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 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 2008 and the first six months of fiscal 2009, 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 our fiscal 2008 third quarter, we announced the introduction of smaller tablets for our existing Move Free items as well as the launch of a Move Free line extension. Operating results for the first half of fiscal 2009, as compared to fiscal 2008, are impacted by the shifting of advertising support from the first half to the second half of fiscal 2008 in support of these Move Free marketing initiatives. As a result, advertising expense for the first half of fiscal 2009 was greater than the amount recognized in the corresponding prior year period. Operating results for the first six months of fiscal 2009 are also impacted by incremental private label business awarded in the latter part of fiscal 2008. The incremental business coupled with increased volume from existing business resulted in a significant change in quarter over quarter sales
mix. The significant increase in lower-margin private label sales resulted in an overall lower gross profit margin for the first six months of fiscal 2009, as compared to the first six months of fiscal 2008. During the latter part of fiscal 2008, we introduced MegaRed®, an omega-3 krill oil product, into Costco. During the first half of fiscal 2009, we continued the introduction of MegaRed into certain other retail accounts. During fiscal 2008 and continuing in fiscal 2009, we are attempting to increase distribution of our joint care products in international markets. Subject to competitive joint care product category pricing pressures, including private label, the success of incremental private label and new product sales and the ability to increase our distribution in international markets, we expect a high single-digit/low double-digit increase in fiscal 2009 net sales, as compared to fiscal 2008 net sales, primarily driven by incremental private label business.

Our operating results for fiscal 2008 were impacted by the declaration of a special cash dividend in July 2007. In connection with the declaration of the special dividend, our Board of Directors approved certain dividend equivalent rights allowing holders (employees and directors) of certain equity awards, including stock options and restricted stock units, to receive cash dividends on each share of common stock underlying the stock options and restricted stock units. As a result, we recognized a non-cash compensation expense, and a corresponding increase in additional paid-in capital, of approximately $0.7 million and $3.7 million, respectively, during the three and six months periods ended November 30, 2007.

Recently, we have experienced increases in certain raw material prices. While these increases impacted our operating results for the first half of fiscal 2009, the negative impact on our gross profit and operating margins will be greater in the second half.

Our historical results have been affected by a variety of factors, including the implementation of strategic initiatives and measures intended to refine our growth and business strategies. We continue to consider, evaluate and adjust these initiatives and our growth and business strategies to enhance our results of operations and profitability. However, we cannot assure you that our decisions and actions relating to the implementation, adjustment or continuation of such initiatives and strategies will not adversely affect our results of operations and financial condition.

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

Recent Events

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 target award value, 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.

Recognition of compensation cost and accrual of the corresponding liability related to the Performance Awards will begin in the fiscal 2009 third quarter, based on the periodic assessment of the probability that the performance criteria will be achieved.

Also, on December 12, 2008, the Compensation Committee of our Board of Directors granted 240,500 restricted stock units (the "New Units") to certain employees. Each New Unit represents the right to receive one share of the Company's Class A common stock upon vesting. The aggregate value of the New Units at the grant date was approximately $1.3 million, which will be expensed over the vesting (service) period. The New Units cliff vest in full 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 New Units.

Results of Operations
Three Months Ended November 30, 2008 Compared to Three Months
Ended November 30, 2007

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):

                                        2008                     2007

Net sales                       $ 47,293       100.0 %   $ 39,535       100.0 %
Cost of goods sold                29,690        62.8       22,974        58.1

Gross profit                      17,603        37.2       16,561        41.9
Operating expenses:
Selling and marketing              8,412        17.8        6,737        17.0
General and administrative         3,610         7.6        4,452        11.3
Research and development           1,119         2.4        1,276         3.2
Reimbursement of import costs          -           -          (31 )         -

Total operating expenses          13,141        27.8       12,434        31.5

Income from operations             4,462         9.4        4,127        10.4
Other income, net                    260         0.6          401         1.0
Income tax expense                (1,810 )      (3.8 )     (1,725 )      (4.3 )

Net income                      $  2,912         6.2 %   $  2,803         7.1 %

Net Sales. Net sales increased approximately 19.6% to $47.3 million for the fiscal 2009 second quarter, from $39.5 million for the fiscal 2008 second quarter, primarily due to an increase in private label sales and a modest increase in branded sales.

Aggregate branded net sales increased approximately 6.1% to $34.1 million for the fiscal 2009 second quarter, from $32.2 million for the fiscal 2008 second quarter, primarily due to an increase in sales volume of approximately $2.6 million, or 5.8%, partially offset by an increase in potential product returns for new products. The increase in branded sales volume was primarily attributable to the introduction of new products, partially offset by a decrease in overall joint care category sales volume. Move Free net sales were $17.2 million and $18.9 million, respectively, for the fiscal 2009 and 2008 second quarters. The decrease primarily resulted from a decrease in sales volume.

Private label sales increased approximately 78.4% to $13.2 million for the fiscal 2009 second quarter, from $7.4 million for the fiscal 2008 second quarter, primarily due to incremental business awarded in the latter part of fiscal 2008 coupled with an increase in customer promotional activity on existing business. Private label sales are expected to continue to increase in fiscal 2009, compared to fiscal 2008, due to the incremental business as well as volume increases in existing business.

Gross Profit. Gross profit increased approximately 6.3% to $17.6 million for the fiscal 2009 second quarter, from $16.6 million for the fiscal 2008 second quarter. Gross profit, as a percentage of net sales, decreased to 37.2% for the fiscal 2009 second quarter, from 41.9% for the fiscal 2008 second quarter. These changes reflect the significant increase in private label sales volume resulting in a much higher mix of lower-margin private label sales. Increasing raw material costs, which modestly impacted the fiscal 2009 second quarter, will more negatively impact subsequent fiscal 2009 quarters.

Operating Expenses. Operating expenses increased approximately 5.7% to $13.1 million for the fiscal 2009 second quarter, from $12.4 million for the fiscal 2008 second quarter. Operating expenses, as a percentage of net sales, were 27.8% and 31.5%, respectively, for the fiscal 2009 and 2008 second quarters. The increase in operating expenses resulted primarily from a significant increase in selling and marketing expenses, partially offset by a decrease in general and administrative expenses.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, increased to approximately $8.4 million for the fiscal 2009 second quarter, from $6.7 million for the fiscal 2008 second quarter, primarily due to an increase in promotional expenses and other variable selling expenses resulting from the increase in sales volume, coupled with increases in personnel related costs and fuel costs.

General and administrative expenses decreased to approximately $3.6 million for the fiscal 2009 second quarter, from approximately $4.5 million for the fiscal 2008 second quarter. General and administrative expenses for the fiscal 2008 second quarter include the recognition of approximately $0.5 million in incremental compensation expense for the special dividend. The compensation expense represents a non-cash charge for dividend equivalent rights received by holders (employees and directors) of certain equity awards, including stock options and restricted stock units. In addition, an approximate $0.7 million expense associated with the previous long-term management incentive plan was recognized in the prior year quarter. These reductions were partially offset by modest increases in other personnel related costs and professional fees. A new long-term incentive plan was approved in December 2008 (see Note 12 of Notes to Condensed Consolidated Financial Statements).

Research and development costs decreased to approximately $1.1 million for the fiscal 2009 second quarter, from $1.3 million for the fiscal 2008 second quarter, primarily resulting from a decrease in expenses associated with product testing related to the registration of products in countries outside of the United States.

Other Income/Expense. Other income, net, was $0.3 million for the fiscal 2009 second quarter, compared to $0.4 million for the fiscal 2008 second quarter. The decrease was primarily due to a reduction in interest income resulting from lower yields on investments.

Income Tax Expense. Income tax expense was $1.8 million for the fiscal 2009 second quarter, compared to $1.7 million for the fiscal 2008 second quarter, primarily resulting from an increase in pre-tax income. Our effective tax rate remained relatively constant at 38.3% for the fiscal 2009 second quarter, compared to 38.1% for the fiscal 2008 second quarter.

Results of Operations
Six Months Ended November 30, 2008 Compared to Six Months
Ended November 30, 2007

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):

                                        2008                     2007

Net sales                       $ 95,083       100.0 %   $ 80,262       100.0 %
Cost of goods sold                59,602        62.7       47,280        58.9

Gross profit                      35,481        37.3       32,982        41.1
Operating expenses:
Selling and marketing             16,545        17.4       13,493        16.8
General and administrative         7,348         7.7       11,239        14.0
Research and development           2,107         2.2        2,302         2.9
Reimbursement of import costs          -           -          (31 )         -

Total operating expenses          26,000        27.3       27,003        33.7

Income from operations             9,481        10.0        5,979         7.4
Other income, net                    539         0.6        1,199         1.5
Income tax expense                (3,859 )      (4.1 )     (2,727 )      (3.4 )

Net income                      $  6,161         6.5 %   $  4,451         5.5 %

Net Sales. Net sales increased approximately 18.5% to $95.1 million for the six months ended November 30, 2008, from $80.3 million for the six months ended November 30, 2007, primarily due to a significant increase in private label sales and a modest increase in branded sales.

Aggregate branded net sales increased 3.3% to $66.6 million for the six months ended November 30, 2008, from $64.5 million for the six months ended November 30, 2007. An increase in sales volume of approximately $4.8 million, or 5.5%, was offset by an increase in sales promotional incentives classified as sales price reductions and an increase in actual and potential product returns. 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 the introduction of new products, partially offset by a decrease in overall joint care category sales volume. Move Free net sales were $36.7 million and $39.7 million, respectively, for the six months ended November 30, 2008 and 2007. The decrease primarily resulted from an approximate $2.0 million decrease in sales volume, partially due to promotional timing considerations, together with a $1.0 million increase in promotional incentives and product returns.

Private label sales increased approximately 80.3% to $28.5 million for the six months ended November 30, 2008, from $15.8 million for the six months ended November 30, 2007, primarily due to incremental business awarded in the latter part of fiscal 2008 coupled with an increase in customer promotional activity on existing business. Private label sales are expected to continue to increase in fiscal 2009, compared to fiscal 2008, due to the incremental business as well as volume increases in existing business.

Gross Profit. Gross profit increased approximately 7.6% to $35.5 million for the six months ended November 30, 2008, from $33.0 million for the six months ended November 30, 2007. Gross profit, as a percentage of net sales, decreased to 37.3% for the six months ended November 30, 2008, from 41.1% for the six months ended November 30, 2007. These changes reflect the significant increase in private label sales volume resulting in a much higher mix of lower-margin private label sales. While the increase in raw material costs did not significantly impact the six months ended November 30, 2008, the negative impact will be greater during the second half of fiscal 2009.

Operating Expenses. Operating expenses decreased approximately 3.7% to $26.0 million for the six months ended November 30, 2008, from $27.0 million for the six months ended November 30, 2007. Operating expenses, as a percentage of net sales, were 27.3% and 33.7%, respectively, for the six months ended November 30, 2008 and 2007. The decrease in operating expenses resulted primarily from a significant decrease in general and administrative expenses, partially offset by an increase in selling and marketing expenses.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, increased to approximately $16.5 million for the six months ended November 30, 2008, from $13.5 million for the six months ended November 30, 2007, primarily due to an increase in promotional expenses and other variable selling expenses resulting from the increase in sales volume, as well as an increase in advertising and fuel costs. The increase in advertising is primarily due to the impact of shifting advertising spending from the first half to the second half of fiscal 2008 in support of certain Move Free marketing initiatives.

General and administrative expenses decreased to approximately $7.3 million for the six months ended November 30, 2008, from approximately $11.2 million for the six months ended November 30, 2007. General and administrative expenses for the six months ended November 30, 2007 include the recognition of approximately $3.4 million in incremental compensation expense for the special dividend. The compensation expense represents a non-cash charge for dividend equivalent rights received by holders (employees and directors) of certain equity awards, including stock options and restricted stock units. In addition, an approximate $1.4 million expense associated with the previous long-term management incentive plan was recognized in the prior year six-month period. A new long-term incentive plan was approved in December 2008 (see Note 12 of Notes to Condensed Consolidated Financial Statements). These reductions were partially offset by increases in other personnel related costs and professional fees.

Research and development costs decreased to approximately $2.1 million for the six months ended November 30, 2008, from $2.3 million for the six months ended November 30, 2007, primarily due to a decrease in expenses associated with product research and product testing related to the registration of products in countries outside of the United States.

Other Income/Expense. Other income, net, was $0.5 million for the six months ended November 30, 2008, compared to $1.2 million for the six months ended November 30, 2007. The decrease was primarily due to a reduction in interest income resulting from a decrease in cash and available-for-sale securities reflecting the impact of the fiscal 2008 first quarter special dividend, which was funded from cash and liquidation of available-for-sale securities. The decrease also reflects a lower yield on investments.

Income Tax Expense. Income tax expense was $3.9 million for the six months ended November 30, 2008, compared to $2.7 million for the six months ended November 30, 2007. The increase primarily resulted from an increase in pre-tax income together with a modest increase in our effective tax rate primarily due to a decrease in tax-exempt interest income. Our effective tax rate was 38.5% and 38.0%, respectively, for the six months ended November 30, 2008 and 2007.

Liquidity and Capital Resources

Working capital increased approximately $6.1 million to $87.6 million at November 30, 2008, from $81.5 million at May 31, 2008. An approximate $4.0 million reduction in cash and cash equivalents and available-for-sale securities includes, among other factors, a significant increase in inventories partially funded by an increase in accounts payable; the payment of approximately $1.0 million in dividends resulting from the vesting of certain restricted stock units; and, the payment of approximately $1.4 million in individual income taxes resulting from withholding and effectively reacquiring shares of Class A common stock issued in exchange for fully vested restricted stock units and stock options exercised. Inventories increased approximately $12.5 million, which reflects increases in raw material quantities and costs, an increase in finished goods for fiscal 2009 third quarter promotions, consistent with the prior year, as well as other increases including impact of incremental private label business. The increase in prepaid expenses and short-term debt was primarily due to the renewal of certain insurance policies at September 1, 2008 and the financing of the corresponding annual insurance premiums. Accrued expenses increased approximately $0.8 million primarily due to increases in accrued promotional expenses, partially offset by the payment of accrued management annual incentive costs.

As a result of current negative liquidity and uncertainty in financial credit markets, we have continued to liquidate our investments in ARS and other variable rate debt securities. Proceeds from the sale of these available-for-sale securities were invested in money market accounts, certificates of deposit, United States Treasury Bills with maturities of three months or less, and high-quality commercial paper, substantially all of which are included in cash and cash equivalents. At November 30, 2008, we held approximately $1.9 million in available-for-sale securities including approximately $1.3 million in ARS, which are generally fully insured, highly rated municipal or state agency issued securities. Although we have experienced failed auctions with each of 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 in a reasonable period of time. However, we believe the unsuccessful liquidation of some, or all, of these securities over the next twelve months will not significantly impact our current liquidity needs.

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