Synutra International (SYUT) 10-Q 2016 Q2 Quarterly report

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 September 30, 2015

OR

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     Noo

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     Noo

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     Nox

As of November 9, 2015, there were 57,188,582 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)

	September 30,  2015			March 31,  2015
ASSETS
Current Assets:
Cash and cash equivalents	$	83,853		$	85,171
Restricted cash		98,839			145,906
Accounts receivable, net of allowance of $1,062 and $1,824, respectively		19,862			15,405
Inventories		93,490			87,754
Due from related parties		3,851			2,629
Prepaid Income tax		781			0
Receivable from disposal of subsidiaries		1,071			6,726
Deferred tax assets		11,845			12,267
Prepayments and other current assets		36,074			27,012
Total current assets		349,666			382,870
Property, plant and equipment, net		257,862			187,085
Land use rights, net		8,777			8,657
Intangible assets, net		2,650			2,588
Restricted cash		108,311			78,799
Due from related parties		913			2,139
Deferred tax assets		278			298
Long-term loan receivable		9,432			0
Other non-current assets		4,461			2,449
TOTAL ASSETS	$	742,350		$	664,885
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt	$	131,493		$	145,639
Long-term debt due within one year		98,372			130,426
Accounts payable		42,598			47,764
Income taxes payable		0			1,233
Due to related parties		128			130
Advances from customers		15,421			14,844
Other current liabilities		42,241			46,790
Total current liabilities		330,253			386,826
Long-term debt		270,118			144,627
Deferred government subsidy		3,623			3,816
Capital lease obligations		7,484			7,806
Other long-term liabilities		6,872			7,241
Total liabilities		618,350			550,316
Equity:
Common stockholders’ equity:
Common stock, $.0001 par value: 250,000 authorized; 57,301 issued and 57,189 outstanding at September 30, 2015, 57,301 and 57,301 issued and outstanding at March 31, 2015, respectively		6			6
Additional paid-in capital		134,883			135,440
Accumulated deficit		(26,944	)		(35,046	)
Accumulated other comprehensive income		12,886			11,526
Total common stockholders’ equity		120,831			111,926
Noncontrolling interest		3,169			2,643
Total equity		124,000			114,569
TOTAL LIABILITIES AND EQUITY	$	742,350		$	664,885

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

1 

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

  (Dollars in thousands, except per share data) 

(UNAUDITED)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Net sales	$	87,348		$	102,464		$	169,677		$	188,439
Cost of sales		46,753			58,564			87,140			105,776
Gross profit		40,595			43,900			82,537			82,663
Selling and distribution expenses		13,832			14,856			26,568			27,449
Advertising and promotion expenses		7,800			8,913			18,086			18,615
General and administrative expenses		6,203			6,992			12,701			14,247
Gain on disposal and liquidation of subsidiaries		0			332			0			15,294
Government subsidies		122			167			202			295
Income from operations		12,882			13,638			25,384			37,941
Interest expense		4,194			3,703			8,378			8,540
Interest income		2,188			1,717			4,534			3,405
Foreign currency exchange (loss) gain, net		(8,883	)		164			(8,552	)		629
Other expense, net		(213	)		(267	)		(420	)		(663	)
Income before income tax expense		1,780			11,549			12,568			32,772
Income tax expense		1,141			45			3,931			2,871
Net income		639			11,504			8,637			29,901
Net income attributable to the noncontrolling interest		130			1,267			535			1,724
Net income attributable to common stockholders	$	509		$	10,237		$	8,102		$	28,177
Weighted average common stock outstanding – basic and diluted		57,291			57,301			57,296			57,301
Earnings per share – basic and diluted	$	0.01		$	0.18		$	0.14		$	0.49

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

2 

SYNUTRA INTERNATIONAL, INC. 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 

 (Dollars in thousands) 

(UNAUDITED)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2015			2014			2015		2014
Net income	$	639		$	11,504		$	8,637	$	29,901
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Unrealized translation (loss) gain during the period		(1,346	)		(3,041	)		1,351		(3,381	)
Reclassification of currency translation adjustments realized upon disposal and liquidation of subsidiaries		0			0			0		(7,011	)
Other comprehensive (loss) income		(1,346	)		(3,041	)		1,351		(10,392	)
Comprehensive (loss) income		(707	)		8,463			9,988		19,509
Less: Comprehensive income attributable to noncontrolling interest		121			1,268			526		1,725
Comprehensive (loss) income attributable to common stockholders	$	(828	)	$	7,195		$	9,462	$	17,784

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

3 

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, 2014		57,301		$	6	$	135,440		$	(104,579	)	$	30,529		$	(140	)	$	61,256
Net income		0			0		0			28,177			0			1,724			29,901
Other comprehensive income, net of tax of nil		0			0		0			0			(10,393	)		1			(10,392	)
Incorporation of a majority owned subsidiary		0			0		0			0			0			284			284
Balance, September 30, 2014		57,301		$	6	$	135,440		$	(76,402	)	$	20,136		$	1,869		$	81,049
Balance, March 31, 2015		57,301		$	6	$	135,440		$	(35,046	)	$	11,526		$	2,643		$	114,569
Net income		0			0		0			8,102			0			535			8,637
Other comprehensive income, net of tax of nil		0			0		0			0			1,360			(9	)		1,351
Shares Repurchased		(112	)		0		(557	)		0						0			(557	)
Balance, September 30, 2015		57,189		$	6	$	134,883		$	(26,944	)	$	12,886		$	3,169		$	124,000

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

4 

SYNUTRA INTERNATIONAL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Dollars in thousands) 

(UNAUDITED)

	Six Months Ended September 30,
	2015			2014
Operating activities:
Net income	$	8,637		$	29,901
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		4,867			7,679
Bad debt reversal		(1,244	)		(1,383	)
Inventory write down		4,955			2,083
Gain on disposal and liquidation of subsidiaries		0			(15,294	)
Other		50			433
Changes in assets and liabilities:
Accounts receivable		(3,476	)		(4,729	)
Inventories		(14,210	)		(7,144	)
Due from related parties		(875	)		(1,404	)
Prepaid land use right		(516	)		46
Prepayments and other current assets		(9,600	)		4,427
Accounts payable		(1,608	)		(1,174	)
Due to related parties		3			(56	)
Advances from customers		1,079			(849	)
Income tax receivable/payable		(2,078)			(1,984	)
Other current liabilities		(4,422	)		(2,458	)
Other noncurrent liabilities		(418	)		(578	)
Net cash (used in) provided by operating activities		(18,856	)		7,516
Investing activities:
Acquisition of property, plant and equipment		(72,852	)		(44,298	)
Change in restricted cash		9,627			(16,135	)
Proceeds from assets disposal		16			372
Proceeds from disposal of subsidiaries		5,617			22,117
Changes in long-term loan receivable		(9,809	)		0
Net cash used in investing activities		(67,401	)		(37,944	)
Financing activities:
Proceeds from short-term debt		94,731			60,311
Repayment of short-term debt		(107,995	)		(57,389	)
Proceeds from long-term debt		149,495			46,861
Repayment of long-term debt		(50,324	)		(62,169	)
Payment on capital lease obligations		(266	)		(300	)
Payment on shares repurchased		(557	)		0
Net cash provided by (used in) financing activities		85,084			(12,686	)
Effect of exchange rate changes on cash and cash equivalents		(145	)		(54	)
Net change in cash and cash equivalents		(1,318	)		(43,168	)
Cash and cash equivalents, beginning of period		85,171			90,915
Cash and cash equivalents, end of period	$	83,853		$	47,747
Supplemental cash flow information:
Interest paid	$	7,261		$	7,677
Income tax paid		6,006			2,025
Non-cash investing and financing activities:
Purchases of property, plant and equipment included in accounts payable	$	12,436		$	11,712
Disposal of a subsidiary included in receivables		1,071			6,832

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

5 

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 infants and adults, and also engages in other nutritional product offerings, such as certain nutritional supplement.

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, 2015.

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 it 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.

6 

3. INVENTORIES

The Company’s inventories at September 30, 2015 and March 31, 2015 are summarized as follows:

(In thousands)	September 30,  2015		March 31,  2015
Raw materials	$	53,496	$	50,578
Work-in-progress		21,283		17,905
Finished goods		18,711		19,271
Total	$	93,490	$	87,754

The value of goods-in-transit included in raw materials was $4.3 million and $11.9 million as of September 30, 2015 and March 31, 2015, respectively, which mainly represented purchases of whey powder from international sources.

The Company recorded lower of cost or market provisions for inventory of $3.3 million and $1.5 million for the quarter ended September 30, 2015 and 2014, respectively, and $5.0 million and $2.1 million for the six months ended September 30, 2015 and 2014, respectively.

7 

4. RELATED PARTIES AND RELATED PARTY TRANSACTIONS

A. Related party balances

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

(In thousands)	September 30, 2015		March 31, 2015
Sheng Zhi Da Dairy Group Corporation	$	588	$	1,025
Beijing Honnete Dairy Co., Ltd.		0		2
St. Angel (Beijing) Business Service Co. Ltd.		4,085		3,732
Beijing St. Angel Cultural Communication Co., Ltd.		11		6
Beijing AoNaier Feed Stuff Co., Ltd.		80		3
Total	$	4,764	$	4,768

b. Due to related parties

(In thousands)	September 30, 2015		March 31, 2015
Beijing Honnete Dairy Co., Ltd.		2		0
Beijing St. Angel Cultural Communication Co., Ltd.		126		130
Total	$	128	$	130

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 six months ended September 30, 2015, the Company’s sales to related parties mainly included feed grade milk powder and whey powder to Beijing AoNaier Feed Stuff Co., Ltd., and powdered formula products to St. Angel (Beijing) Business Service., Ltd., and services for related parties including office spaces rented to Beijing Honnete Dairy Co., Ltd., Beijing AoNaier Feed Stuff Co., Ltd., St. Angel (Beijing) Business Service Co., Ltd., and Beijing St. Angel Cultural Communication Co., Ltd.

	Three Months Ended				Six Months Ended
	September 30,				September 30,
(In thousands)	2015		2014		2015		2014
Beijing Honnete Dairy Co., Ltd.	$	2	$	5	$	4	$	7
St. Angel (Beijing) Business Service Co., Ltd.		3,165		1,398		5,268		1,871
Qingdao Lvyin Waste Disposal Investment Management Co., Ltd.		1		0		2		0
Beijing AoNaier Feed Stuff Co., Ltd.		64		95		67		148
Beijing St. Angel Cultural Communication Co., Ltd.		6		13		12		19
Total	$	3,238	$	1,511	$	5,353	$	2,045

C. Purchases from related parties

In the three and six months ended September 30, 2015 and 2014, St. Angel Cultural Communication provided certain marketing activities for the Company.

	Three Months Ended				Six Months Ended
	September 30,				September 30,
(In thousands)	2015		2014		2015		2014
Beijing St. Angel Cultural Communication Co., Ltd.	$	113	$	115	$	229	$	230

8 

5. PROPERTY, PLANT AND EQUIPMENT, NET 

(In thousands)	September 30, 2015		March 31, 2015
Property, plant and equipment, cost:
Land	$	1,501	$	1,447
Capital lease of building		5,555		5,753
Buildings and renovations		81,105		80,013
Plant and machinery		64,058		65,790
Office equipment and furnishings		12,009		11,146
Motor vehicles		2,489		2,577
Others		1,077		1,140
Total cost	$	167,794	$	167,866
Less: Accumulated depreciation:
Capital lease of building		1,043		992
Buildings and renovations		19,203		17,790
Plant and machinery		44,648		44,193
Office equipment and furnishings		9,520		9,599
Motor vehicles		1,880		1,834
Others		801		764
Total accumulated depreciation		77,095		75,172
Construction in progress		167,163		94,391
Property, plant and equipment, net	$	257,862	$	187,085

Construction in progress mainly represents construction and equipment for the French subsidiary as of September 30, 2015 and March 31, 2015.

The Company recorded depreciation expense for owned assets and capital leased assets of $2.3 million and $3.0 million for the quarter ended September 30, 2015 and 2014, respectively, and $4.8 million and $7.6 million for the six months ended September 30, 2015 and 2014, respectively.

6. LONG-TERM LOAN RECEIVABLE

In May 2015, the Company granted a four-year long term loan of RMB 60.0 million (equivalently $9.4 million) with interest rate of 7% to a supplier for the iron tins used for our formula products, as a means of developing the business relationship. The supplier shall use the loan to expand its own upstream manufacturing capacity. The loan of RMB10.0 million, RMB20.0 million and RMB30.0 million shall be repaid by the supplier in May 2017, 2018 and 2019, respectively. This is recorded as "Long term loan receivable", and the outstanding principal amount of this loan receivable was $9.4 million as of September 30, 2015.

7. DEBT

The Company’s debts consisted of the following:

(In thousands)	September 30, 2015		March 31, 2015
Short-term debt	$	131,493	$	145,639
Long-term debt due within one year		98,372		130,426
Total debt, current		229,865		276,065
Long-term debt, non-current portion		270,118		144,627
Total		499,983		420,692

Long-term debt

The long-term debts, including current portion, as of September 30, 2015 and March 31, 2015 are comprised of:

(In thousands)	September 30, 2015		March 31, 2015
Long-term debt borrowed in Mainland China	$	205,616	$	154,393
Long-term debt borrowed in Hong Kong		84,306		93,099
Long-term debt borrowed in France		78,568		27,561
Total		368,490		275,053

As of September 30, 2015, long-term debts which were borrowed from banks in Mainland China were secured by restricted cash deposits of $38.2 million. Most of these debts have floating interest rates range form 2.97% to 6.15%, which are calculated based on the benchmark lending interest rate published by China’s central bank. The maturity dates range from October 2015 to September 2018.

As of September 30, 2015, long-term debts which were borrowed from banks in Hong Kong were secured by restricted cash deposits of $64.3 million. These debts have floating interest rates range from Libor+1.1% to Libor+2.6%, which are calculated based on LIBOR. The maturity dates of the used facilities range from December 2015 to March 2017.

As of September 30, 2015, long-term debts which were borrowed from banks in France were secured by restricted cash deposits of $36.4 million. These debts have floating interest rates range from Libor+3% to Libor+3.4%, which are calculated based on LIBOR. The maturity dates of the borrowed debts range from January 2019 to September 2022.

As of September 30, 2015, the Company had drawn down €42.4 million (equivalent to $47.7 million) under the committed long-term loan facility for Synutra France of €53.0 million (equivalent to $59.6 million) from a bank. This facility uses a floating interest rate, which is calculated based on LIBOR. The term of this facility is eight years from the actual drawdown date. This facility is pledged by all the long-lived assets of our French Project.

The weighted average interest rate as of September 30, 2015 and March 31, 2015 for the long-term debts was 4.3% and 4.4%, respectively.

The total amount of interest cost incurred was $5.4 million and $4.1 million, and the amount thereof that has been capitalized was $1.2 million and $0.4 million, for the quarter ended September 30, 2015 and 2014, respectively. The total amount of interest cost incurred was $10.3 million and $9.3 million, and the amount thereof that has been capitalized was $1.9 million and $0.8 million, for the six months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015, borrowings both in short-term and long-term, including current portion, denominated in RMB, USD and EUR were $214.7 million, $171.8 million and $113.5 million, respectively.

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

(In thousands)	Twelve Months Ended
September 30, 2016	$	98,372
September 30, 2017		103,994
September 30, 2018		87,556
September 30, 2019		30,842
September 30, 2020 and after		47,726
Total	$	368,490

9 

8. OTHER CURRENT LIABILITIES   

(In thousands)	September 30,  2015		March 31, 2015
Accrued discount, rebate and slotting fee	$	21,932	$	24,861
Payroll and bonus payables		7,358		8,825
Accrued selling expenses		3,244		3,404
Accrued advertising and promotion expenses		2,668		3,980
Others		7,039		5,720
Total	$	42,241	$	46,790

9. EQUITY

(In thousands)	September 30,  2015			March 31, 2015
Common stock, $.0001 par value: 250,000 authorized; 57,301 issued and 57,189 outstanding at September 30, 2015, 57,301 and 57,301 issued and outstanding at March 31, 2015, respectively	$	6		$	6
Additional paid-in capital		134,883			135,440
Accumulated deficit		(26,944	)		(35,046	)
Accumulated other comprehensive income		12,886			11,526
Total common stockholders’ equity		120,831			111,926
Noncontrolling interest		3,169			2,643
Total equity		124,000			114,569

On September 10, 2015, our board of directors approved a share repurchase program authorizing the repurchase of up to an aggregate amount of $20,000,000 of our common stock from time to time through September 10, 2016. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. Following the approval, we entered into a Rule 10b5-1 trading plan under the Exchange Act permitting open market repurchases of our common stock based on certain triggers described in the trading plan. During the three months ended September 30, 2015, we repurchased 112,000 shares of our common stock under the Rule 10b5-1 trading plan at an aggregate cost of $557,000, which was paid for through cash on hand. As of September 30, 2015, we have $19.4 million available for stock repurchases under our board approved stock repurchase program through September 10, 2016.

10. 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.

11. 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				Six Months Ended
	September 30,				September 30,
(In thousands except for per share data)	2015		2014		2015		2014
Net income attributable to common stockholders	$	509	$	10,237	$	8,102	$	28,177
Weighted average common stock outstanding – basic and diluted		57,291		57,301		57,296		57,301
Earnings per share - basic and diluted	$	0.01	$	0.18	$	0.14	$	0.49

10 

12. SEGMENT REPORTING

The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. In fiscal year 2014, the Company operated and reported its performance in four segments. However, starting from fiscal year 2015, the Company has operated the Powdered Formula and Foods segments as a single business segment based on a shared distribution network and similar marketing strategies. Therefore, there are only three reportable segments for fiscal year 2015, and the segment information in prior years was restated to be consistent with the current year reportable segments. The three reportable segments are: 

Nutritional food - Sales of powdered infant and adult formula products, and prepared foods.

Nutritional supplement - Sales of nutritional supplement 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, providing genetic diagnostic services for new born babies, and sales of cosmetics to pregnant women.

Segment disclosures are on a performance basis consistent with internal management reporting. The following tables summarized the Company’s revenue and cost generated from different revenue streams.

	Three Months Ended					Six Months Ended
	September 30,					September 30,
(In thousands)	2015			2014		2015		2014
NET SALES TO EXTERNAL CUSTOMERS
- Nutritional food	$	78,265			92,884		151,991		175,134
- Nutritional supplement		8,058			6,679		16,115		8,347
- Other business		1,025			2,901		1,571		4,958
Net sales	$	87,348		$	102,464	$	169,677	$	188,439
INTERSEGMENT SALES
- Nutritional food	$	31			9		58		10
- Nutritional supplement		2,351			5,333		5,855		8,823
- Other business		137			0		137		0
Intersegment sales	$	2,519		$	5,342	$	6,050	$	8,833
GROSS PROFIT
- Nutritional food	$	40,362			41,929		81,392		81,325
- Nutritional supplement		553			1,427		1,088		1,240
- Other business		(320	)		544		57		98
Gross profit	$	40,595		$	43,900	$	82,537	$	82,663

(In thousands)	September 30,  2015			March 31,  2015
TOTAL ASSETS
- Nutritional food	$	687,510			626,317
- Nutritional supplement		60,702			38,878
- Other business		2,863			2,169
- Unallocated assets		1,970			10,528
- Intersegment elimination		(10,695	)		(13,007	)
Total	$	742,350		$	664,885

11 

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.

12 

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 infants and adults, 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 September 30, 2015, this network comprised over 770 independent distributors and over 290 independent sub-distributors who sell our products in approximately 22,800 retail outlets.

In fiscal years 2014 and 2013, the Company operated and reported its performance in four segments. However, starting from fiscal year 2015, the Company has operated the Powdered Formula and Foods segments as a single business segment based on a shared distribution network and similar marketing strategies. Therefore, there are only three reportable segments for fiscal year 2015, and the segment information in prior years was restated to be consistent with the current year reportable segments. The three reportable segments are:

● Nutritional Food: includes the sale of powdered infant and adult formula products, with major brands including Super, My Angel and Dutch Cow, as well as the sale of prepared foods under the brand of Huiliduo;

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

● Other Business: includes non-core businesses such as ancillary sales of excess or unusable ingredients and materials to industrial customers, providing genetic diagnostic services for new born babies, and sales of cosmetics to pregnant women.

Executive Summary

After the successful implementation of the Gold Mining program in fiscal 2014 and 2015, which consolidated our retail outlets and improved our management of distributors and stores with regard to both inventories and expenses, as more fully described in the Annual Report on Form 10-K for the fiscal year ended March 31, 2015, we continue to execute the same management philosophy in fiscal 2016. We continue to focus on store profitability, channel inventory levels and the effectiveness of promotional discounts and expenses.

The Kangaroo program which we launched in fiscal 2015 was intended to enhance customer service and brand equity. The primary purpose of this program is to encourage our in-store promoters to better serve our consumers through our membership royalty program. Promoters’ compensation was previously solely based on the commission they received on the sales in the stores where they worked and only during the hours they worked.  In the second quarter of fiscal 2015, we started to reward bonuses to promoters based on the royalty points accumulated by their members, regardless of where and when sales occur, which encouraged promoters to maintain an accurate and updated list of their members in our central database.  In the third quarter of fiscal 2015, we launched our self-developed sales management mobile application, called “Treasure in Hand”. All of our promoters were required to download this application and use it to manage or monitor cell phone based communications with their members, including calls, short messages and WeChat messages (the dominant mobile communication application in China).  Our sales staff manages these promoters based on the recorded interactions in Treasure in Hand, and our central database supporting this application has become the centralized platform to distribute information, as well as to analyze and manage sales and service behavior.  The next stage of this program, which started in the last quarter of fiscal 2015, is to encourage our promoters to further consolidate their form of communication to WeChat based group chats to help build a sense of community that matches the nature of our products, and which will allow us to send tailored messages to tens of thousands of such groups in a direct and personal way.  

As the next stage of our Online to Offline (O2O) membership service program, in the first quarter of fiscal 2016 we continue to develop the ThumbMama membership community and the ThumbMall e-commerce platform.  The Company has a public WeChat account by the name of “Mu Zhi Ma Ma”, or ThumbMama, under which we can assign one to three subaccounts to each of our nutritional consultants.  These subgroups function just like a normal WeChat friends chat group (which is the leading mobile internet based social application in China) but the Company maintains ownership and back door monitoring of these groups. We now have tripled the number of nutritional consultants providing advice and services to our ThumbMama membership, and we have expanded the nutritional consultant program to incorporate various types of part-time individuals/industry participants. Since the beginning of fiscal 2016 when we formally launched our ThumbMall WeChat store which is linked to those ThumbMama subaccounts, we have seen ten times growth in monthly sales through ThumbMall, which now accounts for over 10% of our sales of the Super brand IMF products that in turn accounts for two-thirds of our total sales. We view this strategic initiative as a platform from which we will be able to drive sales sustainably over time, particularly as our premium, imported products from our French facility are brought to market in the early part of next year.

We continue to execute on our French Project, which includes two spray drying towers, one for whole milk powder and one for oil wrapped whey protein powder, each with an annual capacity of 45,000 tons, as well as mixing and canning capacity for powdered formula products of 60,000 tons per annum. The total fixed asset budget for this project is €161 million. During the second quarter of fiscal 2016, we began test operations in the two drying towers and we expect that the mixing and canning line may be completed ahead of schedule, allowing both parts to be fully operational at the same time in the first quarter of calendar 2016. We expect to receive the necessary operating approval and import accreditation from the French and Chinese authorities right after we start our commercial operations and to start importing into the Chinese market also in the first half of calender 2016.

13 

Three Months Results of Operations

Below is a summary of selected comparative results of operations for the three months ended September 30, 2015 and 2014:

	Three Months Ended September 30,
(In thousands, except per share data)	2015			2014		%  Change
Net sales	$	87,348		$	102,464		-15	%
- Nutritional food segment		78,265			92,884		-16	%
Cost of sales		46,753			58,564		-20	%
- Nutritional food segment		37,903			50,955		-23	%
Gross profit		40,595			43,900		-8	%
- Nutritional food segment		40,362			41,929		-7	%
Gross Margin		46%			43%		8	%
- Nutritional food segment		52%			45%		14	%
Income from operations		12,882			13,638		-6	%
Interest expense, net		2,006			1,986		1	%
Foreign currency exchange (loss) gain, net		(8,883	)		164		*
Income before income tax expense		1,780			11,549		-97	%
Income tax expense		1,141			45		*
Net income		639			11,504		-94	%
Net income attributable to common stockholders	$	509		$	10,237		-95	%
Weighted average common stock outstanding – basic and diluted		57,291			57,301		-0.02	%
Earnings per share – basic and diluted	$	0.01		$	0.18		-95	%

* not meaningful

Net Sales

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

	Three Months Ended September 30,							% Change in
(In thousands, except percentage data)	2015		2014		%  Change			Volume			Price
Nutritional food	$	78,265		92,884		-16	%		-13	%		-3	%
Nutritional supplement		8,058		6,679		21	%
Other business		1,025		2,901		-65	%
Net sales	$	87,348	$	102,464		-15	%

* not meaningful

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

● Sales volume of nutritional food products for the three months ended September 30, 2015 was 6,322 tons, as compared to 7,299 tons for the same period in the previous year. The decrease was primarily due to increased competition in our traditional channels, while our traditional niche products such as private label, specialty milk powder and adult formula products faced different challenges.

● The average selling price of our nutritional food products for the three months ended September 30, 2015 was $12,380 per ton, compared to $12,726 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. The decrease in average selling price was mainly due to more discounts offered and a negative impact from exchange rate changes.

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 nutritional supplement segment is mainly comprised of external sales of chondroitin sulfate materials to international pharmaceutical companies.

Other business mainly included ancillary sales of excess or unusable ingredients and materials to industrial customers. The decrease in sales of our other business was mainly due to the decreased sales volume of milk powder. We now have a higher utilization rate of the whole milk powder we purchase from Fonterra as we have switched to a more selective grade of Fonterra WMP products.

14 

Cost of Sales

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

	Three Months Ended September 30,
(In thousands, except percentage data)	2015		2014		%  Change
Nutritional food	$	37,903	$	50,955		-26	%
Nutritional supplement		7,505		5,252		43	%
Other business		1,345		2,357		-43	%
Cost of sales	$	46,753	$	58,564		-20	%

The decrease in the cost of sales of the nutritional food segment was mainly due to decreased raw material purchase prices and decreased sales volume for the three months ended September 30, 2015. 

The increase in the cost of sales of the nutritional supplement segment was mainly due to the increased sales volume of chondroitin sulfate.

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 September 30,
(In thousands, except percentage data)	2015			2014			%  Change
Gross profit	$	40,595		$	43,900			-8	%
- Nutritional food		40,362			41,929			-4	%
Gross margin		46	%		43	%
- Nutritional food		52	%		45	%

The increase in gross margin was primarily contributable to the lower raw material purchase costs, partially offset by the decreased average selling price.

15 

Expenses

	Three Months Ended September 30,
(In thousands, except percentage data)	2015		2014		%  Change
Selling and distribution expenses	$	13,832	$	14,856		-7	%
Advertising and promotion expenses		7,800		8,913		-12	%
- Advertising expenses		2,983		3,433		-13	%
- Promotion expenses		4,817		5,480		-12	%
General and administrative expenses		6,203		6,992		-11	%
Gain on disposal and liquidation of subsidiaries		0		332		*
Government subsidies		122		167		-27	%

* not meaningful

Selling and distribution expenses primarily include compensation expense for sales staff, freight charges and travel expenses. The decrease in selling and distribution expenses was mainly due to decreased bonuses for sales staff in line with decreased net sales in the quarter ended September 30, 2015.

Advertising expenses primarily include media expenses paid to TV stations and e-commerce providers. Advertising expenses decreased as we believe the influence from traditional TV advertising has diminished recently and as a result we have substantially cut back advertising on TV stations. 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. Compared to zero government subsidy being recognized during the quarter ended September 30, 2014, during the quarter ended September 30, 2015, a local PRC government provided a subsidy of $3.4 million, which was recorded as deduction of promotion expenses, as the subsidy was required to be for promotion purpose. After considering this deduction, the increase was mainly due to more promotional material incurred in the quarter ended September 30, 2015.

General and administrative expenses primarily include salaries for staff and management, depreciation, office rental, office supplies and bad debt expense. The decrease of $0.7 million was mainly due to the change of bad debt expense and the decrease of office expenses.

Gain on disposal of subsidiaries represented gain on the disposal of Beijing Huiliduo to a third party of $0.3 million in the quarter ended September 30, 2014.

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

Interest Expense and Interest Income

	Three Months Ended September 30,
(In thousands, except percentage data)	2015		2014		% Change
Interest expense	$	4,194	$	3,703		13	%
Interest income		2,188		1,717		27	%

The increase in interest expense was mainly due to an increase in loan balance. There was $1.2 million of interest expenses capitalized for the French Project in the quarter ended September 30, 2015

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.

Foreign currency exchange gain (loss), net

The significant foreign currency exchange loss incurred this quarter was mainly due to that one of our PRC subsidiaries whose functional currency is RMB had borrowed significant loans denominated in US Dollar and EURO, and US Dollar and EURO had appreciated significantly against RMB in this quarter.

Net Income Attributable to Common Stockholders

As a result of the foregoing, net income attributable to common stockholders for the three months ended September 30, 2015 was $0.5 million, compared to a net income of $10.2 million for the same period in the previous year.

16 

Six Months Results of Operations

Below is a summary of selected comparative results of operations for the six months ended September 30, 2015 and 2014:

	Six Months Ended September 30,
(In thousands, except per share data)	2015			2014		% Change
Net sales	$	169,677		$	188,439		-10	%
- Nutritional food segment		151,991			175,134		-13	%
Cost of sales		87,140			105,776		-18	%
- Nutritional food segment		70,599			93,809		-25	%
Gross profit		82,537			82,663		-0.2	%
- Nutritional food segment		81,392			81,325		0.1	%
Gross Margin		49%			44%		11	%
- Nutritional food segment		54%			46%		15	%
Income from operations		25,384			37,941		-33	%
Interest expense, net		3,844			5,135		-25	%
Foreign currency exchange (loss) gain, net		(8,552	)		629		-1460	%
Income before income tax expense		12,568			32,772		-62	%
Income tax expense		3,931			2,871		*
Net income		8,637			29,901		-71	%
Net income attributable to common stockholders	$	8,102		$	28,177		-71	%
Weighted average common stock outstanding – basic and diluted		57,296			57,301		-0,01	%
Earnings per share – basic and diluted	$	0.14		$	0.49		-71	%

* not meaningful

Net Sales

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

	Six Months Ended September 30,							% Change in
(In thousands, except percentage data)	2015		2014		%  Change			Volume			Price
Nutritional food	$	151,991	$	175,134		-13	%		-10	%		-4	%
Nutritional supplement		16,115		8,347		93	%
Other business		1,571		4,958		-68	%
Net sales	$	169,677	$	188,439		-10	%

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

● Sales volume of nutritional food products for the six months ended September 30, 2015 was 11,736 tons, as compared to 12,980 tons for the same period in the previous year. The decrease was primarily due to increased competition in our traditional channels which was partly offset by higher volume under our private label business.

● The average selling price of our nutritional food products for the six months ended September 30, 2015 was $12,951 per ton, compared to $13,493 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. The decrease in average selling price was mainly due to higher discounts offered

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 nutritional supplement segment is mainly comprised of external sales of chondroitin sulfate materials to international pharmaceutical companies.

Other business mainly included ancillary sales of excess or unusable ingredients and materials to industrial customers. The 68% decrease in sales of our other business compared to the same period in the previous year was mainly due to the decreased sales volume of milk powder, as we now have a higher utilization rate of the whole milk powder we purchase from Fonterra as we have switched to a more selective grade of Fonterra WMP products.

17 

Cost of Sales

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

	Six Months Ended September 30,
(In thousands, except percentage data)	2015		2014		%  Change
Nutritional food	$	70,599	$	93,809		-25	%
Nutritional supplement		15,027		7,107		111	%
Other business		1,514		4,860		-69	%
Cost of sales	$	87,140	$	105,776		-18	%

The decrease in the cost of sales of the nutritional food segment was mainly due to decreased raw material purchase prices and decreased sales volume for the six months ended September 30, 2015.

The increase in the cost of sales of the nutritional supplement segment was mainly due to the increased sales volume of chondroitin sulfate.

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

Gross Profit and Gross Margin

	Six Months Ended September 30,
(In thousands, except percentage data)	2015		2014		% Change
Gross profit	$	82,537	$	82,663		-0.2	%
- Nutritional food		81,392		81,325		0.1	%
Gross margin		49%		44%
- Nutritional food		54%		46%

The increase of gross margin was primarily contributable to the lower raw material purchase cost, which more than offset the effect of the decrease of average selling prices.

18 

Expenses

	Six Months Ended September 30,
(In thousands, except percentage data)	2015		2014		%  Change
Selling and distribution expenses	$	26,568	$	27,449		-3	%
Advertising and promotion expenses		18,086		18,615		-3	%
- Advertising expenses		5,063		4,957		2	%
- Promotion expenses		13,023		13,658		-5	%
General and administrative expenses		12,701		14,247		-11	%
Gain on disposal and liquidation of subsidiaries		0		15,294		*
Government subsidies		202		295		-32	%

* not meaningful

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

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. 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. During the six months ended September 30, 2015, a local PRC government provided a subsidy of $3.4 million, which was recorded as deduction of promotion expenses, as the subsidy was required to be for promotion expense purpose. After considering this deduction, the increase was mainly due to more promotional material incurred in the six months ended September 30, 2015.

General and administrative expenses primarily include salaries for staff and management, depreciation, office rental, office supplies and bad debt expense. The decrease was mainly due to the decrease in bad debt expenses.

Gain on disposal of subsidiaries represented gain on the disposal of Zhangjiakou to a third party of $15.0 million in the quarter ended June 30, 2014 and of Beijing Huiliduo to a third party of $0.3 million in the quarter ended September 30, 2014.

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

Interest Expense and Interest Income

	Six Months Ended September 30,
(In thousands, except percentage data)	2015		2014		%  Change
Interest expense	$	8,378	$	8,540		-2	%
Interest income		4,534		3,405		33	%

The modest decrease in interest expense was mainly due to increased capitalized interest, partially offset by an increase in loan balance. and a modest increase in the weighted average interest rate. There was $1.9 million of interest expenses capitalized for the French Project in the six months ended September 30, 2015.

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.

Foreign currency exchange gain (loss), net

The significant foreign currency exchange loss incurred this quarter was mainly due to that one of our PRC subsidiaries whose functional currency is RMB had borrowed significant loans denominated in US Dollar and EURO, and US Dollar and EURO had appreciated significantly against RMB in this quarter.

Net Income Attributable to Common Stockholders

As a result of the foregoing, net income attributable to common stockholders for the six months ended September 30, 2015 was $8.1 million, compared to $28.2 million for the same period in the previous year.

19 

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 mainly 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 $83.9 million at September 30, 2015, of which $83.6 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 50,000 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.

As of September 30, 2015, approximately €144.2 million under the total fixed asset budget of €161.0 million was already invested. The Company has entered into a long-term project financing of €53.0 million, €10.6 million of which was unused as of September 30, 2015. In addition, the Company plans to finance the remaining part of the project with the combination of cash on hand, future operating cash flows and other bank borrowings as needed.

On September 10, 2015, our board of directors approved a share repurchase program authorizing the repurchase of up to an aggregate amount of $20,000,000 of its common stock from time to time through September 10, 2016. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. Following the approval, we entered into a Rule 10b5-1 trading plan under the Exchange Act permitting open market repurchases of our common stock based on certain triggers described in the trading plan. During the three months ended September 30, 2015, we repurchased 112,000 shares of our common stock under the Rule 10b5-1 trading plan at an aggregate cost of $557,000 which was paid for through cash on hand. As of September 30, 2015, we have board approval for another $19.4 million for stock repurchases under our stock repurchase program through September 10, 2016.

We expect to fund any remaining share repurchases with a combination of cash on hand, future cash flows and by borrowing under our credit facilities. The timing and extent of any future repurchases that are not pursuant to the Rule 10b5-1 trading plan adopted in September 2015 are at the discretion of our management and will depend upon market conditions, amount authorized by our board of directors, our stock price, our target debt ratio and corporate debt rating, and our strategic growth initiatives at that time. We may discontinue the stock repurchases at any time or may enter into a new Rule 10b5-1 trading plan in the future. In addition, our board of directors may increase or decrease the amount of capacity we have for repurchases from time to time.

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Cash Flows

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

	Six Months Ended September 30,
(In thousands)	2015			2014
Cash flow provided by/(used in):
Operating activities
Net income	$	8,637		$	29,901
Depreciation and amortization		4,867			7,679
Bad debt reversal		(1,244	)		(1,383	)
Inventory write down		4,955			2,083
Gain on disposal and liquidation of subsidiaries		0			(15,294	)
Other		50			433
Changes in assets and liabilities		(36,121	)		(15, 903	)
Total operating activities		(18,856	)		7, 516
Investing activities		(67,401	)		(37, 944	)
Financing activities		85,084			(12,686	)
Effect of foreign currency translation on cash and cash equivalents		(145	)		(54	)
Net change in cash and cash equivalents	$	(1,318	)	$	(43,168	)

Cash flow provided by operating activities was a result of the net income of $8.6 million, as adjusted for non-cash expense and income items of $8.6 million, and an increase in working capital of $36.1 million. In the six months ended September 30, 2015, we spent $157.6 million to purchase raw materials and other production materials, $24.6 million in staff compensation and social welfare, $9.9 million in taxes, $43.5 million in operating expenses, $7.3 million in interest, $1.5 million in land lease, received $222.7 million from our customers and $2.8 million from interest payments.

Cash flow used in investing activities in the six months ended September 30, 2015 represents $72.9 million payment for the purchase of property, plant and equipment, $9.6 million inflow 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, $16,000 in proceeds from disposed assets, $9.8 million long term loan to a supplier, and $5.6 million proceeds from disposal of subsidiaries.

Cash flow used in financing activities in the six months ended September 30, 2015 mainly represents net cash outflow of $13.3 million from short-term loans and net cash inflow of $99.2 million from long-term loans, $0.3 million payment for assets under capital leases, and $0.6 million payment on shares repurchased.

Outstanding Indebtedness

For information on our short-term and long-term borrowings, see “Item 1.  Financial Statements – Note 8.”

Capital Expenditures

Our capital expenditures were $74.8 million and the corresponding cash outflow was $72.9 million for the six months ended September 30, 2015, 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.

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Recent Accounting Pronouncements

In August 2015, FASB issued Accounting Standards Update 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting period within that reporting period. We are evaluating the impact to our financial position and result of operations upon adoption.

In July 2015, FASB issued Accounting Standards Update 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. We are evaluating the impact to our financial position and result of operations upon adoption.

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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, 2015.

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 September 30, 2015, 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 September 30, 2015, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

As of September 30, 2015, 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, 2015. There have been no material changes to these risks and uncertainties during the three months ended September 30, 2015.

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

The table below sets forth the information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three months ended September 30, 2015.

In thousands except per share data	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1)
July 1, 2015 –  September 30, 2015		112	$	4.97		112	$	19,443
Total		112	$	4.97		112	$	19,443

(1)   On September 10, 2015, we entered into a Rule 10b5-1 trading plan under the Exchange Act permitting open market repurchases of our common stock based on certain triggers described in the trading plan. During the three months ended September 30, 2015, we repurchased 112,000 shares of our common stock on the open market or through the Rule 10b5-1 trading plan at an aggregate cost of $557,000 through cash on hand. As of September 30, 2015, the remaining authorization permits repurchases of up to $19.4 million of our common stock through September 10, 2016. The timing and extent of any future repurchases that are not pursuant to the Rule 10b5-1 trading plan adopted in September 2015 are at the discretion of our management and will depend upon market conditions, amount authorized by our board of directors, our stock price, our target debt ratio and corporate debt rating, and our strategic growth initiatives at that time. The stock repurchases may be discontinued at any time or we may enter into a new Rule 10b5-1 trading plan. Our board of directors may increase or decrease the amount of capacity we have for repurchases from time to time.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

None.

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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—September 30, 2015 and March 31, 2015, (ii) the Consolidated Statements of Operations—Three and Six Months Ended September 30, 2015 and 2014, (iii) the Consolidated Statements of Comprehensive Income(Loss)—Three and Six Months Ended September 30, 2015 and 2014, (iv) the Consolidated Statements of Equity—Six Months Ended September 30, 2015 and 2014, (v) the Consolidated Statements of Cash Flows—Six Months Ended September 30, 2015 and 2014, and (vi) Notes to Consolidated Financial Statements.

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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.

		SYNUTRA INTERNATIONAL, INC.
Date:	November 9, 2015	By:	/s/ Liang Zhang
			Name:	Liang Zhang
			Title:	Chief Executive Officer and Chairman

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