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UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended February 29, 2008q
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from ____ to ____.Commission
      file number:001-14608





SCHIFF
NUTRITION INTERNATIONAL, INC.


(Exact name of
registrant as specified in its charter)





Delaware
            
            87-0563574(State or
      other jurisdiction
              of
      incorporation or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)2002
      South 5070 West
              Salt
      Lake City, Utah
            
            84104-4726(Address of
      principal
              executive
      offices)
            
            (Zip
      Code)





(801)
975-5000


(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 þ   No
q





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
definition of “large accelerated filer,” "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.





Large Accelerated Filer q                                                                                                      Accelerated Filer
q




Non-Accelerated Filer q (Do not check if a
smaller reporting
company)                                                                          Smaller
reporting company þ





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





As of April 2,
2008 the registrant had outstanding 11,756,534 shares of Class A common
stock and 14,973,148 shares of Class B common stock.





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1
 PART I. FINANCIALINFORMATION





ITEM
      1.
            FINANCIAL STATEMENTS





SCHIFF NUTRITION INTERNATIONAL,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share data)





February
      29, 2008
            
            
            May 31,2007ASSETS
            
            (unaudited)Current
      assets:Cash and
      cash equivalents
            
            $
            35,012
            
            
            $
            34,463Available-for-sale
      securities
            
            
            8,214
            
            
            
            45,817Receivables,
      net
            
            
            18,100
            
            
            
            17,732Inventories
            
            
            31,399
            
            
            
            23,698Prepaid
      expenses and other
            
            
            2,056
            
            
            
            2,151Deferred
      taxes, net
            
            
            1,767
            
            
            
            1,992Total
      current assets
            
            
            96,548
            
            
            
            125,853Property
      and equipment, net
            
            
            13,801
            
            
            
            14,438Other
      assets:Goodwill
            
            
            4,346
            
            
            
            4,346Available-for-sale
      securities
            
            
            2,065
            
            
            
            —Deposits
      and other assets
            
            
            16
            
            
            
            105Deferred
      taxes, net
            
            
            1,823
            
            
            
            337Total other
      assets
            
            
            8,250
            
            
            
            4,788Total
      assets
            
            $
            118,599
            
            
            $
            145,079LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            9,013
            
            
            $
            7,962Accrued
      expenses
            
            
            10,244
            
            
            
            10,542Short-term
      debt
            
            
            196
            
            
            
            —Dividends
      payable
            
            
            1,051
            
            
            
            —Income
      taxes payable
            
            
            1,354
            
            
            
            2,480Total
      current liabilities
            
            
            21,858
            
            
            
            20,984Long-term
      liabilities:Dividends
      payable
            
            
            1,205
            
            
            
            —Other
            
            
            528
            
            
            
            —Total
      long-term liabilities
            
            
            1,733
            
            
            
            —Commitments
      and contingencies (Note 10)Stockholders'
      equity:Preferred
      stock, par value $.01 per share; shares authorized-10,000,000; no shares
      issued and outstanding
            
            
            —
            
            
            
            —Class A
      common stock, par value $.01 per share; shares authorized-50,000,000;
      shares issued and outstanding-11,756,534 and 11,664,284
            
            
            117
            
            
            
            116Class B
      common stock, par value $.01 per share; shares authorized-25,000,000;
      shares issued and outstanding-14,973,148
            
            
            150
            
            
            
            150Additional
      paid-in capital
            
            
            87,723
            
            
            
            92,640Retained
      earnings
            
            
            7,018
            
            
            
            31,189Total
      stockholders' equity
            
            
            95,008
            
            
            
            124,095Total
      liabilities and stockholders' equity
            
            $
            118,599
            
            
            $
            145,079





See notes to
condensed consolidated financial statements.




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INDEX


2
 SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
 (in
thousands, except share data)
 (unaudited)








Three
      Months EndedFebruary
      29, 2008
            
            
            February
      28, 2007Net
      sales
            
            $
            46,208
            
            
            $
            44,999Cost of
      goods sold
            
            
            25,794
            
            
            
            28,570Gross
      profit
            
            
            20,414
            
            
            
            16,429Operating
      expenses:Selling and
      marketing
            
            
            8,612
            
            
            
            8,060General and
      administrative
            
            
            4,812
            
            
            
            2,985Research
      and development
            
            
            847
            
            
            
            995Reimbursement
      of import costs
            
            
            —
            
            
            
            (96
            )Total
      operating expenses
            
            
            14,271
            
            
            
            11,944Income from
      operations
            
            
            6,143
            
            
            
            4,485Other
      income (expense):Interest
      income
            
            
            460
            
            
            
            760Interest
      expense
            
            
            (33
            )
            
            
            (43
            )Other,
      net
            
            
            (3
            )
            
            
            (1
            )Total other
      income, net
            
            
            424
            
            
            
            716Income
      before income taxes
            
            
            6,567
            
            
            
            5,201Income tax
      expense
            
            
            2,524
            
            
            
            1,960Net
      income
            
            $
            4,043
            
            
            $
            3,241Weighted
      average shares outstanding:Basic
            
            
            26,661,495
            
            
            
            26,549,132Diluted
            
            
            28,187,598
            
            
            
            27,353,200Net income
      per share:Basic
            
            $
            0.15
            
            
            $
            0.12Diluted
            
            $
            0.14
            
            
            $
            0.12Comprehensive
      income
            
            $
            4,043
            
            
            $
            3,241













See notes to
condensed consolidated financial statements.




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INDEX


3
 SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
 (in
thousands, except share data)
 (unaudited)








Nine Months
      EndedFebruary
      29, 2008
            
            
            February
      28, 2007Net
      sales
            
            $
            126,470
            
            
            $
            129,468Cost of
      goods sold
            
            
            73,074
            
            
            
            79,746Gross
      profit
            
            
            53,396
            
            
            
            49,722Operating
      expenses:Selling and
      marketing
            
            
            22,104
            
            
            
            25,138General and
      administrative
            
            
            16,052
            
            
            
            10,839Research
      and development
            
            
            3,149
            
            
            
            2,675Reimbursement
      of import costs
            
            
            (31
            )
            
            
            (394
            )Total
      operating expenses
            
            
            41,274
            
            
            
            38,258Income from
      operations
            
            
            12,122
            
            
            
            11,464Other
      income (expense):Interest
      income
            
            
            1,718
            
            
            
            2,261Interest
      expense
            
            
            (102
            )
            
            
            (146
            )Other,
      net
            
            
            7
            
            
            
            14Total other
      income, net
            
            
            1,623
            
            
            
            2,129Income
      before income taxes
            
            
            13,745
            
            
            
            13,593Income tax
      expense
            
            
            5,251
            
            
            
            4,840Net
      income
            
            $
            8,494
            
            
            $
            8,753Weighted
      average shares outstanding:Basic
            
            
            26,622,088
            
            
            
            26,524,365Diluted
            
            
            27,767,437
            
            
            
            27,332,732Net income
      per share:Basic
            
            $
            0.32
            
            
            $
            0.33Diluted
            
            $
            0.31
            
            
            $
            0.32Comprehensive
      income
            
            $
            8,494
            
            
            $
            8,753












See notes to
condensed consolidated financial statements.




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4
 SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
 (in
thousands)
 (unaudited)








Nine Months
      EndedFebruary
      29, 2008
            
            
            February
      28, 2007Cash flows
      from operating activities:Net
      income
            
            $
            8,494
            
            
            $
            8,753Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for bad debts
            
            
            —
            
            
            
            (54
            )Deferred
      taxes
            
            
            (1,223
            )
            
            
            (267
            )Depreciation
      and amortization
            
            
            2,648
            
            
            
            2,474Amortization
      of financing fees
            
            
            12
            
            
            
            35Stock-based
      compensation
            
            
            6,990
            
            
            
            2,962Excess tax
      benefit from equity instruments
            
            
            (317
            )
            
            
            (141
            )Other
            
            
            (1
            )
            
            
            (13
            )Changes in
      operating assets and liabilities:Receivables
            
            
            (368
            )
            
            
            (422
            )Inventories
            
            
            (7,701
            )
            
            
            (400
            )Prepaid
      expenses and other
            
            
            95
            
            
            
            163Deposits
      and other assets
            
            
            77
            
            
            
            (5
            )Accounts
      payable
            
            
            1,581
            
            
            
            361Other
      current liabilities
            
            
            (756
            )
            
            
            (1,369
            )Other
      long-term liabilities
            
            
            51
            
            
            
            —Net cash
      provided by operating activities
            
            
            9,582
            
            
            
            12,077Cash flows
      from investing activities:Purchase of
      property and equipment
            
            
            (2,577
            )
            
            
            (3,305
            )Proceeds
      from sale of property and equipment
            
            
            32
            
            
            
            19Purchase of
      available-for-sale securities
            
            
            (34,264
            )
            
            
            (28,053
            )Proceeds
      from sale of available-for-sale securities
            
            
            69,802
            
            
            
            23,949Collection
      of notes receivable
            
            
            —
            
            
            
            400Net cash
      provided by (used in) investing activities
            
            
            32,993
            
            
            
            (6,990
            )Cash flows
      from financing activities:Proceeds
      from debt
            
            
            1,350
            
            
            
            1,996Payments on
      debt
            
            
            (1,154
            )
            
            
            (1,706
            )Proceeds
      from stock options exercised
            
            
            237
            
            
            
            282Purchase
      and retirement of common stock
            
            
            (120
            )
            
            
            (170
            )Excess tax
      benefit from equity instruments
            
            
            317
            
            
            
            141Dividends
      paid
            
            
            (42,661
            )
            
            
            —Net cash
      provided by (used in) financing activities
            
            
            (42,031
            )
            
            
            543Effect of
      exchange rate changes on cash
            
            
            5
            
            
            
            1Increase in
      cash and cash equivalents
            
            
            549
            
            
            
            5,631Cash and
      cash equivalents, beginning of period
            
            
            34,463
            
            
            
            24,899Cash and
      cash equivalents, end of period
            
            $
            35,012
            
            
            $
            30,530
















See notes to
condensed consolidated financial statements.




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5
 SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (dollars
in thousands, except share data)





1.
            BASIS
      OF PRESENTATION AND OTHER MATTERS




The accompanying
unaudited interim condensed consolidated financial statements (“interim
financial statements”) of Schiff Nutrition International, Inc. and its
subsidiaries (the “Company,” “we,” “us” and “our”) do not include all
disclosures provided in our annual consolidated financial
statements.  These interim financial statements should be read in
conjunction with the consolidated financial statements and the footnotes thereto
contained in our Annual Report on Form 10-K for the year ended May 31, 2007 as
filed with the Securities and Exchange Commission (“SEC”).  The May
31, 2007 condensed consolidated balance sheet, included herein, was derived from
our audited financial statements, but all disclosures required by generally
accepted accounting principles are not provided in the accompanying
footnotes.  We are a majority-owned subsidiary of Weider Health and
Fitness (“WHF”).





In our opinion,
the accompanying interim financial statements contain all material adjustments
necessary for a fair presentation of our financial position and results of
operations.  Results of operations and cash flows for any interim
period are not necessarily indicative of the results of operations and cash
flows that we may achieve for any other interim period or for the entire
year.





In July 2007, our
Board of Directors approved a $1.50 per share special cash dividend, which was
paid on August 13, 2007 to shareholders of record of Class A and Class B common
stock at the close of business on July 31, 2007.  In connection with
the declaration of the special dividend, our Board of Directors approved certain
dividend equivalent rights, allowing holders (employees and directors) of
certain equity awards, including stock options and restricted stock units, to
receive cash dividends on each share of common stock underlying the stock
options and restricted stock units.  In aggregate, at July 31, 2007,
the record date, the Company had outstanding approximately 29.9 million shares
of common stock (including shares of common stock underlying equity awards
subject to dividend equivalent rights), including approximately 26.6 million
shares of outstanding Class A and Class B common stock, approximately 1.8
million shares of Class A common stock underlying outstanding stock options, and
approximately 1.5 million shares of Class A common stock underlying outstanding
restricted stock units.  The aggregate amount of the special dividend
was approximately $44,900, presuming 100% vesting of shares underlying equity
awards; $22,440 for holders of Class A common stock, including $4,883 for Class
A common stock underlying certain equity awards, and $22,460 for the holder of
Class B common stock.  Approximately 55% of the stock options and
restricted stock units had vested as of February 29, 2008.  To the
extent these equity awards were unvested at February 29, 2008, the $1.50 per
share dividend was not, and will not be, distributed until after such equity
awards become vested.





In connection
with the dividends paid or payable on the dividend equivalent rights received by
holders (employees and directors) of stock options and certain restricted stock
units, we recognized a non-cash compensation expense, and a corresponding
increase in additional paid-in capital, of $621 and $4,235, respectively, during
the three and nine month periods ended February 29, 2008.  Subject to
future vesting of these equity awards, additional compensation expense,
including approximately $621 during the fiscal 2008 fourth quarter, together
with a corresponding increase in additional paid-in capital will subsequently be
recognized.





On March 17,
2006, the Compensation Committee of our Board of Directors, pursuant to our 2004
Incentive Award Plan, approved the adoption of a long term incentive plan
involving the grant of performance based restricted stock units (the
“Units”).  On March 20, 2006, a total of 1,437,200 Units were issued
to certain officers and employees.  Each Unit represents the right to
receive one share of the Company’s Class A common stock, subject to certain
performance based vesting requirements.  The Units will vest, if at
all, based on the Company’s performance in relation to certain specified
pre-established performance criteria targets over a performance period beginning
on January 1, 2006 and expiring on May 31, 2008.  The performance
criteria upon which the Units may vest is based upon a “Business Value Created”
formula, which is comprised of two performance criteria components: operating
earnings and return on net capital.  The grant date fair value of each
Unit was $5.11.  We recognize compensation expense over the
performance period based on a periodic assessment of the probability that the
performance criteria will be achieved.  For the fiscal 2008 and 2007
third quarters, respectively, we recognized compensation expense of $812 and
$742, and the related tax benefit of approximately $324 and $293.  For
the nine months ended February 29, 2008 and February 28, 2007, respectively, we
recognized compensation expense of $2,435 and $2,552, and the related tax
benefit of approximately $961 and $995.  At February 29, 2008, total
unrecognized compensation expense, based on our assessment of the probability
that the performance criteria will be achieved, was approximately $812, which is
expected to be recognized over a remaining weighted average period of
approximately 0.25 years.





Effective August
16, 2002, we issued 640,000 restricted shares of Class A common stock to certain
officers and employees.  The aggregate grant date fair value of these
restricted shares was approximately $1,038, which we expensed on a straight-line
basis over the accompanying five-year vesting period ended August 16,
2007.  During the fiscal 2008 and 2007 first quarters, respectively,
83,800 and 86,200 restricted shares vested and, concurrent with the annual
vesting, we reacquired (and ultimately retired) 22,676 and 23,443 shares from
certain employees in connection with the payment of individual income
taxes.  As of August 31, 2007, of the 640,000 restricted shares
originally issued, 528,800 shares were vested, from which 103,338 shares were
reacquired (and retired) in connection with the payment of individual income
taxes, and 111,200 shares were cancelled.




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6
 SCHIFF
NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   –(continued)
 (dollars
in thousands, except share data)





Property and
equipment additions included in accounts payable amounted to $532 and $648,
respectively, for the nine months ended February 29, 2008 and February 28,
2007.





2.
            AVAILABLE-FOR-SALE
      SECURITIES




Available-for-sale
securities consist primarily of auction rate securities (“ARS”), long-term
variable rate bonds tied to short-term interest rates that are reset through a
“dutch auction” process which primarily occur every 7 to 35 days, and other
variable rate debt and equity securities.





Available-for-sale
securities at fair value, which approximates unamortized cost, consist of the
following:





February
      29, 2008
            
            
            May 31,2007Federal,
      state and municipal debt securities
            
            $
            7,084
            
            
            $
            32,529Corporate
      debt securities
            
            
            1,798
            
            
            
            9,038Corporate
      equity securities
            
            
            —
            
            
            
            4,250Other
            
            
            1,397
            
            
            
            —Total
            
            $
            10,279
            
            
            $
            45,817





Despite the
underlying long-term contractual maturity of ARS, there has generally been
a ready liquid market for these securities based on the interest reset
mechanism.  Historically, these securities were classified as current
assets due to our intent and ability to sell these securities as necessary to
meet current liquidity needs.  However, as a result of current
negative liquidity and uncertainty in financial credit markets, we have
experienced “failed” auctions associated with certain of our remaining
ARS.  In the case of a failed auction, the ARS become illiquid
long-term bonds (until a future auction is successful or the security is called
prior to the contractual maturity date by the issuer) and the rates are reset in
accordance with terms in the prospectus/offering circular.  At
February 29, 2008, total available-for-sale securities included $5,385 in ARS;
$3,320 of which were liquidated or called by the issuer subsequent to February
29, 2008 and are included in current assets, and $2,065 of which experienced
remarketing failures and are included in long-term assets.  The
remaining ARS consist primarily of fully insured, AAA rated municipal or state
agency issued securities. Contractual maturities of debt securities are as
follows at February 29, 2008:





Less than
      one year
            
            $
            2,494One to five
      years
            
            
            —Over five
      years
            
            
            6,388Total
            
            $
            8,882





In determining
the fair value of our available-for-sale securites at February 29, 2008, we have
taken into consideration fair values determined by the financial institutions,
current credit rating of the debt securites, insurance provisions, discounted
cash flow analysis, as deemed appropriate, and our current liquidity
position. The amount of
unrealized gains or losses for the first nine months of fiscal 2008 and 2007 was
not significant.








3.
            RECEIVABLES,
      NET




Receivables, net,
consist of the following:


February
      29, 2008
            
            
            February
      28, 2007Trade
      accounts
            
            $
            19,709
            
            
            $
            19,467Other
            
            
            106
            
            
            
            42619,815
            
            
            
            19,893Less
      allowances for doubtful accounts, sales returns and
    discounts
            
            
            (1,715
            )
            
            
            (2,161
            )Total
            
            $
            18,100
            
            
            $
            17,732







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7
 SCHIFF
NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   –(continued)
 (dollars
in thousands, except share data)





4.
            INVENTORIES




Inventories
consist of the following:


February
      29, 2008
            
            
            May 31,2007Raw
      materials
            
            $
            10,812
            
            
            $
            8,960Work in
      process
            
            
            1,510
            
            
            
            2,340Finished
      goods
            
            
            19,077
            
            
            
            12,398Total
            
            $
            31,399
            
            
            $
            23,698




5.
            GOODWILL
      AND INTANGIBLE ASSETS, NET




Goodwill and
intangible assets, net, consist of the following:


February
      29, 2008
            
            
            May 31,
      2007Gross
      Carrying Amount
            
            
            Accumul.  Amortiz.
            
            
            Net Book
      Value
            
            
            Gross
      Carrying Amount
            
            
            Accumul.  Amortiz.
            
            
            Net Book
      ValueGoodwill
            $
            4,346
            
            
            $
            —
            
            
            $
            4,346
            
            
            $
            4,346
            
            
            $
            —
            
            
            $
            4,346Intangible
      assets-patents and trademarks
            $
            2,090
            
            
            $
            (2,090
            )
            
            $
            —
            
            
            $
            2,090
            
            
            $
            (2,090
            )
            
            $
            —




Estimated
amortization expense, assuming no changes in our intangible assets, is zero for
all future fiscal years.





The carrying
amount of goodwill did not change during the first nine months of fiscal 2008 or
during fiscal 2007.





6.
            ACCRUED
      EXPENSES




Accrued expenses
consist of the following:


February
      29, 2008
            
            
            May 31,2007Accrued
      personnel related costs
            
            $
            3,022
            
            
            $
            3,495Accrued
      promotional costs
            
            
            5,207
            
            
            
            4,642Other
            
            
            2,015
            
            
            
            2,405Total
            
            $
            10,244
            
            
            $
            10,542




7.
            CAPITAL
      STRUCTURE




We have two
classes of common stock outstanding.  Both classes of common stock
generally have identical rights and privileges, with the exception of voting and
conversion, or transfer rights.  Each holder of Class A or Class B
common stock is entitled to share ratably in any dividends, liquidating
distributions or consideration resulting from certain business
combinations.  However, each holder of Class A common stock is
entitled to one vote for each share held while each holder of Class B common
stock is entitled to ten votes for each share held.  The holders of
the Class A common stock and Class B common stock vote together as a single
class.  Class A common stock cannot be converted into any other
securities of the Company, while Class B common stock holders have the right to
convert their shares into Class A common stock on a one-to-one
basis.  In addition, generally, any shares of Class B common stock
that are transferred will automatically convert into shares of Class A common
stock on a one-to-one basis.




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8
 SCHIFF
NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   –(continued)
 (dollars
in thousands, except share data)





8.
            EARNINGS
      PER SHARE




The following is
a reconciliation of the numerators and the denominators of the basic and diluted
earnings per share computations (dollars in thousands):




Three
      Months Ended
            
            
            Nine Months
      EndedFebruary
      29, 2008
            
            
            February
      28, 2007
            
            
            February
      29, 2008
            
            
            February
      28, 2007Income
      available to common shareholders (numerator):Net
      income
            
            $
            4,043
            
            
            $
            3,241
            
            
            $
            8,494
            
            
            $
            8,753Adjustments
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Income on
      which basic and diluted earnings per share are calculated
            
            $
            4,043
            
            
            $
            3,241
            
            
            $
            8,494
            
            
            $
            8,753Weighted-average
      number of common shares outstanding (denominator):Basic
            
            
            26,661,495
            
            
            
            26,549,132
            
            
            
            26,622,088
            
            
            
            26,524,365Add-incremental
      shares from restricted stock
            
            
            6,523
            
            
            
            51,551
            
            
            
            2,467
            
            
            
            47,504Add-incremental
      shares from restricted stock units
            
            
            830,117
            
            
            
            —
            
            
            
            464,114
            
            
            
            —Add-incremental
      shares from stock options
            
            
            689,463
            
            
            
            752,517
            
            
            
            678,768
            
            
            
            760,863Diluted
            
            
            28,187,598
            
            
            
            27,353,200
            
            
            
            27,767,437
            
            
            
            27,332,732




Options to
purchase 32,000 shares of Class A common stock at prices ranges from $6.00 to
$7.05 per share were outstanding during the first nine months of fiscal 2008 but
were not included in the computation of diluted earnings per share because the
options’ exercise prices were greater than the average market price of the
common shares.





9.
            CONCENTRATION
      OF CREDIT RISK AND SIGNIFICANT CUSTOMERS AND
  PRODUCTS




Financial
instruments that potentially subject us to significant concentrations of credit
risk consist primarily of cash and cash equivalents, available-for-sale
securities and accounts receivable.  Historically, we invested our
excess cash in high-quality, liquid money market accounts, commercial paper, ARS
and other variable rate debt and equity securities.  While the
underlying securities generally have contractual maturities between 20 and 30
years, the interest rates on ARS typically reset at intervals between 7 to 35
days.  Despite the underlying long-term maturity of these securities,
from the investor’s perspective, such securities were priced and subsequently
trade as short-term investments because of the interest rate reset
feature.  As a result, we generally had the ability to quickly
liquidate these securities.





As a result of
current negative liquidity and uncertainty in financial credit markets, we
elected to liquidate our investments in ARS and other variable rate debt
securities.  Proceeds from the sale of these available-for-sale
securities were invested in money market accounts, certificates of deposit,
United States Treasury Bills with maturities of three months or less, and
high-quality commercial paper.  These investments, totaling
approximately $33,727 at February 29, 2008, are included in cash and cash
equivalents.  Generally, our cash and cash equivalents exceed Federal
Deposit Insurance Corporation limits on insurable amounts; thus exposing us to
certain credit risk.  We minimize our risk by investing in or through
major financial institutions.  We have not experienced any realized losses
on our cash equivalents and available-for-sale securities.





At February 29,
2008, we held approximately $10,279 in available-for-sale securities; consisting
of approximately $5,385 in ARS, along with other variable rate debt securities
and commercial paper.  Subsequent to February 29, 2008, $3,320 of
these ARS were liquidated or called by the issuer.  The remaining
$2,065 in ARS consist primarily of fully insured, AAA rated municipal or state
agency issued securities. In determining
the fair value of our available-for-sale securites at February 29, 2008, we have
taken into consideration fair values determined by the financial institutions,
current credit rating of the debt securites, insurance provisions, discounted
cash flow analysis, as deemed appropriate, and our current liquidity
position.Although we believe the remaining ARS and variable rate
debt securities will ultimately be liquidated at or near our cost basis, any
substantial impairment in the value of these securities could adversely impact
our results of operations and financial condition.





With respect to
accounts receivable, we perform ongoing credit evaluations of our customers and
monitor collections from customers continuously.  We maintain an
allowance for doubtful accounts which is based upon historical experience as
well as specific customer collection issues.  Historically, bad debt
expenses have not been significant and have been within expectations and
allowances established.  However, we cannot guarantee that we will
continue to experience the same credit loss rates that we have in the
past.  If the financial condition of one or more of our customers were
to deteriorate, additional allowances may be required.





The combined net
sales to our two largest customers are significant.  At February 29,
2008 and May 31, 2007, respectively, amounts due from Customer A
represented approximately 40% and 40%, and amounts due from Customer B
represented approximately 27% and 24%, of total trade accounts
receivable.  For the first nine months of fiscal 2008 and 2007,
respectively, Customer A accounted for approximately 37% and 35% and
Customer B accounted for approximately 37% and 35% of total net
sales.  Net sales of our Schiff® Move Free® brand accounted for
approximately 48% and 49%, respectively, of total net sales for the first nine
months of fiscal 2008 and 2007.




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9
 SCHIFF
NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   –(continued)
 (dollars
in thousands, except share data)






10.
            COMMITMENTS
      AND CONTINGENCIES




From time to
time, we are involved in claims, legal actions and governmental proceedings that
arise from our business operations.  Although ultimate liability
cannot be determined at the present time, based on available information, we do
not believe the resolution of these matters will have a material adverse effect
on our results of operations and financial condition.  However, it is
possible that future litigation could arise, or that developments could occur in
existing litigation, that could have a material adverse effect on our results of
operations and financial condition.





11.
            RECENTLY
      ISSUED ACCOUNTING STANDARDS




In July 2006, the
Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes,” (“FIN No. 48”), which establishes
guidelines for recognizing, measuring and disclosing uncertainties relating to
tax benefits reflected in an enterprise’s financial statements. FIN No. 48
establishes a “more-likely-than-not” recognition threshold that must be met
before a tax benefit, relative to a tax position in which the enterprise may be
uncertain as to whether it will ultimately be sustained as filed in its tax
return, can be recognized in the financial statements. We were required to apply
the provisions of FIN No. 48 on June 1, 2007. The cumulative effect of adopting
FIN No. 48 resulted in a decrease in retained earnings of approximately
$88.  The total amount of unrecognized tax benefits at June 1, 2007
was $473, which includes unrecognized tax benefits of $88 that, if recognized,
would favorably affect the effective tax rate.  The remaining
unrecognized tax benefits relate to temporary items that would not affect the
annual effective tax rate.  We recognize any interest and penalties
accrued related to unrecognized tax benefits in income tax
expense.  As of June 1, 2007, we had approximately $29 for the payment
of accrued interest recognized in our consolidated balance sheet.  We
do not believe it is reasonably possible that we will have any significant
increases or decreases to the liability for unrecognized tax benefits within the
next twelve months.  We file income tax returns in the U.S. federal
jurisdiction, and in various state and local jurisdictions.  We are no
longer subject to U.S. federal income tax examinations for years prior to fiscal
2003 and we are no longer subject to state and local income tax examinations for
years prior to fiscal 2002.  The adoption of FIN No. 48 resulted in
the reclassification of $38 in deferred taxes, $351 in income taxes payable and
$88 in retained earnings, in aggregate to other long-term
liabilities.





In September
2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
157, "Fair Value Measurements," that defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements.
SFAS No. 157 retains the exchange price notion in defining fair value and
clarifies that the exchange price is the price in an orderly transaction between
market participants to sell the asset or transfer the liability in the market in
which the reporting entity would transact for the asset or
liability.  The definition focuses on the price that would be received
to sell the asset or paid to transfer the liability (an exit price), not the
price that would be paid to acquire the asset or received to assume the
liability (an entry price). SFAS No. 157 expands disclosure about the use of
fair value to measure assets and liabilities in interim and annual periods
subsequent to initial recognition.  The additional disclosure focuses
on the inputs used to measure fair value and the effect of the measurements on
net income for the reporting period.  The fair value measurement and
disclosure provisions of SFAS No. 157 are effective for financial statements
issued for fiscal years beginning after November 15, 2007.  We have
not yet determined the impact of adopting SFAS No. 157 on our results of
operations and financial condition.





In February 2007,
the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities,” which permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS No. 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities.  The measurement and disclosure provisions
of SFAS No. 159 are effective as of the beginning of an entity’s first fiscal
year that begins after November 15, 2007.  We have not yet determined
whether we will elect to adopt the fair value provisions of SFAS No.
159.




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10








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




The following
discussion and analysis should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Quarterly Report on Form 10-Q and other reports filed with the
SEC. Sections of this Form 10-Q including, in particular, our Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
contain “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).  These statements are
based on management’s beliefs and assumptions, current expectations, estimates
and projections.  Statements that are not historical facts, including
without limitation statements which are preceded by, followed by or include the
words “believes,” “anticipates,” “plans,” “expects,” “estimates,” “may,”
“should,” “intends,” or similar expressions, are forward-looking
statements.  These statements are subject to risks and uncertainties,
certain of which are beyond our control, and therefore, actual results may
differ materially.  Important factors that may cause results to
materially differ from these forward-looking statements include, but are not
limited to, the factors indicated from time to time in our reports filed with
the SEC, copies of which are available upon request from our investor relations
group or which may be obtained at the SEC’s website
(www.sec.gov).  Forward-looking statements only speak as of the date
hereof and we do not undertake and expressly disclaim any obligation to update
or release any revisions to any forward-looking statement whether as a result of
new information, future events or otherwise, except as required by
law.





General





Schiff Nutrition
International, Inc.  develops, manufactures, markets and distributes
branded and private label vitamins, nutritional supplements and nutrition bars
in the United States and throughout the world.  We offer a broad range
of capsules, tablets and nutrition bars.  Our portfolio of recognized
brands, including Schiff and Tiger’s Milk®,
is marketed primarily through the mass market (including club) and, to a lesser
extent, health food store distribution channels.





During fiscal
2007 and continuing in fiscal 2008, we continued to provide selling and
marketing support intended both to defend our overall Move Free business against
competition, including private label, and ultimately to increase our market
share in the joint care product category.  The introduction of Move
Free Advanced into substantially all of our significant retail accounts during
the second half of fiscal 2006 was substantially completed in the fiscal 2007
second quarter.  In December 2007, we announced the fiscal 2008 third
quarter introduction of smaller tablets for our existing Move Free items as well
as the launch of a Move Free line extension.  Operating results for
fiscal 2008, as compared to fiscal 2007, are impacted by the shifting of
advertising support from the first half to the second half of fiscal 2008 in
support of these Move Free marketing initiatives.  As a result,
advertising expense for the first half of fiscal 2008 was significantly less
than the amount recognized in the corresponding prior year period, and
advertising expense for the fourth quarter of fiscal 2008 is expected to exceed
the amount recognized in the corresponding period for fiscal
2007.  Also during fiscal 2007 and continuing in fiscal 2008, we are
attempting to increase the distribution of our joint care products in
international markets.  Subject to the impact of our Move Free
Advanced marketing initiatives and competitive joint care product category
pricing pressures, including private label, and the success of increasing
distribution in international markets, we believe fiscal 2008 net sales will be
relatively constant, as compared to fiscal 2007 net sales.  We believe
the impact of incremental sales volume in fiscal 2008 for our existing business
may primarily be offset by incremental price-discounting promotional
activity.





Our operating
results for fiscal 2007 were impacted by profit margin volatility due to several
factors, including significant raw material pricing fluctuations, particularly
in the joint care product category, and a strong competitive
environment.  During fiscal 2006, joint care product category raw
material prices, which increased significantly during fiscal 2005, returned to
pre-fiscal 2005 levels.  However, our gross profit percentage for
fiscal 2007 was impacted by previous raw material purchase
commitments.





Our operating
results for fiscal 2008 were and will be impacted by the declaration of a
special cash dividend in July 2007.  In connection with the
declaration of the special dividend, our Board of Directors approved certain
dividend equivalent rights allowing holders (employees and directors) of certain
equity awards, including stock options and restricted stock units, to receive
cash dividends on each share of common stock underlying the stock options and
restricted stock units.  As a result, we recognized a non-cash
compensation expense, and a corresponding increase in additional paid-in
capital, of approximately $0.6 million and $4.2 million, respectively, during
the three and nine month periods ended February 29, 2008.  Subject to
future vesting of these equity awards, additional compensation expense,
including approximately $0.6 million during the fiscal 2008 fourth quarter,
together with a corresponding increase in additional paid-in capital will
subsequently be recognized.





Factors affecting
our historical results, including the previous implementation of strategic
initiatives as well as continuing refinement of our growth and business
strategies, are ongoing considerations and processes.  While the focus
of these considerations is to improve future profitability, we cannot assure you
that our decisions relating to these initiatives will not adversely impact our
results of operations and financial condition.




Our principal
executive offices are located at 2002 South 5070 West, Salt Lake City, Utah
84104, and our telephone number is (801) 975-5000.




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11






Resultsof Operations (unaudited)


Three
Months Ended February 29, 2008 Compared to Three Months


Ended
February 28, 2007





The following
tables show comparative results for selected items as reported and as a
percentage of net sales for the three months ended (dollars in
thousands):





February
      29,2008
            
            
            February
      28,2007Net
      sales
            
            $
            46,208
            
            
            
            100.0
            %
            
            $
            44,999
            
            
            
            100.0
            %Cost of
      goods sold
            
            
            25,794
            
            
            
            55.8
            
            
            
            28,570
            
            
            
            63.5Gross
      profit
            
            
            20,414
            
            
            
            44.2
            
            
            
            16,429
            
            
            
            36.5Operating
      expenses:Selling and
      marketing
            
            
            8,612
            
            
            
            18.6
            
            
            
            8,060
            
            
            
            17.9General and
      administrative
            
            
            4,812
            
            
            
            10.5
            
            
            
            2,985
            
            
            
            6.6Research
      and development
            
            
            847
            
            
            
            1.8
            
            
            
            995
            
            
            
            2.2Reimbursement
      of import costs
            
            
            —
            
            
            
            —
            
            
            
            (96
            )
            
            
            (0.2
            )Total
      operating expenses
            
            
            14,271
            
            
            
            30.9
            
            
            
            11,944
            
            
            
            26.5Income from
      operations
            
            
            6,143
            
            
            
            13.3
            
            
            
            4,485
            
            
            
            10.0Other
      income, net
            
            
            424
            
            
            
            0.9
            
            
            
            716
            
            
            
            1.6Income tax
      expense
            
            
            (2,524
            )
            
            
            (5.5
            )
            
            
            (1,960
            )
            
            
            (4.4
            )Net
      income
            
            $
            4,043
            
            
            
            8.7
            %
            
            $
            3,241
            
            
            
            7.2
            %





Net Sales.Net
sales increased approximately 2.7% to $46.2 million for the fiscal 2008 third
quarter, from $45.0 million for the fiscal 2007 third
quarter.  Overall, the increase in net sales was primarily
attributable to an increase in branded sales, substantially offset by a decrease
in private label sales.





Aggregate branded
net sales increased approximately 8.7% to $37.7 million for the fiscal 2008
third quarter, from $34.6 million for the fiscal 2007 third
quarter.  The increase was primarily due to an increase in sales
volume of approximately $3.6 million, or 7.4%, partially offset by an
increase in aggregate branded sales promotional incentives classified as sales
price reductions.  Classification of promotional costs as a sales
reduction is required when the promotion effectively represents a price
reduction.  The increase in branded sales volume was primarily
attributable to promotional timing considerations and the introduction of new
products.  Move Free net sales were $20.9 million and $22.2 million,
respectively, for the fiscal 2008 and 2007 third quarters. The decrease
primarily resulted from promotional timing considerations.





Private label
sales decreased approximately 17.5% to $8.5 million for the fiscal 2008 third
quarter, from $10.4 million for the fiscal 2007 third quarter, primarily due to
a reduction in customer promotional activity.  Private label sales are
expected to increase in the fiscal 2008 fourth quarter, compared to the fiscal
2007 fourth quarter, resulting from increased promotional activity and
incremental business.





Gross Profit.Gross
profit increased approximately 24.3% to $20.4 million for the fiscal 2008 third
quarter, from $16.4 million for the fiscal 2007 third quarter.  Gross
profit, as a percentage of net sales, increased to 44.2% for the fiscal 2008
third quarter, from 36.5% for the fiscal 2007 third quarter.  The
increase primarily resulted from an approximate $2.7 million decrease in joint
care product raw material costs and a lower mix of lower-margin private label
sales.





Operating
Expenses.Operating expenses increased approximately 19.5% to
$14.3 million for the fiscal 2008 third quarter, from $11.9 million for the
fiscal 2007 third quarter.  Operating expenses, as a percentage of net
sales, were 30.9% and 26.5%, respectively, for the fiscal 2008 and 2007 third
quarters.  The increase in operating expenses resulted primarily from
a significant increase in general and administrative expenses, together with a
moderate increase in selling and marketing expenses.  In addition, the
fiscal 2007 third quarter includes approximately $0.1 million in reimbursement
from certain suppliers of previously recognized import costs.





Selling and
marketing expenses, including sales, marketing, advertising, freight and other
costs, increased moderately to approximately $8.6 million for the fiscal 2008
third quarter, from $8.1 million for the fiscal 2007 third quarter, primarily
due to an increase in promotional and other variable selling expenses resulting
from an increase in branded sales.




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12





General and
administrative expenses increased to approximately $4.8 million for the fiscal
2008 third quarter, from approximately $3.0 million for the fiscal 2007 third
quarter.  The fiscal 2007 third quarter includes litigation related
settlements resulting in the reversal of approximately $0.6 million in
contingent liabilities, and the recognition of approximately $0.6 million in
reimbursement of certain previously paid insurance premiums.  The fiscal
2008 third quarter includes the recognition of approximately $0.5 million in
incremental compensation expense for the special dividend.  The
special dividend compensation expense represents a non-cash charge for dividend
equivalent rights received by holders (employees and directors) of certain
equity awards, including stock options and restricted stock
units.  Subject to future vesting of these equity awards, additional
compensation expense of approximately $0.5 million will be recognized in the
fiscal 2008 fourth quarter.





Research and
development costs decreased to approximately $0.8 million for the fiscal 2008
third quarter, from $1.0 million for the fiscal 2007 third quarter, primarily
due to the timing of clinical research related to new product
activity.





Other
Income/Expense.Other income, net, was $0.4 million for the
fiscal 2008 third quarter, compared to $0.7 million for the fiscal 2007 third
quarter.  The decrease was primarily due to a reduction in interest
income resulting from a decrease in cash and available-for-sale securities
reflecting the impact of the special dividend, which was funded from cash and
liquidation of available-for-sale securities. Interest income in future quarters
will reflect lower yields on investments due to our decision to invest in
lower-risk securities.





Provision for Income
Taxes.Provision for income taxes was $2.5 million for the
fiscal 2008 third quarter, compared to $2.0 million for the fiscal 2007 third
quarter.  The increase resulted from an increase in pre-tax income and
a moderate increase in our effective tax rate primarily due to an increase in
certain non-deductible officer compensation resulting from the special dividend
and a decrease in tax-exempt interest income.  The fiscal 2008 third
quarter tax rate was 38.4%, compared to the fiscal 2007 third quarter tax rate
of 37.7%.





Resultsof Operations (unaudited)


Nine
Months Ended February 29, 2008 Compared to Nine Months


Ended
February 28, 2007





The following
tables show comparative results for selected items as reported and as a
percentage of net sales for the nine months ended (dollars in
thousands):





February
      29,2008
            
            
            February
      28,2007Net
      sales
            
            $
            126,470
            
            
            
            100.0
            %
            
            $
            129,468
            
            
            
            100.0
            %Cost of
      goods sold
            
            
            73,074
            
            
            
            57.8
            
            
            
            79,746
            
            
            
            61.6Gross
      profit
            
            
            53,396
            
            
            
            42.2
            
            
            
            49,722
            
            
            
            38.4Operating
      expenses:Selling and
      marketing
            
            
            22,104
            
            
            
            17.4
            
            
            
            25,138
            
            
            
            19.4General and
      administrative
            
            
            16,052
            
            
            
            12.7
            
            
            
            10,839
            
            
            
            8.4Research
      and development
            
            
            3,149
            
            
            
            2.5
            
            
            
            2,675
            
            
            
            2.0Reimbursement
      of import costs
            
            
            (31
            )
            
            
            —
            
            
            
            (394
            )
            
            
            (0.3
            )Total
      operating expenses
            
            
            41,274
            
            
            
            32.6
            
            
            
            38,258
            
            
            
            29.5Income from
      operations
            
            
            12,122
            
            
            
            9.6
            
            
            
            11,464
            
            
            
            8.9Other
      income, net
            
            
            1,623
            
            
            
            1.3
            
            
            
            2,129
            
            
            
            1.6Income tax
      expense
            
            
            (5,251
            )
            
            
            (4.2
            )
            
            
            (4,840
            )
            
            
            (3.7
            )Net
      income
            
            $
            8,494
            
            
            
            6.7
            %
            
            $
            8,753
            
            
            
            6.8
            %





Net Sales.Net
sales decreased approximately 2.3% to $126.5 million for the nine months ended
February 29, 2008, from $129.5 million for the nine months ended February 28,
2007, primarily due to a decrease in private label net sales.





Aggregate branded
net sales remained relatively constant at $102.1 million and $101.4 million,
respectively, for the nine months ended February 29, 2008 and February 28,
2007.  An approximate $4.9 million, or 3.6% increase in sales volume,
and an approximate $1.0 million reduction in estimated sales returns, were
substantially offset by an approximate $5.2 million increase in promotional
incentives classified as sales price reductions.  Classification of
promotional costs as a sales reduction is required when the promotion
effectively represents a price reduction.  Move Free net sales were
$60.6 million and $63.8 million, respectively, for the nine months ended
February 29, 2008 and February 28, 2007. The decrease primarily resulted from
incremental promotional activity due to competitive joint care product category
pricing pressures.





Private label
sales decreased approximately 13.3% to $24.4 million for the nine months ended
February 29, 2008, from $28.1 million for the nine months ended February 28,
2007, primarily due to a reduction in customer promotional
activity.  Private label sales are expected to increase in the fiscal
2008 fourth quarter resulting from increased promotional activity and
incremental business.




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13




Gross Profit.Gross
profit increased approximately 7.4% to $53.4 million for the nine months ended
February 29, 2008, from $49.7 million for the nine months ended February 28,
2007.  Gross profit, as a percentage of net sales, increased to 42.2%
for the nine months ended February 29, 2008, from 38.4% for the nine months
ended February 28, 2007, primarily due to an approximate $7.3 million decrease
in joint care product raw material costs, an approximate $0.9 million decrease
in sales returns and a lower mix of lower-margin private label sales, partially
offset by an approximate $5.2 million increase in promotional
incentives.




Operating
Expenses.Operating expenses increased approximately 7.9% to
$41.3 million for the nine months ended February 29, 2008, from $38.3 million
for the nine months ended February 28, 2007.  Operating expenses, as a
percentage of net sales, were 32.6% and 29.5%, respectively, for the nine months
ended February 29, 2008 and February 28, 2007.  The increase in
operating expenses resulted primarily from a substantial increase in general and
administrative expenses and a moderate increase in research and development
costs, substantially offset by a decrease in selling and marketing
expenses.  In addition, the nine months ended February 28, 2007
includes approximately $0.4 million in reimbursement from certain suppliers of
previously recognized import costs.





Selling and
marketing expenses, including sales, marketing, advertising, freight and other
costs, decreased to approximately $22.1 million for the nine months ended
February 29, 2008, from $25.1 million for the nine months ended February 28,
2007, primarily due to a $3.4 million reduction in advertising
costs.  The decrease in advertising costs primarily results from a
decision to shift certain television advertising to the latter part of fiscal
2008 to coincide with the introduction of the Move Free smaller tablet and
a line extension.  Advertising expense for the fourth quarter of
fiscal 2008 is expected to exceed the amount recognized in the corresponding
prior year period.





General and
administrative expenses increased to approximately $16.1 million for the nine
months ended February 29, 2008, from approximately $10.8 million for the nine
months ended February 28, 2007, primarily due to the fiscal 2008 recognition of
approximately $3.9 million in incremental compensation expense for the special
dividend, together with the favorable impact of certain unusual items in the
comparable prior year period.  The special dividend compensation
expense represents a non-cash charge for dividend equivalent rights received by
holders (employees and directors) of certain equity awards, including stock
options and restricted stock units.  Unusual items recognized during
the nine months ended February 28, 2007 include litigation related settlements
resulting in the reversal of approximately $0.6 million in contingent
liabilities and the recognition of approximately $1.0 million in reimbursements
of certain previously paid insurance premiums.





Research and
development costs increased to approximately $3.1 million for the nine months
ended February 29, 2008, from $2.7 million for the nine months ended February
28, 2007, primarily due to an increase in personnel related costs, expenses
associated with product research, and product testing related to the
registration of products in international markets.





Other
Income/Expense.Other income, net, was $1.6 million for the
nine months ended February 29, 2008, compared to $2.1 million for the nine
months ended February 28, 2007.  The decrease was primarily due to a
reduction in interest income resulting from a decrease in cash and
available-for-sale securities reflecting the impact of the special dividend,
which was funded from cash and liquidation of available-for-sale securities.
Interest income in future quarters will reflect lower yields on investments due
to our decision to invest in lower-risk securities.





Provision for Income
Taxes.Provision for income taxes was $5.3 million for the
nine months ended February 29, 2008, compared to $4.8 million for the nine
months ended February 28, 2007.  The effective tax rate was 38.2% and
35.6%, respectively, for the nine months ended February 29, 2008 and February
28, 2007.  The increase in our effective tax rate was primarily due to
an increase in certain non-deductible officer compensation resulting from the
special dividend and a decrease in tax-exempt interest income.





Liquidityand Capital Resources





Working capital
decreased approximately $30.2 million to $74.7 million at February 29, 2008,
from $104.9 million at May 31, 2007, primarily due to a decrease of
approximately $37.1 million in cash and available-for-sale securities due to the
fiscal 2008 first quarter payment or accrual of the special
dividend.  Inventories increased approximately $7.7 million, which
reflects an increase in finished goods for anticipated shipments of new
products, including private label, as well as a decision to build up quantities
of certain other inventory components.  Current liabilities increased
approximately $0.9 million primarily due to an increase in accounts payable,
resulting from increased inventories, and dividends payable on non-vested stock
options and restricted stock units, substantially offset by a decrease in income
taxes payable.




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14






As a result of
current negative liquidity and uncertainty in financial credit markets, we
elected to liquidate our investments in ARS and other variable rate debt
securities.  Proceeds from the sale of these available-for-sale
securities were invested in money market accounts, certificates of deposits,
United States Treasury Bills with maturities of three months or less, and
high-quality commercial paper, all of which are reflected in cash and cash
equivalents.  At February 29, 2008, we held approximately $10.3
million in available-for-sale securities; consisting of approximately $5.4
million in ARS, other variable rate debt securities and commercial
paper.  Subsequent to February 29, 2008, we liquidated $3.3 million of
ARS.  The remaining $2.1 million in ARS consist primarily of fully
insured, AAA rated municipal or state agency issued
securities.  Although we have experienced at least one failed auction
with each of our remaining ARS, and will therefore not be able to access our
funds invested in these ARS until future auctions of these investments are
successful, or the securities are called by the issuer; we believe we will be
able to successfully liquidate these investments in a reasonable period of
time.  However, we believe the unsuccessful liquidation of some, or
all, of these securities over the next twelve months will not significantly
impact our current liquidity needs.





On June 30, 2004,
we entered into, through our wholly-owned direct operating subsidiary Schiff
Nutrition Group, Inc.  (“SNG”), a $25.0 million revolving credit
facility (the “Credit Facility”) with KeyBank National Association, as
Agent.  In August 2006, we extended the maturity of the Credit
Facility from June 30, 2007 to June 30, 2009.  The Credit Facility
contains customary terms and conditions, including, among others, financial
covenants that may limit our ability to pay dividends on our common stock and
certain other restrictions.  Our obligations under the Credit Facility
are secured by a first priority security interest on all of the capital stock of
SNG.  If our total coverage ratio exceeds a certain limit, our
obligations will also be secured by a first priority security interest in all of
our domestic assets.  In the event we exceed certain other ratio
limits, we will be subject to a borrowing base and will be able to borrow up to
a lesser of $25.0 million or the sum of (i) 85% of eligible accounts receivable
and (ii) 65% of eligible inventory.  Borrowings under the Credit
Facility bear interest at floating rates based on the KeyBank National
Association prime rate or the Federal Funds effective rate.  The
Credit Facility can be used to fund our normal working capital and capital
expenditure requirements, with availability to fund certain permitted strategic
transactions.  At February 29, 2008, there were no amounts outstanding
and $25.0 million was available for borrowing under the Credit
Facility.





In July 2007, our
Board of Directors approved a $1.50 per share special cash dividend, which was
paid on August 13, 2007 to shareholders of record of Class A and Class B common
stock at the close of business on July 31, 2007.  In connection with
the declaration of the special dividend, our Board of Directors approved certain
dividend equivalent rights, allowing holders (employees and directors) of
certain equity awards, including stock options and restricted stock units, to
receive cash dividends on each share of common stock underlying the stock
options and restricted stock units.  In aggregate, at July 31, 2007,
the record date, the Company had outstanding approximately 29.9 million shares
of common stock (including shares of common stock underlying equity awards
subject to dividend equivalent rights), including approximately 26.6 million
shares of outstanding Class A and Class B common stock, approximately 1.8
million shares of Class A common stock underlying outstanding stock options, and
approximately 1.5 million shares of Class A common stock underlying outstanding
restricted stock units.  The aggregate amount of the special dividend
was approximately $44.9 million, presuming 100% vesting of shares underlying
equity awards; $22.4 million for holders of Class A common stock, including $4.9
million for Class A common stock underlying certain other equity awards, and
$22.5 million for the holder of Class B common stock.  Approximately
55% of the stock options and restricted stock units had vested as of February
29, 2008.  To the extent these equity awards were unvested at February
29, 2008, the $1.50 per share dividend was not, and will not be, distributed
until after such equity awards become vested.





The special
dividend was funded from cash and liquidation of available-for-sale
securities.  Approximately $42.6 million of the distribution occurred
in August 2007, and the remaining amount has been or will be distributed, if at
all, upon vesting of the stock options and upon issuance of the shares
underlying restricted stock units.





We believe that
our cash and cash equivalents, cash flows from operations and the financing
sources discussed above will be sufficient to meet our normal cash operating
requirements during the next twelve months.  However, we continue to
review opportunities to acquire or invest in companies, product rights and other
investments that are compatible with or complimentary to our existing
business.  We could use cash and financing sources discussed herein,
or financing sources that subsequently become available, to fund acquisitions or
investments.  In addition, we may consider issuing additional debt or
equity securities in the future to fund potential acquisitions or growth, or to
refinance existing debt.  If a material acquisition, divestiture or
investment is completed, our operating results and financial condition could
change materially in future periods.  However, no assurance can be
given that additional funds will be available on satisfactory terms, or at all,
to fund such activities.





Our Board of
Directors will determine dividend policy in the future based upon, among other
factors, results of operations, financial condition, contractual restrictions
and other factors deemed relevant at the time.  In addition, our
Credit Facility contains certain customary financial covenants that may limit
our ability to pay dividends on our common stock.  We can give no
assurance that we will pay dividends in the future.





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15







A summary of our
outstanding contractual obligations at February 29, 2008 is as follows (in
thousands):





Contractual
      Cash Obligations
            
            Total
      Amounts Committed
            
            
            Less
      than
              1
      Year
            
            
            1-3
              Years
            
            
            3-5
              Years
            
            
            More
      than
              5
      YearsOperating
      leases
            
            $
            11,984
            
            
            $
            2,491
            
            
            $
            4,678
            
            
            $
            4,622
            
            
            $
            193Purchase
      obligations(1)
            
            
            6,252
            
            
            
            6,252
            
            
            
            —
            
            
            
            —
            
            
            
            —Debt
      obligations
            
            
            197
            
            
            
            197
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      obligations
            
            $
            18,433
            
            
            $
            8,940
            
            
            $
            4,678
            
            
            $
            4,622
            
            
            $
            193





(1)
            Purchase
      obligations consist primarily of open purchase orders for goods and
      services, including primarily raw materials, packaging and outsourced
      contract manufacturing commitments.





CriticalAccounting Policies and Estimates





In preparing our
condensed consolidated financial statements, we make assumptions, estimates and
judgments that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the condensed
consolidated financial statements and the reported amounts of net sales and
expenses during the reported periods.  We periodically evaluate our
estimates and judgments related to the valuation of inventories and intangible
assets, allowances for doubtful accounts, notes receivable, sales returns and
discounts, uncertainties related to certain tax benefits, valuation of deferred
tax assets, valuation of share-based payments and recoverability of long-lived
assets.  Note 1 of Notes to the Consolidated Financial Statements
contained in our Annual Report on Form 10-K for the year ended May 31, 2007,
filed with the SEC, describes the accounting policies governing each of these
matters.  Our estimates are based on historical experience and on our
future expectations that are believed to be reasonable.  The
combination of these factors forms the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from our current estimates
and those differences may be material.





We believe the
following accounting policies affect some of our more significant estimates and
judgments used in preparation of our condensed consolidated financial
statements:





·
            We provide
      for inventory valuation adjustments for estimated obsolescence or
      unmarketable inventory equal to the difference between the cost of
      inventory and the estimated market value based upon assumptions about
      future demand, market conditions and/or liquidation value.  For
      the nine months ended February 29, 2008 and February 28, 2007, inventory
      valuation adjustments resulted in a decrease in our gross profit and
      operating income of approximately $0.8 million and $0.9 million,
      respectively.  If actual demand and/or market conditions are
      less favorable than those projected by management, additional inventory
      write-downs would be required.





·
            We maintain
      allowances for doubtful accounts, sales returns and discounts for
      estimated losses resulting from customer exposures, including among
      others, product returns, inability to make payments and expected
      utilization of offered discounts.  Changes in our allowances for
      doubtful accounts, sales returns and discounts resulted in an increase in
      our gross profit and operating income of approximately $0.4 million and
      $0.7 million, respectively, for the nine months ended February 29, 2008
      and February 28, 2007.  At February 29, 2008 and May 31, 2007,
      our allowances for doubtful accounts, sales returns and discounts amounted
      to approximately $1.7 million and $2.2 million,
      respectively.  Actual results may differ from our current
      estimates, resulting in adjustment of the respective
      allowance(s).





·
            We
      recognize tax benefits relative to certain tax positions in which we may
      be uncertain as to whether that tax position will ultimately be sustained
      as filed in our tax return.  The recognition or derecognition of
      these tax benefits is subject to periodic evaluation of the sustainability
      of the tax position based upon changes in facts, circumstances or
      available information.  Changes in the recognition of these tax
      benefits did not significantly impact net income for the nine months ended
      February 29, 2008 and February 28,
2007.





·
            We
      currently have deferred tax assets resulting from temporary differences
      between financial and income tax reporting.  These deferred tax
      assets are subject to periodic recoverability assessments.  The
      realization of these deferred tax assets is primarily dependent on future
      operating results.  Changes in these valuation allowances did
      not significantly impact net income for the nine months ended February 29,
      2008 and February 28, 2007.  At February 29, 2008 and May 31,
      2007, deferred tax asset valuation allowances were
  nil.





·
            We
      recognize compensation expense for certain performance based equity
      instrument awards (share-based payments) over the performance period based
      on a periodic assessment of the probability that the performance criteria
      will be achieved.  Our periodic assessment of the probability
      that the performance criteria will be achieved considers such factors as
      historical financial results and future financial expectations, including
      an analysis of sales trends and operating margins; as well as changes in
      the nutritional supplements industry and competitive
      environment.  For the nine months ended February 29, 2008 and
      February 28, 2007, we recognized compensation expense related to these
      awards of approximately $2.5 million and $2.6 million,
      respectively.  At February 29, 2008, total unrecognized
      compensation expense, based on our assessment of the probability that the
      performance criteria will be achieved, was approximately $0.8
      million.




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16





·
            We have
      certain intangible assets, primarily consisting of goodwill, which are
      tested for impairment at least annually.  The determination of
      whether or not goodwill is impaired involves significant
      judgment.  Changes in strategy or market conditions could
      significantly impact our judgment and require adjustment to the recorded
      goodwill balance.





Impactof Inflation





Inflation affects
the cost of raw materials, goods and services we use.  In recent
years, inflation has been modest.  We seek to mitigate the adverse
effects of inflation primarily through improved productivity, strategic buying
initiatives, and cost containment programs.  However, the nutritional
supplement industry competitive environment limits our ability to recover higher
costs resulting from inflation by raising prices.  See further
discussion of raw material pricing matters in the “General” and “Results of
Operations” sections above.





Seasonality





Our business is
not inherently seasonal; however, we experience fluctuations in sales resulting
from timing of marketing and promotional activities, customer buying patterns
and consumer spending patterns.  In addition, as a result of changes
in product sales mix, competitive conditions, raw material pricing pressures and
other factors, as discussed above, we experience fluctuations in gross profit
and operating margins on a quarter-to-quarter basis.







ITEM 3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




The following
discussion involves forward-looking statements of market risk which assume that
certain adverse market conditions may occur.  Actual future market
conditions may differ materially from such assumptions.  Accordingly,
the forward-looking statements should not be considered our projections of
future events or losses.





Our cash flows
and net earnings may be subject to fluctuations resulting from changes in
interest rates.  Our current policy does not allow speculation in
derivative instruments for profit or execution of derivative instrument
contracts for which there is no underlying exposure.  We do not use
financial instruments for trading purposes.  We measure market risk,
related to our holdings of financial instruments, based on changes in interest
rates utilizing a sensitivity analysis.  Our Credit Facility, under
which borrowings bear interest at floating rates, had no amounts outstanding at
February 29, 2008.  Interest income earned on our short-term
investments is impacted by changes in interest rate.  We do not
believe that a hypothetical 10% change in interest rates would have a material
effect on our pretax earnings or cash flows.





ITEM 4T.
            CONTROLS
      AND PROCEDURES




We maintain
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required
disclosure.  In designing and evaluating the disclosure controls and
procedures, we recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and we are required to apply our judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.





As required by
Exchange Act Rule 13a-15(b), we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the fiscal
quarter covered by this report.  Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures were effective.





There has been no
change in our internal controls over financial reporting during our most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.





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17
 PART II. OTHER INFORMATION





ITEM 1.
            LEGAL
      PROCEEDINGS




The information
set forth in Note 10 to the Notes to Condensed Consolidated Financial
Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q is
incorporated herein by reference.





ITEM 1A.
            RISK
      FACTORS




There have been
no material changes to the risk factors previously disclosed by us in Part I,
Item 1A of our Annual Report on Form 10-K for the year ended May 31,
2007.





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




Our Credit
Facility contains certain customary financial covenants that may limit our
ability to pay dividends on our common stock.





ITEM 3.
            DEFAULTS
      UPON SENIOR SECURITIES




None.





ITEM 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




None.





ITEM 5.
            OTHER
      INFORMATION




Not
applicable.





ITEM 6.
            EXHIBITS




3.1.
            Amended and
      Restated Certificate of Incorporation of Schiff Nutrition International,
      Inc.  (1)3.2.
            Amended and
      Restated Bylaws of Weider Nutrition International,
      Inc.  (2)4.1.
            Revolving
      Credit Agreement dated as of June 30, 2004 between Weider Nutrition Group,
      Inc.  and KeyBank National
      Association.  (3)4.2.
            Form of
      specimen Class A common stock
  certificate.  (4)10.1.
            Form of Indemnification Agreement (5)31.1.
            Certification of Chief Executive Officer pursuant
      to Section 302 of the Sarbanes-Oxley
    Act.  (6)31.2.
            Certification of Chief Financial Officer pursuant
      to Section 302 of the Sarbanes-Oxley
    Act.  (6)32.1.
            Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act.  (7)









1.
              Previously
      field in the Company’s Quarterly Report on Form 10-Q filed on January 17,
      2006 and incorporated herein by reference.2.
              Previously
      filed in the Company's Registration Statement on Form S-1 (File
      No.  333-12929) and incorporated herein by
      reference.3.
              Previously
      filed in the Company's Current Report on Form 8-K filed on July 8, 2004
      and incorporated herein by reference.4.
              Previously
      filed in the Company’s Annual Report on Form 10-K filed on August 29, 2006
      and incorporated herein by reference.5.
              Previously filed in the Company's Current Report on Form 8-K filed on
      August 10, 2005 and incorporated herein by reference.6.
              Filed
      herewith.7.
              Furnished
      herewith.


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18
 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.








SCHIFF
NUTRITION INTERNATIONAL, INC.





Date: April
      3, 2008
            By:
            /s/ Bruce
      J.  WoodBruce
      J.  WoodPresident,
      Chief Executive Officer and
Director








Date: April
      3, 2008
            By:
            /s/ Joseph
      W.  BatyJoseph
      W.  BatyExecutive
      Vice President and Chief Financial
Officer









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19





Schiff Nutrition International, Inc.


Index





PART I. FINANCIAL INFORMATION
 
 ITEM 1.
              FINANCIAL
STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (3
months)
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (9
months)
 CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
 1.
              BASIS OF PRESENTATION AND OTHER
  MATTERS
 2.
              AVAILABLE-FOR-SALE
SECURITIES
 3.
              RECEIVABLES, NET
 4.
              INVENTORIES
 5.
              GOODWILL AND INTANGIBLE ASSETS,
  NET
 6.
              ACCRUED EXPENSES
 7.
              CAPITAL STRUCTURE
 8.
              EARNINGS PER SHARE
 9.
              CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS AND
      PRODUCTS
 10.
              COMMITMENTS AND
CONTINGENCIES
 11.
              RECENTLY ISSUED ACCOUNTING
  STANDARDS
 
 ITEM 2.
              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
 
 -
              General
 -
              Results of Operations (unaudited) (3
      months)
 -
              Results of Operations (unaudited) (9months)
 -
              Liquidity and Capital
  Resources
 -
              Critical Accounting Policies and
      Estimates
 -
              Impact of
Inflation
 -
              Seasonality
 
 ITEM 3.
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
 ITEM 4.
              CONTROLS AND
PROCEDURES
 ITEM 4T.
              CONTROLS AND
PROCEDURES
 
 PART II. OTHER INFORMATION
 
 ITEM 1.
              LEGAL PROCEEDINGS
 ITEM 1A.
              RISK FACTORS
 ITEM 2.
              UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
 ITEM 3.
              DEFAULTS UPON SENIOR
  SECURITIES
 ITEM 4.
              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
 ITEM 5.
              OTHER INFORMATION
 ITEM 6.
              EXHIBITS
 
 SIGNATURES
 
 Exhibit 31.1
              Certification of CEO pursuant to Section 302 of the
      Sarbanes-Oxley Act
 Exhibit 31.2
              Certification of CFO pursuant to Section 302 of the
      Sarbanes-Oxley Act
 Exhibit 32.1
              CEO and CFO Certifications pursuant to Section 906
      of the Sarbanes-Oxley Act