-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MqIMqBbjYfnol0aKB/FtCzo/JeiwXsz7l2hM/AfIq+B0JUdAl8tdBrAkiLRj6wa2 CMNzmoI8/uJy9/IhORj91Q== 0001022368-06-000012.txt : 20060117 0001022368-06-000012.hdr.sgml : 20060116 20060117160424 ACCESSION NUMBER: 0001022368-06-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051130 FILED AS OF DATE: 20060117 DATE AS OF CHANGE: 20060117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHIFF NUTRITION INTERNATIONAL, INC. CENTRAL INDEX KEY: 0001022368 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 870563574 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14608 FILM NUMBER: 06533099 BUSINESS ADDRESS: STREET 1: 2002 SOUTH 5070 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84104-4726 BUSINESS PHONE: 8019755000 MAIL ADDRESS: STREET 1: 2002 SOUTH 5070 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84104-4726 FORMER COMPANY: FORMER CONFORMED NAME: WEIDER NUTRITION INTERNATIONAL INC DATE OF NAME CHANGE: 19960906 10-Q 1 fy06_q210q.htm FY'06 Q2 10-Q maryjone@schiffnutrition.com
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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 1934
For the quarterly period ended November 30, 2005
 
q
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ____ to ____.
 
Commission file number:
001-14608
 

 
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)

Weider Nutrition International, Inc.
(Former Name or Former Address, if Changed Since Last Report)
 


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 ý No q

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes q No ý

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

The number of shares outstanding of the Registrant's Class A and Class B common stock is 26,463,076 (as of January 12, 2006).
 
 
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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
   
November 30, 2005
 
May 31,
2005
 
   
(unaudited)
     
ASSETS
         
Current assets:
         
Cash and cash equivalents
 
$
24,275
 
$
11,358
 
Investment securities
   
29,075
   
24,212
 
Receivables, net
   
15,382
   
29,300
 
Inventories
   
24,686
   
32,419
 
Prepaid expenses and other
   
3,358
   
4,297
 
Deferred taxes, net
   
3,110
   
2,857
 
               
Total current assets
   
99,886
   
104,443
 
               
Property and equipment, net
   
13,058
   
16,714
 
               
Other assets:
             
Goodwill
   
4,346
   
4,346
 
Intangible assets, net
   
11
   
23
 
Deposits and other assets
   
316
   
1,310
 
Deferred taxes, net
   
   
1,430
 
               
Total other assets
   
4,673
   
7,109
 
               
Total assets
 
$
117,617
 
$
128,266
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
Current liabilities:
             
Accounts payable
 
$
9,317
 
$
16,566
 
Accrued expenses
   
9,983
   
13,577
 
Short-term debt
   
974
   
3,020
 
Income taxes payable
   
   
5,268
 
               
Total current liabilities
   
20,274
   
38,431
 
               
               
Deferred taxes, net
   
673
   
 
               
Commitments and contingencies (Note 8)
             
               
Stockholders' equity:
             
Preferred stock, par value $.01 per share; shares authorized-10,000,000; no shares issued and outstanding
   
   
 
Class A common stock, par value $.01 per share; shares authorized-50,000,000; shares issued and outstanding-11,443,678 and 11,309,910
   
114
   
113
 
Class B common stock, par value $.01 per share; shares authorized-25,000,000; shares issued and outstanding-14,973,148
   
150
   
150
 
Additional paid-in capital
   
87,261
   
86,857
 
Deferred compensation costs
   
(239
)
 
(366
)
Other accumulated comprehensive income
   
   
167
 
Retained earnings
   
9,384
   
2,914
 
               
Total stockholders' equity
   
96,670
   
89,835
 
               
Total liabilities and stockholders' equity
 
$
117,617
 
$
128,266
 
 
 
See notes to condensed consolidated financial statements.

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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
(unaudited)
 
   
Three Months Ended
 
   
November 30,
 
   
2005
 
2004
 
           
Net sales
 
$
35,456
 
$
44,268
 
               
Cost of goods sold
   
24,246
   
28,225
 
               
Gross profit
   
11,210
   
16,043
 
               
Operating expenses:
             
Selling and marketing
   
6,060
   
6,142
 
General and administrative
   
4,081
   
3,369
 
Research and development
   
583
   
911
 
Amortization of intangible assets
   
5
   
6
 
Reimbursement of import costs
   
(908
)
 
 
               
Total operating expenses
   
9,821
   
10,428
 
               
Income from operations
   
1,389
   
5,615
 
               
Other income (expense):
             
Interest income
   
400
   
80
 
Interest expense
   
(38
)
 
(47
)
Foreign currency translation
   
(36
)
 
 
Other, net
   
(21
)
 
(49
)
               
Total other income (expense), net
   
305
   
(16
)
               
Income from continuing operations before income taxes
   
1,694
   
5,599
 
Income tax expense
   
89
   
2,155
 
               
Income from continuing operations
   
1,605
   
3,444
 
Income (loss) from discontinued operations, net of income taxes
   
(70
)
 
20
 
               
Net income
 
$
1,535
 
$
3,464
 
               
Weighted average shares outstanding:
             
Basic
   
26,244,426
   
25,719,341
 
Diluted
   
26,866,171
   
26,486,673
 
               
Net income per share-basic and diluted:
             
Income from continuing operations
 
$
0.06
 
$
0.13
 
Income (loss) from discontinued operations
   
   
 
               
Net income
 
$
0.06
 
$
0.13
 
               
Comprehensive income
 
$
1,535
 
$
3,758
 


See notes to condensed consolidated financial statements.

- 3 -

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

   
Six Months Ended
 
   
November 30,
 
   
2005
 
2004
 
           
Net sales
 
$
83,473
 
$
87,963
 
               
Cost of goods sold
   
59,554
   
55,117
 
               
Gross profit
   
23,919
   
32,846
 
               
Operating expenses:
             
Selling and marketing
   
12,076
   
13,357
 
General and administrative
   
7,643
   
7,092
 
Research and development
   
1,311
   
1,814
 
Amortization of intangible assets
   
11
   
13
 
Reimbursement of import costs
   
(2,288
)
 
 
               
Total operating expenses
   
18,753
   
22,276
 
               
Income from operations
   
5,166
   
10,570
 
               
Other income (expense):
             
Interest income
   
775
   
97
 
Interest expense
   
(76
)
 
(182
)
Foreign currency translation
   
1,577
   
 
Other, net
   
(22
)
 
(101
)
               
Total other income (expense), net
   
2,254
   
(186
)
               
Income from continuing operations before income taxes
   
7,420
   
10,384
 
Income tax expense
   
823
   
3,997
 
               
Income from continuing operations
   
6,597
   
6,387
 
Income (loss) from discontinued operations, net of income taxes
   
(127
)
 
765
 
               
Net income
 
$
6,470
 
$
7,152
 
               
Weighted average shares outstanding:
             
Basic
   
26,176,524
   
25,732,544
 
Diluted
   
26,820,312
   
26,525,174
 
               
Net income per share-basic:
             
Income from continuing operations
 
$
0.25
 
$
0.25
 
Income (loss) from discontinued operations
   
   
0.03
 
               
Net income
 
$
0.25
 
$
0.28
 
               
Net income per share-diluted:
             
Income from continued operations
 
$
0.25
 
$
0.24
 
Income (loss) from discontinued operations
   
(0.01
)
 
0.03
 
               
Net Income
 
$
0.24
 
$
0.27
 
               
Comprehensive income
 
$
6,303
 
$
7,449
 
 

 
See notes to condensed consolidated financial statements.

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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
   
Six Months Ended
 
   
November 30,
 
   
2005
 
2004
 
Cash flows from operating activities:
         
Net income
 
$
6,470
 
$
7,152
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Provision for bad debts
   
   
(87
)
Deferred taxes
   
1,850
   
3,804
 
Depreciation and amortization
   
1,483
   
2,662
 
Foreign currency translation
   
(1,577
)
 
 
Amortization of financing fees
   
28
   
113
 
Amortization of deferred compensation costs
   
82
   
139
 
Other
   
22
   
(23
)
Changes in operating assets and liabilities:
             
Receivables
   
299
   
3,614
 
Inventories
   
(309
)
 
(8,429
)
Prepaid expenses and other
   
(305
)
 
145
 
Deposits and other assets
   
246
   
25
 
Accounts payable
   
826
   
3,333
 
Accrued expenses
   
929
   
(2,522
)
Income taxes
   
(6,272
)
 
1,972
 
               
Net cash provided by operating activities
   
3,772
   
11,898
 
               
Cash flows from investing activities:
             
Purchase of property and equipment
   
(918
)
 
(1,082
)
Purchase of intangibles
   
   
(7
)
Proceeds from sale of property and equipment and assets held for sale
   
3
   
928
 
Proceeds from sale of Haleko Unit, net (Note 1)
   
13,683
   
 
Purchase of investment securities
   
(26,577
)
 
 
Proceeds from sale of investment securities
   
21,714
   
 
Collection of notes receivable
   
300
   
 
               
Net cash provided by (used in) investing activities
   
8,205
   
(161
)
               
Cash flows from financing activities:
             
Issuance of common stock from exercise of options
   
593
   
18
 
Acquisition and retirement of common stock
   
(143
)
 
(108
)
Proceeds from debt
   
1,693
   
2,374
 
Payments on debt
   
(1,220
)
 
(1,635
)
               
Net cash provided by financing activities
   
923
   
649
 
               
Effect of exchange rate changes on cash
   
17
   
278
 
               
Increase in cash and cash equivalents
   
12,917
   
12,664
 
Cash and cash equivalents, beginning of period
   
11,358
   
7,449
 
               
Cash and cash equivalents, end of period
 
$
24,275
 
$
20,113
 
 
Supplemental Cash Flow Information:
Property and equipment additions included in accounts payable were $300 at November 30, 2005.

 
See notes to condensed consolidated financial statements.

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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)
 
1.       
BASIS OF PRESENTATION AND OTHER MATTERS

The accompanying unaudited interim condensed consolidated financial statements ("interim financial statements") 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 notes thereto contained in our Annual Report on Form 10-K for the year ended May 31, 2005 as filed with the Securities and Exchange Commission. The May 31, 2005 consolidated balance sheet, included herein, was derived from audited financial statements, but all disclosures required by generally accepted accounting principles are not provided in the accompanying footnotes. We are a majority-owned subsidiary of Weider Health and Fitness ("WHF").

In our opinion, the accompanying interim financial statements contain all material adjustments necessary for a fair presentation of our financial position and results of operations. Certain prior period amounts have been reclassified to conform with the current interim period presentation. 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.

On October 28, 2005, we announced the formal name change of the company to Schiff Nutrition International, Inc. (previously Weider Nutrition International, Inc.). Shareholders approved the name change at our annual meeting held October 25, 2005.

On June 17, 2005, we announced the sale of our Haleko Unit to Atlantic Grupa of Zagreb, Croatia and certain of its subsidiaries for approximately $15,089 in cash. The transaction included the sale of the capital stock and partnership interests of the international subsidiaries that operate the Haleko business. In connection with the sale, we incurred transaction related costs of approximately $687 and relinquished cash of approximately $719. The transaction closed on June 17, 2005, with an effective date of May 1, 2005 (the first day of Haleko's fiscal year 2006). The impact of the sale on the fiscal 2006 first quarter operating income was not significant.

On April 1, 2005, we announced the sale of certain assets of our Active Nutrition Unit relating to our Weider branded business domestically and internationally to Weider Global Nutrition, LLC ("WGN"), a wholly-owned subsidiary of WHF. The terms of the transaction provided that we receive cash proceeds of $12,877, and a note receivable for $1,100 in exchange for assets relating to the domestic Weider branded business, including inventory, receivables, and intangible and intellectual property, the capital stock of certain of our international subsidiaries related to the international Weider branded business (including the working capital of those subsidiaries), and the assumption of certain associated liabilities by WGN. The transaction closed on April 1, 2005, with an effective date of March 1, 2005.

In connection with the sale of the Weider branded business, the parties also entered into two separate agreements (domestic and European) whereby we provide certain general and administrative, research and development, and logistics services to WGN for an annual fee. The term of the domestic service agreement is for a one year period, with an option by either party for one additional year. The parties have agreed to exercise the option for the second year. In connection with the fiscal 2006 first quarter sale of our Haleko Unit, the European service agreement was transferred to the purchaser of the Haleko Unit. We also received a license to use the Weider name for corporate purposes prior to transitioning to the new name for our company.

The operating results for our Haleko Unit and Weider branded business are reflected as discontinued operations in our condensed consolidated financial statements, including the notes thereto. The remaining assets and related operations for the Active Nutrition Unit, including our Tiger's Milk® and Fi-Bar® brands, have been consolidated into our Schiff® Specialty Unit. We believe our remaining Schiff Specialty Unit, which consists of the aggregation of several product-based operating segments, represents our only reportable segment.

Effective August 16, 2002, we issued 640,000 restricted shares of Class A common stock to certain officers and employees. The aggregate value of these restricted shares was approximately $1,038, which we are expensing on a straight-line basis over the accompanying five-year vesting period. During the fiscal 2006 second quarter, as a result of the termination of certain employees, 8,000 restricted shares vested, 16,000 restricted shares were cancelled, and, concurrent with the vesting, we reacquired (and ultimately retired) 2,612 shares in connection with the payment of individual income taxes. During the fiscal 2006 first quarter, 98,200 restricted shares vested and, as a result of the voluntary termination of an employee, 12,000 restricted shares were cancelled. During the fiscal 2005 first quarter, 124,600 restricted shares vested. During the fiscal 2006 and 2005 first quarters, concurrent with the annual vesting, we reacquired (and ultimately retired) 27,201 and 27,406 shares, respectively, from certain employees in connection with the payment of individual income taxes. To date, of the 640,000 restricted shares originally issued, 358,800 shares have vested, of which 57,219 shares were reacquired (and retired) from certain employees in connection with the payment of individual income taxes, 172,400 shares are subject to future vesting and 108,800 shares have been cancelled.

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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data)
(unaudited)
 
At May 31, 2005, other accumulated comprehensive income consisted only of foreign currency translation adjustments.

We disclose the effect of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") on a proforma basis and continue to follow Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") (as permitted by SFAS No. 123) as it relates to stock based compensation.

Proforma information regarding net income and net income per share is required by SFAS No. 123, as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", and has been determined as if we had accounted for our employee stock options under the fair-value method of SFAS No. 123. For the purposes of proforma disclosure, the estimated fair value of the stock options is amortized to expense over the options' vesting period. Our proforma net income and net income per share are as follows:
   
Six Months Ended
 
   
November 30,
 
   
2005
 
2004
 
           
Net income, as reported
 
$
6,470
 
$
7,152
 
Deduct stock-based employee compensation expense determined under fair-value based method, net of related tax effects
   
(152
)
 
(213
)
               
Net income, proforma
 
$
6,318
 
$
6,939
 
               
Basic net income per share, as reported
 
$
0.25
 
$
0.28
 
Diluted net income per share, as reported
   
0.24
   
0.27
 
Basic net income per share, proforma
   
0.24
   
0.27
 
Diluted net income per share, proforma
   
0.24
   
0.26
 

2.      INVESTMENT SECURITIES
 
            Investment securities at fair value, which approximates unamortized cost, consist of the following:
   
November 30, 2005
 
May 31,
2005
 
           
State and municipality debt securities
 
$
18,365
 
$
12,112
 
Corporate debt securities
   
7,710
   
5,600
 
Corporate equity securities
   
3,000
   
6,500
 
               
   
$
29,075
 
$
24,212
 

All securities are available for immediate sale. Contractual maturities of debt securities are as follows at November 30, 2005:

Less than one year
 
$
 
One to five years
   
300
 
Over five years
   
25,775
 
         
   
$
26,075
 
 
Proceeds from the sale of investment securities, which approximated the unamortized cost of the securities sold, totaled $21,714 for the six months ended November 30, 2005.

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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data)
(unaudited)
 
3.   RECEIVABLES, NET
    
Receivables, net, consist of the following:
         
   
November 30,
 
May 31,
 
   
2005
 
2005
 
           
Trade accounts
 
$
17,700
 
$
32,886
 
Income taxes
   
1,057
   
 
Income tax refund due from WHF
   
361
   
361
 
Current portion of note receivable due from WGN
   
600
   
600
 
Other
   
227
   
215
 
               
     
19,945
   
34,062
 
Less allowances for doubtful accounts, sales returns and discounts
   
(4,563
)
 
(4,762
)
               
Total
 
$
15,382
 
$
29,300
 
 
 
4.   INVENTORIES
 
Inventories consist of the following:
         
   
November 30,
 
May 31,
 
   
2005
 
2005
 
           
Raw materials
 
$
9,717
 
$
11,419
 
Work in process
   
1,587
   
1,887
 
Finished goods
   
13,382
   
19,113
 
               
Total
 
$
24,686
 
$
32,419
 
 
 
5.   GOODWILL AND INTANGIBLE ASSETS, NET
 
 
Goodwill and intangible assets, net, consist of the following:
     
       
   
November 30, 2005
 
May 31, 2005
 
   
Gross Carrying Amount
 
Accumul. Amortiz.
 
Net Book Value
 
Gross Carrying Amount
 
Accumul. Amortiz.
 
Net Book Value
 
                           
Goodwill
 
$
4,346
 
$
 
$
4,346
 
$
4,346
 
$
 
$
4,346
 
                                       
Intangible assets-patents and trademarks
 
$
5,479
 
$
(5,468
)
$
11
 
$
5,479
 
$
(5,456
)
$
23
 

Estimated amortization expense, assuming no changes in our intangible assets, is $23 for fiscal 2006 and zero thereafter.

The carrying amount of goodwill did not change during the first six months of fiscal 2006 or during fiscal 2005.


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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data)
(unaudited)
 
6.        ACCRUED EXPENSES
   
Accrued expenses consist of the following:
         
   
November 30,
 
May 31,
 
   
2005
 
2005
 
           
Accrued personnel related costs
 
$
2,952
 
$
4,564
 
Accrued promotional costs
   
4,387
   
3,927
 
Other
   
2,644
   
5,086
 
               
Total
 
$
9,983
 
$
13,577
 
 
7.        CONCENTRATION RISK

Net sales to our two largest customers combined, are significant. As a result of recent divestitures (see Note 1), our concentration risk has increased. At November 30, 2005, and May 31, 2005, respectively, amounts due from Customer A represented approximately 40% and 21% and amounts due from Customer B represented approximately 28% and 15% of total trade accounts receivable. For the six months ended November 30, 2005 and 2004, respectively, Customer A accounted for approximately 35% and 40% and Customer B accounted for approximately 36% and 32% of total net sales. Net sales of our Schiff Move Free® brand accounted for approximately 47% and 41%, respectively, of total net sales for the six months ended November 30, 2005 and 2004.
 
8.        COMMITMENTS AND CONTINGENCIES

In November 2004, we were named as a defendant in Willis v. American Body Building Products, Optimum Nutrition, Weider Nutrition et. al. filed in Illinois state court. The lawsuit alleged that consumption of an American Body Building brand product containing ephedra caused injuries and damages to the plaintiff. We sold the American Body Building brand to Optimum Nutrition in July 2002, and tendered the matter to Optimum Nutrition under the indemnification provisions of the related Asset Purchase Agreement. Optimum Nutrition initially denied the tender for indemnification, which denial we dispute. This matter was not covered by insurance. We contested the allegations in the complaint and opposed the lawsuit. In December 2005, we settled our portion of the matter with the plaintiff for a nominal amount. In January 2006, the court found that the settlement was made in "good faith" by the parties, and we were dismissed from the case. We continue to seek indemnification from Optimum Nutrition.

We are currently named as a defendant in one other lawsuit alleging that consumption of certain of our discontinued products containing ephedra caused or contributed to injuries and damages. We dispute the allegations, and are opposing the lawsuit. This case is not covered by insurance.

From time to time, we are involved in other claims, legal actions and governmental proceedings that arise from our business operations. Although ultimate liability cannot be determined at the present time, we believe that any liability resulting from these matters, if any, after taking into consideration our insurance coverage will not have a material adverse effect on our results of operations and financial condition. Furthermore, we believe that the estimated liability for potential loss recognized in our financial statements is not material.

9.        RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costs", ("SFAS No. 151"), which amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing", to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be recognized as a current-period expense. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The inventory costing provisions of SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS No. 151 will have a material impact on our results of operations and financial condition.

 
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SCHIFF NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data)
(unaudited)
 
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which replaces SFAS No. 123, and supersedes APB Opinion No. 25. SFAS No. 123R requires that costs resulting from all share-based payment transactions, transactions in which an entity exchanges its equity instruments for goods or services, be recognized in the financial statements. Costs resulting from all share-based payment transactions will be determined by applying a fair-value-based measurement method at the date of the grant, with limited exceptions. Costs will be recognized over the period in which the goods or services are received. The recognition and measurement provisions of SFAS No. 123R are effective for all share-based payment transactions entered into during fiscal years beginning after June 15, 2005. We have not determined the impact SFAS No. 123R will have on our results of operations and financial condition.


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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. We disclaim any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.


Schiff Nutrition International, Inc. (formerly Weider Nutrition International, Inc.) develops, manufactures, markets, distributes and sells branded and private label vitamins, nutritional supplements and nutrition bars in the United States and throughout the world. We offer a broad range of capsules, tablets and nutrition bars. Our portfolio of recognized brands, including Schiff and Tiger's Milk, primarily consists of specialty supplements, vitamins, minerals and nutrition bars, which are primarily marketed through mass market and health food store distribution channels.

On October 28, 2005, we announced the formal name change of the company to Schiff Nutrition International, Inc. (previously Weider Nutrition International, Inc.). Shareholders approved the name change at our annual meeting held October 25, 2005.

During fiscal 2005 and continuing into the first half of fiscal 2006, we experienced margin volatility due to several factors, including significant raw material pricing increases in the joint care category and a continuing strong competitive environment for both branded and private label products. During fiscal 2005 and early fiscal 2006, as a result of the raw material pricing volatility and the inability to secure acceptable price increases from customers, we discontinued certain private label (contract manufacturing) business. During the fiscal 2006 second quarter, raw material pricing in the joint care category decreased moderately and appears to have stabilized. While we believe the fiscal 2006 second half gross profit margin may improve from the fiscal 2006 first half, we anticipate that competitive retail pricing conditions and previous raw material purchase commitments will likely prevent near-term return to fiscal 2005 first half margin levels.

During the first half of fiscal 2006, we continued to provide selling and marketing support intended both to defend our Move Free business against competition, including private label, and ultimately to increase our market share in the joint care product category. During the fiscal 2005 second quarter, we launched our Lubriflex3™ product and supported the introduction with significant selling and marketing support, which continued into fiscal 2006. We believe our Move Free and Lubriflex3 net sales for fiscal 2005 and the first half of fiscal 2006 benefited from this support. At the end of our fiscal 2006 second quarter, we began to ship our new Move Free Advanced product, which we believe is an improved, more effective version of our existing Move Free product. During our fiscal 2006 third quarter, we will continue to introduce Move Free Advanced into certain accounts. In support of the launch of Move Free Advanced and other new joint care initiatives, we expect our selling and marketing support to increase significantly in the fiscal 2006 second half, as compared to the fiscal 2006 first half. Selling and marketing expenses may be low to mid-twenty percent of net sales for the second half of fiscal 2006.

Due to competitive conditions and other factors, we expect branded net sales for fiscal 2006 to reflect a modest increase, as compared to fiscal 2005. However, primarily due to the discontinuation of certain private label (contract manufacturing) business noted above, we expect a modest decrease in overall net sales.

On June 17, 2005, we announced the sale of our Haleko Unit to Atlantic Grupa of Zagreb, Croatia and certain of its subsidiaries for approximately $15.1 million in cash. The transaction included the sale of the capital stock and partnership interests of the international subsidiaries that operate the Haleko business. In connection with the sale, we incurred transaction related costs of approximately $0.7 million and relinquished cash of approximately $0.7 million. The transaction closed on June 17, 2005, with an effective date of May 1, 2005 (the first day of Haleko's fiscal year 2006). The impact of the sale on fiscal 2006 first quarter operating income was not significant.

On April 1, 2005, we announced the sale of certain assets of our Active Nutrition Unit relating to our Weider branded business domestically and internationally to WGN, a wholly-owned subsidiary of WHF. The terms of the transaction provided that we receive cash proceeds of approximately $12.9 million, and a note receivable for $1.1 million in exchange for assets relating to the domestic Weider branded business, including inventory, receivables, and intangible and intellectual property, the capital stock of certain of our international subsidiaries related to our international Weider branded business (including the working capital of those subsidiaries), and the assumption of certain associated liabilities by WGN. The transaction closed on April 1, 2005, with an effective date of March 1, 2005.

In connection with the sale of the Weider branded business, the parties also entered into two separate agreements (domestic and European) whereby we provide certain general and administrative, research and development, and logistics services to WGN for an annual fee. The term of the domestic service

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agreement is for a one year period, with an option by either party for one additional year. The parties have agreed to exercise the option for the second year. In connection with the fiscal 2006 first quarter sale of our Haleko Unit, the European service agreement was transferred to the purchaser of the Haleko Unit. We also received a license to use the Weider name for corporate purposes prior to transitioning to the new name for our company.

The operating results for our Haleko Unit and Weider branded business are reflected as discontinued operations in our condensed consolidated financial statements, including the notes thereto. The remaining assets and related operations for the Active Nutrition Unit, including our Tiger's Milk and Fi-Bar brands, have been consolidated into our Schiff Specialty Unit. We believe our remaining Schiff Specialty Unit, which consists of the aggregation of several product-based operating segments, represents our only reportable segment.

Factors affecting our historical results, including the previous implementation of strategic initiatives as well as continuing refinement of our growth and business strategies, are ongoing considerations and processes. While the focus of these considerations is to improve future profitability, no assurance can be given that our decisions relating to these initiatives will not adversely impact our results of operations and financial condition.

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

Results of Operations (unaudited)
Three Months Ended November 30, 2005 Compared to Three Months
Ended November 30, 2004

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):
   
2005
 
2004
 
           
Net sales
 
$
35,456
 
100.0
%
$
44,268
 
100.0
%
Cost of goods sold
   
24,246
 
68.4
   
28,225
 
63.8
 
                       
Gross profit
   
11,210
 
31.6
   
16,043
 
36.2
 
Operating expenses:
                     
Selling and marketing
   
6,060
 
17.1
   
6,142
 
13.9
 
General and administrative
   
4,081
 
11.5
   
3,369
 
7.6
 
Research and development
   
583
 
1.6
   
911
 
2.0
 
Amortization of intangible assets
   
5
 
   
6
 
 
Reimbursement of import costs
   
(908
)
(2.5
)
 
 
 
Total operating expenses
   
9,821
 
27.7
   
10,428
 
23.5
 
                       
Income from operations
   
1,389
 
3.9
   
5,615
 
12.7
 
Other income (expense), net
   
305
 
0.9
   
(16
)
 
Income tax expense
   
(89
)
(0.3
)
 
(2,155
)
(4.9
)
                       
Income from continuing operations
 
$
1,605
 
4.5
%
$
3,444
 
7.8
%
 
Net Sales. Net sales decreased approximately 19.9% to $35.5 million for the fiscal 2006 second quarter, from $44.3 million for the fiscal 2005 second quarter. Overall, the decrease in net sales was primarily attributable to an expected decrease in private label sales. Private label sales were $6.5 million and $14.7 million, respectively, for the fiscal 2006 and 2005 second quarters. As a result of significant volatility in raw material costing and the inability to secure an acceptable price increase from the customers, we discontinued certain private label (contract manufacturing) business during fiscal 2005 and early fiscal 2006. Net sales for the discontinued private label business amounted to approximately $9.0 million for the fiscal 2005 second quarter. Net sales for our continuing private label business increased by approximately $0.8 million, or 13.4%, quarter over quarter.

Aggregate branded net sales decreased approximately 1.9% to $29.0 million for the fiscal 2006 second quarter, from $29.5 million for the fiscal 2005 second quarter. A branded sales volume increase of approximately $1.8 million, or 5.0%, was more than offset by a $1.6 million increase in branded sales price reductions related to incremental promotional incentives and a $0.7 million net increase in allowances for potential product returns relating to the launch of Move Free Advanced. Classification of promotional costs as a sales reduction is required when the promotion effectively represents a price reduction.  We are utilizing more price-discount like promotions in order to defend our products against the competition, including private label, and to ultimately increase our market share. Move Free net sales were $15.7 million and $16.6 million, respectively, for the fiscal 2006 and 2005 second quarters.

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Gross Profit. Gross profit decreased approximately 30.1% to $11.2 million for the fiscal 2006 second quarter, from $16.0 million for the fiscal 2005 second quarter. Gross profit, as a percentage of net sales, was 31.6% for the fiscal 2006 second quarter, compared to 36.2% for the fiscal 2005 second quarter. The decrease was primarily due to a $3.7 million increase in raw material costs, primarily associated with our joint care category business, and a $1.6 million increase in sales price reductions and allowances for product returns. The decrease was partially offset by an approximate $0.5 million increase due to a change in sales mix. As a result of previous purchase commitments, we anticipate that higher joint care raw material costs will continue to impact gross profit for the remainder of fiscal 2006.

Operating Expenses. Operating expenses decreased approximately 5.8% to $9.8 million for the fiscal 2006 second quarter, from $10.4 million for the fiscal 2005 second quarter. Operating expenses, as a percentage of net sales, were 27.7% and 23.5%, respectively, for the fiscal 2006 and 2005 second quarters. The fiscal 2006 second quarter includes approximately $0.9 million in reimbursements from suppliers of previously incurred costs associated with imported raw materials.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, remained relatively constant quarter over quarter. Selling and marketing expenses, as a percentage of net sales, increased to 17.1% for the fiscal 2006 second quarter, from 13.9% for the fiscal 2005 second quarter. The increase reflects the impact of the approximate $8.2 million quarter over quarter decrease in private label net sales for which promotional spending is nominal. In support of the launch of Move Free Advanced and other new joint care initiatives, we expect our selling and marketing support to increase significantly in the fiscal 2006 second half, as compared to the fiscal 2006 first half.

General and administrative expenses increased to $4.1 million for the fiscal 2006 second quarter, from $3.4 million for the fiscal 2005 second quarter, primarily due to the recognition of certain personnel related incentive costs.

Research and development costs decreased to approximately $0.6 million for the fiscal 2006 second quarter, from $0.9 million for the fiscal 2005 second quarter, primarily resulting from a decrease in contracted research relating to new product initiatives.

Other Income/Expense. Other income/expense, net, was $0.3 million income for the fiscal 2006 second quarter, compared to a nominal expense for the fiscal 2005 second quarter. We recognized approximately $0.3 million of incremental interest income for the fiscal 2006 second quarter resulting from an increase in cash and investment securities.

Provision for Income Taxes. Provision for income taxes was $0.1 million for the fiscal 2006 second quarter, compared to $2.2 million for the fiscal 2005 second quarter. During the fiscal 2006 second quarter, we reduced certain estimated contingent tax liabilities by approximately $0.2 million. Furthermore, income tax expense decreased approximately $0.4 million due to a reduction in our overall projected fiscal 2006 tax rate. As a result, our effective tax rate was 5.3% for the fiscal 2006 second quarter, compared to 38.5% for the fiscal 2005 second quarter.


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Results of Operations (unaudited)
Six Months Ended November 30, 2005 Compared to Six Months
Ended November 30, 2004

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):
   
2005
 
2004
 
           
Net sales
 
$
83,473
 
100.0
%
$
87,963
 
100.0
%
Cost of goods sold
   
59,554
 
71.3
   
55,117
 
62.7
 
                       
Gross profit
   
23,919
 
28.7
   
32,846
 
37.3
 
Operating expenses:
                     
Selling and marketing
   
12,076
 
14.5
   
13,357
 
15.2
 
General and administrative
   
7,643
 
9.1
   
7,092
 
8.1
 
Research and development
   
1,311
 
1.6
   
1,814
 
2.0
 
Amortization of intangible assets
   
11
 
   
13
 
 
Reimbursement of import costs
   
(2,288
)
(2.7
)
 
 
 
Total operating expenses
   
18,753
 
22.5
   
22,276
 
25.3
 
                       
Income from operations
   
5,166
 
6.2
   
10,570
 
12.0
 
Other income (expense), net
   
2,254
 
2.7
   
(186
)
(0.2
)
Income tax expense
   
(823
)
(1.0
)
 
(3,997
)
(4.5
)
                       
Income from continuing operations
 
$
6,597
 
7.9
%
$
6,387
 
7.3
%
 
Net Sales. Net sales decreased approximately 5.1% to $83.5 million for the six months ended November 30, 2005, from $88.0 million for the six months ended November 30, 2004. Overall, the decrease in net sales was primarily attributable to an expected decrease in private label sales, partially offset by an increase in branded joint care category sales. Private label sales were $16.7 million and $26.1 million, respectively, for the six months ended November 30, 2005 and 2004. As a result of significant volatility in raw material costing and the inability to secure an acceptable price increase from the customers, we discontinued certain private label (contract manufacturing) business during fiscal 2005 and early fiscal 2006. Net sales for the discontinued private label business amounted to approximately $1.7 million and $14.7 million, respectively, for the six months ended November 30, 2005 and 2004. Net sales for our continuing private label business increased approximately 31.1% to $15.0 million for the six months ended November 30, 2005, from $11.4 million for the six months ended November 30, 2004.

Aggregate branded net sales increased 8.0% to $66.8 million for the six months ended November 30, 2005, from $61.9 million for the six months ended November 30, 2004. Branded joint care product sales volume, including Lubriflex3 results, increased approximately $8.4 million, or 13.8%, which more than offset a $3.3 million increase in sales price reductions associated with branded sales. Move Free net sales were $39.6 million and $36.5 million, respectively, for the six months ended November 30, 2005 and 2004.

Gross Profit. Gross profit decreased approximately 27.2% to $23.9 million for the six months ended November 30, 2005, from $32.8 million for the six months ended November 30, 2004. Gross profit, as a percentage of net sales, was 28.7% and 37.3%, respectively, for the six months ended November 30, 2005 and 2004. The decrease was primarily due to a $9.2 million increase in raw material costs, primarily associated with our joint care category business, and a $2.9 million increase in sales price reductions. The decrease was partially offset by an approximate $3.2 million increase due to a change in sales mix.

Operating Expenses. Operating expenses decreased approximately 15.8% to $18.8 million for the six months ended November 30, 2005, from $22.3 million for the six months ended November 30, 2004. Operating expenses, as a percentage of net sales, were 22.5% and 25.3%, respectively, for the six months ended November 30, 2005 and 2004. The fiscal 2006 six month results include approximately $2.3 million in reimbursements from suppliers of previously incurred costs associated with imported raw materials.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, decreased to approximately $12.1 million for the six months ended November 30, 2005, from $13.4 million for the six months ended November 30, 2004. Selling and marketing expenses, as a percentage of net sales, were 14.5% and 15.2%, respectively, for the six months ended November 30, 2005 and 2004. The decrease, primarily due to a $2.9 million increase in

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price discount-like promotional costs classified as a reduction of sales, was partially offset by the impact of the approximate $9.4 million decrease in private label sales for which promotional spending is nominal. Classification of promotional costs as a sales reduction is required when the promotion effectively represents a price reduction. We are utilizing more price-discount like promotions in order to defend our products against the competition, including private label, and to ultimately increase our market share.

General and administrative expenses increased to $7.6 million for the six months ended November 30, 2005, from $7.1 million for the six months ended November 30, 2004. An increase in personnel related costs of approximately $1.6 million, including severance expenses of approximately $0.4 million and the recognition of certain incentive costs, was partially offset by a reduction in legal related costs.

Research and development costs decreased to approximately $1.3 million for the six months ended November 30, 2005, from $1.8 million for the six months ended November 30, 2004, primarily resulting from a decrease in contracted research relating to new product initiatives.

Other Income/Expense. Other income/expense, net, was $2.3 million income for the six months ended November 30, 2005, compared to $0.2 million expense for the six months ended November 30, 2004. We recognized approximately $0.7 million of incremental interest income for the six months ended November 30, 2005 resulting from an increase in cash and investment securities. Interest expense decreased as a result of a reduction in financing fees under the current credit facility. Finally, as a result of the recent divestitures of our Haleko and Weider businesses, certain international operating entities were substantially liquidated. Accordingly, we recognized a net non-taxable foreign currency translation gain, previously reported as other accumulated comprehensive income in stockholders’ equity, of approximately $1.6 million during the six months ended November 30, 2005.

Provision for Income Taxes. Provision for income taxes was $0.8 million for the six months ended November 30, 2005, compared to $4.0 million for the six months ended November 30, 2004. In addition to the non-taxable net foreign currency translation gain noted in "Other Income/Expense" above, the fiscal 2006 first quarter sale of the Haleko Unit resulted in the recognition of a gain under Internal Revenue Code Section 987 ("Section 987"). We reduced our estimated deferred tax liability for Section 987 obligations by approximately $0.8 million, which is reflected as a decrease in income tax expense for the six months ended November 30, 2005. As a result of these unusual items, and the impact of significant tax-exempt interest income, our effective tax rate was 11.1% for the six months ended November 30, 2005, compared to 38.5% for the six months ended November 30, 2004.

Liquidity and Capital Resources

Working capital increased approximately $13.6 million to $79.6 million at November 30, 2005, from $66.0 million at May 31, 2005, primarily represented by an increase in cash and investment securities due to the sale of our Haleko Unit and fiscal 2006 six month net earnings.

Effective June 30, 2000, we were party to a senior credit facility (the "Credit Facility") with Bankers Trust Company, on behalf of our domestic subsidiaries. The Credit Facility, as subsequently amended, was comprised of a $45.0 million revolving loan. The Credit Facility, which was being used to fund normal working capital and capital expenditure requirements, was terminated on June 30, 2004 in favor of a new credit facility discussed below.

On June 30, 2004, we entered into, through our wholly-owned direct operating subsidiary Weider Nutrition Group, Inc. ("WNG"), a new $25.0 million revolving credit facility (the "New Credit Facility") with KeyBank National Association, as Agent. The New Credit Facility contains customary terms and conditions, including, among others, financial covenants and certain restrictions. Our obligations under the New Credit Facility are secured by a first priority security interest on all of the capital stock of WNG. 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 the lesser of $25.0 million or the sum of (i) 85% of eligible accounts receivable and (ii) 65% of eligible inventory. Borrowings under the New Credit Facility bear interest at floating rates based on the KeyBank National Association prime rate or the Federal Funds effective rate, and the New Credit Facility matures on June 30, 2007, with options for one-year extensions under certain circumstances. The New 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, 2005, there were no amounts outstanding and $25.0 million was available under the New Credit Facility.

We believe that our cash, 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 our existing business. We may use cash and financing sources discussed herein, or financing sources that subsequently

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become available, to fund additional 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 or investment is completed, our operating results and financial condition could change materially in future periods. However, no assurance can be given that additional funds will be available on satisfactory terms, or at all, to fund such activities.

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

Except as noted below, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

A summary of our outstanding contractual obligations at November 30, 2005 is as follows (in thousands):

Contractual
Cash Obligations
 
Total Amounts Committed
 
Less than
1 year
 
1-3
Years
 
3-5
Years
 
After
5 Years
 
                       
Operating leases
 
$
16,980
 
$
2,248
 
$
4,683
 
$
4,657
 
$
5,392
 
Purchase obligations
   
14,629
   
14,629
   
   
   
 
Debt obligations, including interest
   
984
   
984
   
   
   
 
                                 
Total obligations
 
$
32,593
 
$
17,861
 
$
4,683
 
$
4,657
 
$
5,392
 

Purchase obligations primarily consist 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 inventories and intangible assets, allowances for doubtful accounts, notes receivable, sales returns and discounts, valuation of deferred tax assets and recoverability of long-lived assets. Note 1 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended May 31, 2005, filed with the Securities and Exchange Commission, describes the accounting policies governing each of these matters. Our estimates are based on historical experience and on our future expectations that are believed to be reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our current estimates and those differences may be material.

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

●  
We provide for inventory valuation adjustments for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Inventory valuation adjustments did not materially impact our gross profit for the six months ended November 30, 2005 and 2004. At November 30, 2005 and May 31, 2005, our inventory valuation allowance amounted to approximately $0.9 million and $2.2 million, respectively. The reduction in inventory valuation allowances resulted primarily from the sale of our Haleko Unit. 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 known 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 $0.7 million and $0.4 million, respectively, for the six months ended November 30, 2005 and 2004. At November 30, 2005 and May 31, 2005, our allowance for doubtful accounts, sales returns and discounts amounted to approximately $4.6 million and $4.8 million, respectively. The reduction, which is net of the $0.7 million increase noted above, resulted primarily from the sale of our Haleko Unit. Actual results may differ from our current estimates, resulting in adjustment of the respective allowance(s).

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●  
We currently have deferred tax assets resulting from certain loss carry forwards and other 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. To the extent that it is more likely than not that future operations will not generate sufficient profit to utilize the loss carry forwards, valuation allowances are established. At November 30, 2005 and May 31, 2005, our deferred tax asset valuation allowances, primarily relating to foreign net operating loss and tax credit carry forwards, amounted to approximately $1.0 million and $2.8 million, respectively. The reduction resulted from the sale of our Haleko Unit.

●  
We have certain intangible assets, primarily consisting of goodwill. 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

Historically, we generally have been able to pass inflationary increases for raw materials and other costs on to our customers through price increases. While we will continue efforts to do so in the future, we cannot assure you that we will be successful. Recently, we have been unable to pass on to our customers increased raw material costs relating to our joint care products. See further discussion of raw material pricing matters in the "General" and "Results of Operations" sections above, and under "Forward Looking Statements" below.


Our business can be seasonal, with 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.

Forward-Looking Statements

Investors are cautioned that, except for the historical information contained herein, the matters discussed in this Quarterly Report 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, that 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" 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 affect our future performance or cause these forward-looking statements to be false include, but are not limited to the following.

Dependence on Significant Customers. Our largest customers are Costco and Wal-Mart. Combined, these two customers accounted for approximately 71% and 72%, respectively, of our total net sales (after giving effect to the divestitures of our Weider branded business and Haleko Unit) for the six months ended November 30, 2005 and 2004. Due to the divestitures of our Weider branded business and Haleko Unit, the concentration in these customers for our remaining operations has increased. The loss of either Costco or Wal-Mart as a customer, or a significant reduction in purchase volume by Costco or Wal-Mart, could have a material adverse effect on our results of operations and financial condition. We do not have supply contracts with either Costco or Wal-Mart and therefore we cannot assure you that Costco and/or Wal-Mart will continue to be significant customers.

Dependence on Individual Products and Product Lines. Certain products and product lines account for a significant amount of our total net sales. Net sales for our Schiff Move Free brand were approximately 47% and 41%, respectively, of our total net sales (after giving effect to the divestitures of our Weider branded business and Haleko Unit) for the six months ended November 30, 2005 and 2004. Due to the divestitures of our Weider branded business and Haleko Unit, our concentration in this brand and the joint care category has increased. We cannot assure you that Schiff Move Free or other of our products currently experiencing strong popularity and growth will maintain sales levels over time. In support of the launch of our new Move Free Advanced product and other new joint care initiatives, we expect our selling and marketing support to increase significantly in the fiscal 2006 second half, as compared to the fiscal 2006 first half. The inability to successfully implement the marketing and spending programs or strategic initiatives in support of Schiff Move Free Advanced and other branded products could have a material adverse effect on our results of operations and financial condition.

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Availability and Cost of Raw Materials. We obtain all of our raw materials for the manufacture of our products from third parties. A significant portion of our raw materials relates to our joint care category. We cannot assure you that suppliers will provide the raw materials we need in the quantities requested, at a price we are willing to pay or that meet our quality standards and labeling requirements. Any significant delay in or disruption of the supply of raw materials could, among other things, substantially increase the cost of such materials, require reformulation or repackaging of products, require the qualification of new suppliers, or result in our inability to meet customer demands for certain products. During fiscal 2005 and continuing into the first half of fiscal 2006, we experienced margin volatility due to several factors, including significant raw material pricing increases in the joint care category and a continuing strong competitive environment. During fiscal 2005 and early fiscal 2006, as a result of the raw material pricing volatility and the inability to secure acceptable price increases from customers, we discontinued certain private label (contract manufacturing) business. During the fiscal 2006 second quarter, raw material pricing in the joint care category decreased moderately and appears to have stabilized. As a result of previous purchase commitments, we anticipate that higher joint care raw material costs will continue to impact gross profit for at least the remainder of fiscal 2006.

In addition, we acquire a significant amount of ingredients for a number of our products (particularly joint care products) from suppliers outside of the United States, particularly in China. Accordingly, the acquisition of these ingredients is subject to the risks generally associated with importing raw materials, including, among other factors, delays in shipments, changes in economic and political conditions, quality assurance, tariffs, trade disputes and foreign currency fluctuations. The discovery of Bovine Spongiform Encephalopathy, commonly referred to as "mad cow disease", in a country from which we obtain a significant amount of our raw materials (particularly related to the joint care category) derived from bovine sources could prevent us from purchasing such raw materials in the required quantities, at an acceptable price, or at all. The occurrence of any of the foregoing, particularly with respect to raw materials needed for our joint care products, could have a material adverse effect on our results of operations and financial condition.

Dependence on New Products. We believe our ability to grow in existing markets is partially dependent upon our ability to introduce new and innovative products. Although we seek to introduce additional products each year, the success of new products is subject to a number of variables, including developing products that will appeal to customers and comply with applicable regulations. For example, if we are unable to successfully launch and/or gain distribution for Schiff Move Free Advanced, other product enhancements or new product offerings, our results of operations could suffer. We cannot assure you that our efforts to develop and introduce new products or existing product innovations will be successful, or that customers will accept new products.

Acquisitions and Investments. An element of our strategy going forward includes expanding our product offerings, enhancing business development and gaining access to new skills and other resources through strategic acquisitions and investments when attractive opportunities arise. There can be no assurance that attractive acquisition opportunities will be available to us, that we will be able to obtain financing for or otherwise consummate any acquisitions or that any acquisitions which are consummated will prove to be successful.

Risks of Competition. The market for the sale of nutritional supplements is highly competitive. Certain of our principal competitors have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities. Private label products of our customers, which have been significantly increasing in certain nutrition categories, also create significant competition with our products. Pricing pressure could adversely affect our ability to pass on raw material price increases to customers and negatively impact our financial performance, as shown by the recent increases in our joint product raw material costs. During fiscal 2005 and early fiscal 2006, as a result of the raw material pricing volatility and the inability to secure acceptable price increases from customers, we discontinued certain private label (contract manufacturing) business. Increased competition from competitors, including private label, or increased pricing pressure, could have a material adverse effect on our results of operations and financial condition.

Effect of Unfavorable Publicity. We believe our sales depend on consumer perceptions of the safety, quality and efficacy of our products as well as products distributed and sold by other companies. Consumer perceptions are influenced by national media attention regarding our products and other nutritional supplements. We expect that there will be some unfavorable future publicity or scientific research. Future unfavorable reports or publicity could have a material adverse effect on our results of operations and financial condition.

Product Liability and Availability of Related Insurance. As a manufacturer and distributor of products designed to be ingested, we face an inherent risk of exposure to product liability claims. Certain damages in litigation, such as punitive damages, are generally not covered by insurance. In the event that we do not have adequate insurance or other indemnification coverage, product liability claims could have a material adverse effect on our results of operations and financial condition.

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We have been and are currently named as a defendant in product liability lawsuits allegedly regarding certain of our former ephedra products. Subsequent to September 1, 2003, we have not maintained any insurance coverage regarding ephedra products. None of our ongoing lawsuits regarding ephedra products is covered by insurance. In connection with the sale of the American Body Building and Science Foods brands in July 2002, we discontinued the sale of products that contain ephedra. However, we cannot assure you that we will not be subject to further litigation with respect to ephedra products we have already sold.

Impact of Government Regulation on Our Operations. Our operations, properties and products are subject to regulation by various foreign, federal, state and local government entities and agencies, particularly the Food and Drug Administration ("FDA") and Federal Trade Commission ("FTC"). Among other matters, government regulation covers statements and claims made in connection with the packaging, labeling, marketing and advertising of our products. Governmental agencies have a variety of processes and remedies available to them, including initiating investigations, issuing warning letters and cease and desist orders, requiring corrective labeling or advertising, requiring consumer redress, seeking injunctive relief or product seizure, imposing civil penalties or commencing criminal prosecution. As a result of our efforts to comply with applicable statutes and regulations, from time to time we have reformulated, eliminated or relabeled certain of our products and revised certain aspects of our sales, marketing and advertising programs. We cannot assure you that we will not have to make such changes or revisions in the future, which changes or revisions could have a material adverse effect on our results of operations and financial condition.

The FDA has proposed extensive good manufacturing practice regulations for dietary supplements. In addition, we may be subject to additional laws or regulations administered by federal, state, or foreign regulatory authorities, the repeal or amendment of laws or regulations which we consider favorable, such as the Dietary Supplement Health and Education Act of 1994, as amended, or more stringent interpretations of current laws or regulations. We are unable to predict the nature of such future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. Any or all of these requirements and the related costs to comply with such requirements could have a material adverse effect on our results of operations and financial condition.

Restrictions Imposed by Terms of Our Indebtedness. Our borrowing arrangements impose certain financial and operating covenants, including, among others, requirements that we maintain, under certain circumstances, certain financial ratios and satisfy certain financial tests, limitations on capital expenditures and limitations on our ability to incur debt, pay dividends, or take certain other corporate actions, all of which may restrict our ability to expand or pursue our business strategies. Changes in economic or business conditions, results of operations or other factors could cause a violation of one or more covenants in our credit facility.

Control by Principal Stockholder. WHF owns all of our outstanding shares of Class B common stock, representing over 90% of the aggregate voting power of all outstanding shares of our common stock. WHF is in a position to exercise control over us and to determine the outcome of all matters required to be submitted to stockholders for approval (except as otherwise provided by law or by our amended and restated certificate of incorporation or amended and restated bylaws) and otherwise to direct and control our operations. Accordingly, we cannot engage in any strategic transactions without the approval of WHF.

Third-Party Intellectual Property Rights and Proprietary Techniques. Although the nutritional supplement industry has historically been characterized by products with naturally occurring ingredients in pill or tablet form, recently it is becoming more common for suppliers and competitors to apply for patents or develop proprietary technologies and processes. Although we seek to ensure that we do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against us. To the extent that these developments prevent us from offering or supplying competitive products or ingredients in the marketplace, or result in litigation or threatened litigation against us related to alleged or actual infringement of third-party rights, these developments could have a material adverse effect on our results of operations and financial condition.

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 are subject to fluctuations resulting from changes in interest rates. Previously, our cash flows and net earnings were also subject to fluctuations resulting from changes in foreign currency exchange rates. However, as a result of the recent divestitures of our Weider branded business and Haleko Unit, we no longer have operating subsidiaries whose net sales and expenses are denominated in foreign currencies. Therefore, changes in foreign currency exchange rates are not expected to have a material impact on future cash flows and net earnings. 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.

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We measure market risk, related to our holdings of financial instruments, based on changes in interest rates utilizing a sensitivity analysis. We do not believe that a hypothetical 10% change in interest rates would have a material effect on our pretax earnings or cash flows.

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 Securities and Exchange Commission'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 SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of 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 quarter covered by this report. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

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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PART II. OTHER INFORMATION

LEGAL PROCEEDINGS

The information set forth in Note 8 to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q is incorporated herein by reference.

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 2006 second quarter:
 
Period
 
Total number
of shares purchased
 
Average price paid per share
 
Total number
of shares purchased as part of publicly announced plans or programs
 
Maximum number of shares that may
yet be purchased under the plans
or programs
                 
September 1 - September 30
 
 
 
 
                 
October 1 - October 31
 
  2,612(1)
 
$ 5.29
 
 
                 
November 1 - November 30
 
 
 
 
                 
Total
 
2,612
 
$ 5.29
 
 
   

(1) Repurchase of these shares was to satisfy employee tax withholding obligations due upon vesting of restricted shares. See Note 1 to the Notes to Condensed Consolidated Financial Statements.

DEFAULTS UPON SENIOR SECURITIES

Not applicable

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our Annual Meeting of Stockholders was held on October 25, 2005 for the following purposes:

Proposal 1: Election of our Board of Directors.
 
For
 
Withheld Authority
Eric Weider
154,130,658
 
5,214,554
George F. Lengvari
154,120,258
 
5,224,954
Bruce J. Wood
154,063,541
 
5,281,671
Ronald L. Corey
155,590,492
 
3,754,720
Roger H. Kimmel
154,120,258
 
5,224,954
Brian P. McDermott
155,590,392
 
3,754,820
H.F. Powell
155,543,607
 
3,801,605

Proposal 2: Approval of the Amendment to our Amended and Restated Certificate of Incorporation to change our company name from Weider Nutrition International, Inc. to Schiff Nutrition International, Inc.
    
For
 
Against
 
Abstentions
155,657,648
 
2,868,819
 
818,745

OTHER INFORMATION

Not applicable

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EXHIBITS

3.1.
Amended and Restated Certificate of Incorporation of Schiff Nutrition International, Inc. (12)
3.2.
Amended and Restated Bylaws of Weider Nutrition International, Inc. (1)
4.1.
Credit Agreement dated as of June 30, 2004 between Weider Nutrition Group, Inc. and KeyBank National Association. (2)
10.1.
Build-To-Suit Lease Agreement, dated March 20, 1996, between SCI Development Services Incorporated and Weider Nutrition Group, Inc. (1)
10.2.
Agreement by and between Joseph Weider and Weider Health and Fitness. (1)
10.3.
1997 Equity Participation Plan of Weider Nutrition International, Inc. (1)
10.4.
Form of Tax Sharing Agreement by and among Weider Nutrition International, Inc. and its subsidiaries and Weider Health and Fitness and its subsidiaries. (1)
10.5.
License Agreement between Mariz Gestao E Investmentos Limitada and Weider Nutrition Group, Limited. (1)
10.6.
Agreement between Weider Nutrition Group, Inc. and Bruce J. Wood. (3)*
10.7.
Form Agreement between Weider Nutrition Group, Inc. and certain of its executives. (3)*
10.8.
Amendments to 1997 Equity Participation Plan of Weider Nutrition International, Inc. (4)
10.9.
Employment Agreement between Weider Nutrition Group, Inc. and Bruce J. Wood. (5)*
10.10.
Consulting Agreement between Weider Nutrition Group, Inc. and Gustin Foods, LLC dated as of February 1, 2004. (6)
10.11.
Weider Nutrition International, Inc. 2004 Incentive Award Plan. (7)
10.12.
Amendment effective as of March 1, 2005 to License Agreement between Mariz Gestao E Investmentos Limitada and Weider Nutrition Group, Inc. (8)
10.13.
Stock and Asset Purchase Agreement effective as of March 1, 2005 among Weider Nutrition International, Inc., Weider Nutrition Group, Inc. and Weider Global Nutrition, LLC. (8)
10.14.
Promissory Note of Weider Global Nutrition, LLC payable to Weider Nutrition Group, Inc. (8)
10.15.
Guarantee by Weider Health and Fitness in favor of Weider Nutrition International, Inc. and Weider Nutrition Group, Inc. (8)
10.16.
Share Sale and Transfer Agreement dated June 17, 2005 among Weider Nutrition GmbH, Haleko Management GmbH, Atlantic Grupa d.o.o., Hopen Investments BV and Svalbard Investments GmbH. (9)
10.17.
Form of Indemnification Agreement between Weider Nutrition Group, Inc. and certain of its executives and directors. (10)*
21.1.
Subsidiaries of Schiff Nutrition International, Inc. (11)
31.1.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. (12)
31.2.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. (12)
32.1.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. (12)

(1)
Previously filed in the Company's Registration Statement on Form S-1 (File No. 333-12929) and incorporated herein by reference.
(2)
Previously filed in the Company's Current Report on Form 8-K filed on July 8, 2004 and incorporated herein by reference.
(3)
Previously filed in the Company's Annual Report on Form 10-K filed on August 28, 2003 and incorporated herein by reference.
(4)
Previously filed in the Company's Quarterly Report on Form 10-Q filed on January 14, 2002 and incorporated herein by reference.
(5)
Previously filed in the Company's Annual Report on Form 10-K filed on August 29, 2002 and incorporated herein by reference.
(6)
Previously filed in the Company's Quarterly Report on Form 10-Q filed on April 14, 2004 and incorporated herein by reference.
(7)
Previously filed in the Company's Definitive Proxy Statement on Form 14A filed on September 28, 2004 and incorporated herein by reference.
(8)
Previously filed in the Company's Current Report on Form 8-K filed on April 4, 2005 and incorporated herein by reference.
(9)
Previously filed in the Company's Current Report on Form 8-K filed on June 23, 2005 and incorporated herein by reference.
(10)
Previously filed in the Company's Current Report on Form 8-K filed on August 10, 2005 and incorporated herein by reference.
(11)
Previously filed in the Company's Annual Report on Form 10-K filed on August 29, 2005 and incorporated herein by reference.
(12)
Filed herewith.
   
*
Management contract.


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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 17, 2006
By:
/s/ BRUCE J. WOOD
   
Bruce J. Wood
   
President, Chief Executive Officer and Director



Date: January 17, 2006
By:
/s/ JOSEPH W. BATY
   
Joseph W. Baty
   
Executive Vice President and Chief Financial Officer
 
 
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SCHIFF NUTRITION INTERNATIONAL, INC.

4.  
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EX-3.1 2 exhibit3_1certofincfy06q2.htm SCHIFF NUTRITION INTL. CERTIFICATE OF INCORPORATION (06Q2 FILING) Schiff Nutrition Intl. Certificate of Incorporation (06Q2 FILING)
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF

SCHIFF NUTRITION INTERNATIONAL, INC.



Adopted in accordance with the provisions of Section 242 and Section 245 of the General Corporation Law of the State of Delaware.

We, the Chief Executive Officer and President and Chief Operating Officer, Executive Vice President and Secretary of Schiff Nutrition International, Inc. (the "Corporation"), a corporation existing under the laws of the State of Delaware, do hereby certify as follows:

FIRST: That the Corporation was incorporated August 8, 1996.

SECOND: That the Certificate of Incorporation of the Corporation has been amended and restated in its entirety as follows:

ARTICLE I

NAME

The name of the Corporation shall be Schiff Nutrition International, Inc.

ARTICLE II

REGISTERED OFFICE

The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805-1297 in the City of Wilmington. The name of the Corporation's registered agent at such address is The Prentice-Hall Corporation System, Inc.

ARTICLE III

PURPOSES

The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
 
 
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ARTICLE IV

CAPITAL STRUCTURE

The total number of shares of all classes of stock that the Corporation shall have the authority to issue is eighty-five million (85,000,000) shares, consisting of:
(a) fifty million (50,000,000) shares of Class A common stock, par value $.01 per share (the "Class A Common Stock");

(b) twenty-five million (25,000,000) shares of Class B common stock, par value $.01 per share (the "Class B Common Stock"); and

(c) ten million (10,000,000) shares of preferred stock, par value $.01 per share (the "Preferred Stock").

The Board of Directors of the Corporation (the "Board of Directors") is hereby expressly vested with authority to provide for the issuance of shares of Preferred Stock in one or more classes or one or more series, with such voting powers, full or limited, or no voting powers, and with such designations, preferences and relative, participating, optional and other special rights, and qualifications, limitations or restrictions thereof, if any, as shall be stated and expressed in the resolution or resolutions providing for such issue adopted by the Board of Directors under the General Corporation Law of the State of Delaware. Except as otherwise provided by law, the holders of the Preferred Stock of the Corporation shall only have such voting rights as are provided for or expressed in the resolutions of the Board of Directors relating to such Preferred Stock adopted pursuant to the authority contained in the Certificate of Incorporation.


ARTICLE V

VOTING RIGHTS

Subject to the limitations provided by law and subject to any voting rights applicable to shares of the Preferred Stock, the Class A Common Stock and the Class B Common Stock shall have the sole right and power to vote on all matters on which a vote of shareholders is to be taken. In all matters, with respect to actions both by vote and by consent, each holder of shares of the Class A Common Stock shall be entitled to cast one vote in person or by proxy for each share of Class A Common Stock standing in such holder's name on the transfer books of the Corporation; and each holder of shares of the Class B Common Stock shall be entitled to cast ten votes in person or by proxy for each share of Class B Common Stock standing in such holder's name on the transfer books of the Corporation. Except as otherwise provided above and subject to the limitations provided by law and subject to any voting rights applicable to shares of the Preferred Stock, the holders of shares of the Class A Common Stock and Class B Common Stock shall vote together as a single class, together with the holders of any shares of the Preferred Stock which are entitled to vote, and not as a separate class.
 

 
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ARTICLE VI

BOARD OF DIRECTORS

The business and affairs of the Corporation shall be managed by the Board of Directors. The Board of Directors shall consist of three or more members as determined by the bylaws of the Corporation. A director shall hold office until his or her successor shall be elected and duly qualified; provided, however, that any director of the Corporation may be removed from office with or without cause by the affirmative vote of holders of a majority of the capital stock of the Corporation entitled to vote thereon at any annual or special meeting of stockholders of the Corporation.

Newly created directorships resulting from any increase in the number of directors or any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the newly created directorship was created or the vacancy occurred.


ARTICLE VII

BYLAWS

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the bylaws of the Corporation.


ARTICLE VIII

ELECTION OF DIRECTORS

The election of directors of the Corporation need not be by written ballot unless the bylaws of the Corporation shall so provide.


ARTICLE IX

DIVIDENDS

Subject to the rights, if any, of the holders of Preferred Stock then outstanding, the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall be entitled to receive when, as, and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of capital stock of the Corporation. Upon consummation of the Corporation's initial public offering of Class A Common Stock, the holders of shares of Class B Common Stock shall be entitled to a one-time dividend payment of $18.0 million.


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ARTICLE X

CONVERSION

The holders of shares of the Class A Common Stock shall not have the right to convert their shares of Class A Common Stock into any other securities.

The holders of shares of the Class B Common Stock at their election shall have the right, at any time or from time to time, to convert any or all of their shares of Class B Common Stock into shares of Class A Common Stock, on a one to one basis, by delivery to the Corporation of the certificates representing such shares of Class B Common Stock duly endorsed for such conversion. Any shares of the Class B Common Stock that are transferred will automatically convert into shares of the Class A Common Stock, on a one to one basis, effective as of the date on which certificates representing such shares are presented for transfer on the books of the Corporation.


ARTICLE XI

INDEMNIFICATION

The Corporation shall, to the fullest extent permitted by Delaware law, indemnify any person (the "Indemnitee") who is or was involved in any manner (including, without limitation, as a party or a witness) in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action, suit or proceeding brought by or in the right of the Corporation to procure a judgment in its favor) (a "Proceeding") by reason of the fact that the Indemnitee is or was a director or officer of the Corporation, or is or was serving another entity in such capacity at the request of the Corporation, against all expenses and liabilities actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding (including attorneys' fees).


THIRD: That such amended and restated Certificate of Incorporation has been duly adopted in accordance with Section 242 and Section 245 of the General Corporation Law of the State of Delaware by the written consent of a majority of the stockholders of the Corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware.
 
 
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EX-31.1 3 exhibit31_1fy06q2.htm EXHIBIT 31.1 (06Q2 FILING) Exhibit 31.1 (06Q2 FILING)
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Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
I, Bruce J. Wood, certify that:
 
        1.     I have reviewed this quarterly report on Form 10-Q of Schiff Nutrition International, Inc.;
 
        2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
        3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
        4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
 
        (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
        (b)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
        (c)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
        5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
        (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
        (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
 
Date: January 17, 2006
/s/  BRUCE J. WOOD
 
Bruce J. Wood
  Chief Executive Officer
 

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EX-31.2 4 exhibit31_2fy06q2.htm EXHIBIT 31.2 (06Q2 FILING) Exhibit 31.2 (06Q2 FILING)
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Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
I, Joseph W. Baty, certify that:
 
1.     I have reviewed this quarterly report on Form 10-Q of Schiff Nutrition International, Inc.;
 
2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
 
(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: January 17, 2006
/s/  JOSEPH W. BATY
 
Joseph W. Baty
 
Chief Financial Officer
 
 
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EX-32.1 5 exhibit32_1fy06q2.htm EXHIBIT 32.1 (06Q2 FILING) Exhibit 32.1 (06Q2 FILING)
Shortcut to QuickLinks                                                                                  EXHIBIT 32.1

 
The following certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
 
 
Certification of Chief Executive Officer
 
        Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Schiff Nutrition International, Inc., a Delaware corporation (the "Company"), hereby certifies, to his knowledge, that:
 
          (i)  the accompanying Quarterly Report on Form 10-Q of the Company for the period ended November 30, 2005 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
 
         (ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Dated: January 17, 2006
/s/  BRUCE J. WOOD 
 
Bruce J. Wood
 
Chief Executive Officer
 
 A signed original of this written statement required by Section 906 has been provided to Schiff Nutrition International, Inc. and will be retained by Schiff Nutrition International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.


Certification of Chief Financial Officer
 
        Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Schiff Nutrition International, Inc. a Delaware, corporation (the "Company"), hereby certifies, to his knowledge, that:
 
          (i)  the accompanying Quarterly Report on Form 10-Q of the Company for the period ended November 30, 2005 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
 
         (ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Dated: January 17, 2006
/s/  JOSEPH W. BATY
 
Joseph W. Baty
 
Chief Financial Officer
 
     
A signed original of this written statement required by Section 906 has been provided to Schiff Nutrition International, Inc. and will be retained by Schiff Nutrition International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
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