Forest Laboratories (FRX) 10-Q 10 Aug 09 2009 Q3 Quarterly report Financial data

1000 - Condensed Consolidated B

1000 - Condensed Consolidated Balance Sheets (USD $)
In Thousands	Jun. 30, 2009	Mar. 31, 2009
Current assets:
Cash (including cash equivalent investments of $1,520,685 in June and $1,337,871 in March)	$1,521,061	$1,338,905
Marketable securities	1,333,036	1,242,017
Accounts receivable, less allowance for doubtful accounts of $18,562 in June and $18,511 in March	487,181	449,444
Inventories, net	419,832	393,527
Deferred income taxes	225,973	217,811
Other current assets	111,757	144,250
Total current assets	4,098,840	3,785,954
Marketable securities	547,186	449,793
Property, plant and equipment	592,412	586,039
Less: accumulated depreciation	251,856	240,104
Property, plant and equipment, net	340,556	345,935
Other assets:
Goodwill	14,965	14,965
License agreements, product rights and other intangibles, less accumulated amortization of $483,883 in June and $474,960 in March	489,563	497,897
Deferred income taxes	100,275	100,758
Other assets	1,509	1,506
Total other assets	606,312	615,126
Total assets	5,592,894	5,196,808
Current liabilities:
Accounts payable	114,980	117,192
Accrued expenses	765,182	700,636
Total current liabilities	880,162	817,828
Long-term liabilities:
Income tax liabilities	286,303	264,389
Stockholders' equity:
Series preferred stock, $1.00 par; shares authorized 1,000; no shares issued or outstanding	42,235	42,227
Common stock, $.10 par; shares authorized 1,000,000; issued 422,356 shares in June and 422,268 shares in March	1,503,423	1,491,239
Additional paid-in capital	1,503,423	1,491,239
Retained earnings	6,642,134	6,379,236
Accumulated other comprehensive loss	(9,771)	(47,145)
Treasury stock, at cost (120,680 shares in June and 120,653 shares in March)	(3,751,592)	(3,750,966)
Total stockholders' equity	4,426,429	4,114,591
Total liabilities and stockholders' equity	$5,592,894	$5,196,808

1100 - Parenthetical Data to th

1100 - Parenthetical Data to the Condensed Consolidated Balance Sheets (USD $)
In Thousands, except Share data	Jun. 30, 2009	Mar. 31, 2009
Current assets:
Cash equivalent investments	$1,520,685	$1,337,871
Accounts receivable, allowance for doubtful accounts	18,562	18,511
Other assets:
License agreements, product rights and other intangibles, accumulated amortization	$483,883	$474,960
Stockholders' equity:
Series preferred stock, par (in dollars per share)	$1	$1
Series preferred stock, shares authorized (in shares)	1,000	1,000
Series preferred stock, no shares issued (in shares)	0	0
Series preferred stock, no shares outstanding (in shares)	0	0
Common stock, par (in dollars per share)	0.1	0.1
Common stock, shares authorized (in shares)	1,000,000	1,000,000
Common stock, issued shares (in shares)	422,356	422,268
Treasury stock, shares (in shares)	120,680	120,653

2000 - Condensed Consolidated S

2000 - Condensed Consolidated Statements of Income (USD $)
In Thousands, except Share data	3 Months Ended Jun. 30, 2009	3 Months Ended Jun. 30, 2008
Net sales	$948,242	$893,745
Contract revenue	47,709	54,153
Interest income	12,200	18,230
Other income	0	716
Total revenue	1,008,151	966,844
Costs and expenses:
Cost of sales	216,744	197,340
Selling, general and administrative	311,807	342,955
Research and development	147,126	112,112
Total costs and expenses	675,677	652,407
Income before income tax expense	332,474	314,437
Income tax expense	69,576	71,517
Net income	$262,898	$242,920
Net income per common share:
Basic (in dollars per share)	0.87	0.79
Diluted (in dollars per share)	0.87	0.79
Weighted average number of common shares outstanding:
Basic (in shares)	302,958	307,493
Diluted (in shares)	303,393	308,329

3000 - Condensed Consolidated S

3000 - Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands	3 Months Ended Jun. 30, 2009	3 Months Ended Jun. 30, 2008
Net income	$262,898	$242,920
Other comprehensive income (loss):
Foreign currency translation gains (losses)	11,513	(361)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period, net of tax	25,861	(561)
Other comprehensive income (loss)	37,374	(922)
Comprehensive income	$300,272	$241,998

5000 - Condensed Consolidated S

5000 - Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands	3 Months Ended Jun. 30, 2009	3 Months Ended Jun. 30, 2008
Cash flows from operating activities:
Net income	$262,898	$242,920
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	11,240	13,126
Amortization and impairments	8,923	27,179
Stock-based compensation expense	11,822	10,587
Deferred income tax benefit	(7,679)	(3,073)
Foreign currency transaction loss (gain)	280	(545)
Decrease (increase) in:
Accounts receivable, net	(37,737)	45,867
Inventories, net	(26,305)	(46,063)
Other current assets	32,493	(13,487)
Other assets	(3)	49
Increase (decrease) in
Accounts payable	(2,212)	(121,883)
Accrued expenses	64,546	113,736
Income taxes liabilities	21,914	50,182
Net cash provided by operating activities	340,180	318,595
Cash flows from investing activities:
Purchase of property, plant and equipment	(5,361)	(6,214)
Purchase of marketable securities	(636,308)	(502,398)
Redemption of marketable securities	447,896	582,609
Net cash (used in) provided by investing activities	(193,773)	73,997
Cash flows from financing activities:
Net proceeds from common stock options exercised by employees under stock option plans	295	202
Tax benefit realized from the exercise of stock options by employees	75	0
Purchase of treasury stock	(626)	(231,185)
Net cash used in financing activities	(256)	(230,983)
Effect of exchange rate changes on cash	36,005	(1,974)
Increase in cash and cash equivalents	182,156	159,635
Cash and cash equivalents, beginning of period	1,338,905	833,052
Cash and cash equivalents, end of period	1,521,061	992,687
Cash paid during the period for:
Income taxes	$3,484	$14,504

6000 - Basis of Presentation

6000 - Basis of Presentation
	3 Months Ended Jun. 30, 2009 USD / shares
Basis of Presentation
Basis of Presentation	1.Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (or GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.In the opinion of Management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included and the Company has evaluated subsequent events up to the date of this filing.Operating results for the three-month period ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending March 31, 2010.For further information refer to the consolidated financial statements and footnotes thereto incorporated by reference in the Company's Annual Report on Form 10-K for the year ended March 31, 2009.

6010 - Accounts Receivable

6010 - Accounts Receivable
	3 Months Ended Jun. 30, 2009 USD / shares
Accounts Receivable
Accounts Receivable	2.Accounts Receivable (In thousands): Accounts receivable, net, consists of the following: June 30, 2009 (Unaudited) March 31, 2009 Trade $ 392,983 $ 351,697 Other 94,198 97,747 $ 487,181 $ 449,444

6020 - Inventories

6020 - Inventories
	3 Months Ended Jun. 30, 2009 USD / shares
Inventories
Inventories	3.Inventories (In thousands): Inventories, net of reserves for obsolescence, consist of the following: June 30, 2009 (Unaudited) March 31, 2009 Raw materials $ 142,287 $ 126,292 Work in process 80 982 Finished goods 277,465 266,253 $ 419,832 $ 393,527

6030 - Fair Value Measurements

6030 - Fair Value Measurements
	3 Months Ended Jun. 30, 2009 USD / shares
Fair Value Measurements
Fair Value Measurements	4.Fair Value Measurements (In thousands): The following table presents the level within the fair value hierarchy at which the Companys financial assets are carried at fair value and measured on a recurring basis: Description Fair value at June 30, 2009 Quoted prices in active markets for identical assets (Level 1) Significant other observable market inputs (Level 2) Unobservable market inputs (Level 3) Money market accounts $ 1,317,126 $ 1,317,126 Municipal bonds and notes 288,259 $ 288,259 Commercial paper 1,073,747 557,572 516,175 Variable rate demand notes 144,839 144,839 Floating rate notes 373,883 373,883 Auction rate securities 36,839 $36,839 As of June 30, 2009, the Company has determined the value of the auction rate securities portfolio based upon a discounted cash flow model, which has been unchanged since the beginning of this fiscal period. On April 1, 2009, the Company adopted the provisions of Statement of Financial Standards No. 157, Fair Value Measurements for non-financial assets and non-financial liabilities.This statement did not have a material effect on the Companys condensed consolidated financial statements. The majority of the Companys non-financial assets and liabilities are not required to be carried at fair value on a recurring basis. However, the Company is required on a non-recurring basis to use fair value measurements when analyzing asset impairment as it relates to license agreements, product rights and other intangible assets and long-lived assets.The carrying amount of cash, accounts receivable and accounts payable and other short-term financial instruments approximate their fair value due to their short-term nature.

6040 - Marketable Securities

6040 - Marketable Securities
	3 Months Ended Jun. 30, 2009 USD / shares
Marketable Securities [Abstract]
Marketable Securities	5.Marketable Securities (In thousands): Available-for-sale debt securities consist of the following: June30, 2009 Estimated fair value Gains in accumulated other comprehensive income Losses in accumulated other comprehensive income Current: Variable rate demand notes $ 144,839 Municipal bonds and notes 157,528 $ 1,073 Commercial paper 958,408 2,668 Floating rate notes 72,261 $ (718 ) Total current securities 1,333,036 3,741 (718 ) Noncurrent: Municipal bonds and notes 130,731 446 Commercial paper 77,994 421 Auction rate notes 36,839 Floating rate notes 301,622 (43,247 ) Total noncurrent securities 547,186 867 (43,247 ) Total available-for-sale debt securities $ 1,880,222 $ 4,608 $ (43,965 ) Proceeds from the sales of available-for-sale debt securities was $447,896 for the three months ended June 30, 2009.Gross realized gains on those sales for the three months ended June 30, 2009 was $3,856. For purposes of determining gross realized gains and losses, the cost of the securities is based on average cost.Net unrealized holding losses on available-for-sale debt securities in the amount of $39,357 for the three months ended June 30, 2009 has been included in Stockholders equity:Accumulated other comprehensive income. Contractual maturities of available-for-sale debt securities at June 30, 2009, are as follows: Estimated fair value Within one year $ 1,333,036 1-5 years 399,158 5-10 years 96,148 After 10 years 51,880 $ 1,880,222 Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call penalties. The Company currently invests funds in variable rate demand notes that have major bank liquidity agreements, municipal bonds and notes, commercial paper including money market instruments, auction rate securities and bank floating rate notes.Certain securities are subject to a hard-put option(s) where the principal amount is contractually assured by the issuer and any resistance to the exercise of these options would be deemed as a default by the issuer.Such a potential default would be reflected in the issuers respective credit rating, for which the Company maintains investment grade requirements pursuant to its corporate investment guidelines.While the Company believes its investments that have net unrealized losses are temporary, further declines in the value of these investments may be deemed other-than-temporary if the credit and capital markets were to continue to deteriorate in future periods. The Company does not have the intent to sell its investments and it is more likely than not that the Company will not have to sell the investments before the recovery of its cost basis.Therefore, the Company does not consider these investments to be other-than-temporarily impaired and will continue to monitor glob

6050 - License and Collaboratio

6050 - License and Collaboration Agreements
	3 Months Ended Jun. 30, 2009 USD / shares
License and Collaboration Agreements
License and Collaboration Agreements	6.License and Collaboration Agreements (In thousands): Effective this quarter, the Company implemented Emerging Issues Task Force No. 07-1, Accounting for Collaborative Arrangements (or EITF 07-1), which prescribes that certain transactions between collaborators be recorded in the income statement on either a gross or net basis, depending on the characteristics of the collaboration relationship, and provides for enhanced disclosure of collaborative relationships.The Company has entered into two collaboration arrangements to develop and commercialize potential drug candidates as defined by EITF 07-1. These collaborations are contractual agreements with third parties consisting of a joint operating activity involving the research and development, manufacturing and marketing of a product.These collaboration agreements are profit sharing in nature and consequently both the Company and its partners are active participants and are subject to significant risks and rewards.These collaborative arrangements generally require the Company to make milestone and royalty payments based upon the results of specific research and development objectives and future sales, if any.These agreements also include provisions for reimbursement of certain expenses between the Company and its partners.The Company has entered into several other license agreements which are not profit sharing in nature and accordingly do not qualify as collaboration agreements as defined by the EITF. In October 2008, the Company entered into a collaboration agreement with Phenomix Corporation (or Phenomix) to co-develop and co-promote dutogliptin.Dutogliptin is Phenomix proprietary orally administered, small molecule dipeptidyl-peptidase-4 (or DPP-4) inhibitor being developed for the treatment of Type II diabetes.The Company made a $75,000 upfront payment to Phenomix in fiscal 2009, which was recorded to research and development expense.The Company is responsible for the manufacture, supply and distribution of the product and will be responsible for sales in the United States, Canada, Mexico and their related territories.This product has not yet been approved and accordingly has not produced revenues. In September 2007, the Company entered into a collaboration agreement with Ironwood Pharmaceuticals, Inc. (or Ironwood) to co-develop and co-market Ironwoods first-in-class compound linaclotide.Linaclotide is currently being investigated for the treatment of constipation-predominant irritable bowel syndrome and chronic constipation.Under the terms of the agreement, the Company paid Ironwood a $70,000 upfront licensing fee in fiscal 2008 which was recorded to research and development expense.The Company and Ironwood will jointly and equally fund development and commercialization of linaclotide in the United States, sharing profits equally.Additionally, the Company will have exclusive rights in Canada and Mexico and will pay Ironwood a royalty on net sales in these countries while Ironwood retains all rights to linaclotide outside of North America.This product has not yet been approved and accordingly has not produced revenues.

6060 - Net Income Per Share

6060 - Net Income Per Share
	3 Months Ended Jun. 30, 2009 USD / shares
Net Income Per Share
Net Income Per Share	7.Net Income Per Share (In thousands): A reconciliation of shares used in calculating basic and diluted net income per share follows: Three Months Ended June 30, 2009 2008 Basic 302,958 307,493 Effect of assumed conversion of employee stock options 435 836 Diluted 303,393 308,329 Options to purchase approximately 17,736 shares of common stock at exercise prices ranging from $20.55 to $76.66 per share that were outstanding during a portion of the three-month period ended June 30, 2009 were not included in the computation of diluted net income per share because they were anti-dilutive.These options expire through 2019.Options to purchase approximately 14,951 shares of common stock at exercise prices ranging from $34.12 to $76.66 per share that were outstanding during a portion of the three-month period ended June 30, 2008 were not included in the computation of diluted net income per share because they were anti-dilutive.These options expire through 2018. The above references to earnings per share are in conformity with Financial Accounting Standards Board Staff Position Emerging Issues Task Force No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (or FSP EITF 03-6-1).The Company adopted FSP EITF 03-6-1 on April 1, 2009.The application of FSP EITF 03-6-1 did not have an effect on the Companys earnings per share for the three months ended June 30, 2009 and 2008.

6070 - Stock Based Compensation

6070 - Stock Based Compensation
	3 Months Ended Jun. 30, 2009 USD / shares
Stock-Based Compensation
Stock-Based Compensation	8.Stock-Based Compensation (In thousands): In August 2007 the stockholders of the Company voted to adopt the 2007 Equity Incentive Plan (or the 2007 Plan) which replaces and supersedes all prior stock option plans. Under the 2007 Plan, 13,950 shares were authorized to be issued to employees of the Company and its subsidiaries at prices not less than the fair market value of the common stock at the date of grant.The 2007 Plan provides for the granting of incentive and nonqualified stock options, restricted stock, stock appreciation rights and stock equivalent units. These awards generally vest in three to five years. Stock option grants may be exercisable for up to ten years from the date of issuance. As of June 30, 2009, 6,212 shares were available for grant. Compensation expense of $11,822 ($9,558 net of tax) was recorded for the three-month period ended June 30, 2009.For the three-month period ended June 30, 2008, compensation expense of $10,587 ($8,817 net of tax) was recorded.This expense was charged to cost of sales, selling, general and administrative and research and development expense, as appropriate. The weighted average number of diluted common shares outstanding is reduced by the treasury stock method which, in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment takes into consideration the compensation cost attributed to future services not yet recognized.

6080 - Business Segment Informa

6080 - Business Segment Information
	3 Months Ended Jun. 30, 2009 USD / shares
Business Segment Information
Business Segment Information	9.Business Segment Information (In thousands): The Company operates in only one segment.Below is a breakdown of net sales by therapeutic class: Three Months Ended June 30, 2009 2008 Central nervous system $ 839,032 $ 810,320 Cardiovascular 46,043 9,815 Other 63,167 73,610 $ 948,242 $ 893,745

6090 - Long Term Debt

6090 - Long Term Debt
	3 Months Ended Jun. 30, 2009 USD / shares
Long-Term Debt
Long-Term Debt	10.Long-Term Debt: On December 7, 2007, the Company established a $500 million revolving credit facility for the purpose of providing additional financial liquidity for the financing of business development and corporate strategic initiatives.The facility can be increased up to $750 million based upon agreement with the participating lenders and expires on December 7, 2012.As of August 7, 2009, the Company has not drawn any funds from the available credit.The utilization of the revolving credit facility is subject to the adherence to certain financial covenants such as leverage and interest coverage ratios.

6100 - Income Taxes

6100 - Income Taxes
	3 Months Ended Jun. 30, 2009 USD / shares
Income Taxes
Income Taxes	11.Income Taxes (In thousands): The Companys income tax returns for fiscal years prior to 1999 in most jurisdictions and prior to 2003 in Ireland are no longer subject to review as such fiscal years are generally closed.Tax authorities in various jurisdictions are in the process of reviewing the Companys income tax returns for various post-1999 fiscal years, including the Internal Revenue Service (or IRS), which has recently concluded its examination of the Companys U.S. federal income tax returns for fiscal years 2002 and 2003. In connection with that examination, in July 2007, the IRS issued a notice of proposed adjustment primarily relating to the Companys intercompany transfer pricing methodology.On November 5, 2007, the IRS issued a Revenue Agent Report which seeks to assess approximately $206.7 million of additional U.S. corporation income tax relating to the examination period, excluding interest and penalties.The Company continues to disagree with the IRS position and adjustment because it believes that it is inconsistent with applicable tax laws and the Company intends to defend its position vigorously.In accordance with the Companys taxpayer appeals rights, a formal written protest of the proposed adjustment has been filed with the IRS and the matter is in administrative appeals. While the resolution of this issue may result in tax liabilities that are greater or less than the reserves established, Management believes that the ultimate resolution will not have a material effect on the Companys financial position or liquidity.If the IRS prevails in a position that increases the U.S. tax liability in excess of established reserves, it is likely that the IRS could make similar claims for years subsequent to fiscal 2003 which could be material.At this time Management believes that it is likely that the ultimate outcome will be determined within the next 12 months and will not have a material impact on the Companys results of operations. The Companys effective tax rate was 20.9% for the three-month period ended June 30, 2009, as compared to 22.7% for the same period last year. The decrease resulted primarily from additional earnings in lower tax jurisdictions and the net impact of one-time discrete tax adjustments in the June 2008 quarter.These prior discrete adjustments related principally to stock-based compensation in prior years offset for the most part by the termination of the Companys co-promotion agreement for Azor as well as other tax matters.As of June 30, 2009, the Company had accrued an additional $4,190 in interest for a total of $40,044 related to the resolution of various income tax matters.Effective tax rates may be affected by ongoing tax audits.

6110 - Subsequent Event

6110 - Subsequent Event
	3 Months Ended Jun. 30, 2009 USD / shares
Subsequent Event
Subsequent Event	12.Subsequent Event (In thousands): On August 7, 2009, the Company entered into a license agreement with Nycomed GmbH (or Nycomed) to develop and commercialize Daxas (roflumilast) in the United States.Daxas is Nycomeds proprietary selective phosphodiesterase 4 (or PDE4) enzyme inhibitor being developed for the treatment of chronic obstructive pulmonary disease (or COPD).Under the terms of the agreement, the Company will make an upfront payment to Nycomed of $100,000 which will be recorded to research and development expense.The Company may be obligated to make payments to Nycomed for future development and sales milestones, and will pay royalties based on Daxas sales.

Document Information

Document Information
	3 Months Ended Jun. 30, 2009
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2009-06-30

Entity Information

Entity Information (USD $)
	3 Months Ended Jun. 30, 2009	Sep. 30, 2008
Entity Information [Line Items]
Entity Registrant Name	Forest Laboratories Inc
Entity Central Index Key	0000038074
Current Fiscal Year End Date	--03-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$84,609,499,900
Entity Common Stock, Shares Outstanding	301,676,514