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 fiscal 2010 first quarter, 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 believe we have resolved the temporary raw material supply issues, and we plan to continue to expand distribution of MegaRed into new accounts and resume 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 low single-digit percentage increase.

Operating results for the fiscal 2010 first quarter, as compared to the fiscal 2009 first quarter, were positively impacted by a higher mix of branded sales. During the second half of fiscal 2009, we discontinued certain private label products resulting in a current quarter over quarter decrease in private label sales. This decrease in lower-margin private label sales resulted in an overall higher gross margin for the fiscal 2010 first quarter, as compared to the fiscal 2009 first quarter. Our operating results for the fiscal 2010 first quarter, as compared to the fiscal 2009 first quarter, were also impacted by the deferral of certain advertising expenses as described above. We believe advertising expense for subsequent fiscal 2010 quarters will exceed the fiscal 2010 first quarter amount.

Our operating results for the fiscal 2010 first quarter 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 fiscal 2010 first quarter operating results. 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 impacted by the recognition of compensation expense related to these Performance Awards.

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.

Results of Operations (unaudited)
Three Months Ended August 31, 2009 Compared to Three Months
Ended August 31, 2008

The following tables show comparative results for selected items as reported and
as a percentage of net sales for the three months ended August 31, (dollars in
thousands):
                                     2009                     2008

Net sales                    $ 48,565       100.0 %   $ 47,790       100.0 %
Cost of goods sold             29,403        60.5       29,912        62.6

Gross profit                   19,162        39.5       17,878        37.4
Operating expenses:
Selling and marketing           6,633        13.6        8,133        17.0
General and administrative      4,259         8.8        3,737         7.8
Research and development        1,244         2.6          988         2.1

Total operating expenses       12,136        25.0       12,858        26.9

Income from operations          7,026        14.5        5,020        10.5
Other income, net                  36           -          279         0.6
Income tax expense             (2,671 )      (5.5 )     (2,050 )      (4.3 )

Net income                   $  4,391         9.0 %   $  3,249         6.8 %

Net Sales. Net sales increased approximately 1.6% to $48.6 million for the fiscal 2010 first quarter, from $47.8 million for the fiscal 2009 first quarter, primarily due to an increase in branded net sales, substantially offset by a decrease in private label sales.

Aggregate branded net sales increased approximately 10.4% to $35.8 million for the fiscal 2010 first quarter, from $32.5 million for the fiscal 2009 first quarter. An increase in sales volume of approximately $3.5 million, or 7.5%, together with approximately $0.6 million in aggregate sales price increases and an approximate $0.9 million decrease in sales return allowances, was offset by an 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. While our overall joint care category net sales reflected an approximate 4.0% quarter over quarter sales volume increase, the increase in branded sales volume was primarily attributable to an increase in MegaRed sales. Move Free net sales were $17.5 million and $19.4 million, respectively, for the fiscal 2010 and 2009 first quarters. We believe the decrease in Move Free net sales, along with the increase in other joint care category net sales, primarily resulted from promotional timing considerations.

Private label sales decreased approximately 17.0% to $12.8 million for the fiscal 2010 first quarter, from $15.3 million for the fiscal 2009 first quarter, primarily due to the discontinuation of certain unprofitable private label products in the second half of fiscal 2009. With respect to our on going private label business, an approximate $0.7 million sales volume decrease was more than offset by approximately $1.0 million in certain sales price increases instituted in the fiscal 2009 fourth quarter.

Gross Profit. Gross profit increased approximately 7.2% to $19.2 million for the fiscal 2010 first quarter, from $17.9 million for the fiscal 2009 first quarter. Gross profit, as a percentage of net sales, increased to 39.5% for the fiscal 2010 first quarter, from 37.4% for the fiscal 2009 first quarter, primarily resulting from the higher mix of branded sales. Subject to raw material pricing and the overall branded to private label sales mix, we believe fiscal 2010 gross profit percentage will be 36.0% to 38.0%, compared to a fiscal 2009 gross profit percent of 35.2%.

Operating Expenses. Operating expenses decreased approximately 5.6% to $12.1 million for the fiscal 2010 first quarter, from $12.9 million for the fiscal 2009 first quarter. Operating expenses, as a percentage of net sales, were 25.0% and 26.9%, respectively, for the fiscal 2010 and 2009 first quarters. The decrease in operating expenses resulted primarily from a significant decrease in selling and marketing expenses, partially offset by increases in general and administrative and research and development expenses.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, decreased to approximately $6.6 million for the fiscal 2010 first quarter, from $8.1 million for the fiscal 2009 first quarter, primarily due to a temporary reduction in advertising expenses. As a result of certain raw material supply issues for our MegaRed product, which we believe have since been resolved, we elected to temporarily delay certain television advertising originally scheduled for the fiscal 2010 first quarter. As a result, we believe advertising expense for the fiscal 2010 second quarter as well as subsequent fiscal 2010 quarters, will exceed the fiscal 2010 first quarter amount. In addition, increases in accrued long-term and annual management incentive program costs totaling approximately $0.3 million were substantially offset by a decrease in other personnel related costs primarily due to a reduction in head count.

General and administrative expenses increased to approximately $4.3 million for the fiscal 2010 first quarter, from approximately $3.7 million for the fiscal 2009 first quarter, primarily resulting from increases in accrued long-term and annual management incentive program costs totaling approximately $0.9 million, partially offset by a decrease in legal and other professional fees.

Research and development costs increased to approximately $1.2 million for the fiscal 2010 first quarter, from approximately $1.0 million for the fiscal 2009 first quarter, primarily resulting from an increase in product clinical research costs.

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

Provision for Income Taxes. Provision for income taxes was $2.7 million for the fiscal 2010 first quarter, compared to $2.1 million for the fiscal 2009 first quarter. The increase resulted from an increase in pre-tax income, partially offset by a moderate decrease in our effective tax rate primarily due to an estimated increase in certain tax credits. The fiscal 2010 first quarter tax rate was 37.8%, compared to the fiscal 2009 first quarter tax rate of 38.7%.

Liquidity and Capital Resources

Working capital decreased approximately $9.8 million to $82.4 million at August 31, 2009, from $92.2 million at May 31, 2009, reflecting an approximate $3.7 million reduction in cash and cash equivalents and available-for-sale securities, an approximate $3.5 million reduction in net receivables and an approximate $3.0 million increase in current liabilities. The decrease in cash and cash equivalents and available-for-sale securities reflects the special dividend payment of approximately $14.4 million and capital expenditures of approximately $0.6 million, which more than offset the approximately $11.6 million in cash flows provided by operating activities. The decrease in net receivables reflects an approximate $1.8 million decrease in net trade accounts receivable primarily due to a decrease in net sales for August of fiscal 2010, as compared to May of fiscal 2009, together with an approximate $1.6 million reduction in refundable income taxes. The overall $2.7 million change in income taxes receivable/payable was primarily due to income tax expense recognized as a result of the fiscal 2010 first quarter operating results. The approximate $0.7 million increase in accrued expenses primarily results from an increase in accrued annual management incentive costs.

At August 31, 2009, we held approximately $5.2 million in available-for-sale securities, consisting of approximately $4.5 million in certificates of deposit and approximately $0.7 million in debt securities; including approximately $0.5 million in illiquid ARS which are fully insured, state agency issued securities. Although we have experienced failed auctions 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 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 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 (the "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 August 31, 2009, there were no amounts outstanding and $80.0 million 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.

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 August 31, 2009 is as follows (in thousands):

                                  Total Amounts      Less than         1-3           3-5          More than
Contractual Cash Obligations(1)     Committed         1 Year          Years         Years          5 Years

Operating leases                  $       8,361     $     2,374     $   4,639     $   1,348     $           -
Purchase obligations(2)                  18,696          18,696             -             -                 -

Total obligations                 $      27,057     $    21,070     $   4,639     $   1,348     $           -

(1) Unrecognized income tax benefits totaling approximately $229 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 and 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 both the fiscal 2010 and 2009 first quarters, inventory valuation adjustments resulted in a decrease in our gross profit and operating income of approximately $0.1 million. 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 $0.5 million, respectively, for the fiscal 2010 and 2009 first quarters. At August 31, 2009 and May 31, 2009, our allowances for doubtful accounts, sales returns and discounts amounted to approximately $2.0 million and $2.3 million, respectively. Actual results may differ from our current estimates, resulting in adjustment of the respective allowance(s).

· We recognize tax benefits relative to certain tax positions in which we may be uncertain as to whether that tax position will ultimately be sustained as filed in our tax return. The recognition or derecognition of these tax benefits is subject to periodic evaluation of the sustainability of the tax position based upon changes in facts, circumstances or available information. Changes in the recognition of these tax benefits did not significantly impact net income for the fiscal 2010 and 2009 first quarters. At both August 31, 2009 and May 31, 2009, unrecognized tax benefits totaled approximately $0.2 million.

· We currently have deferred tax assets resulting from temporary differences between financial and income tax reporting. These deferred tax assets are subject to periodic recoverability assessments. The realization of these deferred tax assets is primarily dependent on future operating results. At both August 31, 2009 and May 31, 2009, deferred tax asset valuation allowances were nil; thus, changes in these valuation allowances did not impact net income for the fiscal 2010 and 2009 first quarters.

· 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 fiscal 2010 first quarter, we recognized compensation expense related to existing awards of approximately $0.5 million. For the fiscal 2009 first quarter, we did not recognize any compensation expense related to existing awards. At August 31, 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 approximately $1.3 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 competitive environment limits our ability to recover higher costs resulting from inflation by raising prices.

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.