HERE





UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





ý
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended November 30, 2009 ̈
            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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).  Yes q  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                                                                                                                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 January 7, 2010, the registrant had outstanding 12,851,423 shares of
Class A common stock and 14,973,148 shares of Class B common stock.




Schiff Nutrition International, Inc.
 Index
 
 PART I. FINANCIAL INFORMATION
  ITEM 1.
              FINANCIAL
STATEMENTS
 CONDENSED CONSOLIDATED BALANCE SHEETS
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME(3
months) and (6 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.
              ACCRUED EXPENSES
 6.
              CAPITAL STRUCTURE
 7.
              EARNINGS PER SHARE
 8.
              CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS AND
      PRODUCTS
 9.
              COMMITMENTS AND
CONTINGENCIES
 10.
              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) and (6
    months)
 -
              Liquidity and Capital
  Resources
 -
              Critical Accounting Policies and
      Estimates
 -
              Impact of
Inflation
 -
              Seasonality
 
 ITEM 3.
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
 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








PART
I.  FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS





SCHIFF NUTRITION
INTERNATIONAL, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share data)


(unaudited)


November
      30, 2009
            
            
            May
      31,
              2009ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            46,533
            
            
            $
            52,648Available-for-sale
      securities
            
            
            7,970
            
            
            
            4,241Receivables,
      net
            
            
            23,995
            
            
            
            20,716Inventories
            
            
            32,516
            
            
            
            30,024Prepaid
      expenses and other
            
            
            2,030
            
            
            
            1,434Deferred
      taxes, net
            
            
            1,957
            
            
            
            2,186Total
      current assets
            
            
            115,001
            
            
            
            111,249Property
      and equipment, net
            
            
            14,146
            
            
            
            13,920Other
      assets:Goodwill
            
            
            4,346
            
            
            
            4,346Available-for-sale
      securities
            
            
            1,182
            
            
            
            621Other
      assets
            
            
            534
            
            
            
            61Deferred
      taxes, net
            
            
            143
            
            
            
            —Total
      other assets
            
            
            6,205
            
            
            
            5,028Total
      assets
            
            $
            135,352
            
            
            $
            130,197LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            14,477
            
            
            $
            9,553Accrued
      expenses
            
            
            11,324
            
            
            
            9,481Dividends
      payable
            
            
            54
            
            
            
            —Income
      taxes payable
            
            
            242
            
            
            
            —Total
      current liabilities
            
            
            26,097
            
            
            
            19,034Long-term
      liabilities:Dividends
      payable
            
            
            1,497
            
            
            
            1,022Deferred
      taxes, net
            
            
            —
            
            
            
            245Other
            
            
            1,573
            
            
            
            203Total
      long-term liabilities
            
            
            3,070
            
            
            
            1,470Commitments
      and contingenciesStockholders'
      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-12,851,423 and
12,660,932
            
            
            128
            
            
            
            126Class
      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
            
            
            90,488
            
            
            
            89,367Accumulated
      other comprehensive loss
            
            
            (77
            )
            
            
            (106
            )Retained
      earnings
            
            
            15,496
            
            
            
            20,156Total
      stockholders' equity
            
            
            106,185
            
            
            
            109,693Total
      liabilities and stockholders' equity
            
            $
            135,352
            
            
            $
            130,197





See
notes to condensed consolidated financial statements.


Back to index


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





Three
      Months EndedNovember
      30,2009
            
            
            2008Net
      sales
            
            $
            53,754
            
            
            $
            47,293Cost
      of goods sold
            
            
            29,519
            
            
            
            29,690Gross
      profit
            
            
            24,235
            
            
            
            17,603Operating
      expenses:Selling
      and marketing
            
            
            8,825
            
            
            
            8,412General
      and administrative
            
            
            4,852
            
            
            
            3,610Research
      and development
            
            
            1,088
            
            
            
            1,119Total
      operating expenses
            
            
            14,765
            
            
            
            13,141Income
      from operations
            
            
            9,470
            
            
            
            4,462Other
      income (expense):Interest
      income
            
            
            37
            
            
            
            300Interest
      expense
            
            
            (110
            )
            
            
            (38
            )Other,
      net
            
            
            (8
            )
            
            
            (2
            )Total
      other income (expense), net
            
            
            (81
            )
            
            
            260Income
      before income taxes
            
            
            9,389
            
            
            
            4,722Income
      tax expense
            
            
            3,506
            
            
            
            1,810Net
      income
            
            $
            5,883
            
            
            $
            2,912Weighted
      average shares outstanding:Basic
            
            
            28,340,648
            
            
            
            27,275,080Diluted
            
            
            28,838,371
            
            
            
            28,629,174Net
      income per share:Basic
            
            $
            0.21
            
            
            $
            0.11Diluted
            
            $
            0.20
            
            
            $
            0.10Comprehensive
      income
            
            $
            5,894
            
            
            $
            2,912













See
notes to condensed consolidated financial statements.


Back to
index


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





Six
      Months EndedNovember
      30,2009
            
            
            2008Net
      sales
            
            $
            102,319
            
            
            $
            95,083Cost
      of goods sold
            
            
            58,922
            
            
            
            59,602Gross
      profit
            
            
            43,397
            
            
            
            35,481Operating
      expenses:Selling
      and marketing
            
            
            15,459
            
            
            
            16,545General
      and administrative
            
            
            9,110
            
            
            
            7,348Research
      and development
            
            
            2,332
            
            
            
            2,107Total
      operating expenses
            
            
            26,901
            
            
            
            26,000Income
      from operations
            
            
            16,496
            
            
            
            9,481Other
      income (expense):Interest
      income
            
            
            106
            
            
            
            607Interest
      expense
            
            
            (138
            )
            
            
            (64
            )Other,
      net
            
            
            (13
            )
            
            
            (4
            )Total
      other income (expense), net
            
            
            (45
            )
            
            
            539Income
      before income taxes
            
            
            16,451
            
            
            
            10,020Income
      tax expense
            
            
            6,177
            
            
            
            3,859Net
      income
            
            $
            10,274
            
            
            $
            6,161Weighted
      average shares outstanding:Basic
            
            
            28,278,196
            
            
            
            27,242,692Diluted
            
            
            28,785,375
            
            
            
            28,648,900Net
      income per share:Basic
            
            $
            0.36
            
            
            $
            0.23Diluted
            
            $
            0.36
            
            
            $
            0.22Comprehensive
      income
            
            $
            10,303
            
            
            $
            6,161










See
notes to condensed consolidated financial statements.


Back to
index


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




Six
      Months Ended November 30,2009
            
            
            2008Cash
      flows from operating activities:Net
      income
            
            $
            10,274
            
            
            $
            6,161Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Deferred
      taxes
            
            
            (179
            )
            
            
            (576
            )Depreciation
      and amortization
            
            
            1,496
            
            
            
            1,580Amortization
      of financing fees
            
            
            57
            
            
            
            8Stock-based
      compensation
            
            
            866
            
            
            
            214Excess
      tax benefit from equity instruments
            
            
            (545
            )
            
            
            (470
            )Other
            
            
            14
            
            
            
            7Changes
      in operating assets and liabilities:Receivables
            
            
            (3,279
            )
            
            
            (540
            )Inventories
            
            
            (2,492
            )
            
            
            (12,524
            )Prepaid
      expenses and other
            
            
            (596
            )
            
            
            (315
            )Accounts
      payable
            
            
            4,519
            
            
            
            3,088Other
      current liabilities
            
            
            2,630
            
            
            
            1,295Other
      long-term liabilities
            
            
            931
            
            
            
            22Net
      cash provided by (used in) operating activities
            
            
            13,696
            
            
            
            (2,050
            )Cash
      flows from investing activities:Purchase
      of property and equipment
            
            
            (1,332
            )
            
            
            (1,082
            )Purchase
      of available-for-sale securities
            
            
            (9,040
            )
            
            
            (673
            )Proceeds
      from sale of available-for-sale securities
            
            
            4,799
            
            
            
            3,300Net
      cash provided by (used in) investing activities
            
            
            (5,573
            )
            
            
            1,545Cash
      flows from financing activities:Proceeds
      from stock options exercised
            
            
            162
            
            
            
            270Purchase
      and retirement of common stock
            
            
            (10
            )
            
            
            (1,380
            )Excess
      tax benefit from equity instruments
            
            
            545
            
            
            
            470Dividends
      paid
            
            
            (14,405
            )
            
            
            (1,017
            )Proceeds
      from debt
            
            
            —
            
            
            
            1,338Payments
      on debt
            
            
            —
            
            
            
            (569
            )Payment
      for debt issue costs
            
            
            (530
            )
            
            
            —Net
      cash used in financing activities
            
            
            (14,238
            )
            
            
            (888
            )Effect
      of exchange rate changes on cash
            
            
            —
            
            
            
            (6
            )Decrease
      in cash and cash equivalents
            
            
            (6,115
            )
            
            
            (1,399
            )Cash
      and cash equivalents, beginning of period
            
            
            52,648
            
            
            
            45,979Cash
      and cash equivalents, end of period
            
            $
            46,533
            
            
            $
            44,580













See
notes to condensed consolidated financial statements.


Back to
index


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, 2009 as
filed with the Securities and Exchange Commission (“SEC”).  The May
31, 2009 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
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 2009, our Board of Directors approved a $0.50 per share special cash
dividend, which was paid on August 28, 2009 to shareholders of record of Class A
and Class B common stock at the close of business on August 14,
2009.  In connection with the declaration of the special dividend, our
Board of Directors approved 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 August 14, 2009, the record date, we had outstanding 29.9 million
shares of common stock (including shares of common stock underlying equity
awards subject to dividend equivalent rights), including 27.6 million shares of
outstanding Class A and Class B common stock, 1.3 million shares of Class A
common stock underlying outstanding stock options, and 1.0 million shares of
Class A common stock underlying outstanding restricted stock
units.  The aggregate amount of the special dividend was approximately
$14,945, presuming 100% vesting of shares underlying equity awards; $7,458 for
holders of Class A common stock, including $1,123 for Class A common stock
underlying equity awards, and $7,487 for the holder of Class B common
stock.  During the fiscal 2010 second quarter, 21,788 shares of
unvested restricted stock and restricted stock units were forfeited resulting in
an $11 decrease in the aggregate amount of the special dividend.





The
special dividend was funded from cash and cash equivalents with $14,405 of the
distribution occurring on August 28, 2009.  With respect to
outstanding stock options, restricted stock and restricted stock units that were
unvested as of August 14, 2009, or for which the issuance of shares underlying
vested restricted stock units has been deferred, the $0.50 per share dividend
will not be distributed until after such equity awards vest or the deferred
shares are issued.





On
December 12, 2008, the Compensation Committee of our Board of Directors,
pursuant to the Company’s 2004 Incentive Award Plan, approved the grant of long
term incentive performance awards (“Performance Awards”) to certain officers and
employees.  The Performance Awards were granted based on a target
award value of $5,525, but will be earned based on the Company’s cumulative
performance against three pre-established financial performance targets over a
performance period commencing October 1, 2008 and ending on May 31, 2011, as
follows: (i) 50% of the award opportunity will be based on cumulative net sales
for the performance period; (ii) 35% of the award opportunity will be based on
cumulative operating income for the performance period; and (iii) 15% of the
award opportunity will be based on cumulative net cash flow for the performance
period; provided, however, that no amount will be earned or payable if
cumulative operating income for the performance period does not meet or exceed a
pre-established threshold amount.  In the event that the cumulative
operating income threshold is met, participants can earn from 17.5% of the
target award value for the Company’s threshold performance against the
cumulative operating income goal (and failure to meet the thresholds for the
other two financial goals) and up to 150% of the target award value for maximum
Company performance against all three financial goals.





The
earned value of the Performance Awards will vest on May 31, 2011 subject to
continued service by the participant(s) through that date.  The vested
portion of the earned value of the Performance Awards will be paid in a
combination of cash and shares of the Company’s Class A common
stock.  Two-thirds of the earned value will be delivered to
participants in cash (subject to any applicable plan limitations, less
applicable taxes), and the remaining balance will be paid in shares, based on
the closing price of the Company’s common stock on the day preceding the date of
the Committee’s certification of the Company’s performance.  No
dividends will be paid or accrued with respect to shares granted in payment of
the Performance Awards until such shares are issued.




Back to index


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





Recognition
of compensation expense and accrual of the corresponding liability related to
the Performance Awards is based on the periodic assessment of the probability
that the performance criteria will be achieved.  Based on our probability
assessment at November 30, 2009, we determined that the total estimated fair
value of the Performance Awards was $3,381.  For the three and six
months ended November 30, 2009, respectively, we recognized $781 and $1,318 in
compensation expense which represents the applicable change in the fair value of
the Performance Awards based on the requisite service completed.  At
November 30, 2009, the total value of the Performance Awards recognized is
$1,318, which is included in other long-term liabilities.  At November
30, 2009, total unrecognized compensation expense, based on the estimated fair
value as determined by our assessment of the probability that the performance
criteria will be achieved, was $2,063.  This amount, which is subject
to change based on the estimated fair value determined at each future reporting
period, is expected to be recognized over the remaining service
period.





Also,
on December 12, 2008, the Compensation Committee of our Board of Directors
granted 240,500 restricted stock units (“Units”) to certain employees not
participating in the Performance Awards program.  Each Unit represents
the right to receive one share of the Company’s Class A common stock upon
vesting.  The aggregate value of the Units at the grant date was
$1,332, which will be expensed over the vesting (service) period.  The
Units cliff vest on May 31, 2011, assuming the holder is still
employed.  Any dividends paid between the grant date and vesting will
be payable to the holder upon vesting of the Units.   For the three
and six months ended November 30, 2009, respectively, we recognized $130 and
$220 in compensation expense.





With
respect to our Condensed Consolidated Statements of Cash Flows, purchase of
property and equipment included in accounts payable at November 30, 2009 and May
31, 2009, respectively, amounted to $458 and $68.  For the six months ended
November 30, 2009 and 2008, respectively, cash interest totaled $81 and $56, tax
payments totaled $3,874 and $2,814 and stock (83,567 and 109,512 shares)
surrendered in exchange for options exercised totaled $514 and
$735.  Also, during the six months ended November 30, 2009, dividends
declared but not paid totaled $529.





2.
            AVAILABLE-FOR-SALE
SECURITIES





Available-for-sale
securities at fair value consist of the following:


November
      30, 2009
            
            
            May
      31,
              2009Certificates
      of deposit
            
            $
            5,462
            
            
            $
            4,241Commercial
      paper
            
            
            500
            
            
            
            —Corporate
      debt securities
            
            
            723
            
            
            
            138Federal,
      state and municipal debt securities
            
            
            2,467
            
            
            
            4839,152
            
            
            
            4,862Less
      long-term portion
            
            
            1,182
            
            
            
            621$
            7,970
            
            
            $
            4,241





Available-for-sale
securities include auction rate securities (“ARS”), long-term variable rate
bonds tied to short-term interest rates that are reset through a “Dutch auction”
process which occurs every 7 to 35 days, and other variable rate debt and equity
securities.  Despite the underlying long-term contractual maturity of
ARS, there generally was a ready liquid market for these securities based on the
interest reset mechanism.  However, as a result of negative liquidity
and uncertainty in financial credit markets, we experienced “failed” auctions
associated with our ARS.  In the case of a failed auction, the ARS
become illiquid long-term bonds (until a future auction is successful, the
security is called prior to the contractual maturity date by the issuer, or the
securities mature) and the rates are reset in accordance with terms in the
prospectus/offering circular.  Total available-for-sale securities at
November 30, 2009 included $670 in debt securities, including $457 in illiquid
ARS, valued below cost which are included in long-term assets.  The
ARS consist of fully insured, state agency issued securities.




Back to index


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


Available-for-sale
securities were measured at fair value, using:


November
      30, 2009
            
            
            May
      31,
              2009Quoted
      prices in active markets for identical assets (Level 1)
            
            $
            8,695
            
            
            $
            4,379Significant
      other observable inputs (Level 2)
            
            
            —
            
            
            
            —Significant
      unobservable inputs (Level 3)
            
            
            457
            
            
            
            483Total
            
            $
            9,152
            
            
            $
            4,862





The
following is a reconciliation of the beginning and ending balances of
available-for-sale securities measured at fair value using significant
unobservable inputs (Level 3):




Six
      Months EndedNovember
      30,2009
            
            2008Beginning
      balance
            
            $
            483
            
            
            $
            1,265Total
      losses (all unrealized and included in other comprehensive
      loss)
            
            
            (26
            )
            
            
            —Ending
      balance
            
            $
            457
            
            
            $
            1,265





Contractual
maturities of debt securities at November 30, 2009 are as follows:





Less
      than one year
            
            $
            2,008One
      to five years
            
            
            512Over
      five years
            
            
            670Total
            
            $
            3,190





At
November 30, 2009, unrealized losses of $77, net of income tax benefits of $53,
were included in accumulated other comprehensive loss in the accompanying
condensed consolidated financial statements.  The amount of unrealized
gains or losses for the three and six months ended November 30, 2009 and 2008
was not significant.





Our
other financial instruments, including primarily cash and cash equivalents,
accounts receivable and accounts payable, when valued using market interest
rates, would not be materially different from the amounts presented in these
condensed consolidated financial statements.





3.
            RECEIVABLES, NET





Receivables,
net, consist of the following:


November
      30, 2009
            
            
            May
      31,
              2009Trade
      accounts
            
            $
            26,002
            
            
            $
            21,341Refundable
      income taxes
            
            
            —
            
            
            
            1,644Other
            
            
            40
            
            
            
            6626,042
            
            
            
            23,051Allowances
      for doubtful accounts, sales returns and discounts
            
            
            (2,047
            )
            
            
            (2,335
            )Total
            
            $
            23,995
            
            
            $
            20,716





Back to
index


8
 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:


November
      30, 2009
            
            
            May
      31,
              2009Raw
      materials
            
            $
            14,852
            
            
            $
            12,021Work
      in process
            
            
            1,888
            
            
            
            1,270Finished
      goods
            
            
            15,776
            
            
            
            16,733Total
            
            $
            32,516
            
            
            $
            30,024





5.
            ACCRUED EXPENSES





Accrued
expenses consist of the following:


November
      30, 2009
            
            
            May
      31,
              2009Accrued
      personnel related costs
            
            $
            3,593
            
            
            $
            1,652Accrued
      promotional costs
            
            
            6,440
            
            
            
            6,225Other
            
            
            1,291
            
            
            
            1,604Total
            
            $
            11,324
            
            
            $
            9,481





6.
            CAPITAL STRUCTURE





We
have outstanding two classes of common stock, both of which 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.




Back to index


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




7.
            EARNINGS PER SHARE





The
following is a reconciliation of the numerators and the denominators of basic
and diluted earnings per share computations:





Three
      Months Ended
            
            
            Six
      Months EndedNovember
      30, 2009
            
            
            November
      30, 2008
            
            
            November
      30, 2009
            
            
            November
      30, 2008Income
      available to common shareholders (numerator):Net
      income
            
            $
            5,883
            
            
            $
            2,912
            
            
            $
            10,274
            
            
            $
            6,161Adjustments
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Income
      on which basic and diluted earnings per share are
    calculated
            
            $
            5,883
            
            
            $
            2,912
            
            
            $
            10,274
            
            
            $
            6,161Weighted-average
      number of common shares outstanding (denominator):Basic
            
            
            28,340,648
            
            
            
            27,275,080
            
            
            
            28,278,196
            
            
            
            27,242,692Add-incremental
      shares from restricted stock
            
            
            24,073
            
            
            
            17,947
            
            
            
            24,377
            
            
            
            17,190Add-incremental
      shares from restricted stock units
            
            
            84,350
            
            
            
            754,227
            
            
            
            79,484
            
            
            
            747,321Add-incremental
      shares from stock options
            
            
            389,300
            
            
            
            581,920
            
            
            
            403,318
            
            
            
            641,697Diluted
            
            
            28,838,371
            
            
            
            28,629,174
            
            
            
            28,785,375
            
            
            
            28,648,900





Options
to purchase 32,000 shares of Class A common stock, at exercise prices from $6.00
to $7.05 per share were outstanding during the first six months of fiscal 2010
and 2009 but were not included in the computation of diluted earnings per share
because the exercise prices were greater than the average market price of the
common shares.





8.
            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.





Generally,
our cash and cash equivalents, which may include money market accounts,
certificates of deposit, United States Treasury Bills with maturities of three
months or less, and high quality commercial paper, exceed Federal Deposit
Insurance Corporation limits on insurable amounts; thus exposing us to certain
credit risk.  We mitigate 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
November 30, 2009, we held $9,152 in available-for-sale securities consisting of
$5,962 in certificates of deposit and high quality commercial paper and $3,190
in debt securities, including $670 in debt securities valued below cost. In
determining the fair value of our available-for-sale securities at November 30,
2009, we have taken into consideration quoted market prices and/or other
considerations, including, fair values determined by the respective financial
institutions, current credit rating of the debt securities, insurance
provisions, discounted cash flow analysis, as deemed appropriate, and our
current liquidity position. Although we believe the debt securities valued below
cost will ultimately be liquidated at or near our cost basis, any 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 regularly.  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.


Back to index


10
 SCHIFF
NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 (dollars
in thousands, except share data)







The
combined net sales to our two largest customers are significant.  At
November 30, 2009 and May 31, 2009, respectively, amounts due from Customer A
represented approximately 32% and 46%, and amounts due from Customer B
represented approximately 34% and 24%, of total trade accounts
receivable.  For the first six months of fiscal 2010 and 2009,
respectively, Customer A accounted for approximately 36% and 44% and Customer B
accounted for approximately 33% and 31% of total net sales.  Net sales
of our Schiff® Move Free® brand accounted for approximately 37% and
39%, respectively, of total net sales for the first six months of fiscal 2010
and 2009.





9.
            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.





On
August 18, 2009, we entered into, through our wholly-owned direct operating
subsidiary Schiff Nutrition Group, Inc. ("SNG"), a new $80,000 revolving credit
facility (“New Credit Facility”) with U.S. Bank National Association, as
Agent.  The New Credit Facility, which replaces our previous $25,000
credit facility which expired on June 30, 2009, 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.  SNG’s obligations under the New Credit Facility are
guaranteed by us and SNG’s domestic subsidiaries and secured by a first priority
security interest in all of the capital stock of SNG and its current and future
subsidiaries, as well as a first priority security interest in substantially all
of our domestic assets.  Borrowings under the New Credit Facility bear
interest at floating rates based on U.S. Bank’s prime rate, the Federal Funds
rate, or the LIBOR rate.  The New Credit Facility, which matures on
August 18, 2012, can be used to fund our normal working capital and capital
expenditure requirements, with primary availability to fund certain permitted
strategic transactions.  We incurred approximately $530 in debt issue
costs related to the New Credit Facility which will be amortized over its
three-year term.  In addition, we are obligated to pay certain
commitment fees on any unused amounts based on rates ranging from 0.25% to
0.50%.  At November 30, 2009, there were no amounts outstanding and
$80,000, subject to limitations based on certain financial covenant
requirements, was available for borrowing under the New Credit
Facility.





10.
            RECENTLY ISSUED ACCOUNTING
STANDARDS





In
June 2009, the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) issued ASC 105-10, “Generally Accepted Accounting
Principles-Overall,” which superseded all existing accounting standard documents
and became the single source of authoritative non-governmental generally
accepted accounting principles accepted in the United States
(“GAAP”).   ASC 105-10 was implemented on July 1, 2009 and is
effective for interim and annual periods ending after September 15,
2009.  We adopted ASC 105-10 in our fiscal 2010 second quarter. The
adoption did not have an impact on our result of operations and financial
condition.  However, because ASC 105-10 completely replaces existing
standards, it will affect the way GAAP is referenced within the interim
financial statements.





In
May 2009, the FASB issued guidance now codified as FASB ASC 855-10, “Subsequent
Events,” which provides guidance on events that occur after the balance sheet
date but prior to the issuance of the financial statements.  ASC
855-10 distinguishes events requiring recognition in the financial statements
and those that may require disclosure in the financial
statements.  Furthermore, ASC 855-10 requires disclosure of the date
through which subsequent events were evaluated.  ASC 855-10 is
effective for interim and annual periods ending after June 15,
2009.  The adoption of ASC 855-10 did not have a material impact on
our results of operations and financial condition.  We have evaluated
subsequent events through January 8, 2010, the date the interim financial
statements were issued, and have recognized or disclosed in these interim
financial statements the effects, if any, of all subsequent events as
required.


Back to
index


11
 SCHIFF
NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)
 (dollars
in thousands, except share data)








In
April 2009, the FASB staff issued guidance now codified as FASB ASC 825-10,
“Interim Disclosures about Fair Value of Financial Instruments.”  ASC
825-10 amends Statement of Financial Accounting Standards (“SFAS”) Statement No.
107, “Disclosures about Fair Value of Financial Instruments,” to require
disclosures about fair value of financial instruments in interim financial
statements as well as in annual financial statements.  ASC 825-10 also
amends APB Opinion No. 28, “Interim Financial Reporting,” to require these
disclosures in all interim financial statements.  ASC 825-10 is
effective for interim reporting periods ending after June 15,
2009.  We have included the required disclosures elsewhere in these
Notes to Condensed Consolidated Financial Statements.





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index


12





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, Move Free, MegaRed® 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 2009 and the first six months of fiscal 2010, 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.  During
fiscal 2009, we introduced MegaRed, an omega-3 krill oil product originally
launched into Costco during the latter part of fiscal 2008, into many of our
retail accounts and, during the second half of the fiscal year, we launched a
national marketing campaign to support MegaRed growth.  During the
fiscal 2010 first quarter, we encountered temporary disruption in our ability to
fulfill customer orders due to raw material supply issues.  As a
result, we elected to delay certain fiscal 2010 first quarter planned
advertising support to subsequent fiscal 2010 quarters.  We resolved
the temporary raw material supply issues, and, during the fiscal 2010 second
quarter, we continued to expand distribution of MegaRed into new accounts and
resumed our comprehensive national marketing initiative to support both the new
and existing distribution of this product. Furthermore, we are continuing
efforts to increase distribution of our joint care products and krill oil
products in international markets.  Subject to competitive joint care
product category pricing pressures, including private label, the success of new
product sales, including MegaRed, the effectiveness of our branded marketing
initiatives and the ability to increase our distribution in international
markets, among other factors, we believe fiscal 2010 net sales, as compared to
fiscal 2009 net sales, will reflect a mid single-digit percentage
increase.





Operating
results for the first six months of fiscal 2010, as compared to the first six
months of fiscal 2009, were positively impacted by a higher mix of branded
sales, price increases implemented in the fourth quarter of fiscal 2009 for
certain branded and private label products, and stability in raw material
costs.  During the second half of fiscal 2009, we discontinued certain
private label products resulting in a decrease in private label sales for the
first six months of fiscal 2010, as compared to the similar prior year
period.  This decrease in lower-margin private label sales, together
with branded sales volume growth, the sales price increases and lower raw
material costs, resulted in an overall higher gross margin for the first six
months of fiscal 2010, as compared to the first six months of fiscal
2009.




Our
operating results for the first six months of fiscal 2010 were also impacted by
the adoption of a long-term management incentive plan on December 12,
2008.  See Note 1 of Notes to Condensed Consolidated Financial
Statements for further description of the long-term management incentive plan
and its impact on operating results for the first six months of fiscal
2010.  Subject to the periodic assessment of the probability of
achieving pre-established financial performance targets, our fiscal 2010
operating results, as compared to fiscal 2009, may continue to be negatively
impacted by the recognition of compensation expense related to the management
incentive plan.




Back to index


13


Results of Operations (unaudited)


Three
Months Ended November 30, 2009 Compared to Three Months


Ended
November 30, 2008





The
following tables show comparative results for selected items as reported and as
a percentage of net sales for the three months ended November 30, (dollars in
thousands):





2009
            
            
            2008Net
      sales
            
            $
            53,754
            
            
            
            100.0
            %
            
            $
            47,293
            
            
            
            100.0
            %Cost
      of goods sold
            
            
            29,519
            
            
            
            54.9
            
            
            
            29,690
            
            
            
            62.8Gross
      profit
            
            
            24,235
            
            
            
            45.1
            
            
            
            17,603
            
            
            
            37.2Operating
      expenses:Selling
      and marketing
            
            
            8,825
            
            
            
            16.5
            
            
            
            8,412
            
            
            
            17.8General
      and administrative
            
            
            4,852
            
            
            
            9.0
            
            
            
            3,610
            
            
            
            7.6Research
      and development
            
            
            1,088
            
            
            
            2.0
            
            
            
            1,119
            
            
            
            2.4Total
      operating expenses
            
            
            14,765
            
            
            
            27.5
            
            
            
            13,141
            
            
            
            27.8Income
      from operations
            
            
            9,470
            
            
            
            17.6
            
            
            
            4,462
            
            
            
            9.4Other
      income (expense), net
            
            
            (81
            )
            
            
            (0.2
            )
            
            
            260
            
            
            
            0.6Income
      tax expense
            
            
            (3,506
            )
            
            
            (6.5
            )
            
            
            (1,810
            )
            
            
            (3.8
            )Net
      income
            
            $
            5,883
            
            
            
            10.9
            %
            
            $
            2,912
            
            
            
            6.2
            %





Net Sales.Net
sales increased 13.7% to $53.8 million for the fiscal 2010 second quarter, from
$47.3 million for the fiscal 2009 second quarter, primarily due to increases in
both branded and private label net sales.





Aggregate
branded net sales increased 15.4% to $39.4 million for the fiscal 2010 second
quarter, from $34.1 million for the fiscal 2009 second quarter, primarily due to
an increase in sales volume of approximately $3.9 million, or 8.3%, together
with approximately $0.7 million in aggregate sales price increases and a $0.7
million decrease in sales return allowances and 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 an increase in MegaRed sales due to incremental sales resulting
from new distribution into various accounts in the latter part of fiscal 2009
and the first half of fiscal 2010, as well as replenishing certain customer
inventories impacted by the first quarter raw material supply issues that have
since been resolved.  While our overall joint care category net sales
reflected a second quarter over second quarter increase due to decreases in
sales return allowances and sales promotional incentives, an approximate 9.1%
increase in Move Free sales volume was offset by a sales volume decrease in
other joint care category products.  Move Free net sales were $20.1
million and $17.2 million, respectively, for the fiscal 2010 and 2009 second
quarters.





Private
label sales increased 9.2% to $14.4 million for the fiscal 2010 second quarter,
from $13.2 million for the fiscal 2009 second quarter, primarily due to certain
sales price increases instituted in the fiscal 2009 fourth
quarter.  In spite of the second quarter over second quarter increase,
we believe fiscal 2010 private label sales will reflect a decrease compared to
fiscal 2009 sales due to the discontinuation of certain unprofitable private
label products in the second half of fiscal 2009.





Gross Profit.Gross
profit increased 37.7% to $24.2 million for the fiscal 2010 second quarter, from
$17.6 million for the fiscal 2009 second quarter.  Gross profit, as a
percentage of net sales, increased to 45.1% for the fiscal 2010 second quarter,
from 37.2% for the fiscal 2009 second quarter, primarily resulting from the
higher mix of branded sales, sales price increases and lower raw material
costs.  Subject to raw material pricing stability, competitive
pressures and the overall branded to private label sales mix, among other
factors, we believe fiscal 2010 gross profit percentage will be 39.0% to 42.0%,
compared to fiscal 2009 gross profit percentage of 35.2%.





Back to index


14








Operating
Expenses.Operating expenses increased 12.4% to $14.8 million
for the fiscal 2010 second quarter, from $13.1 million for the fiscal 2009
second quarter, primarily resulting from a significant increase in general and
administrative expenses.  In spite of the overall increase, operating
expenses, as a percentage of net sales, remained relatively constant at 27.5%
and 27.8%, respectively, for the fiscal 2010 and 2009 second quarters due to the
increase in net sales.





Selling
and marketing expenses, including sales, marketing, advertising, freight and
other costs, increased to $8.8 million for the fiscal 2010 second quarter, from
$8.4 million for the fiscal 2009 second quarter, primarily due to an increase in
advertising, partially offset by a reduction in other promotional
expenses.  As a result of certain raw material supply issues for our
MegaRed product, which have since been resolved, we elected to shift to
subsequent fiscal 2010 quarters certain television advertising originally
scheduled for the fiscal 2010 first quarter.  In addition, a decrease
in other personnel related costs, including severance, was partially offset by
increases in accrued long-term and annual management incentive plan costs
totaling $0.4 million.





General
and administrative expenses increased to $4.9 million for the fiscal 2010 second
quarter, from $3.6 million for the fiscal 2009 second quarter, primarily
resulting from increases in accrued long-term and annual management incentive
plan costs totaling $1.5 million, partially offset by a decrease in consulting
costs.





Research
and development costs remained constant at $1.1 million for the fiscal 2010 and
2009 second quarters.





Other
Income/Expense.Other income (expense), net, was $0.1 million
expense for the fiscal 2010 second quarter, compared to $0.3 million income for
the fiscal 2009 second quarter.  The decrease was primarily due to an
overall lower yield on investments.





Income Tax
Expense.Income tax expense was $3.5 million for the fiscal
2010 second quarter, compared to $1.8 million for the fiscal 2009 second
quarter.  The increase resulted from an increase in pre-tax income,
partially offset by a modest decrease in our effective tax rate primarily due to
an estimated increase in certain tax credits.  The fiscal 2010 second
quarter tax rate was 37.3%, compared to the fiscal 2009 second quartertax rate of 38.3%.





Results of Operations (unaudited)


Six
Months Ended November 30, 2009 Compared to Six Months


Ended
November 30, 2008





The
following tables show comparative results for selected items as reported and as
a percentage of net sales for the six months ended November 30, (dollars in
thousands):





2009
            
            
            2008Net
      sales
            
            $
            102,319
            
            
            
            100.0
            %
            
            $
            95,083
            
            
            
            100.0
            %Cost
      of goods sold
            
            
            58,922
            
            
            
            57.6
            
            
            
            59,602
            
            
            
            62.7Gross
      profit
            
            
            43,397
            
            
            
            42.4
            
            
            
            35,481
            
            
            
            37.3Operating
      expenses:Selling
      and marketing
            
            
            15,459
            
            
            
            15.1
            
            
            
            16,545
            
            
            
            17.4General
      and administrative
            
            
            9,110
            
            
            
            8.9
            
            
            
            7,348
            
            
            
            7.7Research
      and development
            
            
            2,332
            
            
            
            2.3
            
            
            
            2,107
            
            
            
            2.2Total
      operating expenses
            
            
            26,901
            
            
            
            26.3
            
            
            
            26,000
            
            
            
            27.3Income
      from operations
            
            
            16,496
            
            
            
            16.1
            
            
            
            9,481
            
            
            
            10.0Other
      income (expense), net
            
            
            (45
            )
            
            
            —
            
            
            
            539
            
            
            
            0.6Income
      tax expense
            
            
            (6,177
            )
            
            
            (6.1
            )
            
            
            (3,859
            )
            
            
            (4.1
            )Net
      income
            
            $
            10,274
            
            
            
            10.0
            %
            
            $
            6,161
            
            
            
            6.5
            %





Net Sales.Net
sales increased 7.6% to $102.3 million for the six months ended November 30,
2009, from $95.1 million for the six months ended November 30, 2008, primarily
due to increase in branded net sales, partially offset by a decrease in private
label sales.




Back to index


15





Aggregate
branded net sales increased 12.9% to $75.2 million for the six months ended
November 30, 2009, from $66.6 million for the six months ended November 30,
2008, primarily due to an increase in sales volume of approximately $7.4
million, or 7.9%, together with an approximate $1.3 million in aggregate sales
price increases and a $1.3 million decrease in sales return allowances,
partially offset by a $1.3 million increase in 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 an increase in MegaRed sales, together with an overall increase
in joint care category sales.  The increase in MegaRed sales was
primarily due to incremental sales resulting from new distribution into various
accounts in the latter part of fiscal 2009 and the first half of fiscal 2010, as
well as replenishing certain customer inventories impacted by the first quarter
raw material supply issues that have since been resolved.   The
overall joint care category net sales increase includes a modest 2.0% sales
volume increase and a $0.7 million decrease in sales return
allowances.  Move Free net sales were $37.6 million and $36.7 million,
respectively, for the six months ended November 30, 2009 and 2008.





Private
label sales decreased 4.9% to $27.1 million for the six months ended November
30, 2009, from $28.5 million for the six months ended November 30, 2008,
primarily due to an approximate $5.7 million decrease in sales volume resulting
from the discontinuation of certain unprofitable private label products in the
second half of fiscal 2009.  This decrease was partially offset by an
approximate $2.1 million price increase and an approximate $1.9 million sales
volume increase for the ongoing private label business.  We believe
fiscal 2010 private label sales will reflect a decrease compared to fiscal 2009
sales due to the discontinuation of certain unprofitable private label products
in the second half of fiscal 2009.





Gross Profit.Gross
profit increased 22.3% to $43.4 million for the six months ended November 30,
2009, from $35.5 million for the six months ended November 30,
2008.  Gross profit, as a percentage of net sales, increased to 42.4%
for the six months ended November 30, 2009, from 37.3% for the six months ended
November 30, 2008, primarily resulting from the higher mix of branded sales,
sales price increases and lower raw material costs.  Subject to raw
material pricing stability, competitive pressures and the overall branded to
private label sales mix, among other factors, we believe fiscal 2010 gross
profit percentage will be 39.0% to 42.0%, compared to fiscal 2009 gross profit
percentage of 35.2%.





Operating
Expenses.Operating expenses increased 3.5% to $26.9 million
for the six months ended November 30, 2009, from $26.0 million for the six
months ended November 30, 2008, primarily resulting from an increase in general
and administrative expenses, partially offset by a decrease in selling and
marketing expenses.  Operating expenses, as a percentage of net sales,
decreased to 26.3% for the six months ended November 30, 2009, from 27.3% for
the six months ended November 30, 2008, primarily due to the increase in net
sales.





Selling
and marketing expenses, including sales, marketing, advertising, freight and
other costs, decreased to $15.5 million for the six months ended November 30,
2009, from $16.5 million for the six months ended November 30,
2008.  A modest increase in advertising expense was more than offset
by a reduction in other promotional expenses.  In addition, a $0.9
million decrease in other personnel related costs, including severance, was
partially offset by increases in accrued long-term and annual management
incentive plan costs totaling $0.7 million.





General
and administrative expenses increased to $9.1 million for the six months ended
November 30, 2009, from $7.3 million for the six months ended November 30, 2008,
primarily resulting from increases in accrued long-term and annual management
incentive plan costs totaling $2.3 million, partially offset by a decrease in
consulting fees.





Research
and development costs increased to $2.3 million for the six months ended
November 30, 2009, from $2.1 million for the six months ended November 30, 2008,
primarily resulting from an increase in product clinical research
costs.





Other
Income/Expense.Other income (expense), net, was nil for the
six months ended November 30, 2009, compared to $0.5 million income for the six
months ended November 30, 2008.  The decrease was primarily due to an
overall lower yield on investments.





Income Tax
Expense.Income tax expense was $6.2 million for the six
months ended November 30, 2009, compared to $3.9 million for the six months
ended November 30, 2008.  The increase resulted from an increase in
pre-tax income, partially offset by a modest decrease in our effective tax rate
primarily due to an estimated increase in certain tax credits.  The
tax rate was approximately 37.5% and 38.5%, respectively, for the six months
ended November 30, 2009 and 2008.




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16








Liquidity and Capital Resources





Working
capital decreased $3.3 million to $88.9 million at November 30, 2009, from $92.2
million at May 31, 2009, reflecting a $2.4 million reduction in cash and cash
equivalents and available-for-sale securities, a $3.3 million increase in net
receivables, a $2.5 million increase in inventories and a $7.1 million increase
in current liabilities.  The decrease in cash and cash equivalents and
available-for-sale securities reflects the special dividend payment of $14.4
million and capital expenditures of $1.3 million, which more than offset the
$13.7 million in cash flows provided by operating activities.  The
increase in net receivables reflects a $4.7 million increase in trade accounts
receivable primarily due to an increase in net sales for October and November of
fiscal 2010, as compared to April and May of fiscal 2009, partially offset by a
$1.6 million reduction in refundable income taxes.  The increase in
inventories, as well as the corresponding increase in accounts payable,
primarily reflects promotional timing considerations, which were reasonably
consistent with prior year implications.  The $1.8 million increase in
accrued expenses primarily results from an increase in accrued annual management
incentive plan costs.





At
November 30, 2009, we held $9.2 million in available-for-sale securities,
consisting of $6.0 million in certificates of deposit and commercial paper and
$3.2 million in debt securities; including $0.5 million in illiquid ARS which
are fully insured, state agency issued securities.  Although we have
experienced failed auction(s) with these 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.  However, we believe the unsuccessful liquidation of
some, or all, of these securities over the next twelve months will not
significantly impact our 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 (“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
contained customary terms and conditions, including, among others, financial
covenants that limited our ability to pay dividends on our common stock and
certain other restrictions.  SNG’s obligations under the Credit
Facility were guaranteed by us and secured by a first priority security interest
on all of the capital stock of SNG.  The Credit Facility, which
expired on June 30, 2009, was available to fund our normal working capital and
capital expenditure requirements, with additional availability to fund certain
permitted strategic transactions.





On
August 18, 2009, we entered into, through SNG, a new $80.0 million revolving
credit facility (“New Credit Facility”) with U.S. Bank National Association, as
Agent.  The New Credit Facility, which replaces our previous $25.0
million credit facility which expired on June 30, 2009, 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.  SNG’s obligations under the New Credit Facility are
guaranteed by us and SNG’s domestic subsidiaries and secured by a first priority
security interest in all of the capital stock of SNG and its current and future
subsidiaries, as well as a first priority security interest in substantially all
of our domestic assets.  Borrowings under the New Credit Facility bear
interest at floating rates based on U.S. Bank’s prime rate, the Federal Funds
rate, or the LIBOR rate.  The New Credit Facility, which matures on
August 18, 2012, can be used to fund our normal working capital and capital
expenditure requirements, with availability to fund certain permitted strategic
transactions.  We incurred approximately $0.5 million in debt issue
costs related to the New Credit Facility, which will be amortized over its
three-year term.  In addition, we are obligated to pay certain
commitment fees on any unused amounts based on rates ranging from 0.25% to
0.50%.  At November 30, 2009, there were no amounts outstanding and
$80.0 million, subject to limitations based on certain financial covenant
requirements, was available for borrowing under the New Credit
Facility.





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.




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17








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 New 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.





A
summary of our outstanding contractual obligations at November 30, 2009 is as
follows (in thousands):





Contractual
      Cash Obligations(1)
            
            Total
      Amounts Committed
            
            
            Less
      than
              1
      Year
            
            
            1-3
              Years
            
            
            3-5
              Years
            
            
            More
      than
              5
      YearsOperating
      leases
            
            $
            7,763
            
            
            $
            2,362
            
            
            $
            4,631
            
            
            $
            770
            
            
            $
            —Purchase
      obligations(2)
            
            
            14,251
            
            
            
            14,251
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      obligations
            
            $
            22,014
            
            
            $
            16,613
            
            
            $
            4,631
            
            
            $
            770
            
            
            $
            —





(1)
            Unrecognized
      income tax benefits totaling $255 are excluded since we are unable to
      estimate the period of settlement, if
any.





(2)
            Purchase
      obligations consist primarily of open purchase orders for goods and
      services, including primarily raw materials, packaging and outsourced
      contract manufacturing commitments.





Critical Accounting 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, cost of goods sold and operating expenses during the reported
periods.  We periodically evaluate our estimates and judgments related
to the valuation of available-for-sale securities, inventories and intangible
assets, allowances for doubtful accounts, sales returns and discounts,
uncertainties related to certain tax benefits, valuation of deferred tax assets,
valuation of liability classified performance awards and recoverability of
long-lived assets.  Note 1 of Notes to Consolidated Financial
Statements contained in our Annual Report on Form 10-K for the year ended May
31, 2009, 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 interim 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 six months ended November 30, 2009 and 2008, inventory valuation
      adjustments resulted in a decrease in our gross profit and operating
      income of approximately $0.1 million and $0.2 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 a decrease in
      our gross profit and operating income of approximately $0.1 million and
      $0.6 million, respectively, for the six months ended November 30, 2009 and
      2008.  At November 30, 2009 and May 31, 2009, our allowances for
      doubtful accounts, sales returns and discounts amounted to $2.0 million
      and $2.3 million, respectively.  Actual results may differ from
      our current estimates, resulting in adjustment of the respective
      allowance(s).




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18





●
            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 six months ended
      November 30, 2009 and 2008.  At both November 30, 2009 and May
      31, 2009, unrecognized tax benefits totaled $0.2
  million.





●
            We
      currently have deferred tax assets resulting from temporary differences
      between financial and income tax reporting.  These deferred tax
      assets are subjectto
      periodic recoverability assessments.  The realization of these
      deferred tax assets is primarily dependent on future operating
      results.  At November 30, 2009 and 2008, and May 31, 2009 and
      2008, deferred tax asset valuation allowances were zero; thus, changes in
      these valuation allowances did not impact net income for the six months
      ended November 30, 2009 and 2008.





●
            We
      recognize compensation expense for certain liability classified
      performance awards based on the appropriate change in fair value for the
      reporting period based on the requisite service completed.  The
      fair value is estimated 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 six months ended
      November 30, 2009, we recognized compensation expense related to existing
      awards of $1.3 million.  For the six months ended November 30,
      2008, we did not recognize any compensation expense related to existing
      awards.  At November 30, 2009, total unrecognized compensation
      expense, based on the estimated fair value as determined by our assessment
      of the probability that the performance criteria will be achieved, was
      $2.1 million.  This amount, which is subject to change based on
      the estimated fair value determined at each future reporting period, is
      expected to be recognized over the remaining service
    period.





●
            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.





Impact of 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's competitive environment limits our ability to
raise prices in order to recover higher costs resulting from
inflation.





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 New Credit
Facility, under which borrowings bear interest at floating rates, had no amounts
outstanding at November 30, 2009.  Interest income earned on our
short-term investments is impacted by changes in interest rates.  We
do not believe that a hypothetical 10% change in interest rates would have a
material effect on our pretax earnings or cash flows.




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19


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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20
 PART II.  OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS





The
information set forth in Note 9 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,
2009.





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





The
following table presents information regarding repurchases of our Class A common
stock during the fiscal 2010 second quarter:





Period
            
            Total
      number
              of
      shares purchased(1)
            
            Average
      price paid per share
            
            Total
      number of shares purchased as part of publicly announced plansor
      programs
            
            Maximum
      number of shares that may yet be purchased under the plansor
      programsSeptember
      1 – September 30
            
            —
            
            —
            
            —
            
            —October
      1 – October 31
            
            500
            
            $6.39
            
            —
            
            —November
      1 – November 30
            
            —
            
            —
            
            —
            
            —Total
            
            500
            
            $6.39
            
            —
            
            —




(1)
            Repurchase
      of these shares was to satisfy employee tax withholding obligations due
      upon exercise of options.





ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES





None.





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




Our
stockholders voted on the following at our Annual Meeting of Stockholders held
on November 9, 2009:




Election
of Board of Directors.





For
            
            Withheld
      AuthorityEric
      Weider
            155,356,700
            
            2,093,131George
      Lengvari
            155,353,445
            
            2,096,386Bruce
      J. Wood
            155,356,700
            
            2,093,131Ronald
      L. Corey
            157,213,730
            
            236,101Michael
      Hyatt
            157,242,537
            
            207,294Eugene
      B. Jones
            157,237,643
            
            212,188Roger
      H. Kimmel
            155,354,045
            
            2,095,786Brian
      P. McDermott
            157,214,330
            
            235,501





ITEM 5.  OTHER INFORMATION





Not
applicable.





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21





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.
            Loan
      Agreement dated as of August 18, 2009 between Schiff Nutrition Group, Inc.
      and U.S. Bank National Association.  (3)4.2.
            Form
      of specimen Class A common stock
    certificate.  (4)31.1.
            Certification of Chief Executive Officer pursuant
      to Section 302 of the Sarbanes-Oxley
    Act.  (5)31.2.
            Certification of Chief Financial Officer pursuant
      to Section 302 of the Sarbanes-Oxley
    Act.  (5)32.1.
            Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act.  (6)








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 Annual Report on Form 10-K filed on August 20, 2009
      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.
            Filed
      herewith.6.
            Furnished
      herewith.





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:
      January 8, 2010
            By:
            /s/Bruce
      J. WoodBruce
      J. WoodPresident,
      Chief Executive Officer and
Director








Date:
      January 8, 2010
            By:
            /s/Joseph
      W. BatyJoseph
      W. BatyExecutive
      Vice President and Chief Financial
Officer





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22