<PAGE>   1


                                                                      EXHIBIT 13

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(thousands of dollars)

As discussed in Note 1 in the Consolidated Financial Statements, the financial
statements have been restated. This restatement results from a revision in the
Company's method of accounting for the warrants issued to DuPont Pharmaceuticals
Company entered into in connection with the strategic alliance executed in March
2000. In addition, the Company reclassified proceeds from supply agreements from
revenue to proceeds from patent challenge settlement. The accompanying
information has been amended to reflect the restatement and reclassification.

Results of Operations
Fiscal 2000 to Fiscal 1999

Product sales increased approximately 6% from $415,950 to $440,110.

Tamoxifen sales increased 8% from $275,127 to $297,395. The increase was
attributable to higher prices and an expansion in the use of Tamoxifen. In
October 1998, Tamoxifen was approved to reduce the incidence of breast cancer in
women at high risk of developing the disease. Tamoxifen is a patent protected
product manufactured for the Company by AstraZeneca, the innovator. Currently,
the Company is the only distributor of Tamoxifen in the U.S. other than
AstraZeneca, whose product is sold under the brand name Nolvadex. In fiscal
2000, Tamoxifen accounted for 68% of product sales versus 66% in fiscal 1999.

The prior year's sales included $6,373 of Minocycline sales which the Company
discontinued selling in late 1999 due to deteriorating market conditions.

Other product sales increased 6% from $134,450 to $142,583. The increase was
attributable to sales of Warfarin Sodium, Medroxyprogesterone Acetate,
Methotrexate, Naltrexone, Trazodone and Hydroxyurea. Warfarin Sodium sales
accounted for approximately 14% of total product sales, which was a slight
decline from 15% in the prior year. Barr ended the fiscal year with
approximately 27% of all brand and generic Warfarin Sodium unit sales.

Cost of sales increased from $301,393 to $315,652 primarily related to an
increase in product sales. As a percentage of product sales, cost of sales
declined from 72.5% to 71.7%. The Company's product margins are dependent on
several factors including product sales mix, manufacturing efficiencies and
competition. The decrease in cost of sales as a percentage of product sales was
due to a more favorable mix among non-Tamoxifen product sales, which was
slightly offset by a higher percentage of Tamoxifen sales to total product
sales. Tamoxifen is distributed by the Company and has lower margins than most
of Barr's other products.

Selling, general and administrative expenses increased from $40,439 to $45,000.
The increase was primarily due to legal costs related to litigation with DuPont
that was resolved in March 2000, approximately $2,500 in one time legal charges
associated with finalizing the Company's definitive agreements with DuPont and
to ongoing patent challenges. Also, the prior year included approximately $1,700
related to the Company's share of the $4,000 payment received from Eli Lilly &
Company for reimbursement of legal costs incurred as part of the agreement to
take the Prozac(TM)

                                                                               1
<PAGE>   2
case directly to the court of appeals.

Research and development expenses increased from $22,593 to $40,451. Over 60% of
the increase in research and development spending was attributable to increased
payments to clinical research organizations for clinical and bio-study services.
The balance of the increase is mainly related to higher personnel costs which
support an increased number of products in development and higher costs
associated with the Company's proprietary drug development efforts. Also, the
prior year included $646 related to a proprietary product collaboration with
Eastern Virginia Medical School. The increased level of spending during the
fiscal year ended June 30, 2000, enabled the Company to file fifteen
applications with the U.S. Food and Drug Administration and initiate Phase III
clinical studies for two proprietary products.

Proceeds from patent challenge settlement decreased $499, as expected, since
proceeds recognized in the prior year under a separate contingent supply
agreement related to the Ciprofloxacin litigation ceased.

Interest income increased $1,912 primarily due to an increase in the average
cash and cash equivalents balance.

Interest expense decreased $292 due to a decrease in the Company's debt balances
and lower fees paid on the average unsecured Tamoxifen payable balance.

Other income increased $311 primarily due to the gain recognized on the warrants
received from Halsey Drug Co., Inc. (See Note 7 to the Consolidated Financial
Statements).

Results of Operations
---------------------
Fiscal 1999 to Fiscal 1998
--------------------------

Product sales increased 20% from $346,638 to $415,950. This increase is
attributable to increased sales of Tamoxifen, Warfarin Sodium, Naltrexone,
Hydroxyurea and various hormonal products that were launched throughout fiscal
1998 and 1999.

Tamoxifen sales increased 16% from $236,587 to $275,127 due to increased volume
and, to a lesser extent, higher prices. Increased volumes appear to be related
to investment buying and increased usage in the product from the expansion of
Tamoxifen's indication for the reduction in the incidence of breast cancer in
women at high risk for developing the disease. Investment buying generally
refers to the decision by customers to increase their purchases above their
anticipated immediate needs in order to buy ahead of expected future price
increases. Higher prices are the result of 4% price increases in April 1998 and
May 1999. Tamoxifen is a patent protected product manufactured for the Company
by AstraZeneca. Currently, the Company is the only distributor of Tamoxifen in
the U.S. other than AstraZeneca whose product is sold under the brand name
Nolvadex. In fiscal 1999, Tamoxifen accounted for 66% of product sales versus
68% in fiscal 1998.

The remaining increase in product sales from $110,051 to $140,823 was the result
of increased sales of Warfarin Sodium as well as products such as Naltrexone,
Hydroxyurea and various hormonal products, which were launched in fiscal 1998
and 1999. During fiscal 1999, the Company implemented additional marketing and
market share incentive programs designed to maintain and increase the Company's
market share of the total Coumadin/Warfarin market. In fiscal 1999, Warfarin
Sodium accounted for approximately 15% of product sales versus 11% in fiscal
1998. Revenue from products launched in fiscal 1999 more than offset lower sales
on products being phased

                                                                               2
<PAGE>   3
out of the Company's product line and price declines and higher discounts on
certain existing products.

Cost of sales increased from $266,002 to $301,393, due to increased product
sales, but decreased as a percentage of product sales from 76.7% to 72.5%. The
Company's product margins are dependent upon several factors including product
sales mix, manufacturing efficiencies and competition. The decrease in cost of
sales as a percentage of product sales in fiscal 1999 was the result of a more
favorable mix of products including a lower percentage of Tamoxifen sales to
total product sales. Tamoxifen is distributed by the Company and has lower
margins than most of Barr's other products.

Selling, general and administrative expenses increased 4% from $38,990 to
$40,439. This increase is primarily due to increased legal and headcount costs,
partially offset by a decrease in advertising and promotions and a decrease in
charges incurred related to the shut down of previously leased facilities.
Higher legal expenses, due to the Company's federal anti-trust suit against
DuPont, more than offset the Company's share of a $4,000 payment received from
Eli Lilly & Company, in January, for legal costs incurred as part of the
agreement to take the Prozac case directly to the U.S. Court of Appeals. Higher
headcount costs are due to the significant growth in the Company in fiscal 1998
and 1999. Advertising and promotion costs were lower than the prior year when
the Company spent heavily on the launch of Warfarin Sodium. The fiscal year
ended June 30, 1999 also includes a $360 restructuring charge compared to the
$1,200 restructuring charge incurred in the prior fiscal year, both of which
were primarily related to closing leased facilities.

Total research and development expenses increased 19% from $18,955 to $22,593.
The increase was primarily due to work on more clinical studies, an increase in
personnel costs to support the number of products in development and higher
costs associated with the Company's proprietary drug development efforts. Fiscal
1999 included $646 in expenses related to the proprietary product collaboration
with Eastern Virginia Medical School, whereas fiscal 1998 included $645 for the
acquisition of six Abbreviated New Drug Applications and related technologies to
expand the Company's line of female healthcare products.

Proceeds from patent challenge settlement declined $2,583, as expected, since
proceeds recognized in the prior year under a separate contingent supply
agreement related to the Ciprofloxacin litigation were not repeated (See Note 3
to the Consolidated Financial Statements).

Interest income increased by $1,004 or 46% due primarily to an increase in the
average cash and cash equivalents balance, partially offset by a slight decrease
in the market rates on the Company's short-term investments.

Interest expense increased $1,839 due to a decrease in capitalized interest over
the prior fiscal year. The amount of interest capitalized declined, as expected,
due to the reduction in capital spending on the Virginia facility, which was
substantially completed by the spring of 1998.

In fiscal 1998, the Company incurred an extraordinary loss of $790 on the early
extinguishment of debt (See Note 8 to the Consolidated Financial Statements).

                                                                               3
<PAGE>   4
Liquidity and Capital Resources
-------------------------------

The Company's cash and cash equivalents balance increased $61,055 or 64% to
$155,922 at June 30, 2000 from $94,867 at June 30, 1999. In connection with an
Alternative Collateral Agreement between the Company and the Innovator of
Tamoxifen (See Note 1 to the Consolidated Financial Statements), the Company has
increased the cash held in its interest bearing escrow account from $28,283 at
June 30, 1999 to $74,011 at June 30, 2000.

Cash provided by operating activities was $45,944 for the year ended June 30,
2000, as earnings before non-cash charges such as depreciation and deferred
income tax benefit more than offset working capital increases. The working
capital increase was led by increases in accounts receivable and other
receivables, which were partially offset by increases in accounts payable and
income taxes payable. Accounts receivable at June 30, 2000 were $54,669 or
$4,785 higher than those at June 30, 1999 primarily attributable to increased
product sales. Other receivables increased due to amounts earned under the
DuPont agreements (See Note 2 to the Consolidated Financial Statements).
Accounts payable increased as a result of an increase in the Tamoxifen payable.
Income taxes payable increased as a result of increased taxable earnings and the
timing of estimated tax payments.

Working capital levels varied during the year primarily due to the timing of
Tamoxifen inventory purchases, sales levels and the timing of Tamoxifen
payables. During fiscal 2000, inventory levels increased during the first half
of the year and declined during the second half. The Company expects that a
similar trend will occur in fiscal 2001.

In addition, we expect to increase our research and development spending 45% to
55% in fiscal 2001 compared to fiscal 2000. We also expect to initiate three
additional patent challenges in 2001. Patent challenges can take three to six
years to complete and can require am investment of approximately $8,000 to
$10,000.

Approximately $28 million of the Company's fiscal 2000 cash flows from
operations relates to payments from its contingent non-exclusive supply
agreement with Bayer Corporation ("Bayer") related to its 1997 Cipro(R) patent
challenge. Under that agreement, Bayer has, at its option, the right to allow
Barr and its partner (collectively Barr) to purchase Cipro, at a predetermined
discount, or to provide Barr quarterly cash payments. This contingent supply
agreement expires in December 2003. If Bayer does not elect to supply Barr with
product, Barr would receive approximately $28 to $31 million per year. However,
there is no guarantee that Bayer will continue to make such payments. If Bayer
elected to supply product to Barr for resale, the earnings and related cash
flows, if any, Barr could earn from the sale of Cipro would be entirely
dependent upon market conditions. The Supply Agreement also provides that, six
months prior to patent expiry, if Barr is not already distributing the product,
Barr will have the right to begin distributing ciprofloxacin product
manufactured by Bayer.

In fiscal 2000, the Company earned approximately $14.6 million related to the
DuPont agreements entered into in March 2000. Of the $14.6 million, the Company
received $7.8 million in cash prior to year end and the remaining $6.8 million
was included in other receivables at June 30, 2000. The $14.6 million is
included within cash flows from financing activities, as these amounts will be
applied to the warrant subscription receivable of $16.4 million. Once the
warrant subscription receivable is reduced to zero, all future earnings under
the DuPont agreements will be considered development and other revenue and
included in cash flows from operations.

During fiscal 2000, the Company invested $12,086 in capital assets, primarily on
the construction of its new 48,000 square foot warehouse and 13,500 square foot
laboratory facility at its Pomona, New

                                                                               4
<PAGE>   5
York campus. In fiscal 2001, the Company expects to invest an additional $15,000
to $18,000 in capital assets.

To expand its growth opportunities, the Company has and will continue to
evaluate and enter into various strategic collaborations. The timing and amount
of cash required to enter into these collaborations is difficult to predict
because it is dependent on several factors, many of which are outside of the
Company's control. However, the Company believes, that based on arrangements in
place at June 30, 2000, it could spend between $2 and $4 million over the next
twelve months for these collaborations. The $2 to $4 million excludes any cash
needed to fund strategic acquisitions the Company may consider in the future.

The Company believes that its current cash balances, cash flows from operations
and borrowing capacity, including unused amounts under its existing Revolving
Credit Facility, will be adequate to fund the increased levels of activity
discussed above and to take advantage of strategic opportunities as they occur.
To the extent that additional capital resources are required, such capital may
be raised by additional bank borrowings, equity offerings or other means.

Outlook
-------

The following section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
The generic pharmaceutical industry is characterized by relatively short product
lives and declining prices and margins as competitors launch competing products.
The Company's strategy has been to develop generic products with some barrier to
entry to limit competition and extend product lives and margins. The Company's
expanded efforts in developing and launching proprietary products is also driven
by the desire to market products that will have limited competition and longer
product lives. The Company's future operating results are dependent upon several
factors that impact its stated strategies. These factors include the ability to
introduce new products, patient acceptance of new products and new indications
of existing products, customer purchasing practices, pricing practices of new
competitors and spending levels including research and development. In addition,
the ability to receive sufficient quantities of raw materials to maintain its
production is critical. While the Company has not experienced any interruption
in sales due to lack of raw materials, the Company is continually identifying
alternate raw material suppliers for many of its key products in the event that
raw material shortages were to occur. The Company's operating results are
expected to be significantly impacted by a favorable final decision regarding
its challenge of the Prozac patent. The timing and impact of the launch of
Prozac in fiscal 2001 is dependent on several factors and therefore has been
excluded from the following outlook section.

Total revenues are expected to increase in fiscal 2001 compared to fiscal 2000
driven by development revenue, higher Tamoxifen sales and new product launches,
including Viaspan, which should more than offset declining prices on certain
existing products.

The Company distributes Tamoxifen in accordance with the terms of a
non-exclusive supply and distribution agreement that expires at the earlier of
patent expiry or upon successful challenge of the Tamoxifen patent by another
company. Barr is aware of two other companies who are challenging the Tamoxifen
patent. Though the outcome of any legal matter is uncertain, the Company
believes the current cases will not impact its fiscal 2001 Tamoxifen revenues.

The Company believes that Tamoxifen sales will increase during fiscal 2001 due
to higher prices and increased volume from the new indication. The extent of
such increase, if any, is dependent upon several factors including the
acceptance of the new indication by physicians and patients, customer

                                                                               5
<PAGE>   6
buying patterns, inventory levels and pricing decisions made by the Innovator.

Revenues earned under the various DuPont agreements (see Note 2 to the
Consolidated Financial Statements) are determined by several factors including
the timing and extent of Barr's spending on specific proprietary development
products, and achieving certain development milestones. Amounts earned under
these agreements are expected to range from $4 to $6 million per quarter in
fiscal 2001, the first $1,835 of which will be recorded as an offset to warrant
receivable, with the balance being recorded as development and other revenue.

Amounts earned in fiscal 2001 from the contingent supply agreement are dependent
upon decisions made by a third party but are expected to approximate amounts
earned in fiscal 2000.

Selling, general and administrative spending is impacted by several factors such
as the timing and number of legal matters, including patent challenges being
pursued by the Company, the level of government affairs spending and promotional
and advertising activities. Barr's government affairs spending is, in part,
dependent upon efforts by other companies to restrict generic substitution and
therefore, is difficult to predict. Promotional and advertising spending is
generally related to the number and type of products being launched in a given
year. The Company expects that selling, general and administrative expenses will
be higher in fiscal 2001 than in fiscal 2000 primarily due to higher costs
associated with new product launches, including Viaspan.

Since proprietary products require more extensive advertising and promotional
activities than traditional generic products, the future approval and launch of
Barr's proprietary products may impact selling, general and administrative
costs. Generally, selling, marketing and promotion costs are incurred several
months prior to a product's launch. In addition, some of these proprietary
products will require a sales force detailing directly to physicians. The
Company currently does not have an in-house sales force to sell its products
directly to physicians. The Company has successfully engaged DuPont to assume
responsibility for sales and marketing support for one of its proprietary
products expected to be launched in fiscal 2001 (See Note 2 to the Consolidated
Financial Statements) and is exploring several alternatives for marketing the
balance of its proprietary products including, licensing out such products to
third parties, engaging a contract sales force or investing in or acquiring
companies with an existing sales force. Selecting the appropriate alternative
depends on a variety of factors including the number of physicians in a
particular therapeutic category and the number of products the Company offers
within a therapeutic category. Therefore, the Company's decision on how it will
sell its proprietary products and the timing of the product launches could have
a significant impact on expense levels. While the Company believes it will be
able to successfully market and sell its proprietary products using one or more
of the alternatives described above, there is no assurance it will be able to do
so on favorable terms.

Research and development costs are expected to increase 20 - 25% in fiscal 2001
compared to fiscal 2000 due to substantial increases in both generic and
proprietary product development activities. In its generic development area, the
Company expects to file between 15 and 18 ANDAs in fiscal 2001 compared to 11
filed in fiscal 2000. While the number of applications filed is not the only
measure of research and development activity, a higher number of filings
generally requires higher raw material and clinical study costs.

Product development costs associated with many of the proprietary projects are
significantly higher and require more time to develop and receive approval to
market than traditional generic products. The increased time and costs are
primarily related to the clinical trials required for FDA approval. The Company
has two proprietary products that began Phase III clinical trials during fiscal
2000 and should be completed by 2002. The Company plans to spend approximately
$35 to $40 million on

                                                                               6
<PAGE>   7
certain of its current proprietary products over the next two to three years.
The Company has entered into a development and marketing alliance with DuPont
(See Note 2 to the Consolidated Financial Statements) in which DuPont may invest
up to an additional $37 million over the next two fiscal years to support the
development of three of the Company's proprietary products. The Company may seek
other development partners to help fund the costs of some additional projects.
However, there is no assurance that the Company will be able to utilize all
amounts available under the DuPont agreements, identify other such partners or
be able to secure the funding on favorable terms. If such partners are not
secured and the Company continues to expand its generic product development
efforts and pursue all its proprietary projects, its operating results may be
adversely impacted.

The Company believes that interest income may increase in fiscal 2001 compared
to fiscal 2000 due primarily to higher average cash balances. Higher average
cash balances are expected as net earnings are expected to offset working
capital increases and capital expenditures in fiscal 2001. The anticipated
increase in cash balances in fiscal 2001 exclude the effect of using cash to
fund strategic acquisitions the Company may consider in the future

Environmental Matters
---------------------

The Company may have obligations for environmental safety and clean-up under
various state, local and federal laws, including the Comprehensive Environmental
Response, Compensation and Liability Act, commonly known as Superfund. Based on
information currently available, environmental expenditures have not had, and
are not anticipated to have, any material effect on the Company's consolidated
financial statements.

Effects of Inflation
--------------------

Inflation has had only a minimal impact on the operations of the Company in
recent years.

Forward-Looking Statements
--------------------------

Except for the historical information contained herein, this Form 10-K contains
forward-looking statements, all of which are subject to risks and uncertainties.
Such risks and uncertainties include: the timing and outcome of legal
proceedings; the difficulty of predicting the timing of FDA approvals; the
difficulty in predicting the timing and outcome of FDA decisions on patent
challenges; market and customer acceptance and demand for new pharmaceutical
products; ability to market proprietary products; the impact of competitive
products and pricing; timing and success of product development and launch;
availability of raw materials; the regulatory environment; fluctuations in
operating results; and, other risks detailed from time-to-time in the Company's
filings with the Securities and Exchange Commission. Forward-looking statements
can be identified by their use of words such as "expects," "plans," "will,"
"believes," "may," "estimates," "intends" and other words of similar meaning.
Should known or unknown risks or uncertainties materialize, or should our
assumptions prove inaccurate, actual results could vary materially from those
anticipated.

                                                                               7
<PAGE>   8
BARR LABORATORIES, INC.
Consolidated Balance Sheets
(in thousands of dollars, except share amounts)

<TABLE>
<CAPTION>
                                                                                             RESTATED
                                                                                              JUNE 30,        JUNE 30,
                                                                                               2000            1999
                                                                                              -------         ------
                                                Assets
<S>                                                                                          <C>           <C>
Current assets:
    Cash and cash equivalents                                                                $ 155,922     $  94,867
    Marketable securities                                                                           96         8,127
    Accounts receivable (including receivables from related parties of $865 in 2000 and
      $1,051 in 1999) less allowances of $4,140 and $2,670 in 2000 and 1999, respectively       54,669        49,884
    Other receivables                                                                           23,811        16,093
    Inventories                                                                                 79,482        77,613
    Prepaid expenses                                                                             1,428         1,556
                                                                                             ---------     ---------
      Total current assets                                                                     315,408       248,140

Property, plant and equipment, net                                                              95,296        93,764
Other assets                                                                                    13,149         5,986
                                                                                             ---------     ---------

      Total assets                                                                           $ 423,853     $ 347,890
                                                                                             =========     =========

                                 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable (including payables to a related party of $497 and $632 in 2000 and
      and 1999, respectively)                                                                $  94,529     $  88,982
    Accrued liabilities                                                                         11,079         9,118
    Deferred income taxes                                                                        1,036           833
    Current portion of long-term debt                                                            1,924         2,165
    Income taxes payable                                                                         3,948           179
                                                                                             ---------     ---------
      Total current liabilities                                                                112,516       101,277

Long-term debt                                                                                  28,084        30,008
Other liabilities                                                                                  519           127
Deferred income taxes                                                                              566         2,771

Commitments & Contingencies

Shareholders' equity
    Preferred stock, $1 par value per share; authorized 2,000,000 shares; none
      issued
    Common stock, $.01 par value per share; authorized 100,000,000;
      issued 35,004,869 and 22,923,583 in 2000 and 1999, respectively                              350           229
    Additional paid-in capital                                                                  83,463        76,903
    Additional paid-in capital - warrants                                                       16,418          --
    Warrant subscription receivable                                                             (1,835)         --
    Retained earnings                                                                          181,869       137,846
    Accumulated other comprehensive income (loss)                                                1,916        (1,258)
                                                                                             ---------     ---------
                                                                                               282,181       213,720
    Treasury stock at cost: 176,932 and 117,955 shares in 2000 and 1999, respectively              (13)          (13)
                                                                                             ---------     ---------
      Total shareholders' equity                                                               282,168       213,707
                                                                                             ---------     ---------

      Total liabilities and shareholders' equity                                             $ 423,853     $ 347,890
                                                                                             =========     =========
</TABLE>

        SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                                               8
<PAGE>   9
BARR LABORATORIES, INC.
CONSOLIDATED  STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                      RESTATED     RESTATED      RESTATED
                                                                       2000         1999          1998
                                                                     ----------   ---------    ----------
<S>                                                                 <C>          <C>          <C>
Revenues:
Product sales (including sales to related
parties of $7,479,
$6,852 and $7,537 in 2000, 1999
and 1998, respectively)                                             $ 440,110    $ 415,950    $ 346,638

Costs and expenses:
Cost of sales                                                         315,652      301,393      266,002
Selling, general and administrative                                    45,000       40,439       38,990
Research and development                                               40,451       22,593       18,955
                                                                    ---------    ---------    ---------

Earnings from operations                                               39,007       51,525       22,691

Proceeds from patent challenge settlement (Note 3)                     27,584       28,083       30,666
Interest income                                                         5,092        3,180        2,176
Interest expense                                                        2,405        2,697          858
Other income (expense)                                                    347           36          (17)
                                                                    ---------    ---------    ---------

Earnings before income taxes and extraordinary loss                    69,625       80,127       54,658

Income tax expense                                                     25,448       30,877       21,148
                                                                    ---------    ---------    ---------

Earnings before extraordinary loss                                     44,177       49,250       33,510

Extraordinary loss on early extinguishment of debt, net of taxes         --           --           (790)
                                                                    ---------    ---------    ---------

Net earnings                                                        $  44,177    $  49,250    $  32,720
                                                                    =========    =========    =========

      EARNINGS PER COMMON SHARE:

Earnings before extraordinary loss                                  $    1.28    $    1.45    $    1.02
Net earnings                                                        $    1.28    $    1.45    $    1.00
                                                                    =========    =========    =========

      EARNINGS PER COMMON SHARE-ASSUMING DILUTION:

Earnings before extraordinary loss                                  $    1.24    $    1.39    $    0.96
Net earnings                                                        $    1.24    $    1.39    $    0.94
                                                                    =========    =========    =========

Weighted average shares                                                34,406       33,877       32,716
                                                                    =========    =========    =========

Weighted average shares-assuming dilution                              35,715       35,373       34,785
                                                                    =========    =========    =========
</TABLE>


          SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                                               9
<PAGE>   10
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30,
2000, 1999 AND 1998 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                           Additional
                                                                     Additional             paid-in        Warrant
                                              Common stock            paid-in               capital -     subscription     Retained
                                            Shares      Amount        capital               warrants       receivable      earnings
                                          -----------------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>                   <C>            <C>             <C>
BALANCE, JUNE 30, 1997                     21,446,053    $ 214         $ 46,061                $ -              $ -        $ 55,876
Comprehensive income:
Net earnings                                                                                                                 32,720
Unrealized loss on marketable
securities, net of tax of $604


Total comprehensive income
Issuance of common
stock for stock offering                      430,000        4           14,517
Stock issuance costs                                                       (353)
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans                                548,592        6            7,839
                                          -----------------------------------------------------------------------------------------

BALANCE, JUNE 30, 1998                     22,424,645      224           68,064                  -                -          88,596
Comprehensive income:
Net earnings                                                                                                                 49,250
Unrealized loss on marketable
securities, net of tax of $238


Total comprehensive income
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans                                498,938        5            8,839
                                          -----------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999                     22,923,583      229           76,903                  -                -         137,846

Comprehensive income:
Net earnings                                                                                                                 44,177
Unrealized gain on marketable
securities, net of tax of $2,126


Total comprehensive income
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans                                426,947        5            6,587
Issuance of warrants                                                                        16,418          (16,418)
Proceeds applied to warrant receivable                                                                       14,583
Stock split (3-for-2)                      11,654,339      116              (27)                                               (154)
                                          -----------------------------------------------------------------------------------------

BALANCE, RESTATED, JUNE 30, 2000           35,004,869    $ 350         $ 83,463           $ 16,418         $ (1,835)      $ 181,869
                                          =========================================================================================
</TABLE>






<TABLE>
<CAPTION>
                                                                   Accumulated
                                                                      other
                                                                   comprehensive                                  Total
                                                                      (loss)             Treasury stock        shareholders'
                                                                      income         Shares          Amount      equity
                                                         --------------------------------------------------------------
<S>                                                                <C>              <C>              <C>        <C>
Balance, June 30, 1997                                                   $ -        117,955          $ (13)     $ 102,138
Comprehensive income:
Net earnings                                                                                                       32,720
Unrealized loss on marketable
securities, net of tax of $604                                          (942)                                        (942)
                                                                                                           ---------------
Total comprehensive income                                                                                         31,778
Issuance of common
stock for stock offering                                                                                           14,521
Stock issuance costs                                                                                                 (353)
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans                                                                                                      7,845
                                                           ---------------------------------------------------------------

Balance, June 30, 1998                                                  (942)       117,955            (13)       155,929
Comprehensive income:
Net earnings                                                                                                       49,250
Unrealized loss on marketable
securities, net of tax of $238                                          (316)                                        (316)
                                                                                                           ---------------
Total comprehensive income                                                                                         48,934
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans                                                                                                      8,844
                                                           ---------------------------------------------------------------

Balance, June 30, 1999                                                (1,258)       117,955            (13)       213,707

Comprehensive income:
Net earnings                                                                                                       44,177
Unrealized gain on marketable
securities, net of tax of $2,126                                       3,174                                        3,174
                                                                                                           ---------------
Total comprehensive income                                                                                         47,351
Issuance of common stock
for exercised stock options
and employees' stock
purchase plans                                                                                                      6,592
Issuance of warrants                                                                                                    -
Proceeds applied to warrant receivable                                                                             14,583
Stock split (3-for-2)                                                      -         58,977              -            (65)
                                                           ---------------------------------------------------------------

Balance, restated, June 30, 2000                                  $ 1,916           176,932          $ (13)      $ 282,168
                                                            ===============================================================
</TABLE>


          SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                                              10
<PAGE>   11
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                         Restated
                                                                                           2000           1999            1998
                                                                                           ----           ----            ----
<S>                                                                                    <C>           <C>           <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings                                                                           $  44,177     $  49,250     $  32,720
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization                                                             10,420         9,306         5,521
Deferred income tax (benefit) expense                                                     (4,127)        1,834         3,585
Write-off of deferred financing fees associated with early extinguishment of debt           --            --             195
(Gain) loss on sale of assets                                                               (470)           11            63
Loss (gain) on sale of marketable securities                                                 122             6            (2)

Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable and other receivables, net                                           (12,503)       (4,550)      (26,195)
Inventories                                                                               (1,869)       (3,236)      (18,161)
Prepaid expenses                                                                             128          (750)         (238)
Other assets                                                                              (1,718)         (492)         (389)
Increase (decrease) in:
Accounts payable, accrued liabilities and other                                            8,015       (14,633)       34,940
Income taxes payable                                                                       3,769        (3,178)          963
                                                                                       ---------     ---------     ---------
Net cash provided by operating activities                                                 45,944        33,568        33,002
                                                                                       ---------     ---------     ---------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment                                               (12,086)      (12,333)      (20,431)
Proceeds from sale of property, plant and equipment                                          287             1           248
Purchases of strategic investments                                                          --          (2,800)       (4,069)
Sales (purchases) of marketable securities, net                                            7,965          (901)       (7,291)
                                                                                       ---------     ---------     ---------
Net cash used in investing activities                                                     (3,834)      (16,033)      (31,543)
                                                                                       ---------     ---------     ---------

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt                                                      (2,165)       (1,968)      (14,939)
Proceeds from loans                                                                         --            --          30,000
Net borrowings under line of credit                                                         --          (2,500)        2,500
Stock issuance costs                                                                        --            --            (353)
Proceeds from stock offering                                                                --            --          14,521
Fees associated with stock split                                                             (65)         --            --
Earnings under DuPont agreements applied to warrant receivable                            14,583          --            --
Proceeds from exercise of stock options and employee stock purchases                       6,592         8,844         7,845
                                                                                       ---------     ---------     ---------
Net cash provided by financing activities                                                 18,945         4,376        39,574
                                                                                       ---------     ---------     ---------
Increase in cash and cash equivalents                                                     61,055        21,911        41,033
Cash and cash equivalents, beginning of year                                              94,867        72,956        31,923
                                                                                       ---------     ---------     ---------
Cash and cash equivalents, end of year                                                 $ 155,922     $  94,867     $  72,956
                                                                                       =========     =========     =========

SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year
Interest, net of portion capitalized                                                   $   2,438     $   2,727     $     855
Income taxes                                                                              24,946        27,869        13,254

Non-cash transactions
Write-off of equipment & leasehold improvements related to closed facility             $     115     $      83     $    --
Warrants issued for subscription receivable                                            $  16,418     $    --       $    --
</TABLE>

                SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                                              11
<PAGE>   12
BARR LABORATORIES, INC.

Notes to the Consolidated Financial Statements
(in thousands of dollars, except per share amounts)

(1)        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           (a)        Principles of Consolidation, Restatement and Other Matters

                      The consolidated financial statements include the accounts
                      of Barr Laboratories, Inc. (the "Company or Barr") and its
                      wholly-owned subsidiaries. All significant intercompany
                      balances and transactions have been eliminated in
                      consolidation.

                      Sherman Delaware, Inc. owned 42.6% of the outstanding
                      common stock of the Company at June 30, 2000. Dr. Bernard
                      C. Sherman is a principal stockholder of Sherman Delaware,
                      Inc. and a Director of Barr Laboratories, Inc.

                      The Company has restated its consolidated financial
                      statements as of June 30, 2000 and for the year then
                      ended. This restatement results from a revision in the
                      Company's method of accounting for the warrants issued to
                      DuPont Pharmaceuticals Company in connection with the
                      strategic alliance executed in March 2000 (see Note 2).
                      The Company and its independent accountants, Deloitte &
                      Touche LLP, believed that its original accounting for
                      these agreements was appropriate. However, after further
                      discussion and advice from the Staff of the Securities and
                      Exchange Commission ("SEC") in connection with their
                      review of the Company's financial statements, the Company
                      has revised its accounting.

                      In March 2000, the Company issued 1.5 million fully vested
                      and immediately exercisable warrants to DuPont and
                      immediately expensed the $16,418 fair value as Agreement
                      expense. The Company separately recorded the $14,583 of
                      revenues it earned under its Product Development
                      Agreement, Development and Marketing Agreement and ViaSpan
                      Agreement (see Note 2) as Development and other revenue
                      for the year ended June 30, 2000.

                      The Company revised its accounting for the warrants to
                      report a warrant subscription receivable for the fair
                      value of the warrants upon issuance and to apply the
                      proceeds earned under the related DuPont agreements to the
                      warrant subscription receivable. As a result, the Company
                      has restated its 2000 consolidated financial statements.
                      The total effect of the restatement was to increase
                      previously reported 2000 net income by $1,835 or $.05 per
                      share assuming dilution and to decrease net income and
                      earnings per share in the first quarter of fiscal year
                      2001 by $1,835 or $0.05 per share assuming dilution. The
                      net effect of adjustments made to 2000 quarterly reported
                      results is disclosed in Note 16.

                      In addition, the Company has reclassified proceeds from
                      supply agreements from revenues to proceeds from patent
                      challenge settlement (See Note 3). The Company and its
                      independent accountants, Deloitte & Touche LLP, believed
                      the decision to classify such proceeds as revenues was

                                                                              12
<PAGE>   13
                      appropriate since patent challenges are part of Barr's
                      three-part business strategy. However, based on further
                      discussions with the SEC, the Company has reclassified the
                      amounts to reflect that the cash Bayer elects to pay us
                      under our Ciprofloxacin supply agreement is non-operating
                      revenue. The reclassification had no effect on the
                      previously reported net income for the years ended June
                      30, 2000, 1999 and 1998 or for any quarters therein.

                      A summary of the effects of the restatement and
                      reclassification is as follows:

<TABLE>
<CAPTION>
                                                          FISCAL 2000                 FISCAL 1999                   FISCAL 1998
                                                          -----------                 -----------                   -----------
                                                      As                         As                          As
                                                   Previously        As      Previously        As         Previously          As
                                                    Reported       Revised    Reported       Revised      Reported          Revised
                                                    --------       -------    --------       -------      --------          -------
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Total revenues                                     $482,278      $440,110      $444,033      $415,950      $377,304      $346,638

Earnings from operations                             64,756        39,007        79,608        51,525        53,357        22,691

Net earnings                                         42,342        44,177        49,250        49,250        32,720        32,720

Earnings per common share - assuming dilution      $   1.19      $   1.24      $   1.39      $   1.39      $   0.94      $   0.94
</TABLE>

                      Certain amounts in the prior year's financial statements
                      have been reclassified to conform to the current year
                      presentation.

           (b)        Credit and Market Risk

                      Financial instruments that potentially subject the Company
                      to credit risk consist principally of interest-bearing
                      investments and trade receivables. The Company performs
                      ongoing credit evaluations of its customers' financial
                      condition and generally requires no collateral from its
                      customers.

           (c)        Cash and Cash Equivalents

                      Cash equivalents consist of short-term, highly liquid
                      investments (primarily market auction securities with
                      interest rates that are re-set in intervals of 28 to 49
                      days) which are readily convertible into cash at par value
                      (cost). As of June 30, 2000 and 1999, $74,011 and $28,283,
                      respectively, of the Company's cash was held in an
                      interest- bearing escrow account. Such amounts represent
                      the portion of the Company's payable balance with the
                      Innovator of Tamoxifen, which the Company has decided to
                      secure in connection with its cash management policy.

                      In December 1995, the Company and the Innovator of
                      Tamoxifen entered into an Alternative Collateral Agreement
                      ("Collateral Agreement") which suspends certain sections
                      of the Supply and Distribution Agreement ("Distribution
                      Agreement") entered into by both parties in March 1993.
                      Under the Collateral Agreement, extensions of credit to
                      the Company are no longer required to be secured by a
                      letter of credit or cash collateral. However, the Company
                      may at its discretion maintain a balance in the escrow
                      account based on its short-term cash requirements. All
                      remaining terms of the Distribution Agreement remain in
                      place. In return for the elimination of the cash

                                                                              13
<PAGE>   14
                      collateral requirement and in lieu of issuing letters of
                      credit, the Company has agreed to pay the Innovator
                      monthly interest based on the average unsecured monthly
                      Tamoxifen payable balance, as defined in the Collateral
                      Agreement, and maintain compliance with certain financial
                      covenants. The Company was in compliance with such
                      covenants at June 30, 2000.

           (d)        Inventories

                      Inventories are stated at the lower of cost, determined on
                      a first-in, first-out (FIFO) basis, or market.

           (e)        Property, Plant and Equipment

                      Property, plant and equipment is recorded at cost.
                      Depreciation is recorded on a straight-line basis over the
                      estimated useful lives of the related assets. Leasehold
                      improvements are amortized on a straight-line basis over
                      the shorter of their useful lives or the terms of the
                      respective leases.

                      The estimated useful lives of the major classification of
                      depreciable assets are:

<TABLE>
<CAPTION>
                                                                                                                Years
                                                                                                                -----
<S>                                                                                                             <C>
                                 Buildings                                                                         45
                                 Building improvements                                                             10
                                 Machinery and equipment                                                         3-10
                                 Leasehold improvements                                                          3-10
</TABLE>

                      Maintenance and repairs are charged to operations as
                      incurred; renewals and betterments are capitalized.

           (f)        Research and Development

                      Research and development costs, which consist principally
                      of product development costs, are charged to operations as
                      incurred.

           (g)        Earnings Per Share

                      On May 31, 2000, the Company's Board of Directors declared
                      a 3-for-2 stock split effected in the form of a 50% stock
                      dividend. Approximately 11.6 million additional shares of
                      common stock were distributed on June 29, 2000 to
                      shareholders of record as of June 12, 2000. All applicable
                      prior year share and per share amounts have been adjusted
                      for the stock split.

                      The following is a reconciliation of the numerators and
                      denominators used to calculate Earnings per common share
                      ("EPS") before extraordinary loss in the Consolidated
                      Statements of Operations:

                                                                              14
<PAGE>   15


<TABLE>
<CAPTION>
                                                             AS REVISED
                                                                2000          1999         1998
                                                                ----          ----         ----

Earnings per common share:
<S>                                                            <C>          <C>          <C>
Earnings before extraordinary loss (numerator)                 $44,177      $49,250      $33,510

Weighted average shares (denominator)                           34,406       33,877       32,716

Earnings before extraordinary loss                             $  1.28      $  1.45      $  1.02
                                                               =======      =======      =======


Earnings per common share - assuming dilution:
Earnings before extraordinary loss (numerator)                 $44,177      $49,250      $33,510

Weighted average shares                                         34,406       33,877       32,716
Effect of dilutive options                                       1,309        1,496        2,069
                                                               -------      -------      -------

Weighted averages shares- assuming dilution (denominator)       35,715       35,373       34,785

Earnings before extraordinary loss                             $  1.24      $  1.39      $  0.96
                                                               =======      =======      =======
Share amounts in thousands
</TABLE>

                      During the years ended June 30, 2000, 1999 and 1998, there
                      were 1,560,000, 819,000 and 289,000 respectively, of
                      outstanding options and warrants that were not included in
                      the computation of diluted EPS, because their respective
                      exercise prices were greater than the average market price
                      of the common stock for the period.



           (h)        Deferred Financing Fees

                      All debt issuance costs are being amortized on a
                      straight-line basis over the life of the related debt,
                      which matures in 2002, 2004 and 2007. The unamortized
                      amounts of $238 and $305 at June 30, 2000 and 1999,
                      respectively, are included in other assets in the
                      Consolidated Balance Sheets.

                      In connection with the November 1997 early extinguishment
                      of the then remaining $14,400 10.15% Senior Secured Notes,
                      the Company wrote off $195 in deferred financing fees in
                      the year ended June 30, 1998 (See Note 8 to the
                      Consolidated Financial Statements).

           (i)        Fair Value of Financial Instruments

                      Cash, Accounts Receivable, Other Receivables and Accounts
                      Payable - The carrying amounts of these items are a
                      reasonable estimate of their fair value.

                      Marketable Securities - Marketable securities are recorded
                      at their fair value (See Note 7 to the Consolidated
                      Financial Statements).

                      Other Assets - Investments in strategic collaborations
                      that do not have a readily determinable market value are
                      recorded at cost as it is a reasonable estimate of fair
                      value (See Note 7 to the Consolidated Financial
                      Statements).

                                                                              15
<PAGE>   16
                      Long-Term Debt - The fair value at June 30, 2000 and 1999
                      is estimated at $30 million and $32 million, respectively.
                      Estimates were determined by discounting the future cash
                      flows using rates currently available to the Company.

                      The fair value estimates presented herein are based on
                      pertinent information available to management as of June
                      30, 2000. Although management is not aware of any factors
                      that would significantly affect the estimated fair value
                      amounts, such amounts have not been comprehensively
                      revalued for purposes of these financial statements since
                      that date, and current estimates of fair value may differ
                      significantly from the amounts presented herein.

           (j)        Use of Estimates in the Preparation of Financial
                      Statements

                      The preparation of financial statements in conformity with
                      generally accepted accounting principles requires
                      management to make estimates and use assumptions that
                      affect certain reported amounts and disclosures; actual
                      results may differ substantially.

           (k)        Revenue Recognition

                      The Company recognizes product sales revenue when goods
                      are shipped. Barr earns revenues under the DuPont research
                      and development agreements (see Note 2) as Barr performs
                      the related research and development. Amounts received
                      under these agreements are not refundable. For the period
                      between January 1, 2000 and June 30, 2000, Barr earned
                      Transition Revenues under the ViaSpan Agreement. For the
                      year ended June 30, 2000, all revenues earned under the
                      DuPont and ViaSpan Agreements have been applied against
                      the warrant receivable (see Note 2).

           (l)        Segment Reporting

                      The Company operates in one reportable segment - the
                      development, manufacture and marketing of generic and
                      proprietary pharmaceuticals. The Company's chief operating
                      decision-maker reviews operating results on a consolidated
                      company basis.

                      The Company's manufacturing plants are located in New
                      Jersey, New York and Virginia and its products are sold
                      throughout the United States and Puerto Rico, primarily to
                      wholesale and retail distributors. In fiscal 2000, 1999
                      and 1998, a customer accounted for approximately 16%, 14%
                      and 12% of product sales, respectively. No other customer
                      accounted for greater than 10% of product sales in any of
                      the last three fiscal years.

           (m)        Asset Impairment

                      The Company reviews the carrying value of its property,
                      plant and equipment for impairment whenever events and
                      circumstances indicate that the carrying value of an asset
                      may not be recoverable from the estimated future cash
                      flows expected to result from its use and eventual
                      disposition. In cases where undiscounted expected future
                      cash flows are less than the carrying value, an impairment
                      loss is recognized equal to an amount by which the
                      carrying value exceeds the fair value of assets.

                                                                              16
<PAGE>   17
           (n)        New Accounting Pronouncements

                      Derivative Instruments

                      On June 15, 1998, the Financial Accounting Standards Board
                      ("FASB") issued Statement of Financial Accounting
                      Standards ("SFAS") No. 133, "Accounting for Derivative
                      Instruments and Hedging Activities," which requires that
                      companies recognize all derivatives as either assets or
                      liabilities on the balance sheet and measure those
                      instruments at fair value. In June 1999, the FASB issued
                      SFAS No. 137, "Accounting for Derivative Instruments and
                      Hedging Activities - Deferral of the Effective Date of
                      FASB Statement No. 133," which defers the effective date
                      of SFAS No. 133 until the Company's fiscal year 2001. The
                      Company has evaluated this statement and determined that
                      implementation will not have a material impact on the
                      Company's existing accounting policies and financial
                      reporting disclosures.

                      Revenue Recognition

                      In December 1999, the Securities and Exchange Commission
                      ("SEC") staff issued Staff Accounting Bulletin ("SAB")
                      101, "Revenue Recognition in Financial Statements" which
                      summarizes certain of the SEC staff's views in applying
                      generally accepted accounting principles to revenue
                      recognition in financial statements. The accounting
                      described in this bulletin must be applied no later than
                      the fourth fiscal quarter of fiscal years beginning after
                      December 15, 1999. Based on its current accounting
                      policies, the Company does not expect any material changes
                      to its consolidated financial statements as a result of
                      adopting SAB 101.

(2)        DUPONT PHARMACEUTICALS COMPANY STRATEGIC ALLIANCE

           On March 20, 2000, the Company signed definitive agreements to
           establish a strategic relationship with DuPont Pharmaceuticals
           Company ("DuPont") to develop, market and promote several proprietary
           products and to terminate all litigation between the two companies.
           Each agreement contains common termination provisions including for
           bankruptcy and material breach by either party which is not cured
           within a specified period. The Company is unable to assess whether
           the individual terms of each of the agreements would have been
           different had each of the agreements been negotiated separately with
           other third parties not involved in litigation. These agreements are
           individually described below.

           Development and Other Revenue/Warrant Subscription Receivable

           In connection with a proprietary product development funding
           agreement ("Product Development Agreement"), DuPont may invest up to
           $45 million over three years to support the development of three of
           the Company's proprietary products. The funding is subject to a
           maximum amount of $17 million per product. Funding is made on a
           quarterly basis and is limited to a maximum of $5 million per
           quarter. As Barr incurs qualified research and development expenses,
           as defined in the Product Development Agreement, Barr records such
           expenses as R&D, and invoices and records the related revenue from
           DuPont as development and other revenue. Upon approval of the
           products, Barr will be responsible for marketing the products and
           DuPont may receive royalties based on product sales for a term of ten
           years. Such royalties may be reduced if Barr elects to repay the
           funding provided by DuPont. If

                                                                              17
<PAGE>   18
           Barr elects this option, DuPont may elect to eliminate the royalty in
           exchange for an additional fee. In connection with the Product
           Development Agreement, the Company earned $8 million for the year
           ended June 30, 2000 and reported such amount as an offset to the
           warrant subscription receivable described below.

           In a second agreement, DuPont will assume responsibility for sales
           and marketing support of an undisclosed proprietary product that Barr
           expects to launch in the first calendar quarter of 2001 ("Development
           and Marketing Agreement"). During the development period, as Barr
           completes its ongoing research and other development activities
           necessary to gain FDA approval for the product, Barr receives
           payments and records revenues. Such payments, including a milestone
           payment if FDA approval is achieved by a certain date, could total up
           to $9 million over five quarters. Upon FDA approval of the product,
           Barr will be responsible for manufacturing and packaging the product
           for DuPont, and DuPont will receive a royalty based on product sales
           for a term of five years. In addition to general termination
           provisions, DuPont may terminate the agreement after two years from
           launch of the product. Barr may terminate the agreement after three
           years from the launch of the product and if so, DuPont will receive a
           quarterly royalty based on product sales for one year following the
           termination date. For the year ended June 30, 2000, the Company
           earned $4 million related to this agreement and reported such amount
           as an offset to the warrant subscription receivable described below.

           Under the terms of a third agreement, ("ViaSpan Agreement"), Barr
           will become the sole distributor in the United States and Canada of
           DuPont's ViaSpan(TM) organ transplant preservation agent for a
           period of eight years. Barr will purchase ViaSpan from DuPont for
           resale. During a transition period, that ended July 31, 2000, DuPont
           remained the distributor of ViaSpan but paid a fee to Barr based on a
           defined formula ("Transition Revenue") calculated on DuPont's actual
           sales of ViaSpan during this transition period. In addition to
           general termination provisions, Barr may terminate this agreement at
           any time upon a defined notice period. For the year ended June 30,
           2000, the Company earned approximately $2.6 million during this
           transition period and reported such amount as an offset to the
           warrant subscription receivable described below. Beginning August 1,
           2000, Barr assumed complete responsibility for distributing the
           product and records product sales and related costs, including
           royalties to DuPont based on product sales, in its Consolidated
           Statements of Operations.

           Warrants

           In connection with the strategic alliance, the Company issued two
           warrants granting DuPont the right to purchase 750,000 shares of
           Barr's common stock at $31.33 per share, and 750,000 shares at $38.00
           per share, respectively. Each warrant is immediately exercisable and
           expires in March 2004. DuPont cannot assign or transfer the warrants
           to a third party without Barr's consent. If Barr were not to provide
           consent within a specified period, DuPont has put rights that require
           Barr to purchase all or a portion of the warrant to be transferred.
           In connection with the issuance of such warrants, the Company
           recorded approximately $16.4 million as the fair value of the
           warrants as a subscription receivable in the shareholder's equity
           section of the Consolidated Balance Sheets at June 30, 2000. The
           amount was calculated using a Black-Scholes option pricing model with
           the following assumptions at the grant date: dividend yield of 0%;
           expected volatility of 38%; weighted-average risk-free interest rate
           of 7.1341% and expected term of 4 years. For the year ended June 30,
           2000, the Company applied the entire $14.6 million earned under the
           three

                                                                              18
<PAGE>   19
           agreements with DuPont as a reduction of the warrant receivable,
           leaving a remaining balance of $1,835 in shareholder's equity at June
           30, 2000. Once the warrant receivable has been reduced to zero, the
           Company will report all future revenues earned under the Product
           Development and Development and Marketing Agreements as Development
           and other revenue on the Consolidated Statements of Operations.

(3)        PROCEEDS FROM PATENT CHALLENGE SETTLEMENT

           In January 1997, Bayer AG and Bayer Corporation ("Bayer") and the
           Company agreed to settle the then pending litigation regarding
           Bayer's patent protecting ciprofloxacin hydrochloride. Under the
           Settlement Agreement, the Company withdrew its patent challenge by
           amending its ANDA from a paragraph IV certification (claiming
           invalidity) to a paragraph III certification (seeking approval upon
           patent expiry) and acknowledged the validity and enforceability of
           the ciprofloxacin patent. As consideration for this settlement, the
           Company received a non-refundable payment of $24.55 million in
           January 1997 which it recorded as proceeds from patent challenge
           settlement (See Note 1). Concurrent with the Settlement Agreement,
           the Company also signed a contingent, non-exclusive Supply Agreement
           ("Supply Agreement") with Bayer which ends at patent expiry in
           December 2003.

           Under the terms of the Supply Agreement, Bayer, at its sole option
           can either allow Barr and Rugby Laboratories, now owned by Watson
           Pharmaceuticals, Inc., to purchase, at a predetermined discount to
           Bayer's then selling price, quantities of ciprofloxacin for resale
           under market conditions or make quarterly cash payments as defined in
           the Agreement. Further, the Supply Agreement also provides that, six
           months prior to patent expiry, currently July 2003, if Barr is not
           already distributing the product, Barr and Rugby Laboratories will
           have the right to begin distributing ciprofloxacin product
           manufactured by Bayer. The Bayer license is non-exclusive and Bayer
           may, at its option, provide other non-exclusive licenses to others
           after Barr and Rugby Laboratories have operated under the license for
           six months.

           If Bayer elects to supply Barr and Rugby Laboratories with product
           for resale in the market, the amount Barr and Rugby Laboratories
           could earn would be dependent upon numerous market factors including,
           the existence of competing products, market acceptance of the Barr
           product and pricing decisions. If Bayer elects not to allow Barr and
           Rugby Laboratories to purchase product for resale, Barr is entitled
           to receive cash payments which could range from $28-$31 million per
           year through June 30, 2003. As of June 30, 2000, the present value of
           the cash payments Barr may receive approximates $93 million. However,
           there is no guarantee that Bayer will continue to elect to make cash
           payments.

           Barr recognizes the amounts due under the Supply Agreement as such
           amounts are realized based on the outcome of Bayer's election. The
           amounts realized are reported as proceeds from patent challenge
           settlement.

           Also included in proceeds from patent challenge settlement for the
           years ended June 30, 1999 and 1998 is $1,500 and $4,500,
           respectively, received under a separate contingent supply agreement
           with an unrelated party relating to the ciprofloxacin patent
           challenge.

                                                                              19
<PAGE>   20
(5)        INVENTORIES

           A summary of inventories is as follows:

<TABLE>
<CAPTION>
                                         June 30,
                               ---------------------------
                                  2000          1999
                                  ----          ----

<S>                             <C>          <C>
Raw materials and supplies      $16,884      $15,790
Work-in-process                   5,102        7,957
Finished goods                   57,496       53,866
                                -------      -------
                                $79,482      $77,613
                                =======      =======
</TABLE>


           Tamoxifen Citrate, purchased as a finished product, accounted for
           $42,730 and $43,040 of finished goods inventory at June 30, 2000 and
           1999, respectively.

(6)        PROPERTY, PLANT AND EQUIPMENT

           A summary of property, plant and equipment is as follows:

<TABLE>
<CAPTION>
                                          June 30,
                                  --------------------------
                                     2000           1999
                                     ----          ----
<S>                               <C>           <C>
Land                             $  3,408      $  3,256
Buildings and improvements         64,649        57,669
Machinery and equipment            72,886        69,789
Leasehold improvements              1,288         1,665
Automobiles and trucks                 68            68
Construction in progress            3,823         7,041
                                 --------      --------
                                  146,122       139,488
Less: Accumulated
depreciation & amortization        50,826        45,724
                                 --------      --------
                                 $ 95,296      $ 93,764
                                 ========      ========
</TABLE>


           For the years ended June 30, 2000, 1999 and 1998, $136, $205 and
           $2,047 of interest was capitalized, respectively.

(7)        MARKETABLE SECURITIES & OTHER ASSETS

           The Company's investments in marketable securities and certain other
           assets are classified as "available for sale" and, accordingly, are
           recorded at current market value with offsetting adjustments to
           shareholders' equity, net of income taxes.

           Marketable securities include investments in a short duration
           portfolio of corporate and government debt. The debt securities will
           be held for less than one year and are therefore, recorded as a
           current asset in the Consolidated Balance Sheets.

           Other assets include equity securities that represent the Company's
           investments in Galen Holdings plc. (formerly Warner Chilcott
           plc.) and Halsey Drug Co., Inc. ("Halsey").

                                                                              20
<PAGE>   21
           Warner Chilcott plc.

           On August 13, 1997, Barr made a strategic investment in Warner
           Chilcott, a developer, marketer, and distributor of specialty
           pharmaceutical products. In connection with Warner Chilcott's Initial
           Public Offering ("Offering"), the Company acquired 250,000 Ordinary
           Shares represented by 250,000 American Depository Shares ("ADSs") at
           a price equal to the initial public offering price less underwriting
           discounts and commissions. The initial investment totaled $4,069. In
           addition, the Company was granted warrants to purchase an additional
           250,000 shares in the form of ADSs. Beginning on the first
           anniversary of the Offering and annually thereafter for the next
           three years, one-fourth of the warrants will be exercisable by Barr.
           If Barr does not exercise in full the portion of the warrant
           exercisable during any one year, such portion of the warrant will
           terminate. The Company elected not to exercise the first portion of
           the warrants because the warrants' exercise price exceeded the then
           market price, and as a result, such portion of the warrants
           terminated. The Company exercised the second portion on August 7,
           2000.

           Halsey Drug Co., Inc.

           In April 1999, the Company sold its rights to several pharmaceutical
           products to Halsey in exchange for 500,000 warrants exercisable for
           500,000 shares of Halsey's common stock at $1.06 per share. The
           warrants expire in April 2004. In connection with this sale, the
           Company recorded an investment in warrants and realized a gain of
           $343. The Company has valued the warrants at their fair value using
           the Black-Scholes option-pricing model.

           Other Investments

           Also included in other assets is the Company's investment of $2,250
           in Gynetics, Inc., a private company that develops and markets
           pharmaceutical products and medical devices to advance the healthcare
           of women and an investment of $550 in another private company with
           whom the Company will work in connection with another one of its
           proprietary products. These investments are recorded at cost in the
           Consolidated Balance Sheets.

           The amortized cost and estimated market values of the securities at
           June 30, 2000 and 1999 are as follows:

                                                                              21
<PAGE>   22
<TABLE>
<CAPTION>
                                              GROSS       GROSS
                                 AMORTIZED  UNREALIZED  UNREALIZED    MARKET
June 30, 2000                      COST       GAINS      LOSSES       VALUE
-------------                      ----       -----      ------       -----

<S>                             <C>         <C>         <C>         <C>
Debt securities:
U.S. Government securities      $  101      $ --        $    5      $   96
Equity securities                4,412       3,206        --         7,618
                                ------      ------      ------      ------
Total securities                $4,513      $3,206      $    5      $7,714
                                ======      ======      ======      ======
</TABLE>


<TABLE>
<CAPTION>
                                               GROSS        GROSS
                                AMORTIZED    UNREALIZED   UNREALIZED    MARKET
June 30, 1999                    COST          GAINS       LOSSES        VALUE
-------------                    ----          -----       ------        -----

<S>                             <C>          <C>          <C>          <C>
Debt securities:
U.S. Government securities      $ 5,954        $ -        $    55      $ 5,899
Corporate bonds                   2,235            1            8        2,228
                                -------      -------      -------      -------
Total debt securities             8,189            1           63        8,127
Equity securities                 4,069         --          2,038        2,031
                                -------      -------      -------      -------
Total securities                $12,258      $     1      $ 2,101      $10,158
                                =======      =======      =======      =======
</TABLE>

           Proceeds of $52,916 and $9,446, which include a loss of $122 and $6,
           respectively, were received on the sales of marketable securities in
           the years ended June 30, 2000 and 1999, respectively. The cost of
           investments sold is determined by the specific identification method.

(8)        LONG-TERM DEBT

           A summary of long-term debt is as follows:

<TABLE>
<CAPTION>
                                                          June 30,
                                                --------------------------
                                                    2000          1999
                                                    ----          ----
<S>                                               <C>          <C>
New Jersey Economic Development
Authority Bond (a)                                $  --        $   241
Senior unsecured notes (b)                         27,143       28,571
Equipment financing (c)                             2,865        3,361
Unsecured revolving credit facility (d)              --           --
                                                  -------      -------
                                                   30,008       32,173

Less: Current installments of long-term debt        1,924        2,165
                                                  -------      -------
Total long-term debt                              $28,084      $30,008
                                                  =======      =======
</TABLE>

           (a)        The New Jersey Economic Development Authority Bond was
                      payable to a bank. Such loan was secured by a first
                      mortgage on land, building and improvements on the
                      facility located at 265 Livingston Street. Interest was
                      charged at 75% of the bank's prime rate. The final
                      installment of $220 was paid in January 2000.

           (b)        In November 1997, the Company refinanced $14,400 of
                      outstanding Senior Secured Notes with $30,000 of Senior
                      Unsecured Notes with an average interest rate of 6.88% per
                      year. The cash payment of $16,055 included the outstanding
                      principal of $14,400, a prepayment penalty of $1,087 and
                      accrued interest through November 18, 1997 of $568. The
                      prepayment penalty of $1,087 and the related write-off of
                      approximately

                                                                              22
<PAGE>   23
                      $195 in previously deferred financing costs resulted in an
                      extraordinary loss. This extraordinary loss from early
                      extinguishment of debt, net of taxes of $492, was $790 or
                      $0.02 per share. The Senior Unsecured Notes of $30,000
                      include a $20,000, 7.01% Note due November 18, 2007 and
                      $10,000, 6.61% Notes due November 18, 2004. Annual
                      principal payments under the Notes total $1,429 through
                      November 2002, $5,429 in 2003 and 2004, and $4,000 in 2005
                      through 2007.

                      The Senior Unsecured Notes contain certain financial
                      covenants including restrictions on dividend payments not
                      to exceed $10 million plus 75% of consolidated net
                      earnings subsequent to June 30, 1997. The Company was in
                      compliance with all such covenants as of June 30, 2000.

           (c)        In April 1996, the Company signed a Loan and Security
                      Agreement with BankAmerica Leasing and Capital Group that
                      provided the Company up to $18,750 in financing for
                      equipment to be purchased through October 1997. Notes
                      entered into under this agreement require no principal
                      payment for the first two quarters; bear interest
                      quarterly at a rate equal to the London Interbank Offer
                      Rate (LIBOR) plus 125 basis points; and have a term of 72
                      months. LIBOR was 6.769% and 5.368% at June 30, 2000 and
                      June 30, 1999, respectively.

           (d)        The Company currently has no outstanding borrowings under
                      its $20,000 Unsecured Revolving Credit Facility
                      ("Revolver") with Bank of America, National Association.
                      Borrowings under this facility bear interest at either
                      prime or LIBOR plus 0.75%. In addition, the Company is
                      required to pay a commitment fee equal to .25% of the
                      difference between the outstanding borrowings and $20,000.
                      In December 1999, the term of the Revolver was extended to
                      December 31, 2001.

           Principal maturities of existing long-term debt for the next five
           years and thereafter are as follows:

<TABLE>
<CAPTION>
                                                                Year Ending
                                                                  June 30,
                                                                  --------
<S>                                                             <C>                                   <C>
                                                                    2001                              $1,924
                                                                    2002                               3,184
                                                                    2003                               2,042
                                                                    2004                               5,429
                                                                    2005                               5,429
                                                                 Thereafter                           12,000
</TABLE>

(9)        RELATED-PARTY TRANSACTIONS

           The Company's related-party transactions were with affiliated
           companies of Dr. Bernard C. Sherman. During the years ended June 30,
           2000, 1999 and 1998, the Company purchased $2,716, $1,134 and $1,799,
           respectively, of bulk pharmaceutical material from such companies. In
           addition, the Company sold certain of its pharmaceutical products and
           bulk pharmaceutical materials to two other companies owned by Dr.
           Sherman. During fiscal 1996, the Company also entered into a
           multi-year agreement with a Company owned by Dr. Sherman to share
           litigation and development costs in connection with one of its patent
           challenges. For the years ended June 30, 2000, 1999 and 1998, the
           Company recorded $668, $1,438 and $1,170, respectively, in connection
           with such agreement as a reduction to selling,

                                                                              23
<PAGE>   24
           general and administrative expenses and research and development
           expenses.

           During the years ended June 30, 2000, 1999 and 1998, the Company's
           founder and Vice Chairman, Edwin A. Cohen, earned $200, $200 and
           $250, respectively, under a consulting agreement, which expires on
           June 30, 2002.

(10)       INCOME TAXES

           A summary of the components of income tax expense is as follows:

                            Year Ended June 30,
             ---------------------------------------------
                  2000           1999           1998
                  ----           ----           ----
Current:
Federal        $ 25,475       $ 25,173      $ 15,504
State             4,100          3,870         1,567
               --------       --------      --------
                 29,575         29,043        17,071
               --------       --------      --------

Deferred:
Federal          (3,577)         1,588         3,103
State              (550)           246           482
               --------       --------      --------
                 (4,127)         1,834         3,585
               --------       --------      --------
Total          $ 25,448       $ 30,877      $ 20,656
               ========       ========      ========

           Income tax expense for the years ended June 30, 2000, 1999 and 1998
           is included in the financial statements as follows:

<TABLE>
<CAPTION>

                                         Year Ended June 30,
                                 ------------------------------------

                                     2000          1999          1998
                                 --------      --------      --------
<S>                              <C>           <C>           <C>
Continuing operations            $ 25,448      $ 30,877      $ 21,148
Extraordinary loss on early
extinguishment of debt               --            --            (492)
                                 --------      --------      --------
                                 $ 25,448      $ 30,877      $ 20,656
                                 ========      ========      ========
</TABLE>

           The provision for income taxes differs from amounts computed by
           applying the statutory federal income tax rate to earnings before
           income taxes due to the following:

<TABLE>
<CAPTION>
                                                    Year Ended June 30,
                                            ---------------------------------------
                                              2000           1999           1998
                                              ----           ----           ----

<S>                                         <C>            <C>           <C>
Federal income taxes at statutory rate      $ 23,726       $ 28,044      $ 18,681
State income taxes,
net of federal income tax effect               2,307          2,675         1,332
Other, net                                      (585)           158           643
                                            --------       --------      --------
                                            $ 25,448       $ 30,877      $ 20,656
                                            ========       ========      ========
</TABLE>

                                                                              24
<PAGE>   25
           The temporary differences that give rise to deferred tax assets and
           liabilities as of June 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                  2000            1999
                                                  ----            ----
<S>                                            <C>            <C>
Deferred tax assets:
Receivable reserves                            $  2,313       $    900
Inventory reserves                                  620          2,290
Inventory capitalization                            895            385
Investments*                                       --              842
Other operating reserves                          2,443          2,471
Warrants issued                                   6,610           --
                                               --------       --------
Total deferred tax assets                        12,881          6,888

Deferred tax liabilities:
Plant and equipment                              (6,384)        (4,173)
Proceeds from patent challenge settlement        (6,576)        (6,319)
Other operating reserves                           (240)          --
Investments*                                     (1,283)          --
                                               --------       --------

Total deferred tax liabilities                  (14,483)       (10,492)
                                               --------       --------

Net deferred tax liability                     $ (1,602)      $ (3,604)
                                               ========       ========
</TABLE>

           *Tax effects are reflected directly in equity.

           As of June 30, 2000, the Company has capital loss carryforwards of
           $151, expiring in 2004 and 2005.

(11)       SHAREHOLDERS' EQUITY

           Employee Stock Option Plans

           The Company has two stock option plans, the 1993 Stock Incentive Plan
           (the "1993 Option Plan") and the 1986 Option Plan, which were
           approved by the shareholders and which authorize the granting of
           options to officers and certain key employees to purchase the
           Company's common stock at a price equal to the market price on the
           date of grant. Effective June 30, 1996, options are no longer granted
           under the 1986 Option Plan. For fiscal 2000, 1999 and 1998, there
           were no options that expired under this plan.

           All options granted prior to June 30, 1996, under the 1993 Option
           Plan and 1986 Option Plan, are exercisable between one and two years
           from the date of grant and expire ten years after the date of grant
           except in cases of death or termination of employment as defined in
           each Plan. Options issued after June 30, 1996 are exercisable between
           one and three years from the date of grant. To date, no option has
           been granted under either the 1993 Option Plan or the 1986 Option
           Plan at a price below the current market price of the Company's
           common stock on the date of grant.

                                                                              25
<PAGE>   26
           A summary of the activity resulting from all plans, adjusted for the
           June 2000 3-for-2 stock split, is as follows:

<TABLE>
<CAPTION>
                                                                 WEIGHTED-AVERAGE
                                               NO. OF SHARES      OPTION PRICE
                                               -------------      ------------
<S>                                            <C>               <C>
Outstanding at 6/30/97                           2,978,086       $    8.55
Granted                                            293,250           26.39
Canceled                                           (58,488)          15.07
Exercised                                         (701,117)           4.82
                                                 -------
Outstanding at 6/30/98                           2,511,731            9.05

Granted                                            417,000           22.75
Canceled                                           (48,864)          21.69
Exercised                                         (644,566)           4.67
                                                 -------
Outstanding at 6/30/99                           2,235,301           12.59

Granted                                            617,516           24.07
Canceled                                            (5,947)          26.20
Exercised                                         (515,575)           7.76
                                                --------
Outstanding at 6/30/00                           2,331,295       $   16.67
                                                =========

Available for grant (6,243,750 authorized)         658,173

Exercisable at 6/30/00                           1,366,460       $   11.56
</TABLE>

           Non-Employee Directors' Stock Option Plan

           During fiscal year 1994, the shareholders ratified the adoption by
           the Board of Directors of the 1993 Stock Option Plan for Non-Employee
           Directors (the "Directors' Plan"). This formula plan, among other
           things, enhances the Company's ability to attract and retain
           experienced directors. In December 1998, the number of shares which
           each non-employee director is optioned was decreased from 11,250 to
           7,500 shares on the grant date. In October 1999, the number of shares
           which each non-employee director is optioned was decreased from 7,500
           to 5,000 shares on the grant date. Effective October 2000, the number
           of shares which each non-employee director is optioned is 7,500
           shares on the grant date.

           All options granted under the Directors' Plan have ten-year terms and
           are exercisable at an option exercise price equal to the market price
           of the common stock on the date of grant. Each option is exercisable
           on the date of the first annual shareholders' meeting immediately
           following the date of grant of the option, provided there has been no
           interruption of the optionee's service on the Board before that date.
           The following is a summary of activity adjusted for the June 2000
           3-for-2 stock split, for the three fiscal years ended June 30, 2000:

                                                                              26
<PAGE>   27
<TABLE>
<CAPTION>
                                                             WEIGHTED-AVERAGE
                                            NO. OF SHARES    OPTION PRICE
                                            -------------    ------------
<S>                                         <C>              <C>
Outstanding at 6/30/97                         365,250       $    8.07
Granted                                        101,250           24.00
Canceled                                       (16,875)          24.00
Exercised                                      (57,000)           6.60
                                               ------
Outstanding at 6/30/98                         392,625           11.70

Granted                                         56,250           32.42
Exercised                                      (43,875)           7.88
                                               ------
Outstanding at 6/30/99                         405,000           14.99

Granted                                         37,500           19.96
Exercised                                      (52,500)           8.30
                                               ------
Outstanding at 6/30/00                         390,000       $   16.37
                                              ======

Available for grant (843,750 authorized)       240,375

Exercisable at 6/30/00                         352,500       $   15.99
</TABLE>


           Employee Stock Purchase Plan

           During fiscal 1994, the shareholders ratified the adoption by the
           Board of Directors of the 1993 Employee Stock Purchase Plan (the
           "Purchase Plan") to offer employees an inducement to acquire an
           ownership interest in the Company. The Purchase Plan permits eligible
           employees to purchase, through regular payroll deductions, an
           aggregate of 675,000 shares of common stock at approximately 85% of
           the fair market value of such shares. Under the Plan, purchases were
           60,874, 59,965 and 64,771 shares for the years ended June 30, 2000,
           1999 and 1998, respectively.

           Accounting for Stock-Based Compensation Plans

           The Company applies APB No. 25 and related Interpretations in
           accounting for its stock-based compensation plans. Accordingly, no
           compensation cost has been recognized for its stock option plans and
           its stock purchase plan. Had compensation cost for the Company's
           stock-based compensation plans been determined based on the fair
           value at the grant dates for awards under those plans consistent with
           the method of SFAS No. 123, the Company's net earnings and earnings
           per share would have been reduced to the pro forma amounts indicated
           below:

<TABLE>
<CAPTION>
                                                                            As Revised
                                                                               2000                1999                1998
                                                                         -----------------    ----------------    ----------------
<S>                                               <C>                    <C>                  <C>                 <C>
Net earnings                                      As reported                $ 44,177            $ 49,250            $ 32,720
                                                  Pro forma                  $ 41,233            $ 46,940            $ 30,752

Net earnings per share                            As reported                  $ 1.28              $ 1.45              $ 1.00
                                                  Pro forma                    $ 1.20              $ 1.39              $ 0.94

Net earnings per share-                           As reported                  $ 1.24              $ 1.39              $ 0.94
assuming dilution                                 Pro forma                    $ 1.15              $ 1.33              $ 0.89
</TABLE>

                                                                              27
<PAGE>   28
           The fair value of each option grant was estimated on the date of
           grant using the Black-Scholes option-pricing model with the following
           assumptions for 2000, 1999 and 1998, respectively: dividend yield of
           0%; expected volatility of 50.6%, 48.9% and 42.1%; weighted-average
           risk-free interest rates of 5.8%, 4.7% and 5.9%; and expected option
           life of 3 years for the 1993 Option Plan and 4 years for the
           Directors' Plan.

           The following table summarizes information about stock options
           outstanding at June 30, 2000:

<TABLE>
<CAPTION>
                            Options Outstanding                                                   Options Exercisable
                         ---------------------------------------------------------    ----------------------------------------
                                                 Weighted
           Range of              Number           Average            Weighted            Number             Weighted
           Exercise           Outstanding        Remaining            Average          Exercisable           Average
            Prices             at 6/30/00      Contractual Life     Exercise Price      at 6/30/00        Exercise Price
            ------             ----------     ----------------      -------------       ----------        --------------

<S>      <C>                 <C>              <C>                   <C>                <C>                <C>
         $ 3.03 - 7.58            925,184           4.43                $6.44            925,184            $6.44
          11.50 - 14.74           373,285           6.27                12.51             373,285           12.51
          19.60 - 24.89         1,118,218           8.72                23.44             203,325           23.21
         26.02 - 32.41            304,608           7.43                27.57             217,166           28.00
                             ------------                                              ----------
                                2,721,295                                               1,718,960
                             ============                                              ==========
</TABLE>

(12)       SAVINGS AND RETIREMENT PLAN

           The Company has a savings and retirement plan (the "401(k) Plan")
           which is intended to qualify under Section 401(k) of the Internal
           Revenue Code. Employees are eligible to participate in the 401(k)
           Plan in the first month following the month of hire. Participating
           employees may contribute up to a maximum of 12% of their earnings
           before or after taxes. The Company is required, pursuant to the terms
           of its union contract, to contribute to each union employee's account
           an amount equal to the 2% minimum contribution made by such employee.
           The Company may, at its discretion, contribute a percentage of the
           amount contributed by an employee to the 401(k) Plan up to a maximum
           of 10% of such employee's compensation. Participants are always fully
           vested with respect to their own contributions and any profits
           arising therefrom. Participants become fully vested in the Company's
           contributions and related earnings after five full years of
           employment.

           The Company's contributions to the 401(k) Plan were $2,608, $2,292
           and $2,194 for the years ended June 30, 2000, 1999 and 1998,
           respectively.

           In Fiscal 2000, the Board of Directors approved a non-qualified plan
           ("Excess Plan") that enables certain executives to defer up to 10% of
           their compensation in excess of the qualified plan. The Company may,
           at its discretion, contribute a percentage of the amount contributed
           by the individuals covered under this Excess Plan to a maximum of 10%
           of such individual's compensation. In fiscal 2000, the Company chose
           to make contributions at the 10% rate to this plan. As of June 30,
           2000, the Company had recorded an asset and liability for the Excess
           Plan of $422.

                                                                              28
<PAGE>   29
(13)       OTHER INCOME (EXPENSE)

           A summary of other income (expense) is as follows:

<TABLE>
<CAPTION>
                                                 Year Ended June 30,
                                          -----------------------------------
                                             2000        1999       1998
                                             ----        ----       ----
<S>                                        <C>         <C>         <C>
Net gain (loss) on sale of assets          $ 470       $ (11)      $ (63)
Net (loss) gain on sale of securities       (141)        (11)          2
Other                                         18          58          44
                                           -----       -----       -----
Other income (expense)                     $ 347       $  36       $ (17)
                                           =====       =====       =====
</TABLE>

(14)       COMMITMENTS AND CONTINGENCIES

           The Company is party to various operating leases which relate to the
           rental of office facilities and equipment. The Company believes it
           will be able to extend such leases, if necessary. Rent expense
           charged to operations was $1,069, $1,099 and $1,493 in fiscal 2000,
           1999 and 1998, respectively. Future minimum rental payments,
           exclusive of taxes, insurance and other costs under noncancellable
           long-term operating lease commitments, are as follows:

<TABLE>
<CAPTION>
                              Minimum
         Year Ending           Rental
         June 30,             Payments
      ---------------      ---------------
<S>   <C>                  <C>
          2001                $ 614
          2002                  185
          2003                  159
          2004                  148
          2005                  110
</TABLE>

           Product Liability

           The Company maintains product liability insurance coverage in the
           amount of $20,000. No significant product liability suit has ever
           been filed against the Company. However, if one were filed and such a
           case were successful against the Company, it could have a material
           adverse effect upon the business and financial condition of the
           Company to the extent such judgment was not covered by insurance or
           exceeded the policy limits.

           Class Action Lawsuits

           On July 14, 2000, Louisiana Wholesale Drug Co. filed a class action
           complaint in the United States District Court for the Southern
           District of New York against Bayer Corporation, the Rugby Group and
           the Company. The complaint alleges that the Company and the Rugby
           Group agreed with Bayer Corporation not to compete with a generic
           version of Ciprofloxacin (Cipro(TM)) pursuant to an
           anti-competitive agreement between the defendants. The plaintiff
           purports to bring claims on behalf of all direct purchasers of Cipro
           from 1997 to present. On August 1, 2000, Maria Locurto filed a
           similar class action complaint in the United States District Court
           for the Eastern Division of New York. On August 4, 2000, Ann Stuart,
           et al filed a class action complaint in the Superior Court of New
           Jersey, Law Division, Camden County. This complaint alleges
           violations of New Jersey statutes relating to the Cipro agreement.

                                                                              29
<PAGE>   30
           The Company believes that its agreement with Bayer Corporation is a
           valid settlement to a patent suit and cannot form the basis of an
           antitrust claim. Although it is not possible to forecast the outcome
           of these matters, the Company intends to vigorously defend itself. It
           is anticipated that these matters may take several years to be
           resolved but an adverse judgment could have a material adverse impact
           on the Company's financial statements.

           Invamed, Inc./Apothecon, Inc. Lawsuit

           In February 1998 and May 1999, Invamed, Inc., which has since been
           acquired by Geneva Pharmaceuticals, Inc., a division of Novartis AG
           ("Invamed"), and Apothecon, Inc., a division of Bristol-Meyers
           Squibb, Inc. ("Apothecon"), respectively, named the Company and
           several others as defendants in lawsuits filed in the United States
           District Court for the Southern District of New York, charging that
           the Company unlawfully blocked access to the raw material source for
           Warfarin Sodium. The Company believes that these suits are without
           merit and intends to defend its position vigorously. These actions
           are currently in the discovery stage. It is anticipated that this
           matter may take several years to be resolved but an adverse judgment
           could have a material adverse impact on the Company's consolidated
           financial statements.

           Administrative Matters

           Federal antitrust authorities have undertaken a review of certain
           trade practices within the pharmaceutical industry, specifically
           patent challenge settlements, unfair trade practices by brand drug
           companies and exclusive supply arrangements. The Company has
           voluntarily discussed with the Federal Trade Commission ("FTC") its
           arrangements with the supplier of the raw material for its Warfarin
           Sodium. The Company has voluntarily responded to requests from the
           Department of Justice by providing documents relating to the
           settlement of its Tamoxifen patent challenge. On June 30, 1999, the
           Company received a subpoena and civil investigative demand from the
           FTC relating to its March 1997 patent litigation settlement regarding
           Ciprofloxacin hydrochloride. The Company believes that it has
           complied with all applicable laws and regulations governing trade and
           competition in the marketplace in connection with its arrangements
           with its raw material suppliers and its two patent challenge
           settlements.

           Other Litigation

           As of June 2000, the Company was involved with other lawsuits
           incidental to its business, including patent infringement actions.
           Management of the Company, based on the advice of legal counsel,
           believes that the ultimate disposition of such other lawsuits will
           not have any significant adverse effect on the Company's consolidated
           financial statements.

(15)       FOURTH QUARTER CHARGE FOR FISCAL 1998

           During the quarter ended June 1998, the Company recorded a $1.2
           million restructuring charge which is included in selling, general
           and administrative expenses in the Consolidated Statements of
           Operations. Approximately half of this charge related to the
           write-off of equipment and leasehold improvements in connection with
           the closing of a leased New Jersey packaging facility, for which the
           operations have been relocated to other company facilities. The
           remainder related to severance related expenses for certain
           operations employees,

                                                                              30
<PAGE>   31
           primarily those affiliated with the closed facility. As of June 30,
           1999, the 1998 fourth quarter restructuring plan was completed and
           all payments were made.

(16)       QUARTERLY DATA (UNAUDITED)

           A summary of the quarterly results of operations is as follows:

<TABLE>
<CAPTION>
                                                                       THREE MONTH PERIOD ENDED
                                                   ----------------------------------------------------------------------------

                                                        As                As               As               As
                                                      Revised           Revised          Revised          Revised
                                                        Sept.             Dec.             Mar.            June
                                                        30                31               31               30
-------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 2000:
<S>                                                <C>             <C>              <C>              <C>
Total revenues (3)                                 $   92,103      $   113,987      $   121,522      $   112,498
Cost of sales                                          61,973           81,326           92,889           79,464

Net earnings (3)                                       11,493           12,394           11,848            8,442

EARNINGS PER COMMON SHARE - ASSUMING DILUTION

Net earnings (1)(3)                                $    0.32       $      0.35      $      0.33     $       0.23
                                                   ==========      ===========      ===========      ===========

PRICE RANGE OF COMMON STOCK (2)
High                                               $   26.75       $     23.50      $     33.92     $      45.88
Low                                                    18.88             19.00            20.00            25.38


FISCAL YEAR 1999:
Total revenues (3)                                 $   89,149      $   102,637      $   115,822      $   108,342
Cost of sales                                          63,908           73,920           87,968           75,597

Net earnings (3)                                       11,204           12,281           12,662           13,103

EARNINGS PER COMMON SHARE - ASSUMING DILUTION

Net earnings (1)(3)                               $      0.32    $        0.35    $       0.36     $       0.37
                                                   ==========      ===========      ===========      ===========

PRICE RANGE OF COMMON STOCK (2)
High                                              $     26.50    $       33.17    $      32.37     $      27.00
Low                                                     16.46            16.59           18.92            19.00
</TABLE>

----------------

           (1) The sum of the individual quarters may not equal the full year
           amounts due to the effects of the market prices in the application of
           the treasury stock method. During its two most recent fiscal years,
           the Company paid no cash dividend.

           (2) The Company's common stock is listed and traded on the New York
           Stock Exchange (BRL). At June 30, 2000, there were approximately 669
           shareholders of record of common stock. The Company believes that a
           significant number of beneficial owners hold their shares in street
           names.

           (3) The quarters ended March 31, 2000 and June 30, 2000 have been
           restated to record a warrant subscription receivable for the value of
           the warrants issued to DuPont and to apply the initial proceeds
           earned under the related DuPont Agreements to the warrant
           subscription receivable (see Notes 1 and 2). In addition, the Company
           has reclassified proceeds from supply agreement for all periods
           presented from revenue to proceeds from patent challenge settlement
           (see Notes 1 and 3). A summary of the effects of the restatement and
           reclassification is as follows:

                                                                              31
<PAGE>   32
<TABLE>
<CAPTION>
                                                                 Three Month Period Ended
                              -----------------------------------------------------------------------------------------------------

Fiscal 2000                                Sep. 30                Dec. 31                Mar. 31                    Jun. 30
                                     As                          As                  As                        As
                                 Previously       As       Previously      As     Previously       As       Previously       As
                                  Reported      Revised     Reported     Revised   Reported      Revised    Reported      Revised
                                  --------      -------     --------     -------   --------      -------    --------      -------
<S>                              <C>           <C>         <C>         <C>        <C>           <C>         <C>         <C>
Total revenues                    $ 98,853     $ 92,103    $120,820    $ 113,987   $ 135,760    $ 121,522    $126,845   $ 112,498

Net earnings                        11,493       11,493      12,394       12,394       2,667       11,848      15,788       8,442

Earnings per common share
- assuming dilution                 $ 0.32       $ 0.32      $ 0.35       $ 0.35      $ 0.07       $ 0.33      $ 0.44      $ 0.23
</TABLE>



FISCAL 1999



<TABLE>
<CAPTION>
                                   As                        As                     As                       As
                                Previously      As       Previously      As     Previously      As        Previously          As
                                Reported     Revised      Reported     Revised  Reported      Revised     Reported          Revised
                                --------     -------      --------     -------  --------      -------     --------          -------

<S>                             <C>         <C>          <C>        <C>         <C>          <C>            <C>          <C>
Total revenues                  $ 97,149    $ 89,149     $109,220   $ 102,637   $ 122,572    $ 115,822      $115,092     $ 108,342

Net earnings                      11,204      11,204       12,281      12,281      12,662       12,662        13,103        13,103

Earnings per common share
- assuming dilution               $ 0.32      $ 0.32       $ 0.35      $ 0.35      $ 0.36       $ 0.36        $ 0.37        $ 0.37
</TABLE>


                                                                              32
<PAGE>   33
INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
   Barr Laboratories, Inc.:


We have audited the accompanying consolidated balance sheets of Barr
Laboratories, Inc. and subsidiaries (the "Company") as of June 30, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
2000. Our audits also included the financial statement schedule listed in the
Index at Item 14. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Barr Laboratories, Inc. and
subsidiaries at June 30, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2000
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

As discussed in Note 1, the accompanying consolidated financial statements have
been restated.


DELOITTE & TOUCHE LLP

Parsippany, New Jersey
August 7, 2000
May 2, 2001 as to Note 1

                                                                              33
<PAGE>   34
RESPONSIBILITY FOR FINANCIAL REPORTING

Management is responsible for the preparation and accuracy of the consolidated
financial statements and other information included in this report. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles using, where appropriate, management's
best estimates and judgments.

In meeting its responsibility for the reliability of the financial statements,
management has developed and relies on the Company's system of internal
accounting control. The system is designed to provide reasonable assurance that
assets are safeguarded and that transactions are executed as authorized and are
properly recorded.

The Board of Directors reviews the financial statements and reporting practices
of the Company through its Audit Committee, which is composed entirely of
directors who are not officers or employees of the Company. The Committee meets
with the independent auditors and management to discuss audit scope and results
and also to consider internal control and financial reporting matters. The
independent auditors have direct unrestricted access to the Audit Committee. The
entire Board of Directors reviews the Company's financial performance and
financial plan.

/s/ Bruce L. Downey
Chairman of the Board and Chief Executive Officer

                                                                              34
<PAGE>   35
ITEM 6.  SELECTED FINANCIAL DATA
(in thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED JUNE 30,
                                          --------------------------------------------------------------------------------
Statements of Operations                   2000 (8)       1999 (8)            1998 (8)           1997 (8)         1996
--------------------------------------------------------------------------------------------------------------------------

<S>                                      <C>            <C>                 <C>               <C>              <C>
Total revenues                           $ 440,110      $ 415,950           $ 346,638         $ 257,436        $ 232,224
Earnings before income taxes and
extraordinary loss                          69,625         80,127              54,658            32,050          11,509

Income tax expense                          25,448         30,877              21,148            12,603           4,368

Earnings before extraordinary loss          44,177         49,250              33,510            19,447           7,141

Net earnings                                44,177         49,250              32,720(2)         19,447           7,016(3)

Earnings per common share:
Earnings before extraordinary loss            1.28           1.45(1)             1.02(1)           0.61(1)         0.23(1)(4)

Earnings per common share - assuming dilution:
Earnings before extraordinary loss            1.24           1.39(1)             0.96(1)           0.58(1)         0.22(1)(4)

Net earnings  (5)                             1.24           1.39(1)             0.94(1)(2)        0.58(1)         0.21(1)(3)(4)
</TABLE>


<TABLE>
<CAPTION>
BALANCE SHEET DATA                2000           1999          1998          1997         1996
                                -----------------------------------------------------------------
<S>                              <C>           <C>           <C>           <C>           <C>
Working capital                  $202,892      $146,863      $ 95,281      $ 41,807      $ 52,985
Total assets                      423,853       347,890       310,851       202,845       169,220
Long-term debt (6)                 28,084        30,008        32,174        14,941        17,709
Shareholders' equity (7)(8)       282,168       213,707       155,929       102,138        80,161
</TABLE>


           (1)        Amounts have been adjusted for the June 2000 3-for-2 stock
                      split effected in the form of a 50% stock dividend.

           (2)        Fiscal 1998 includes the effect of a $790 ($0.02 per
                      share) extraordinary loss (net of tax of $492) on early
                      extinguishment of debt (See Note 8 to the Consolidated
                      Financial Statements).

           (3)        Fiscal 1996 includes the effect of a $125 ($0.01 per
                      share) extraordinary loss (net of tax of $76) on early
                      extinguishment of debt.

           (4)        Amounts have been adjusted for the May 1997 3-for-2 stock
                      split effected in the form of a 50% stock dividend.

           (5)        Fiscal 1997 and 1996 earnings per share amounts have been
                      restated to conform with the provisions of Statement of
                      Financial Accounting Standards No. 128 "Earnings per
                      Share."

           (6)        Excludes current installments (See Note 8 to the
                      Consolidated Financial Statements).

           (7)        The Company has not paid a cash dividend in any of the
                      above years.

           (8)        The fiscal year ended June 30, 2000 has been restated to
                      record a warrant subscription receivable for the value of
                      the warrants issued to DuPont and to apply the initial
                      proceeds earned under the related DuPont agreements to the
                      warrant subscription receivable (see Notes 1 and 2 to the
                      Consolidated Financial Statements). In addition, the
                      Company has reclassified proceeds from supply agreement
                      for the fiscal years ended June 30, 1999, 1998 and 1997
                      from revenue to proceeds from patent challenge settlement
                      (see Notes 1 and 3).

                                                                              35