OVERVIEW

Segments - The Company has three reportable segments, aligned primarily by product: Consumer Healthcare, Rx Pharmaceuticals and API, as well as an Other category. Certain segment information for prior periods has been reclassified to conform to the current year presentation. The amounts reclassified had no effect on retained earnings or net income on either a consolidated or reportable segment basis. The Consumer Healthcare segment includes the U.S., U.K. and Mexico operations supporting the sale of OTC pharmaceutical and nutritional products worldwide. The Rx Pharmaceuticals segment supports the development and sale of prescription drug products. The API segment supports the development and manufacturing of API products in Israel and Germany, with sales to customers worldwide. The Other category consists of two operating segments, Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products, with sales primarily to the Israeli market, including cosmetics, toiletries, detergents, manufactured and imported pharmaceutical products and medical diagnostic products. Neither of these operating segments meets the quantitative thresholds required to be separately reportable segments.

Seasonality - The Company's sales of OTC pharmaceutical and nutritional products are subject to the seasonal demands for cough/cold/flu and allergy products. Accordingly, operating results for the first quarter of fiscal 2008 are not necessarily indicative of the results that may be expected for a full year.

Current Year Results - Net sales for the first quarter of fiscal 2008 were $382,740, an increase of $42,525 or 12% over fiscal 2007. The increase spanned all of the Company's segments and included new product sales of approximately $10,900. Gross profit was $116,718, an increase of 26% over fiscal 2007, driven primarily by the Consumer Healthcare and API segments. The gross profit percentage in the first quarter of fiscal 2008 was 30.5%, up from 27.3% last year. Operating expenses were $70,669, an increase of 5% over fiscal 2007, but as a percent of net sales were slightly lower than in fiscal 2007. Net income was $34,019, an increase of 102% over fiscal 2007, due primarily to an increase in operating income from the Consumer Healthcare, Rx Pharmaceutical and API segments. Further details for each reportable segment are included in the following Results of Operations.

RESULTS OF OPERATIONS

CONSUMER HEALTHCARE

                          First Quarter
                       -------------------
                         2008       2007
                       --------   --------
Net sales              $268,259   $241,809

Gross profit           $ 71,887   $ 56,201
Gross profit %             26.8%      23.2%

Operating expenses     $ 42,338   $ 39,101
Operating expenses %       15.8%      16.2%

Operating income       $ 29,549   $ 17,100
Operating income %         11.0%       7.1%

Net Sales

First quarter net sales for fiscal 2008 increased 11% or $26,450 compared to fiscal 2007. The increase was comprised of $19,330 domestic and $7,120 of international sales. The domestic increase resulted from $6,800 of new product sales, primarily in the smoking cessation and cough/cold categories, along with a $23,800 increase from higher unit sales of existing products in the smoking cessation, analgesics and cough/cold categories. A large portion of this increase is the result of an absence in the OTC marketplace of a key competitor during the quarter. These combined domestic increases were partially offset by a $10,000 sales decline in the gastrointestinal, feminine hygiene and nutrition categories. Of this decrease, approximately $7,400 was due to the Company's strategic exit of both fiber laxative and effervescent cough/cold product lines in the second quarter of fiscal 2007. The increase in international sales was driven primarily by new product sales of $3,000 and favorable foreign currency exchange of $2,300.

Gross Profit

First quarter gross profit for fiscal 2008 increased 28% or $15,686 compared to fiscal 2007. The increase resulted from higher gross margins attributed to new products and a favorable mix of products sold, both domestically and internationally. In addition, first quarter 2007 included higher inventory obsolescence costs as well as costs related to the product recall described below. The gross profit percentage for first quarter fiscal 2008 increased 3.6 percentage points over fiscal 2007 due primarily to lower inventory obsolescence costs and the fiscal 2007 product recall.

On November 9, 2006, the Company initiated a voluntary retail-level recall of certain lots of its acetaminophen 500 mg caplets containing raw material purchased from a third-party supplier. The total cost of the recall was approximately $6,500, of which $1,026 was recorded in the first quarter of fiscal 2007. The charge included sales returns and refunds, handling of on-hand inventories, disposal of inventory and management of consumer inquiries. There were no additional charges recorded for this recall during the first quarter of fiscal 2008 as it has been essentially completed.

Operating Expenses

First quarter operating expenses for fiscal 2008 increased 8% or $3,237 compared to fiscal 2007. The increase was primarily related to research and development costs of approximately $2,600 and selling expense of approximately $1,600, partially offset by employee-related expenses of $900. The research and development increase was due to the timing of clinical studies. The majority of the increase in selling costs related to the timing of promotional activities.

RX PHARMACEUTICALS

                          First Quarter
                       ------------------
                         2008       2007
                       -------    -------
Net sales              $34,960    $31,425

Gross profit           $15,118    $13,787
Gross profit %            43.2%      43.9%

Operating expenses     $ 7,673    $ 8,000
Operating expenses %      21.9%      25.5%

Operating income       $ 7,445    $ 5,787
Operating income %        21.3%      18.4%

Net Sales

First quarter net sales for fiscal 2008 increased 11% or $3,535 compared to fiscal 2007. This increase was due primarily to $6,600 in sales of products acquired from Glades Pharmaceuticals, Inc., increased sales volumes on the Company's existing portfolio of products of approximately $2,000 and new product sales of $600. These increases were substantially offset by pricing pressure due to increased competition on existing products.

Gross Profit

First quarter gross profit for fiscal 2008 increased 10% or $1,331 compared to fiscal 2007. The increase was due primarily to the strong gross margin on products acquired from Glades, as well as lower inventory related costs. These increases were partially offset by pricing pressure on existing products.

Operating Expenses

First quarter operating expenses for fiscal 2008 decreased 4% or $327 compared to fiscal 2007, due primarily to slightly lower research and development spending, as well as lower distribution costs.

API

                         First Quarter
                       -----------------
                         2008      2007
                       -------   -------
Net sales              $38,814   $29,779

Gross profit           $15,332   $10,077
Gross profit %            39.5%     33.8%

Operating expenses     $ 8,056   $ 5,419
Operating expenses %      20.8%     18.2%

Operating income       $ 7,276   $ 4,658
Operating income %        18.7%     15.6%

Net Sales

First quarter net sales for fiscal 2008 increased 30% or $9,035 compared to fiscal 2007. The increase was due primarily to increased volume of certain key products and customer demand requirements. The net sales of API are highly dependent on the level of competition in the marketplace for a specific material. The current trend of increased sales may not continue due to this dependency.

Gross Profit

First quarter gross profit for fiscal 2008 increased 52% or $5,255 compared to fiscal 2007, due primarily to favorable changes in the sales mix of products, as well as fixed overhead costs spread over increased production levels. The fiscal 2007 first quarter gross profit amount includes a reduction of $1,802 to reclassify from operating expenses within the API segment certain costs relating to a profit sharing arrangement. The reclassification had no effect on this segment's or the Company's consolidated operating income.

Operating Expenses

First quarter operating expenses for fiscal 2008 increased 49% or $2,637 compared to fiscal 2007. The increase was due primarily to research and development costs and higher employee-related costs. Fiscal 2007 first quarter operating expenses include a reduction of $1,802 to reclassify certain costs relating to a profit sharing arrangement to cost of sales. The reclassification had no effect on this segment's or the Company's consolidated operating income.

OTHER

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

                         First Quarter
                       -----------------
                         2008      2007
                       -------   -------
Net sales              $40,707   $37,202

Gross profit           $14,380   $12,750
Gross profit %            35.3%     34.3%

Operating expenses     $11,891   $10,086
Operating expenses %      29.2%     27.1%

Operating income       $ 2,489   $ 2,664
Operating income %         6.1%      7.2%

First quarter net sales for fiscal 2008 increased 9% or $3,505 compared to fiscal 2007. The increase was due primarily to changes in the sales mix of products and customers, as well as higher sales in the U.S. cosmetics market. First quarter gross profit for fiscal 2008 increased 13% or $1,630 compared to fiscal 2007, due primarily to increased sales volume and favorable product mix. First quarter operating expenses for fiscal 2008 increased 18% or $1,805 compared to fiscal 2007 due mainly to increased promotional activities and higher employee-related costs.

UNALLOCATED EXPENSES

Unallocated expenses for the first quarter were $710 for fiscal 2008 and $4,497 for fiscal 2007. These expenses were comprised of certain corporate services that were not allocated to the segments. The decrease in fiscal 2008 was due primarily to a $1,900 settlement of a pre-acquisition legal claim related to Agis, along with one-time employee-related expenses of $900 in fiscal 2007 not repeated in fiscal 2008.

INTEREST AND OTHER (CONSOLIDATED)

Interest expense for the first quarter was $9,844 for fiscal 2008 and $9,340 for fiscal 2007. Interest income for the first quarter was $5,189 for fiscal 2008 and $4,754 for fiscal 2007. Other income, net for the first quarter was $1,183 for fiscal 2008 compared to $61 for fiscal 2007.

INCOME TAXES (CONSOLIDATED)

The effective tax rate for the first quarter was 20.1% for fiscal 2008 and 20.3% for fiscal 2007. Foreign derived income before tax for the first quarter was fifty-four percent in fiscal 2008 down from sixty-eight percent in the same period of fiscal 2007. Foreign source income is generally derived from jurisdictions with a lower tax rate than the U.S. statutory rate. During the first quarter of fiscal 2008, the Company received a favorable tax ruling in Israel. This ruling, which the Company had projected to receive during fiscal 2008, resulted in a one-time benefit of $4,222, or a 10 percentage point impact on the effective tax rate. The effective tax rate for succeeding quarters is expected to be higher as the Company's U.S.

income is likely to represent a higher percentage of the total income than in the first quarter. The estimated annualized effective tax rate for fiscal 2008 is between 25% and 28%.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and investment securities increased $18,375 to $79,324 at September 29, 2007 from $60,949 at September 30, 2006. Working capital, including cash, increased $45,747 to $403,293 at September 29, 2007 from $357,545 at September 30, 2006.

Cash provided from operating activities was $27,699 for fiscal 2008 compared to cash used for operating activities of $6,404 for fiscal 2007. The increase in cash from operations was related primarily to increased earnings for fiscal 2008 compared to fiscal 2007 and general fluctuations in the timing of the overall procurement-to-pay cycle on inventory and accounts payable versus last year.

Cash used for investing activities decreased $8,378 to $1,001 for fiscal 2008 compared to $9,379 for fiscal 2007 due primarily to a net increase in the sale of investment securities and lower capital expenditures, partially offset by the Qualis, Inc. asset acquisition.

Capital expenditures for facilities and equipment were for normal replacement and productivity enhancements. Capital expenditures are anticipated to be $40,000 to $50,000 for fiscal 2008.

Cash used for financing activities was $12,573 for fiscal 2008 compared to cash provided from financing activities of $28,330 for fiscal 2007. The increase in cash used for financing activities was due primarily to net repayments of long-term debt, slightly offset by lower repurchases of common stock and lower net repayments of short-term debt.

The Company repurchased 202 shares of its common stock for $4,280 and 710 shares for $11,238 during the first quarter of fiscal 2008 and 2007, respectively. There were no private party transactions in the first quarter of fiscal 2008. Private party transactions accounted for 13 shares in the first quarter of fiscal 2007.

The Company paid quarterly dividends in the first quarter of $4,214 and $3,939, or $0.045 and $0.043 per share, for fiscal 2008 and 2007, respectively. The declaration and payment of dividends, if any, is subject to the discretion of the Board of Directors and will depend on the earnings, financial condition and capital and surplus requirements of the Company and other factors the Board of Directors may consider relevant.

GUARANTIES AND CONTRACTUAL OBLIGATIONS

The Company adopted FIN 48 as of July 1, 2007. At September 29, 2007 the liability of unrecognized tax benefits for uncertain tax positions was $49,100 and was recorded in other non-current liabilities. We do not expect a significant tax payment related to these obligations within the next year. Any future payments related to the settlement of uncertain tax positions cannot be reasonably estimated at this time.

During the first quarter of fiscal 2008, no other material change in contractual obligations occurred.

The Company's Israeli subsidiary has provided a guaranty to a bank to secure the debt of a 50% owned joint venture for approximately $500, not to exceed 50% of the joint venture's debt that is not recorded on the Company's condensed consolidated balance sheet as of September 29, 2007.

CRITICAL ACCOUNTING POLICIES

Determination of certain amounts in the Company's financial statements requires the use of estimates. These estimates are based upon the Company's historical experiences combined with management's understanding of current facts and circumstances. Although the estimates are considered reasonable, actual results could differ from the estimates. The accounting policies, discussed below, are considered by management to require the most judgment and are critical in the preparation of the financial statements. These policies are reviewed by the Audit Committee. Other significant accounting policies are included in Note A of the notes to the consolidated financial statements in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2007.

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

The Company maintains accruals for customer programs that consist primarily of chargebacks, rebates and shelf stock adjustments. Certain of these accruals are recorded in the balance sheet as current liabilities and others are recorded as a reduction in accounts receivable.

A chargeback relates to an agreement the Company has with a wholesaler, a pharmaceutical buying group or a retail customer that will ultimately purchase product from a wholesaler for a contracted price that is different than the Company's price to the wholesaler. The wholesaler will issue an invoice to the Company for the difference in the contract prices. The accrual for chargebacks is based on historical chargeback experience and estimated wholesaler inventory levels, as well as expected sell-through levels by wholesalers to retailers.

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

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

Changes in these estimates and assumptions related to customer programs may result in additional accruals. The following table summarizes the activity for the balance sheet for accounts receivable allowances and customer program accruals:

                               Year-to-Date   Year-to-Date
                                   2008           2007
                               ------------   ------------
CUSTOMER RELATED ACCRUALS
Balance, beginning of period     $ 51,656       $ 54,456
   Provision recorded              55,595         41,834
   Credits processed              (56,158)       (48,497)
                                 --------       --------
Balance, end of the period       $ 51,093       $ 47,793
                                 ========       ========

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 $8,622 at September 29, 2007, $9,421 at June 30, 2007 and $12,195 at September 30, 2006.

Inventory - The Company maintains an allowance for estimated obsolete or unmarketable inventory based on the difference between the cost of the inventory and its estimated market value. In estimating the allowance, management considers factors such as excess or slow moving inventories, product expiration dating, products on quality hold, current and future customer demand and market conditions. Changes in these conditions may result in additional allowances. The allowance for inventory was $34,947 at September 29, 2007, $36,210 at June 30, 2007 and $40,992 at September 30, 2006.

Goodwill - Goodwill is tested for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The test for impairment requires the Company to make several estimates about fair value, most of which are based on projected future cash flows. The estimates associated with the goodwill impairment tests are considered critical due to the judgments required in determining fair value amounts, including projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss. Goodwill allocated to the Consumer Healthcare segment is tested annually for impairment in the second quarter of the fiscal year. The goodwill allocated to the API and Rx Pharmaceuticals segments is tested annually for impairment in the third quarter of the fiscal year. The Company's API business is heavily dependent on new products currently under development. Although not anticipated at this time, the termination of certain key product development projects could have a materially adverse impact on the future results of the API segment, which may include a charge for goodwill impairment. Goodwill was $199,730 at September 29, 2007, $196,218 at June 30, 2007 and $183,205 at September 30, 2006.

Other Intangible Assets - Other intangible assets subject to amortization consist of developed product technology / formulation, distribution and license agreements, customer relationships and trademarks. Most of these assets are related to the Agis acquisition and are amortized over their estimated useful economic lives using the straight-line method. An accelerated method of amortization is used for customer relationships. For intangible assets subject to amortization, an impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized if the carrying amount of the asset is not recoverable and

its carrying amount exceeds its fair value. Other intangible assets had a net carrying value of $187,467 at September 29, 2007, $159,977 at June 30, 2007 and $137,876 at September 30, 2006.

Product Liability and Workers' Compensation - The Company maintains accruals to provide for claims incurred that are related to product liability and workers' compensation. In estimating these accruals, management considers actuarial valuations of exposure based on loss experience. These actuarial valuations include significant estimates and assumptions, including, but not limited to, loss development, interest rates, product sales, litigation costs, accident severity and payroll expenses. Changes in these estimates and assumptions may result in additional accruals. The accrual for product liability claims was $2,531 at September 29, 2007, $2,641 at June 30, 2007 and $2,069 at September 30, 2006. The accrual for workers' compensation claims was $1,411 at September 29, 2007, $1,391 at June 30, 2007 and $2,016 at September 30, 2006.

Income Taxes - The Company's effective income tax rate is based on income, statutory tax rates, special tax benefits and tax planning opportunities available to the Company in the various jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company's tax expense and in evaluating tax positions. Tax positions are reviewed quarterly and balances are adjusted as new information becomes available.

The Company has established valuation allowances against a portion of the non-U.S. net operating losses and state-related net operating losses to reflect the uncertainty of its ability to fully utilize these benefits given the limited carryforward periods permitted by the various jurisdictions. The evaluation of the realizability of the Company's net operating losses requires the use of considerable management judgment to estimate the future taxable income for the various jurisdictions, for which the ultimate amounts and timing of such realization may differ. The valuation allowance can also be impacted by changes in the tax regulations.

Significant judgment is required in determining the Company's contingent tax liabilities. The Company has established contingent tax liabilities using management's best judgment and adjusts these liabilities as warranted by changing facts and circumstances. A change in tax liabilities in any given period could have a significant impact on the Company's results of operations and cash flows for that period.