UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

           /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED: DECEMBER 30, 2006

                                       OR

          / / 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 0-19725

                                 PERRIGO COMPANY
                                 ---------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                      MICHIGAN                                38-2799573
                      --------                                ----------
           (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
           INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

                 515 EASTERN AVENUE

                  ALLEGAN, MICHIGAN                              49010
                  -----------------                              -----
                (ADDRESS OF PRINCIPAL                         (ZIP CODE)
                 EXECUTIVE OFFICES)

                                 (269) 673-8451
                                 --------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                 NOT APPLICABLE
                                 --------------
              (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
                          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, and (2) has been subject to such filing requirements
for the past 90 days. YES /X/ NO / /

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

LARGE ACCELERATED FILER /X/   ACCELERATED FILER / /   NON-ACCELERATED FILER / /

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  / / YES  /X/ NO

As of January 29, 2007 the registrant had 92,589,609 outstanding shares of
common stock.

                                 PERRIGO COMPANY

                                    FORM 10-Q

                                      INDEX




                                                                              PAGE
                                                                             NUMBER
                                                                             -------
                                                                            
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS                           1
PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed consolidated statements of income -- For the quarters
and year-to-date ended December 30, 2006 and December 24, 2005                 2

Condensed consolidated balance sheets -- December 30, 2006, July 1, 2006,
and December 24, 2005                                                          3

Condensed consolidated statements of cash flows -- For the year-to-date
ended December 30, 2006 and December 24, 2005                                  4

Notes to condensed consolidated financial statements                           5

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations                                                         13

Item 3. Quantitative and Qualitative Disclosures About Market Risks           24

Item 4. Controls and Procedures                                               25

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings                                                     26

Item 1A.  Risk Factors                                                        26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds           27

Item 4.  Submission of Matters to a Vote of Security Holders                  27

Item 6. Exhibits                                                              28

SIGNATURES                                                                    29


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor created thereby. These statements relate to
future events or the Company's future financial performance and involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, levels of activity, performance or achievements of the Company or its
industry to be materially different from those expressed or implied by any
forward-looking statements. In particular, statements about the Company's
expectations, beliefs, plans, objectives, assumptions, future events or future
performance contained in this report, including certain statements contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking statements. In some cases, forward-looking
statements can be identified by terminology such as "may," "will," "could,"
"would," "should," "expect," "plan," "anticipate," "intend," "believe,"
"estimate," "predict," "potential" or the negative of those terms or other
comparable terminology. Please see Item 1A of the Company's Form 10-K for the
year ended July 1, 2006 and Item 1A of this Form 10-Q for a discussion of
certain important risk factors that relate to forward-looking statements
contained in this report. The Company has based these forward-looking statements
on its current expectations, assumptions, estimates and projections. While the
Company believes these expectations, assumptions, estimates and projections are
reasonable, such forward-looking statements are only predictions and involve
known and unknown risks and uncertainties, many of which are beyond the
Company's control. These and other important factors may cause actual results,
performance or achievements to differ materially from those expressed or implied
by these forward-looking statements. The forward-looking statements in this
report are made only as of the date hereof, and unless otherwise required by
applicable securities laws, the Company disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.


                                      -1-

                                 PERRIGO COMPANY

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (in thousands, except per share amounts)
                                   (unaudited)




                                         Second Quarter              Year-to-Date
                                        2007         2006         2007         2006
                                      ---------    ---------    ---------    ---------
                                                                 
Net sales                             $ 370,629    $ 359,697    $ 710,844    $ 679,431
Cost of sales                           272,304      254,127      517,902      486,945
                                      ---------    ---------    ---------    ---------
Gross profit                             98,325      105,570      192,942      192,486
                                      ---------    ---------    ---------    ---------

Operating expenses
   Distribution                           7,155        6,953       14,539       14,103
   Research and development              14,902       12,226       27,949       24,875
   Selling and administration            49,239       47,082       97,713       93,470
   Restructuring                            642           --          642           --
                                      ---------    ---------    ---------    ---------
     Total                               71,938       66,261      140,843      132,448

Operating income                         26,387       39,309       52,099       60,038
Interest, net                             3,300        5,116        7,886        9,142
Other income, net                        (2,258)      (5,791)      (2,319)      (7,037)
                                      ---------    ---------    ---------    ---------
Income before income taxes               25,345       39,984       46,532       57,933
Income tax expense                        4,257       14,618        8,562       19,656
                                      ---------    ---------    ---------    ---------
Net income                            $  21,088    $  25,366    $  37,970    $  38,277
                                      =========    =========    =========    =========

Earnings per share
   Basic                              $    0.23    $    0.27    $    0.41    $    0.41
   Diluted                            $    0.23    $    0.27    $    0.41    $    0.41

Weighted average shares outstanding
   Basic                                 91,836       92,833       92,104       93,063
   Diluted                               93,506       93,963       93,595       94,167

Dividends declared per share          $  0.0450    $  0.0425    $  0.0875    $  0.0825


     See accompanying notes to condensed consolidated financial statements.


                                      -2-

                                 PERRIGO COMPANY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)



                                                                  December 30,    July 1,     December 24,
                                                                      2006         2006          2005
                                                                  -----------   -----------   -----------
                                                                  (unaudited)                 (unaudited)
                                                                                     
Assets
Current assets
   Cash and cash equivalents                                      $    39,635   $    19,018   $    15,840
   Investment securities                                               34,030        26,733        10,717
   Accounts receivable                                                246,603       240,130       235,672
   Inventories                                                        322,624       302,941       262,855
   Current deferred income taxes                                       50,358        52,058        52,140
   Prepaid expenses and other current assets                           24,515        16,298        21,841
                                                                  -----------   -----------   -----------
          Total current assets                                        717,765       657,178       599,065

Property and equipment                                                629,325       606,907       594,802
   Less accumulated depreciation                                      308,999       287,549       282,196
                                                                  -----------   -----------   -----------
                                                                      320,326       319,358       312,606
Restricted cash                                                       400,000       400,000       400,000
Goodwill                                                              188,272       152,183       150,067
Other intangible assets                                               134,187       132,426       141,079
Non-current deferred income taxes                                      46,039        43,143        36,130
Other non-current assets                                               47,474        46,336        45,129
                                                                  -----------   -----------   -----------
                                                                  $ 1,854,063   $ 1,750,624   $ 1,684,076
                                                                  ===========   ===========   ===========

Liabilities and Shareholders' Equity
Current liabilities
   Accounts payable                                               $   173,008   $   179,740   $   149,541
   Notes payable                                                       18,333        20,081        20,975
   Payroll and related taxes                                           41,049        54,153        42,021
   Accrued customer programs                                           45,436        49,534        50,775
   Accrued liabilities                                                 44,328        45,335        55,898
   Accrued income taxes                                                23,311        14,132        11,539
   Current deferred income taxes                                        6,193         8,456        13,727
                                                                  -----------   -----------   -----------
          Total current liabilities                                   351,658       371,431       344,476

Non-current liabilities
   Long-term debt                                                     668,784       621,717       634,956
   Non-current deferred income taxes                                  106,702        81,923        64,182
   Other non-current liabilities                                       34,646        34,809        34,807
                                                                  -----------   -----------   -----------
          Total non-current liabilities                               810,132       738,449       733,945

Shareholders' equity
   Preferred stock, without par value, 10,000 shares authorized            --            --            --
   Common stock, without par value, 200,000 shares authorized         509,910       516,098       518,459
   Accumulated other comprehensive income (loss)                       31,456         3,593        (8,645)
   Retained earnings                                                  150,907       121,053        95,841
                                                                  -----------   -----------   -----------
          Total shareholders' equity                                  692,273       640,744       605,655
                                                                  -----------   -----------   -----------
                                                                  $ 1,854,063   $ 1,750,624   $ 1,684,076
                                                                  ===========   ===========   ===========

Supplemental Disclosures of Balance Sheet Information
   Allowance for doubtful accounts                                $    12,198   $    11,178   $    11,088
   Allowance for inventory                                        $    39,098   $    42,509   $    44,201
   Working capital                                                $   366,107   $   285,747   $   254,589
   Preferred stock, shares issued                                          --            --            --
   Common stock, shares issued                                         92,666        92,922        93,104



     See accompanying notes to condensed consolidated financial statements.


                                      -3-

                                 PERRIGO COMPANY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)




                                                                    Year-To-Date
                                                                  2007         2006
                                                                ---------    ---------
                                                                       
Cash Flows (For) From Operating Activities
   Net income                                                   $  37,970    $  38,277
     Adjustments to derive cash flows
       Depreciation and amortization                               27,681       26,753
       Share-based compensation                                     5,718        4,741
       Deferred income taxes                                       (4,248)      (7,506)
                                                                ---------    ---------
   Sub-total                                                       67,121       62,265

   Changes in operating assets and liabilities
      Accounts receivable                                          (9,295)     (23,845)
      Inventories                                                 (22,919)      11,956
      Accounts payable                                             (4,034)       5,480
      Payroll and related taxes                                   (12,658)        (580)
      Accrued customer programs                                    (4,098)       9,109
      Accrued liabilities                                            (937)      (3,133)
      Accrued income taxes                                          9,480      (12,811)
      Other                                                        (5,025)       6,797
                                                                ---------    ---------
   Sub-total                                                      (49,486)      (7,027)
         Net cash from operating activities                        17,635       55,238
                                                                ---------    ---------

Cash Flows (For) From Investing Activities
   Purchase of securities                                        (117,746)     (27,887)
   Proceeds from sales of securities                              111,665       34,586
   Additions to property and equipment                            (19,784)     (12,112)
   Proceeds from sales of property and equipment                    2,613           --
                                                                ---------    ---------
         Net cash for investing activities                        (23,252)      (5,413)
                                                                ---------    ---------

Cash (For) From Financing Activities
   Repayments of short-term debt, net                              (1,699)      (4,471)
   Borrowings of long-term debt                                    60,000       15,000
   Repayments of long-term debt                                   (15,000)     (35,000)
   Tax effect of stock transactions                                   (59)        (635)
   Issuance of common stock                                         3,700        3,006
   Repurchase of common stock                                     (15,547)     (16,401)
   Cash dividends                                                  (8,116)      (7,702)
                                                                ---------    ---------
         Net cash (for) from financing activities                  23,279      (46,203)
                                                                ---------    ---------

         Net increase in cash and cash equivalents                 17,662        3,622
Cash and cash equivalents, at beginning of period                  19,018       16,707
Effect of exchange rate changes on cash                             2,955       (4,489)
                                                                ---------    ---------
Cash and cash equivalents, at end of period                     $  39,635    $  15,840
                                                                =========    =========

Supplemental Disclosures of Cash Flow Information
   Cash paid/received during the period for:
      Interest paid                                             $  17,062    $  17,680
      Interest received                                         $   9,831    $  10,614
      Income taxes paid                                         $   6,727    $  32,361
      Income taxes refunded                                     $   1,369    $   5,164



     See accompanying notes to condensed consolidated financial statements.


                                      -4-


                                 PERRIGO COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 30, 2006
                    (in thousands, except per share amounts)

Perrigo Company is a leading global healthcare supplier and the world's largest
manufacturer of over-the-counter (OTC) pharmaceutical and nutritional products
for the store brand market. The Company also develops and manufactures generic
prescription (Rx) drugs, active pharmaceutical ingredients (API) and consumer
products.

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals and other adjustments) considered necessary for a fair presentation
have been included. The Company has reclassified certain amounts in prior years
to conform to the current year presentation.

Operating results for the six months ended December 30, 2006 are not necessarily
indicative of the results that may be expected for the full year. The unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes included in the Company's
annual report on Form 10-K for the year ended July 1, 2006.

New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement 109, Accounting for Income Taxes" (FIN 48),
which clarifies the accounting for uncertainty in income taxes. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The Interpretation requires that the Company recognize in
the financial statements the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure. The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006 with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. The adoption of the
Interpretation is not expected to have a material impact on the Company's
consolidated financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) 157, "Fair Value Measurements". This statement clarifies the definition
of fair value, establishes a framework for measuring fair value and expands the
disclosures on fair value measurements. SFAS 157 is effective for the Company's
fiscal year ending June 27, 2009. The Company has not yet determined if the
adoption of this statement will have a material impact on its results of
operations or financial position.


                                      -5-



In September 2006, the FASB issued SFAS 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
87, 88, 106 and 132(R)". SFAS 158 requires companies to recognize a net
liability or asset and an offsetting net of tax adjustment to accumulated other
comprehensive income to report the funded status of defined benefit pension and
other postretirement benefit plans. SFAS 158 requires prospective application,
and the recognition and disclosure requirements are effective for the Company's
fiscal year ending June 30, 2007. Based on preliminary evaluations of SFAS 158,
the Company does not expect the adoption of this requirement of the statement to
have a material impact on its results of operations or financial position.
Additionally, SFAS 158 requires companies to measure plan assets and obligations
at their year-end balance sheet date. This requirement is effective for the
Company's fiscal year ending June 27, 2009. Since the Company's measurement date
currently aligns with its year-end balance sheet date, this requirement will
have no impact on the Company's results of operations or financial position.

In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin 108, "Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements" (SAB 108).
SAB 108 provides guidance on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the current year's financial
statements are materially misstated. SAB 108 becomes effective during the
Company's 2007 fiscal year. The Company does not expect that the adoption of SAB
108 will have a material impact on its results of operations or financial
position.

NOTE B -- EARNINGS PER SHARE

A reconciliation of the numerators and denominators used in the basic and
diluted earnings per share (EPS) calculation follows:



                                                                 Second Quarter                       Year-to-Date
                                                              -------------------------          ------------------------
                                                               2007              2006             2007             2006
                                                               ----              ----             ----             ----
                                                                                                      
Numerator:
Net income used for both basic and diluted EPS                $21,088           $25,366          $37,970          $38,277
                                                              =======           =======          =======          =======
Denominator:
Weighted average shares outstanding for basic EPS              91,836            92,833           92,104           93,063

Dilutive effect of share-based awards                           1,670             1,130            1,491            1,104
                                                                -----             -----            -----            -----
Weighted average shares outstanding for diluted EPS            93,506            93,963           93,595           94,167
                                                              =======           =======          =======          =======


Share-based awards outstanding that are anti-dilutive were 2,787 and 4,877 for
the second quarters of fiscal 2007 and 2006, respectively, and 2,702 and 4,374
for year-to-date fiscal 2007 and 2006, respectively. These share-based awards
were excluded from the diluted EPS calculation.


                                      -6-



NOTE C -- INVENTORIES

Inventories are summarized as follows:



                           December 30,             July 1,             December 24,
                               2006                  2006                   2005
                               ----                  ----                   ----
                                                               
Finished goods               $157,036              $148,603               $132,841
Work in process                81,293                70,974                 56,988
Raw materials                  84,295                83,364                 73,026
                             --------              --------               --------
                             $322,624              $302,941               $262,855
                             ========              ========               ========


The Company maintains an allowance for estimated obsolete or unmarketable
inventory based on the difference between the cost of inventory and its
estimated market value. The inventory balances stated above are net of an
inventory allowance of $39,098 at December 30, 2006, $42,509 at July 1, 2006 and
$44,201 at December 24, 2005.

NOTE D -- GOODWILL

Goodwill allocated to the Consumer Healthcare segment is tested annually for
impairment in the second quarter of the fiscal year. The current year testing
resulted in no impairment charge related to the Consumer Healthcare segment. The
goodwill allocated to the API and Rx Pharmaceuticals segments is tested for
impairment annually in the third quarter of the fiscal year.

There were no acquisitions, dispositions or impairments of goodwill during
fiscal 2007. Changes in the carrying amount of goodwill, by reportable segment,
are as follows:




                                            Consumer               Rx
                                          Healthcare          Pharmaceuticals        API                Total
                                          ----------          ---------------        ---                -----
                                                                                          
Balance as of July 1, 2006                  $44,452               $61,406          $46,325            $152,183
Goodwill adjustment                              --                14,877           11,223              26,100
Currency translation adjustment               2,363                 4,366            3,260               9,989
                                            -------               -------          -------            --------
Balance as of December 30, 2006             $46,815               $80,649          $60,808            $188,272
                                            =======               =======          =======            ========


During the first quarter of fiscal 2007, the Company recorded an adjustment to
goodwill for the Rx Pharmaceuticals and API segments. This adjustment was to
record a deferred tax liability for income and withholding taxes related to
pre-acquisition earnings in an approved enterprise zone in Israel. In accordance
with Emerging Issues Task Force 93-7, "Uncertainties Related to Income Taxes in
a Purchase Business Combination" (EITF 93-7), the Company treated this item as
an uncertain tax position at the time of the acquisition. Until the first
quarter of fiscal 2007, the Company was unable to reasonably estimate the
liability that was required. Certain factors still remain that could change the
ultimate liability and result in subsequent changes in goodwill. Provision has
not been made for U.S. or additional foreign taxes on undistributed
post-acquisition earnings of foreign subsidiaries because those earnings are
considered permanently reinvested in the operations of those subsidiaries.


                                      -7-



NOTE E -- INTANGIBLE ASSETS

Intangible assets and related accumulated amortization consist of the following:



                                            December 30, 2006                   July 1, 2006
                                      -----------------------------      ------------------------------
                                                       Accumulated                         Accumulated
                                       Gross           Amortization       Gross            Amortization
                                       -----           ------------       -----            ------------
                                                                               
Developed product technology /
 formulation                          $124,896            $15,230        $117,615             $10,656
Distribution and
 license agreements                     19,696              4,870          18,755               3,765
Customer relationships                   4,900              3,358           4,900               2,698
Trademarks                               9,649              1,496           9,503               1,228
                                      --------            -------        --------             -------
         Total                        $159,141            $24,954        $150,773             $18,347
                                      ========            =======        ========             =======


The Company recorded a charge for amortization expense of $6,424 and $6,845 for
the first half of fiscal 2007 and 2006, respectively, for intangible assets
subject to amortization.

The estimated amortization expense for each of the following five years is as
follows:



         Fiscal Year             Amount
         -----------             ------
                              
            2007 (1)             $5,650
            2008                 10,700
            2009                 11,200
            2010                  9,300
            2011                  9,300


(1)  Reflects remaining six months of fiscal 2007.


                                      -8-




NOTE F -- OUTSTANDING DEBT

Total borrowings outstanding are summarized as follows:



                                                              December 30, 2006          July 1, 2006         December 24, 2005
                                                             ---------------------    -------------------    ---------------------
                                                                                                    
Short-term debt:
     Swingline loan                                                       $18,333                $19,195                   $8,232
     Bank loan -- Germany subsidiary                                            -                      -                    8,301
     Bank loans -- Mexico subsidiary                                            -                    886                    4,442
                                                             ---------------------    -------------------    ---------------------
               Total                                                       18,333                 20,081                   20,975
                                                             ---------------------    -------------------    ---------------------

Long-term debt:
     Revolving line of credit                                             125,000                 80,000                   95,000
     Term loan                                                            100,000                100,000                  100,000
     Letter of undertaking -- Israel subsidiary                           400,000                400,000                  400,000
     Debenture -- Israel subsidiary                                        43,784                 41,717                   39,956
                                                             ---------------------    -------------------    ---------------------
               Total                                                      668,784                621,717                  634,956
                                                             ---------------------    -------------------    ---------------------

               Total debt                                                $687,117               $641,798                 $655,931
                                                             =====================    ===================    =====================


The terms of the loan related to the letter of undertaking indicated above
require that the Company maintain a deposit of $400,000 in an uninsured account
with the lender as security for the loan. The deposit is classified as
restricted cash in the balance sheet as a non-current asset.

NOTE G -- SHAREHOLDERS' EQUITY

The Company has a common stock repurchase program. Purchases are made on the
open market, subject to market conditions, and are funded by available cash or
borrowings. All common stock repurchased is retired upon purchase. The Company
has a 10b5-1 plan that allows brokers selected by the Company to repurchase
shares on behalf of the Company at times when it would ordinarily not be in the
market because of the Company's trading policies. The Company repurchased 251
shares of its common stock for $4,309 and 563 shares of its common stock for
$7,842 during the second quarter of fiscal 2007 and 2006, respectively.
Year-to-date, the Company repurchased 961 shares of its common stock for $15,547
and 1,169 shares for $16,401 in fiscal 2007 and 2006, respectively.
Year-to-date, private party transactions accounted for 18 shares and 111 shares
in fiscal 2007 and 2006, respectively.

                                      -9-



NOTE H - COMPREHENSIVE INCOME

Comprehensive income is comprised of all changes in shareholders' equity during
the period other than from transactions with shareholders. Comprehensive income
consists of the following:



                                                                   -------------------------------   -------------------------------
                                                                           Second Quarter                     Year-to-Date
                                                                   -------------------------------   -------------------------------
                                                                       2007              2006            2007              2006
                                                                   --------------    -------------   --------------    -------------
                                                                                                           
Net income                                                               $21,088          $25,366          $37,970          $38,277

Other comprehensive income (loss):

     Change in fair value of derivative instruments, net of tax               78            1,260          (1,708)            3,289
     Foreign currency translation adjustments                             14,151          (5,567)           30,448         (10,641)
     Change in fair value of investment securities, net of tax             (234)               64            (877)              394
                                                                   --------------    -------------   --------------    -------------
Comprehensive income                                                     $35,083          $21,123          $65,833          $31,319
                                                                   ==============    =============   ==============    =============


NOTE I -- COMMITMENTS AND CONTINGENCIES

The Company is not a party to any litigation, other than routine litigation
incidental to its business except for the litigation described below. The
Company believes that none of the routine litigation, individually or in the
aggregate, will be material to the business of the Company.

In August 2004, the Company reached a settlement with the United States Federal
Trade Commission (FTC) and states' attorneys general offices regarding a now
terminated agreement between Alpharma, Inc. and the Company related to a
children's ibuprofen suspension product. In connection with the Alpharma, Inc.
agreement and the related FTC settlement, the Company has been named as a
defendant in three suits, two of which are class actions that have been
consolidated with one another (the Direct Purchaser Action), filed on behalf of
Company customers (i.e., retailers), and the other consisting of four class
action suits (the Indirect Purchaser Action), filed on behalf of indirect
Company customers (i.e., consumers), alleging that the plaintiffs overpaid for
children's ibuprofen suspension product as a result of the Company's agreement
with Alpharma, Inc. On April 24, 2006, the court in the Direct Purchaser Action
issued an order and final judgment approving the settlement of this matter with
respect to defendants Alpharma, Inc. and the Company. The Company agreed to pay
$3,000 as part of the settlement of the Direct Purchaser Action. Separately,
Alpharma, Inc. and the Company entered into a settlement agreement to resolve
the Indirect Purchaser Action for a combination of cash and product donations of
approximately $1,000. On December 11, 2006, the court granted final approval of
the settlement for the Indirect Purchaser Action. The Company recorded income of
$500 in the second quarter of fiscal 2007 for the reduction of the associated
accruals and considers all related issues to be closed.

The Company is defending a few remaining individual lawsuits pending in various
state and federal courts involving phenylpropanolamine (PPA), an ingredient used
in the manufacture of certain OTC cough/cold and diet products. The Company
discontinued using PPA in the U.S. in November 2000 at the request of the United
States Food and Drug Administration (FDA). These cases allege that the plaintiff
suffered injury, generally some type of stroke, from ingesting PPA-containing
products. Many of these suits also name other manufacturers or retailers of
PPA-containing products. These personal injury suits seek an unspecified amount
of compensatory, exemplary and statutory damages. The Company maintains

                                      -10-



product liability insurance coverage for the claims asserted in these lawsuits.
The Company believes that it has meritorious defenses to these lawsuits and
intends to vigorously defend them. At this time, the Company cannot determine
whether it will be named in additional PPA-related suits, the outcome of
existing suits or the effect that PPA-related suits may have on its financial
condition or operating results.

In addition to the foregoing discussion, the Company has pending certain other
legal actions and claims incurred in the normal course of business. The Company
believes that it has meritorious defenses to these lawsuits and/or is covered by
insurance and is actively pursuing the defense thereof. The Company believes the
resolution of all of these matters will not have a material adverse effect on
its financial condition and results of operations as reported in the
accompanying consolidated financial statements. However, depending on the amount
and timing of an unfavorable resolution of these lawsuits, the Company's future
results of operations or cash flow could be materially impacted in a particular
period.

The Company's Israeli subsidiary has provided a guaranty to a bank to secure the
debt of a 50% owned joint venture for approximately $470, not to exceed 50% of
the joint venture's debt, that is not recorded on the Company's condensed
consolidated balance sheets as of December 30, 2006.

NOTE J - SEGMENT INFORMATION

The Company has three reportable segments, aligned primarily by product:
Consumer Healthcare, Rx Pharmaceuticals and API as well as an Other category.
The majority of corporate expenses, which generally represent shared services,
are charged to operating segments as part of a corporate allocation. Unallocated
expenses are comprised of certain corporate services that are not allocated to
the segments. These corporate services generally relate to executive management,
human resources, finance and information technology. Fiscal 2006 unallocated
expenses also included one-time acquisition integration costs.



                                             Consumer        Rx Pharma-                                 Unallocated
                                            Healthcare       ceuticals         API         Other          expenses          Total
                                            ----------       ---------         ---         -----          --------          -----
                                                                                                        
Second Quarter 2007
   Net sales                                 $275,947          $28,260       $28,633      $37,789                -        $370,629
   Operating income (loss)                    $17,420           $3,686        $5,929       $2,976         $(3,624)         $26,387

Second Quarter 2006
   Net sales                                 $270,222          $28,645       $26,863      $33,967                -        $359,697
   Operating income (loss)                    $31,436           $5,300        $6,545         $994         $(4,966)         $39,309

Year-to-Date 2007
   Net sales                                 $517,756          $59,685       $58,412      $74,991                -        $710,844
   Operating income (loss)                    $34,520           $9,473       $10,587       $5,640         $(8,121)         $52,099

Year-to-Date 2006
   Net sales                                 $497,322          $57,739       $53,654      $70,716                -        $679,431
   Operating income (loss)                    $44,762           $9,136       $13,131         $130         $(7,121)         $60,038


                                      -11-



NOTE K -- RESTRUCTURING

In the fourth quarter of fiscal 2006, as a result of an ongoing review of its
Consumer Healthcare operating strategies, the Company's Board of Directors
approved plans to exit two unprofitable product lines, effervescent tablets and
psyllium-based laxatives. This action resulted in the sale of one Michigan plant
and the closure of an additional Michigan plant, both in the second quarter of
fiscal 2007. The Company recorded a gain of $1,276 in the second quarter of
fiscal 2007 based on the cash proceeds from the sale of the plant. The gain is
included in the restructuring line of the income statement. The Company also
recorded a $1,500 note receivable from the buyer of the plant. This amount,
reflecting further gain on the sale of the plant, has been deferred and will be
recognized as the note is repaid over the next five years. In addition, the
Company incurred a charge of $1,918 in the second quarter of fiscal 2007 for
employee-related and plant shutdown costs. The employee-related charge was
$1,151 for termination benefits for 72 employees. Unpaid termination benefits of
$657 as of December 30, 2006 are expected to be paid over the next six months.

In connection with the Agis acquisition, the Company accrued $3,933 of
restructuring costs, consisting of employee termination benefits for 60
employees and certain lease termination costs. The Company made payments to
employees of $415 in the first half of fiscal 2007. For accounting purposes,
these restructuring costs were included in the allocation of the total purchase
price. The activity related to these restructuring costs is as follows:



                                                    Fiscal 2005 Restructuring
                                  ------------------------------------------------------
                                  Employee Termination                Lease Termination
                                  --------------------                -----------------
                                                                
Balance at July 1, 2006                      $871                             $1,098
Payments                                    (415)                               (65)
                                      ------------                       ------------
Balance at December 30, 2006                 $456                             $1,033
                                      ============                       ============


                                      -12-




                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                    SECOND QUARTER FISCAL YEARS 2007 AND 2006
                    (in thousands, except per share amounts)

OVERVIEW

Segments -- The Company has three reportable segments, aligned primarily by
product: Consumer Healthcare, Rx Pharmaceuticals and API as well as an Other
category. The Consumer Healthcare segment includes the U.S., U.K. and Mexico
operations supporting the sale of OTC pharmaceutical and nutritional products
worldwide. The Rx Pharmaceuticals segment supports the development and sale of
prescription drug products. The API segment supports the development and
manufacturing of API products in Israel and Germany, with sales to customers
worldwide. The Other category consists of two operating segments, Israel
Consumer Products and Israel Pharmaceutical and Diagnostic Products, with sales
primarily to the Israeli market, including cosmetics, toiletries, detergents,
manufactured and imported pharmaceutical products and medical diagnostic
products. Neither of these operating segments meets the quantitative thresholds
required to be separately reportable segments.

Seasonality -- The Company's sales of OTC pharmaceutical and nutritional
products are subject to the seasonal demands for cough/cold/flu and allergy
products. Accordingly, operating results for the first half of fiscal 2007 are
not necessarily indicative of the results that may be expected for a full year.

Current Year Results -- Net sales for the second quarter of fiscal 2007 were
$370,629, an increase of 3% over fiscal 2006. The increase was driven primarily
by the Consumer Healthcare segment and Other category. New product sales for the
second quarter of fiscal 2007 were approximately $23,000. Gross profit was
$98,325, a decrease of 7% over fiscal 2006. The gross profit percentage in the
second quarter of fiscal 2007 was 26.5%, down from 29.3% last year. Operating
expenses in the second quarter of fiscal 2007 were $71,938, an increase of 9%
over fiscal 2006, and included a net restructuring charge of $642. Operating
expenses as a percent of net sales were 19.4%, up from 18.4% in the second
quarter of fiscal 2006. Net income was $21,088, a decrease of 17% from fiscal
2006. The second quarter of fiscal 2007 was negatively impacted by the
acetaminophen product recall, the effect of which was partially offset by the
favorable effective tax. Fiscal 2006 included a gain from the sale of the
Company's non-controlling interest in Shandex Sales Group Ltd. (Canada).

Net sales for the first half of fiscal 2007 were $710,844, an increase of 5%
over fiscal 2006. The increase spanned all of the Company's segments and
included new product sales of approximately $33,000. Gross profit was
essentially unchanged from fiscal 2006. The gross profit percentage in the first
half of fiscal 2007 was 27.1%, down from 28.3% last year. Operating expenses
were $140,843, an increase of 6% over fiscal 2006 and up slightly as a percent
of net sales over fiscal 2006. Net income was $37,970, a decrease of 1% from
fiscal 2006. The first half of fiscal 2007 was negatively impacted by the
acetaminophen product recall, the effect of which was partially offset by the
favorable effective tax rate.

Further details related to current year results are included in the following
Results of Operations.

                                      -13-



Product Recall -- On November 9, 2006, the Company initiated a voluntary
retail-level recall of certain lots of its acetaminophen 500 mg caplets
containing raw material purchased from a third party supplier. The Company's
quality control systems noted trace amounts of metal particulate in a very small
number of these caplet products. The probability of health risk is extremely
remote. Following the announcement of the recall, the Company received numerous
consumer inquiries, and in order to properly address these inquiries,
voluntarily initiated a consumer level return program in addition to the retail
returns process. The total cost of the recall is estimated to be approximately
$6,000 and has been recorded in the first half of fiscal 2007. The charge
included sales returns and refunds, handling of on-hand inventories, disposal of
inventory and management of consumer inquiries. The total charge recorded in the
second quarter of fiscal 2007 was approximately $5,000. This product recall
related to the Consumer Healthcare segment. While the Company believes its
estimate of the total cost of the recall is reasonable, the Company cannot
predict whether this recall will have any further impact on its results of
operations.

Pseudoephedrine -- The Company continued to be impacted by the legislative and
market concerns related to products containing pseudoephedrine, which have
resulted from concerns over the use of pseudoephedrine in the production of
methamphetamine, an illegal drug. Sales of these products for the first half of
fiscal 2007 were approximately $51,000 lower than the first half of fiscal 2006.
Sales of pseudoephedrine products are expected to be $30,000 to $35,000 for
fiscal 2007, excluding expected sales of pseudoephedrine replacement products.

                                      -14-




RESULTS OF OPERATIONS

CONSUMER HEALTHCARE



                                                         Second Quarter                              Year-to-Date
                                             ---------------------------------------    ---------------------------------------
                                                   2007                 2006                  2007                  2006
                                             -----------------    ------------------    ------------------    -----------------
                                                                                                  
Net sales                                            $275,947              $270,222              $517,756             $497,322

Gross profit                                          $59,346               $69,729              $115,547             $122,373
Gross profit %                                          21.5%                 25.8%                 22.3%                24.6%

Operating expenses                                    $41,926               $38,293               $81,027              $77,611
Operating expenses %                                    15.2%                 14.2%                 15.6%                15.6%

Operating income                                      $17,420               $31,436               $34,520              $44,762
Operating income %                                       6.3%                 11.6%                  6.7%                 9.0%


Net Sales

Second quarter net sales for fiscal 2007 increased 2% or $5,725 compared to
fiscal 2006. The increase was comprised of $7,000 of international sales, offset
by an approximate $1,300 decrease in domestic sales. The increase in
international sales resulted from higher unit sales of existing products as well
as $1,600 from favorable foreign currency exchange. The slight decrease in
domestic sales was driven by a $12,400 decrease in the combination of
pseudoephedrine and phenylephrine-containing products along with lower unit
sales of existing products in the analgesics, gastrointestinal, and nutrition
product categories of $10,600. These domestic decreases were mostly offset by
$19,500 of new product sales in the smoking cessation, gastrointestinal and
nutrition categories along with a $2,200 increase in higher unit sales of
existing products in the cough/cold category compared to the second quarter of
fiscal 2006.

Year-to-date net sales for fiscal 2007 increased 4% or $20,434 compared to
fiscal 2006. The increase was comprised of $12,700 of international sales and
$7,700 of domestic sales. The increase in international sales resulted from
higher unit sales of existing products as well as $2,300 from favorable foreign
currency exchange. The domestic increase resulted from $26,800 of new product
sales in the smoking cessation, gastrointestinal and nutrition categories along
with an $8,600 increase from higher unit sales of existing products in the
smoking cessation and cough/cold categories. These combined domestic increases
were partially offset by an $8,800 decrease in lower unit sales of existing
products in the gastrointestinal and nutrition product categories along with
sales declines from the combination of pseudoephedrine and
phenylephrine-containing products of $18,600 in fiscal 2007 compared to fiscal
2006.

The Company continued to be impacted by the legislative and market changes
related to products containing pseudoephedrine, which have resulted from
concerns over the use of pseudoephedrine in the production of methamphetamine,
an illegal drug. Net sales of these products in the first half of fiscal 2007
were approximately $51,000 lower than the first half of fiscal 2006. Net sales
of pseudoephedrine products are expected to be $30,000 to $35,000 for fiscal
2007, excluding expected sales of pseudoephedrine replacement products.

                                      -15-




Gross Profit

Second quarter gross profit for fiscal 2007 decreased 15% or $10,383 compared to
fiscal 2006. Year-to-date gross profit for fiscal 2007 decreased 6% or $6,826
compared to fiscal 2006. The decrease was primarily due to higher than expected
costs for production and quality, the unfavorable margin impact from lower unit
sales of pseudoephedrine-containing products and the acetaminophen product
recall (described below). These decreases were partially offset by the gross
profit on increased sales volume attributed to new products and international
sales.

On November 9, 2006, the Company initiated a voluntary retail-level recall of
certain lots of its acetaminophen 500 mg caplets containing raw material
purchased from a third party supplier. The Company's quality control systems
noted trace amounts of metal particulate in a very small number of these caplet
products. The probability of health risk is extremely remote. Following the
announcement of the recall, the Company received numerous consumer inquiries,
and in order to properly address these inquiries, voluntarily initiated a
consumer level return program in addition to the retail returns process. The
total cost of the recall is estimated to be approximately $6,000 and has been
recorded in the first half of fiscal 2007. The charge included sales returns and
refunds, handling of on-hand inventories, disposal of inventory and management
of consumer inquiries. The total charge recorded in the second quarter of fiscal
2007 was approximately $5,000. While the Company believes its estimate of the
total cost of the recall is reasonable, the Company cannot predict whether this
recall will have any further impact on its results of operations.

Operating Expenses

Second quarter operating expenses for fiscal 2007 increased 9% or $3,633
compared to fiscal 2006. Year-to-date operating expenses for fiscal 2007
increased 4% or $3,416 compared to fiscal 2006. The increases were primarily due
to higher employee wages, recruiting and relocation costs. Year-to-date
operating expenses as a percent of net sales remained flat compared to fiscal
2006.

RX PHARMACEUTICALS



                                                       Second Quarter                                Year-to-Date
                                            --------------------------------------      ---------------------------------------
                                                  2007                 2006                   2007                  2006
                                            ------------------    ----------------      ------------------    -----------------
                                                                                                  
Net sales                                             $28,260             $28,645                 $59,685              $57,739

Gross profit                                          $11,387             $11,592                 $25,174              $23,217
Gross profit %                                          40.3%               40.5%                   42.2%                40.2%

Operating expenses                                     $7,701              $6,292                 $15,701              $14,081
Operating expenses %                                    27.3%               22.0%                   26.3%                24.4%

Operating income                                       $3,686              $5,300                  $9,473               $9,136
Operating income %                                      13.0%               18.5%                   15.9%                15.8%


Net Sales

Second quarter net sales for fiscal 2007 decreased 1% or $385 compared to fiscal
2006. Service and royalty revenues were $6,000 more than fiscal 2006 and were
offset by an increase in expense for customer-related programs.




                                      -16-


Year-to-date net sales for fiscal 2007 increased 3% or $1,946 compared to fiscal
2006. This increase was primarily due to an increase in service and royalty
revenues of approximately $11,000, partially offset by pricing pressure on
current products sold under Abbreviated New Drug Applications (ANDA) and an
increase in expense for customer-related programs of $5,000. Fiscal 2006 was
unfavorably impacted by a mesalamine product recall (described below) that
decreased sales $1,350.

Fiscal 2007 results include an increase in expense related to the Company's
customer programs in the Rx Pharmaceuticals segment as noted above. Customer
programs are common in the industry and include such items as rebates and
chargebacks. The determination of the liability for these programs involves a
significant amount of estimation. The Company has a methodology by which it
accrues and validates its accrual of these expenses. This methodology includes
several variables: inventory reports supplied by wholesalers that indicate
inventory levels, detailed computations using historical payments and estimated
sell-through to retailers with varying contract prices. The Company has been
monitoring its methodology and made material changes to certain of these
estimates in the second quarter of fiscal 2007 that led to the current quarter
charges. The changes to the estimates are intended to further enhance the
accuracy and reliability of the calculation of the liability and to reduce the
risk of incremental charges for customer programs beyond the current quarter
charge.

Gross Profit

Second quarter gross profit for fiscal 2007 was virtually unchanged when
compared to fiscal 2006. The impact on gross profit of the increase in expense
for customer programs was offset by the increase in service and royalty
revenues.

Year-to-date gross profit for fiscal 2007 increased 8% or $1,957 compared to
fiscal 2006. The increase was due primarily to the increase in service and
royalty revenues and the absence of the mesalamine product recall, partially
offset by pricing pressure on current ANDA products and the increase in expense
for customer programs.

In the first quarter of fiscal 2006, the Company initiated a voluntary
retail-level recall of all affected lots of mesalamine rectal suspension, an
anti-inflammatory agent used to treat mild to moderate ulcerative colitis,
following reports of leakage related to the bottle closure cap. The recall was
not safety related and there have been no reports of injury or illness related
to the leakage of this product. The costs to write off the value of the
Company's on-hand inventories and the costs of return and disposal, estimated to
be $2,750, were recorded in the first quarter of fiscal 2006. No further expense
is expected to be incurred related to this recall.

Operating Expenses

Second quarter operating expenses for fiscal 2007 increased 22% or $1,409
compared to fiscal 2006. Year-to-date operating expenses for fiscal 2007
increased 12% or $1,620 compared to fiscal 2006. The increase in both periods
was primarily due to higher spending for research and development.


                                      -17-



API



                              Second Quarter                 Year-to-Date
                            ------------------            ------------------
                            2007          2006            2007          2006
                            ----          ----            ----          ----
                                                           
Net sales                  $28,633      $26,863          $58,412       $53,654

Gross profit               $14,085      $12,797          $25,964       $24,801
Gross profit %                49.2%        47.6%            44.4%         46.2%

Operating expenses          $8,156       $6,252          $15,377       $11,670
Operating expenses %          28.5%        23.3%            26.3%         21.8%

Operating income            $5,929       $6,545          $10,587       $13,131
Operating income %            20.7%        24.4%            18.1%         24.5%


Net Sales

Second quarter net sales for fiscal 2007 increased 7% or $1,770 compared to
fiscal 2006. This increase was primarily due to sales of new products and
increased sales of existing products in the European and Japanese markets. These
increases were partially offset by a decline in pentoxifylline sales.

Year-to-date net sales for fiscal 2007 increased 9% or $4,758 compared to fiscal
2006. This increase was due to sales of new products of approximately $2,000.
The remaining increase was due to customer and product mix changes, including
strong sales in the European market and the introduction of existing products
into new geographic markets, partially offset by a decline in pentoxifylline
sales. The net sales of API are highly dependent on the level of competition in
the marketplace for a specific material. The current trend of increased sales
may not continue due to this dependency.

Gross Profit

Second quarter gross profit for fiscal 2007 increased 10% or $1,288 compared to
fiscal 2006. This increase was primarily due to the gross profit on increased
volume attributable to new products combined with changes in customer and
product mix.

Year-to-date gross profit for fiscal 2007 increased 5% or $1,163 compared to
fiscal 2006. This increase was primarily due to the fiscal 2006 charge of $1,747
for the write-off of the step-up in the value of inventory resulting from the
Agis acquisition along with the gross profit on increased volume attributable to
new products. These increases were partially offset by changes in customer and
product sales mix.

Operating Expenses

Second quarter operating expenses for fiscal 2007 increased 30% or $1,904
compared to fiscal 2006. Year-to-date operating expenses for fiscal 2007
increased 32% or $3,707 compared to fiscal 2006. The increase was primarily due
to spending for increased research and development and higher sales commissions.


                                      -18-



OTHER

The Other category includes two operating segments: Israel Consumer Products and
Israel Pharmaceutical and Diagnostic Products. Neither of these operating
segments individually meets the quantitative thresholds required to be a
reportable segment.



                             Second Quarter                 Year-to-Date
                           ------------------            ------------------
                           2007          2006            2007           2006
                           ----          ----            ----           ----
                                                          
Net sales                 $37,789      $33,967          $74,991       $70,716

Gross profit              $13,507      $11,452          $26,257       $22,095
Gross profit %               35.7%        33.7%            35.0%         31.2%

Operating expenses        $10,531      $10,458          $20,617       $21,965
Operating expenses %         27.8%        30.8%            27.5%         31.1%

Operating income           $2,976         $994           $5,640          $130
Operating income %            7.9%         2.9%             7.5%          0.2%



Second quarter net sales for fiscal 2007 increased 11% or $3,822 compared to
fiscal 2006 primarily due to changes in the foreign exchange rate and higher
volume in the Consumer Products business. Second quarter gross profit for fiscal
2007 increased 18% or $2,055 compared to fiscal 2006, half of which was due to
changes in the foreign exchange rate and the other to a more favorable mix of
products sold in the Consumer Products business.

Year-to-date net sales for fiscal 2007 increased 6% or $4,275 compared to fiscal
2006 due to changes in the foreign exchange rate and higher volume in the
Consumer Products business. Year-to-date gross profit for fiscal 2007 increased
19% or $4,162 compared to fiscal 2006.

The year-to-date gross profit for fiscal 2006 included a charge of $2,697 for
the write-off of the step-up in the value of inventory resulting from the Agis
acquisition. The remainder of the gross profit increase was due to changes in
the foreign exchange rate. Year-to-date operating expenses for fiscal 2007
decreased 6% or $1,348 compared to fiscal 2006 primarily due to lower sales
commissions and administration expenses.

UNALLOCATED EXPENSES

Unallocated expenses were comprised of certain corporate services that were not
allocated to the segments. These corporate services generally related to
executive management, human resources, finance and information technology.
Unallocated expenses for the second quarter decreased 27% or $1,342 compared to
fiscal 2006. The second quarter of fiscal 2006 included acquisition integration
costs of $1,400. Year-to-date unallocated expenses increased 14% or $1,000
compared to fiscal 2006 primarily due to higher wages and benefits. Year-to-date
fiscal 2006 included acquisition integration costs of $2,000.

INTEREST AND OTHER (CONSOLIDATED)

Interest expense for the second quarter was $8,431 for fiscal 2007 and $10,089
for fiscal 2006. Interest income for the second quarter was $5,131 for fiscal
2007 and $4,973 for fiscal 2006. Other income was $2,258 for the second quarter
of fiscal 2007 compared to $5,791 for the second quarter of fiscal 2006.


                                      -19-



Other income for the second quarter of fiscal 2006 included a gain of $4,666
from the sale of an equity investment.

Year-to-date interest expense was $17,771 for fiscal 2007 and $19,593 for fiscal
2006. Year-to-date interest income was $9,885 for fiscal 2007 and $10,451 for
fiscal 2006. Year-to-date other income was $2,319 and $7,037 for fiscal 2007 and
2006, respectively. Other income for fiscal 2006 included a gain of $4,666 from
the sale of an equity investment.

INCOME TAXES (CONSOLIDATED)

The second quarter effective tax rate was 16.8% for fiscal 2007 and 36.6% for
fiscal 2006. Year-to-date the effective tax rate was 18.4% for fiscal 2007 and
33.9% for fiscal 2006. The Company's international expansion has changed the
relative composition of U.S. and Foreign income resulting in a lower effective
tax rate than the Company had historically experienced. This tax rate will
fluctuate from quarter to quarter depending on the composition of income before
tax. Eighty percent of income before tax in the first half of fiscal 2007 was
contributed by foreign entities with a tax rate lower than the U.S. statutory
rate. The effective tax rate for succeeding quarters is expected to be higher as
the Company's U.S. income is likely to constitute a higher percentage of the
total income than in the first half of fiscal 2007. The Company estimates the
annualized effective tax rate for fiscal 2007 is between 20% and 23%.

Additionally, the effective tax rate for the second quarter of fiscal 2007
included the impact of the newly enacted Tax Relief and Healthcare Act of 2006
(the Act). Among other provisions, the Act provides for the restoration of the
research and development tax credit, applied retroactively to January 1, 2006.
Accordingly, tax expense in the second quarter of fiscal 2007 was reduced
approximately $1,300 to reflect the one-time impact of the retroactive
application of the Act.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and investment securities increased $47,108 to $73,665 at
December 30, 2006 from $26,557 at December 24, 2005. Working capital, including
cash, increased $111,518 to $366,107 at December 30, 2006 from $254,589 at
December 24, 2005. The increase in working capital was due primarily to the
build-up of new product and reformulation inventory.

Year-to-date net cash provided from operating activities decreased by $37,603 to
$17,635 for fiscal 2007 compared to $55,238 for fiscal 2006. The decreased cash
from operations was primarily related to the strategic build-up of inventories
and an increase in employee bonuses paid as a result of fiscal 2006 operating
results. Inventory levels tend to be higher in the first half of the fiscal year
as the Company's operations focus on meeting customer requirements during peak
demand of the cough/cold/flu season. In addition, the Company was building
inventory in Israel to support demand through the implementation of its
enterprise resource planning system.

Year-to-date net cash used for investing activities increased $17,839 to $23,252
for fiscal 2007 compared to $5,413 for fiscal 2006 primarily due to higher
capital expenditures and a net increase in the purchase of investment
securities.

Year-to-date capital expenditures for facilities and equipment were for normal
replacement and productivity enhancements. Capital expenditures are anticipated
to be $40,000 to $50,000 for fiscal 2007. The annual capital expenditures for
fiscal 2006 were $36,000.


                                      -20-


Year-to-date net cash provided from financing activities increased $69,482 to
$23,279 for fiscal 2007 compared to cash used for financing activities of
$46,203 for fiscal 2006. The increased cash from financing activities was
primarily due to increased net borrowings of long-term debt to fund the
Company's working capital requirements.

The Company repurchased 251 shares of its common stock for $4,309 and 563 shares
for $7,842 during the second quarter of fiscal 2007 and 2006, respectively.
Year-to-date, the Company repurchased 961 shares of its common stock for $15,547
and 1,169 shares for $16,401 in fiscal 2007 and 2006, respectively. Private
party transactions accounted for 5 shares and 1 share in the second quarter of
fiscal 2007 and 2006, respectively. Year-to-date, private party transactions
accounted for 18 shares and 111 shares in fiscal 2007 and 2006, respectively.

The Company paid quarterly dividends totaling $8,116 and $7,702, or $0.0875 and
$0.0825 per share, for the first half of fiscal 2007 and 2006, respectively. The
declaration and payment of dividends, if any, is subject to the discretion of
the Board of Directors and will depend on the earnings, financial condition and
capital and surplus requirements of the Company and other factors the Board of
Directors may consider relevant.

GUARANTIES AND CONTRACTUAL OBLIGATIONS

The Company's Israeli subsidiary has provided a guaranty to a bank to secure the
debt of a 50% owned joint venture for approximately $470, not to exceed 50% of
the joint venture's debt, that is not recorded on the Company's condensed
consolidated balance sheets as of December 30, 2006.

During the second quarter of fiscal 2007, no material change in contractual
obligations occurred.

CRITICAL ACCOUNTING POLICIES

Determination of certain amounts in the Company's financial statements requires
the use of estimates. These estimates are based upon the Company's historical
experiences combined with management's understanding of current facts and
circumstances. Although the estimates are considered reasonable, actual results
could differ from the estimates. The accounting policies, discussed below, are
considered by management to require the most judgment and are critical in the
preparation of the financial statements. Other significant accounting policies
are included in Note A of the notes to the consolidated financial statements in
the Company's annual report on Form 10-K for the fiscal year ended July 1, 2006.

Revenue Recognition and Customer Programs -- The Company records revenues from
product sales when the goods are shipped to the customer. For customers with
Free on Board destination terms, a provision is recorded to exclude shipments
estimated to be in-transit to these customers at the end of the reporting
period. A provision is recorded and accounts receivable are reduced as revenues
are recognized for estimated losses on credit sales due to customer claims for
discounts, price discrepancies, returned goods and other items. A liability is
recorded as revenues are recognized for estimated customer program liabilities,
as discussed below.

A chargeback relates to an agreement the Company has with a wholesaler, a retail
customer that will ultimately purchase product from a wholesaler or a
pharmaceutical buying group for a contracted price that is different than the
Company's price to the wholesaler. The wholesaler will issue an invoice to the
Company for the difference in the contract prices. The calculation of the
accrual for chargebacks includes several variables: inventory reports supplied
by wholesalers that indicate inventory levels, detailed


                                      -21-



computations using historical payments and estimated sell-through to retailers
with varying contract prices.

Rebates are payments issued to the customer when certain criteria are met which
may include specific levels of product purchases, introduction of new products
or other objectives. The accrual for rebates is based on contractual agreements
and estimated purchasing levels by customers with such programs. Medicaid
rebates are payments made to states for pharmaceutical products covered by the
program. The accrual for Medicaid rebates is based on historical trends of
rebates paid and current period sales activity.

Shelf stock adjustments are credits issued to reflect decreases in the selling
price of a product and are based upon estimates of the amount of product
remaining in a customer's inventory at the time of the anticipated price
reduction. In many cases, the customer is contractually entitled to such a
credit. The accrual for shelf stock adjustments is based on specified terms with
certain customers, estimated launch dates of competing products and estimated
declines in market price.

The Company has a methodology by which it accrues and validates its accrual of
these liabilities. The Company has been monitoring its methodology and made
material changes to certain of the estimates in the second quarter of fiscal
2007 that resulted in additional accruals. The changes to the estimates are
intended to further enhance the accuracy and reliability of the calculation of
the liability and to reduce the risk of incremental charges for customer
programs. However, future changes in the estimates and assumptions related to
these programs may result in additional accruals.

The following table summarizes the activity included in the balance sheet for
accounts receivable allowances and customer program accruals:



                                        Year-to-Date   Year-to-Date
                                           2007            2006
                                        ------------   ------------
                                                 
Balance, beginning of period               $54,456        $48,378
      Provision recorded                    97,125         75,957
      Credits processed                   (103,676)       (67,310)
                                        -----------    -----------
Balance, end of the period                 $47,905        $57,025
                                        ===========    ===========


Allowance for Doubtful Accounts -- The Company maintains an allowance for
customer accounts that reduces receivables to amounts that are expected to be
collected. In estimating the allowance, management considers factors such as
current overall economic conditions, industry-specific economic conditions,
historical and anticipated customer performance, historical experience with
write-offs and the level of past-due amounts. Changes in these conditions may
result in additional allowances. The allowance for doubtful accounts was $12,198
at December 30, 2006, $11,178 at July 1, 2006, and $11,088 at December 24, 2005.

Inventory -- The Company maintains an allowance for estimated obsolete or
unmarketable inventory based on the difference between the cost of the inventory
and its estimated market value. In estimating the allowance, management
considers factors such as excess or slow moving inventories, product expiration
dating, products on quality hold, current and future customer demand and market
conditions. Changes in these conditions may result in additional allowances. The
allowance for inventory was $39,098 at December 30, 2006, $42,509 at July 1,
2006 and $44,201 at December 24, 2005.


                                      -22-


Goodwill -- Goodwill is tested for impairment annually or more frequently if
changes in circumstances or the occurrence of events suggest impairment exists.
The test for impairment requires the Company to make several estimates about
fair value, most of which are based on projected future cash flows. The
estimates associated with the goodwill impairment tests are considered critical
due to the judgments required in determining fair value amounts, including
projected future cash flows. Changes in these estimates may result in the
recognition of an impairment loss. Goodwill allocated to the Consumer Healthcare
segment is tested annually for impairment in the second quarter of the fiscal
year. The current year testing resulted in no impairment charge related to the
Consumer Healthcare segment. The goodwill allocated to the API and Rx
Pharmaceuticals segments is tested for impairment annually in the third quarter
of the fiscal year. Goodwill was $188,272 at December 30, 2006, $152,183 at July
1, 2006 and $150,067 at December 24, 2005.

Other Intangible Assets -- Other intangible assets subject to amortization
consist of developed product technology, distribution and license agreements,
customer relationships and trademarks. Most of these assets are related to the
Agis acquisition and are amortized over their estimated useful economic lives
using the straight-line method. An accelerated method of amortization is used
for customer relationships. For intangible assets subject to amortization, an
impairment analysis is performed whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. An
impairment loss is recognized if the carrying amount of the asset is not
recoverable and its carrying amount exceeds its fair value. Other intangible
assets were $134,187 at December 30, 2006, $132,426 at July 1, 2006 and $141,079
at December 24, 2005.

Product Liability and Workers' Compensation -- The Company maintains accruals to
provide for claims incurred that are related to product liability and workers'
compensation. In estimating these accruals, management considers actuarial
valuations of exposure based on loss experience. These actuarial valuations
include significant estimates and assumptions, which include, but are not
limited to, loss development, interest rates, product sales, litigation costs,
accident severity and payroll expenses. Changes in these estimates and
assumptions may result in additional accruals. The accrual for product liability
claims was $2,926 at December 30, 2006, $1,937 at July 1, 2006 and $2,420 at
December 24, 2005. The accrual for workers' compensation claims was $1,662 at
December 30, 2006, $1,919 at July 1, 2006 and $2,987 at December 24, 2005.


                                      -23-



Item 3. Quantitative and Qualitative Disclosures About Market Risks

The Company is exposed to market risks due to changes in currency exchange rates
and interest rates.

The Company is exposed to interest rate changes primarily as a result of
interest expense on borrowings used to finance the Agis acquisition and working
capital requirements and interest income earned on its investment of cash on
hand. As of December 30, 2006, the Company had invested cash, cash equivalents
and investment securities of $73,665 and short and long-term debt, net of
restricted cash, of $287,117.

The Company enters into certain derivative financial instruments, when available
on a cost-effective basis, to hedge its underlying economic exposure,
particularly related to the management of interest rate risk. Because of the use
of certain derivative financial instruments, the Company believes that a
significant fluctuation in interest rates in the near future will not have a
material impact on the Company's consolidated financial statements. These
instruments are managed on a consolidated basis to efficiently net exposures and
thus take advantage of any natural offsets. Derivative financial instruments are
not used for speculative purposes. Gains and losses on hedging transactions are
offset by gains and losses on the underlying exposures being hedged.

The Company has operations in the U.K., Israel, Germany and Mexico. These
operations transact business in their local currency and foreign currencies,
thereby creating exposures to changes in exchange rates. From time to time, the
Company enters into currency derivative instruments to hedge its underlying
exposure to currency fluctuations. Significant currency fluctuations could
adversely impact foreign revenues; however, the Company cannot predict future
changes in foreign currency exposure.


                                      -24-



Item 4.  Controls and Procedures

As of December 30, 2006, the Company's management, including its Chief Executive
Officer and its Chief Financial Officer, has performed an interim review on the
effectiveness of the Company's disclosure controls and procedures pursuant to
Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on that review, as
well as an evaluation and consideration of the update described below, the Chief
Executive Officer and Chief Financial Officer have concluded the Company's
disclosure controls and procedures are effective in ensuring that all material
information relating to the Company and its consolidated subsidiaries required
to be included in the Company's periodic SEC filings would be made known to them
by others within those entities in a timely manner and that no changes are
required at this time.

Following is an update of the remediation plan related to the Company's fiscal
2005 Agis acquisition which should be read in conjunction with Item 9A. Controls
and Procedures included in the Company's Form 10-K for the fiscal year ended
July 1, 2006.

   -  The Company's implementation of an enterprise resource planning (ERP)
      system at its Israeli location which is intended to remediate the majority
      of the previously disclosed weaknesses was completed in the second quarter
      of fiscal 2007.

   -  The Company continues to make minor changes in its control processes to
      reduce reliance on spreadsheets for financial reporting, improve
      segregation of duties issues and alleviate other less critical control
      deficiencies.

In connection with the interim evaluation by the Company's management, including
its Chief Executive Officer and Chief Financial Officer, of the Company's
internal control over financial reporting (ICFR) pursuant to Rule 13a-15(d) of
the Securities Exchange Act of 1934, no changes during the quarter ended
December 30, 2006 were identified that have materially affected, or are
reasonably likely to materially affect, the Company's ICFR, other than the
implementation of an ERP system at its Israeli location noted above.


                                      -25-




PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

In August 2004, the Company reached a settlement with the FTC and states'
attorneys general offices regarding a now terminated agreement between Alpharma,
Inc. and the Company related to a children's ibuprofen suspension product. In
connection with the Alpharma, Inc. agreement and the related FTC settlement, the
Company has been named as a defendant in three suits, two of which are class
actions that have been consolidated with one another (the Direct Purchaser
Action), filed on behalf of Company customers (i.e., retailers), and the other
consisting of four class action suits (the Indirect Purchaser Action), filed on
behalf of indirect Company customers (i.e., consumers), alleging that the
plaintiffs overpaid for children's ibuprofen suspension product as a result of
the Company's agreement with Alpharma, Inc. On April 24, 2006, the court in the
Direct Purchaser Action issued an order and final judgment approving the
settlement of this matter with respect to defendants Alpharma, Inc. and the
Company. The Company agreed to pay $3,000 as part of the settlement of the
Direct Purchaser Action. Separately, Alpharma, Inc. and the Company entered into
a settlement agreement to resolve the Indirect Purchaser Action for a
combination of cash and product donations of approximately $1,000. On December
11, 2006, the court granted final approval of the settlement for the Indirect
Purchaser Action. The Company recorded income of $500 in the second quarter of
fiscal 2007 for the reduction of the associated accruals and considers all
related issues to be closed.

Item 1A.  Risk Factors

The Company's Annual Report on Form 10-K filed for the fiscal year ended July 1,
2006 includes a detailed discussion of the Company's risk factors. Other than
the risk factor noted below, there have been no material changes to the risk
factors that were included in the Form 10-K during the first half of fiscal
2007.

MDS Pharma Services

MDS Pharma Services (MDS) is a contract research organization that performs
studies related to the bioequivalency of drugs. The Company has engaged MDS in
the past to perform these types of studies as part of the approval process for
certain drugs. Recently, the FDA notified the Company and many other
pharmaceutical companies about some concerns over the reliability of studies
conducted between 2000 and 2004. The FDA has requested that the affected
companies validate, confirm or repeat certain bioequivalence studies. The
Company expects that the costs associated with confirming or repeating these
studies will be reimbursed by MDS. The FDA has given no indication that it
considers the affected products to be other than safe and effective. Because the
outcome of the issue is uncertain, the Company cannot predict whether this issue
will have a material impact on its results of operations.


                                      -26-



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On February 15, 2006, the Board of Directors approved an additional plan to
repurchase shares of common stock with a value of up to $60,000. This plan will
expire on February 17, 2007. The Company has a 10b5-1 plan that allows brokers
selected by the Company to repurchase shares on behalf of the Company at times
when it would ordinarily not be in the market because of the Company's trading
policies. The amount of common stock repurchased in accordance with the 10b5-1
plan on any given day is determined by the plan's formula which is generally
based on the market price of the Company's stock. All common stock repurchased
is retired upon purchase.

The table below lists the Company's repurchases of shares of common stock during
its most recently completed quarter:



                                                              Total Number of
                                  Total         Average      Shares Purchased       Value of
                                 Number of       Price          as Part of          Shares
                                  Shares        Paid per         Publicly          Available
       Fiscal 2007              Purchased (1)    Share        Announced Plans     for Purchase
                               -------------     -----        ---------------     ------------
                                                                      
                                                                                    $43,087
October 1 to November 4               81        $17.41               77             $41,674
November 5 to December 2              94        $17.12               93             $40,060
December 3 to December 30             76        $16.88               76             $38,778
                                     ---                            ---
Total                                251                            246


(1)   Private party transactions accounted for the purchase of 4 shares in the
      period from October 1 to November 4 and 1 share in the period from
      November 5 to December 2.

Item 4.  Submission of Matters to a Vote of Security Holders

At the Company's Annual Shareholders' Meeting held on November 10, 2006, the
Company's shareholders voted on the following matter:

1.  Election of three directors of the Company:

The tabulation of votes provided by the Inspector of Election was as follows:



         Nominee               For             Withheld
                                        
Gary M. Cohen              79,873,137          2,044,045
David T. Gibbons           79,149,630          2,767,552
Ran Gottfried              48,465,772         33,451,410



                                      -27-


Item 6.  Exhibits



Exhibit Number    Description
--------------    -----------
               
      10(a)       Form of Long-Term Incentive Award Agreement.

      10(b)       Third Amendment to Employment Agreement dated as of
                  December 27, 2006 by and between Perrigo Company and David T. Gibbons.

      10(c)       Second Amendment to Credit Agreement dated as of October 30, 2006,
                  among Perrigo Company, the Foreign Subsidiary Borrowers, JPMorgan
                  Chase Bank, N.A., as Administrative Agent for the Lenders, Bank
                  Leumi USA, as Syndication Agent, and Bank of America, N.A., LaSalle
                  Bank Midwest National Association, formerly known as Standard
                  Federal Bank N.A. and National City Bank of the Midwest, as
                  Documentation Agents, incorporated by reference from the
                  Registrant's Form 8-K filed on November 2, 2006.

      31          Rule 13a-14(a) Certifications.

      32          Section 1350 Certifications.



                                      -28-




                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                          PERRIGO COMPANY
                                          --------------------------
                                          (Registrant)


Date: February 1, 2007                    By: /s/ Joseph C. Papa
       ---------------                    --------------------------------------
                                          Joseph C. Papa
                                          President and Chief Executive Officer


Date: February 1, 2007                    By: /s/ Judy L. Brown
       ---------------                    --------------------------------------
                                          Judy L. Brown
                                          Executive Vice President and Chief
                                          Financial Officer
                                         (Principal Accounting and Financial
                                          Officer)


                                      -29-