Synutra International, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Synutra International, Inc.	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - Synutra International, Inc.	dp53252_ex3202.htm
EX-31.1 - EXHIBIT 31.1 - Synutra International, Inc.	dp53252_ex3101.htm
EX-32.1 - EXHIBIT 32.1 - Synutra International, Inc.	dp53252_ex3201.htm
EX-31.2 - EXHIBIT 31.2 - Synutra International, Inc.	dp53252_ex3102.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 001-33397

SYNUTRA INTERNATIONAL, INC.

DELAWARE		13-4306188
(State or Other Jurisdiction of Incorporation or Organization)		I.R.S. Employer Identification No.

	2275 Research Blvd., Suite 500 Rockville, Maryland 20850
(Address of Principal Executive Offices, Zip Code)

(301) 840-3888

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x

Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of February 9, 2015, there were 57,300,713 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

Page

PART I FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)			1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12

Item 3. Quantitative and Qualitative Disclosures About Market Risk			23

Item 4. Controls and Procedures			23

PART II OTHER INFORMATION

Item 1. Legal Proceedings			24

Item 1A. Risk Factors			24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			24

Item 3. Defaults Upon Senior Securities			24

Item 4. Mine Safety Disclosures			24

Item 5. Other Information			25

Item 6. Exhibits			26

Signatures			27

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in thousands, except per share data)

(UNAUDITED)

	December 31, 2014			March 31, 2014
ASSETS
Current Assets:
Cash and cash equivalents	$	85,468		$	90,915
Restricted cash		96,264			67,211
Accounts receivable, net of allowance of $2,028 and $2,851, respectively		20,624			17,763
Inventories		85,042			83,986
Due from related parties		4,329			3,109
Prepaid income tax		1,743			244
Receivable from disposal of subsidiaries		6,951			0
Prepayments, tax receivables and others		35,168			22,028
Total current assets		335,589			285,256

Property, plant and equipment, net		180,730			145,833
Land use rights, net		8,740			10,957
Intangible assets, net		3,973			4,270
Restricted cash		94,458			100,533
Due from related parties		1,475			2,355
Other assets		2,961			1,479
TOTAL ASSETS	$	627,926		$	550,683
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt	$	128,765		$	115,917
Long-term debt due within one year		134,760			91,505
Accounts payable		55,542			39,616
Due to related parties		1,007			1,556
Advances from customers		19,014			15,692
Other current liabilities		50,160			45,980
Total current liabilities		389,248			310,266
Long-term debt		123,204			160,533
Deferred government subsidy		3,924			4,247
Capital lease obligations		7,862			7,898
Other long-term liabilities		6,077			6,483
Total liabilities		530,315			489,427

Equity:
Common stockholders’ equity:
Common stock, $.0001 par value: 250,000 authorized; 57,301 and 57,301 issued and outstanding at December 31, 2014 and March 31, 2014, respectively		6			6
Additional paid-in capital		135,440			135,440
Accumulated deficit		(59,138	)		(104,579	)
Accumulated other comprehensive income		18,843			30,529
Total common stockholders’ equity		95,151			61,396
Noncontrolling interest		2,460			(140	)
Total equity		97,611			61,256

TOTAL LIABILITIES AND EQUITY	$	627,926		$	550,683

The accompanying notes are an integral part of the consolidated financial statements.

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2014		2013			2014		2013
Net sales	$	115,331	$	101,034		$	303,770	$	271,795
Cost of sales		62,614		60,731			168,390		156,522
Gross profit		52,717		40,303			135,380		115,273
Selling and distribution expenses		15,851		12,486			43,300		40,753
Advertising and promotion expenses		10,498		9,769			29,113		29,008
General and administrative expenses		7,295		6,477			21,542		18,760
Gain on disposal and liquidation of subsidiaries		0		0			15,294		367
Government subsidies		152		362			447		630
Income from operations		19,225		11,933			57,166		27,749
Interest expense		3,315		3,850			11,855		11,761
Interest income		1,807		1,076			5,212		3,186
Other income, net		343		555			309		1,407
Income before income tax expense		18,060		9,714			50,832		20,581
Income tax expense		205		14			3,076		107
Net income		17,855		9,700			47,756		20,474
Net income (loss) attributable to the noncontrolling interest		591		(287	)		2,315		(361	)
Net income attributable to common stockholders	$	17,264	$	9,987		$	45,441	$	20,835

Weighted average common stock outstanding – basic and diluted		57,301		57,301			57,301		57,301
Earnings per share – basic and diluted	$	0.30	$	0.17		$	0.79	$	0.36

The accompanying notes are an integral part of the consolidated financial statements.

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
Net income	$	17,855		$	9,700		$	47,756		$	20,474
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Unrealized translation gain (loss) during the period		(1,293	)		1,162			(4,674	)		2,158
Less: Reclassification adjustment for gains included in net income		0			0			(7,011	)		0
Subtotal		(1,293	)		1,162			(11,685	)		2,158
Other comprehensive income (loss), net of tax		(1,293	)		1,162			(11,685	)		2,158
Comprehensive income		16,562			10,862			36,071			22,632
Less: Comprehensive income (loss) attributable to noncontrolling interest		591			(287	)		2,316			(361	)
Comprehensive income attributable to common stockholders	$	15,971		$	11,149		$	33,755		$	22,993

The accompanying notes are an integral part of the consolidated financial statements.

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and shares in thousands)

(UNAUDITED)

	Synutra International, Inc. Stockholders’ Equity
	Common Stock
	Shares		Amount		Additional paid-in capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive income			Noncontrolling Interest			Total equity
Balance, March 31, 2013		57,301	$	6	$	135,440	$	(135,508	)	$	28,828		$	441		$	29,207
Net income		0		0		0		20,835			0			(361	)		20,474
Other comprehensive income, net of tax of nil		0		0		0		0			2,158			0			2,158
Balance, December 31, 2013		57,301	$	6	$	135,440	$	(114,673	)	$	30,986		$	80		$	51,839

Balance, March 31, 2014		57,301	$	6	$	135,440	$	(104,579	)	$	30,529		$	(140	)	$	61,256
Net income		0		0		0		45,441			0			2,315			47,756
Other comprehensive income, net of tax of nil		0		0		0		0			(11,686	)		1			(11,685	)
Incorporation of a majority owned subsidiary		0		0		0		0			0			284			284
Balance, December 31, 2014		57,301	$	6	$	135,440	$	(59,138	)	$	18,843		$	2,460		$	97,611

The accompanying notes are an integral part of the consolidated financial statements.

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(UNAUDITED)

	Nine Months Ended December 31,
	2014			2013
Operating activities:
Net income	$	47,756		$	20,474
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		10,953			10,600
Reversal of allowance for bad debt		(1,699	)		(2,925	)
Inventory write down		3,838			5,450
Gain on disposal and liquidation of subsidiaries		(15,294	)		(367	)
Other		365			56
Changes in assets and liabilities:
Accounts receivable		(6,025	)		15,600
Inventories		(9,326	)		(7,276	)
Due from related parties		(1,222	)		(474	)
Prepaid land use right		97			(181	)
Prepayments, tax receivables and others		(2,672	)		(10,286	)
Accounts payable		8,858			8,231
Due to related parties		(549	)		(403	)
Advances from customers		3,176			8,123
Income tax receivable/payable		(4,616	)		4
Other current and noncurrent liabilities		1,026			(5,083	)
Net cash provided by operating activities		34,666			41,543

Investing activities:
Acquisition of property, plant and equipment		(59,691	)		(24,926	)
Change in restricted cash		(21,964	)		(12,685	)
Proceeds from assets disposal		377			110
Proceeds from disposal of subsidiaries		22,186			633
Net cash used in investing activities		(59,092	)		(36,868	)

Financing activities:
Proceeds from short-term debt		125,114			127,137
Repayment of short-term debt		(112,465	)		(155,599	)
Proceeds from long-term debt		101,716			81,068
Repayment of long-term debt		(94,498	)		(75,821	)
Payment on capital lease obligations		(567	)		(416	)
Net cash used in financing activities		19,300			(23,631	)

Effect of exchange rate changes on cash and cash equivalents		(321	)		1,459

Net change in cash and cash equivalents		(5,447	)		(17,497	)
Cash and cash equivalents, beginning of period		90,915			79,050
Cash and cash equivalents, end of period	$	85,468		$	61,553

Supplemental cash flow information:
Interest paid	$	10,465		$	10,900
Income tax paid		4,869			95

Non-cash investing and financing activities:
Purchase of property, plant and equipment included in accounts payable	$	15,416		$	4,820
Receivable recorded relating to disposal of subsidiaries		6,951			0

The accompanying notes are an integral part of the consolidated financial statements.

SYNUTRA INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

Synutra International, Inc. and its subsidiaries (hereinafter collectively referred to as the “Company” or “Synutra”) are principally engaged in production, distribution and sales of dairy based nutritional products under the “Shengyuan” or “Synutra” line of brands in the People’s Republic of China (“China” or “PRC”). The Company focuses on selling powdered formula products for infant and adult, and also engages in other nutritional product offerings, such as prepared foods and certain nutritional ingredients and supplements.

2.	BASIS OF PRESENTATION

The Company is responsible for the unaudited consolidated financial statements included in this document, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results. The Company prepared these statements following the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by US GAAP for annual financial statements. These statements should be read in combination with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

As of December 31, 2014, the Company has a negative working capital of $53.7 million. However, considering the Company’s nine consecutive quarters of operating income and cash inflows as well as an unused credit facility of $36.0 million, management believes that there will be adequate sources of liquidity to fund the Company’s working capital and capital expenditure requirements, and to meet its short term debt obligations, other liabilities and commitments as they become due in the next 12 months period. Accordingly, management believes the Company will be able to realize its assets and satisfy its liabilities in the normal course of business. Note that the aforementioned unused credit facility could be used when purchasing materials and the purchased inventory is used as pledge. The facility is not unconditionally committed as the bank may refuse to fund if there is a material adverse change to the Company’s operations.

The unaudited consolidated financial statements include the financial statements of Synutra International, Inc. and its subsidiaries, its consolidated variable interest entity, Beijing Shengyuan Huimin Technology Service Co., Ltd. (the variable interest entity, or "VIE"), in which the Company has a controlling financial interest. A controlling financial interest is typically determined when a company holds a majority of the voting equity interest in an entity. US GAAP provides guidance on the identification and financial reporting for entities over which control is achieved through means other than voting interests, which requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Through the contractual arrangements between the Company and the VIE, the Company controls the operating activities and holds all the beneficial interests of the VIE and has been determined to be the primary beneficiary of the VIE. The Company has concluded that such contractual arrangements are legally enforceable. The operations associated with the consolidated VIE are insignificant and hold de minimis assets and liabilities.

Net income or loss of a subsidiary is attributed to the Company and to the noncontrolling interests on the basis of relative ownership interest. Noncontrolling interests in subsidiaries are presented separately from the Company's equity therein.

All inter-company accounts and transactions have been eliminated in consolidation.

The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

3.	DISPOSAL OF SUBSIDIARIES

In June 2014, the Company sold its wholly owned subsidiary in the powdered formula segment, Zhangjiakou Chahaer Dairy Co., Ltd. (“Zhangjiakou”) to Rightcom Co., Ltd. (the “Purchaser”) for a total cash consideration of $28.1 million to be paid in three installments. As of June 30, 2014, the Company has completed all of the closing procedures with the exception of the re-registration of land use right certificate and has effectively transferred its control on Zhangjiakou to the Purchaser. As the result of the sale, the Company recorded a $15.0 million in gain ($11.9 million after tax), which was calculated as the total of the excess of the sale proceeds over the net book value of the assets transferred of $20.1 million and reclassification of foreign currency translation gain of $7.0 million from Other Comprehensive Income. The Purchaser made a 20% payment of $5.6 million and a 60% payment of $16.9 million in May and July 2014 respectively, with the remaining 20% payment of $5.6 million to be paid upon the completion of the re-registration of land use right certificate. The relevant government authority approved the re-registration in January 2015, and the Company expects the administrative procedures of issuing the land use right certificate will be completed in the first half of calendar year 2015.

Prior to the sale, the Company used Zhangjiakou to process high oil whey power to use in its production of powered formula products. Concurrently with the disposal, the Company has entered into agreements with Zhangjiakou, under which the Company will continue to engage Zhangjiakou in processing at least 16,000 tons of whey powder for the Company over the next two years.

In July 2014, the Company entered into a share purchase agreement with Beijing Jinkangpu Food Technology Co., Ltd. (“Jinkangpu”) to dispose its wholly owned subsidiary in the food segment, Beijing Huiliduo Food Technology Co., Ltd. (“Beijing Huiliduo”) for a total cash consideration of $1.3 million to be paid in two installments. As of September 30, 2014, the Company has completed all of the closing procedures and has effectively transferred its control on Beijing Huiliduo to Jinkangpu. As the result of the sale, the Company recorded a $0.3 million in gain, which was calculated as the total of the excess of the sale proceeds over the net book value of the assets transferred of $1.0 million. Jinkangpu made a 10% payment in August 2014, with the remaining 90% payment to be paid before April 2015.

4.	INVENTORIES

The Company’s inventories at December 31, 2014 and March 31, 2014 are summarized as follows:

(In thousands)	December 31, 2014		March 31, 2014
Raw materials	$	52,870	$	44,981
Work-in-progress		18,151		12,342
Finished goods		14,021		26,663
Total	$	85,042	$	83,986

The value of goods-in-transit included in raw materials was $15.0 million and $11.4 million as of December 31, 2014 and March 31, 2014, respectively, which mainly represented the purchase of milk powder and whey powder from international sources.

The Company recorded lower of cost or market provisions for inventory of $1.8 million and $0.8 million for the quarter ended December 31, 2014 and 2013, respectively, and $3.8 million and $5.5 million for the nine months ended December 31, 2014 and 2013, respectively.

5.	RELATED PARTIES AND RELATED PARTY TRANSACTIONS

A.	Related party balances

a.	Due from related parties, including current and non-current portion

(In thousands)	December 31, 2014		March 31, 2014
Sheng Zhi Da Dairy Group Corporation	$	1,928	$	1,918
Beijing Honnete Dairy Co., Ltd.		0		2
St. Angel (Beijing) Business Service Co. Ltd.		3,793		3,451
Beijing St. Angel Cultural Communication Co., Ltd.		0		6
Beijing Ao Naier Feed Stuff Co., Ltd.		83		87
Total	$	5,804	$	5,464

b.	Due to related parties

(In thousands)	December 31, 2014		March 31, 2014
Sheng Zhi Da Dairy Group Corporation	$	853	$	876
Beijing Honnete Dairy Co., Ltd.		0		478
Beijing St. Angel Cultural Communication Co., Ltd.		154		202
Total	$	1,007	$	1,556

The amount due to and due from related parties were unsecured and interest free.

B.	Sales to and services for related parties

In the three and nine months ended December 31, 2014, the Company’s sales to related parties mainly included feed grade milk powder sold to Ao Naier and powdered formula products sold to St. Angel (Beijing) Business Service. Other immaterial transactions with related parties included renting office spaces to Honnete, Ao Naier, St. Angel (Beijing) Business Service and St. Angel Cultural Communication. In the three and nine months ended December 31, 2013, the Company’s sales to related parties mainly included feed grade milk powder and whey powder to Ao Naier, and powdered formula products to St. Angel (Beijing) Business Service.

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(In thousands)	2014		2013		2014		2013
Beijing Honnete Dairy Co., Ltd. ("Honnete")	$	0	$	2	$	7	$	6
St. Angel (Beijing) Business Service Co., Ltd. ("St. Angel (Beijing) Business Service")		1,190		250		3,061		1,489
Beijing Ao Naier Feed Stuff Co., Ltd. ("AoNaier")		250		173		398		267
Beijing St. Angel Cultural Communication Co., Ltd. ("Beijing St. Angel Cultural Communication")		0		11		19		11
Total	$	1,440	$	436	$	3,485	$	1,773

C.	Purchases from related parties

In the three and nine months ended December 31, 2014 and 2013, St. Angel Cultural Communication implemented certain marketing activities for the Company.

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(In thousands)	2014		2013		2014		2013
Beijing St. Angel Cultural Communication Co. Ltd.	$	115	$	122	$	345	$	365

6.	PROPERTY, PLANT AND EQUIPMENT, NET

(In thousands)	December 31, 2014		March 31, 2014
Property, plant and equipment, cost:
Land	$	1,625	$	0
Capital lease of building		5,774		5,744
Buildings and renovations		80,314		86,769
Plant and machinery		65,781		88,007
Office equipment and furnishings		11,156		11,507
Motor vehicles		2,593		3,452
Others		1,144		1,103
Total cost	$	168,387	$	196,582
Less: Accumulated depreciation:
Capital lease of building		951		813
Buildings and renovations		16,977		17,986
Plant and machinery		38,201		48,942
Office equipment and furnishings		7,741		6,400
Motor vehicles		1,799		2,491
Others		733		637
Total accumulated depreciation		66,402		77,269
Construction in progress		78,745		26,520
Property, plant and equipment, net	$	180,730	$	145,833

Land represents a parcel of land acquired for the Company’s drying facility in France.

Construction in progress mainly represents construction and equipment purchase for the French subsidiary as of December 31, 2014 and March 31, 2014

The Company recorded depreciation expense for owned assets and capital leased assets of $3.3 million and $3.5 million for the quarter ended December 31, 2014 and 2013, respectively, and $10.9 million and $10.4 million for the nine months ended December 31, 2014 and 2013, respectively.

DEBT

As of December 31, 2014 and March 31, 2014, the Company had short-term debt from banks of $128.8 million and $115.9 million, respectively. The maturity dates of the short-term debt outstanding range from January 2015 to December 2015. The weighted average interest rate on short-term debt outstanding at December 31, 2014 and March 31, 2014 was 3.8% and 4.9%, respectively. Certain portion of these debts use floating interest rates, which are calculated based on the benchmark lending interest rate published by China’s central bank or on LIBOR. The short-term debt at December 31, 2014 and March 31, 2014 were secured by the pledge of certain fixed assets totaling $5.1 million and $5.3 million, respectively; the pledge of the Company’s land use right of nil and $3.9 million, respectively; and the pledge of restricted cash deposits of $33.1 million and $17.0 million, respectively.

As of December 31, 2014 and March 31, 2014, the Company had long-term debt, including current portion, from banks of $258.0 million and $252.0 million, respectively. The maturity dates of the long-term debt outstanding range from February 2015 to February 2019. The weighted average interest rate of outstanding long-term debt at December 31, 2014 and March 31, 2014 was 3.9% and 4.6%, respectively. Certain portion of these debts use floating interest rates, which are calculated based on the benchmark lending interest rate published by China’s central bank or on LIBOR. The indebtedness at December 31, 2014 and March 31, 2014 was secured by the pledge of restricted cash deposits of $142.7 million and $82.0 million, respectively.

Included in the long-term debt as of December 31, 2014, long-term project loans outstanding for Synutra France were €25.4 million (equivalent to $30.9 million). These debts use floating interest rates, which are calculated based on LIBOR. The maturity dates of the long-term loans outstanding range from January 2019 to February 2019.

Borrowings denominated in currencies other than RMB were $235.7 million and $138.3 million as of December 31, 2014 and March 31, 2014, respectively.

Maturities on long-term debt, including current and non-current portion, subject to mandatory redemption are as follows:

(In thousands)	Twelve Months Ended
December 31, 2015	$	134,760
December 31, 2016		72,317
December 31, 2017		19,938
December 31, 2018		0
December 31, 2019		30,949

The total amount of interest cost incurred was $3.8 million and $3.9 million, and the amount thereof that has been capitalized was $0.5 million and nil, for the quarter ended December 31, 2014 and 2013, respectively. The total amount of interest cost incurred was $13.1 million and $11.8 million, and the amount thereof that has been capitalized was $1.3 million and nil, for the nine months ended December 31, 2014 and 2013, respectively.

8.	OTHER CURRENT LIABILITIES

(In thousands)	December 31, 2014		March 31, 2014
Accrued discount, rebate and slotting fee	$	27,764	$	18,911
Payroll and bonus payables		8,935		9,469
Accrued selling expenses		3,730		6,793
Accrued advertising and promotion expenses		3,580		5,593
VAT and other tax payables		347		0
Accrued rental fee		168		366
Accrued interest expense		791		832
Others		4,845		4,016
Total	$	50,160	$	45,980

9.	INCOME TAXES

The effective tax rate is based on expected income (loss), statutory tax rates and incentives available in the various jurisdictions in which the Company operates. For interim financial reporting, the Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision (benefit) in accordance with the ASC No. 740-270, “Income tax – Interim reporting”. As the year progresses, the Company refines the estimates of the year’s taxable income as new information becomes available. This continual estimation process often results in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision (benefit) during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate.

The Company considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with tax attributes expiring unused and tax planning alternatives. Valuation allowances have been established for deferred tax assets based on a more-likely-than-not threshold. The Company's ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carryforward periods provided for in the tax law.

The increase in the effective tax rate for the nine months ended December 31, 2014 was mainly due to the income tax effect of the disposal of Zhangjiakou.

10.	EARNINGS PER SHARE

For purposes of calculating basic and diluted earnings per share, the Company used the following weighted average common stocks outstanding:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(In thousands except for per share data)	2014		2013		2014		2013
Net income attributable to common stockholders	$	17,264	$	9,987	$	45,441	$	20,835
Weighted average common stock outstanding – basic and diluted		57,301		57,301		57,301		57,301
Earnings per share - basic and diluted	$	0.30	$	0.17	$	0.79	$	0.36

The Company granted ABN AMRO Bank N.V., Hong Kong Branch (now known as The Royal Bank of Scotland N.V. (“RBS”)) warrants to purchase 400,000 shares of common stock in connection with the RBS Loan in fiscal year 2008. These warrants were excluded from the computation of diluted earnings per share for the period ended December 31, 2013 as they would be anti-dilutive. The warrant agreement expired on June 30, 2013.

11.	SEGMENT REPORTING

The Company focuses on selling powdered formula products for infants and adults, and also engages in other nutritional product offerings, such as prepared foods and certain nutritional ingredients and supplements. The activities of each segment are as follows:

Powdered Formula - Sales of powdered infant and adult formula products.

Foods - Sales of prepared foods for babies, children and adult.

Nutritional Ingredients and Supplements - Sales of nutritional ingredients and supplements such as chondroitin sulfate to external customers, and microencapsulated Docosahexanoic Acid (“DHA”) and Arachidonic Acid (“ARA”) to powdered formula segment.

Other business - Other business includes non-core businesses such as ancillary sales of excess or unusable ingredients and materials to industrial customers.

The Company’s underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting.

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
(In thousands)	2014			2013			2014			2013
NET SALES TO EXTERNAL CUSTOMERS
- Powdered formula	$	106,552		$	86,158		$	281,568		$	225,888
- Foods		56			30			174			130
- Nutritional ingredients and supplements		5,613			6,264			13,960			17,918
- Other business		3,110			8,582			8,068			27,859
Net sales	$	115,331		$	101,034		$	303,770		$	271,795
INTERSEGMENT SALES
- Powdered formula	$	72		$	14		$	82		$	88
- Foods		0			0			0			0
- Nutritional ingredients and supplements		3,908			2,525			12,731			7,327
- Other business		0			0			0			0
Intersegment sales	$	3,980		$	2,539		$	12,813		$	7,415
GROSS PROFIT
- Powdered formula	$	53,188		$	42,830		$	135,319		$	117,403
- Foods		(304	)		(608	)		(1,110	)		(1,345	)
- Nutritional ingredients and supplements		304			(843	)		1,544			(1,350	)
- Other business		(471	)		(1,076	)		(373	)		565
Gross profit	$	52,717		$	40,303		$	135,380		$	115,273
Selling and distribution expenses		15,851			12,486			43,300			40,753
Advertising and promotion expenses		10,498			9,769			29,113			29,008
General and administrative expenses		7,295			6,477			21,542			18,760
GAIN ON DISPOSAL AND LIQUIDATION OF SUBSIDIARIES
- Powdered formula	$	0		$	0		$	14,962		$	0
- Foods		0			0			332			0
- Nutritional ingredients and supplements		0			0			0			0
- Other business		0			0			0			367
Gain on disposal and liquidation of subsidiaries	$	0		$	0		$	15,294		$	367
Government subsidies		152			362			447			630
Income from operations		19,225			11,933			57,166			27,749
Interest expense		3,315			3,850			11,855			11,761
Interest income		1,807			1,076			5,212			3,186
Other income, net		343			555			309			1,407
Income before income tax expense	$	18,060		$	9,714		$	50,832		$	20,581

(In thousands)	December 31, 2014			March 31, 2014
TOTAL ASSETS
- Powdered formula	$	615,812		$	558,924
- Foods		13,496			16,692
- Nutritional ingredients and supplements		57,177			51,289
- Other business		3,343			2,422
- Unallocated assets		8,975			845
- Intersegment elimination		(70,877	)		(79,489	)
Total	$	627,926		$	550,683

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Sections of this Quarterly Report on Form 10-Q (the “Form 10-Q”) including, in particular, the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements.

Expressions of future goals and expectations or similar expressions including, without limitation, “may,” “should,” “could,” “expects,” “does not currently expect,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,” “potential,” “targets,” or “continue,” reflecting something other than historical fact are intended to identify forward-looking statements. The factors described in the Company’s Annual Report on Form 10-K under Part I. Item 1A. Risk Factors and below in Part II. Other Information – Item 1A. Risk Factors could cause the Company’s actual results to differ materially from those described in the forward-looking statements. Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the SEC, particularly its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K , Current Reports on Form 8-K and all amendments to those reports.

Available Information

The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. Such reports and other information filed by the Company with the SEC are available on the Company’s website at http://www.synutra.com when such reports are available on the SEC website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

Overview

We are a leading infant formula company in China. We principally engage in the production, distribution and sale of dairy based nutritional products under the “Shengyuan” or “Synutra” line of brands in the PRC. We focus on selling powdered formula products for infant and adult, and also engage in other nutritional product offerings, such as prepared foods and certain nutritional ingredients and supplements. We sell most of our products through an extensive nationwide sales and distribution network covering all provinces and provincial-level municipalities in mainland China. As of December 31, 2014, this network comprised over 780 independent distributors and over 470 independent sub-distributors who sell our products in approximately 22,000 retail outlets.

We currently have four reportable segments which are:

●	Powdered formula segment: Powdered formula segment covers the sale of powdered infant and adult formula products. Major brands include Super, U-Smart, My Angel and Dutch Cow;

●	Foods segment: Foods segment covers the sale of prepared baby foods for babies, children and adults under the brand of Huiliduo. In June 2013, we introduced prepared adult foods for patients with special nutritional needs after surgical operations;

●	Nutritional ingredients and supplements segment: Nutritional ingredients and supplements segment covers the production and sale of nutritional ingredients and supplements such as chondroitin sulfate to third parties, and microencapsulated Docosahexanoic Acid (“DHA”) and Arachidonic Acid (“ARA”) to powdered formula segment;

●	Other business segment: our other business includes non-core businesses such as ancillary sales of excess or unusable ingredients and materials to industrial customers.

Executive Summary

After the successful implementation of our Gold Mining Strategy as described in the Annual Report on Form 10-K for the fiscal year ended March 31, 2014, we have begun focusing on three sales and marketing initiatives since the beginning of fiscal 2015:

Our first initiative is the Kangaroo program. Phase one of this program was to connect online communication and service by our promoters, or nutritional consultants, with their offline sales compensation. In the 3rd quarter of 2014 we started to calculate the bonuses for the consultants based on the points accumulated by their members, regardless of whether the sales are done by them at the store they work. In the 4th quarter of 2014 we fully integrated the communication tools used by our consultants, the WeChat cell phone APP which is the dominant mobile communication APP in China, with our self-developed sales management APP, which we call “Treasure in Hand”. The APP enables our consultants to host chat groups and chat with members much the same as under WeChat interface, while allowing Synutra to manage the chat group and contents in a centralized way if needed. Currently we are working on Phase Two of the Kangaroo program which is to encourage and integrate online sales with these online communication platforms.

Secondly, we successfully launched four new premium products in September 2014, each of which was developed in response to increased market demand for premium products: (1) Advanced Super formula with partially hydrolyzed proteins, (2) Super Goat formula with 100% goat whole milk and goat whey protein, (3) Organic Super formula with 100% organic raw material produced by our overseas partner and (4) “Jishan” (gourmet) series of our Dutch Cow adult formula product which comes in gift box sets that emphasize the health benefits (including high fiber and low sugar) of the formula. Sales of these products have been quite successful. In particular, our Advanced Super formula with hydrolyzed proteins and the gift box set of our Dutch Cow adult formula product line have been well received.

Thirdly, we continue to identify new infant formula stores that we believe have the potential to be high performing stores, to replace the poorer performing stores that we are continuing to exit pursuant to our Gold Mining Strategy. Since the beginning of this fiscal year we have entered approximately 1,000 such new stores.

Beyond these three initiatives, in fiscal 2015 we have benefited from the high growth in sales of our exclusively marketed private label channel. This success is due to the brands we have acquired over the last year as many domestically registered minor brands have exited the market since the Chinese government started to call for consolidation in the infant formula market in first quarter of fiscal 2014.

We continue to execute on our French Project, as described below. Our board recently approved the expansion of the mixing and canning capacity at the Carhaix plant to 60,000 tons, as well as the addition of a can manufacturing line which will be fully automated and coordinated with the canning line. As a result, the total budget for this project has increased to 161 million Euros. We do not expect to have any further material increases to the budget or expansion of the facility’s capacities or functions. We expect to begin trial operations of the drying towers in the fourth quarter of calendar 2015, with formal operations beginning in the first quarter of 2016, at which time trial operations will begin in the mixing and packaging facility. Once we receive certification from the Chinese FDA, we plan to start importing our 100% French-produced infant formula into the Chinese market in the second quarter of calendar year 2016.

Three Months Results of Operations

Below is a summary of selected comparative results of operations for the three months ended December 31, 2014 and 2013:

	Three Months Ended December 31,
(In thousands, except per share data)	2014		2013		% Change
Net sales	$	115,331	$	101,034		14%
- Powdered formula segment		106,552		86,158		24%
Cost of sales		62,614		60,731		3%
- Powdered formula segment		53,364		43,328		23%
Gross profit		52,717		40,303		31%
- Powdered formula segment		53,188		42,830		24%
Gross Margin		46%		40%		15%
- Powdered formula segment		50%		50%		0%
Income from operations		19,225		11,933		61%
Interest expense, net		1,508		2,774		-46%
Income before income tax expense		18,060		9,714		86%
Income tax expense		205		14		*
Net income		17,855		9,700		84%
Net income attributable to common stockholders	$	17,264	$	9,987		73%
Weighted average common stock outstanding – basic and diluted		57,301		57,301
Earnings per share – basic and diluted	$	0.30	$	0.17		73%

* not meaningful

Net Sales

Our net sales by reportable segments are shown in the table below:

	Three Months Ended December 31,						% Change in
(In thousands, except percentage data)	2014		2013		% Change		Volume		Price
Powdered formula	$	106,552	$	86,158		24%		24%		0%
Foods		56		30		87%
Nutritional ingredients and supplements		5,613		6,264		-10%
Other business		3,110		8,582		-64%
Net sales	$	115,331	$	101,034		14%

Net sales of our powdered formula segment include powdered formula products for infants, children and adults. The increase in net sales of our powdered formula products was mainly due to the following factors:

●

Sales volume of powdered formula products for the three months ended December 31, 2014 was 7,998 tons, as compared to 6,449 tons for the same period in the previous year.

●

The average selling price of our powdered formula products for the three months ended December 31, 2014 was $13,322 per ton, compared to $13,360 per ton for the same period in the previous year. Average selling price is calculated as net sales, after deducting sales discounts and rebates, divided by sales volume. We provided sales discounts and rebates to offset part of the marketing and promotional expenditures incurred at retail outlets.

The sales volume and average selling price exclude the amount of free products provided to customers, which is recorded as cost of sales in the period.

The product mix in the foods segment is comprised of prepared baby food and adult food, such as cooked meat and vegetables. In September 2014, we began trying to sell prepared food to kindergartens, targeting children above the age of three. Currently, we are still adjusting our marketing strategy and sales channels for the baby and adult food products based on reactions from customers.

The product mix in nutritional ingredients and supplements segment is mainly comprised of external sales of chondroitin sulfate materials to international pharmaceutical companies. After temporarily suspending delivery due to significant increase in prices of raw materials in the quarter ended June 30, 2014, we have successfully renegotiated the selling price, and continued the export to pharmaceutical companies.

Our Other business mainly included sales of milk powder, whey powder, packing materials, feed-grade milk powder and whey powder, and other raw materials. The decrease in sales of our Other business was mainly due to the decreased sales volume of milk powder.

Cost of Sales

Our cost of sales by reportable segments is shown in the table below:

	Three Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Powdered formula	$	53,364	$	43,328		23%
Foods		360		638		-44%
Nutritional ingredients and supplements		5,309		7,107		-25%
Other business		3,581		9,658		-63%
Cost of sales	$	62,614	$	60,731		3%

The increased total cost of sales of the powdered formula segment was mainly due to the increased sales volume.

The decrease in cost of our Other business was mainly due to the decreased sales volume of milk powder.

Gross Profit and Gross Margin

	Three Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Gross profit	$	52,717	$	40,303		31%
- Powdered formula		53,188		42,830		24%
Gross margin		46%		40%
- Powdered formula		50%		50%

Expenses

	Three Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Selling and distribution expenses	$	15,851	$	12,486		27%
Advertising and promotion expenses		10,498		9,769		8%
- Advertising expenses		2,032		1,567		30%
- Promotion expenses		8,466		8,202		3%
General and administrative expenses		7,295		6,477		13%
Government subsidies		152		362		-58%

Selling and distribution expenses primarily include compensation expense for sales staff, freight charges and travel expenses. The increase in selling and distribution expenses was mainly due to increased bonuses for sales staff for improved performance in the quarter ended December 31, 2014.

Advertising expenses primarily include media expenses paid to TV stations and e-commerce providers. We believe the influence from traditional TV advertising has diminished recently and as a result we have substantially cut back advertising on TV. Instead, we have shifted our advertising focus to e-commerce providers, mostly for our specialty infant formula products with special nutritional focus. Promotion expenses primarily include promotional products provided to end customers, and service charges for our consumer loyalty program administered by a third party. Based on our brand positioning, we believe direct communication with end customers is a more cost effective way to market our products compared to mass media advertising. As a result, we now allocate more resources to such promotional activities.

General and administrative expenses primarily include salaries for staff and management, depreciation, office rental, office supplies and bad debt expense. The increase was mainly due to less reversal of bad debt expense in the quarter ended December 31, 2014.

Government subsidies represented the receipt of general purpose subsidies from local governments.

Interest Expense and Interest Income

	Three Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Interest expense	$	3,315	$	3,850		-14%
Interest income		1,807		1,076		68%

The decrease in interest expense was mainly due to decreased average borrowing cost as we borrow more USD loans from Hong Kong which provide lower interest rate, $0.5 million interest expense capitalized for the French Project in the quarter ended December 31, 2014, partially offset by increased loan balance.

The increase in interest income was mainly due to an increase in average restricted cash balance, which earned a higher interest rate than cash and cash equivalents.

Income Tax Expense

Income tax expense for the three month ended December 31, 2014 was immaterial.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest represents the interest held by third parties in Meitek Technology (Qingdao) Co., Ltd., and in Shanghai Precious Care Cosmetic Co., Ltd., a 65% owned subsidiary incorporated in the second fiscal quarter.

Net Income Attributable to Common Stockholders

As a result of the foregoing, net income attributable to common stockholders for the three months ended December 31, 2014 was $17.3 million, compared to $10.0 million for the same period in the previous year.

Nine Months Results of Operations

Below is a summary of selected comparative results of operations for the nine months ended December 31, 2014 and 2013:

	Nine Months Ended December 31,
(In thousands, except per share data)	2014		2013		% Change
Net sales	$	303,770	$	271,795		12%
- Powdered formula segment		281,568		225,888		25%
Cost of sales		168,390		156,522		8%
- Powdered formula segment		146,249		108,485		35%
Gross profit		135,380		115,273		17%
- Powdered formula segment		135,319		117,403		15%
Gross Margin		45%		42%		5%
- Powdered formula segment		48%		52%		-8%
Income from operations		57,166		27,749		106%
Interest expense, net		6,643		8,575		-23%
Income before income tax expense		50,832		20,581		147%
Income tax expense		3,076		107		*
- Effective tax rate		6.1%		0.5%		*
Net income		47,756		20,474		133%
Net income attributable to common stockholders	$	45,441	$	20,835		118%
Weighted average common stock outstanding – basic and diluted		57,301		57,301
Earnings per share – basic and diluted	$	0.79	$	0.36		118%

* not meaningful

Net Sales

Our net sales by reportable segments are shown in the table below:

	Nine Months Ended December 31,						% Change in
(In thousands, except percentage data)	2014		2013		% Change		Volume		Price
Powdered formula	$	281,568	$	225,888		25%		22%		2%
Foods		174		130		34%
Nutritional ingredients and supplements		13,960		17,918		-22%
Other business		8,068		27,859		-71%
Net sales	$	303,770	$	271,795		12%

●

Sales volume of powdered formula products for the nine months ended December 31, 2014 was 20,972 tons, as compared to 17,197 tons for the same period in the previous year.

●

The average selling price of our powdered formula products for the nine months ended December 31, 2014 was $13,426 per ton, compared to $13,135 per ton for the same period in the previous year. Average selling price is calculated as net sales, after deducting sales discounts and rebates, divided by sales volume. We provided sales discounts and rebates to offset part of the marketing and promotional expenditures incurred at retail outlets. The increase in average selling price is mainly due to our ability to better control discounts as a result of the continued positive impacts of our Gold Mining Strategy.

The sales volume and average selling price exclude the amount of free products provided to customers, which is recorded as cost of sales in the period.

The product mix in the foods segment is comprised of prepared baby food and adult food, such as cooked meat and vegetables.

The product mix in nutritional ingredients and supplements segment is mainly comprised of external sales of chondroitin sulfate materials to international pharmaceutical companies. After temporarily suspending delivery due to the significant increase in prices of raw materials in the quarter ended June 30, 2014, we have successfully renegotiated the selling price, and continue to export to pharmaceutical companies.

Cost of Sales

Our cost of sales by reportable segments is shown in the table below:

	Nine Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Powdered formula	$	146,249	$	108,485		35%
Foods		1,284		1,475		-13%
Nutritional ingredients and supplements		12,416		19,268		-36%
Other business		8,441		27,294		-69%
Cost of sales	$	168,390	$	156,522		8%

The increased total cost of sales of the powdered formula segment was mainly due to increased sales volume and the increased price in raw material of milk powder and increased testing and maintenance expenses on machineries during the production license renewal process.

The decrease in the cost of sales of nutritional ingredients and supplements segment was mainly due to decreased sales volume of chondroitin sulfate to certain international pharmaceutical companies as discussed above.

The decrease in cost of our Other business was mainly due to the decreased sales volume of milk powder.

Gross Profit and Gross Margin

	Nine Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Gross profit	$	135,380	$	115,273		17%
- Powdered formula		135,319		117,403		15%
Gross margin		45%		42%
- Powdered formula		48%		52%

The decrease in gross margin of the powdered formula segment was mainly due to a price increase in raw material of milk powder and an increase in testing and maintenance expenses on machineries during the production license renewal process, partially offset by the increased average selling price as discussed above.

Expenses

	Nine Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Selling and distribution expenses	$	43,300	$	40,753		6%
Advertising and promotion expenses		29,113		29,008		0%
- Advertising expenses		6,989		5,300		32%
- Promotion expenses		22,124		23,708		-7%
General and administrative expenses		21,542		18,760		15%
Gain on disposal and liquidation of subsidiaries		15,294		367		*
Government subsidies		447		630		-29%

* not meaningful

Selling and distribution expenses primarily include compensation expense for sales staff, freight charges and travel expenses.

Gain on disposal of subsidiaries represented gain on the disposal of Zhangjiakou to a third party of $15.0 million in the first quarter of fiscal 2015, and of Beijing Huiliduo to a third party of $0.3 million in the second quarter of fiscal 2015. The $0.4 million gain on disposal of subsidiaries in the nine months ended December 31, 2013 represented gain on the share transfer of a diagnostic subsidiary to a third party.

Government subsidies represented the receipt of general purpose subsidies from local governments.

Interest Expense and Interest Income

	Nine Months Ended December 31,
(In thousands, except percentage data)	2014		2013		% Change
Interest expense	$	11,855	$	11,761		1%
Interest income		5,212		3,186		64%

The slight increase in interest expense was mainly due to an increase in loan balance, and an increase in bank charges for opening standby letters of credit, partially offset by decreased average interest rate, and $1.3 million interest expense capitalized for the French Project in the nine months ended December 31, 2014.

The increase in interest income was mainly due to an increase in average restricted cash balance, which earned a higher interest rate than cash and cash equivalents.

Income Tax Expense

Income tax expense for the six month ended December 31, 2014 was mainly for the transaction gain of the Zhangjiakou disposal.

Net Income (Loss) Attributable to Noncontrolling Interest

Net income (loss) attributable to noncontrolling interest represents the interest held by third parties in Meitek Technology (Qingdao) Co., Ltd., and in Shanghai Precious Care Cosmetic Co., Ltd., a 65% owned subsidiary incorporated in the second fiscal quarter.

Net Income Attributable to Common Stockholders

As a result of the foregoing, net income attributable to common stockholders for the nine months ended December 31, 2014 was $45.4 million, compared to $20.8 million for the same period in the previous year.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash on hand, cash from operations and available borrowings. Cash flows from operating activities represent the inflow of cash from our customers and the outflow of cash for inventory purchases, manufacturing, operating expenses, interest and taxes. Cash flows used in investing activities primarily represent capital expenditures for equipment and buildings, and restricted cash used as security against letter of credits, bank acceptance bills and short-term and long-term borrowings. Cash flows from financing activities primarily represent proceeds and repayments of borrowings. In addition, while there can be no assurance that we will be able to refinance our short-term bank borrowings as they become due, historically, we have renewed or rolled over most of our bank loans after the maturity date of the loans and we believe we will continue to be able to do so.

Cash and cash equivalents totaled $85.5 million at December 31, 2014, of which $82.1 million was held outside of the United States.

On September 17, 2012, the Company entered into a partnership framework agreement, a milk supply agreement, a whey supply agreement, a whey powder supply agreement, and a technical assistance agreement with Sodiaal Union, a French agricultural cooperative company (“Sodiaal”), and/or Euroserum SAS (“Euroserum”), a French subsidiary of Sodiaal, relating to a long-term industrial and commercial partnership between Sodiaal and the Company. Under these agreements, the Company undertakes to build a new drying facility (the “French Project”) in Carhaix, France, intended to manufacture powdered milk and fat-enriched demineralized whey. The Company committed to purchase, and Sodiaal and Euroserum committed to sell, 288 million liters of milk per year for ten years, an amount of whey equivalent to 24,000 tons of 70% demineralized pre-concentrated dry whey extract per year for ten years, and 6,000 tons of 70% demineralized whey powder per year, or an equivalent quantity of liquid whey, for ten years, at market based prices at the time of purchase, to satisfy the production needs of the new drying facility. If the Company purchases less than the agreed amount, the Company would compensate Sodiaal or Euroserum for the loss suffered. The Company has decided to add 60,000 tons of packaging and warehousing capacity for powdered formula products to the French Project. As a result, the updated estimated costs to build the facility is approximately €161.0 million. The Company plans to finance a majority of the costs with long-term project financing, and finance the remaining part of the project with cash on hand and operating cash flow.

Recent developments of the French Project include:

on March 20, 2013, the Company received the required approvals from China's National Development and Reform Commission and Ministry of Commerce for the project;

in September 2013, the Company received the construction permit for the project from the municipal government of Carhaix;

we have signed long term loan facilities of €78.7 million with banks, and used €25.4 million facility;

after we were informed that the environmental impact study resulted in a positive opinion in March 2014, we obtained the formal approval of the environmental impact study in July 2014, which is the last major government approval we need during the construction phase; and

we are working on the roof of the buildings that will house our pretreatment workshop, the walls of the buildings that will house our drying workshop, and the foundations of the buildings that will house our dry-mixing workshop and stereoscopic warehouse.

Cash Flows

The following table sets forth, for the periods indicated, certain information relating to our cash flows:

	Nine Months Ended December 31,
(In thousands)	2014			2013
Cash flow provided by/(used in):
Operating activities
Net income	$	47,756		$	20,474
Depreciation and amortization		10,953			10,600
Reversal of allowance for bad debt		(1,699	)		(2,925	)
Inventory write down		3,838			5,450
Gain on disposal and liquidation of subsidiaries		(15,294	)		(367	)
Other		365			56
Changes in assets and liabilities		(11,253	)		8,255
Total operating activities		34,666			41,543
Investing activities		(59,092	)		(36,868	)
Financing activities		19,300			(23,631	)
Effect of foreign currency translation on cash and cash equivalents		(321	)		1,459
Net change in cash and cash equivalents	$	(5,447	)	$	(17,497	)

Cash flow provided by operating activities was a result of the net income of $47.8million, as adjusted for non-cash expense and income items of $1.8 million, and an increase in working capital of $11.3 million. In the nine months ended December 31, 2014, we spent $239.9 million to purchase raw materials and other production materials, $35.2 million in staff compensation and social welfare, $39.4 million in taxes, $54.9 million in operating expenses, $10.5 million in interest, $1.5 million in land lease, received $414.2 million from our customers and $1.8 million from interest payments.

Cash flow used in investing activities in the nine months ended December 31, 2014 represents $59.7 million payment for the purchase of property, plant and equipment, $22.0 million outflow for restricted cash deposited with banks as security against the issuance of letters of credit for the import of raw materials and as pledges for certain short-term and long-term borrowings, $377,000 in proceeds from disposed assets, and $22.1 million proceeds from disposal of subsidiaries.

Cash flow used in financing activities in the nine months ended December 31, 2014 mainly represents net cash inflow of $12.6 million from short-term loans and net cash inflow of $7.2 million from long-term loans, and $567,000 payment for assets under capital leases.

Outstanding Indebtedness

For information on our short-term and long-term borrowings, see “Item 1. Financial Statements – Note 7.”

Capital Expenditures

Our capital expenditures were $71.9 million and the corresponding cash outflow was $59.7 million for the nine months ended December 31, 2014, which mainly represented expenditures for our drying facility project in France.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Recent Accounting Pronouncements

On August 27, 2014, the FASB issued ASU 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” The ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. We do not anticipate material impacts to our financial statements’ presentation upon adoption.

In April 2014, the FASB issued a new pronouncement which amends to change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. We do not anticipate material impacts to our financial position and result of operations upon adoption.

In May 2014, the FASB issued a new pronouncement which affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.

An entity should apply the amendments in this ASU using one of the following two methods:

1. Retrospectively to each prior reporting period presented and the entity may elect any of the following practical expedients:

For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period.

For completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.

For all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue.

2. Retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an entity elects this transition method it also should provide the additional disclosures in reporting periods that include the date of initial application of:

The amount by which each financial statement line item is affected in the current reporting period by the application of this ASU as compared to the guidance that was in effect before the change.

An explanation of the reasons for significant changes.

We do not anticipate material impacts to our financial position and result of operations upon adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There is no material change in the information reported under Item 7A, “Foreign Exchange Risk”, “Inflation”, “Interest Rate Risk”, “Concentration of Credit Risk” and “Commodities Risk” contained in our Form 10-K for the fiscal year ended March 31, 2014.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this report.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2014, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to the our management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the three months ended December 31, 2014, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of December 31, 2014, the end of the period covered by this report, the Company was subject to various legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, the Company does not believe current legal proceedings and claims would individually or in the aggregate have a material adverse effect on its financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. The Company intends to contest each lawsuit vigorously but should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially and adversely affected.

ITEM 1A. RISK FACTORS

For information regarding the risks and uncertainties affecting our business, please refer to “Part I, Item 1A Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2014. There have been no material changes to these risks and uncertainties during the three months ended December 31, 2014.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934

Pursuant to Section 13(r) of the Securities Exchange Act of 1934, we, Synutra International Inc., may be required to disclose in our annual and quarterly reports to the Securities and Exchange Commission (the “SEC”), whether we or any of our “affiliates” knowingly engaged in certain activities, transactions or dealings relating to Iran or with certain individuals or entities targeted by US economic sanctions. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Because the SEC defines the term “affiliate” broadly, it includes any entity under common “control” with us (and the term “control” is also construed broadly by the SEC).

The description of the activities below has been provided to us by Warburg Pincus LLC (“WP”), affiliates of which: (i) had been a member of our board of directors and (ii) beneficially own more than 10% of the equity interests of, and have the right to designate members of the board of directors of Endurance International Group (“EIG”) and Santander Asset Management Investment Holdings Limited (“SAMIH”). EIG and SAMIH may therefore be deemed to be under common “control” with us; however, this statement is not meant to be an admission that common control exists.

The disclosure below relates solely to activities conducted by EIG and SAMIH and its non-U.S. affiliates that may be deemed to be under common “control” with us. The disclosure does not relate to any activities conducted by us or by WP and does not involve our or WP’s management. Neither we nor WP has had any involvement in or control over the disclosed activities of SAMIH, and neither we nor WP has independently verified or participated in the preparation of the disclosure. Neither we nor WP is representing as to the accuracy or completeness of the disclosure nor do we or WP undertake any obligation to correct or update it.

As to EIG:

We understand that EIG’s affiliates intend to disclose in their next annual or quarterly SEC report that: “On July 2, 2013, the billing information for a subscriber account, or the Subscriber Account was updated to include Seyed Mahmoud Mohaddes, or Mohaddes. On September 16, 2013, the Office of Foreign Assets Control, or OFAC, designated Mohaddes as a Specially Designated National, or SDN, pursuant to 31 C.F.R. Part 560.304. On or around September 26, 2014, during a routine compliance scan of new and existing subscriber accounts, EIG discovered that Mohaddes, a SDN, was named as an account contact for the Subscriber Account. EIG promptly suspended the Subscriber Account, locked the domain name IOCUKLTD.COM, which was registered to the Subscriber Account, and reported the domain name to OFAC as potentially the property of a SDN subject to blocking pursuant to Executive Order 13599. Since September 16, 2013, when Mohaddes was added to the SDN list, charges in the total amount of $120.35 were made to the Subscriber Account for web hosting and domain privacy services. EIG has ceased billing for the Subscriber Account. To date, EIG has not received any correspondence from OFAC regarding this matter.”

“On July 10, 2014, OFAC designated each of Stars Group Holding, or Stars, and Teleserve Plus SAL, or Teleserve, as SDNs under Executive Order 13224, and their property became subject to blocking pursuant to the Global Terrorism Sanctions Regulations, 31 C.F.R. Part 594. On July 15, 2014, as part of EIG’s compliance review processes, EIG discovered that the domain names associated with each of Stars, STARSCOM.NET, and Teleserve, TELESERVEPLUS.COM, or collectively, the Stars/Teleserve Domain Names, were registered through EIG’s platform. EIG immediately took steps to suspend and lock the Stars/Teleserve Domain Names to prevent them from being transferred or resolving to a website, and EIG promptly reported the Domain Names as potentially blocked property to OFAC. EIG did not generate any revenue from the Stars/Teleserve Domain Names between when they were added to the SDN list on July 10, 2014 and when EIG discovered that they were registered through EIG’s platform on July 15, 2014. To date, EIG has not received any correspondence from OFAC regarding the matter.”

“On July 15, 2014 during a compliance scan of all domain names on one of our platforms, EIG identified the domain name KAHANETZADAK.COM, or the Domain Name, which was listed as an ‘also known as,’ or AKA, of the entity Kahane Chai which operates as the American Friends of the United Yeshiva. Kahane Chai was designated as a SDN on November 2, 2001 pursuant to Executive Order 13224. Because the Domain Name was transferred into a customer account of one of EIG’s resellers, there was no direct financial transaction between EIG and the registered owner of the Domain Name. The Domain Name was suspended upon EIG’s discovering it on EIG’s platform, and EIG reported the Domain Name to OFAC as potentially the property of a SDN. To date, EIG have not received any correspondence from OFAC regarding the matter.”

As to SAMIH:

We understand that SAMIH’s affiliates intend to disclose in their next annual or quarterly SEC report that “Santander UK holds frozen savings and current accounts for three customers resident in the U.K. who are currently designated by the U.S. for terrorism. The accounts held by each customer were blocked after the customer’s designation and remained blocked and dormant throughout 2014. No revenue has been generated by Santander UK on these accounts. The bank account held for one of these customers was closed in the fourth quarter of 2014.”

“An Iranian national, resident in the U.K., who is currently designated by the U.S. under the Iranian Financial Sanctions Regulations and the Weapons of Mass Destruction Proliferators Sanctions Regulations (“NPWMD sanctions program”), holds a mortgage with Santander UK that was issued prior to any such designation. No further drawdown has been made (or would be permitted) under this mortgage although Santander UK continues to receive repayment installments. In 2014, total revenue in connection with the mortgage was approximately £2,580 and net profits were negligible relative to the overall profits of Santander UK. The same Iranian national also holds two investment accounts with Santander Asset Management UK Limited. The accounts have remained frozen during 2014. The investment returns are being automatically reinvested, and no disbursements have been made to the customer. Total revenue for the Santander Group in connection with the investment accounts was £250 and net profits in 2014 were negligible relative to the overall profits of Banco Santander, S.A.”

“In addition, during the third quarter 2014, Santander UK identified two additional customers: a UK national designated by the U.S. under the NPWMD sanctions program held a business account. No transactions were made and the account was closed in the fourth quarter of 2014. No revenue or profit has been generated. A second UK national designated by the US for reasons of terrorism held a personal current account and a personal credit card account, both of which were closed in the third quarter of 2014. Although transactions took place on the current account during the third quarter of 2014, revenue and profits generated were negligible. No transactions took place on the credit card.”

ITEM 6. EXHIBITS

Exhibit Number		Description
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets—December 31, 2014 and March 31, 2014, (ii) the Consolidated Statements of Operations—Three and Nine Months Ended December 31, 2014 and 2013, (iii) the Consolidated Statements of Comprehensive Income(Loss)—Three and Nine Months Ended December 31, 2014 and 2013, (iv) the Consolidated Statements of Equity—Nine Months Ended December 31, 2014 and 2013, (v) the Consolidated Statements of Cash Flows—Nine Months Ended December 31, 2014 and 2013, and (vi) Notes to Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

By:	/s/ Ning Cai
	Name:	Ning Cai
	Title:	Chief Financial Officer

SYNUTRA INTERNATIONAL, INC.

February 9, 2015

/s/ Liang Zhang

Liang Zhang

Chief Executive Officer and Chairman