UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  FORM
10-Q
  x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
quarterly period ended June 29, 2008
  or
  o
              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. 0-15443
  THERAGENICS
CORPORATION®
 (Exact
name of registrant as specified in its charter)
  Delaware
              58-1528626(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      Number)5203
      Bristol Industrial WayBuford,
      Georgia
              30518(Address
      of principal executive offices)
              (Zip
      Code)
  Registrant’s
telephone number, including area code: (770) 271-0233
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
at least the past 90 days. YES x  
NO o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
  Large
      Accelerated Filer  o
              Accelerated
      Filer  x
              Non
      Accelerated Filer  o
              Smaller
      Reporting Company o
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o  
NO x
  As of
August 1, 2008 the number of shares of $0.01 par value common stock outstanding
was 33,247,725.
 
 THERAGENICS
CORPORATION
  TABLE OF
CONTENTS
  Page
      No.PART I. FINANCIAL
      INFORMATIONITEM
      1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Condensed
      Consolidated Balance Sheets – June 29, 2008 and December 31,
      2007
              3Condensed
      Consolidated Statements of Earnings for the three and six months ended
      June 29, 2008 and July 1, 2007
              5Condensed
      Consolidated Statements of Cash Flows for the six months ended June 29,
      2008 and July 1, 2007
              6Condensed
      Consolidated Statement of Shareholders’ Equity for the six months ended
      June 29, 2008
              8Notes
      to Condensed Consolidated Financial Statements
              9ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS
              19ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              28ITEM
      4. CONTROLS AND PROCEDURES
              29PART
      II. OTHER INFORMATION
              29ITEM
      1. LEGAL PROCEEDINGS
              29ITEM
      1A. RISK FACTORS
              29ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              29ITEM
      6. EXHIBITS
              30SIGNATURES
              31
  2
  PART
I. FINANCIAL INFORMATION
  Item
1. Financial
Statements
  THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Amounts
in thousands, except per share data)
  ASSETSJune
      29,
                2008
                (Unaudited)
              
              
              December
      31,
                2007CURRENT
      ASSETSCash
      and cash equivalents
              
              $
              40,382
              
              
              $
              28,666Marketable
      securities
              
              
              11,868
              
              
              
              20,123Trade
      accounts receivable, less allowance of $284 in 2008 and $372 in
      2007
              
              
              8,499
              
              
              
              7,882Inventories
              
              
              8,631
              
              
              
              7,644Deferred
      income tax asset
              
              
              5,757
              
              
              
              1,664Prepaid
      expenses and other current assets
              
              
              1,085
              
              
              
              1,338Asset
      held for sale
              
              
              3,042
              
              
              
              —TOTAL
      CURRENT ASSETS
              
              
              79,264
              
              
              
              67,317PROPERTY
      AND EQUIPMENTBuildings
      and improvements
              
              
              22,723
              
              
              
              22,579Machinery
      and equipment
              
              
              38,291
              
              
              
              37,349Office
      furniture and equipment
              
              
              1,016
              
              
              
              98862,030
              
              
              
              60,916Less
      accumulated depreciation
              
              
              (35,658
              )
              
              
              (34,327
              )26,372
              
              
              
              26,589Land
      and improvements
              
              
              822
              
              
              
              822Construction
      in progress
              
              
              233
              
              
              
              561PROPERTY
      AND EQUIPMENT, NET
              
              
              27,427
              
              
              
              27,972Goodwill
              
              
              38,658
              
              
              
              38,658Other
      intangible assets, net
              
              
              10,943
              
              
              
              11,881Asset
      held for sale
              
              
              —
              
              
              
              2,900Other
      assets
              
              
              501
              
              
              
              9350,102
              
              
              
              53,532TOTAL
      ASSETS
              
              $
              156,793
              
              
              $
              148,821
  The
accompanying notes are an integral part of these statements.
 3
  THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS - Continued
 (Amounts
in thousands, except per share data)
  LIABILITIES
      & SHAREHOLDERS’ EQUITYJune
      29,
                2008
                (Unaudited)
              
              
              December
      31,
                2007CURRENT
      LIABILITIESTrade
      accounts payable
              
              $
              1,407
              
              
              $
              1,530Accrued
      salaries, wages and payroll taxes
              
              
              1,766
              
              
              
              1,868Income
      tax payable
              
              
              996
              
              
              
              867Contract
      termination liability
              
              
              1,500
              
              
              
              26Other
      current liabilities
              
              
              1,487
              
              
              
              698TOTAL
      CURRENT LIABILITIES
              
              
              7,156
              
              
              
              4,989LONG-TERM
      LIABILITIESLong-term
      debt
              
              
              7,500
              
              
              
              7,500Deferred
      income taxes
              
              
              5,519
              
              
              
              1,369Contract
      termination liability
              
              
              —
              
              
              
              1,487Decommissioning
      retirement liability
              
              
              624
              
              
              
              602Other
      long-term liabilities
              
              
              312
              
              
              
              255TOTAL
      LONG-TERM LIABILITIES
              
              
              13,955
              
              
              
              11,213COMMITMENTS
      AND CONTINGENCIES
              
              
              —
              
              
              
              —SHAREHOLDERS’
      EQUITYCommon
      stock, authorized 100,000 shares of $0.01 par value, issued
      andoutstanding,
      33,245 in 2008 and 33,274 in 2007
              
              
              332
              
              
              
              333Additional
      paid-in capital
              
              
              72,695
              
              
              
              72,918Retained
      earnings
              
              
              62,698
              
              
              
              59,424Accumulated
      other comprehensive loss
              
              
              (43
              )
              
              
              (56
              )TOTAL
      SHAREHOLDERS’ EQUITY
              
              
              135,682
              
              
              
              132,619TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              156,793
              
              
              $
              148,821
  The
accompanying notes are an integral part of these statements.
 4
 
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
 (UNAUDITED)
 (Amounts
in thousands, except per share data)
  Three
      Months Ended
              
              
              Six
      Months EndedJune
      29,
                2008
              
              
              July
      1,
                2007
              
              
              June
      29,
                2008
              
              
              July
      1,
                2007REVENUEProduct
      sales
              
              $
              15,671
              
              
              $
              15,364
              
              
              $
              30,631
              
              
              $
              30,591License
      fees
              
              
              243
              
              
              
              211
              
              
              
              518
              
              
              
              43515,914
              
              
              
              15,575
              
              
              
              31,149
              
              
              
              31,026COST
      OF SALES
              
              
              7,664
              
              
              
              7,864
              
              
              
              15,242
              
              
              
              15,973GROSS
      PROFIT
              
              
              8,250
              
              
              
              7,711
              
              
              
              15,907
              
              
              
              15,053OPERATING
      EXPENSESSelling,
      general & administrative
              
              
              5,167
              
              
              
              4,898
              
              
              
              9,970
              
              
              
              9,754Amortization
      of purchased intangibles
              
              
              468
              
              
              
              468
              
              
              
              937
              
              
              
              937Research
      & development
              
              
              161
              
              
              
              379
              
              
              
              294
              
              
              
              670Change
      in estimated value of asset held for sale
              
              
              (142
              )
              
              
              —
              
              
              
              (142
              )
              
              
              —Loss
      on sale of equipment
              
              
              1
              
              
              
              —
              
              
              
              3
              
              
              
              —5,655
              
              
              
              5,745
              
              
              
              11,062
              
              
              
              11,361EARNINGS
      FROM OPERATIONS
              
              
              2,595
              
              
              
              1,966
              
              
              
              4,845
              
              
              
              3,692NON-OPERATING
      INCOME/(EXPENSE)Interest
      income
              
              
              297
              
              
              
              734
              
              
              
              756
              
              
              
              1,123Interest
      expense
              
              
              (131
              )
              
              
              (168
              )
              
              
              (277
              )
              
              
              (351
              )Other
              
              
              (68
              )
              
              
              1
              
              
              
              (64
              )
              
              
              298
              
              
              
              567
              
              
              
              415
              
              
              
              774EARNINGS
      BEFORE INCOME TAX
              
              
              2,693
              
              
              
              2,533
              
              
              
              5,260
              
              
              
              4,466Income
      tax expense
              
              
              1,055
              
              
              
              989
              
              
              
              1,986
              
              
              
              1,754NET
      EARNINGS
              
              $
              1,638
              
              
              $
              1,544
              
              
              $
              3,274
              
              
              $
              2,712NET
      EARNINGS PER COMMON SHARE:Basic
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.10
              
              
              $
              0.08Diluted
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.10
              
              
              $
              0.08WEIGHTED
      AVERAGE SHARESBasic
              
              
              33,106
              
              
              
              33,112
              
              
              
              33,134
              
              
              
              33,093Diluted
              
              
              33,246
              
              
              
              33,264
              
              
              
              33,291
              
              
              
              33,236
  The
accompanying notes are an integral part of these statements.
 5
  THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (Amounts
in thousands)
 Six
      Months EndedJune
      29,
                2008
              
              
              July
      1,
                2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      earnings
              
              $
              3,274
              
              
              $
              2,712Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Deferred
      income taxes
              
              
              48
              
              
              
              1,409Loss
      on sale of equipment
              
              
              3
              
              
              
              —Depreciation
      and amortization
              
              
              2,367
              
              
              
              3,139Realized
      loss on marketable securities
              
              
              252
              
              
              
              —Gain
      on sale of scrap metal
              
              
              (244
              )
              
              
              —Provision
      for allowances
              
              
              (44
              )
              
              
              (26
              )Share
      based compensation
              
              
              412
              
              
              
              365Contract
      termination liability
              
              
              13
              
              
              
              (12
              )Decommissioning
      retirement liability
              
              
              22
              
              
              
              20Change
      in estimated value of asset held for sale
              
              
              (142
              )
              
              
              —Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (600
              )
              
              
              (380
              )Inventories
              
              
              (716
              )
              
              
              (650
              )Prepaid
      expenses and other current assets
              
              
              253
              
              
              
              2,377Other
      assets
              
              
              (408
              )
              
              
              19Trade
      accounts payable
              
              
              (123
              )
              
              
              (232
              )Accrued
      salaries, wages and payroll taxes
              
              
              (102
              )
              
              
              330Income
      tax payable
              
              
              129
              
              
              
              —Other
      current liabilities
              
              
              763
              
              
              
              (80
              )Other
              
              
              57
              
              
              
              82Net
      cash provided by operating activities
              
              
              5,214
              
              
              
              9,073CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      and construction of property and equipment
              
              
              (881
              )
              
              
              (788
              )Proceeds
      from sale of equipment
              
              
              1
              
              
              
              —Purchases
      of marketable securities
              
              
              (8,000
              )
              
              
              (10,100
              )Maturities
      of marketable securities
              
              
              3,603
              
              
              
              6,102Proceeds
      from sales of  marketable securities
              
              
              12,415
              
              
              
              —Net
      cash provided (used) by investing activities
              
              
              7,138
              
              
              
              (4,786
              )
  The
accompanying footnotes are an integral part of these statements.
 6
  THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
 (UNAUDITED)
 (Amounts
in thousands)
   Six
      Months EndedJune
      29,
                  2008
                
                
                July
      1,
                  2007CASH
      FLOWS FROM FINANCING ACTIVITIESExercise
      of stock options and stock purchase plan
                
                
                15
                
                
                
                141Retirement of Common
      Stock
                
                
                (651
                )
                
                
                —Excess
      tax benefit from exercise of stock options
                
                
                —
                
                
                
                16Net
      cash (used) provided by financing activities
                
                
                (636
                )
                
                
                157NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                
                $
                11,716
                
                
                $
                4,444CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                
                
                28,666
                
                
                
                18,258CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                
                $
                40,382
                
                
                $
                22,702
 Supplementary
      cash flow disclosure:Interest
      paid
              
              $
              273
              
              
              $
              354Taxes
      paid (received), net
              
              $
              1,810
              
              
              $
              (1,617
              )
  The
accompanying footnotes are an integral part of these statements.
 7
 
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
 FOR
THE SIX MONTHS ENDED JUNE 29, 2008
 (UNAUDITED)
 (Amounts
in thousands)
  Common
      Stock
              
              
              
              
              
              
              
              
              AccumulatedNumber
                of
                Shares
              
              
              Par
                value
                $0.01
              
              
              Additional
                Paid-in
                Capital
              
              
              Retained
                Earnings
              
              
              Other
      Comprehensive
                Loss
              
              
              TotalBALANCE,
      December 31, 2007
              
              
              33,274
              
              
              $
              333
              
              
              $
              72,918
              
              
              $
              59,424
              
              
              $
              (56
              )
              
              $
              132,619Employee
      stock purchase plan
              
              
              5
              
              
              
              —
              
              
              
              15
              
              
              
              —
              
              
              
              —
              
              
              
              15Retirement
      of common stockreceived
      in settlement forother
      receivable
              
              
              (190
              )
              
              
              (2
              )
              
              
              (649
              )
              
              
              —
              
              
              
              —
              
              
              
              (651
              )Issuance
      of restricted units andrestricted
      shares
              
              
              156
              
              
              
              1
              
              
              
              (1
              )
              
              
              —
              
              
              
              —
              
              
              
              —Share
      based compensation
              
              
              —
              
              
              
              —
              
              
              
              412
              
              
              
              —
              
              
              
              —
              
              
              
              412Other
      comprehensive income
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              13
              
              
              
              13Net
      earnings for the period
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              3,274
              
              
              
              —
              
              
              
              3,274BALANCE,
      June 29, 2008
              
              
              33,245
              
              
              $
              332
              
              
              $
              72,695
              
              
              $
              62,698
              
              
              $
              (43
              )
              
              $
              135,682
   The
accompanying notes are an integral part of these statements.
 8
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
  NOTE
A - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
 
 The
unaudited interim condensed consolidated financial statements included herein
reflect the consolidated operations of Theragenics Corporation and its
wholly-owned subsidiaries (collectively, “Theragenics” or the “Company”). All
material intercompany accounts and transactions have been eliminated in
consolidation. These statements reflect all adjustments that are, in the opinion
of management, necessary to present fairly the consolidated financial position,
consolidated results of operations, consolidated cash flows and consolidated
changes in shareholders’ equity for the periods presented. All such adjustments
are of a normal recurring nature. Pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. These unaudited
condensed consolidated financial statements and notes should be read in
conjunction with the audited consolidated financial statements and notes for the
year ended December 31, 2007, included in the Form 10-K Annual Report filed by
the Company. The December 31, 2007 condensed consolidated balance sheet included
herein has been derived from the December 31, 2007 audited consolidated balance
sheet included in the aforementioned Form 10-K.  The consolidated
results of operations for the periods ended June 29, 2008 are not necessarily
indicative of the results to be expected for a full year.
 
 Theragenics
Corporation is a medical device company serving the surgical products and cancer
treatment markets, operating in two business segments. The Company’s surgical
products business consists of wound closure and vascular access
products.  Wound closure includes sutures, needles, and other surgical
products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery, and dental.  Vascular access
includes introducers and guidewires used in the interventional radiology,
interventional cardiology, and vascular surgery markets. In its brachytherapy
seed business, the Company produces, markets and sells TheraSeed®, its
premier palladium-103 prostate cancer treatment device, I-Seed, its iodine-125
based prostate cancer treatment device, and related products and
services.
 
 On July
28, 2008, the Company completed the acquisition of NeedleTech Products, Inc
(“NeedleTech”).  NeedleTech is a manufacturer of specialty needles and
related medical devices.  NeedleTech will be part of the surgical
products segment subsequent to its acquisition.  See Note L, Subsequent
Events.
  NOTE
B – RECENTLY ISSUED ACCOUNTING STANDARDS
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 was effective for the Company on January
1, 2008.  However, in February 2008 the FASB released FASB Staff
Position No. FAS 157-2, Effective Date of FASB Statement
No. 157, which delayed the effective date of SFAS 157 for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually.  Accordingly, the Company has adopted the provisions of SFAS
157 only with respect to its financial assets and liabilities as of January 1,
2008. The adoption of SFAS 157 for the Company’s financial assets and
liabilities did not have a material impact on its consolidated financial
statements.  The Company is currently assessing the potential effect
on its consolidated financial statements of the adoption of SFAS 157 for its
non-financial assets and liabilities, which the Company will adopt on January 1,
2009.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115 (“SFAS
159”).  SFAS 159 permits entities to choose to measure eligible items
at fair value at specified election dates and report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each
subsequent reporting date.  SFAS No. 159, which the Company adopted on
January 1, 2008, did not have a material impact on its consolidated financial
statements. As permitted under SFAS 159, the Company hascurrently chosen not to
elect the fair value option for any items that are not already required to be
measured at fair value in accordance with accounting principles generally
accepted in the United States.
  9
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
   In
December 2007, the FASB issued SFAS 141R, Business Combinations, which
the Company will adopt on January 1, 2009. This standard will significantly
change the accounting for business acquisitions both during the period of the
acquisition and in subsequent periods. Among the more significant changes in the
accounting for acquisitions are the following:
  ●
              Transaction
      costs will generally be expensed. Certain such costs are presently treated
      as costs of the acquisition.●
              In-process
      research and development (IPR&D) will be accounted for as an asset,
      with the cost recognized as the research and development is realized or
      abandoned. IPR&D is presently expensed at the time of the
      acquisition.●
              Contingencies,
      including contingent consideration, will generally be recorded at fair
      value with subsequent adjustments recognized in operations. Contingent
      consideration is presently accounted for as an adjustment of purchase
      price.●
              Decreases
      in valuation allowances on acquired deferred tax assets will be recognized
      in operations. Such changes previously were considered to be subsequent
      changes in the allocation of the purchase price and were recorded as
      decreases in goodwill.
  Generally,
the effects of SFAS 141R on the Company’s consolidated financial statements will
depend on acquisitions occuring in 2009 and thereafter. The Company will
continue to follow SFAS 141, Business
Combinations, as originally issued for its NeedleTech Acquisition in July
2008.
  In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3 (“FSP FAS 142-3”),
Determination of the Useful
Life of Intangible Assets.  FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other
Intangible Assets.  The intent of
the FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R and other U.S. generally
accepted accounting principles.  FSP FAS 142-3 is effective for the
Company beginning January 1, 2009.  The guidance for determining the
useful life of intangible assets included in this FSP will be applied
prospectively to intangible assets acquired after the January 1, 2009 effective
date.  The Company is evaluating the impact of FSP FAS 142-3, and the
potential impact of this statement on the Company’s consolidated financial
statements has not been determined.
  NOTE
C – COMPREHENSIVE INCOME
 
 The
following table summarizes comprehensive income for the applicable period (in
thousands):
  Three
      Months Ended
              
              
              Six
      Months EndedJune
      29,
                2008
              
              
              July
      1,
                2007
              
              
              June
      29,
                2008
              
              
              July
      1,
                2007Comprehensive
      income:Net
      earnings
              
              $
              1,638
              
              
              $
              1,544
              
              
              $
              3,274
              
              
              $
              2,712Other
      comprehensive income, net of taxes:Reclassification
      adjustment for realized lossincluded
      in net earnings
              
              
              256
              
              
              
              –
              
              
              
              252
              
              
              
              –Unrealized
      gain (loss) on securities availablefor
      sale
              
              
              (222
              )
              
              
              6
              
              
              
              (239
              )
              
              
              15Total
      other comprehensive income
              
              
              34
              
              
              
              6
              
              
              
              13
              
              
              
              15Total
      comprehensive income
              
              $
              1,672
              
              
              $
              1,550
              
              
              $
              3,287
              
              
              $
              2,727
 
 10
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
  NOTE
D - INVENTORIES
  Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. Market is replacement cost or net realizable
value. The Company estimates reserves for inventory obsolescence based upon
management’s judgment of future realization. Inventories were comprised of the
following (in thousands):
  June
      29,
                2008
              
              
              December
      31,
                2007Raw
      materials
              
              $
              3,657
              
              
              $
              3,702Work
      in process
              
              
              1,994
              
              
              
              1,463Finished
      goods
              
              
              2,728
              
              
              
              2,211Spare
      parts and supplies
              
              
              870
              
              
              
              9139,249
              
              
              
              8,289Allowance
      for obsolete inventory
              
              
              (618
              )
              
              
              (645
              )Total
              
              $
              8,631
              
              
              $
              7,644
 
 NOTE
E - PROPERTY, EQUIPMENT, AND DEPRECIATION
  In
December 2007 the Company changed the estimated service lives of certain
depreciable assets, mainly the cyclotron equipment used in its brachytherapy
segment. The estimated service life of the cyclotron equipment was increased
from 10 years to 15 years, and was based on, among other things, an assessment
of the equipment’s operating and maintenance history and expected future
performance. The Company accounted for this change as a change in estimate in
accordance with Statement of Financial Accounting (“SFAS”) No. 154, Accounting Changes and Error
Corrections. Accordingly, this change was accounted for in the period of
the change and will be accounted for in future periods. This change reduced
depreciation expense by $438,000 and $876,000 from what would have been reported
otherwise in the first three and six months of 2008,
respectively.  This change is expected to reduce depreciation expense
by approximately $1.4 million for the year ended December 31, 2008.
  NOTE
F - SHARE-BASED COMPENSATION
  Stock
Options
  The
following is a summary of activity in stock options outstanding during the first
six months of 2008 (shares and aggregate intrinsic value in
thousands):
  Shares
              
              
              Weighted
                average
                exercise
                price
              
              
              Weighted
                average
                remaining
                contractual
                life
      (yrs)
              
              
              Aggregate
                intrinsic
                valueOutstanding,
      beginning of period
              
              
              1,415
              
              
              $
              8.33Granted
              
              
              204
              
              
              
              3.79Exercised
              
              
              –
              
              
              
              –Forfeited
              
              
              (4
              )
              
              
              3.95Expired
              
              
              (48
              )
              
              
              26.63Outstanding,
      end of period
              
              
              1,567
              
              
              $
              7.19
              
              
              
              4.2
              
              
              $
              –Exercisable
      at end of period
              
              
              1,231
              
              
              $
              7.99
              
              
              
              2.8
              
              
              $
              –
  The grant
date fair value of the stock options issued in 2008 was $1.95 per share and was
estimated using the Black-Scholes options-pricing model using the following
assumptions:
  Expected
      dividend yield
              0.0%Expected
      volatility
              50.5%Risk-free
      interest rate
              3.2%Expected
      life
              6
      years
  11
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
  Expected
stock price volatility is based on the historical volatility of the Company’s
stock price over the most recent period commensurate with the expected option
life. Whendetermining
the expected life of stock options, the Company classifies options into groups
for employees where relatively homogeneous exercise behavior is expected. The
vesting period of the options, the length of time similar grants have remained
outstanding in the past, and the expected volatility of the stock are also
considered. These factors may cause the expected volatility and expected life of
options granted to differ from period to period.
  The
Company recognizes compensation expense for option awards with graded vesting on
a straight-line basis over the requisite service period for each separately
vesting portion of the award. Compensation cost related to stock options totaled
$84,000 and $156,000 for the three and six months ended June 29, 2008,
respectively and $61,000 and $106,000 for the three and six months ended July 1,
2007, respectively.  As of June 29, 2008 there was approximately
$497,000 of unrecognized compensation cost related to non-vested stock options,
which is expected to be recognized over a weighted average period of
approximately 1.5 years.  No stock options were exercised during the
six months ended June 29, 2008.  The total intrinsic value of options
exercised was approximately $45,000 for the six months ended July 1,
2007.
  Restricted
Stock
  A summary
of activity in non-vested restricted stock awards during the first six months of
2008 follows (shares in thousands):
 
 Shares
              
              
              Weighted
                average
      grant
                date
      fair valueNon-vested
      at January 1, 2008
              
              
              161
              
              
              $
              4.32Granted
              
              
              129
              
              
              
              3.77Vested
              
              
              (48
              )
              
              
              4.36Forfeited
              
              
              –
              
              
              
              –Non-vested
      at June 29, 2008
              
              
              242
              
              
              $
              4.18
  Fair
value of restricted shares granted to employees and directors is based on the
fair value of the underlying common stock at the grant date.  The fair
value of the restricted shares granted to non-employees is remeasured each
period until they are vested based on the fair value of the underlying common
stock. Compensation expense related to restricted stock totaled approximately
$107,000 and $222,000 for the three and six months ended June 29, 2008,
respectively, and $91,000 and $169,000 for the three and six months ended July
1, 2007, respectively. As of June 29 2008, there was approximately $620,000 of
unrecognized compensation cost related to the restricted shares, which is
expected to be recognized over a weighted average period of 1.6
years.  The total fair value of restricted stock vested was
approximately $210,000 and $94,000 for the six months ended June 29, 2008 and
July 1, 2007, respectively.
  Stock
Units
  There was
no activity in stock units during the six months ended June 29, 2008, and no
stock units were vested during the six months ended June 29, 2008 or the six
months ended July 1, 2007.  Compensation expense related to stock
units totaled approximately $2,000 and $31,000 for the three and six months
ended June 29, 2008, respectively,  and $19,000 and $87,000 for the
three and six months ended July 1, 2007, respectively.  As of June 29,
2008, there was approximately $45,000 of unrecognized compensation cost related
to the stock units, which is expected to be recognized over a weighted average
period of 0.5 years.
  Employee Stock Purchase
Plan
  The
Theragenics Corporation Employee Stock Purchase Plan (the “ESPP”) allows
eligible employees the right to purchase common stock on a quarterly basis at
the lower of 85% of the market price at the beginning or end of each quarterly
offering period. Compensation cost related to the ESPP totaled approximately
$1,000 and $3,000 for each of the three and six months ended June 29, 2008 and
July 1, 2007, respectively.
  12
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
  NOTE
G - DISTRIBUTION AGREEMENT AND MAJOR CUSTOMERS
  Distribution
Agreement
  The
Company’s brachytherapy business sells its TheraSeed® device
directly to health care providers and to third party
distributors.  The Company’s primary non-exclusive distribution
agreement is with C. R. Bard (“Bard”) for the distribution of the TheraSeed® device
(the “Bard Agreement”). The terms of the Bard Agreement provide for automatic
one-year extensions of the term, unless either party gives notice of its intent
not to renew at least twelve months prior to the end of the current term. The
current terms expires December 31, 2009, and will be automatically extended for
one additional year unless either party gives notice of its intent not to extend
by December 31, 2008. The Bard Agreement gives Bard the non-exclusive right to
distribute the TheraSeed® device
in the U.S., Canada, and other international locations for the treatment of
prostate cancer and other solid localized cancerous tumors. The Company also has
a non-exclusive distribution agreement in place with a second
distributor. Revenue generated from the second distributor is not
material.
  Major
Customers
  Sales to
Bard under the Bard Agreement represented approximately 51% of total
brachytherapy seed product revenue and approximately 25% of consolidated revenue
for both the three months and six months ended June 29, 2008.  Sales
to Bard under the Bard Agreement represented approximately 55% of total
brachytherapy seed product revenue and approximately 30% of consolidated revenue
for both the three months and six months ended July 1, 2007.
  Accounts
receivable from Bard under the Bard Agreement represented approximately 42% of
brachytherapy accounts receivable and 22% of consolidated accounts receivable at
June 29, 2008. At December 31, 2007, accounts receivable from Bard represented
approximately 40% of brachytherapy accounts receivable and 24% of consolidated
accounts receivable. One additional customer totaled 10% of brachytherapy
accounts receivable and 5% of consolidated accounts receivable.
  For the
three and six months ended June 29, 2008 and for the three and six months ended
July 1, 2007, no single customer equaled or exceeded 10% of surgical products
sales.  No single customer equaled or exceeded 10% of surgical
products accounts receivable at June 29, 2008.  One customer
receivable represented approximately 23% of surgical products accounts
receivable and 10% of consolidated accounts receivable at December 31,
2007.
  NOTE H–FAIR VALUE
  Effective
January 1, 2008, the Company adopted SFAS No. 157, which defines fair
value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants at the measurement date. SFAS No. 157 establishes a
three-level fair value hierarchy that prioritizes the inputs used to measure
fair value. This hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three levels of inputs
used to measure fair value are as follows:
  • Level 1 — Quoted prices in
active markets for identical assets or liabilities.
 • Level 2 — Observable inputs
other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data.
 • Level 3 — Unobservable inputs
that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. This includes certain pricing
models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
  13
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
  The Company's adoption of SFAS
No. 157for its
financial assets and liabilitiesdid not have a material impact on its
consolidated financial statements. The Company has segregated all financial
assets and liabilities that are measuredat fair value on a recurring basis (at
least annually) into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the measurement date in
the table below. FSP FAS 157-2 delayed the effective date for all
nonfinancial assets and liabilities until January 1, 2009, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis.
  The
Company’s assets measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS 157 at June 29, 2008 were as follows (in
thousands):
 
 Quoted
      Prices
                in
      Active
                Markets
                (Level
      1)
              
              
              Significant
                Other
                Observable
                Inputs
                (Level
      2)
              
              
              Significant
      Unobservable
                Inputs
                (Level
      3)
              
              
              TotalMarketable
      securities
              
              $
              3,368
              
              
              $
              8,500
              
              
              $
              –
              
              
              $
              11,868
 
 Through
December 31, 2007, the Company valued all of its marketable securities at fair
value based on quoted market prices.  At June 29, 2008 marketable
securities were valued at fair value based on quoted market prices, with the
exception of its municipal auction rate securities.  The Company’s
estimated fair value of its municipal auction rate securities is $8.5 million
based on significant other observable inputs.  Recent auctions of
these securities have failed resulting in a lack of liquidity but do not
represent a default in the underlying instrument.  Other observable
inputs included among other things, the most recent trading values and quoted
market prices for these securities in the most recent successful auction, the
values at which auction rate securities previously held by the Company and
similar to those held by the Company have been refinanced and liquidated, the
creditworthiness of the counterparty and their plans to refinance if auctions
continue to fail, the collateralization underlying the security investments, and
the estimates of fair value provided by the Company’s brokers that hold these
securities.  Auction rate securities held by the Company and similar
to the ones held by the Company have been refinanced and called during the first
six months of 2008 allowing the security holders to fully recover their
investment. Additionally, during 2008, successful auctions for $5.4 million
of municipal auction rate securities held by the Company were executed,
resulting in liquidation of these securities at their carrying value, including
$1.5 million in the second quarter.  Accordingly, the Company intends
to hold the remaining securities until they can be sold in a market that
facilitates orderly transactions or until they are called.  The
Company does not expect to experience any liquidity problems or alter any
business plans if these investments in municipal auction rate securities are
maintained indefinitely.
 
 The
Company reviews its investments in marketable securities for impairment based on
both quantitative and qualitative criteria that include the extent to which cost
exceeds market value, the duration of any market decline, the Company’s intent
and ability to hold to maturity or expected recovery, and the creditworthiness
of the issuer.  Management performs research and analysis, and
monitors market conditions to identify potential
impairments.  Currently, management has not recognized any impairment
charges related to its current investments in marketable
securities.  However, due to the uncertainties related to the U.S. and
global investment and credit markets, including markets related to auction rate
securities, the Company is exposed to the risk of changes in fair value of its
marketable securities in future periods, which may cause it to take impairment
charges that are not currently anticipated.  In the second quarter of 2008
the Company realized a loss of $256,000 when a highly rated bond fund that it
was invested in unexpectedly liquidated at less than full
value.  While management will continue to research, analyze and
monitor our investments, it cannot predict what the effect of current investment
and credit market circumstances might have on our portfolio going
forward.
  14
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
   NOTE
I - SEGMENT REPORTING
 
 Theragenics
is a medical device company serving the surgical products and cancer treatment
markets, operating in two business segments. The Company’s surgical products
business consists of wound closure and vascular access
products.  Wound closure includes sutures, needles and other surgical
products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery and dental. Vascular access includes
introducers and guidewires used in the interventional radiology, interventional
cardiology and vascular surgery markets. In its brachytherapy seed business, the
Company produces, markets and sells TheraSeed®, its
premier palladium-103 prostate cancer treatment device, I-Seed, its iodine-125
based prostate cancer treatment device, and related products and
services. The following tables provide certain information for these
segments (in thousands):
 
 Three
      Months Ended
              
              
              Six
      Months EndedJune
      29,
                2008
              
              
              July
      1,
                2007
              
              
              June
      29,
                2008
              
              
              July
      1,
                2007RevenuesSurgical
      products
              
              $
              8,444
              
              
              $
              7,071
              
              
              $
              15,764
              
              
              $
              13,910Brachytherapy
      seed
              
              
              7,548
              
              
              
              8,551
              
              
              
              15,514
              
              
              
              17,200Intersegment
      eliminations
              
              
              (78
              )
              
              
              (47
              )
              
              
              (129
              )
              
              
              (84
              )$
              15,914
              
              
              $
              15,575
              
              
              $
              31,149
              
              
              $
              31,026Earnings
      from operationsSurgical
      products
              
              $
              1,745
              
              
              $
              1,029
              
              
              $
              3,041
              
              
              $
              1,607Brachytherapy
      seed
              
              
              867
              
              
              
              940
              
              
              
              1,809
              
              
              
              2,090Intersegment
      eliminations
              
              
              (17
              )
              
              
              (3
              )
              
              
              (5
              )
              
              
              (5
              )$
              2,595
              
              
              $
              1,966
              
              
              $
              4,845
              
              
              $
              3,692Increase in
      estimated value of asset held for saleSurgical
      products
              
              $
              –
              
              
              $
              –
              
              
              $
              –
              
              
              $
              –Brachytherapy
      seed
              
              
              (142
              )
              
              
              –
              
              
              
              (142
              )
              
              
              –$
              (142
              )
              
              $
              
              
              
              $
              (142
              )
              
              $Capital
      expendituresSurgical
      products
              
              $
              190
              
              
              $
              237
              
              
              $
              620
              
              
              $
              456Brachytherapy
      seed
              
              
              181
              
              
              
              209
              
              
              
              261
              
              
              
              332$
              371
              
              
              $
              446
              
              
              $
              881
              
              
              $
              788Depreciation
      and amortizationSurgical
      products
              
              $
              654
              
              
              $
              607
              
              
              $
              1,288
              
              
              $
              1,205Brachytherapy
      seed
              
              
              533
              
              
              
              965
              
              
              
              1,079
              
              
              
              1,934$
              1,187
              
              
              $
              1,572
              
              
              $
              2,367
              
              
              $
              3,139
  The
Company evaluates business segment performance based on segment revenue and
segment earnings from operations.Earnings
from operations by segment do not include interest expense, interest income,
other income and expense, or provisions for income
taxes.  Intersegment eliminations are primarily for surgical products
segment sales transactions.
  15
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
  Supplemental
information related to significant assets and liabilities follows (in
thousands):
 June
      29,
                2008
              
              
              December
      31,
                2007Identifiable
      assetsSurgical
      products
              
              $
              75,036
              
              
              $
              74,450Brachytherapy
      seed
              
              
              81,844
              
              
              
              79,359Corporate
      investment in subsidiaries
              
              
              61,667
              
              
              
              61,667Intersegment
      eliminations
              
              
              (61,754
              )
              
              
              (66,655
              )$
              156,793
              
              
              $
              148,821GoodwillSurgical
      products
              
              $
              36,080
              
              
              $
              36,080Brachytherapy
      seed
              
              
              2,578
              
              
              
              2,578$
              38,658
              
              
              $
              38,658Asset held for
      saleSurgical
      products
              
              $
              --
              
              
              $
              --Brachytherapy
      seed
              
              
              3,042
              
              
              
              2,900$
              3,042
              
              
              $
              2,900Other intangible
      assetsSurgical
      products
              
              $
              10,942
              
              
              $
              11,880Brachytherapy
      seed
              
              
              1
              
              
              
              1$
              10,943
              
              
              $
              11,881Contract termination
      liabilitySurgical
      products
              
              $
              --
              
              
              $
              --Brachytherapy
      seed
              
              
              1,500
              
              
              
              1,513$
              1,500
              
              
              $
              1,513
 
 Information
regarding revenue by geographic regions follows (in thousands):
  Three
      Months Ended
              
              
              Six
      Months EndedJune
      29, 2008
              
              
              July
      1, 2007
              
              
              June
      29, 2008
              
              
              July
      1, 2007United
      States
              
              $
              14,332
              
              
              $
              14,527
              
              
              $
              28,120
              
              
              $
              28,938Europe
              
              
              1,238
              
              
              
              663
              
              
              
              2,252
              
              
              
              1,284Other
      foreign countries
              
              
              126
              
              
              
              174
              
              
              
              284
              
              
              
              369License
      fees (Canada)
              
              
              218
              
              
              
              211
              
              
              
              493
              
              
              
              435$
              15,914
              
              
              $
              15,575
              
              
              $
              31,149
              
              
              $
              31,026
 
 Foreign
sales are attributed to countries based on the location of the customer.
Thelicense
fees attributed to Canada are with Nordion, a Canadian based company, for the
license of the Company’s TheraSphere® product.  All other foreign
sales are related to the surgical products segment.  All of the
Company’s long-lived assets are located within the United States.
  16
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
   NOTE
J – EARNINGS PER SHARE
  Basic
earnings per share represents net earnings divided by the weighted average
shares outstanding. Diluted earnings per share represents net earnings divided
by weighted average shares outstanding adjusted for the incremental dilution of
outstanding stock options and awards.  A reconciliation of weighted
average common shares outstanding to weighted average common shares outstanding
assuming dilution for the periods presented follows (in thousands, except per
share data):
  
 Three
      Months Ended
              
              
              Six
      months endedJune
      29,
                2008
              
              
              July
      1,
                2007
              
              
              June
      29,
                2008
              
              
              July
      1,
                2007Net
      earnings
              
              $
              1,638
              
              
              $
              1,544
              
              
              $
              3,274
              
              
              $
              2,712Weighted
      average common shares outstanding
              
              
              33,106
              
              
              
              33,112
              
              
              
              33,134
              
              
              
              33,093Incremental
      common shares issuable understock
      options and awards
              
              
              140
              
              
              
              152
              
              
              
              157
              
              
              
              143Weighted
      average common shares outstandingassuming
      dilution
              
              
              33,246
              
              
              
              33,264
              
              
              
              33,291
              
              
              
              33,236Earnings
      per shareBasic
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.10
              
              
              $
              0.08Diluted
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.10
              
              
              $
              0.08
  For both
the three and six months ended June 29, 2008, potential common stock from
approximately 1,567,000 stock options were not included in the diluted earnings
per share calculation because their effect is antidilutive.  For the
three and six months ended July 1, 2007, potential common stock from
approximately 1,430,000 and 1,440,000 stock options, respectively, were not
included in the diluted earnings per share calculation because their effect is
antidilutive.
 
 NOTE
K – NON-OPERATING INCOME/(EXPENSE)
 
 Other
non-operating income/(expense) consists of the following:
 
 Three
      Months Ended
              
              
              Six
      Months EndedJune
      29, 2008
              
              
              July
      1, 2007
              
              
              June
      29, 2008
              
              
              July
      1, 2007Realized
      loss on marketable securities
              
              $
              (256
              )
              
              $
              –
              
              
              $
              (252
              )
              
              $
              –Gain
      on sale of scrap metal
              
              
              244
              
              
              
              –
              
              
              
              244
              
              
              
              –Miscellaneous
              
              
              (56
              )
              
              
              1
              
              
              
              (56
              )
              
              
              2Total
      other
              
              $
              (68
              )
              
              $
              1
              
              
              $
              (64
              )
              
              $
              2
  17
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
29, 2008
 (Unaudited)
 
 NOTE
L – SUBSEQUENT EVENTS
  Acquisition of
NeedleTech
  On July
28, 2008, the Company acquired all of the outstanding common stock of NeedleTech
Products, Inc. (“NeedleTech”) for $47.8 million in cash, plus transaction
costs.  Theragenics retained the cash and investments held by
NeedleTech, which totaled approximately $5.0 million at June 30,
3008.     The purchase price is subject to a working
capital adjustment.   Theragenics financed $24.5 million of the
purchase price with borrowings on its existing $40.0 million credit facility,
and paid the remainder from current cash and investment balances. NeedleTech,
located in Attleboro, Massachusetts, is a manufacturer of specialty needles and
related medical devices.  Its current products include coaxial
needles, biopsy needles, access trocars, brachytherapy needles, guidewire
introducer needles, spinal needles, disposable veress needles, and other
needle-based products.  NeedleTech’s revenue was $16.9 million for the
year ended December 31, 2007.  End markets served include the
cardiology, orthopedic, pain management, endoscopy, spine, urology, and
veterinary markets.  The results of operations of NeedleTech will be
included in the Company’s consolidated financial statements subsequent to the
date of acquisition.
  Sale of Oak Ridge
Facility
  On July
23, 2008, the Company completed the sale of its Oak Ridge, Tennessee
facility.  This facility was classified as a long term “Asset Held for
Sale” in the Company’s consolidated balance sheet at December 31,
2007.  As part of this transaction, the facility was sold and the
underlying land sublease was terminated.   The significant
portion of the present value of the future payments due under that sublease was
classified as a long term Contract Termination Liability at December 31,
2007.  Accordingly, the Asset Held for Sale and the Contract
Termination Liability have been recorded as a current asset and liability,
respectively, at June 29, 2008.  The $142,000 gain realized from the
completion of the sale in July, including the termination of the
sublease, has been recognized as a change in the estimate of the fair value
of the Asset Held for Sale at June 29, 2008.
  18
 
 Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
  Theragenics
Corporation is a medical device company serving the surgical products and cancer
treatment markets, operating in two business segments. The
terms "Company", "we", "us", or "our" mean Theragenics Corporation and all
entities included in our consolidated financial statements.
 
 Our surgical
products business consists of wound closure and vascular access
products.  Wound closure includes sutures, needles and other surgical
products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery and dental. Vascular access includes
introducers and guidewires used in the interventional radiology, interventional
cardiology and vascular surgery markets.
 
 In our
brachytherapy seed business, we produce, market and sell TheraSeed®, our
premier palladium-103 prostate cancer treatment device; I-Seed, our iodine-125
based prostate cancer treatment device; and other related products and services.
We are the world’s largest producer of palladium-103, the radioactive isotope
that supplies the therapeutic radiation for our TheraSeed® device.
Physicians, hospitals and other healthcare providers, primarily located in the
United States, utilize the TheraSeed® device.
The majority of TheraSeed® sales
are channeled through third-party distributors. We also sell our TheraSeed® and
I-Seed devices directly to physicians.
 
 We have
substantially diversified our operations and revenues in recent years. Prior to
2003, our sole product was the palladium-103 TheraSeed® prostate
cancer treatment device. In 2003, we began to market an iodine-125 based I-Seed
prostate cancer treatment product. In May 2005, we expanded into the surgical
products business with the acquisition of CP Medical Corporation (“CP Medical”),
followed by the acquisition of Galt Medical Corp. (“Galt”) in August 2006. CP
Medical and Galt comprise our surgical products business, which accounted for
53% and 50% of consolidated revenue for the three and six months ended June
29, 2008, respectively.  Prior to May 2005, the brachytherapy seed
business constituted 100% of our revenue.  Additionally, in July 2008
we acquired NeedleTech Products, Inc., which will be part of our surgical
products business subsequent to the acquisition.
 
 Acquisition
of NeedleTech Products
 
 On July
28, 2008, we acquired all of the outstanding common stock of NeedleTech
Products, Inc. (“NeedleTech”) for $47.8 million in cash, plus transaction
costs.  We retained the cash and investments held by NeedleTech, which
totaled approximately $5.0 million at June 30, 2008.  The purchase
price is subject to a working capital adjustment.   We financed
$24.5 million of the purchase price with borrowings on our existing $40.0
million credit facility, and paid the remainder from our current cash and
investment balances. NeedleTech, located in Attleboro, Massachusetts, is a
manufacturer of specialty needles and related medical devices.  Its
current products include coaxial needles, biopsy needles, access trocars,
brachytherapy needles, guidewire introducer needles, spinal needles, disposable
veress needles, and other needle-based products.  End markets served
include the cardiology, orthopedic, pain management, endoscopy, spine, urology,
and veterinary markets.  We believe the acquisition of NeedleTech will
forward our stated strategy of becoming a diversified medical device
manufacturer, will increase our breadth of offerings to our existing customers
and will expand our customer base of large leading-edge original equipment
manufacturers (“OEM”). The results of operations of NeedleTech will be included
in our consolidated results subsequent to acquisition.
  19
  Results
of Operations
  Revenue
  Following
is a summary of revenue by segment (in thousands):
  Three
      Months Ended
              
              
              Six
      Months EndedJune
      29,
                2008
              
              
              July
      1,
                2007
              
              
              Change
                (%)
              
              
              June
      29,
                2008
              
              
              July
      1,
                2007
              
              
              Change
                (%)Surgical
      products
              
              $
              8,444
              
              
              $
              7,071
              
              
              
              19.4
              %
              
              $
              15,764
              
              
              $
              13,910
              
              
              
              13.3
              %Brachytherapy
      seedProduct
      sales
              
              
              7,305
              
              
              
              8,340
              
              
              
              (12.4
              %)
              
              
              14,996
              
              
              
              16,765
              
              
              
              (10.6
              %)License
      fees
              
              
              243
              
              
              
              211
              
              
              
              15.2
              %
              
              
              518
              
              
              
              435
              
              
              
              19.1
              %Total
      brachytherapy seed
              
              
              7,548
              
              
              
              8,551
              
              
              
              (11.7
              %)
              
              
              15,514
              
              
              
              17,200
              
              
              
              (9.8
              %)Intersegment
      eliminations
              
              
              (78
              )
              
              
              (47
              )
              
              
              66.0
              %
              
              
              (129
              )
              
              
              (84
              )
              
              
              53.6
              %Consolidated
              
              $
              15,914
              
              
              $
              15,575
              
              
              
              2.2
              %
              
              $
              31,149
              
              
              $
              31,026
              
              
              
              0.4
              %
  Revenue
in our surgical products business increased 19% in the second quarter of 2008
and 13% in the first half of the year compared to the 2007
periods.  This growth was driven primarily by new customers, expanded
programs for existing customers, and continued growth of new products introduced
in late 2006 and early 2007, mainly in our vascular access
products.  Ordering patterns of our significant OEM customers and
distributors also impacted 2008 revenue.  A significant portion of
wound closure and vascular access products are sold to OEM customers and a
network of distributors.  Ordering patterns of these customers vary
and are difficult to predict.  Accordingly, surgical products revenue
is subject to fluctuation on a quarter to quarter basis.
  Brachytherapy
seed revenue decreased 12% in the second quarter of 2008 and 10% in the first
half of the year compared to the 2007 periods.  The decrease in
product sales included a decline in sales to our main distributor of 20% in the
second quarter and 16% in the first half of the year, compared to
2007.  Our direct products sales decreased 5% in the second quarter
and first half of 2008.  We believe the brachytherapy industry as a
whole experienced softness in 2008, with fewer procedures
performed.  We believe this softness is attributable to a number of
factors, including competing treatments (especially those with favorable
reimbursement levels), disruptive pricing from other brachytherapy providers,
and uncertainties surrounding reimbursement.  In addition, our
revenues continue to be affected by disappointing performance of our main
distributor.  The average selling price of the TheraSeed® device
sold directly to hospitals and physicians during the second quarter and first
six months of 2008 was down slightly compared to the 2007 periods.
  We have
two non-exclusive distribution agreements in place for the distribution of the
TheraSeed® device.  The
primary distribution agreement is with C. R. Bard (“Bard”), which is effective
through December 31, 2009 (the “Bard Agreement”). Sales to Bard under the Bard
Agreement represented approximately 51% of total brachytherapy seed product
revenue for both the second quarter and first half of 2008, and approximately
25% of consolidated revenue for both the second quarter and first half of
2008.  Sales to Bard under the Bard Agreement represented
approximately 55% of total brachytherapy seed product revenue and approximately
30% of consolidated revenue for both the three months and six months ended July
1, 2007.  The terms of the Bard Agreement provide for automatic
one-year extensions of the term, unless either party gives notice of its intent
not to renew at least twelve months prior to the end of the current term. The
current term expires on December 31, 2009, and will be automatically extended
for one additional year unless either party gives notice of its intent not to
extend by December 31, 2008.  We also have a non-exclusive
distribution agreement in place with a second distributor, though revenue
generated from the second distributor was not material.
  In May
2008, we entered into an exclusive license agreement for the rights to certain
intellectual property related to a breast brachytherapy delivery system that we
developed.  The term of the agreement is based on the life of any
patents that result from the intellectual property licensed.  The
licensee has the right to terminate the agreement if appropriate patents are not
issued to us within four years.  The agreement provides for a minimal
non-refundable initial license fee and a continuing royalty based upon sales
subject to certain minimums.   The non- refundable initial
license fee is being amortized over the expected life of the
agreement.  License fee revenue under this agreement was not material
in the second quarter of 2008 and is not expected to be material this
year.
  20
  We
believe that Medicare reimbursement policies have affected the brachytherapy
market and will continue to affect the brachytherapy market.  During
2007 Medicare continued to reimburse for brachytherapy seeds under the “charges
adjusted to costs” methodology, which is based on the actual invoiced cost of
the seeds and which we sometimes refer to as a “pass-through”
methodology.  In December 2007, Congress enacted the Medicare,
Medicaid and SCHIP Extension Act of 2007, which extended the existing cost-based
reimbursement methodology through June 30, 2008.  On July 15, 2008,
the Medicare Improvements for Patients and Providers Act of 2008 (the “2008
Act”) was enacted into law.  The 2008 Act extends Medicare’s
longstanding cost-based reimbursement methodology for brachytherapy seeds
administered in the hospital outpatient setting through December 31, 2009,
ensuring that the Medicare program does not implement potentially restrictive
caps on reimbursement during this period.  The 2008 Act is retroactive
to July 1, 2008.  The potential for fixed Medicare reimbursement rates
after the expiration of the 2008 Act and other factors can be expected to lead
to continued pricing pressure from hospitals and other health care providers.
Any of these factors could have an adverse effect on brachytherapy
revenue.  See “Medicare Developments”
below.
  Operating
income and costs and expenses
  Following
is a summary of operating income by segment (in thousands):
  Three
      Months Ended
              
              
              Six
      Months EndedJune
      29,
                2008
              
              
              July
      1,
                2007
              
              
              Change
                (%)
              
              
              June
      29,
                2008
              
              
              July
      1,
                2007
              
              
              Change
                ($)Operating
      incomeSurgical
      products
              
              $
              1,745
              
              
              $
              1,029
              
              
              
              69.6
              %
              
              $
              3,041
              
              
              $
              1,607
              
              
              
              89.2
              %Brachytherapy
      seed
              
              
              867
              
              
              
              940
              
              
              
              (7.8
              %)
              
              
              1,809
              
              
              
              2,090
              
              
              
              (13.4
              %)Intersegment
      eliminations
              
              
              (17
              )
              
              
              (3
              )
              
              
              466.7
              %
              
              
              (5
              )
              
              
              (5
              )
              
              
              0.0
              %Consolidated
              
              $
              2,595
              
              
              $
              1,966
              
              
              
              32.0
              %
              
              $
              4,845
              
              
              $
              3,692
              
              
              
              31.2
              %
  Operating
income in our surgical products segment for the second quarter of 2008 increased
$716,000, or 70%, over the second quarter of 2007.  Operating income
in the first half of 2008 increased $1.4 million, or 89%, over the first half of
2007.   In addition to revenue growth, we also experienced
improvements in gross margins on product sales. Our gross margins on products
sales increased from 44% in the second quarter of 2007 to 51% in 2008 and from
42% for the first half of 2007 to 51% in 2008.   This increase
was a result of gaining scale from growth, product mix, and, to a limited
extent, price increases in certain product lines.  The gross margins
in our surgical products business are subject to fluctuation from product and
sales channel mix.  Selling, general and administrative (SG&A)
expenses in our surgical products business were 22% of revenue in the second
quarter of 2008 compared to 20% of revenue in 2007.  This increase was
due to certain relocation costs incurred in the 2008 period.  For the
first half of 2008, SG&A expenses were 22% of revenue, compared to 21% in
2007.    We expect to continue to invest in infrastructure
during 2008, as investments are made to support anticipated future growth and as
products are developed to address growth opportunities in our surgical products
business.  Looking forward, our quarterly results are expected to be
affected by the timing of these investments.
  Operating
income in our brachytherapy business decreased 8% in the second quarter of 2008
and 13% in the first half of the year, compared to the 2007 periods due to lower
revenues.  In the fourth quarter of 2007 we changed the estimated
useful life of our cyclotrons from 10 years to 15 years.  This change
reduced depreciation expense in our brachytherapy segment by $438,000 and
$876,000 from what would have been reported otherwise in the second quarter and
first half of 2008 over the comparable 2007 periods.  The 2007 periods
included severance costs that were not incurred in 2008.  Excluding
the reduction in depreciation expense and the effect of the 2007 severance
costs, total operating costs in our brachytherapy business were flat compared to
2007.  Manufacturing related expenses in our brachytherapy business
tend to be fixed in nature.  Accordingly, even modest declines in
revenue have a negative impact on operating income.  Gross margins and
operating income in our brachytherapy seed business are expected to continue to
be highly dependent on sales levels, due to this high fixed cost
component.   Looking forward, we expect brachytherapy operating
expenses to decline approximately $400,000 to $500,000 annually as a result of
the sale of our Oak Ridge facility in July 2008 and the elimination of the
carrying costs related to that facility (see “Asset Held for Sale”
below).
  21
  Asset
Held for Sale
  On July
23, 2008, we completed the sale of our Oak Ridge, Tennessee
facility.  This facility was classified as a long term “Asset Held for
Sale” in our consolidated balance sheet at December 31, 2007.  As part
of this transaction, the facility was sold and the underlying land sublease was
terminated.   The significant portion of the present value of the
future payments due under that sublease was classified as a long term Contract
Termination Liability at December 31, 2007.  Accordingly, the Asset
Held for Sale and the Contract Termination Liability have been recorded as a
current asset and liability, respectively, at June 29, 2008.  The
$142,000 gain realized from the completion of the sale in July, including the
termination of the sublease, has been recognized as a change in the estimate of
the fair value of the Asset Held for Sale at June 29, 2008.
  Research
and Development
  Research
and development (R&D) expenses have not been significant in
2008.  We are currently planning to implement a centralized
corporate-wide R&D program in the second half of 2008 to support new product
development, primarily in our surgical products business.  Our R&D
expenses will increase significantly as a result of this effort and may total up
to $1.0 million or more annually.  The amounts invested will be
dependent upon a number of factors, including our ability to obtain qualified
personnel and the types of activities required for our product
development.  In some cases we will develop extensions of current
products.  In other cases we will develop products that are
complementary to our existing product line and also develop new
products.  We expect that this investment will accelerate our entrance
into new markets, expand our offerings to new and existing customers, and
support growth in our surgical products business.
  Other
  Interest
income decreased to $297,000 in the second quarter of 2008 from $734,000 in
2007.  For the first half of 2008, interest income decreased to
$756,000, from $1,123,000 in 2007.  These reductions were primarily
due to the inclusion of $309,000 of one-time interest income in the 2007 periods
related to $1.9 million of refunded federal income taxes.  The
interest income was recognized in the second quarter of 2007 upon settlement of
the IRS’ examination of the Company’s 2004 federal income tax return. Interest
income also decreased in the 2008 periods due to lower yields on our
investments.  Our investments consist primarily of short-term cash
investments and high-credit quality corporate and municipal obligations, in
accordance with our investment policies. Looking forward, we expect interest
income to decrease due to the cash we utilized for the NeedleTech acquisition in
July 2008.  Funds available for investment have and will continue to
be utilized for our current and future expansion programs and strategic
opportunities for growth and diversification. As funds continue to be used for
these programs and activities, and as interest rates continue to change, we
expect interest income to fluctuate accordingly.
  Interest
expense decreased from 2007 due to lower effective interest rates on the $7.5
million in outstanding borrowings under our $40.0 million credit
facility.  Interest on outstanding borrowings is payable at LIBOR plus
1%.  The effective rate was 3.5% at June 29, 2008 compared to 6.3% at
July 1, 2007.   Looking forward, interest expense can be expected
to increase because we borrowed an additional $24.5 million under our credit
facility in July 2008 related to our acquisition of
NeedleTech.  Interest expense will also be affected going forward by
changes in the effective rate.
 
 Other
non-operating expenses in the 2008 periods totaled $68,000 in the second quarter
and $64,000 in the first half of the year.  This amount consists
primarily of a $256,000 realized loss on marketable securities, offset by a
$244,000 gain from the sale of scrap metal from one of our operating
facilities.   The investment loss resulted from the liquidation
of a bond fund at less than full value.    For more
information on the risks related to our investments, see ‘Critical Accounting Policies”,
“Liquidity and Capital Resources”,and “Item 3, Quantitative and
Qualitative Disclosures About Market Risk”,all of which are included in
this report. ,
  Income
Tax Expense
  Our
effective income tax rate for the second quarter and first half of 2008 was
approximately 39% and 38%, respectively, compared to 39% for each of the
comparable 2007 periods.   This rate includes federal and state
income taxes and is higher than taxes computed at the statutory rates due to
certain non-deductible items.
  22
  Looking
forward, we expect our income tax rate in the third quarter of 2008 to be higher
than the rate we have experienced to date.  At June 29, 2008, we have
a deferred income tax asset totaling approximately $300,000 related to certain
non-qualified stock options.  It is unlikely that these options will
be exercised prior to their expiration in July 2008, as their exercise price
significantly exceeds the current price of our common stock.  Under
Statement of Financial Accounting Standards 123R, “Share-Based Payment” (“SFAS
123R”), differences between deductible temporary differences related to share
based payments and the tax deduction that would result based on the current fair
value of our shares cannot be considered in measuring the gross deferred tax
asset or determining the need for a valuation allowance recognized under SFAS
123R.  In other words, prior to the expiration of these options, we
cannot provide a valuation allowance for this deferred tax asset or otherwise
write this asset off, even though we believe that the asset will not ultimately
be realized.  Accordingly, this deferred tax asset will be charged to
income tax expense in the third quarter of 2008, upon expiration of the related
stock options.
  Critical
Accounting Policies
  The
preparation of financial statements requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The SEC defines “critical accounting policies” as those that
require application of our most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain and may change in subsequent periods. Our significant
accounting policies are more fully described in the notes to our consolidated
financial statements included in our Form 10-K for the year ended December 31,
2007. Certain accounting policies, as more fully described under “Critical Accounting Policies and
Estimates” included in our Form 10-K for the year ended December 31,
2007, are those which we believe are most critical in fully understanding and
evaluating our reported financial results, and are areas in which our judgment
in selecting an available alternative might produce a materially different
result.
  In
addition to those critical accounting policies and estimates set forth in Item 7
in our Form 10-K for the year ended December 31, 2007, the following critical
accounting policies and estimates should also be considered.
 
 Marketable
securities.We review our investments in marketable securities
for impairment based on both quantitative and qualitative criteria that include
the extent to which cost exceeds market value, the duration of any market
decline, our intent and ability to hold to maturity or expected recovery, and
the creditworthiness of the issuer.  We perform research and analysis,
and monitor market conditions to identify potential
impairments.  Currently, we have not recognized any impairment charges
related to our current investments in marketable securities.  However,
due to the uncertainties related to the U.S. and global investment and credit
markets, including markets related to auction rate securities, we are exposed to
the risk of changes in fair value of our marketable securities in future
periods, which may cause us to take impairment charges that we do not currently
anticipate.  In the second quarter of 2008 we realized a loss of $256,000
when a highly rated bond fund that we were invested in unexpectedly liquidated
at less than full value.  While we will continue to research, analyze
and monitor our investments, we cannot predict what the effect of current
investment and credit market circumstances might have on our portfolio going
forward.  You can find more information related to the valuation of
our marketable securities in Note H in the accompanying condensed consolidated
financial statements, “Liquidity and Capital Resources”in Management’s Discussion and Analysis, and “Item 3,Quantitative and Qualitative
Disclosures About Market Risk”, all of which are included in this
report.
  23
  New
Accounting Pronouncements
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements.  SFAS 157 was effective for our Company
on January 1, 2008.  However, in February 2008 the FASB released FASB
Staff Position No. FAS 157-2, Effective Date of FASB Statement
No. 157, which delayed the effective date of SFAS 157 for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually.  Accordingly, we have adopted the provisions of SFAS 157
only with respect to our financial assets and liabilities as of January 1, 2008.
The adoption of SFAS 157 for our financial assets and liabilities did not have a
material impact on our consolidated financial statements.  We are
currently assessing the potential effect on our consolidated financial
statements of the adoption of SFAS 157 for our non-financial assets and
liabilities, which we will adopt on January 1, 2009.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115(“SFAS 159”).  SFAS 159 permits entities to choose to
measure eligible items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  SFAS No. 159,
which we adopted on January 1, 2008, did not have a material impact on our
consolidated financial statements. As permitted under SFAS 159, we havecurrently chosen not to
elect the fair value option for any items that are not already required to be
measured at fair value in accordance with accounting principles generally
accepted in the United States.
 
 In
December 2007, the FASB issued SFAS 141R, Business Combinations, which
we will adopt on January 1, 2009. This standard will significantly change the
accounting for business acquisitions both during the period of the acquisition
and in subsequent periods. Among the more significant changes in the accounting
for acquisitions are the following:
 
 ●
              Transaction
      costs will generally be expensed. Certain such costs are presently treated
      as costs of the acquisition.●
              In-process
      research and development (IPR&D) will be accounted for as an asset,
      with the cost recognized as the research and development is realized or
      abandoned. IPR&D is presently expensed at the time of the
      acquisition.●
              Contingencies,
      including contingent consideration, will generally be recorded at fair
      value with subsequent adjustments recognized in operations. Contingent
      consideration is presently accounted for as an adjustment of purchase
      price.●
              Decreases
      in valuation allowances on acquired deferred tax assets will be recognized
      in operations. Such changes previously were considered to be subsequent
      changes in the allocation of the purchase price and were recorded as
      decreases in goodwill.
  Generally,
the effects of SFAS 141R will depend acquisitions occurring in 2009 and
thereafter.  We will continue to follow SFAS 141, Business Combinations, as
originally issued for our NeedleTech acquisition in July 2008.
  In April
2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3 (‘FSP FAS 142-3 “),
Determination of the Useful
Life of Intangible Assets.  FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other
Intangible Assets.  The intent of
the FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R and other U.S. generally
accepted accounting principles (“GAAP”).  FSP FAS 142-3 is effective
for the Company beginning January 1, 2009.  The guidance for
determining the useful life of intangible assets included in this FSP will be
applied prospectively to intangible assets acquired after the January 1, 2009
effective date.  The Company is evaluating the impact of FSP FAS
142-3, and the potential impact of this statement on the Company’s consolidated
financial statements has not been determined.
  24
  Liquidity
and Capital Resources
  We had
cash, cash equivalent and marketable securities of $52.3 million at June 29,
2008, compared to $48.8 million at December 31, 2007. Marketable securities
consist primarily of high-credit quality corporate and municipal obligations in
accordance with our investment policies. The aggregate increase in cash, cash
equivalents and marketable securities was primarily the result of cash generated
from operations.
  At June
29, 2008, our marketable securities included municipal auction rate securities
with an estimated fair value of $8.5 million. Recent auctions of these
securities have failed resulting in a lack of liquidity but do not represent a
default in the underlying instrument.  We believe the failure of these
auctions is symptomatic of the current state of the markets for all types of
auction rate securities, and of the U.S. and global credit markets in
general.  Standard & Poor’s rates the underlying credit of the
issuers of our municipal auction rate securities as AA or higher, and we expect
these securities ultimately will be liquidated at our estimate of fair
value.  At December 31, 2007, we held municipal auction rate
securities totaling $13.9 million.  During 2008, successful auctions
liquidated $5.4 million of our municipal auction rate securities at full value
and without incurring any losses, including $1.5 million in the second quarter
of 2008.   We intend to hold the remaining securities until they
can be sold in a market that facilitates orderly transactions or until they are
called.  We do not expect to experience any liquidity problems or
alter any business plans if we maintain our investments in these municipal
auction rate securities indefinitely. However, due to the current uncertainties
related to auction rate securities markets, and the U.S. and global credit
markets generally, we are exposed to the risk of changes in fair value of these
securities in future periods, which may cause us to take impairment charges that
we do not currently anticipate.
  In July
2008, we acquired all of the outstanding common stock of NeedleTech Products,
Inc. (“NeedleTech”) for $47.8 million in cash, plus transaction
costs.  We retained the cash and investments held by NeedleTech, which
totaled approximately $5.0 million at June 30, 3008.  The purchase
price is subject to a working capital adjustment.   We financed
$24.5 million of the purchase price with borrowings on our existing $40.0
million credit facility, and paid the remainder from our current cash and
investment balances.
  Working
capital was $72.1 million at June 29, 2008, compared to $62.3 million at
December 31, 2007. We also have a Credit Agreement with a financial institution
that provides for revolving borrowings of up to $40.0 million, including a $5.0
million sub-limit for letters of credit, through a credit facility, which
expires on October 31, 2009. Borrowings of $7.5 million were outstanding under
the Credit Agreement as of June 29, 2008.  Subsequent to June 29,
2008, we borrowed an additional $24.5 million under our Credit Agreement in
connection with our acquisition of NeedleTech.  Total outstanding
borrowings under our Credit Agreement were $32.0 million immediately following
the acquisition.  Interest is payable quarterly at LIBOR plus 1%
(effective rate of 3.5% at June 29, 2008).  Letters of credit,
representing decommission funding required by the Georgia Department of Natural
Resources, totaling $876,000 were outstanding under the Credit Agreement as of
June 29, 2008. The Credit Agreement is unsecured, but provides for a lien to be
established on substantially all of our assets (subject to certain exceptions)
in the event certain events of default occur under the Credit Agreement. The
Credit Agreement, as amended, contains representations and warranties, as well
as affirmative, reporting and negative covenants, customary for financings of
this type. Among other things, certain provisions of the Credit Agreement limit
the incurrence of additional debt and require the maintenance of certain
financial ratios and tests.  We were in compliance with these
covenants as of June 29, 2008.
  Cash
provided by operations was $5.2 million and $9.1 million during the six months
ended June 29, 2008 and July 1, 2007, respectively. Cash provided by operations
consists of net earnings plus non-cash expenses such as depreciation,
amortization, deferred income taxes and changes in balance sheet items such as
accounts receivable, inventories, prepaid expenses and payables.  The
increase in inventories and accounts receivable as well as the payment of
current taxes were the primary reasons for the reduction in cash provided from
operations in 2008 as compared to 2007.  In the first half of 2007, we
had net operating loss carryforwards for federal income taxes available to
reduce the significant portion of income taxes that would otherwise have been
payable.  All net operating loss carryforwards for federal income tax
purposes were utilized by December 31, 2007.  In the second quarter of
2007, we also received a $1.9 million federal income tax refund plus $309,000 of
related interest income.
  At June
29, 2008, we had a deferred tax asset of $4.0 million related to our asset held
for sale and contract termination liability.  Based upon completion of
the sale of that asset and the termination of the contract liability in July
2008, we expect that this deferred income tax asset will reduce our income taxes
payable by a like amount going forward.
  25
 
 Capital
expenditures totaled $881,000 and $788,000 during the first six months of 2008
and 2007, respectively.  We expect capital expenditures in 2008 to
continue to be higher than 2007 as we make investments primarily in the surgical
products business.
 
 Cash used
by financing activities was $636,000 in the first half of 2008 consisting
primarily of the payment of certain expenses for which we were indemnified and
reimbursed by receipt of 190,000 shares of our common stock. Those shares were
subsequently retired. Cash provided by financing activities was $157,000 in
the first half of 2008 consisting of cash proceeds from our Employee Stock
Purchase Plan and from the exercise of stock options.
 
 We
expect to use cash in 2008 for the implementation of our corporate wide R&D
program (see “Research and Development” above).  We may continue to
use cash in 2008 to support growth in the surgical products segment, increased
marketing and TheraSeed®support
activities, and in the pursuit of additional diversification efforts such as
product development and the purchase of technologies, products or
companies.
 
 We
believe that current cash and investment balances and cash from future
operations and credit facilities will be sufficient to meet our current
anticipated working capital and capital expenditure requirements. In the event
additional financing becomes necessary, we may choose to raise those funds
through other means of financing as appropriate.
  Medicare
Developments
  The
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “2003
Act”), which went into effect on January 1, 2004, contained brachytherapy
provisions requiring Medicare to reimburse hospital outpatient
departments for each brachytherapy seed/source furnished between January 1,
2004 to December 31, 2006 based on the hospital’s costs for each patient
(calculated from the hospital’s charges adjusted by the hospital’s specific
cost-to-charge ratio). The 2003 Act also directed the U.S. Government
Accountability Office (“GAO”) to conduct a study examining future payment
policies for brachytherapy seeds. The GAO published its report on July 25, 2006,
concluding that the Centers for Medicare & Medicaid Services (“CMS”), the
regulatory body that sets Medicare reimbursement policies, could establish
separate prospective payment rates effective in 2007 for palladium-103
brachytherapy seeds/sources (such as TheraSeed®) and
iodine-125 seeds/sources using Medicare’s hospital outpatient data.
  Although
subsequently superceded by Congress, CMS posted a final rule on November 1, 2006
with fixed prospective payment rates for brachytherapy seeds for Medicare’s
hospital outpatient prospective payment system (“OPPS”) that would have applied
to calendar year 2007. The use of prospective payment rates would have fixed the
per seed rate at which Medicare would have reimbursed hospitals in 2007. We
believed that CMS’ approach to determining the fixed prospective reimbursement
rate for brachytherapy seeds was fundamentally flawed. For example, CMS did not
stratify cost data on differing seed configurations, such as loose versus
“stranded” seeds. Accordingly, we continued to work with policy makers in an
effort to rectify the shortcomings we believed to be contained in the new CMS
rule.
  In
December 2006, Congress enacted the Tax Relief and Health Care Act of 2006 (the
“2006 Act”), which extended and refined the Medicare safeguards initially
enacted by Congress in 2003 for brachytherapy seeds administered in the hospital
outpatient setting. The 2006 Act’s provisions on brachytherapy superceded the
final rule published by CMS on November 1, 2006 by extending the existing
“charges adjusted to cost” reimbursement policies (which we sometimes refer to
as a “pass-through” methodology) for brachytherapy seeds through the end of
2007, ensuring that the Medicare program would not implement potentially
restrictive caps on reimbursement during that period. In addition, the
legislation recognized that prostate cancer patients must have meaningful access
to stranded brachytherapy seeds, which increasingly are used in clinical
practice to further enhance the safety and efficacy of treatment. The 2006 Act
also established a permanent requirement for Medicare to use separate codes for
the reimbursement of stranded brachytherapy devices. Stranded seeds are becoming
a larger portion of our brachytherapy business.
  Effective
July 2007, CMS issued new reimbursement codes for brachytherapy sources. The
codes are isotope specific and recognize the distinction between non-stranded
versus stranded seeds, as mandated by the 2006 Act. In early November 2007, CMS
again posted a final OPPS rule for calendar year 2008 with fixed prospective
reimbursement rates for all brachytherapy source codes, including the new
codes established in July 2007.
  26
  In
December 2007, Congress passed the Medicare, Medicaid and SCHIP Extension Act of
2007 (the “2007 Act”), which once again superseded another CMS final OPPS rule
by extending the existing “pass-through” reimbursement policies for
brachytherapy seeds through June 30, 2008. Fixed reimbursement rates would have
been scheduled to become effective on January 1, 2008 without the enactment of
the 2007 Act. As a result of the 2007 Act, fixed reimbursement rates for
seeds were delayed until July 1, 2008.
  On July
15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 (the
“2008 Act”) was enacted into law.  The 2008 Act extends Medicare’s
longstanding “pass-through” reimbursement policies for brachytherapy seeds
administered in the hospital outpatient setting through December 31, 2009,
ensuring that the Medicare program does not implement potentially restrictive
caps on reimbursement during this period.  The 2008 Act is retroactive
to July 1, 2008.  The potential for fixed reimbursement rates after
the expiration of the 2008 Act on December 31, 2009 and other factors can be
expected to lead to continued pricing pressure from hospitals and other health
care providers. Any of these factors could have an adverse effect on
brachytherapy revenue.
  Forward
Looking and Cautionary Statements
  This
document contains certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, the accuracy of which is
necessarily subject to risks and uncertainties, including, without limitation,
statements regarding sales, marketing and distribution efforts, ordering
patterns of customers, our direct sales organization and its growth and
effectiveness, third-party reimbursement, CMS policy, sales mix, effectiveness
and continuation of non-exclusive distribution agreements, pricing for the
TheraSeed® and
I-Seed devices, anticipated growth in the surgical products business segment,
future cost of sales and gross margins, R&D efforts and expenses (including
our centralized, corporate-wide R&D initiative), investment in additional
personnel, infrastructure, and capital assets, SG&A expenses, other income,
potential new products and opportunities, the potential effect of the NeedleTech
Acquisition on our surgical products business and on our consolidated results
generally, expected reductions in operating expenses from the sale of our Oak
Ridge facility, expected changes in interest income and interest expenses, the
effect on our results and cash flows from accounting for the income tax effect
of the sale of our Oak Ridge facility and certain stock options expected to
expire unexercised, results in general, plans and strategies for continuing
diversification, plans to hold auction rate securities, and the sufficiency of
our liquidity and capital resources. From time to time, we may also make other
forward-looking statements relating to such matters as well as statements
relating to anticipated financial performance, business prospects, technological
developments and similar matters. These forward-looking statements are subject
to certain risks, uncertainties and other factors which could cause actual
results to differ materially from those anticipated, including risks associated
with new product development cycles, effectiveness and execution of marketing
and sales programs of our business segments and their distributors, competitive
conditions and selling tactics of our competitors, potential changes in
third-party reimbursement (including CMS), changes in product pricing by our
brachytherapy business segment, changes in cost of materials used in production
processes, continued acceptance of our products by the market, potential changes
in demand for the  products manufactured and sold by our brachytherapy
and surgical products segments, integration of acquired companies into the
Theragenics organization, capitalization on opportunities for growth within our
surgical products business segment, competition within the medical device
industry, development and growth of new applications within our markets,
competition from other methods of treatment, ability to execute on acquisition
opportunities on favorable terms and successfully integrate any acquisitions,
the ability to realize our estimate of fair value upon sale of auction rate
securities that we hold, and the risks identified elsewhere in this
report.  All forward looking statements and cautionary statements
included in this document are made as of the date hereof based on information
available to us, and we assume no obligation to update any forward looking
statement or cautionary statement.
  27
  Item
3. Quantitative and
Qualitative Disclosures About Market Risk
 
 We have
generated substantial cash balances, portions of which are invested in
securities that meet our requirements for quality and return.  At June
29, 2008, we had $40.4 million in cash and cash equivalents and $11.9 million of
investments in marketable securities.  Our cash and cash equivalents
represent cash deposits, and money market funds, which are invested with four
financial institutions, commercial paper, and U.S. Treasury notes. Our
marketable securities primarily represent investments in certificates of deposit
and high-credit quality corporate and municipal obligations, in accordance with
our investment policies. Certain of these cash, cash equivalents and marketable
securities investments are subject to general credit, liquidity, market and
interest rate risks, which may be exacerbated by sub-prime mortgage defaults and
other credit related problems that have affected various sectors of the
financial markets and caused credit and liquidity issues.  These
market risks associated with our investment portfolio may have an adverse effect
on our results of operations, liquidity and financial condition.
  At June
29, 2008, our marketable securities included municipal auction rate securities
with an estimated fair value of $8.5 million. Recent auctions of these
securities have failed resulting in a lack of liquidity but do not represent a
default in the underlying instrument.  We believe the failure of these
auctions is symptomatic of the current state of the markets for all types of
auction rate securities, and of the U.S. and global credit markets in
general.  Standard & Poor’s rates the underlying credit of the
issuers of our municipal auction rate securities as AA or higher, and we expect
these securities ultimately will be liquidated at our estimate of fair
value.  At December 31, 2007, we held municipal auction rate
securities totaling $13.9 million.  During 2008, successful auctions
liquidated $5.4 million of our municipal auction rate securities at full value
and without incurring any losses, including $1.5 million in the second quarter
of 2008.  We intend to hold the remaining securities until they can be
sold in a market that facilitates orderly transactions or until they are
called.  We do not expect to experience any liquidity problems or
alter any business plans if we maintain our investments in these municipal
auction rate securities indefinitely.
 
 We review
our investments in marketable securities for impairment based on both
quantitative and qualitative criteria that include the extent to which cost
exceeds market value, the duration of any market decline, our intent and ability
to hold to maturity or expected recovery, and the creditworthiness of the
issuer.  We perform research and analysis, and monitor market
conditions to identify potential impairments.  Currently, we have not
recognized any impairment charges related to our current investments in
marketable securities.  However, due to the uncertainties related to
the U.S. and global investment and credit markets, including markets related to
auction rate securities, we are exposed to the risk of changes in fair value of
our marketable securities in future periods, which may cause us to take
impairment charges that we do not currently anticipate.  In the second
quarter of 2008 we realized a loss of $256,000 when a highly rated bond fund
that we were invested in unexpectedly liquidated at less than full
value.  While we will continue to research, analyze and monitor our
investments, we cannot predict what the effect of current investment and credit
market circumstances might have on our portfolio going forward.  You
can find more information related to the valuation of our marketable securities
in Note H in the accompanying condensed consolidated financial statements and
“Critical Accounting Policies” and“Liquidity and Capital Resources”in Management’s Discussion and Analysis, all of which are included in
this report.
 
 As of
June 29, 2008, we had borrowings of $7.5 million and letters of credit of
approximately $876,000 outstanding under the terms of our Credit Agreement.
Interest on outstanding borrowings is payable monthly at LIBOR plus 1%
(effective rate of 3.5% as of June 29, 2008).  In July 2008 we
borrowed an additional $24.5 million under our Credit Agreement, bringing the
total outstanding borrowings to $32.0 million.  Accordingly, we are
exposed to changes in interest rates on these borrowings.
  28
  Item
4. Controls and
Procedures
  Under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, the Company conducted
an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures were
effective as of June 29, 2008, the end of the period covered by this
report.
  No
changes in the Company’s internal control over financial reporting were
identified as having occurred during the quarter ended June 29, 2008 that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
 
 PART
II. OTHER INFORMATION
 
 Item
1. Legal
Proceedings
  From time
to time, the Company is subject to certain legal proceedings and claims in the
ordinary course of business. Management currently is not aware of any such legal
proceedings or claims that it believes will have, individually or in aggregate,
a material adverse effect on the Company’s business, financial condition, or
operating results.
  Item
1A. Risk
Factors
 
 In
addition to the other information set forth in this report, the factors
discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K
for the year ended December 31, 2007, which could materially affect our
business, financial condition or future results, should be carefully considered.
The risks described in our Annual Report on Form 10-K are not the only risks
facing us. Additional risks and uncertainties not currently known to us or that
we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
 
 Item
4. Submission of Matters to a Vote of Security Holders
  (a)
              The
      Company’s annual meeting of stockholders was held on May 15,
      2008.(b)
              John
      V. Herndon was elected to the board of directors to serve for a three-year
      term. Mr. Herndon received 24,749,024 votes for his election with
      3,161,590 withholding authority.(c)
              Peter
      A. A. Saunders was elected to the board of directors to serve for a
      three-year term. Mr. Saunders  received 26,779,348 votes for his
      election with 1,131,266 withholding authority.(d)
              The
      appointment of Dixon Hughes PLLC as the Company’s independent registered
      public accounting firm for the year ending December 31, 2008 was ratified
      with 27,597,782 votes for ratification, 251,683 votes against ratification
      and 61,149 abstentions.
  29
  Item
6. Exhibits
  Exhibit
      No.
              
              Title2.1
              
              Stock
      Purchase Agreement dated as of July 16, 2008 with respect to NeedleTech
      Products, Inc. by and among Theragenics Corporation, as Purchaser, Ronald
      Routhier, as Sellers’ Representative, the individual Stockholders of
      NeedleTech Products, Inc. listed on Schedule 1 to the Agreement, as
      Sellers, and Rockland Trust Company, as Special Fiduciary and Trustee
      (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed
      July 21, 2008).10.1
              
              Fourth
      Amendment to Credit Agreement by and among Theragenics Corporation, CP
      Medical Corporation, Galt Medical Corp. and Wachovia Bank, National
      Association, successor by merger to SouthTrust Bank, dated July 1, 2008
      (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed
      July 3, 2008).10.2
              
              Employment
      Agreement between NeedleTech Products, Inc. and Ronald Routhier, dated as
      of July 28, 2008 (incorporated by reference to Exhibit 10.1 of the
      Company’s Form 8-K filed July 31, 2008)10.3
              
              Employment
      Agreement between NeedleTech Products, Inc. and Russell Small, dated as of
      July 28, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s
      Form 8-K filed July 31, 2008)31.1
              
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of
      the Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      of Chief Executive Officer pursuant to Section 1350, Chapter 63 of Title
      18, United States Code, as adopted to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
              
              Certification
      of Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title
      18, United States Code, as adopted to Section 906 of the Sarbanes-Oxley
      Act of 2002.
  30
 
 SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
   REGISTRANT:THERAGENICS
      CORPORATIONDate: August
      7, 2008
              By:
              /s/ M.
      Christine JacobsM.
      Christine JacobsChief
      Executive OfficerDate: August
      7, 2008
              By:
              /s/ Francis
      J. TaralloFrancis
      J. TaralloChief
      Financial Officer








31