**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q**__________________________________________

(Mark One)

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

**For the Quarterly Period Ended June 30,2006**

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

**For the transition period from           to        **

**Commission File No. 1-5438**

**    FOREST LABORATORIES,INC.    ** (Exact name of registrant as specified in itscharter)

**
**Delaware***(State or other jurisdiction ofincorporation or organization)*

 

**11-1798614***(I.R.S. EmployerIdentification Number)*
   
**909 Third AvenueNew York, New York***(Address of principal executive offices)*

 

**10022-4731***(Zip code)*
**

**(212) 421-7850***(Registrant's telephone number, including area code)*

*(Former name, former address and former fiscalyear, if changed since last report)*

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.Yes    X       No         . 

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

Large accelerated filer    X                               Acceleratedfiler                                   Non-acceleratedfiler        

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes           No    X    .

Number of shares outstanding of Registrant'sCommon Stock as of August 9, 2006: 317,966,054.

** **

**TABLE OFCONTENTS (Q*uick Links*)**

PART I -FINANCIAL INFORMATION

**           **ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

                           BALANCE SHEETS                           STATEMENTS OF INCOME                           STATEMENTS OF COMPREHENSIVE INCOME                           STATEMENTS OF CASH FLOWS                           NOTES TO FINANCIAL STATEMENTS

           ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL            CONDITION AND RESULTS OF OPERATIONS

            ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT            MARKET RISK

            ITEM 4. CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

            ITEM1. LEGAL PROCEEDINGS

            ITEM1A. RISK FACTORS

            ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OFPROCEEDS            AND ISSUER REPURCHASES OF EQUITY SECURITIES

            ITEM 6. EXHIBITS            EXHIBIT 31.1            EXHIBIT 31.2            EXHIBIT 32.1            EXHIBIT 32.2

 

 

**PART I- FINANCIAL INFORMATION**

**FOREST LABORATORIES, INC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets**

| *(In thousands)*                                                                                                                                                                                                                                     | June 30, 2006   (Unaudited)              | March 31, 2006                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|-------------------------------------------------------------------|
|                                                                                                                                                                                                                                                 |                                                              |                                                              |
| **Assets**                                                                                                                                                                                                                                           |                                                              |                                                              |
|                                                                                                                                                                                                                                                 |                                                              |                                                              |
| Current assets:    Cash (including cash equivalentinvestments        of $865,656 in Juneand $717,742 in March)                                                                           |  

$   867,690                           | $   718,974                                   |
|     Marketable securities                                                                                                                                                                                                        | 200,151                                                      | 308,504                                                      |
|     Accounts receivable, less allowance fordoubtful accounts        of $18,946 in Juneand $18,941 in March                                                                               | 354,930                                                      | 366,538                                                      |
|     Inventories, net                                                                                                                                                                                                             | 559,136                                                      | 635,719                                                      |
|     Deferred income taxes                                                                                                                                                                                                        | 157,181                                                      | 157,290                                                      |
|     Other current assets                                                                                                                                                                                                         |        42,380             |        20,162             |
|         Total currentassets                                                                                                                                                                                  |   2,181,468                                        |   2,207,187                                        |
|                                                                                                                                                                                                                                                 |                                                              |                                                              |
| Marketable securities                                                                                                                                                                                                                                |      565,261                        |      295,116                        |
|                                                                                                                                                                                                                                                 |                                                              |                                                              |
| Property, plant and equipment                                                                                                                                                                                                                        | 546,548                                                      | 535,047                                                      |
|     Less: accumulated depreciation                                                                                                                                                                                               |      171,294                        |      159,387                        |
|                                                                                                                                                                                                                                                 |      375,254                        |      375,660                        |
| Other assets:    Goodwill                                                                                                                                                                                                        | 14,965                                                       | 14,965                                                       |
|     License agreements, product rights andother        intangibles, lessaccumulated amortization        of $336,070 in Juneand $321,520 in March |  

197,717                                              | 211,785                                                      |
|     Deferred income taxes                                                                                                                                                                                                        | 10,142                                                       | 13,870                                                       |
|     Other                                                                                                                                                                                                                        |          1,257  |          1,257  |
|         Total otherassets                                                                                                                                                                                    |      224,081                        |      241,877                        |
|                                                                                                                                                                                                                                                 |                                                              |                                                              |
|              Totalassets                                                                                                                                                            | $3,346,064                                                   | $3,119,840                                                   |
|                                                                                                                                                                                                                                                 | ========                                                     | ========                                                     |

*See notes to condensed consolidated financialstatements.*

** **

**FOREST LABORATORIES, INC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets**

| *(In thousands, except for par values)*                                                                                                                                               | June 30, 2006   (Unaudited)                              | March 31, 2006                                               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|-------------------------------------------------------------------|
|                                                                                                                                                                                  |                                                                              |                                                              |
| **Liabilities and Stockholders' Equity**                                                                                                                                              |                                                                              |                                                              |
|                                                                                                                                                                                  |                                                                              |                                                              |
| Current liabilities:    Accounts payable                                                                                                                          | $   137,710                                                        | $   140,911                                   |
|     Accrued expenses                                                                                                                                              | 268,395                                                                      | 242,790                                                      |
|     Income taxes payable                                                                                                                                          |        67,468                             |        37,266             |
|        Total currentliabilities                                                                                                                    |      473,573                                        |      420,967                        |
|                                                                                                                                                                                  |                                                                              |                                                              |
| Deferred income taxes                                                                                                                                                                 |             706  |          1,064  |
|                                                                                                                                                                                  |                                                                              |                                                              |
| Stockholders' equity:    Series preferred stock, $1.00 par; sharesauthorized 1,000;        no shares issued oroutstanding |                                                                              |                                                              |
|     Common stock, $.10 par; sharesauthorized 1,000,000; issued        413,243 shares inJune and 412,124 shares in March   | 41,324                                                                       | 41,212                                                       |
|     Additional paid-in capital                                                                                                                                    | 1,059,523                                                                    | 1,023,079                                                    |
|     Retained earnings                                                                                                                                             | 4,403,860                                                                    | 4,203,253                                                    |
|     Accumulated other comprehensiveincome                                                                                                                         |         13,762                       | 6,762                                                        |
|     Treasury stock, at cost                                                                                                                                       |                                                                              |                                                              |
|       (92,668 shares in Juneand 90,784 shares in March)                                                                                            | (  2,646,684)                                                           | (  2,576,497)                                           |
|             Totalstockholders' equity                                                                                     |   2,871,785                                                        |   2,697,809                                        |
|                                                                                                                                                                                  |                                                                              |                                                              |
|                 Totalliabilities and stockholders' equity                                             | $3,346,064                                                                   | $3,119,840                                                   |
|                                                                                                                                                                                       | ========                                                                     | ========                                                     |

*See notes to condensed consolidated financialstatements.*

 

**FORESTLABORATORIES, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Income(Unaudited)**

| *(In thousands, except per share amounts)*                              |   |    Three MonthsEnded              June30,              |
|------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                         |   |                                                                                                                                                                                                    |        2006  |        2005  |
|                                                                         |   |                                                                                                                                                                                                    |   |   |
| Net sales                                                                    |   |                                                                                                                                                                                                    | $758,768  | $674,653  |
| Contract revenue                                                             |   |                                                                                                                                                                                                    | 42,662  | 26,269  |
| Other income                                                                 |   |                                                                                                                                                                                                    |     14,908  |     10,844  |
|                                                                         |   |                                                                                                                                                                                                    |   816,338  |   711,766  |
|                                                                         |   |                                                                                                                                                                                                    |   |   |
| Costs and expenses:    Cost of sales                     |   |                                                                                                                                                                                                    | 175,685  | 158,846  |
|     Selling, general and administrative                  |   |                                                                                                                                                                                                    | 244,383  | 268,473  |
|     Research and development                             |   |                                                                                                                                                                                                    |   139,082  |     56,393  |
|                                                                         |   |                                                                                                                                                                                                    |   559,150  |   483,712  |
|                                                                         |   |                                                                                                                                                                                                    |   |   |
| Income before income tax expense                                             |   |                                                                                                                                                                                                    | 257,188  | 228,054  |
|                                                                         |   |                                                                                                                                                                                                    |   |   |
| Income tax expense                                                           |   |                                                                                                                                                                                                    |     56,581  |     11,477  |
|                                                                         |   |                                                                                                                                                                                                    |   |   |
| Net income                                                                   |   |                                                                                                                                                                                                    | $200,607  | $216,577  |
|                                                                         |   |                                                                                                                                                                                                    | =======  | =======  |
| Net income per common share:                                                 |   |                                                                                                                                                                                                    |   |   |
|                                                                         |   |                                                                                                                                                                                                    |   |   |
|     Basic                                                |   |                                                                                                                                                                                                    | $0.62  | $0.63  |
|                                                                         |   |                                                                                                                                                                                                    | ====  | ====  |
|     Diluted                                              |   |                                                                                                                                                                                                    | $0.62  | $0.62  |
|                                                                         |   |                                                                                                                                                                                                    | ====  | ====  |
| Weighted average number of common    shares outstanding: |   |                                                                                                                                                                                                    |   |   |
|                                                                         |   |                                                                                                                                                                                                    |   |   |
|     Basic                                                |   |                                                                                                                                                                                                    | 321,503  | 343,107  |
|                                                                         |   |                                                                                                                                                                                                    | ======  | ======  |
|     Diluted                                              |   |                                                                                                                                                                                                    | 325,915  | 348,043  |
|                                                                         |   |                                                                                                                                                                                                    | ======  | ======  |

*See notes to condensed consolidated financialstatements.*

** **

**FOREST LABORATORIES, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Comprehensive Income(Unaudited)**

| *(In thousands)*                  |   |      Three MonthsEnded              June30,               |
|-----------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                                                                                                                      |        2006  |       2005  |
|                              |   |                                                                                                                                                                                                                      |   |   |
| Net income                        |   |                                                                                                                                                                                                                      | $200,607  | $216,577  |
| Other comprehensive income (loss) |   |                                                                                                                                                                                                                      |       7,000  | (      6,254) |
|                              |   |                                                                                                                                                                                                                      |   |   |
| Comprehensive income              |   |                                                                                                                                                                                                                      | $207,607  | $210,323  |
|                              |   |                                                                                                                                                                                                                      | =======  | =======  |

*See notes to condensed consolidated financialstatements.*

** **

**FORESTLABORATORIES, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows(Unaudited)**

|                                                                                                                                               |     Three MonthsEnded                                                                                                                  |
|----------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(In thousands)*                                                                                                                                   |                June30,                  |
|                                                                                                                                               |             2006                                                                                                                            |            2005  |
| Cash flows from operating activities:                                                                                                              |                                                                                                                                                                                               |   |
|    Net income                                                                                                                       | $   200,607                                                                                                                                                                    | $   216,577  |
|    Adjustments to reconcile net income to                                                                                           |                                                                                                                                                                                               |   |
|      net cash provided by operatingactivities:                                                                            |                                                                                                                                                                                               |   |
|        Depreciation                                                                                             | 11,211                                                                                                                                                                                        | 7,090  |
|        Amortization andimpairments                                                                              | 14,549                                                                                                                                                                                        | 10,938  |
|        Stock-basedcompensation expense                                                                          | 8,759                                                                                                                                                                                         |   |
|        Deferred income taxbenefit                                                                               | (           673)                                                                                                                            | (        2,479) |
|        Foreign currencytransaction loss (gain)                                                                  | (           144)                                                                                                                            | 908  |
|        Net change inoperating assets and liabilities:                                                           |                                                                                                                                                                                               |   |
|           Decrease(increase) in:                                                                 |                                                                                                                                                                                               |   |
|              Accountsreceivable, net                                              | 11,608                                                                                                                                                                                        | 18,564  |
|              Inventories,net                                                      | 76,583                                                                                                                                                                                        | (      13,895) |
|              Othercurrent assets                                                  | (      22,218)                                                                                                                                                       | (      19,923) |
|           Increase(decrease) in:                                                                 |                                                                                                                                                                                               |   |
|              Accountspayable                                                      | (        3,201)                                                                                                                                            | (      58,532) |
|              Accruedexpenses                                                      |     25,605                                                                                                                                                                |     6,319  |
|              Incometaxes payable                                                  | 30,202                                                                                                                                                                                        | 7,005  |
|           Decreasein other assets                                                                |                                                                                                          |              84  |
|                 Netcash provided by operating activities           |     352,888                                                                                                                                                               |     172,656  |
|                                                                                                                                               |                                                                                                                                                                                               |   |
| Cash flows from investing activities:                                                                                                              |                                                                                                                                                                                               |   |
|    Purchase of property, plant and equipment,net                                                                                    | (       10,332)                                                                                                                                                 | (      10,305) |
|    Purchase of marketable securities                                                                                                | (     485,980)                                                                                                                                                            | (      67,873) |
|    Redemption of marketable securities                                                                                              |      324,188                                                                                                                                                         |     136,441  |
|                 Netcash provided by (used in) investing activities | (     172,124)                                                                                                                                                            |       58,263  |
|                                                                                                                                               |                                                                                                                                                                                               |   |
| Cash flows from financing activities:                                                                                                              |                                                                                                                                                                                               |   |
|    Net proceeds from common stock optionsexercised      by employees under stock optionplans          | 21,972                                                                                                                                                                                        | 8,818  |
|    Tax benefit realized from the exercise ofstock      options by employees                           | 9,411                                                                                                                                                                                         | 6,298  |
|    Purchase of treasury stock                                                                                                       | (       69,621)                                                                                                                                                 | (     310,962) |
|                 Netcash used in financing activities               | (       38,238)                                                                                                                                                 | (     295,846) |
|                                                                                                                                               |                                                                                                                                                                                               |   |
| Effect of exchange rate changes on cash                                                                                                            |         6,190                                                                                                                                         | (         5,914) |
| Increase (decrease) in cash and cash equivalents                                                                                                   | 148,716                                                                                                                                                                                       | (       70,841) |
| Cash and cash equivalents, beginning of period                                                                                                     |     718,974                                                                                                                                                               |  1,165,498  |
| Cash and cash equivalents, end of period                                                                                                           | $    867,690                                                                                                                                                              | $1,094,657  |
|                                                                                                                                               | ========                                                                                                                                                                                      | ========  |

|                                               |          |       |
|----------------------------------------------------|---------------|------------|
| Supplemental disclosures of cash flow information: |          |       |
|                                               |          |       |
| Cash paid during the period for:                   |          |       |
|     Income taxes               | $17,658  | $652  |
|                                               |          |       |
|                                               |          |       |
|                                               |          |       |
|                                               |          |       |

*See notes to condensed consolidated financialstatements.*

 

**FOREST LABORATORIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(Unaudited)**

**1.   Basis of Presentation:**

The accompanying unaudited condensed consolidated financialstatements have been prepared in accordance with U.S. generallyaccepted accounting principles for interim financial informationand with the instructions to Form 10-Q and Rule 10-01 of RegulationS-X. Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles forcomplete financial statements. In the opinion of Management, alladjustments (consisting of only normal recurring accruals)considered necessary for a fair presentation have been included.Operating results for the three-month period ended June 30, 2006are not necessarily indicative of the results that may be expectedfor the year ending March 31, 2007. For further information referto the consolidated financial statements and footnotes theretoincorporated by reference in the Company's Annual Report on Form10-K for the year ended March 31, 2006.

**2.   AccountsReceivable:**

Accounts receivable, net, consists of thefollowing:

|             | June 30, 2006                                                           |                             |
|------------------|-------------------------------------------------------------------------|----------------------------------|
| *(In thousands)* |   (Unaudited)         | March 31, 2006    |
|             |                                                                    |                             |
| Trade            | $305,354                                                                | $294,094                         |
| Other            |     49,576                                          |     72,444   |
|             | $354,930                                                                | $366,538                         |
|             |  =======                                                      | =======                     |

**3.   Inventories:**

Inventories, net of reserves for obsolescence,consist of the following:

|             | June 30, 2006                                                           |                                      |
|------------------|-------------------------------------------------------------------------|-------------------------------------------|
| *(In thousands)* |   (Unaudited)         | March 31, 2006             |
|             |                                                                    |                                      |
| Raw materials    | $300,947                                                                | $397,703                                  |
| Work in process  |       5,836                               |       7,828 |
| Finished goods   |   252,353                                                     |   230,188                       |
|             | $559,136                                                                | $635,719                                  |
|             |  =======                                                      | =======                              |

**4.   Net Income Per Share***(Inthousands)***:**

A reconciliation of shares used in calculating basic and dilutednet income per share follows:

|                                                               | Three Months Ended               June30,             |
|-------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                    |      2006                                                                                                                                           |      2005 |
| Basic                                                                   | 321,503                                                                                                                                                                      | 343,107 |
| Effect of assumed conversion of   employee stock options |     4,412                                                                                                                                                |     4,936 |
| Diluted                                                                 | 325,915                                                                                                                                                                      | 348,043 |
|                                                                    | ======                                                                                                                                                                       | ====== |

Options to purchase approximately 10,058 shares of common stockat exercise prices ranging from $40.00 to $76.66 per share thatwere outstanding during a portion of the three-month period endedJune 30, 2006 were not included in the computation of diluted netincome per share because they were anti-dilutive. These optionsexpire through 2016. Options to purchase approximately 11,951shares of common stock at exercise prices ranging from $37.86 to$76.66 per share that were outstanding during a portion of thethree-month period ended June 30, 2005 were not included in thecomputation of diluted net income per share because they wereanti-dilutive. These options expire through 2015.

**5.   Stock-Based Compensation***(Inthousands)***:**

The Company has various employee stock option plans from whichoptions are granted to certain employee and non-employee directorswhich entitle the purchase of shares of common stock at prices notless than the fair market value of the common stock at the date ofgrant. Both incentive and non-qualified options may be issued underthe plans. The options generally vest in three to five years andare exercisable for five to ten years from the date of issuance.Awards are granted by the Board of Directors under the terms of theCompany’s 1998, 2000 and 2004 stock option plans, all ofwhich expire after 10 years. As of June 30, 2006, 38,000 shareswere authorized and 7,901 were available for grant.

Effective April 1, 2006, the Company adopted the provisions ofStatement of Financial Accounting Standards No. 123(R),"Share-Based Payment" (SFAS 123R) whereby stock option expense iscalculated at fair value using the Black-Scholes valuation modeland amortized on an even basis (net of estimated forfeitures) overthe requisite service period. The Company previously accounted forits stock option awards to employees under the intrinsic valuebased method of accounting prescribed by Accounting PrinciplesBoard Opinion No. 25, "Accounting for Stock Issued to Employees."Under the intrinsic value based method, compensation cost is theexcess, if any, of the quoted market price of the stock at grantdate or other measurement date over the amount an employee must payto acquire the stock. The Company made pro forma disclosures of netincome and earnings per share as if the fair value based method ofaccounting had been applied as required by Statement of FinancialAccounting Standards No. 123 (SFAS 123), "Accounting forStock-Based Compensation" by using the Black-Scholes option-pricingmodel. The Company has never granted options below market price onthe date of grant.

The Company elected to adopt the modified prospectiveapplication method provided by SFAS 123R, and accordingly, $8,759of compensation expense ($7,426 net of tax) was recorded in thefirst quarter of fiscal 2007 to cost of sales, selling, general andadministrative and research and development expense, asappropriate, while the proforma schedule required for SAFS 123below shows the compensation expense for the first quarter offiscal 2006. Total compensation cost related to non-vested stockoption awards not yet recognized was $75,722, pre-tax, and theweighted-average period over which the cost is expected to berecognized is approximately 2.5 years. Amounts capitalized as partof inventory costs were not significant.

The Company’s unaudited condensed consolidated statementsof cash flows presents stock-based compensation expense as anadjustment to reconcile net income to net cash provided byoperating activities as well as a reclassification of the taxbenefit realized from the exercise of stock options by employees(in excess of the compensation costs recognized) from operatingactivities to financing activities as required by SFAS 123R.

The weighted average number of diluted common shares outstandingis reduced by the treasury stock method which, in accordance withSFAS 123R, takes into consideration the compensation costattributed to future services not yet recognized.

Under the accounting provisions of SFAS 123R, the Company'sprior period net income and net income per share would have beenreduced to the pro forma amounts indicated below:

| *(In thousands, except per share data)*                                                             | Three Months Ended   |
|-----------------------------------------------------------------------------------------------------|--------------------------------|
|                                                                                                |                           |      June30, 2005         |
| Net income:                                                                                         |                           |   |
|    As reported                                                                       |                           | $216,577            |
|       Deduct: Total stock-basedemployee compensation expense          |                           |   |
|          determinedunder fair value method, net of tax |                           | (      7,698)           |
|    Pro forma                                                                         |                           | $208,879            |
|                                                                                                |                           | =======            |
| Net income per common share:                                                                        |                           |   |
| Basic:                                                                                              |                           |   |
|    As reported                                                                       |                           | $0.63            |
|    Pro forma                                                                         |                           | $0.61            |
| Diluted:                                                                                            |                           |   |
|    As reported                                                                       |                           | $0.62            |
|    Pro forma                                                                         |                           | $0.60            |

The following weighted-average assumptions were used indetermining the fair values of stock options using theBlack-Scholes model:

| *Three months ended June 30,*    |      2006 |      2005 |
|----------------------------------|------------------------------------|------------------------------------|
| Expected dividend yield          | 0%                                 | 0%                                 |
| Expected stock price volatility  | 34.20%                             | 27.74%                             |
| Risk-free interest rate          | 5.0%                               | 4.0%                               |
| Expected life of options (years) | 5                   | 5                   |

The Company has never declared a cash dividend. The expectedstock price volatility is based on implied volatilities from tradedoptions on the Company’s stock as well as historicalvolatility. The risk-free interest rate is based on the U.S.Treasury yield curve in effect at the time of grant in conjunctionwith considering the expected life of options. The expected life isbased on vesting and represents the period of time that grantedoptions are expected to be outstanding.

The total intrinsic value of stock options exercised during thethree months ended June 30, 2006 was $21,988. The weighted-averagegrant date fair value per stock option granted during thethree-month period was $15.06. The total cash received as a resultof stock option exercises for the three months ended June 30, 2006was approximately $21,972. In connection with these exercises, thetax benefit realized was $6,939. The Company settles employee stockoption exercises with newly issued common shares.

The following table summarizes information about the employeestock option plans for the quarter ended June 30, 2006:

|                         | Shares  (In thousands)    | Weighted-average        exerciseprice | Weighted-average  remaining  contractual life               (Inyears) | Aggregate  intrinsic value   (In thousands) |
|------------------------------|-------------------------------------|-------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------|
|                         |                                |                                                                          |                                                                                                                                                       |                                                            |
| Outstanding at April 1, 2006 | 24,065                         | $33.98                                                                        |                                                                                                                                                       |                                                            |
| Granted                      | 174                            | 38.94                                                                         |                                                                                                                                                       |                                                            |
| Exercised                    | (  1,118)                 | 20.16                                                                         |                                                                                                                                                       |                                                            |
| Forfeited                    | (     181) | 43.97                                                                         |                                                                                                                                                       |                                                            |
| Outstanding at June 30, 2006 | 22,940                         | $34.62                                                                        | 3.8                                                                                                                                                        | $169,249                                                   |
|                         | =====                          | =====                                                                         | ==                                                                                                                                                         | =======                                                    |
| Exercisable at June 30, 2006 | 15,282                         | $29.91                                                                        | 3.6                                                                                                                                                        | $168,179                                                   |
|                         | =====                          | =====                                                                         | ==                                                                                                                                                         | =======                                                    |

**6.   Business Segment Information:**

The Company operates in only one segment. Below is a breakdownof net sales by therapeutic class:

| *(In thousands)*             |   Three Months Ended             June30,            |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |        2006                                                                                                                                        |        2005 |
|                         |                                                                                                                                                                                  |   |
| Central nervous system (CNS) | $663,929                                                                                                                                                                              | $579,931 |
| Cardiovascular               | 14,785                                                                                                                                                                                | 17,686 |
| Other                        |     80,054                                                                                                                                                        |     77,036 |
|                         | $758,768                                                                                                                                                                              | $674,653 |
|                         | =======                                                                                                                                                                               | ======= |

** **

**7.   RecentlyIssued Accounting Standard:**

In July 2006, the Financial Accounting Standards Board (FASB)issued FASB Interpretation No. 48, "Accounting for Uncertainty inIncome Taxes - an interpretation of FASB Statement No. 109" (FIN48), which clarifies the accounting for uncertainty in taxpositions. This Interpretation requires the Company to recognize inthe financial statements the impact of a tax position, if thatposition is more likely than not of being sustained on audit, basedon the technical merits of the position. The provisions of FIN 48are effective as of the beginning of fiscal year 2008, with thecumulative effect of the change in accounting principle recorded asan adjustment to opening retained earnings. The Company iscurrently evaluating the impact of the adoption of FIN 48 on thefinancial statements and does not anticipate a material effect.

 

** **

**FOREST LABORATORIES,INC. AND SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS*(Dollar amounts in thousands)***

For the quarter ended June 30, 2006, total net revenuesincreased as compared with the June 30, 2005 quarter due to strongsales growth of our key marketed products, Lexapro® andNamenda®, and higher co-promotion income from Benicar®. Netincome decreased during the current quarter as compared to the samequarter last year principally because of the following: a) In April2006 we entered into a collaboration agreement with AlmirallProdesfarma, S.A. for the U.S. rights to LAS34273, a long-actingmuscarinic antagonist which is being developed for the treatment ofchronic obstructive pulmonary disease (COPD). In connection withthis agreement, Almirall received an upfront license payment of$60,000; b) The June 30, 2006 quarter includes $8,759 of pretaxstock-based compensation expense related to our adoption of SFAS123R. No such expense is included in the June 30, 2005 quarter; andc) the June 30, 2005 quarter includes a one-time tax reversal of$36,414 related to the repatriation of foreign funds pursuant tothe American Jobs Creation Act.

During fiscal 2005 our Board of Directors (the Board) approvedthe 2005 Repurchase Program which authorized the purchase of up to30 million shares of common stock and in fiscal 2006 the Boardapproved the 2006 Repurchase Program for up to 25 million shares.As of March 31, 2006, all 55 million shares of common stock underthose two plans had been repurchased. On May 18, 2006, the Boardauthorized a new share repurchase program for up to 25 millionshares of common stock (the 2007 Repurchase Program). In the June2006 quarter, we repurchased 1.9 million shares at a cost of$69,621 and as of August 8, 2006, we have repurchased a total of4.5 million shares at a cost of $189,539 under the 2007 RepurchaseProgram.

**Financial Condition and Liquidity**

Net current assets decreased by $78,325 from March 31, 2006.Cash and cash equivalents increased while short term marketablesecurities decreased in order to fund the 2007 Repurchase Program.During the June 2006 quarter, we repurchased 1.9 million shares ata cost of $69,621, leaving 23.1 million shares still available forrepurchase. Long-term marketable securities increased as well, ascertain funds, not required to fund the share repurchase program,were shifted to longer-term in order to receive more favorablerates of return. Trade accounts receivable increased due to highersales of our principal branded products, while other accountsreceivable decreased due to the timing of receipt of payments fromDaiichi Sankyo for our co-promotion of Benicar. The decrease ininventories was primarily the result of our bringing raw materialinventory down to more normalized levels now that Lexapro, Namendaand Campral® are in their post-launch phases. We believe thatcurrent inventory levels are adequate to support the growth in ourongoing business. Other current assets increased due principally tothe renewal of our insurance programs, which are paid in full atthe time of renewal and expensed over the course of the policyyears. Increases in accrued expenses were due to normal operatingactivities and income taxes payable increased due to accruals madeduring the quarter for federal income taxes.

Property, plant and equipment before depreciation expenseincreased only slightly from March 31, 2006, due to the completionof several major expansion and renovation projects undertaken lastyear. We currently have only one major facilities expansionunderway, the refurbishing of a 90,000 square foot plant in Irelandwhich will provide redundancy for the manufacture of Lexapro andNamenda and additional capacity for future products. We are also inthe planning stages for the buildout of an additional research anddevelopment laboratory facility on Long Island. During the currentperiod, we also continued to make technology investments to expandour principal operating systems to include salesforce and warehousemanagement applications.

During fiscal 2005 our Board of Directors (the Board) approvedthe 2005 Repurchase Program which authorized the purchase of up to30 million shares of common stock and in fiscal 2006 the Boardapproved the 2006 Repurchase Program for up to 25 million shares.As of March 31, 2006, all 55 million shares of common stock underthose two plans had been repurchased. On May 18, 2006, the Boardauthorized a new share repurchase program for up to 25 millionshares of common stock (the 2007 Repurchase Program). In the June2006 quarter, we repurchased 1.9 million shares at a cost of$69,621 and as of August 8, 2006, we have repurchased a total of4.5 million shares, leaving us the authority to purchase 20.5million more shares.

Management believes that current cash levels, coupled with fundsto be generated by ongoing operations, will continue to provideadequate liquidity to facilitate potential acquisitions ofproducts, payment of achieved milestones, capital investments andthe 2007 Repurchase Program.

**Results of Operations**

For the quarter ended June 30, 2006, net sales increased $84,115to $758,768, a 12% increase from the June 30, 2005 quarter,primarily due to strong sales of Lexapro and Namenda. Lexapro, ourSSRI for the treatment of depression and anxiety in adults and ourmost significant product, with net sales of $507,033, grew 10% andcontributed $45,961 to the net sales change, of which $16,571 wasdue to volume and $29,390 was due to price. In fiscal 2004, wereceived notification from two generic manufacturers, IvaxPharmaceuticals, Inc. (now owned by Teva Pharmaceuticals andhereinafter referred to as Teva) and Alphapharm Pty Ltd.(Alphapharm), that they had filed an Abbreviated New DrugApplication (ANDA) with a Paragraph IV Certification with the FDAfor a generic equivalent to Lexapro. Also in fiscal 2004, we, alongwith our licensing partner, H. Lundbeck A/S (Lundbeck) filed suitagainst Teva and Alphapharm for patent infringement. On October 4,2005, Forest and Lundbeck entered into a Settlement Agreement withAlphapharm. Under the terms of the Settlement Agreement, Alphapharmacknowledges that our patent is valid, enforceable and infringed byAlphapharm’s proposed product and agreed to modify its ANDAfiling accordingly. When Lexapro becomes generic (in 2012), Forestand Lundbeck have agreed to appoint Alphapharm as the exclusivedistributor of generic Lexapro for a term of five years, subject toAlphapharm’s right to renew for successive one year periods.A trial was held regarding the patent litigation with Teva in March2006 and on July 13, 2006, the U.S. District Court for the Districtof Delaware determined that the patent covering Lexapro is validand enforceable. Lexapro’s patent is set to expire in March2012.

During the current period, a third generic manufacturer, CaracoPharmaceuticals Laboratories, Ltd. (Caraco), filed an ANDA with aParagraph IV Certification for a generic equivalent to Lexapro. OnJuly 11, 2006, Forest and Lundbeck filed a lawsuit in the U.S.District Court for the Eastern District of Michigan against Caracofor patent infringement.

Net sales of Namenda, an N-methyl-D-aspartate (NMDA) receptorantagonist for the treatment of moderate to severe Alzheimer'sdisease, grew 32%, an increase of $36,378 as compared to the sameperiod last year to $151,082 for the current quarter, of which$36,172 was due to volume and $206 was due to price. Namenda is thefirst product indicated for the treatment of moderate to severeAlzheimer's disease and has generated significant new prescriptionsin the retail and long-term care markets. We anticipate Namendacontinuing positive growth through fiscal 2007.

Sales of Campral, which was launched in the fourth quarter offiscal 2005, amounted to $7,510 as compared to $4,324 in lastyear’s first quarter. Campral is indicated for themaintenance of abstinence from alcohol in patients with alcoholdependence who are abstinent at treatment initiation. The remainderof the net sales change for the period was due principally tovolume fluctuations of our older non-promoted product lines.

Contract revenue for the current quarter was $42,662 compared to$26,269 in the same period last year primarily due to co-promotionincome from our co-marketing agreement with Daiichi Sankyo forBenicar of $41,717 as compared to $24,267 last year. Under theterms of the agreement, Forest has been co-promoting Benicar sinceMay 2002 and is entitled to a share of the product profits (asdefined).

Other income for the current quarter increased over the sameperiod last year primarily due to higher interest income receivedon funds available for investment resulting from more favorablerates of return.

Cost of sales as a percentage of net sales remained virtuallyunchanged year over year – 23.2% for the June 2006 quarter ascompared with 23.5% for the June 2005 quarter.

Selling, general and administrative expenses decreased $24,090in the current quarter as compared to the same period last year.This year’s quarter includes expenses related to the adoptionof SFAS 123R, while last year’s quarter included expenses fora national sales meeting and launch expenses surrounding Campraland Combunox®.

Research and development expense increased $82,689 in thecurrent quarter primarily due to a $60,000 payment to AlmirallProdesfarma, S.A. for the U.S. rights to LAS34273, a long-actingmuscarinic antagonist starting Phase III studies for the treatmentof COPD.

Research and development expense also reflects thefollowing:

> 
· During the fourth quarter offiscal 2006, we entered into an agreement with Mylan LaboratoriesInc. (Mylan) for the commercialization, development anddistribution rights for nebivolol, a novel beta blocker. In May2005, Mylan received an "approvable" letter from the FDA fornebivolol for the treatment of hypertension. Final approval iscontingent upon the submission of certain additional pre-clinicaldata requested by the FDA, as well as the completion of oneadditional pharmacokinetic study. We and Mylan expect to be able tosubmit the required information to the FDA around the end ofcalendar 2006.

· Also during the fourthquarter of fiscal 2006, we entered into an agreement withReplidyne, Inc. for the U.S. rights to faropenem medoxomil, a novelantibiotic being developed for upper respiratory and skininfections. The New Drug Application for faropenem continues to beunder review at the FDA and we anticipate an October actiondate.

> 
· During the third quarter offiscal 2006, we entered into an agreement with Gedeon RichterLimited for the U.S. and Canadian rights to RGH-896, a compoundbeing developed for the treatment of chronic pain and other CNSconditions and a group of novel compounds that target the group 1metabotropic glutamate receptors (mGLUR1/5).

· During the second quarter offiscal 2006, we received the results of a recently completedplacebo-controlled pivotal Phase III study of milnacipran in thetreatment of fibromyalgia syndrome (FMS). The results did notachieve statistical significance; however, we were encouraged bythe strength of the data and the durability of the treatment effectout to six months. We view the results as indicative of thecompound's efficacy in a significant unmet medical need andsupportive of our continued development of the compound in a PhaseIII program. Therefore, the size of our ongoing second Phase IIIstudy was modified from approximately 800 patients to 1,100patients and a third randomized pivotal Phase III study wascommenced in early 2006.

· During the first quarter offiscal 2006, we received the results of a recently completedplacebo-controlled proof of concept study of neramexane in thetreatment of moderate to severe Alzheimer's disease. The studyshowed sufficient clinical activity, safety and tolerability for usto continue development of the compound.

· During the third quarter offiscal 2005, Forest entered into a collaboration agreement withGedeon Richter Limited for the North American rights to RGH-188, acompound which is being developed for the treatment ofschizophrenia, bipolar mania and other psychiatric conditions. Weanticipate RGH-188 will move into Phase II testing during calendar2006.

· During the second quarter offiscal 2005, Forest entered into a collaboration agreement withGlenmark Pharmaceuticals S.A. for the North American developmentand marketing of GRC 3886, a PDE4 inhibitor which will be developedfor the treatment of asthma and COPD. The initiation of Phase IItesting, originally scheduled for calendar 2006, has been delayedpending the provision of certain additional preclinical data to the FDA.

· During the first quarter offiscal 2005, we entered into an agreement with PAION GmbH for thedevelopment and marketing of desmoteplase, a novel drug currentlyin a Phase IIB/III clinical study for the treatment of acuteischemic stroke.

The effective tax rate increased to 22% in the current quarteras compared to 5% in the same period last year primarily due to aone-time reversal of $36,414 in the June 2005 quarter related tothe March 2005 charge of $90,657 for the repatriation of dividendspursuant to the American Jobs Creation Act of 2004. Excluding thisimpact, the effective tax rate would have been 21% and is lowerthan the U.S. statutory tax rate in both periods due to theproportion of earnings generated in lower-taxed foreignjurisdictions versus the United States. These earnings includemanufacturing and development income from our operations inIreland, which are taxed at 10% through 2010 and at 12.5%thereafter.

We expect to continue our profitability in the current fiscalyear with continued growth in our principal promoted products.

Inflation has not had a material effect on our operations forthe periods presented.

**Critical Accounting Policies**

The following accounting policies are important in understandingour financial condition and results of operations and should beconsidered an integral part of the financial review. Refer to thenotes to the consolidated financial statements for additionalpolicies.

Estimates and Assumptions

The preparation of financial statements in conformity withgenerally accepted accounting principles requires us to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and of revenues and expenses during thereporting period. Estimates are made when accounting for salesallowances, returns, rebates and other pricing adjustments,depreciation, amortization and certain contingencies. Forest issubject to risks and uncertainties, which may include but are notlimited to competition, federal or local legislation andregulations, litigation and overall changes in the healthcareenvironment that may cause actual results to vary from estimates.We review all significant estimates affecting the financialstatements on a recurring basis and record the effect of anyadjustments when necessary. Certain of these risks, uncertaintiesand assumptions are discussed further under the section entitled"Forward Looking Statements".

Stock-Based Compensation

On April 1, 2006 we adopted SFAS 123R "Share-Based Payment"under the modified prospective method. Since we had previouslyaccounted for stock options under Accounting Principles Board No.25, "Accounting for Stock Issued to Employees" we recorded stockoption expense in the first quarter of fiscal 2007 while no expensewas recorded in fiscal 2006. Also under SFAS 123R, actual taxbenefits recognized in excess of tax benefits previouslyestablished upon grant are reported as financing activities on thecondensed consolidated statements of cash flows. Prior to adoption,such tax benefits were reported as an increase to operatingactivities. The adoption of SFAS 123R did not have a significantimpact on our financial position or results of operations.

We account for our employee stock option expense at the date ofgrant. All stock option grants have an exercise price equal to thefair market value of our common stock at the date of grant andgenerally have a 5 to 10 year term. The fair value of stock optiongrants are amortized to expense on an even basis over the vestingperiod, up to 5 years.

Revenue Recognition

Revenues are recorded in the period the merchandise is shipped.As is typical in the pharmaceutical industry, gross product salesare subject to a variety of deductions, primarily representingrebates and discounts to government agencies, wholesalers andmanaged care organizations. These deductions represent estimates ofthe related liabilities and, as such, judgment is required whenestimating the impact of these sales deductions on gross sales fora reporting period. If estimates are not representative of actualsettlement, results could be materially affected. Provisions forestimated sales allowances, returns, rebates and other pricingadjustments are accrued at the time revenues are recognized as adirect reduction of such revenue.

The accruals are estimated based on available information,including third party data, regarding the portion of sales on whichrebates and discounts can be earned, adjusted as appropriate forspecific known events and the prevailing contractual discount rate.Provisions are reflected either as a direct reduction to accountsreceivable or, to the extent that they are due to entities otherthan customers, as accrued expense. Adjustments to estimates arerecorded when customer credits are issued or payments are made tothird parties.

The sensitivity of estimates can vary by program and type ofcustomer. However, estimates associated with Medicaid and contractrebates are most at risk for adjustment because of the extensivetime delay between the recording of the accrual and its ultimatesettlement, an interval that can range up to one year. Because ofthis time lag, in any given quarter, adjustments to actual mayincorporate revisions of prior quarters.

Provisions for Medicaid and contract rebates during a period arerecorded based upon the actual historical experience ratio ofrebates paid and actual prescriptions written. The experience ratiois applied to the period's sales to determine the rebate accrualand related expense. This experience ratio is evaluated regularlyto ensure that the historical trends are as current as practicable.As appropriate, we will adjust the ratio to more closely match thecurrent experience or expected future experience. In assessing thisratio, we consider current contract terms, such as the effect ofchanges in formulary status, discount rate and utilization trends.Periodically, the accrual is adjusted based upon actual paymentsmade for rebates. If the ratio is not indicative of futureexperience, results could be affected. Rebate accruals for Medicaidwere $30,411 at June 30, 2006 and $52,729 at June 30, 2005.Commercial discounts and other rebate accruals were $77,961 at June30, 2006 and $53,902 at June 30, 2005. These and other rebateaccruals are established in the period the related revenue wasrecognized, resulting in a reduction to sales and the establishmentof a liability, which is included in accrued expenses.

The following table summarizes the activity for the three-monthperiod in the accounts related to accrued rebates, sales returnsand discounts *(In thousands)*:

|                  |   Beginning balance Provision for rebatesSettlements  Provision for returnsSettlements  Provision for chargebacks and discountsSettlements  Ending balance |     June 30, 2006        $158,277            88,512       (    75,534)            12,978              5,974       (      4,443)              1,531          102,943       (    95,332)              7,611        $180,397        ======= |     June 30, 2005        $171,119            56,818       (    61,233)       (      4,415)              6,540       (      7,601)       (      1,061)          106,890       (  101,571)              5,319        $170,962        ======= |
|--------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | Deductions for chargebacks (primarily discounts to grouppurchasing organizations and federal government agencies) closelyapproximate actual as these deductions are settled generally within2-3 weeks of incurring the liability.Forest's policy relating to the supply of inventory at wholesalersis to maintain stocking levels of up to three weeks and to keepmonthly levels consistent from year to year, based on patterns ofutilization. We have historically closely monitored wholesalecustomer stocking levels by purchasing information directly fromcustomers and by obtaining other third party information. Unusualor unexpected variations in buying patterns or utilizations areinvestigated.Sales incentives are generally given in connection with a newproduct launch. These sales incentives are recorded as a reductionof revenues and are based on terms fixed at the time goods areshipped. New product launches may result in expected temporaryincreases in wholesaler inventories, which as described above, areclosely monitored and have not resulted in increased productreturns. |
|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Forward Looking Statements**

Except for the historical information contained herein, theManagement Discussion and other portions of this Form 10-Q containforward looking statements that involve a number of risks anduncertainties, including the difficulty of predicting FDAapprovals, acceptance and demand for new pharmaceutical products,the impact of competitive products and pricing, the timelydevelopment and launch of new products and the risk factors listedfrom time to time in our filings with the SEC, including the AnnualReport on Form 10-K for the fiscal year ended March 31, 2006.

**Quantitative andQualitative Disclosures About Market Risk**

In the normal course of business, operations may be exposed tofluctuations in currency values and interest rates. Thesefluctuations can vary the costs of financing, investing andoperating transactions. Because we had no debt and only minimalforeign currency transactions, there was no material impact onearnings due to fluctuations in interest and currency exchangerates.

**Controls andProcedures**

As of the end of the period covered by this report, the Companyconducted an evaluation, under the supervision and with theparticipation of the principal executive officer and principalfinancial officer, of the Company's disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934 (the Exchange Act)). Based on thisevaluation, the principal executive officer and principal financialofficer concluded that the Company's disclosure controls andprocedures are effective to ensure that information required to bedisclosed by the Company in reports that it files or submits underthe Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in Securities and ExchangeCommission rules and forms. There was no change in the Company'sinternal control over financial reporting during the Company's mostrecently completed fiscal quarter that has materially affected, oris reasonably likely to materially affect, the Company's internalcontrol over financial reporting.

**Part II -Other Information**

Item 1.  LegalProceedings                          Forest is party to certain legalproceedings disclosed in our Annual Report on Form 10-K             forthe fiscal year ended March 31, 2006.

             OnJuly 13, 2006, the United States District Court for the District ofDelaware issued a             decisionin the action brought by us and H. Lundbeck A/S against IvaxPharmaceuticals             (nowTeva Pharmaceuticals) for patent infringement based on Teva’sfiling of an             AbbreviatedNew Drug Application for a generic equivalent to our Lexaprobrand             escitalopramoxalate. The Court entered judgment in favor of Forest and Lundbeckand             heldthat our Lexapro patent was valid and enforceable.

             OnJuly 14, 2006, we were named as a defendant, together withapproximately 20 other             pharmaceuticalmanufacturers and wholesalers in an action brought by RxUSA             Wholesale,Inc. in the United States District Court for the Eastern Districtof New York             underthe caption RxUSA Wholesale, Inc. v. Alcon Laboratories, etal. The action             allegesvarious antitrust and related claims arising out of an allegedconcerted refusal             bythe defendant manufacturers and wholesalers to sell prescriptiondrugs to plaintiff, a             secondarydrug wholesaler. Forest believes there is no merit toplaintiff’s claims and             intendsto vigorously defend this matter.

             OnJuly 31, 2006 the United States District Court for the SouthernDistrict of New             Yorkgranted in part and denied in part our motion to dismiss theconsolidated             securitiescomplaint currently pending against us and certain of our executiveofficers.             Plaintiffs were given leave to file an Amended Complainton or before August 28, 2006             and the Court has scheduled a status conference forSeptember 18, 2006.

Item 1A.Risk Factors

              Therehave been no material changes with respect to the risk factorsdisclosed in our Annual              Reporton Form 10-K for the fiscal year ended March 31, 2006.

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

*             Purchaseof equity securities by Forest:*

             Duringfiscal 2005, our Board of Directors authorized a share repurchaseprogram for up to 30             millionshares of common stock (the 2005 Repurchase Program). As of May 11,2005, all of             theseshares were repurchased, completing the program. In May 2005, ourBoard of Directors             authorizeda share repurchase program for up to 25 million shares of commonstock (the 2006             RepurchaseProgram). As of February 27, 2006 all of these shares wererepurchased, completing             theprogram.

             OnMay 18, 2006 our Board of Directors authorized a new sharerepurchase program (the 2007             RepurchaseProgram) for up to 25 million shares of our common stock. As ofAugust 8, 2006,             20.5million shares were available for repurchase under the 2007Repurchase Program.

             Thefollowing table summarizes the repurchase of common stock under the2007 Repurchase             Programduring the first quarter of the fiscal year covered by thisreport:

|   | **Period**           | **Totalnumber ofsharespurchased(1)**        | **Averageprice paidper share** | **Total number ofshares purchased aspart of publiclyannounced plans orprograms** | **Maximumnumber ofshares that mayyet be purchasedunder theprogram** |
|--------|----------------------|---------------------------------------------|--------------------------------|----------------------------------------------------------------------------------|---------------------------------------------------------------------|
|   | 4/1/06through4/30/06 |        - |     -      |       -                                            |         -                   |
|   | 5/1/06through5/31/06 |    400,000                   | $37.42                         |    400,000                                                        | 24,600,000                                                          |
|   | 6/1/06through6/30/06 | 1,470,000                                   | $37.18                         | 1,470,000                                                                        | 23,130,000                                                          |

 (1)  All shares were purchasedpursuant to the publicly announced 2007 Repurchase Program,which        was effective as ofMay 18, 2006 and has no set expiration date. We are authorized topurchase        up to 25 millionshares of our common stock under the 2007 Repurchase Program.

Item 6.  Exhibits

             Exhibit31.1   Certification Pursuant to Section 302 of theSarbanes-Oxley Act of 2002             Exhibit31.2  Certification Pursuant to Section 302 of theSarbanes-Oxley Act of 2002             Exhibit32.1   Certification Pursuant to Section 906 of theSarbanes-Oxley Act of 2002             Exhibit32.2  Certification Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

 

 

> 
SIGNATURES

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto dulyauthorized.

Date: August 9, 2006

> 
Forest Laboratories, Inc.(Registrant)

/s/ HowardSolomon       Howard SolomonChairman of the Board,Chief Executive Officerand Director

/s/ Francis I. Perier,Jr.               Francis I. Perier, Jr.Senior Vice President - Finance andChief Financial Officer