RINO INTERNATIONAL CORPORATION 
By DALIAN, China, Nov. 15, 2010 /PRNewswire-Asia-FirstCall/ -- RINO International Corporation (the "Company" or "RINO") (Nasdaq: RINO), a leading provider of clean technology solutions to China's iron and steel industry, announced today its unaudited financial results for the third quarter ended September 30, 2010.
Third Quarter Highlights
-- Total revenues in the third quarter of 2010 were $52.7 million, a 16.7%
decrease from the corresponding period in 2009.
-- Operating profit in the third quarter of 2010 was $9.9 million, a 49.3%
decrease from the corresponding period in 2009.
-- Net income in the third quarter of 2010 was $8.8 million, a 48.3%
decrease from the corresponding period in 2009. Net income excluding
change in fair value of warrants (non-GAAP) was $8.7 million, a 55.6%
decrease from the corresponding period in 2009.
-- Diluted earnings per share ("EPS") for the third quarter of 2010 was
$0.31. Diluted EPS excluding change in fair value of warrants (non-GAAP)
was $0.31, a 60.8% decrease from $0.78 for the corresponding period in
2009.
"Revenues in the third quarter were down due to recent reform in the steel industry which has caused a 'wait and see' approach toward capex including investment in clean technologies," said Mr. Dejun Zou, director and chief executive officer of RINO. "We are also seeing our clients experiencing a tightening of cash flow which has led to an increase in accounts receivable. However we still have a full order book with several new contracts successfully negotiated as well as backlog from the third quarter which will generate revenues in the fourth quarter."
"We believe that despite the temporary market downturn, the long-term industry environment remains very encouraging with increasing government pressure coming to bear on polluting industries and demand getting even stronger," Mr. Zou continued. "We are racing to meet that demand by expanding capacity and investing in advanced technology to help us solidify our leading position. At the same time we are continuing to look for opportunities to expand outside our traditional de-sox and wastewater treatment segments to capture market share in new high growth areas."
"After a weaker than expected third quarter we are revising our full year guidance to reflect the disruption caused by industry consolidation. However we remain confident in our long-run prospects and are moving ahead with several projects to drive revenues in the future. We are continuing to work to improve internal controls and we remain focused on fulfilling Sarbanes-Oxley requirements according to schedule," Mr. Zou concluded.
2010 Third Quarter Results
RINO reported total revenues of $52.7 million for the third quarter of 2010, representing a 16.7% decrease from the corresponding period in 2009. Revenue decrease was caused by the decrease in our wastewater treatment and anti-oxidation businesses. Specifically, the Company recorded $43.0 million in revenues from the desulphurization business, an increase of 29.1 % from $33.3million in the same period of 2009; $7.5 million from wastewater treatment system sales, a decrease of 50.6% over the third quarter of 2009; and $1.7million in anti-oxidation equipment and coatings as compared to $13.8 million recorded in the same period of 2009.
Cost of sales for the third quarter of 2010 was $36.4 million as compared to $37.2 million in the same quarter of 2009, a decrease of 2.0%. Gross profit was $16.3 million in the third quarter of 2010 compared to $26.1 million for the same period of 2009, a decrease of 37.7%, and representing gross margins of 30.9% and 41.3%, respectively. The decreases in gross margins were mainly attributable to increases in the costs of outsourcing. Outsourcing costs for the third quarter of 2010 were $9.7 million, of which $5.7 million were incurred by the Shougang Jingtang Project using a cost recovery method, representing an increase of 164.8% from $3.7 million in the same period of 2009.
Total operating expenses for the third quarter of 2010 were $6.4 million as compared to $6.6 million for the same period in 2009. The decrease in operating expenses was primarily due to decrease in sales commission expenses. Operating margin was 18.8% for the third quarter of 2010 as compared to 30.9% for the third quarter of 2009. The decrease of operating margin was mainly due to the intensive competition in desulphurization market, which leads to our reduced gross margin. At the same time, revenue from the Shougang Jingtang Project is recognized using a cost recovery method and no gross margin was recognized during the three months ended September 30, 2010.
Stock compensation expenses, which were allocated to related operating costs and expenses line items, increased in aggregate to $325,937 in the third quarter of 2010 from ($9,263) in the corresponding period in 2009. The increase in share-based compensation expenses was primarily due to additional options granted to staff and board members.
Income tax expense provision was $1.5 million, or $0.05 per share, for the third quarter of 2010, compared to nil in the same period in 2009. The Company's effective tax rate for the third quarter of 2010 is 14.5% compared to 0% for the same period in 2009. As a foreign investment enterprise, and the only taxable entity within the Company in the third quarter of 2010, Dalian Innomind Environment Engineering Co., Ltd., is qualified for an income tax exemption for 2008 and 2009, and a 50% reduction from the normal income tax rate of 25% for the three years from 2010 through 2012.
Net income for the third quarter of 2010 was $8.8 million, representing a decrease of 48.3% as compared to $17.1 million reported in the same period in the prior year. Diluted earnings per share were $0.31 for the third quarter of 2010 as compared to $0.68 for the same period in 2009, based on 28.6 million and 25.2 million weighted average shares outstanding, respectively. Non-GAAP net income, which is net income excluding a $97,620 gain from the change in the fair value of warrants for the third quarter of 2010, was $8.7 million, translating to non-GAAP diluted EPS of $0.31.
Balance Sheet and Cash Flow Discussion
Cash and cash equivalents as of September 30, 2010 were $56.1 million, representing a decrease of 58.3% as compared to $134.5 million as of December 31, 2009. At the end of the third quarter, the Company had working capital of $245.0 million and a current ratio of 7.1.
Accounts receivable stood at $112.0 million, a 93.8% increase from $57.8 million reported as of December 31, 2009. Accounts receivable days sales outstanding stood at 138 days compared to 111 days at the end of last year. As of September 30, 2010, the Company had $8.2 million in long-term loans and $3.7 million in short term loans. Stockholder's equity increased 26.4% to $258.1 million as of September 30, 2010 as compared to $204.2 million as of December 31, 2009.
For the first nine months of 2010, cash used in operations totaled $67.6 million as compared to $8.4 million cash provided by operations for the first nine months of 2009, mainly due to an increase in accounts receivable, advances for inventory purchases to support additional projects, and costs and estimated earnings in excess of billings on uncompleted contracts.
Backlog as of September 30, 2010
Backlog, defined as unfinished projects, includes any projects that the Company has undertaken but hasn't yet commenced. As of September 30, 2010, backlog amounted to $56.3 million (VAT excluded), the breakdown of which is set forth in the following table. The Company expects that approximately 75% of the backlog will turn into revenue by the end of 2010.
Product Segment Amount ($ millions)
1. Desulphurization Systems 36.9
2. Wastewater Treatment 11.7
3. Anti-oxidation Systems 7.7
Total 56.3
Outlook for Fiscal Year 2010
Affected by reform and contracting cash flows in the iron & steel industry in China, the company is expecting softer demand for its services in the immediate future. Based on analysis of current market demand, the company estimates its total revenue for fiscal year 2010 to range from $203.0 million to $211.0 million, down from the previously estimated range of $221.0 to $229.0 million, representing a year over year increase of 5.4% to 9.6%.
Conference Call Information
RINO's management will hold an earnings conference call at 7 PM on November 16, 2010 U.S. Eastern Time (8 AM on November 17, 2010 Beijing/Hong Kong time), at which time management will discuss this quarter's earnings results.
Dial-in details for the earnings
conference call are as follows:
US: +1-866-831-6224
International: +1-617-213-8853
Hong Kong: +852-3002-1672
Passcode: 16635766
A replay of the conference call may be accessed by phone at the following number until November 23, 2010:
US: +1-888-286-8010
International: +1-617-801-6888
Passcode: 78966921
Additionally, a live and archived webcast of this conference call will be available at http://ir.stockpr.com/rinointernational/.
About RINO International Corporation
RINO International Corporation is a leading provider of clean technology solutions to China's iron and steel industry. RINO designs, manufactures, installs and services an extensive suite of products and solutions, including its patented wastewater treatment, flue gas desulphurization, high temperature anti-oxidation and sludge treatment systems, to a large customer base with the aim to reduce industrial pollution and improve energy utilization in China. With strong research and development capabilities, RINO currently has eight Chinese listed patents, three invention or utility model patents related to wastewater treatment, one utility model patent for its desulfurization system and one utility model patent for its waste incineration system. The Company also has invention patents for its anti-oxidation technology listed both in China and internationally under the Patent Cooperation Treaty. Seven patents are under application as of November 2010. For additional investor information, please visit http://ir.stockpr.com/rinointernational/.
Cautionary Statement Regarding Forward-Looking Information
Certain statement in this press release may contain forward-looking information about the Company. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and statements which may include discussions of strategy, and statements about industry trends future performance, operations and products of each of the entities referred to above. Actual performance results may vary significantly from expectations and projections as a result of various factors, including without limitation and the risks set forth "Risk Factors" contained in the Company's Annual Reports on Form 10-K, and Quarterly Reports on Form 10-Q.
About Non-GAAP Financial Measures
The management of RINO International Corporation (herein "RINO") uses non-GAAP adjusted net earnings to measure the performance of the Company's business internally by excluding non-recurring items as well as special non-cash charges. The Company's management believes that these non-GAAP adjusted financial measures allow the management to focus on managing business operating performance because these measures reflect the essential operating activities of RINO and provide a consistent method of comparison to historical periods. The Company believes that providing the non-GAAP measures that management uses internally to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand RINO's financial performance in comparison to historical periods without variations caused by non-recurring items and non-operating related charges. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by the management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from GAAP financial measure. However, the management of RINO compensates for these limitations by providing the relevant disclosure of the items excluded.
The following table provides the non-GAAP financial measures and the
related GAAP measures and provides a reconciliation of the non-GAAP
measure to
the equivalent GAAP measure.
Q3 2010 Q3 2009
GAAP Net Income $8,839,220 $17,085,900
Change in fair value of
warrants $97,620 $(2,592,201)
Adjusted Net Income $8,741,600 $19,678,101
Adjusted EPS (Diluted) $0.31 $0.78
CONTACT
In China:
Mr. Ben Wang
Chief Financial Officer
RINO International Corporation
Tel: +86-411-8766-1828
Email: benwang@rinogroup.com
Ms. Cynthia He
Brunswick Group LLP
Tel: +86-10-6566-2256
Email: rino@brunswickgroup.com
In the U.S.:
Ms. Cindy Zheng
Brunswick Group LLP
Tel: +1-212-333-3810
Email: rino@brunswickgroup.com
RINO INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009
2010 2009
(UNAUDITED)
A S S E T S
CURRENT ASSETS
Cash and cash equivalents $56,123,490 $134,487,611
Restricted cash 9,520,921 0
Notes receivable 209,580 440,100
Due from shareholders 0 3,500,000
Accounts receivable, trade, net of
allowance for doubtful accounts of
$666,161 and $273,446 as of September
30, 2010 and December 31, 2009,
respectively 90,687,872 38,826,483
Accounts receivable - retentions 21,324,942 18,984,688
Costs and estimated earnings in excess of
billings on uncompleted contracts 41,440,413 3,258,806
Inventories 5,546,475 5,405,866
Advances for inventory purchases 57,244,722 34,056,231
Other current assets and prepaid expenses 3,306,592 629,506
Total current assets 285,405,007 239,589,291
PLANT AND EQUIPMENT, NET 24,516,034 12,265,389
OTHER ASSETS
Investment in unconsolidated affiliate 449,100 0
Advances for non current assets 11,745,655 6,570,378
Intangible assets, net 9,115,669 1,144,796
Total other assets 21,310,424 7,715,174
Total assets $331,231,465 $259,569,854
L I A B I L I T I E S A N D S H A R
E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts payable $9,796,423 $4,281,353
Short term bank loans 3,742,500 1,467,000
Notes payable 9,520,824 0
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,125,883 0
Customer deposits 232,894 4,984,801
Deferred revenue 3,229,242 0
Liquidated damages payable 20,147 20,147
Due to shareholders 498,598 494,614
Taxes payable 4,727,815 4,003,709
Other payables and accrued liabilities 512,862 496,411
Total current liabilities 40,407,188 15,748,035
Long term loan 8,233,500 0
Warrant Liabilities 178 15,172,712
REDEEMABLE COMMON STOCK ($0.0001 par
value, 5,464,357 shares issued with
conditions for redemption outside the
control of the company) 24,480,319 24,480,319
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock ($0.0001 par value,
50,000,000 shares authorized, none
issued and outstanding) 0 0
Common Stock ($0.0001 par value,
10,000,000,000 shares authorized,
28,605,321 and 28,603,321 shares issued
and outstanding as of September 30,
2010 and December 31, 2009) 2,860 2,860
Additional paid-in capital 107,527,065 107,135,593
Retained earnings 123,344,860 78,983,794
Statutory reserves 15,326,220 11,755,312
Accumulated other comprehensive income 11,909,275 6,291,229
Total shareholders' equity 258,110,280 204,168,788
Total liabilities and shareholders'
equity $331,231,465 $259,569,854
RINO INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
Three Months Ended
September 30,
2010 2009
REVENUES
Contracts $52,083,757 $62,194,946
Services 640,803 1,107,257
52,724,560 63,302,203
COST OF SALES
Contracts 35,987,267 36,452,495
Services 242,423 531,440
Depreciation 211,379 185,201
36,441,069 37,169,136
GROSS PROFIT 16,283,491 26,133,067
OPERATING EXPENSES
Selling, general and administrative
expenses 6,031,527 6,562,870
Stock compensation expense 325,937 (9,263)
TOTAL OPERATING EXPENSES 6,357,464 6,553,607
INCOME FROM OPERATIONS 9,926,027 19,579,460
OTHER INCOME (EXPENSES), NET
Other expense, net (13,772) (3,144)
Change in fair value of warrants 97,620 (2,592,201)
Interest income (expense), net 323,898 101,785
Gain on liquidated damage settlement 0 0
TOTAL OTHER INCOME (EXPENSES), NET 407,746 (2,493,560)
INCOME BEFORE PROVISION FOR INCOME
TAXES 10,333,773 17,085,900
PROVISION FOR INCOME TAXES 1,494,553 0
NET INCOME 8,839,220 17,085,900
OTHER COMPREHENSIVE INCOME:
Foreign currency translation
adjustment 4,419,255 169,559
COMPREHENSIVE INCOME $13,258,475 $17,255,459
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 28,604,061 25,204,199
Diluted 28,610,990 25,220,159
EARNINGS PER SHARE:
Basic $0.31 $0.68
Diluted $0.31 $0.68
Nine Months Ended
September 30,
2010 2009
REVENUES
Contracts $164,347,447 $138,030,264
Services 1,620,028 1,602,308
165,967,475 139,632,572
COST OF SALES
Contracts 108,600,440 81,701,500
Services 737,072 1,124,270
Depreciation 566,821 555,528
109,904,333 83,381,298
GROSS PROFIT 56,063,142 56,251,274
OPERATING EXPENSES
Selling, general and administrative
expenses 17,802,865 14,079,888
Stock compensation expense 391,469 0
TOTAL OPERATING EXPENSES 18,194,334 14,079,888
INCOME FROM OPERATIONS 37,868,808 42,171,386
OTHER INCOME (EXPENSES), NET
Other expense, net (127,651) (8,923)
Change in fair value of warrants 15,172,534 (4,402,335)
Interest income (expense), net 464,342 (90,148)
Gain on liquidated damage settlement 0 1,746,120
TOTAL OTHER INCOME (EXPENSES), NET 15,509,225 (2,755,286)
INCOME BEFORE PROVISION FOR INCOME
TAXES 53,378,033 39,416,100
PROVISION FOR INCOME TAXES 5,446,059 0
NET INCOME 47,931,974 39,416,100
OTHER COMPREHENSIVE INCOME:
Foreign currency translation
adjustment 5,618,046 31,920
COMPREHENSIVE INCOME $53,550,020 $39,448,020
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 28,605,321 25,104,972
Diluted 28,610,560 25,112,087
EARNINGS PER SHARE:
Basic $1.68 $1.57
Diluted $1.68 $1.57
RINO INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock
Par Value
$0.0001 Additional
Number Common Paid-in
of shares stock capital
BALANCE, January 31, 2009 25,040,000 $2,504 $25,924,007
Cumulative effect of
reclassification of warrants (1,058,702)
Shares issued to settle liquidated
damage payable 48,438 5 216,999
Stock compensation expense-shares
and options issued 2,000 0 28,324
Imputed interest on advances from
a shareholder 13,557
Non cash exercise of warrant at
$5.38 240,331 24 5,368,585
Net income
Allocation to statutory reserve
Foreign currency translation gain
BALANCE, September 30, 2009
(Unaudited) 25,330,769 $2,533 $30,492,770
Stock compensation expense 19,061
Non cash exercise of warrant at
$5.38 20,520 2 512,496
Stock issuance for cash for $30.75 3,252,032 325 76,111,266
Net income
Allocation to statutory reserve
Foreign currency translation gain
BALANCE, December 31, 2009 28,603,321 $2,860 $107,135,593
Stock compensation expense 2,000 0 391,472
Net income
Allocation to statutory reserve
Foreign currency translation gain
BALANCE, September 30, 2010
(Unaudited) 28,605,321 2,860 107,527,065
Retained
Earnings
Unrestricted Statutory
earnings reserve
BALANCE, January 31, 2009 $28,570,948 $6,196,478
Cumulative effect of reclassification of
warrants (420,070)
Shares issued to settle liquidated damage
payable
Stock compensation expense-shares and
options issued
Imputed interest on advances from a
shareholder
Non cash exercise of warrant at $5.38
Net income 39,416,100
Allocation to statutory reserve (4,295,048) 4,295,048
Foreign currency translation gain
BALANCE, September 30, 2009 (Unaudited) $63,271,930 $10,491,526
Stock compensation expense
Non cash exercise of warrant at $5.38
Stock issuance for cash for $30.75
Net income 16,975,650
Allocation to statutory reserve (1,263,786) 1,263,786
Foreign currency translation gain
BALANCE, December 31, 2009 $78,983,794 $11,755,312
Stock compensation expense
Net income 47,931,974
Allocation to statutory reserve (3,570,908) 3,570,908
Foreign currency translation gain
BALANCE, September 30, 2010 (Unaudited) 123,344,860 15,326,220
Accumulated
other
comprehensive
income Totals
BALANCE, January 31, 2009 $6,221,943 $66,915,880
Cumulative effect of reclassification of
warrants (1,478,772)
Shares issued to settle liquidated
damage payable 217,004
Stock compensation expense-shares and
options issued 28,324
Imputed interest on advances from a
shareholder 13,557
Non cash exercise of warrant at $5.38 5,368,609
Net income 39,416,100
Allocation to statutory reserve 0
Foreign currency translation gain 31,920 31,920
BALANCE, September 30, 2009 (Unaudited) $6,253,863 $110,512,622
Stock compensation expense 19,061
Non cash exercise of warrant at $5.38 512,498
Stock issuance for cash for $30.75 76,111,591
Net income 16,975,650
Allocation to statutory reserve 0
Foreign currency translation gain 37,366 37,366
BALANCE, December 31, 2009 $6,291,229 $204,168,788
Stock compensation expense 391,472
Net income 47,931,974
Allocation to statutory reserve 0
Foreign currency translation gain 5,618,046 5,618,046
BALANCE, September 30, 2010 (Unaudited) 11,909,275 258,110,280
RINO INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $47,931,974 $39,416,100
Adjustments to reconcile net income to
cash (used in) provided by operating
activities:
Depreciation 706,358 717,490
Amortization 143,025 50,072
Allowance for bad debt 380,399 342,495
Imputed interest on advances from
shareholders 0 13,558
Amortization of long term prepaid
expenses 58,914 10,994
Stock compendation expense 391,472 28,324
Liquidated damage settlement expense 0 (1,746,120)
Change in fair value of warrants (15,172,534) 4,402,335
Changes in operating assets and
liabilities:
Notes receivable 235,360 1,439,514
Accounts receivable (52,478,965) 6,596,159
Costs and estimated earnings in excess of
billings on uncompleted contracts (37,452,981) (13,192,194)
Inventories (29,537) (589,505)
Advances for inventory purchases (22,101,402) (34,747,048)
Other current assets and prepaid expenses (2,618,152) (160,940)
Accounts payable 5,333,251 (344,598)
Customer deposits (4,769,544) 102,598
Billings in excess of costs and estimated
earnings on uncompleted contracts 7,984,752 1,483,440
Other payables and accrued liabilities 6,294 (318,983)
Deferred revenue 3,173,157 0
Due to shareholders 3,704 (1,058,480)
Taxes payable 631,076 5,946,440
Net cash (used in) provided by operating
activities (67,643,379) 8,391,651
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for investment in unconsolidated
affiliate (441,300) 0
Purchase of plant and equipment (12,499,236) (37,232)
Advances for non current assets (5,012,306) (341,417)
Purchase of intangible assets (7,952,455) 0
Net cash used in investing activities (25,905,297) (378,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in restricted cash (9,355,561) 1,030,317
Proceeds from notes payable - banks 9,355,466 73,735
Proceeds from short term bank loans 2,206,500 29,360,000
Payments on short term bank loans 0 (29,315,000)
Payments on liquidated damage settlement 0 (615,018)
Proceeds from shareholder 3,500,000 770,889
Proceeds from long-term bank loans 8,090,500 0
Net cash provided by financing activities 13,796,905 1,304,923
EFFECT OF EXCHANGE RATE ON CASH 1,387,650 (39,665)
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (78,364,121) 9,278,260
CASH AND CASH EQUIVALENTS, beginning 134,487,611 19,741,982
CASH AND CASH EQUIVALENTS, ending $56,123,490 $29,020,242
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest expense $403,217 $632,816
Cash paid for income taxes $1,752,393 $229,848
Reclassification of advances on plant to
purcahse of plant 10,703,204 0
Shares issued for liquidated damage
penalty settlement $0 $217,004
SOURCE RINO International Corporation
