that between the plant location and the distribution ratio, we didn't have enough coverage to make a profit on the business.''
In October 1995, GreenMan acquired DuraWear Corp., a Birmingham, Ala., manufacturer of abrasion-resistant ceramics and ultra-high-molecular-weight plastics.
In March 1999, GreenMan closed DuraWear to eliminate operating losses and focus on its tire recycling business, according to the 10-Q form it filed with the SEC for the quarter ended March 31, 1999. It took an estimated loss of $920,000 on the closure, and two months later decided to sell the assets of DuraWear to a third party yet to be named.
Sometimes even acquisitions in the core business didn't work out for GreenMan. On June 1, 1998, the company signed a letter of intent to acquire Mac's Tire Recyclers, a Saltillo, Miss.-based company, which increased GreenMan's processing capacity by more than 4 million tires annually.
GreenMan operated Mac's facility until April 16, 1999, according to the 10-Q.
It earned $36,000 from the arrangement in the six months ended March 31, with an amount receivable of $151,000 from Mac's. However, both parties have decided not to proceed with the acquisition.
Even more difficult for GreenMan is the case of Cryopolymers Inc., of St. Francisville, La., which the company bought in November 1997 from MG Industries, a Malvern, Pa., liquid nitrogen firm.
GreenMan renamed the purchase GreenMan Technologies of Louisiana Inc., and it became a reliable source of crumb rubber for the firm.
But a fire severely damaged the St. Francisville facility in August 1998, and by December GreenMan had decided to close it for good.
Playing the market
Along with acquisition and product line troubles, GreenMan also has had continuing problems with financing and trading its shares.
In its early days, when conventional financing wasn't available, the firm sought discounted funding overseas, according to Mr. Davis.
In exchange for funds, foreign investors received GreenMan shares at a discount of 25 to 30 percent.
The upshot was that, in the long run, the company suffered $14 million in losses because of these financing arrangements.
This also created problems for GreenMan with NASDAQ, where its stock was traded publicly until July 1999.
The company didn't maintain at least two firms that agreed to buy and sell GreenMan stock from others— whether the stock was going up or down—meaning GreenMan's shares failed to meet NASDAQ's minimum standards for market activity.
After a hearing, NASDAQ delisted GreenMan's stock, Mr. Davis said. The company has appealed, and a final decision is due in January.
Meanwhile, GreenMan stock continues to be traded on the OTC Bulletin Board.
``Our price now is about 60 to 70 cents per share, up from 40 cents, which was where it was when we announced our first quarterly profit,'' he said.
GreenMan also signed an investment banking and corporate finance agreement with Schneider Securities Inc., which has offices in Denver and in Rochester, N.Y. Schneider is advising the company on its internal growth, financial and acquisition strategies.
Going after business
Meanwhile, GreenMan takes pride in its scrap tire processing business, an activity it just about controls in the Southeast and upper Midwest.
Ninety percent of the company's business comes from the day-to-day scrap tires generated by tire dealers and other sources, according to Mr. Davis. The scrap tire abatement contracts it holds with various states are ``filler'' and ``a very small part of our business,'' he added.
In Iowa, where GreenMan Technologies of Minnesota has a contract to transport and shred 3 million scrap tires from a Fort Dodge, Iowa, stockpile, there's ``a very seasonal aspect'' to the state contract business, Mr. Davis said.
``We use the state contracts to fill in the downtime in the slow months,'' he said.
GreenMan Technologies of Minnesota has the best record of any Midwestern tire processor in fulfilling state contracts, according to Mel Pins, an environmental specialist with the Iowa Department of Natural Resources. The Savage operation has a longer history of scrap tire abatement than any other, dating back to its BFI days and to its origins as Maust Technologies Inc., Mr. Pins said.
``They received the first contracts ever issued for abatement work in Minnesota, Wisconsin and Iowa,'' he said. ``If we have to get involved in cleaning up somebody else's mess, we know GreenMan will make it simple for us. And they're price-competitive as well.''
GreenMan also has continued the TDF business started by Maust and BFI, and the product quality and level of service has remained high under GreenMan, said Mark Rolfes, plant manager at the Ottertail Power Co. electric plant at Big Stone City, S.D.
``Our primary fuel is coal, but TDF is cheaper, so economy is the biggest reason we use it,'' Mr. Rolfes said. ``It's environmentally acceptable and offers high BTUs.''
Historically, Ottertail uses about 30,000 tons of TDF annually, but a strong supply this year means the utility firm will increase its usage to about 35,000 tons, he said.
Along with its core business, GreenMan also is investigating product lines which may provide the key for future expansion. One of these is asphalt rubber.
In February 1998, the company signed an exclusive technology commercialization agreement with the Federal Highway Administration. Under the contract, GreenMan worked with asphalt manufacturers and contractors to develop ``Chemically Modified Crumb Rubber Asphalt,'' a high-performance blend joining ultra-fine crumb rubber and a FHWA-patented binder technology.
Operation of the contract was hampered because GreenMan sourced its ultra-fine crumb rubber from its Louisiana plant—the very same facility that burned down, Mr. Davis noted.
Although GreenMan is encouraged by its experiments with asphalt rubber, that technology is on the company's back burners.
``We have to get it out to places where there is a demand for it,'' he said. ``It takes a long time for an industry to change its specifications to adopt change. Until the customer wants it, we won't be making it.''