PERRIGO CO - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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 49010
Allegan, Michigan (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (269) 673-8451

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
None None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock (without par value)
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on December
27, 2002 as reported on The Nasdaq Stock Market(R), was approximately
$626,834,974. Shares of common stock held by each executive officer and director
and by each person who owns 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

As of August 1, 2003 the registrant had outstanding 70,012,509 shares of common
stock.

Documents incorporated by reference: Portions of the Registrant's Proxy
Statement for its Annual Meeting on October 28, 2003 are incorporated by
reference into Part III.

PART I.

Item 1. Business of the Company. (Dollar and share amounts in thousands, except
per share amounts)

GENERAL

Perrigo Company (the Company), established in 1887, is the largest manufacturer
of store brand over-the-counter (OTC) pharmaceutical and nutritional products in
the United States. Store brand products are sold under a retailer's own label
and compete with nationally advertised brand name products. The Company
attributes its leadership position in the store brand market to its commitment
to product quality, customer service, retailer marketing support and its
comprehensive product assortment and low cost production.

The Company's principal executive offices are located at 515 Eastern Avenue,
Allegan, Michigan 49010, its telephone number is (269) 673-8451 and its fax
number is (269) 673-7535. The Company's website address is www.perrigo.com,
where the Company makes available free of charge the Company's reports on Forms
10-K, 10-Q and 8-K, as well as any amendments to these reports, as soon as
reasonably practicable after they are electronically filed with or furnished to
the Securities and Exchange Commission.

The Company operates primarily through two wholly owned domestic subsidiaries,
L. Perrigo Company and Perrigo Company of South Carolina, Inc., and three wholly
owned foreign subsidiaries, Perrigo de Mexico S.A. de C.V., Quimica y Farmacia,
S.A. de C.V. (Quifa) and Wrafton Laboratories Ltd. (Wrafton). As used herein,
"the Company" means Perrigo Company, its subsidiaries and all predecessors of
Perrigo Company and its subsidiaries.

The Company's customers are major national and regional retail drug, supermarket
and mass merchandise chains such as CVS, Walgreens, Albertson's, Kroger,
Safeway, Dollar General and Wal-Mart and major wholesalers such as McKesson and
Supervalu.

The Company currently manufactures and markets certain products under its own
brand name, Good Sense(R). The Company also manufactures products under contract
for marketers of national brand products.

The Company's business consists of four operating segments. Two of the operating
segments, OTC pharmaceutical products and nutritional products, are aggregated
into one reportable segment, store brand health care. The aggregation of these
operating segments is appropriate because their operating processes, types of
customers, distribution methods, regulatory environment and expected long-term
performance are very similar. This reportable segment markets a broad line of
products that are comparable in quality and effectiveness to national brand
products. These products include analgesics, cough and cold remedies,
gastrointestinal and feminine hygiene products; as well as vitamins, nutritional
supplements and nutritional drinks. The cost to the retailer of a store brand
product is significantly lower than that of a comparable nationally advertised
brand name product. The retailer therefore can price a store brand product below
the competing national brand product while still realizing a greater profit
margin. Generally, the retailers' dollar profit per unit of store brand product
sold is greater than the dollar profit per unit of the comparable national brand
product. The consumer benefits by receiving a quality product at a price below a
comparable national brand product. This reportable segment includes over 90
percent of the Company's revenues. The other two operating segments are Quifa,
the Company's Mexican operating subsidiary, and Wrafton, the Company's United
Kingdom operating subsidiary. Quifa manufactures primarily OTC and prescription
pharmaceuticals for retail, wholesale and governmental customers. Wrafton is a
supplier

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of store brand products to major grocery and pharmacy retailers and a contract
manufacturer of OTC pharmaceuticals. Neither of these segments meets the
requirements for separate disclosure. See Notes A and K of the consolidated
financial statements for additional segment and geographic information. The
discussion in Item 1 primarily relates to the store brand health care segment.

SIGNIFICANT DEVELOPMENTS DURING FISCAL 2003

Quarterly Cash Dividend

In January 2003, the Board of Directors adopted a policy of paying regular
quarterly dividends. The Company paid quarterly dividends of $3,484, or $0.05
per share, during fiscal 2003. On August 7, 2003, the Board of Directors
declared a dividend of $0.025 per share, payable on September 23, 2003, for
shareholders of record on August 29, 2003. The declaration and payment of
dividends and the amount paid, 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. While the Company's credit agreement does not prohibit
the Company from paying dividends, the future payment of dividends could be
restricted by financial maintenance covenants contained in the credit agreement.

Share Repurchase

In fiscal 2003, the Company continued its common stock repurchase program.
Purchases are made on the open market, subject to market conditions, and are
funded by cash from operations. For fiscal 2003, the Company purchased 3,296
shares of common stock for $33,682. The Company purchased 2,533 shares for
$31,923 during fiscal 2002 and 137 shares for $1,089 during fiscal 2001. Since
November 2000, the Board of Directors has approved a total expenditure of
$80,000, and the Company currently has a remaining balance of $13,306 available
to purchase additional shares. The common stock repurchased was retired upon
purchase for all years.

New Product Introduction

In June 2003, the Company began shipping over-the-counter loratadine and
pseudoephedrine sulfate 10mg/240mg tablets, which are comparable to the national
brand Claritin-D(R) 24 Hour Extended Release tablets, a once daily decongestant
and antihistamine used to relieve symptoms of seasonal allergies. The product is
being supplied to the Company through an agreement with a third-party that has
been granted 180-day market exclusivity.

Growth Strategy - Generic Prescription Drugs

The Company will build on its consumer pharmaceutical foundation as a focus for
future growth. In fiscal 2004, the Company will invest $5,000 to $7,000,
primarily in increased research and development costs, for the development of
generic prescription drug products. The Company believes entry into the market
for generic prescription drugs will complement its strong position in the OTC
pharmaceutical market and provide opportunities for growth.

Product Liability Insurance

The Company's operating cash flow was impacted by rising insurance costs in
fiscal 2003. The cost to obtain all types of insurance continues to climb
throughout the nation due to circumstances beyond the Company's control. In
fiscal 2003, the Company's insurance costs increased approximately $6,000 and
are expected to increase approximately $2,500 in fiscal 2004.

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Discontinued Supplier

A supplier of tablet/caplet gelatin coating processing discontinued selling its
services to the Company as of March 31, 2003. The products impacted by this
process account for annualized net sales of approximately $36,000. The Company
has been working to arrange alternative sources of this coating, including
development of in-house tablet encapsulation, to service customer requirements.
Because of the difficulty of putting alternative plans in place, the Company
estimates that up to one-half of this sales volume could be lost in fiscal 2004.

Expensing of Stock Option Compensation

The Company has two stock option compensation plans for employees and directors.
Prior to the second quarter of fiscal 2003, the Company accounted for those
plans under the recognition and measurement provisions of Accounting Principles
Board (APB) Opinion 25, "Accounting for Stock Issued to Employees", and related
interpretations. No stock-based compensation cost was reflected in results
reported prior to the second quarter of fiscal 2003, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Beginning in the second quarter of
fiscal 2003, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) 123, "Accounting for
Stock-Based Compensation", as amended by SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", for stock-based compensation. All
prior periods presented have been adjusted to reflect the compensation cost that
would have been recognized had the recognition provisions of SFAS 123, as
amended by SFAS 148, been applied to all awards granted after July 1, 1995.
Compensation costs are included in selling and administration operating
expenses.

Settlements of Antitrust Lawsuit

The Company entered into settlement agreements with all defendants of a civil
antitrust lawsuit. The lawsuit, which was filed in August 1999, was against a
group of vitamin raw material suppliers and alleged the defendants conspired to
fix the prices of vitamin raw materials sold to the Company. The Company
received settlement payments of $3,128, $27,891 and $995, net of attorney fees
and expenses, in fiscal 2003, 2002 and 2001, respectively. The Company will
receive no additional income related to this lawsuit.

Update of 2002 Restructuring

In the fourth quarter of fiscal 2002, the Company approved a restructuring plan
related to Quifa. The implementation of the plan began in June 2002 and is
expected to be completed in its entirety by December 2003. The Company
discontinued certain customers and products because of inadequate profitability
and misalignment with strategic goals. Equipment related to the discontinued
customers and products was written down to its fair market value, resulting in
an impairment charge of $2,590 in fiscal 2002. As of June 28, 2003, the Company
had terminated 199 of the expected 228 employees, performing certain production
and administrative tasks, as a result of the restructuring plan. In fiscal 2002,
the Company recorded employee termination benefits of $2,000 and other
restructuring costs of $500. The charges for asset impairment and employee
termination benefits are included in the restructuring line in the consolidated
statement of income for fiscal 2002. No additional charges related to this
restructuring plan were recorded in fiscal 2003. During fiscal 2003, $2,270 was
paid primarily related to severance costs.

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BUSINESS STRATEGY

The Company attributes its sustained leadership position in the store brand
market to its implementation of several focused business strategies that reflect
the Company's commitment to its customers and employees. The strategy is
outlined below.

Product Quality and Product Assortment

The Company is committed to consistently providing a high quality product to the
customer. Substantially all products are developed using ingredients and
formulas comparable to those of national brand products. Packaging is designed
to make the product visually appealing to the consumer. The Company offers a
comprehensive product assortment in order to fill customers' needs while
minimizing their product sourcing costs. High quality standards are maintained
throughout all phases of production, testing, warehousing and distribution by
adhering to "Current Good Manufacturing Practices" (cGMP) promulgated by the
Food and Drug Administration (FDA).

The Company is dedicated to being the first manufacturer to develop and market
key new store brand products. As a result, the Company has a research and
development staff that management believes is one of the most experienced in the
industry at developing products comparable to national brand products. This
staff also responds to changes in existing national brand products by
reformulating existing Company products. In the OTC pharmaceutical market,
certain new products are the result of changes in product status from
"prescription only" (Rx) to OTC (non-prescription). These "Rx switch" products
require approval by the FDA through either its Abbreviated New Drug Application
(ANDA) process or its New Drug Application (NDA) process. To accelerate the
approval process, the Company relies on both internal development and strategic
product development agreements with outside sources.

Customer Service and Marketing Support

The Company seeks to establish customer loyalty by providing superior customer
service and marketing support. This includes providing (1) a comprehensive
assortment of high quality, value priced products, (2) timely processing,
shipment and delivery of orders, (3) assistance in managing customer inventories
and (4) support in managing and building the customer's store brand business.

The Company provides marketing support that is directed at developing customized
marketing programs for the customers' store brand products. The primary
objective of this store brand management approach is to enable customers to
increase sales of their own brand name products by communicating store brand
quality and value to the consumer. The Company's marketing personnel assist in
the development and introduction of new store brand products and promotion of
customers' ongoing store brand products by performing consumer research,
providing market information and establishing individualized promotions and
marketing programs.

Low Cost Supplier

The Company continually strives to improve its manufacturing capabilities and
technology to provide the manufacturing flexibility necessary to meet its
customers' changing needs and to achieve a low cost supplier position. Education
of the work force and a team approach provide employees with the skills to
generate and implement programs designed to increase the Company's productivity
and efficiency, improve quality and better serve customers. Continuous
improvement programs are utilized to improve efficiency by eliminating waste
from all phases of Company operations.

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The Company strives to develop partnerships with its suppliers to ensure
reliable and competitively priced raw materials and packaging supplies.
Initiatives to control supply costs include volume purchases, global sourcing,
inventory and supply management, and quality and delivery measurements.

PRODUCTS

The Company currently markets approximately 1,200 store brand products to
approximately 300 customers. The Company includes as separate products multiple
sizes, flavors and product forms of certain products. The Company has a leading
market share in certain of its products in the store brand market.

Net sales related to new products were approximately $45,000 for fiscal 2003,
$35,000 for fiscal 2002 and $41,000 for fiscal 2001. A product is considered new
if it was added to the Company's product lines in the two most recent fiscal
years that net sales are recorded.

The following table illustrates net sales for the Company's two product lines
from fiscal 1999 through fiscal 2003. Excluded from this table is the Company's
personal care business, which was sold in August 1999.

Listed below are the product categories under which the Company markets products
for store brand labels, the annual market size for food, drug and mass
merchandise retailers in the United States, excluding Wal-Mart, according to
Information Resources Inc., and the names of certain national brands against
which the Company's products compete.

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RESEARCH AND DEVELOPMENT

Research and development is a key component of the Company's business strategy.
The Company focuses on developing store brand products comparable in
formulation, quality and effectiveness to existing national brand products. As
part of the product development process, the Company considers the possibility
of any potential patent infringement and develops alternative formulations so as
not to infringe any patent.

The Company has FDA approval to manufacture and distribute products such as
children's ibuprofen oral suspension and drops, loperamide hydrochloride and
tioconazole ointment, which are products comparable to the national brands
Children's Motrin(R), Imodium A-D(R) and 1-Day(TM), respectively.

The Company has the rights to distribute, through use of strategic alliance
agreements, products such as ibuprofen & pseudoephedrine tablets, acid reducer
tablets and loratadine and pseudoephedrine sulfate extended release tablets,
products that are comparable to the national brands Advil(R) Cold & Sinus,
Pepcid(R) AC and Claritin(R) D-24, respectively.

The Company estimates that products for which marketing exclusivity is expiring
through the year 2007 represent a substantial potential market. The Company
actively pursues all avenues to offer store brand products comparable to certain
of these products; however, there can be no assurance that it will be successful
in obtaining the right to distribute additional products in the future.

The Company spent $23,315, $25,689 and $23,434 for research and development
during fiscal 2003, 2002 and 2001, respectively. The Company anticipates that
research and development expenditures will be higher than the fiscal 2003 level
in the foreseeable future.

SALES AND MARKETING

The Company employs its own sales force to service larger customers and uses
industry brokers for some smaller retailers. Field sales employees, with support
from marketing and customer service, are assigned to specific customers in order
to understand and work most effectively with the customer. They assist in
developing in-store marketing programs (described below) and optimizing
communication of customers' needs to the rest of the Company. Industry brokers
provide a distribution channel for some products, primarily those marketed under
the Good Sense(R) label.

Wal-Mart accounted for 27 percent of net sales for fiscal 2003 and 25 percent
for both fiscal 2002 and 2001. Should Wal-Mart's current relationship with the
Company change adversely, the resulting loss of business would have a material
adverse impact on the Company's operating results and financial position. Such a
change is not anticipated in the foreseeable future. No other customer
individually accounted for more than 10 percent of net sales.

In contrast to national brand manufacturers who incur considerable advertising
and marketing expenditures that are directly targeted to the end consumer, the
Company's primary marketing efforts are channeled through its customers, the
retailers and wholesalers, and reach the consumer through in-store marketing
programs. These programs are intended to increase visibility of store brand

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products and to invite comparisons to national brand products in order to
communicate store brand value to the consumer. Merchandising vehicles such as
floor displays, bonus sizes, coupons, rebates, store signs and promotional packs
are incorporated into customers' programs. Because the retailer profit margin
for store brand products is generally higher than for national brand products,
retailers and wholesalers often commit funds for additional promotions. The
Company's marketing efforts are also directed at new product introductions and
conversions and providing market research data. Market analysis and research is
used to monitor trends for products and categories and develop category
management recommendations.

MANUFACTURING AND DISTRIBUTION

The Company's twelve manufacturing facilities occupied approximately 1.8 million
square feet at June 28, 2003 and are located in the United States, Mexico and
the United Kingdom. The Company supplements its production capabilities with the
purchase of product from outside sources and will continue to do so in the
future. During fiscal 2003, the OTC pharmaceutical facilities and the
nutritional facility generally operated at approximately 65 percent of capacity.
The Company may elect to utilize available capacity by contract manufacturing
for national brand companies.

The Company's manufacturing operations are designed to allow low cost production
of a wide variety of products of different quantities, sizes and packaging while
maintaining a high level of customer service and quality. Flexible production
line changeover capabilities and fast cycle times allow the Company to respond
quickly to changes in manufacturing schedules.

The Company has four regional logistics facilities across the United States, a
logistics facility in Mexico and a logistics facility in the United Kingdom that
occupied an aggregate of approximately 832 thousand square feet at June 28,
2003. Both contract freight and common carriers are used to deliver products.

COMPETITION

The market for store brand OTC pharmaceutical and nutritional products is highly
competitive. Competition is based primarily on price, quality and assortment of
products, customer service, marketing support and availability of new products.
The Company believes it competes favorably in all of these areas.

The Company is the largest manufacturer of store brand OTC pharmaceutical
products in the United States. The Company's direct competition in store brand
products consists primarily of independent, privately owned companies and is
highly fragmented in terms of both geographic market coverage and product
categories. Additionally, competition is growing from generic prescription drug
manufacturers in the Rx to OTC switch products market. The Company competes in
the nutritional area with a number of public and private companies, some of
which have broader product lines and larger sales volumes.

The Company's products also compete with nationally advertised brand name
products. Most of the national brand companies have resources substantially
greater than those of the Company. National brand companies could in the future
seek to compete more directly in the store brand market by manufacturing store
brand products or by lowering prices of national brand products. The Company
believes that the manufacturing methods and business approach used by national
brand companies are not easily adapted to the requirements of the store brand
market. These requirements include the ability to produce many different package
designs and product sizes. In addition, the marketing focus of national brand
companies is directed towards the consumer rather than toward the retailer.

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MATERIALS SOURCING

Raw materials and packaging supplies are generally available from multiple
suppliers. Certain components and finished goods are purchased rather than
manufactured because of temporary production limitations, FDA restrictions or
economic and other factors. In the past, supplies of certain raw materials, bulk
tablets and components have become limited, or were available from one or only a
few suppliers. Historically, the Company has been able to react to situations
that require alternate sourcing. Should alternate sourcing be required, the
nature of the FDA restrictions placed on products approved through the ANDA
process could substantially lengthen the approval process for an alternate
source and adversely affect financial results. The Company has good, cooperative
working relationships with substantially all of its suppliers and has
historically been able to capitalize on economies of scale in the purchase of
materials and supplies due to its volume of purchases.

A supplier of tablet/caplet gelatin coating processing discontinued selling its
services to the Company as of March 31, 2003. The products impacted by this
process account for annualized net sales of approximately $36,000. The Company
has been working to arrange alternative sources of this coating, including
development of in-house tablet encapsulation to service customer requirements.
Because of the difficulty of putting alternative plans in place, the Company
estimates that up to one-half of this sales volume could be lost in fiscal 2004.

TRADEMARKS AND PATENTS

The Company owns certain trademarks and patents; however, its business as a
whole is not materially dependent upon its ownership of any one trademark or
patent, or group of trademarks or patents.

SEASONALITY

The Company's sales are subject to seasonality, primarily with regard to the
timing of the cough/cold/flu season, which generally runs from September through
March. In addition, historically, the Company's sales of cough/cold/flu products
have varied from year to year based in large part on the severity and length of
the cough/cold/flu season. While the Company believes that the severity and
length of the cough/cold/flu season will continue to impact its sales of
cough/cold/flu products, there can be no assurance that the Company's future
sales of those products will necessarily follow historical patterns.

PRODUCT LIABILITY

Over the last ten years the aggregate amount paid in settlement of liability
claims has not been material, and the Company is unaware of any suits that would
exceed its insurance limits. The Company believes that, currently, its product
liability coverage is adequate to cover anticipated lawsuits.

In November 2001, at the request of the FDA, the Company voluntarily withdrew
from the market its products containing Phenylpropanolamine (PPA), an ingredient
formerly used in the manufacture of certain OTC cough/cold and diet products.
Numerous individual PPA-related lawsuits have been filed alleging that the
plaintiffs suffered injury, generally some type of stroke, from ingesting the
Company's PPA-containing products. At this time, the outcome of these suits is
not determinable. See "Item 3. Legal Proceedings" and "Additional Item.
Cautionary Note Regarding Forward-Looking Statements-Exposure to Product
Liability Claims."

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ENVIRONMENTAL

The Company is subject to various federal, state and local environmental laws
and regulations. The Company believes that the costs for complying with such
laws and regulations will not be material to the business of the Company. The
Company does not have any material remediation liabilities outstanding.

GOVERNMENT REGULATION

The manufacturing, processing, formulation, packaging, labeling, testing,
storing, distributing, advertising and sale of the Company's products are
subject to regulation by one or more United States agencies, including the FDA,
the Federal Trade Commission (FTC), the Drug Enforcement Administration (DEA)
and the Consumer Product Safety Commission (CPSC), as well as by foreign
agencies. Various agencies of the states and localities in which the Company's
products are sold also regulate these activities. In addition, the Company
manufactures and markets certain of its products in accordance with the
guidelines designated by voluntary standard setting organizations, such as the
United States Pharmacopoeia Convention, Inc. (USP) and NSF International (NSF).
The Company believes that its policies, operations and products comply in all
material respects with existing regulations.

Food and Drug Administration

The FDA exercises authority over three aspects of the Company's business: (1)
the operation of its manufacturing, testing, labeling, packaging and
distributing facilities, (2) the marketing of ANDA, NDA and monograph OTC
pharmaceutical drug products and (3) the marketing of dietary supplements.

OTC Pharmaceuticals. The majority of the Company's OTC pharmaceuticals are
regulated under the OTC Monograph System and are subject to certain FDA
regulations. Under the OTC Monograph System, selected OTC drugs are generally
recognized as safe and effective and do not require the submission and approval
of an NDA or ANDA prior to marketing. The FDA OTC monograph system includes
well-known ingredients and specifies requirements for permitted indications,
required warnings and precautions, allowable combinations of ingredients and
dosage levels. Drug products marketed under the OTC Monograph System must
conform to specific quality and labeling requirements; however, these products
generally may be developed under fewer restrictive conditions than those
products that require the filing of an NDA or ANDA. It is, in general, less
costly to develop and bring to market a product produced under the OTC Monograph
System. From time to time, adequate information may become available to the FDA
regarding certain drug products that will allow the reclassification of those
products as generally recognized as safe and effective and not misbranded and,
therefore, no longer requiring the approval of an NDA or ANDA prior to
marketing. For this reason, there may be increased competition and lower
profitability related to a particular product should it be reclassified to the
OTC Monograph System. In addition, regulations may change from time to time,
requiring formulation, packaging or labeling changes for certain products.

The Company also markets products that have switched from prescription to OTC
status. These Rx to OTC switch products require approval by the FDA through its
NDA or ANDA process before they can be commercialized. Based on current FDA
regulations, all chemistry, manufacturing and control issues, bioequivalency and
labeling related to these products are defined by the information included in
the NDA or ANDA. The ANDA process generally reduces the time and expense related
to FDA approval compared to the NDA process. For approval, the Company must
demonstrate that the product is essentially the same as a product that has
previously been approved by the FDA and is on the market and that the Company's
manufacturing process and other requirements meet FDA standards. This approval
process may require that bioequivalence and/or efficacy studies be

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performed using a small number of subjects in a controlled clinical environment.
Approval time is generally eighteen months to four years from the date of
submission of the application. Changes to a product with an ANDA are governed by
specific FDA regulations and guidelines that define when proposed changes, if
approved by the FDA, can be implemented.

The Drug Price Competition and Patent Term Restoration Act of 1984 (the
Hatch-Waxman Amendments to the Federal Food, Drugs and Cosmetic Act) can grant a
three-year period of marketing exclusivity to a company that obtains FDA
approval of an Rx to OTC switch product. Unless the Company establishes
relationships with the companies having exclusive marketing rights, the
Company's ability to market Rx to OTC switch products and offer its customers
products comparable to the national brand products would be delayed until the
expiration of the three-year exclusivity granted to the company initiating the
switch. There can be no assurance that, in the event that the Company applies
for FDA approvals, the Company will obtain the approvals to market Rx to OTC
switch products or, alternatively, that the Company will be able to obtain these
products from other manufacturers.

Under the FDA Modernization Act of 1997, the FDA changed its policy regarding
market exclusivity. In general, this legislation and the FDA policy change may
grant an additional six months (which, under certain circumstances, may be
extended to one year) of exclusivity if the innovator conducted pediatric
studies on the product. This policy will, in certain instances, defer sales by
the Company of certain products.

If the Company is first to file its ANDA and meets certain requirements, the FDA
may grant a 180-day exclusivity for that product. During the ANDA approval
process, patent certification is required and may result in legal action by the
product innovator. The legal action would not result in material damages but
could result in the Company being prevented from introducing the product if it
is not successful in the legal action. The Company would, however, incur the
cost of defending the legal action, and that action could have the effect of
triggering a statutorily mandated delay in the FDA approval of the drug
application for a period of up to 30 months. If there is an initial court
decision in a patent litigation case related to the drug product that is
favorable to the Company, the exclusivity period may commence on the date of the
decision even though the decision may be appealed and the final decision on
appeal is not entered until sometime later. The Company may, however, decide not
to assume the risk of marketing an approved product prior to the final decision
on appeal of the favorable opinion of a lower court.

In certain instances, the FDA may determine that approval of a drug application
involved in patent litigation can only be granted after the final appeal has
been decided. In these instances, the Company could be further delayed if the
30-month time period has not expired.

If the Company is not first to file its ANDA, the FDA may grant 180-day
exclusivity to another company, thereby effectively delaying the launch of the
Company's product. In addition, if exclusivity is granted to the Company, there
can be no assurance that the beginning of the exclusivity period will coincide
with the ability of the Company to market the product, as current FDA
regulations may allow the triggering of the exclusivity period by events that
are outside of the Company's control.

The Company is also subject to the requirements of the Comprehensive
Methamphetamine Control Act of 1996, a law designed to allow the DEA to monitor
transactions involving chemicals that may be used illegally in the production of
methamphetamine. The Comprehensive Methamphetamine Control Act of 1996
establishes certain registration and recordkeeping requirements for
manufacturers of OTC cold, allergy, asthma and diet medicines that contain
ephedrine, pseudoephedrine or PPA. While certain of the Company's OTC
pharmaceutical products contain pseudoephedrine, the Company's products contain
neither ephedrine, a chemical compound that is

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distinct from pseudoephedrine, nor PPA. Pseudoephedrine is a common ingredient
in decongestant products manufactured by the Company and other pharmaceutical
companies. The Company believes that its products are in compliance with all
applicable DEA requirements.

Dietary Supplements. The Dietary Supplement Health and Education Act of 1994
(DSHEA) was enacted on October 25, 1994 and amended the Federal Food, Drugs and
Cosmetic Act to (1) define dietary supplements, (2) expand the number of new
dietary supplement ingredients, (3) permit "structure/function" statements for
all vitamin, mineral and natural products, including herbal products and other
nutritional supplements and (4) permit the use of certain published literature
in the sale of vitamin products. Dietary supplements are regulated as food
products and the FDA is prohibited from regulating the dietary ingredients in
supplements as food additives, or the supplements as drugs, unless the FDA
interprets the claims made for these products as drug claims.

DSHEA provides for specific nutritional labeling requirements for dietary
supplements. The latest FDA labeling regulations were effective March 23, 1999.
DSHEA permits substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling. The FDA has proposed regulations for
cGMP requirements for dietary supplements. Although the Company cannot predict
the specific content of the final cGMPs or the timing of issuance, it believes
the changes will have minimal impact on its business.

On January 6, 2000, the FDA published a Final Rule regarding statements made in
dietary supplement labeling. These statements cannot state expressly or
implicitly that a dietary supplement has any effect on a disease. This Final
Rule clarifies the FDA's definition of a disease. In addition, the Final Rule
provides certain statements from several OTC drug monographs for use on dietary
supplements (e.g., relief of occasional sleeplessness) giving the industry more
latitude in marketing dietary supplements and providing information to consumers
about the use of dietary supplements.

The Company cannot determine what effect the FDA's future regulations will have
on its business. Future regulations could, among other things, require expanded
documentation of the properties of certain products or scientific substantiation
regarding ingredients, product claims or safety. In addition, the Company cannot
predict whether new legislation regulating the Company's activities will be
enacted or what effect any legislation would have on the Company's business.

Manufacturing and Packaging. All facilities where dietary supplements and
pharmaceuticals are manufactured, tested, packed, warehoused or distributed must
comply with the FDA standards applicable to the type of product. All of the
Company's products are manufactured, tested, packaged, stored and distributed
according to the appropriate cGMP regulations. The FDA performs periodic audits
to ensure that the Company's facilities remain in compliance with all
appropriate regulations. The failure of a facility to be in compliance may lead
to a breach of representations made to private label customers or to regulatory
action against the products made in that facility, including seizure, injunction
or recall.

Consumer Product Safety Commission

The CPSC has authority, under the Poison Prevention Packaging Act, to designate
those products, including vitamin products and OTC pharmaceuticals that require
child resistant closures to help reduce the incidence of accidental poisonings.
The CPSC has adopted regulations requiring numerous OTC pharmaceuticals and
iron-containing dietary supplements to have these closures and has adopted rules
regarding the testing of these closures by both children and adults. The
Company, working with its packaging suppliers, believes that it is in compliance
with all CPSC requirements.

-11-

Federal Trade Commission

The FTC exercises primary jurisdiction over the advertising and other
promotional practices of marketers of dietary supplements and OTC
pharmaceuticals and works with the FDA regarding these practices. The FTC
considers whether the product's claims are substantial, truthful and fair.

State Regulation

All states regulate foods and drugs under laws that parallel federal statutes.
The Company is also subject to California Proposition 65 and other state
consumer health and safety regulations that could have a potential impact on the
Company's business if any of the Company's products are ever found not to be in
compliance. The Company is not engaged in any material state governmental
enforcement or other regulatory actions and is not aware of any products that
are not in material compliance with California Proposition 65 and other similar
state regulations.

United States Pharmacopoeia Convention

The USP is a non-governmental, voluntary standard-setting organization. Its drug
monographs and standards are incorporated by reference into the Federal Food,
Drugs, and Cosmetic Act as the standards that must be met for the listed drugs,
unless compliance with those standards is specifically disclaimed. USP standards
exist for most OTC pharmaceuticals. The FDA would typically require USP
compliance as part of cGMP compliance.

The USP has adopted standards for vitamin and mineral dietary supplements that
are codified in the USP Monographs and the USP Manufacturing Practices. These
standards cover composition (nutrient ingredient potency and combinations),
disintegration, dissolution, manufacturing practices and testing requirements.
While USP standards for vitamin and mineral dietary supplements are voluntary,
and not incorporated into federal law, customers of the Company may demand that
products supplied to them meet these standards. Label claims of compliance with
the USP may expose a company to FDA scrutiny for those claims. In addition, the
FDA may in the future require compliance, or such a requirement may be included
in new dietary supplement legislation. All of the Company's vitamin and/or
mineral products (excluding certain nutritional supplements products for which
no USP standards have been adopted) are formulated to comply with existing USP
standards and are so labeled.

NSF International

NSF is an independent, not-for-profit, non-governmental organization providing
risk management services in public health and safety. Its services include
standards development, product certification, safety audits, management systems
registration and education programs. NSF is accredited by the American National
Standards Institute (ANSI), the Occupational Safety and Health Administration
(OSHA) and the Standard Council of Canada (SCC). These accreditations attest to
the competency of services provided by NSF and compliance with established
national and international standards for third-party certification.

The NSF Good Manufacturing Practices Dietary Supplement Program enables
manufacturers to become independently registered by NSF as conforming to
guidelines that provide a system of processes, procedures and documentation to
assure the product produced has the strength, composition, quality and purity
represented on the product label. The Company's nutritional facility has earned
NSF registration.

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Foreign Regulation

The Company manufactures, packages and distributes Rx pharmaceuticals, OTC
pharmaceuticals and nutritional products in Mexico. The manufacturing,
processing, formulation, packaging, labeling, testing, advertising and sale of
these products are subject to regulation by one or more Mexican agencies,
including the Health Ministry, the Commercial and Industrial Secretariat, the
Federal Work's Secretariat, the Environmental Natural Resources and Fishing
Secretariat, the Federal Environmental Protection Ministry and the Treasury and
Public Credit Secretariat and its Customs Government department.

The Company manufactures, packages and distributes OTC pharmaceuticals in the
United Kingdom and provides contract manufacturing and packaging services for
major pharmaceutical and healthcare companies in the United Kingdom. The
manufacturing, processing, formulation, packaging, testing, labeling,
advertising and sale of these products are subject to regulation by one or more
United Kingdom agencies, including the Medicines and Healthcare Products
Regulatory Agency, the Department of Health, the Department of the Environment,
Her Majesty's Customs and Excise, the Department of Trade and Industry, the
Health and Safety Executive and the Department of Transport.

The Company exports OTC pharmaceuticals and nutritional products to foreign
countries including Canada, Israel and Mexico . Government regulations for
exporting these products are covered by the United States FDA, and where
appropriate DEA law, as well as each individual country's requirement for
importation of such products. Each country requires approval of these products
through a registration process by that country's regulatory agencies. These
registrations govern the process, formula, packaging, testing, labeling,
advertising and sale of the Company's products and regulate what is required and
what may be represented to the public on labeling and promotional material.
Approval for the sale of the Company's products by foreign regulatory agencies
may be subject to delays.

EMPLOYEES

As of June 28, 2003, the Company had 2,825 full-time and temporary employees in
the United States. The Company has not been a party to a collective bargaining
agreement in the United States. The Company had 616 employees in Mexico, of whom
394 are covered by a collective bargaining agreement. The Company had 542
employees in the United Kingdom, none of whom are covered by a collective
bargaining agreement. Management considers its relations with its employees to
be good.

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Item 2. Properties.

As of June 28, 2003, the Company owned or leased the following primary
facilities:

Item 3. Legal Proceedings. (Dollar amounts in thousands)

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 1999, the Company filed a civil antitrust lawsuit in the U.S. District
Court for the Western District of Michigan against a group of vitamin raw
material suppliers alleging the defendants conspired to fix the prices of
vitamin raw materials sold to the Company. The relief sought included money
damages and a permanent injunction enjoining defendants from future violation of
antitrust laws. The Company has entered into settlement agreements with all of
the defendants. The Company received settlement payments of $3,128, $27,891 and
$995 in fiscal 2003, 2002 and 2001, respectively. The payments were net of
attorney fees and expenses that were withheld prior to the disbursement of the
funds to the Company. The Company will receive no additional income related to
this lawsuit.

The Company is currently defending numerous individual lawsuits pending in
various state and federal courts involving PPA, an ingredient formerly used in
the manufacture of certain OTC cough/cold and diet products. The Company
discontinued using PPA in November 2000 at the request of the 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

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compensatory, exemplary and statutory damages. The Company maintains 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.

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

No matter was submitted to the vote of security holders during the fourth
quarter of fiscal 2003.

Additional Item. Executive Officers of the Registrant.

The executive officers of the Company and their ages and positions as of August
11, 2003 were:

Mr. Bell was named Executive Vice President, Business Development, in September
2000. From January 2000 until that time, Mr. Bell acted as a consultant to the
Company. Mr. Bell was a member of the Board of Directors from January 1981
through February 1986, when he voluntarily resigned. Mr. Bell was re-elected in
June 1988 and voluntarily resigned in January 2003. He was the Chairman,
President and Chief Executive Officer of Thermo-Serv, Inc. from July 1989 to
September 1999.

Mr. Gibbons was elected Chairman of the Board in August 2003. He was elected
President and Chief Executive Officer in May 2000 and a director of the Company
in June 2000. Previously, Mr. Gibbons served as President of Rubbermaid Europe
from 1997 to 1999 and President of Rubbermaid Home Products from 1995 to 1997.
Prior to joining Rubbermaid, he served in various management, sales and
marketing capacities with 3M Company from 1968 to 1995.

Mr. Hendrickson was named Executive Vice President and General Manager, Perrigo
Consumer Healthcare in August 2003. He served as Executive Vice President of
Operations from October 1999 to August 2003, Vice President of Operations from
October 1997 to October 1999 and Vice President of Customer Service from October
1996 to October 1997. Previously, he had been Director of Engineering of the
Company since 1993 and served in various positions in process engineering from
1989 to 1992. Prior to 1989, Mr. Hendrickson was in research management for five
years at Procter & Gamble Company.

Mr. Olesnavage was named Executive Vice President and General Manager, Perrigo
Pharmaceuticals in August 2003. He served as Executive Vice President Sales,
Marketing and Scientific Affairs from August 2000 to August 2003 and President
of Customer Business Development from June 1995 to August 2000. He served as
President of the OTC pharmaceutical operations from February 1994 to June 1995.
He served as Vice President of Pharmaceutical

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Business Development from July 1992 to January 1993 and Vice President-Marketing
from June 1987 to July 1992. Previously he had been Director of Marketing of the
Company since 1981. He is a member of the Board of Directors of the Generic
Pharmaceutical Industry Association and also is a member of the Board of
Directors of the Consumer Healthcare Products Association.

Mr. Schrank was named Executive Vice President and Chief Financial Officer in
January 2000. Mr. Schrank was President of M. A. Hanna Company's Hanna Color
subsidiary from 1998 to 1999, Senior Vice President of the Plastics Division
from 1995 to 1998 and Vice President and Chief Financial Officer from 1993 to
1995. From 1977 to 1993, Mr. Schrank served in senior-level financial,
administrative and sales positions at Sealy Corporation, Eyelab, Inc. and The
Pillsbury Company.

-16-

PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

The Company's common stock was first quoted and began trading on The Nasdaq
Stock Market(R) on December 17, 1991 under the symbol PRGO.

Set forth below are the high and low prices for the Company's common stock as
reported on The Nasdaq Stock Market(R) for the last eight quarters:

The number of record holders of the Company's common stock as of August 1, 2003
was 1,549.

In January 2003, the Board of Directors adopted a policy of paying regular
quarterly dividends. The Company paid quarterly dividends of $3,484, or $0.05
per share, during fiscal 2003. On August 7, 2003, the Board of Directors
declared a dividend of $0.025 per share, payable on September 23, 2003, for
shareholders of record on August 29, 2003. The declaration and payment of
dividends and the amount paid, 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. While the Company's credit agreement does not prohibit
the Company from paying dividends, the future payment of dividends could be
restricted by financial maintenance covenants contained in the credit agreement.

Item 6. Selected Financial Data

The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the notes to these statements
included in Item 8 of this report. The consolidated statement of income data set
forth below with respect to the fiscal years ended June 28, 2003, June 29, 2002
and June 30, 2001 and the consolidated balance sheet data at June 28, 2003 and
June 29, 2002 are derived from, and are qualified by reference to, the audited
consolidated financial statements included in Item 8 of this report and should
be read in conjunction with those financial statements and notes thereto. The
consolidated statement of income data for the Company set forth below with
respect to the fiscal years ended July 1, 2000 and July 3, 1999 and the
consolidated balance sheet data for the Company at June 30, 2001, July 1, 2000
and July 3, 1999 are derived from audited consolidated financial statements of
the Company not included in this report. The statement of income data reflects
one month of personal care operations for fiscal 2000 and an entire year of
operations for fiscal 1999. All periods presented have been adjusted for the
expensing of stock options. Certain amounts have been reclassified to conform to
the current year presentation. All amounts are in thousands, except per share
amounts.

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- ----------

(1) See Item 7 for a discussion of results of operations.

(2) As adjusted, see Note F. See Item 7 for a discussion of results of
operations.

(3) As adjusted, see Note F. Includes a charge of $15,000 for higher than normal
obsolescence expenses, a charge of $7,000 for fixed production costs and
settlement proceeds related to a civil antitrust lawsuit of $4,154.

(4) As adjusted, see Note F. Includes a charge of $14,177 to write off a Russian
investment, restructuring charges of $6,160 and an insurance reimbursement
of $8,000 for legal fees offset by $4,048 of unusual legal expenses.

(5) As adjusted, see Note F.

(6) Includes current installments.

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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.

GENERAL

The major categories in which the Company markets its products are analgesic,
cough/cold, gastrointestinal and vitamin products. According to Information
Resources, Inc., the annual retail market for food, drug and mass merchandise
retailers in the United States, excluding Wal-Mart, for OTC pharmaceutical and
nutritional products is more than $10 billion. The store brand industry commands
more than 20 percent of the retail market. The Company estimates its share of
the store brand industry to be more than 50 percent.

The Company's customers are major national and regional retail drug, supermarket
and mass merchandise chains such as CVS, Walgreens, Albertson's, Kroger,
Safeway, Dollar General and Wal-Mart and major wholesalers such as McKesson and
Supervalu.

The Company has four operating segments. Two of the operating segments, OTC
pharmaceutical products and nutritional products, are aggregated into one
reportable segment, store brand health care. Quifa and Wrafton are included in
all other since these segments do not meet the requirements for separate
disclosure. See Notes A and K to the consolidated financial statements.

RESULTS OF OPERATIONS (in thousands, except per share amounts)

The following table sets forth, for fiscal 2003, 2002 and 2001, certain items
from the Company's consolidated statements of income expressed as a percent to
net sales:

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STORE BRAND HEALTH CARE

Comparability Issues

The Company received proceeds of $3,128 in fiscal 2003 and $27,891 in fiscal
2002, net of attorney fees and expenses, related to settlement agreements with
certain defendants of a civil antitrust lawsuit. See Note I to the consolidated
financial statements.

In the second quarter of fiscal 2002, the Company recorded $1,900 in bad debt
expense related to the bankruptcy of a large customer.

On December 20, 2001, the Company sold its logistics facility located in
LaVergne, Tennessee. The Company recorded a restructuring charge of $2,046. See
Note N to the consolidated financial statements.

In November 2000, the Company voluntarily halted shipments of all products
containing the ingredient PPA in response to recommendations by the FDA. In
fiscal 2001, the Company recorded sales returns of $12,500 with a negative
impact on gross profit of $3,400. Additionally, the Company recorded a charge of
$17,600 in cost of sales related to the cost of returned product, product on
hand and product disposal costs.

Net Sales

Fiscal 2003 net sales decreased 2 percent or $12,524 to $748,922 from $761,446
during fiscal 2002. Net sales decreased $31,000 primarily due to lower unit
sales of analgesic, antacid, laxative, vitamin and contract manufactured
products, partially offset by sales from the launch of loratadine and
pseudoephedrine sulfate extended release tablets. In product categories where
sales declined, the decline was a result of discontinuing lower margin products
at certain customers and exiting sales of low volume products. The overall
volume shortfall was partially offset by a favorable mix of products sold and
improved net realized pricing.

A supplier of tablet/caplet gelatin coating processing discontinued selling its
services to the Company as of March 31, 2003. The products impacted by this
process account for annualized net sales of approximately $36,000. The Company
has been working to arrange alternative sources of this coating, including
development of in-house tablet encapsulation to service customer requirements.
Because of the difficulty of putting alternative plans in place, the Company
estimates that up to one-half of this sales volume could be lost in fiscal 2004.

Fiscal 2002 net sales increased 5 percent or $37,693 to $761,446 from $723,753
during fiscal 2001. The increase included $12,500 resulting from sales returns
the Company recorded in fiscal 2001 due to the voluntary halted shipments of
PPA-containing products discussed above. Approximately half

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of the remaining $25,193 increase was due to sales growth in OTC products while
the other half was due to sales growth in nutritional products. Sales growth in
OTC products was primarily due to new products in the analgesic, feminine
hygiene and antacid categories, sales of PPA replacement products and increased
sales of existing products in the cough/cold, laxative and sleep aids
categories. The nutritional sales growth was primarily in existing vitamin
products.

Gross Profit

Fiscal 2003 gross profit increased $12,453 or 6 percent compared to fiscal 2002.
The gross profit percent to net sales was 28.3 percent in fiscal 2003 compared
to 26.2 percent in fiscal 2002. Approximately two-thirds of the gross profit
percentage increase was due to improved operating efficiencies. The remaining
gross profit percentage increase was primarily due to a favorable mix of
products sold and improved net realized pricing.

Fiscal 2002 gross profit increased $38,673 or 24 percent compared to fiscal
2001. The increase included $21,000 due to the recording of the PPA product
charge in fiscal 2001, which reduced gross profit. The remaining increase of
$17,673 was split almost equally between sales growth and our ability to manage
pricing to offset the impact of higher quality costs. The higher quality costs
were related to FDA compliance initiatives.

Fiscal 2002 gross profit percent to net sales was 26.2 percent compared to 22.2
percent in fiscal 2001. The increase included 2.5 percentage points due to the
recording of the PPA product charge in fiscal 2001. The remaining increase of
1.5 percentage points was due primarily to the ability to manage pricing to
offset the impact of higher quality costs and lower obsolescence expenses
resulting from lower finished goods inventory and improved aging of that
inventory.

Operating Expenses

Fiscal 2003 operating expenses increased $26,408 or 25 percent compared to
fiscal 2002. Research and development decreased $2,587 due to the timing of
projects. Selling and administration increased $6,554 primarily due to insurance
costs and employee benefit expenses, partially offset by lower bad debt expense.
Operating expenses were unfavorably impacted by a $24,763 reduction of unusual
litigation income in fiscal 2003. The lawsuit that gave rise to this income has
been settled with all defendants and no additional income will be received.
Fiscal 2002 was unfavorably impacted by bad debt expense related to the
bankruptcy of a large customer and a restructuring charge related to the sale of
the logistics facility.

Fiscal 2002 operating expenses decreased $16,489 compared to fiscal 2001.
Research and development increased $1,603 primarily due to expenses related to
testing and legal costs for new products. Selling and administration increased
$6,199 primarily due to bad debt expense related to the bankruptcy of a large
customer and consulting expenses related to strategic initiatives partially
offset by lower employee bonuses. A restructuring charge of $2,046 was recorded
related to the sale of the LaVergne, Tennessee logistics facility. Operating
expenses were favorably impacted by unusual litigation income of $27,891.

-21-

Net Sales

Fiscal 2003 net sales increased $12,189 or 19 percent to $77,065 from $64,876
during fiscal 2002. Approximately two-thirds of the increase in sales was due to
higher volume at Wrafton, while the remaining increase was due to higher volume
at Quifa.

Fiscal 2002 net sales increased $35,141 or 118 percent to $64,876 from $29,735
during fiscal 2001, primarily due to the inclusion of Wrafton's financial
results for the first time.

Gross Profit

Fiscal 2003 gross profit decreased $242 compared to fiscal 2002. The gross
profit percent to net sales was 23.2 percent in fiscal 2003 compared to 27.9
percent in fiscal 2002. The decrease was primarily due to lower margin contract
sales in the mix of products sold by Wrafton.

Fiscal 2002 gross profit increased $6,333 or 54 percent compared to fiscal 2001.
The increase in gross profit was primarily due to the inclusion of Wrafton's
financial results for the first time. The gross profit percent to net sales was
27.9 percent in fiscal 2002 compared to 39.5 percent in fiscal 2001. The
decrease in gross profit percent was primarily due to lower margin contract
sales in the mix of products sold by Wrafton.

Operating Expenses

Fiscal 2003 operating expenses decreased $18,442 compared to fiscal 2002. Fiscal
2002 was unfavorably impacted by the restructuring at Quifa that resulted in a
goodwill impairment charge of $11,524 and restructuring charges of $5,090. The
additional decline in operating expenses was primarily due to reduced expenses
from the changes implemented at Quifa as a result of the restructuring plan.

Fiscal 2002 operating expenses increased $17,027 compared to fiscal 2001. The
increase was primarily due to the restructuring at Quifa that resulted in a
goodwill impairment charge of $11,524 and restructuring charges of $5,090. See
Note N to the consolidated financial statements.

INTEREST AND OTHER (CONSOLIDATED)

Fiscal 2003 interest and other, net increased $275 compared to fiscal 2002.
Interest expense was $861 compared to $934 for fiscal 2002. Other income was
$1,941 in fiscal 2003 compared to $2,289 in fiscal 2002.

-22-

Fiscal 2002 interest and other, net increased $2,393 compared to fiscal 2001.
Interest expense was $934 for fiscal 2002 compared to interest income of $1,833
for fiscal 2001. The change in interest was caused by a reduction in the rates
of interest earned on invested cash as well as lower average invested cash in
fiscal 2002. Other income was $2,289 in fiscal 2002 compared to $1,915 in fiscal
2001.

INCOME TAXES (CONSOLIDATED)

The effective tax rate was 37.3 percent, 45.6 percent and 39.3 percent for
fiscal 2003, 2002 and 2001, respectively. The high effective tax rate for fiscal
2002 was primarily due to nondeductible expenses related to goodwill impairment
and restructuring costs at Quifa. The expensing of incentive stock options
increased the effective tax rate 1.3 percentage points for fiscal 2003, 2.4
percentage points for fiscal 2002 and 2.4 percentage points for fiscal 2001.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased $17,003 to $93,827 at June 28, 2003 from
$76,824 at June 29, 2002. Working capital, including cash, increased $25,838 to
$212,655 at June 28, 2003 from $186,817 at June 29, 2002. The Company's
priorities for use of the cash and cash equivalents include support of seasonal
working capital demands, investment in capital assets, opportunistic repurchase
of common stock and acquisition of complementary businesses that could leverage
retailer relationships, offer a product niche opportunity or support geographic
expansion.

Net cash provided by operating activities decreased $24,191 or 23 percent to
$80,234 for fiscal 2003 compared to $104,425 for fiscal 2002. The decrease was
primarily due to the reduction in net lawsuit settlement proceeds of $24,763.
Fiscal 2002 was unfavorably impacted by an estimated tax payment of $8,000 that
related to the fiscal 2001 tax liability.

Net cash used for investing activities increased $19,511 to $33,276 for fiscal
2003 primarily due to proceeds received in fiscal 2002 related to the sale of
the logistics facility that partially offset fiscal 2002 capital expenditures.
Capital expenditures for facilities and equipment for fiscal 2003 were for
normal equipment replacement and productivity enhancements. Capital expenditures
in fiscal 2004 are expected to be $25,000 to $28,000.

Net cash used for financing activities increased $4,982 or 20 percent to $29,828
for fiscal 2003 compared to $24,846 for fiscal 2002. Proceeds from exercises of
stock options in fiscal 2002 were $2,961 higher than fiscal 2003.

During fiscal 2003, the Company continued its common stock repurchase program.
Purchases are made on the open market, subject to market conditions, and are
funded by cash from operations. For fiscal 2003, the Company purchased 3,296
shares of common stock for $33,682. The Company purchased 2,533 shares for
$31,923 during fiscal 2002 and 137 shares for $1,089 during fiscal 2001. Since
November 2000, the Board of Directors has approved a total expenditure of
$80,000, and the Company currently has a remaining balance of $13,306 available
to purchase additional shares. The common stock repurchased was retired upon
purchase for all years.

In January 2003, the Board of Directors adopted a policy of paying regular
quarterly dividends. The Company paid quarterly dividends of $3,484, or $0.05
per share, for fiscal 2003. On August 7, 2003, the Board of Directors declared a
dividend of $0.025 per share, payable on September 23, 2003, for shareholders of
record on August 29, 2003. The Company expects to continue paying quarterly
dividends in the foreseeable future.

-23-

The Company had no long-term debt at June 28, 2003 and had $75,000 available on
its unsecured credit facility. Cash and cash equivalents, cash flows from
operations and borrowings from its credit facility are expected to be sufficient
to finance the known and/or foreseeable liquidity and capital needs of the
Company.

Additional long-term cash obligations are detailed by period due in the table
below:

The amount in "Other" is primarily related to deferred compensation payable upon
retirement of certain employees, which is assumed to be payable after five
years, although certain circumstances, such as termination, would require
earlier payment.

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. Discussed below are the accounting policies
considered by management to require the most judgement and to be critical in the
preparation of the financial statements. Other accounting policies are included
in Note A of the consolidated financial statements.

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 $10,242
at June 28, 2003 and $8,465 at June 29, 2002.

Inventory - The Company maintains a reserve for estimated obsolete or
unmarketable inventory based on the difference between the cost of the inventory
and its estimated market value. In estimating the reserve, management considers
factors such as excess or slow moving inventories, product expiration dating,
current and future customer demand and market conditions. Changes in these
conditions may result in additional reserves. The reserve for inventory was
$21,717 at June 28, 2003 and $21,360 at June 29, 2002.

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. The required annual testing is performed in
the second quarter of the fiscal year and resulted in no impairment charge for
fiscal 2003.

-24-

Product Liability and Workers' Compensation - The Company maintains a reserve to
provide for claims incurred that are related to product liability and workers'
compensation. In estimating these reserves, 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 and payroll
expenses. Changes in these estimates and assumptions may result in additional
reserves. The reserve for product liability claims was $3,229 at June 28, 2003
and $1,179 at June 29, 2002. The reserve for workers' compensation claims was
$3,632 at June 28, 2003 and $3,005 at June 29, 2002.

Item 7A. Quantitative And Qualitative Disclosures About Market Risk.

The Company is exposed to market risks, which include changes in interest rates
and changes in the foreign currency exchange rate as measured against the U.S.
dollar.

The Company is exposed to interest rate changes primarily as a result of
interest income earned on its investment of cash on hand and interest expense
related to its variable rate line of credit used to finance working capital when
necessary and for general corporate purposes. The Company had invested cash of
$93,827 and no outstanding borrowings on its credit facility at June 28, 2003.
Management believes that a fluctuation in interest rates in the near future will
not have a material impact on the Company's consolidated financial statements.

The Company has international operations in Mexico and the United Kingdom. These
operations transact business in the local currency, thereby creating exposures
to changes in exchange rates. The Company does not currently have hedging or
similar foreign currency contracts. Significant currency fluctuations could
adversely impact foreign revenues; however, the Company does not expect any
significant changes in foreign currency exposure in the near future.

Additional Item. Cautionary Note Regarding Forward-Looking Statements.

The Company or its representatives from time to time may make or may have made
certain forward-looking statements, orally or in writing, including without
limitation any such statements made or to be made in the Management's Discussion
and Analysis section and notes to financial statements contained in its annual
and quarterly SEC filings. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements, so as to ensure to the fullest
extent possible the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from those anticipated in such forward-looking statements.

The Company cautions the reader that this list of factors may not be exhaustive.
The Company operates in a continually changing business environment, and new
risk factors emerge from time to time. Management cannot predict such risk
factors, nor can it assess the impact, if any, of such risk factors on the
Company's business or the extent to which any factors, or combination of
factors, may cause actual results to differ materially from those projected in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.

Fluctuation in Quarterly Results

The Company's quarterly operating results depend on a variety of factors
including, but not limited to, the severity, length and timing of the
cough/cold/flu season, the timing of new product introductions by the Company
and its competitors, changes in the levels of inventories maintained by the
Company's customers and the timing of retailer promotional programs.
Accordingly, the Company may be subject to significant and unanticipated
quarter-to-quarter fluctuations.

-25-

Potential Volatility of Stock Price

The market price of the Company's common stock has been, and could be, subject
to wide fluctuations in response to, among other things, quarterly fluctuations
in operating results, adverse circumstances affecting the introduction or market
acceptance of new products, failure to meet published estimates of or changes in
earnings estimates by securities analysts, announcements of new products or
enhancements by competitors, receipt of regulatory approvals by competitors,
sales of common stock by existing holders, loss of key personnel, market
conditions in the industry, shortages of key components and general economic
conditions.

Manufacturing Facilities

The vast majority of the Company's OTC products are manufactured in Allegan,
Michigan. In addition, all of the Company's nutritional products are produced at
one manufacturing facility in Greenville, South Carolina. A significant
disruption at any of these facilities, even on a short-term basis, could impair
the Company's ability to produce and ship products on a timely basis, which
could have a material adverse effect on the Company's business, financial
position and operating results.

Regulatory Environment

Several United States and foreign agencies regulate the manufacturing,
processing, formulation, packaging, labeling, testing, storing, distribution,
advertising and sale of the Company's products. Various state and local agencies
also regulate these activities. In addition, the Company manufactures and
markets certain of its products in accordance with the guidelines established by
voluntary standard organizations. Should the Company fail to adequately conform
to these regulations and guidelines, there may be a significant impact on the
operating results of the Company. In particular, packaging or labeling changes
mandated by the FDA can have a material impact on the results of operations of
the Company. Required changes could be related to safety or effectiveness
issues. With specific regard to safety, there have been instances within the
Company's product categories in which evidence of product tampering has occurred
resulting in a costly product recall. The Company believes that it has a good
relationship with the FDA, which it intends to maintain. If these relationships
should deteriorate, however, the Company's ability to bring new and current
products to market could be impeded. See "Item 1. Business of the Company ---
Government Regulation."

Store Brand Product Growth

The future growth of domestic store brand products will be influenced by general
economic conditions, which can influence consumers to switch to store brand
products, consumer perception and acceptance of the quality of the products
available, the development of new products, the market exclusivity periods
awarded on prescription to OTC switch products and the Company's ability to grow
its store brand market share. The Company does not advertise like the national
brand companies and thus is dependent on retailer promotional spending to drive
sales volume and increase market share. Growth opportunities for the products in
which the Company currently has a significant store brand market share (cough
and cold remedies and analgesics) will be driven by the ability to offer new
products to existing domestic customers. Branded pharmaceutical companies may
use state and federal regulatory and legislative means to limit the use of brand
equivalent products. Should store brand growth be limited by any of these
factors, there could be a significant impact on the operating results of the
Company.

-26-

Competitive Issues

The market for store brand OTC pharmaceutical and nutritional products is highly
competitive. Store brand competition is based primarily on price, quality and
assortment of products, customer service, marketing support and availability of
new products. National brand companies and/or generic Rx companies could choose
to compete more directly by manufacturing store brand products or by lowering
the prices of national brand products. Due to the high degree of price
competition, the Company has not always been able to fully pass on cost
increases to its customers. The inability to pass on future cost increases, the
impact of direct store brand competitors and the impact of national brand
companies lowering prices of their products or directly operating in the store
brand market could have a material adverse impact on financial results. In
addition, since the Company sells its nutritional products through retail drug,
supermarket and mass merchandise chains, it may experience increased competition
in its nutritional products business through alternative channels such as health
food stores, direct mail and direct sales as more consumers obtain products
through these channels. Retailer reverse auctions have added a new dimension to
competition as some retailers have instituted this process to obtain competitive
price quotes over the world wide web. The Company has evaluated, and will
continue to evaluate, the products and product categories in which it does
business. Future product line extensions, or deletions, could have a material
impact on the Company's financial position or results of operations.

Generic Equivalent Products

Various risks and uncertainties are attendant to the Company's decision to
expand into the manufacture and sale of generic prescription drugs. If the
Company is unsuccessful in establishing and growing that business, it could
negatively affect the Company's stock price, financial position and operating
results. Even if the Company's generic business is ultimately successful, the
costs of entering into and establishing that business may exceed the profits
derived from it for some period of time.

Many of the factors applicable to the Company's store brand OTC pharmaceutical
and nutritional businesses discussed in this Annual Report similarly are
applicable to the generic prescription drug business. For example, the highly
competitive nature of the market, the heavily regulated environment,
intellectual property issues (e.g., patent and licensing issues, potential
infringement claims and confidentiality concerns), availability of raw materials
and market acceptance of products are all factors affecting that business. In
addition, federal or state legislative proposals, reimbursement policies of
third-parties (such as insurance companies, health maintenance organizations,
managed care organizations, Medicaid and Medicare), cost containment measures
and health care reform, as well as other factors that the Company may not be
able to adequately identify due to its inexperience with generic equivalents,
could affect the marketing, pricing and demand for generic prescription drugs.

Customer Issues

The Company's largest customer, Wal-Mart, currently comprises approximately 27
percent of total net sales. Should Wal-Mart's current relationship with the
Company change adversely, the resulting loss of business could have a material
adverse impact on the Company's operating results and financial position.

-27-

The impact of retailer consolidation could have an adverse impact on future
sales growth. Should a large customer encounter financial difficulties, the
exposure on uncollectible receivables and unusable inventory could have a
material adverse impact on the Company's financial position or results of
operations.

Research and Development

The Company's investment in research and development are expected to be above
historical levels due to the Company's planned expansion into the manufacture
and sale of generic prescription drugs as well as the high cost of developing
and becoming a qualified manufacturer of new products that are switching from
prescription to OTC status. The ability to attract scientists proficient in
emerging delivery forms and/or contracting with a third party innovator in order
to generate new products of this type is a critical element of the Company's
long term plans. Should the Company fail to attract qualified employees or enter
into reasonable agreements with third party innovators, long term sales growth
and profit would be adversely impacted.

Patent and Trade Dress Issues

The Company's ability to bring new products to market is limited by certain
patent and trade dress factors including, but not limited to, the exclusivity
periods awarded on products that have switched from prescription to OTC status.
The cost and time to develop these switch products is significantly greater than
the rest of the new products that the Company seeks to introduce. Moreover, the
Company's packaging of certain products could be subject to legal actions
regarding infringement. Although the Company designs its packaging to avoid
infringing upon any proprietary rights of national brand marketers, there can be
no assurance that the Company will not be subject to such legal actions in the
future.

Effect of Research and Publicity on Nutritional Product Business

The Company believes that growth in the nutritional products business is based
largely on national media attention regarding scientific research suggesting
potential health benefits from regular consumption of certain vitamin and other
nutritional products. There can be no assurance of future favorable scientific
results and media attention, or the absence of unfavorable or inconsistent
findings. In the event of future unfavorable scientific results or media
attention, the Company's sales of nutritional products could be materially
adversely impacted.

Dependence on Personnel

The Company's future success will depend in large part upon its ability to
attract and retain highly skilled research and development scientists (as noted
above), management information specialists, operations, sales, marketing and
managerial personnel. The Company does not have employment contracts with any
key personnel other than David T. Gibbons, its Chairman of the Board, President
and Chief Executive Officer. Should the Company not be able to attract or retain
key qualified employees, future operating results may be adversely impacted.

Availability of Raw Materials and Supplies

In the past, supplies of certain raw materials, bulk tablets and finished goods
purchased by the Company have become limited, or were available from one or only
a few suppliers, and it is possible that this will occur in the future. Should
this situation occur, it can result in increased prices, rationing and
shortages. In response to these problems the Company tries to identify
alternative materials or suppliers for such raw materials, bulk tablets and
finished goods. The nature of FDA restrictions placed on products approved
through the ANDA process could substantially lengthen the approval

-28-

process for an alternate material source. Certain material shortages and
approval of alternate sources could adversely affect financial results.

A supplier of tablet/caplet gelatin coating processing discontinued selling its
services to the Company as of March 31, 2003. The products impacted by this
process account for annualized net sales of approximately $36,000. The Company
has been working to arrange alternative sources of this coating, including
development of in-house tablet encapsulation to service customer requirements.
Because of the difficulty of putting alternative plans in place, the Company
estimates that up to one-half of this sales volume could be lost in fiscal 2004.

Legal Exposure

From time to time, the Company and/or its subsidiaries become involved in
lawsuits arising from various commercial matters, including, but not limited, to
competitive issues, contract issues, intellectual property matters, workers'
compensation, product liability and regulatory issues such as Proposition 65 in
California. See "Item 3. Legal Proceedings" for a discussion of litigation.
Litigation tends to be unpredictable and costly. No assurance can be made that
litigation will not have a material adverse effect on the Company's financial
position or results of operations in the future.

Rising Insurance Costs

The Company maintains insurance, including property, general and product
liability, and directors' and officers' liability, to protect itself against
potential loss exposures. To the extent that losses occur, there could be an
adverse effect on the Company's financial results depending on the nature of the
loss, and the level of insurance coverage maintained by the Company. The Company
cannot predict whether deductible or retention amounts will increase or whether
coverages will be reduced in the future. From time to time, the Company may
reevaluate and change the types and levels of insurance coverage that it
purchases.

The Company's operating cash flow was impacted by rising insurance costs in
fiscal 2003. The cost to obtain all types of insurance continues to increase
throughout the nation due to circumstances beyond the Company's control. In
fiscal 2003, the Company's insurance costs increased approximately $6,000 and
are expected to increase approximately $2,500 in fiscal 2004.

Exposure to Product Liability Claims

The Company, like other retailers, distributors and manufacturers of products
that are ingested, is exposed to product liability claims in the event that,
among other things, the use of its products results in injury. There is no
assurance that product liability insurance will continue to be available to the
Company at an economically reasonable cost or that the Company's insurance will
be adequate to cover liability that the Company incurs in connection with
product liability claims. See "Item 3. Legal Proceedings".

Capital Requirements and Liquidity

The Company maintains a broad product line to function as a primary supplier for
its customers. Capital investments are driven by growth, technological
advancements, cost improvement and the need for manufacturing flexibility.
Estimation of future capital expenditures could vary materially due to the
uncertainty of these factors. If the Company fails to stay current with the
latest manufacturing and packaging technology, it may be unable to competitively
support the launch of new product introductions.

The Company anticipates that cash flow from operations and borrowings from the
Company's line of credit will substantially fund working capital and capital
expenditures. The Company has historically

-29-

evaluated acquisition opportunities and anticipates that acquisition
opportunities will continue to be identified and evaluated in the future. The
historical growth of sales and profits has been significantly influenced by
acquisitions. There is no assurance that future sales and profits will, or will
not, be impacted by acquisition activities. The Company's current capital
structure, results of operations and cash flow needs could be materially
impacted by acquisitions.

International Operations

The Company sources certain key raw materials from foreign suppliers and is
increasing its sales outside the United States. The Company's primary markets
outside the U.S. are Mexico, Canada and the United Kingdom. The Company may have
difficulty in international markets due, for example, to greater regulatory
barriers, the necessity of adapting to new regulatory systems and problems
related to markets with different cultural bases and political systems. Sales to
customers outside the United States and foreign raw material purchases expose
the Company to a number of risks including unexpected changes in regulatory
requirements and tariffs, possible difficulties in enforcing agreements, longer
payment cycles, exchange rate fluctuations, difficulties obtaining export or
import licenses, the imposition of withholding or other taxes, economic or
political instability, embargoes, exchange controls or the adoption of other
restrictions on foreign trade. Should any of these risks occur, they may have a
material adverse impact on the operating results of the Company.

Financial Statement Estimates, Judgments and Assumptions

The consolidated and condensed financial statements included in the periodic
reports that the Company files with the Securities and Exchange Commission are
prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP). The preparation of financial statements in
accordance with GAAP involves making estimates, judgments and assumptions that
affect reported amounts of assets, liabilities, revenues, expenses and income.
Estimates, judgments and assumptions are inherently subject to change in the
future, and any such changes could result in corresponding changes to the
amounts of assets, liabilities, revenues, expenses and income. Any such changes
could have a material adverse effect on the Company's financial position and
operating results and could negatively affect the market price of the Company's
common stock.

Tax Rate Implication

Income tax rate changes by governments and changes in the tax jurisdictions in
which the Company operates could influence the effective tax rates for future
years. Entry into new tax jurisdictions, whether domestic or international,
increases the likelihood of fluctuation.

Interest Rate Implication

The interest on the Company's line of credit facility is based on variable
interest rate factors. The interest rates are established at the time of
borrowing based upon the prime rate or the LIBOR rate, plus a factor, or at a
rate based on an interest rate agreed upon between the Company and its Agent at
the time the loan is made. Interest income is related to investing cash on hand
in various short-term investments whereby the interest rate is determined on the
day the investment is made. Accordingly, interest income and expense is subject
to fluctuation due to the variability of interest rates.

-30-

Item 8. Financial Statements and Supplementary Data.

-31-

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Shareholders and Board of Directors
Perrigo Company
Allegan, Michigan

We have audited the accompanying consolidated balance sheets of Perrigo Company
and subsidiaries as of June 28, 2003 and June 29, 2002 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 28, 2003. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Perrigo Company and
subsidiaries as of June 28, 2003 and June 29, 2002 and the results of their
operations and their cash flows for each of the three years in the period ended
June 28, 2003 in conformity with accounting principles generally accepted in the
United States of America.

The Company's consolidated financial statements were previously prepared using
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," to record stock-based compensation. As more fully described in
Notes A and F to the consolidated financial statements, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," to record stock-based
compensation. Consequently, the Company's consolidated financial statements have
been restated in accordance with the retroactive restatement method under SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
an amendment of SFAS No. 123.

By: /s/ BDO Seidman, LLP
-----------------------------
BDO Seidman, LLP

Grand Rapids, Michigan
July 25, 2003

-32-

PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

* As adjusted, see Note F.

See accompanying notes to consolidated financial statements.

-33-

PERRIGO COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)

* As adjusted, see Note F.

See accompanying notes to consolidated financial statements.

-34-

PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

See accompanying notes to consolidated financial statements.
-35-

PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

* As adjusted, see Note F.

See accompanying notes to consolidated financial statements.

-36-

PERRIGO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

The Company is the largest manufacturer of store brand over-the-counter (OTC)
pharmaceutical and nutritional products in the United States.

The Company's principal customers are major national and regional retail
supermarket, drug store and mass merchandise chains and major wholesalers
located within the United States. One customer accounted for 27 percent of net
sales during fiscal 2003 and 25 percent for both fiscal 2002 and 2001. None of
the Company's other customers individually account for more than 10 percent of
its net sales. International net sales, primarily in Mexico and the United
Kingdom, for fiscal 2003, 2002, and 2001 were $88,440, $79,788 and $43,997,
respectively.

The Company has manufacturing facilities in the United States, Mexico and the
United Kingdom. As of June 28, 2003 and June 29, 2002, the net book value of
property and equipment located outside the United States was $27,834 and
$26,334, respectively.

The Company has four operating segments -- OTC pharmaceutical products;
nutritional products; Quimica y Farmacia S.A. de C.V. (Quifa), the Company's
Mexican operating subsidiary; and Wrafton Laboratories Limited (Wrafton), the
Company's United Kingdom operating subsidiary. In accordance with Statement of
Financial Accounting Standards (SFAS) 131, "Disclosures about Segments of an
Enterprise and Related Information", the OTC pharmaceutical products segment and
nutritional products segment have been aggregated into one reportable segment,
store brand health care, because these two segments have very similar operating
processes, types of customers, distribution methods, regulatory environments and
expected long-term financial performance. Neither Quifa nor Wrafton meet the
requirements for separate disclosure and are included in all other. See Note K
for additional segment information.

Basis of Presentation

The Company's fiscal year is a fifty-two or fifty-three week period, which ends
the Saturday on or about June 30. Fiscal 2003, 2002 and 2001 were comprised of
52 weeks ended June 28, June 29 and June 30, respectively.

In June 2001, the Company acquired Wrafton located in the United Kingdom. The
assets and liabilities, which are not considered significant to the Company, are
included in the consolidated balance sheet beginning June 30, 2001. Wrafton's
results of operations were included in the Company's consolidated financial
statements beginning in fiscal 2002. See Note M.

In fiscal 1998, the Company announced its intention to divest the personal care
business. The Company sold its personal care business in fiscal 2000. The
LaVergne, Tennessee logistics facility was not included in this sale and
remained in assets held for sale until it was sold in the second quarter of
fiscal 2002.

-37-

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
all majority owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation. The Company owns a minority
interest in a Canadian company and a Chinese company. These investments are
accounted for using the equity method and are recorded in other noncurrent
assets.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
which affect the reported earnings, financial position and various disclosures.
Although the estimates are considered reasonable, actual results could differ
from the estimates.

International

The Company translates its foreign operations' assets and liabilities
denominated in foreign currencies into U.S. dollars at current rates of exchange
as of the balance sheet date, and income and expense items at the average
exchange rate for the reporting period. Translation adjustments resulting from
exchange rate fluctuations are recorded in the cumulative translation account, a
component of accumulated other comprehensive income. Accumulated comprehensive
income is comprised entirely of foreign currency translation adjustments.
Translation adjustments resulting from exchange rate fluctuations on
transactions denominated in currencies other than the functional currency are
not material.

Revenues

Revenues from product sales are recognized when the goods are shipped to the
customer. A provision is recorded as revenues are recognized for estimated
losses on credit sales due to customer claims for discounts, price
discrepancies, returned goods and other items.

When title and risk pass to the customer is dependent on the customer's shipping
terms. If the customer has shipping terms of Free on Board (FOB) shipping point,
title and risk pass to the customer as soon as the freight carrier leaves the
Company's shipping location. If the customer has shipping terms of FOB
destination, title and risk pass to the customer upon receipt of the order at
the customer's location. Approximately seventy percent of the Company's
customers have shipping terms of FOB destination. Since the in-transit time on
any given order is a relatively short period, recording revenues at the time of
shipment does not materially differ from recording revenues when title and risk
pass to the customer.

Shipping costs billed to a customer are included in net sales of the
consolidated statement of income. Conversely, shipping expenses incurred by the
Company are included in cost of sales of the consolidated statement of income.

Financial Instruments

The carrying amount of the Company's financial instruments, consisting of cash
and cash equivalents, accounts receivable, accounts payable and notes payable,
approximates their fair value.

-38-

Generally, the Company does not enter into derivative contracts either to hedge
existing risks or for speculative purposes. However, the Company entered into a
foreign currency forward contract to essentially fix the exchange rate related
to funding the acquisition of Wrafton in fiscal 2001. The Company was not a
party to any other derivative contracts during the years presented.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of demand deposits and other
short-term investments with maturities of three months or less at the date of
purchase.

Accounts Receivable

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 $10,242 at June 28, 2003 and
$8,465 at June 29, 2002.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using
the first-in first-out (FIFO) method.

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,
current and future customer demand and market conditions. Changes in these
conditions may result in additional allowances. The allowance for inventory was
$21,717 at June 28, 2003 and $21,360 at June 29, 2002.

Long-Lived Assets

Property and equipment are recorded at cost and are depreciated primarily using
the straight-line method for financial reporting and accelerated methods for tax
reporting. Cost includes an amount of interest associated with significant
capital projects. Useful lives for financial reporting range from 5-10 years for
machinery and equipment, and 10-40 years for buildings. Maintenance and repair
costs are charged to earnings, while expenditures that increase asset lives are
capitalized.

Other than goodwill, the Company periodically reviews long-lived assets that
have finite lives and that are not held for sale for impairment by comparing the
carrying value of the assets to their estimated future undiscounted cash flows.
Goodwill is reviewed annually for impairment by comparing the carrying value of
each reporting unit to the present value of its expected future cash flows. For
fiscal 2003, the required annual testing resulted in no impairment charge. For
fiscal 2002, the analysis of Quifa resulted in goodwill impairment of $11,524
and other asset impairment charges of $2,590. See Note N.

As required by SFAS 142, "Goodwill and Other Intangible Assets", the Company
ceased amortizing goodwill in fiscal 2002. Goodwill amortization, which was
non-deductible for tax purposes, was $1,135 for fiscal 2001. The effect on
earnings per share of eliminating goodwill amortization is noted in the
following table:

-39-

The Company's intangible assets, excluding goodwill, are immaterial.

Income Taxes

Deferred income tax assets and liabilities are recorded based upon the
difference between financial reporting and tax reporting bases of assets and
liabilities using the enacted tax rates.

Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries because those earnings are
considered permanently reinvested in the operations of those subsidiaries.

New Accounting Standards

In June 2002, the Financial Accounting Standard Boards (FASB) issued SFAS 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. This statement supercedes the guidance provided by
Emerging Issues Task Force 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS 146 is required to be adopted for exit
or disposal activities initiated after December 31, 2002. Because SFAS 146 only
affects the timing of the recognition of the liabilities to be incurred if an
entity makes a decision to exit or dispose of a particular activity, the
adoption of SFAS 146 had no impact on the Company's financial statements.
Additionally, the application of SFAS 146 to the restructuring recorded in
fiscal 2002 would have resulted in no material difference in the Company's
financial statements.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", which amended SFAS 123, "Accounting for
Stock-Based Compensation". SFAS 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require more prominent and more frequent disclosures
in financial statements about the effects of stock-based compensation. SFAS 148
is effective for fiscal years ending after December 15, 2002.

The Company began expensing stock options in the second quarter of fiscal 2003
and has elected to use the retroactive restatement method. All prior periods
presented have been adjusted to reflect

-40-

compensation costs that would have been recognized had the recognition
provisions of SFAS 123, as amended by SFAS 148, been applied to all awards
granted after July 1, 1995. See Note F.

NOTE B - EARNINGS PER SHARE

A reconciliation of the numerators and denominators used in the basic and
diluted EPS calculation follows:

Options outstanding that are antidilutive were 3,204 for fiscal 2003, 2,341 for
fiscal 2002 and 4,407 for fiscal 200l. These options were excluded from the
diluted EPS calculation.

NOTE C - INVENTORIES

Inventories are summarized as follows:

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 $21,717 at June 28, 2003 and $21,360 at June 29, 2002.

NOTE D - GOODWILL

Changes in the carrying amount of goodwill are as follows:

The impairment loss in fiscal 2002 resulted from the Company's decision to
restructure Quifa as discussed in Note N. The goodwill acquired in fiscal 2002
resulted from an adjustment in the purchase price allocation from the Wrafton
acquisition.

-41-

NOTE E - LONG-TERM BORROWINGS AND CREDIT ARRANGEMENTS

Effective September 23, 1999, the Company entered into a revolving credit
agreement with a group of banks, which provides an unsecured revolving credit
facility. The initial amount of the credit facility was $175,000 and was reduced
to $75,000 effective May 15, 2003 at the request of the Company. The agreement
expires in June 2004. Repayment has been guaranteed by the Company's
subsidiaries. Restrictive loan covenants apply to, among other things, minimum
levels of net worth, interest coverage and funded debt leverage.

Interest rates on the revolving credit facility are established at the time of
borrowing through three options, the prime rate or a LIBOR rate plus a factor
established quarterly based on funded debt leverage, or a rate agreed upon
between the Company and its Agent at the time the loan is made. The rate factor
at June 28, 2003 was 0.425 percent. The Company had no outstanding borrowings at
June 28, 2003 and June 29, 2002.

Quifa has short-term uncommitted unsecured credit facilities with two banks in
Mexico, totaling 63,000 pesos ($6,093 at June 28, 2003). The outstanding
borrowings under the facilities were $5,803 at June 28, 2003 and $5,128 at June
29, 2002 and were included in Notes payable. The facilities are supported by a
comfort letter and Company guarantee. Interest is established at the time of the
borrowing, based on a rate agreed upon between the bank and Quifa.

In May 2000, Quifa entered into a term loan with a bank in Mexico, which matured
on May 22, 2002. The loan was secured by automobiles and required 26 equal
monthly payments of 461 pesos ($50), plus interest on the unpaid balance at not
less than 1.5 percent. Quifa had no outstanding balances at June 28, 2003 and
June 29, 2002.

Wrafton has short-term uncommitted unsecured credit facilities with two banks in
the U.K. totaling 2,100 pounds sterling ($3,443 at June 28, 2003). Outstanding
borrowings under the facilities were $3,177 at June 28, 2003 and $3,210 at June
29, 2002 and were included in Notes payable. The facilities are partially
supported by a Company guarantee. Interest rates are established at the time of
borrowing, based on a rate agreed upon between the bank and Wrafton, or LIBOR
plus 1 percent.

-42-

NOTE F - SHAREHOLDERS' EQUITY

In April 1996, the Company's Board of Directors adopted a Preferred Share
Purchase Rights Plan and declared a dividend distribution to be made to
shareholders of record on April 22, 1996 of one Preferred Share Purchase Right
for each outstanding share of the Company's common stock. The Rights contain
provisions, which are intended to protect the Company's stockholders in the
event of an unsolicited and unfair attempt to acquire the Company. The Company
is entitled to redeem the Rights at $.01 per Right at any time before a 20
percent position has been acquired. The Rights will expire on April 10, 2006,
unless previously redeemed or exercised.

The Company has restricted stock plans and agreements as described below that
were not approved by shareholders. The holder of restricted shares has all
rights of a shareholder except that the shares are restricted as to sale or
transfer for the vesting period and the shares are forfeited upon termination in
certain circumstances. The Company accounts for restricted shares as unearned
compensation, which is ratably charged to expense over the vesting period. The
unearned compensation included in shareholders' equity was $111 at June 28, 2003
and $608 at June 29, 2002.

The Company has established a restricted stock plan for directors, which is
intended to attract and retain the services of experienced and knowledgeable
non-employee directors. The terms of the plan call for the granting of $10 worth
of restricted shares to each director on the date of the Annual Board Meeting.
The number of shares issued is based on the fair market value of the shares on
the date of the Annual Board Meeting. The restricted shares become vested on the
date of the next Annual Board Meeting on which the Director's existing term as a
Board member is set to expire (director terms are generally three years). The
Company granted seven shares of restricted stock valued at $84 during fiscal
2003 and four shares valued at $60 during fiscal 2002. The value of restricted
shares increased unearned compensation. The Company charged $64 to expense in
both fiscal 2003 and 2002.

In August 2001, the Company granted 25 shares of restricted stock valued at $440
to David T. Gibbons pursuant to restricted stock agreements. Additionally, Mr.
Gibbons was granted 96 shares valued at $503 in May 2000. Assuming certain
conditions are met, the restricted shares granted in August 2001 and May 2000
become vested on August 14, 2003 and June 30, 2003, respectively. The expense
for these shares was $427 for fiscal 2003 and $407 for fiscal 2002.

In August 2001, the Company granted 12 shares of restricted stock valued at $211
to Douglas R. Schrank pursuant to a restricted stock agreement. Assuming certain
conditions are met, the restricted shares become vested on August 14, 2003. The
expense for these shares was $106 for fiscal 2003 and $97 for fiscal 2002.

The Company's stock option plans for employees and directors require shareholder
approval. The Company grants key management employees options to purchase shares
of common stock. The options vest and may be exercised from one to ten years
after the date of grant based on a vesting schedule. Proceeds from the exercise
of stock options under the Company's stock option plans and income tax benefits
attributable to stock options exercised are credited to common stock.

-43-

A summary of activity for the Company's employee stock option plan is presented
below:

The Company issues stock options to directors under a non-qualified stock option
plan. Options granted under the plan vest and may be exercised from one to ten
years after the date of grant based on a vesting schedule.

A summary of activity for the Company's director stock option plan is presented
below:

The Company has two stock option compensation plans for employees and directors.
Prior to the second quarter of fiscal 2003, the Company accounted for those
plans under the recognition and measurement provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. No
stock-based compensation cost was reflected in results reported prior to the
second quarter of fiscal 2003, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. Beginning in the second quarter of fiscal 2003, the Company
adopted the fair value recognition provisions of SFAS 123, as amended by SFAS
148, for stock-based compensation. All prior periods presented have been
adjusted to reflect the compensation cost that would have been recognized had
the recognition provisions of SFAS 123, as amended by SFAS 148, been applied to
all awards granted after July 1, 1995. Compensation costs are included in
selling and administration operating expenses.

-44-

The adoption of the fair value method and the retroactive restatement method
selected by the Company resulted in a reduction of retained earnings at July 1,
2001 of $14,051, representing the cumulative stock option compensation recorded
for prior years net of the tax effect.

The Company's net income and earnings per share (EPS) were reduced as follows:

The weighted average fair value per share at the date of grant for options
granted during fiscal 2003, 2002 and 2001 was $4.11, $6.49 and $4.13,
respectively. The fair value was estimated using the Black-Scholes option
pricing model, assuming forfeitures are accounted for as they occur, with the
following weighted average assumptions:

-45-

The following table summarizes information concerning options outstanding and
exercisable under the plans at June 28, 2003:

In January 2003, the Board of Directors adopted a policy of paying regular
quarterly dividends. The Company paid quarterly dividends of $3,484, or $0.05
per share, during fiscal 2003. On August 7, 2003, the Board of Directors
declared a dividend of $0.025 per share, payable on September 23, 2003, for
shareholders of record on August 29, 2003. The declaration and payment of
dividends and the amount paid, 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. While the Company's credit agreement does not prohibit
the Company from paying dividends, the future payment of dividends could be
restricted by financial maintenance covenants contained in the credit agreement.

In fiscal 2003, the Company continued its common stock repurchase program.
Purchases are made on the open market, subject to market conditions, and are
funded by cash from operations. For fiscal 2003, the Company purchased 3,296
shares of common stock for $33,682. The Company purchased 2,533 shares for
$31,923 during fiscal 2002 and 137 shares for $1,089 during fiscal 2001. Since
November 2000, the Board of Directors has approved a total expenditure of
$80,000, and the Company currently has a remaining balance of $13,306 available
to purchase additional shares. The common stock repurchased was retired upon
purchase for all years.

NOTE G - RETIREMENT PLANS

The Company has a qualified profit-sharing and investment plan under section
401(k) of the Internal Revenue Code, which covers substantially all employees.
Contributions to the plan are at the discretion of the Board of Directors.
Additionally, the Company matches a portion of employees' contributions. The
Company's contributions to the plan were $6,834, $6,342 and $5,840 in fiscal
2003, 2002 and 2001, respectively.

The Company has postretirement plans that provide medical benefits for retirees
and their eligible dependents. Employees become eligible for these benefits if
they meet certain minimum age and service requirements. The Company reserves the
right to modify or terminate these plans. The plans are not funded. The unfunded
accumulated postretirement benefit obligation was $4,837 at June 28, 2003 and
$4,180 at June 29, 2002. The benefits expensed were $658, $586 and $381 in
fiscal 2003, 2002 and 2001, respectively.

The Company has non-qualified plans relating to deferred compensation and
executive retention that allow certain employees and directors to defer
compensation subject to specific requirements. The plans are not funded. The
deferred compensation liability was $2,754 at June 28, 2003 and $1,616 at June
29, 2002.

-46-

NOTE H - INCOME TAXES

The provision for income taxes consists of the following:

A reconciliation of the provision based on the Federal statutory income tax rate
to the Company's effective income tax rate is as follows:

Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries because those earnings are
considered permanently reinvested in the operations of those subsidiaries. It is
not practicable to estimate the amount of tax that might be payable on the
eventual remittance of such earnings.

Deferred income taxes arise from temporary differences between financial
reporting and tax reporting basis of assets and liabilities, and operating loss
and tax credit carry forwards for tax purposes. The components of the net
deferred income tax asset (liability) are as follows:

-47-

The above amounts are classified in the consolidated balance sheet as follows:

At June 28, 2003, the Company had state net operating loss carry forwards of
$54,618 and a capital loss carry forward of $1,543. At June 28, 2003, a
valuation allowance of $54,618 had been provided for the state net operating
loss and a $1,543 valuation allowance had been provided for the capital loss as
utilization of such carry forwards within the applicable statutory periods is
uncertain. The state net operating loss carry forward expires through 2021,
while the capital loss carry forward expires through 2007. Both expiring state
net operating loss carry forwards and expiring capital loss carry forwards and
the required valuation allowances are adjusted annually. After application of
the valuation allowances described above, the Company anticipates no limitations
will apply with respect to utilization of the net deferred income tax assets
described above.

-48-

NOTE I - COMMITMENTS AND CONTINGENCIES

The Company leases certain assets, principally warehouse facilities and computer
equipment, under agreements that expire at various dates through March 2008.
Certain leases contain provisions for renewal and purchase options and require
the Company to pay various related expenses. Future non-cancelable minimum
operating lease commitments are as follows: 2004--$4,052; 2005--$3,054;
2006--$1,861; 2007--$728 and 2008--$595. Rent expense under all leases was
$7,721, $8,823 and $9,446 for fiscal 2003, 2002 and 2001, respectively.

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 1999, the Company filed a civil antitrust lawsuit in the U.S. District
Court for the Western District of Michigan against a group of vitamin raw
material suppliers alleging the defendants conspired to fix the prices of
vitamin raw materials sold to the Company. The relief sought included money
damages and a permanent injunction enjoining defendants from future violation of
antitrust laws. The Company has entered into final settlement agreements with
all of the defendants. The Company received settlement payments of $3,128,
$27,891 and $995 in fiscal 2003, 2002 and 2001, respectively. The payments were
net of attorney fees and expenses that were withheld prior to the disbursement
of the funds to the Company. No additional income will be received.

The Company is currently defending numerous individual lawsuits pending in
various state and federal courts involving phenylpropanolamine (PPA), an
ingredient formerly used in the manufacture of certain OTC cough/cold and diet
products. The Company discontinued using PPA 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 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.

The Company has pending certain other legal actions and claims incurred in the
normal course of business. The Company believes that these actions are without
merit or are 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, it is possible that the Company's future results of operations or cash
flow could be materially impacted in a particular period.

-49-

NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)

(1) Includes pre-tax income of $3,128 related to settlement proceeds of an
antitrust lawsuit. See Note I.

(2) Includes a pre-tax charge of $2,046 related to the LaVergne, Tennessee
logistics facility. See Note N. Includes a pre-tax charge of $1,900 for bad
debt expense related to the bankruptcy of a large customer.

(3) Includes pre-tax income of $7,813 related to settlement proceeds of an
antitrust lawsuit. See Note I.

(4) Includes pre-tax income of $20,078 related to settlement proceeds of an
antitrust lawsuit. See Note I. Includes a pre-tax charge of $11,524 for
goodwill impairment and $5,090 for asset impairment and restructuring costs
related to Quifa. See Note N.

-50-

NOTE K - SEGMENT INFORMATION

The Company has one reportable segment, store brand health care, that
encompasses two operating segments, OTC pharmaceuticals and nutritional
products. All other consists of the operating segments, Quifa and Wrafton,
neither of which meet the quantitative thresholds for separate disclosure or are
immaterial to the total business of the Company. The accounting policies of all
of the operating segments are the same as those described in the summary of
significant accounting policies in Note A.

NOTE L - PRODUCT DISCONTINUATION

In November 2000, in response to recommendations by the FDA, the Company
voluntarily discontinued production and halted shipments of all products
containing the ingredient PPA, effective immediately. In fiscal 2001, the
Company recorded total net sales returns of $12,500, with a negative impact on
gross profit of $3,400. Additionally, the Company recorded a charge of $17,600
in cost of sales related to the cost of returned product, product on hand, and
product disposal costs. Replacement products for most of the PPA-containing
products began shipping in the fourth quarter of fiscal 2001.

-51-

NOTE M - ACQUISITION

In June 2001, the Company acquired Wrafton for approximately $44,000, plus
acquisition costs. Wrafton, located in the United Kingdom, is a supplier of
store brand products to major grocery and pharmacy retailers and a contract
manufacturer of OTC pharmaceuticals. The acquisition was accounted for using the
purchase method and resulted in goodwill of approximately $27,500. The assets
and liabilities, which are not considered significant to the Company, are
included in the consolidated balance sheet beginning June 30, 2001. The results
of operations were included beginning in fiscal 2002.

NOTE N - RESTRUCTURING AND GOODWILL IMPAIRMENT CHARGES

For fiscal 2002 and 2001, the Company incurred restructuring charges related to
the declining net realizable value of its LaVergne, Tennessee logistics
facility. The restructuring charges were $2,046 and $2,175 for fiscal 2002 and
2001, respectively. The effect of suspending depreciation on this facility was
approximately $400 and $800 for fiscal 2002 and 2001, respectively. The Company
sold this facility in the second quarter of fiscal 2002. The effect of selling
this facility is included in the store brand health care segment.

Update of 2002 restructuring -- The Company approved a restructuring plan
related to its Mexican operating company, Quifa, in the fourth quarter of fiscal
2002. The implementation of the plan began in June 2002 and is expected to be
completed in its entirety by December 2003. The Company discontinued certain
customers and products because of inadequate profitability and misalignment with
strategic goals. Equipment related to the discontinued customers and products
was written down to its fair market value in fiscal 2002, resulting in an
impairment charge of $2,590. The Company expects to terminate 228 employees
performing certain production and administrative tasks as a result of the
restructuring plan. As of June 28, 2003, 199 of these employees had been
terminated. Accordingly, the Company recorded employee termination benefits of
$2,000 and other restructuring costs of $500. The charges for asset impairment,
employee termination benefits and other restructuring costs were included in the
restructuring line in the consolidated statement of income for fiscal 2002. In
fiscal 2003, $2,270 was paid primarily related to severance costs. The activity
of the restructuring reserve is detailed in the following table:

Due to the changes necessary at Quifa, its goodwill was re-tested for impairment
in the fourth quarter of fiscal 2002. The fair value of the reporting unit was
estimated using the present value of expected future cash flows. The testing
procedure resulted in a goodwill impairment charge of $11,524 in fiscal 2002.
The goodwill impairment charge is recorded as a separate line item in the
consolidated statement of income.

-52-

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures

As of June 28, 2003, the Company's management, including its Chief Executive
Officer and its Chief Financial Officer, have reviewed and evaluated 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 and
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are adequate and
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.

In connection with the evaluation by the Company's management, including its
Chief Executive Officer and Chief Financial Officer, of the Company's internal
control over financial reporting pursuant to Rule 13a-15(d) of the Securities
Exchange Act of 1934, no changes during the quarter ended June 28, 2003 were
identified that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

-53-

PART III.

Item 10. Directors and Executive Officers of the Registrant.

(a) Directors of the Company.
Information concerning directors of the Company is incorporated
herein by reference to the Company's Proxy Statement for the 2003
Annual Meeting under the heading "Election of Directors".

(b) Executive Officers of the Company.
See Part I, Additional Item of this Form 10-K on page 15.

(c) Compliance with Section 16(a) of the Exchange Act.
Information concerning compliance with Section 16(a) of the Exchange
Act is incorporated herein by reference to the Company's Proxy
Statement for the 2003 Annual Meeting under the heading "Section
16(a) Beneficial Ownership Reporting Compliance".

Item 11. Executive Compensation.

Information concerning executive officer and director compensation is
incorporated herein by reference to the Company's Proxy Statement for the 2003
Annual Meeting under the headings "Executive Compensation" and "Director
Compensation".

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference to the Company's Proxy Statement
for the 2003 Annual Meeting under the heading "Ownership of Perrigo Common
Stock". Information concerning equity compensation plans is incorporated herein
by reference to the Company's Proxy Statement for the 2003 Annual Meeting under
the heading "Equity Compensation Plan Information".

Item 13. Certain Relationships and Related Transactions.

Information concerning certain relationships and related transactions is
incorporated herein by reference to the Company's Proxy Statement for the 2003
Annual Meeting under the heading "Director Compensation".

Item 14. Principal Accountant Fees and Services.

Information concerning principal accountant fees and services is incorporated
herein by reference to the Company's Proxy Statement for the 2003 Annual Meeting
under the heading "Independent Accountants".

-54-

PART IV.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed or incorporated by reference as part of
this Form 10-K:

1. All financial statements. See Index to Consolidated Financial Statements
on page 31 of this Form 10-K.

2. Financial Schedules Report of Independent Certified Public Accountants on
Financial Statement Schedule. Schedule II - Valuation and Qualifying
Accounts. Schedules other than the one listed are omitted because the
required information is included in the footnotes, immaterial or not
applicable.

3. Exhibits:

3(a) Amended and Restated Articles of Incorporation of Registrant,
incorporated by reference from Amendment No. 2 to Registration
Statement No. 33-43834 filed by the Registrant on September 23,
1993.

3(b) Restated Bylaws of Registrant, dated April 10, 1996, as amended,
incorporated by reference from the Registrant's Form 10-K filed on
September 6, 2000.

4(a) Shareholders' Rights Plan, incorporated by reference from the
Registrant's Form 8-K filed on April 10, 1996. (SEC File No.
00-19725).

10(a)* Registrant's Management Incentive Bonus Plan for Fiscal Year 2003,
incorporated by reference from the Registrant's Form 10-Q filed on
October 30, 2002.

10(b)* Registrant's Employee Stock Option Plan, as amended, incorporated
by reference from the Registrant's Form 10-K filed on September
18, 2002.

10(c)* Registrant's 1989 Non-Qualified Stock Option Plan for Directors,
as amended, incorporated by reference from Exhibit B of the
Registrant's 1997 Proxy Statement as amended at the Annual Meeting
of Shareholders on October 31, 2000.

10(d)* Registrant's Restricted Stock Plan for Directors, dated November
6, 1997, incorporated by reference from Registrant's 1998 Form
10-K filed on October 6, 1998.

10(e) Credit Agreement, dated September 23, 1999, between Registrant and
Bank One, Michigan, incorporated by reference from the
Registrant's Form 10-K filed on October 1, 1999.

10(f) Guaranty Agreement, dated September 23, 1999, executed by L.
Perrigo Company and Perrigo Company of South Carolina, Inc., in
favor of the Agent and each Lender, incorporated by reference from
the Registrant's Form 10-K filed on October 1, 1999.

10(h)* Employment Agreement, Restricted Stock Agreement, Contingent
Restricted Stock Agreement, and Noncompetition and Nondisclosure
Agreement, dated April 19, 2000, between Registrant and David T.
Gibbons, incorporated by reference from the Registrant's Form 10-Q
filed on April 26, 2000.

-55-

10(i)* Noncompetition and Nondisclosure Agreement and Indemnity
Agreement, dated June 2, 2000, between Registrant and Michael J.
Jandernoa, incorporated by reference from the Registrant's Form
10-K filed on September 6, 2000.

10(j)* Restricted Stock Agreement, dated August 14, 2001, between
Registrant and David T. Gibbons, incorporated by reference from
the Registrant's Form 10-K filed on September 7, 2001.

10(k)* Restricted Stock Agreement, dated August 14, 2001, between
Registrant and Douglas R. Schrank, incorporated by reference from
the Registrant's Form 10-K filed on September 7, 2001.

10(l)* Registrant's Executive Retention Plan, dated January 1, 2002,
incorporated by reference from the Registrant's Form 10-Q filed on
October 30, 2002.

10(m)* Registrant's Nonqualified Deferred Compensation Plan, dated
December 31, 2001, as amended, incorporated by reference from the
Registrant's Form 10-Q filed on January 24, 2002.

10(n)* Consulting Agreement, dated July 31, 2002, between Registrant and
Michael J. Jandernoa, incorporated by reference from the
Registrant's Form 10-K filed on September 18, 2002.

10(o)* Registrant's Restricted Stock Plan for Directors II, dated August
14, 2001, incorporated by reference from the Registrant's Form
10-Q filed on October 23, 2001.

21 Subsidiaries of the Registrant.

23 Consent of BDO Seidman, LLP.

24 Power of Attorney (see signature page).

31 Rule 13a-14(a) Certifications.

32 Section 1350 Certifications.

* Denotes management contract or compensatory plan or arrangement.

(b) Exhibit and reports on Form 8-K.

On April 23, 2003, the Company furnished under Items 9 and 12 its April
23, 2003 press release containing its third quarter earnings information.

-56-

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

Shareholders and Board of Directors
Perrigo Company
Allegan, Michigan

The audits referred to in our report on Perrigo Company and Subsidiaries dated
July 25, 2003, relating to the consolidated financial statements of Perrigo
Company, which is contained in Item 8 of this Form 10-K for the year ended June
28, 2003, included the audit of Schedule II - Valuation and Qualifying Accounts.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based upon our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.

By: /s/ BDO Seidman, LLP
-----------------------------
BDO Seidman, LLP

Grand Rapids, Michigan
July 25, 2003

-57-

SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS

PERRIGO COMPANY
(in thousands)

(1) Uncollectible accounts charged off, net of recoveries.

-58-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K for
the fiscal ended June 28, 2003 to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Allegan, State of Michigan on the 15th
of August 2003.

PERRIGO COMPANY

By: /s/ David T. Gibbons
------------------------------------
David T. Gibbons
Chairman of the Board, President and
Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints David T. Gibbons and
Douglas R. Schrank and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments to this Annual Report on Form 10-K for the fiscal year
ended June 28, 2003 necessary or advisable to enable Perrigo Company to comply
with the Securities Exchange Act of 1934, any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, which
amendments may make such other changes in the report as the aforesaid
attorney-in-fact executing the same deems appropriate.

-59-

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K for the fiscal year ended June 28, 2003 has been signed by
the following persons in the capacities indicated on the 15th of August 2003.

-60-

EXHIBIT INDEX

-61-