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 July 5, 2009
  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. 001-14339
  THERAGENICS
CORPORATION®
 (Exact
name of registrant as specified in its charter)
  Delaware
              58-1528626(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      Number)5203
      Bristol Industrial Way
                Buford,
      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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).  YES    NO ___
 
 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  oAccelerated
Filer  xNon Accelerated
Filer  oSmaller Reporting
Company x
 
 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, 2009 the number of shares of $0.01 par value common stock outstanding
was 33,487,175.
 
 
 THERAGENICS
CORPORATION
  TABLE OF
CONTENTS
  Page
      No.PART I. FINANCIAL
    INFORMATIONITEM
      1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Condensed
      Consolidated Balance Sheets – July 5, 2009 and December 31,
      2008
                
                3Condensed
      Consolidated Statements of Earnings for the three and six months ended
      July 5, 2009 and June 29, 2008
                
                5Condensed
      Consolidated Statements of Cash Flows for the six months ended July 5,
      2009 and June 29, 2008
                
                6Condensed
      Consolidated Statement of Shareholders’ Equity for the six months ended
      July 5, 2009
                
                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
                
                30ITEM
      4. CONTROLS AND PROCEDURES
                
                30PART
      II. OTHER INFORMATION
                
                31ITEM
      1. LEGAL PROCEEDINGS
                
                31ITEM
      1A. RISK FACTORS
                
                31ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                
                31ITEM
      6. EXHIBITS
                
                32SIGNATURES
                
                33
 
 2
  PART
I. FINANCIAL INFORMATION
  Item
1. Financial
Statements
  THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Amounts
in thousands, except per share data)
  ASSETSJuly
      5,
                            2009
                            (Unaudited)
                          
                          December
      31,
                            2008CURRENT
      ASSETSCash
      and cash equivalents
                          
                          $
                          46,697
                          
                          $
                          39,088Marketable
      securities
                          
                          
                          -
                          
                          
                          1,507Trade
      accounts receivable, less allowance of $434 in 2009 and $481 in
      2008
                          
                          
                          9,293
                          
                          
                          8,532Inventories
                          
                          
                          11,404
                          
                          
                          11,667Deferred
      income tax asset
                          
                          
                          1,125
                          
                          
                          2,158Refundable
      income taxes
                          
                          
                          208
                          
                          
                          1,504Prepaid
      expenses and other current assets
                          
                          
                          879
                          
                          
                          1,129TOTAL
      CURRENT ASSETS
                          
                          
                          69,606
                          
                          
                          65,585Property
      and equipment, net
                          
                          
                          29,507
                          
                          
                          30,035Customer
      relationships, net
                          
                          
                          11,660
                          
                          
                          12,742Other
      intangible assets, net
                          
                          
                          5,546
                          
                          
                          5,978Other
      assets
                          
                          
                          139
                          
                          
                          7917,345
                          
                          
                          18,799TOTAL
      ASSETS
                          
                          $
                          116,458
                          
                          $
                          114,419
  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’ EQUITYJuly
      5,
                            2009
                            (Unaudited)
                          
                          December
      31,
                            2008CURRENT
      LIABILITIESTrade
      accounts payable
                          
                          $
                          1,623
                          
                          $
                          1,437Accrued
      salaries, wages and payroll taxes
                          
                          
                          2,072
                          
                          
                          1,968Short-term
      borrowings
                          
                          
                          3,333
                          
                          
                          32,000Income
      taxes payable
                          
                          
                          431
                          
                          
                          209Other
      current liabilities
                          
                          
                          1,465
                          
                          
                          1,896TOTAL
      CURRENT LIABILITIES
                          
                          
                          8,924
                          
                          
                          37,510LONG-TERM
      LIABILITIESLong-term
      borrowings
                          
                          
                          28,389
                          
                          
                          -Deferred
      income taxes
                          
                          
                          1,805
                          
                          
                          2,006Decommissioning
      retirement liability
                          
                          
                          671
                          
                          
                          646Other
      long-term liabilities
                          
                          
                          378
                          
                          
                          147TOTAL
      LONG-TERM LIABILITIES
                          
                          
                          31,243
                          
                          
                          2,799COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITYCommon
      stock, authorized 100,000 shares of $0.01 par value, issued and
      outstanding, 33,479 in 2009 and 33,243 in 2008
                          
                          
                          335
                          
                          
                          332Additional
      paid-in capital
                          
                          
                          73,194
                          
                          
                          72,894Retained
      earnings
                          
                          
                          2,762
                          
                          
                          884TOTAL
      SHAREHOLDERS’ EQUITY
                          
                          
                          76,291
                          
                          
                          74,110TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                          
                          $
                          116,458
                          
                          $
                          114,419
  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 EndedJuly
      5,
                2009
              
              June
      29,
                2008
              
              July
      5,
                2009
              
              June
      29,
                2008REVENUEProduct
      sales
              
              $
              19,892
              
              $
              15,671
              
              $
              39,736
              
              $
              30,631License
      and fee income
              
              
              327
              
              
              243
              
              
              560
              
              
              51820,219
              
              
              15,914
              
              
              40,296
              
              
              31,149COST
      OF SALES
              
              
              11,082
              
              
              7,664
              
              
              22,452
              
              
              15,242GROSS
      PROFIT
              
              
              9,137
              
              
              8,250
              
              
              17,844
              
              
              15,907OPERATING
      EXPENSESSelling,
      general & administrative
              
              
              5,509
              
              
              5,167
              
              
              11,538
              
              
              9,970Amortization
      of purchased intangibles
              
              
              871
              
              
              468
              
              
              1,742
              
              
              937Research
      & development
              
              
              588
              
              
              161
              
              
              1,191
              
              
              294Change
      in estimated value of asset held for sale
              
              
              -
              
              
              (142
              )
              
              -
              
              
              (142
              )Loss
      on sale of equipment
              
              
              2
              
              
              1
              
              
              2
              
              
              36,970
              
              
              5,655
              
              
              14,473
              
              
              11,062EARNINGS
      FROM OPERATIONS
              
              
              2,167
              
              
              2,595
              
              
              3,371
              
              
              4,845NON-OPERATING
      INCOME/(EXPENSE)Interest
      income
              
              
              6
              
              
              297
              
              
              17
              
              
              756Interest
      expense
              
              
              (156
              )
              
              (131
              )
              
              (285
              )
              
              (277
              )Other
              
              
              1
              
              
              (68
              )
              
              (1
              )
              
              (64
              )(149
              )
              
              98
              
              
              (269
              )
              
              415EARNINGS
      BEFORE INCOME TAX
              
              
              2,018
              
              
              2,693
              
              
              3,102
              
              
              5,260Income
      tax expense
              
              
              747
              
              
              1,055
              
              
              1,224
              
              
              1,986NET
      EARNINGS
              
              $
              1,271
              
              $
              1,638
              
              $
              1,878
              
              $
              3,274NET
      EARNINGS PER COMMON SHARE:Basic
              
              $
              0.04
              
              $
              0.05
              
              $
              0.06
              
              $
              0.10Diluted
              
              $
              0.04
              
              $
              0.05
              
              $
              0.06
              
              $
              0.10WEIGHTED
      AVERAGE SHARESBasic
              
              
              33,145
              
              
              33,106
              
              
              33,124
              
              
              33,134Diluted
              
              
              33,198
              
              
              33,246
              
              
              33,184
              
              
              33,291
  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 EndedJuly
      5,
                                2009
                              
                              
                              June
      29,
                                2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      earnings
                              
                              $
                              1,878
                              
                              
                              $
                              3,274Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
                              
                              
                              3,444
                              
                              
                              
                              2,367Deferred
      income taxes
                              
                              
                              832
                              
                              
                              
                              48Provision
      for allowances
                              
                              
                              (134
                              )
                              
                              
                              (44
                              )Share
      based compensation
                              
                              
                              297
                              
                              
                              
                              412Change
      in estimated value of asset held for sale
                              
                              
                              -
                              
                              
                              
                              (142
                              )Other
      non-cash items
                              
                              
                              19
                              
                              
                              
                              46Changes
      in assets and liabilities:Accounts
      receivable
                              
                              
                              (796
                              )
                              
                              
                              (600
                              )Inventories
                              
                              
                              432
                              
                              
                              
                              (716
                              )Prepaid
      expenses and other current assets
                              
                              
                              250
                              
                              
                              
                              253Other
      assets
                              
                              
                              (50
                              )
                              
                              
                              (408
                              )Trade
      accounts payable
                              
                              
                              186
                              
                              
                              
                              (123
                              )Accrued
      salaries, wages and payroll taxes
                              
                              
                              104
                              
                              
                              
                              (102
                              )Income
      taxes payable
                              
                              
                              1,518
                              
                              
                              
                              129Other
      current liabilities
                              
                              
                              (621
                              )
                              
                              
                              763Other
      liabilities
                              
                              
                              231
                              
                              
                              
                              57Net
      cash provided by operating activities
                              
                              
                              7,590
                              
                              
                              
                              5,214CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      and construction of property and equipment
                              
                              
                              (1,056
                              )
                              
                              
                              (881
                              )Proceeds
      from sale of equipment
                              
                              
                              -
                              
                              
                              
                              1Purchases
      of marketable securities
                              
                              
                              -
                              
                              
                              
                              (8,000
                              )Maturities
      of marketable securities
                              
                              
                              500
                              
                              
                              
                              3,603Proceeds
      from sales of  marketable securities
                              
                              
                              1,005
                              
                              
                              
                              12,415Net
      cash provided by investing activities
                              
                              
                              449
                              
                              
                              
                              7,138
  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 EndedJuly
      5,
                2009
              
              June
      29,
                2008CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from employee stock purchase plan
              
              
              13
              
              
              15Retirement
      of common stock
              
              
              (7
              )
              
              (651
              )Loan
      fees paid on long-term debt
              
              
              (158
              )
              
              -Repayment
      of borrowings
              
              
              (278
              )
              
              -Net
      cash used in financing activities
              
              
              (430
              )
              
              (636
              )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
              
              $
              7,609
              
              $
              11,716CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              39,088
              
              
              28,666CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              46,697
              
              $
              40,382Supplementary
      cash flow disclosure:Interest
      paid
              
              $
              372
              
              $
              273Taxes
      paid (received), net
              
              $
              (1,125
              )
              $
              1,810
  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 JULY 5, 2009
 (UNAUDITED)
 (Amounts
in thousands)
  Common
      StockNumber
                                  of
                                
                                
                                Par
                                  Value
                                
                                
                                Additional
      Paid-in
                                
                                
                                RetainedShares
                                
                                
                                Amount
                                
                                
                                Capital
                                
                                
                                Earnings
                                
                                
                                TotalBALANCE,
      December 31, 2008
                                
                                
                                33,243
                                
                                
                                $
                                332
                                
                                
                                $
                                72,894
                                
                                
                                $
                                884
                                
                                
                                $
                                74,110Employee
      stock purchase plan
                                
                                
                                13
                                
                                
                                
                                -
                                
                                
                                
                                13
                                
                                
                                
                                -
                                
                                
                                
                                13Issuance
      of restricted shares
                                
                                
                                166
                                
                                
                                
                                2
                                
                                
                                
                                (2
                                )
                                
                                
                                -
                                
                                
                                
                                -Issuance
      of common stock upon vesting of restricted units
                                
                                
                                64
                                
                                
                                
                                1
                                
                                
                                
                                (1
                                )
                                
                                
                                -
                                
                                
                                
                                -Retirement
      of common stock surrendered
                                
                                
                                (7
                                )
                                
                                
                                -
                                
                                
                                
                                (7
                                )
                                
                                
                                -
                                
                                
                                
                                (7
                                )Share
      based compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                297
                                
                                
                                
                                -
                                
                                
                                
                                297Net
      earnings for the period
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,878
                                
                                
                                
                                1,878BALANCE,
      July 5, 2009
                                
                                
                                33,479
                                
                                
                                $
                                335
                                
                                
                                $
                                73,194
                                
                                
                                $
                                2,762
                                
                                
                                $
                                76,291The
      accompanying notes are an integral part of these
    statements.
  8
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (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.  The terms "Company", "we",
"us", or "our" mean Theragenics Corporation and all entities included in our
consolidated financial statements.All
material intercompany accounts and transactions have been eliminated in
consolidation. These statements reflect all adjustments that are, in our
opinion, 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, 2008, included in the Form 10-K Annual Report filed by
us. The December 31, 2008 condensed consolidated balance sheet included herein
has been derived from the December 31, 2008 audited consolidated balance sheet
included in the aforementioned Form 10-K.  The consolidated results of
operations for the periods ended July 5, 2009 are not necessarily indicative of
the results to be expected for a full year.
 
 We are a
medical device company serving the surgical products and cancer treatment
markets, operating in two business segments. Our surgical products business
consists of wound closure, vascular access, and specialty needle
products.  Wound closure includes sutures, needles, and other surgical
products.  Vascular access includes introducers, guidewires, and
related products.  Specialty needles include coaxial, biopsy, spinal
and disposable veress needles, access trocars, and other needle based
products.  Our surgical products segment serves a number of markets
and applications, including among other areas, interventional cardiology,
interventional radiology, vascular surgery, orthopedics, plastic surgery, dental
surgery, urology, veterinary medicine, pain management, endoscopy, and spinal
surgery. Our brachytherapy business manufactures and markets our premier
product, the palladium-103 TheraSeed®device,
and I-Seed, an iodine-125 based device, which are used primarily in the
minimally invasive treatment of localized prostate cancer.
 
 On July
28, 2008, we completed the acquisition of NeedleTech Products, Inc.
(“NeedleTech”).  NeedleTech is a manufacturer of specialty needles and
related medical devices, and a part of our surgical products
segment.  See Note C, Acquisition of NeedleTech Products,
Inc.
  NOTE
B – RECENTLY ISSUED ACCOUNTING STANDARDS
 
 In April
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) No. 142-3, Determination of the
UsefulLife of
Intangible Assets (“FSP
142-3”).  The intent of FSP 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other  Intangible Assets,
and the period of expected cash flows used to measure the fair value of the
asset under SFAS No. 141R, Business
Combinations, and other U.S. generally accepted accounting
principles.  We adopted FSP 142-3 effective January 1,
2009.  The adoption did not have a material impact on our consolidated
financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of SFAS No.
133.SFAS No. 161 seeks to improve financial reporting for
derivative instruments and hedging activities by requiring enhanced disclosures
regarding a company’s hedging strategies, the impact on financial position,
financial performance, and cash flows.  SFAS No. 161 was effective on
January 1, 2009 and applicable to us in May 2009 when we entered into two
interest rate swap agreements.  As SFAS No. 161 only required enhanced
disclosures, the adoption did not have a material impact on our consolidated
financial statements.
 9
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 In April
2009, the FASB issued FSP No. 107-1 and Accounting Principles Board (“APB”)
28-1, Interim Disclosure about
Fair Value of Financial Instruments(“FSP 107-1”).  FSP 107-1
amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods and annual financial
statements. FSP 107-1 also amended APB Opinion No. 28, Interim Financial Reporting,to require those disclosures in summarized financial information at
interim reporting periods.  We adopted FSP No. 107-1 effective for the
three months ending July 5, 2009.  As FSP 107-1 only required enhanced
disclosures, the adoption did not have a material impact on our consolidated
financial statements.
 
 In May
2009, the FASB issued SFAS No. 165, Subsequent
Events.SFAS No. 165 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but prior to the issuance of the financial statements.  The statement
requires disclosure of the date through which subsequent events were evaluated
and the basis for that date.  We adopted SFAS No. 165 effective for
the three months ending July 5, 2009.  We reviewed events for
inclusion in the financial statements through August 13, 2009, the date that the
accompanying financial statements were issued.  As SFAS No. 165
only required enhanced disclosures, the  adoption did not have a material
impact on our consolidated financial statements.
 
 NOTE
C – ACQUISITION OF NEEDLETECH PRODUCTS, INC.
  We
acquired all of the outstanding common stock of NeedleTech on July 28,
2008.  The total purchase price, including transaction costs, was
approximately $44.1 million (net of cash, cash equivalents, and marketable
securities acquired with an estimated fair value of approximately $5.8
million).  We paid the purchase price in cash, including $24.5 million
from borrowings under our credit facility.  NeedleTech is a
manufacturer of specialty needles and related medical
devices.  NeedleTech’s 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 cardiology, orthopedics, pain
management, endoscopy, spinal surgery, urology, and veterinary
medicine.  This transaction further diversifies our surgical products
business and leverages our existing strengths within these markets. The
acquisition of NeedleTech is designed to forward our stated strategy of becoming
a diversified medical device manufacturer, increase our breadth of offerings to
existing customers, and expand our customer base of large leading-edge original
equipment manufacturers.
  We
accounted for the acquisition of NeedleTech under the purchase method of
accounting, in accordance with SFAS No. 141, Business Combinations.
Accordingly, the purchase price was allocated on a preliminary basis based on
the fair values of the assets acquired and liabilities assumed at the date of
acquisition, with the excess of the purchase price over the fair value of the
net assets acquired recorded as goodwill. Results of operations of NeedleTech
are included subsequent to the acquisition date.
  Pro Forma
Information
  The
following unaudited pro forma summary combines our results with those of
NeedleTech as if the acquisition had occurred January 1, 2008.  This
unaudited pro forma information is not intended to represent or be indicative of
our consolidated results of operations that would have been reported for the
period presented had the acquisition been completed January 1, 2008, and should
not be taken as indicative of our future consolidated results of operations or
financial condition (in thousands, except per share data):
  
 Three
      Months Ended
                                      
                                      
                                      Six
      Months EndedJune
      29, 2008
                                      
                                      
                                      June
      29, 2008Revenue
                                      
                                      $
                                      20,318
                                      
                                      
                                      $
                                      40,005Net
      earnings
                                      
                                      $
                                      1,771
                                      
                                      
                                      $
                                      3,025Earnings
      per shareBasic
                                      
                                      $
                                      0.05
                                      
                                      
                                      $
                                      0.09Diluted
                                      
                                      $
                                      0.05
                                      
                                      
                                      $
                                      0.09
  10
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 Certain
pro forma adjustments have been made to reflect the impact of the purchase
transaction, primarily consisting of amortization of intangible assets with
determinate lives, reductions in interest income as a result of cash used in the
acquisition, increases in interest expense resulting from borrowings under our
credit facility and income taxes to reflect our effective tax rate for the
period.  Pro forma net earnings for the six months ended June 30,
2008 includes non-recurring pre-tax charges of $885,000 for amortization of the
fair market value adjustments for inventory and backlog.
 
 NOTE
D - INVENTORIES
 
 Inventories are stated at the lower of
cost or market. Cost is determined using the first-in, first-out (“FIFO”) or
weighted average cost method, which approximates FIFO. Market is replacement
cost or net realizable value. We estimate reserves for inventory obsolescence
based on our judgment of future realization. Inventories were comprised of the
following (in thousands):
  July
      5, 2009
                    
                    
                    December
      31, 2008Raw
      materials
                    
                    $
                    4,896
                    
                    
                    $
                    5,024Work
      in process
                    
                    
                    3,204
                    
                    
                    
                    3,054Finished
      goods
                    
                    
                    2,985
                    
                    
                    
                    3,488Spare
      parts and supplies
                    
                    
                    897
                    
                    
                    
                    84811,982
                    
                    
                    
                    12,414Allowance
      for obsolete inventory
                    
                    
                    (578
                    )
                    
                    
                    (747
                    )Inventories,
      net
                    
                    $
                    11,404
                    
                    
                    $
                    11,667
 
 NOTE
E - TRADENAMES
 
 At
December 31, 2008, we determined that current facts and circumstances no longer
supported an indefinite life for our tradenames intangible asset.  In
considering all of the facts and circumstances at that time, including the
increased risk associated with our businesses as perceived by investors, the
distressed general equity and credit markets, especially as these factors relate
to smaller companies such as ours, and the significant economic uncertainties
caused by the worsening overall economic conditions, we concluded that an
indefinite life for our tradenames intangible assets was no longer
supportable.  We also considered changes to our terminal value
assumptions in our estimate of fair value for each reporting unit, which
affected assumptions beyond year 10 in our cash flow
forecasts.  Accordingly, we estimated that the remaining useful life
of the recorded amount of our tradenames was 10 years, and we began to amortize
tradenames over 10 years beginning in 2009. Prior to December 31, 2008, we
estimated that our tradenames intangible assets had indeterminate lives and,
accordingly, were not subject to amortization. Amortization expense related to
our tradenames was $81,000 in the second quarter of 2009 and $162,000 for the
first half of 2009 and is expected to be $324,000 for the year ending December
31, 2009.  Periods prior to this change will not be restated or
retrospectively adjusted.
 
 NOTE
F – CREDIT AGREEMENT
 
 In May
2009, we executed an Amended and Restated Credit Agreement (the “Credit
Agreement”) with a financial institution.  The Credit Agreement
provides for up to $30 million of borrowings under a revolving credit facility
(the “Revolver”) and a $10 million term loan (the “Term Loan”).  The
Revolver matures on October 31, 2012 with interest payable at the London
Interbank Offered Rate (“LIBOR”) plus 2.25%.  Maximum borrowings under
the Revolver can be increased to $40 million with the prior approval of the
financial institution under an accordion feature.  The Revolver also
provides for a $5 million sub-limit for trade and stand-by letters of
credit.  Letters of credit totaling $876,000, representing
decommission funding required by the Georgia Department of Natural Resources,
were outstanding under the Credit Agreement as of July 5, 2009. The Term Loan is
payable in thirty-six equal monthly installments of principal plus interest at
LIBOR plus 1.75%, commencing July 1, 2009.  The Credit Agreement
is unsecured, but provides for a lien to be established on substantially all of
our assets upon certain events of default.  The Credit Agreement
contains representations and warranties, as well as affirmative, reporting and
negative covenants customary for financings of this type.  Among other
things, the Credit Agreement restricts the incurrence of certain additional debt
and certain capital expenditures, and requires the maintenance of certain
financial ratios, including a minimum fixed charge coverage ratio, a maximum
liabilities to tangible net worth ratio, and the maintenance of minimum liquid
assets of $10 million, as all such ratios and terms are defined in the Credit
Agreement.  We were in compliance with all covenants at July 5,
2009.  This Credit Agreement amended and restated our prior credit
agreement, which was scheduled to mature on October 31, 2009 and provided
for a $40 million revolving loan and letter of credit commitment.
 11
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 Future
maturities under our Credit Agreement as of July 5, 2009 are as
follows:
 
 Twelve
      Months Ended July 5,2010
                            
                            
                            2011
                            
                            
                            2012
                            
                            
                            TotalTerm
      loan
                            
                            $
                            3,333
                            
                            
                            $
                            3,333
                            
                            
                            $
                            3,056
                            
                            
                            $
                            9,722Revolver
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            22,000
                            
                            
                            
                            22,000Total
                            
                            $
                            3,333
                            
                            
                            $
                            3,333
                            
                            
                            $
                            25,056
                            
                            
                            $
                            31,722
 
 In May
2009 we also entered into certain interest rate swap agreements to manage our
variable interest rate exposure.  We entered into a floating to fixed
rate swap with respect to the outstanding principal amount of the Term Loan, at
a fixed interest rate of 3.27%, and a separate floating to fixed rate swap with
respect to $6 million of the principal amount outstanding under the Revolver, at
a fixed interest rate of 4.26%.  Both interest rate swaps expire on
June 1, 2012.  Our weighted average effective interest rate at July 5,
2009 was 3.1%.
 
 NOTE
G – SHARE BASED COMPENSATION
  Stock
Options
  The
following is a summary of activity in stock options outstanding during the first
half of 2009 (shares and aggregate intrinsic value in thousands):
  Shares
                                                            
                                                            Weighted
                                                              average
                                                              exercise
                                                              price
                                                            
                                                            Weighted
                                                              average
                                                              remaining
                                                              contractual
                                                              life
      (yrs)
                                                            
                                                            Aggregate
                                                              intrinsic
                                                              valueOutstanding,
      beginning of period
                                                            
                                                            1,396
                                                            
                                                            $
                                                            7.15Granted
                                                            
                                                            334
                                                            
                                                            
                                                            .94Exercised
                                                            
                                                            --
                                                            
                                                            
                                                            --Forfeited
                                                            
                                                            (64
                                                            )
                                                            
                                                            7.45Expired
                                                            
                                                            (96
                                                            )
                                                            
                                                            7.44Outstanding,
      end of period
                                                            
                                                            1,570
                                                            
                                                            $
                                                            5.20
                                                            
                                                            5.0
                                                            
                                                            $
                                                            --Exercisable
      at end of period
                                                            
                                                            1,009
                                                            
                                                            $
                                                            6.86
                                                            
                                                            2.6
                                                            
                                                            $
                                                            --
 
 The
weighted average grant date fair value of the stock options issued in 2009 was
$0.58 per share and was estimated using the Black-Scholes options-pricing model
using the following assumptions:
 
 Expected
      dividend yield
                      0.0%Expected
      volatility
                      60.7%Risk-free
      interest rate
                      2.7%Expected
      life
                      7
      years
 
 Expected
stock price volatility is based on the historical volatility of our stock price
over the most recent period commensurate with the expected option life.
Whendetermining
the expected life of stock options, we classify 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.
  12
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 We
recognize 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
$74,000 and $138,000 for the three and six months ended July 5, 2009,
respectively, and $84,000 and $156,000 for the three and six months ended June
29, 2008, respectively.  As of July 5, 2009 there was approximately
$340,000 of unrecognized compensation cost related to non-vested stock options,
which is expected to be recognized over a weighted average period of
approximately 1.9 years.  No stock options were exercised during the
six months ended July 5, 2009 or June 29, 2008.
 
 Restricted
Stock
  A summary
of activity in non-vested restricted stock awards during the first half of 2009
follows (shares in thousands):
 Shares
                        
                        
                        Weighted
                          average
      grant
                          date
      fair valueNon-vested
      at January 1, 2009
                        
                        
                        231
                        
                        
                        $
                        3.70Granted
                        
                        
                        166
                        
                        
                        
                        .94Vested
                        
                        
                        (71
                        )
                        
                        
                        3.66Forfeited
                        
                        
                        --
                        
                        
                        
                        --Non-vested
      at July 5, 2009
                        
                        
                        326
                        
                        
                        $
                        2.35
 
 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 stock 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 $73,000
and $156,000 for the three and six months ended July 5, 2009, respectively, and
$107,000 and $222,000 for the three and six months ended June 29, 2008,
respectively. As of July 5, 2009, there was approximately $365,000 of
unrecognized compensation cost related to the restricted shares, which is
expected to be recognized over a weighted average period of 1.8
years.  The total fair value of restricted stock vested was
approximately $262,000 and $210,000 for the six months ended July 5, 2009 and
June 29, 2008, respectively.
 
 Stock
Units
 
 Compensation
expense related to stock units for the three and six months ended June 29, 2008
was approximately $2,000 and $31,000, respectively.  All outstanding
stock units were vested on December 31, 2008.
 
 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
$2,000 and $3,000 for the three and six months ended July 5, 2009, respectively,
and $1,000 and $3,000 for the three and six months June 29, 2008,
respectively.
 
 NOTE
H - DISTRIBUTION AGREEMENT AND MAJOR CUSTOMERS
  Distribution
Agreement
  Our
brachytherapy seed business sells our TheraSeed® device
directly to health care providers and to third party
distributors.  Our primary non-exclusive distribution agreement is
with C. R. Bard (“Bard”) (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 term expires December 31, 2010, and will be
automatically extended for one additional year unless either party gives notice
of its intent not to extend by December 31, 2009. 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.
 13
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 Major
Customers
  Sales to
Bard under the Bard Agreement represented 46% of brachytherapy seed product
revenue in the second quarter of 2009 and 45% in the first half of 2009 compared
with 51% in both the second quarter and first half of 2008.  Sales to
Bard under the Bard Agreement represented approximately 15% of consolidated
revenue in both the second quarter and first half of 2009 compared with
approximately 25% of consolidated revenue for each of the comparable 2008
periods.
  Accounts
receivable from Bard under the Bard Agreement represented approximately 41% of
brachytherapy accounts receivable and 14% of consolidated accounts receivable at
July 5, 2009. At December 31, 2008, accounts receivable from Bard represented
approximately 48% of brachytherapy accounts receivable and 21% of consolidated
accounts receivable. At July 5, 2009, one additional customer totaled 10% of
brachytherapy accounts receivable but was less than 10% of consolidated accounts
receivable.
  NOTE I–FINANCIAL INSTRUMENTS AND FAIR
VALUE
 
 Financial
Instruments
 
 We are
exposed to certain risks relating to our ongoing business operations. We manage
our interest rate risk using interest rate swaps associated with outstanding
borrowings under our Credit Agreement, as our interest rates are floating rates
based on LIBOR.  We do not hold or issue interest rate swaps for
trading purposes, and we hold no other derivative financial instruments other
than interest rate swaps.  Our interest rate swaps are
recorded as either assets or liabilities at fair value on our Condensed
Consolidated Balance Sheet.  We enter into interest rate swaps that
are designed to hedge the interest rate risk but are not designated as hedging
instruments under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.  Changes in the
fair value of these instruments are recognized as interest expense on our
Condensed Consolidated Statement of Earnings.  The counterparty to our
interest rate swaps is the lender under our Credit
Agreement.  Accordingly, we are exposed to counterparty credit risk
from this financial institution. We entered into interest rate swaps based on
the relationship with this financial institution as our lender and on their
credit rating and the rating of their parent company. We continue to monitor our
counterparty credit risk.
 
 A roll
forward of the notional value of our interest rate swaps for the six months
ended July 5, 2009 is as follows (in thousands):
 
 Balance,
      December 31, 2008
                                
                                $
                                -New
      contracts
                                
                                
                                16,000Matured
      contracts
                                
                                
                                278Balance,
      July 5, 2009
                                
                                $
                                15,722
 
 The
following table summarizes our derivative financial instruments not designated
as hedging instruments under SFAS No. 133 (in thousands):
 
 July
      5, 2009Type
                      
                      Notional
      Amount
                      
                      Maturity
                      
                      Balance
      Sheet Location
                      
                      Fair
      Value
                      
                      Location
      of Loss Recognized in Income
                      
                      Amount
      of Loss Recognized in IncomeInterest
      rate swaps
                      
                      $
                      15,722
                      
                      June
      2012
                      
                      Other
      assets
                      
                      $
                      10
                      
                      Interest
      exp
                      
                      $
                      11
 We did
not have any derivative financial instruments prior to the second quarter of
2009.
 14
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 Fair Value of Financial
Instruments Measured at Fair Value on a Recurring
Basis
  In
accordance with the provisions of SFAS No. 157, we measure 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.
 
 We had
the following assets measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS No. 157 (in thousands):
 
 Quoted
      Prices in Active Markets (Level 1)
                
                
                Significant
      Other Observable Inputs
                  (Level
      2)
                
                
                Significant
      Unobservable Inputs
                  (Level
      3)
                
                
                TotalJuly 5, 2009Interest
      rate swaps
                
                $
                -
                
                
                $
                10
                
                
                $
                -
                
                
                $
                10December 31, 2008Marketable
      securities
                
                $
                1,007
                
                
                $
                500
                
                
                $
                -
                
                
                $
                1,507
  Our
interest rate swaps are contracts with our financial institution, and are not
contracts that can be traded in a ready market.   We estimate the
fair value of our interest rate swaps based on the estimates of the financial
institution that carry our contracts.  Estimated fair value is based
on, among other things, discounted cash flows based upon current market
expectations about future amounts, yield curves, and mid-market
pricing.  Accordingly, we classifiy our interest rate swap
agreements as Level 2.  Due to the uncertainty inherent in the valuation
process, such estimates of fair value may differ significantly from the values
that would have been used had a ready market for our interest rate swaps
existed.
 
 Financial Instruments not
Measured at Fair Value
 
 Our
financial instruments not measured at fair value consist of cash and cash
equivalents, accounts receivable, and accounts payable, the carrying value of
each approximating fair value due to the nature of these accounts. Our financial
instruments not measured at fair value also include borrowings under our Credit
Agreement.  We estimate the fair value of outstanding borrowings under
our Credit Agreement based on the current market rates applicable to borrowers
with credit profiles similar to us.  We entered into our current
Credit Agreement in May 2009, and we estimate that the carrying value of our
borrowings approximates fair value at July 5, 2009.
 
 There
were no nonfinancial assets or nonfinancial liabilities measured at fair value
at July 5, 2009 or December 31, 2008.
 15
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 NOTE
J - SEGMENT REPORTING
 
 We are a
medical device company serving the cancer treatment and surgical markets,
operating in two business segments. Our surgical products business consists of
wound closure, vascular access, and specialty needle products.  Wound
closure includes sutures, needles and other surgical products. Vascular access
includes introducers, guidewires, and other related
products.  Specialty needles include coaxial, biopsy, spinal and
disposable veress needles, access trocars, and other needle based
products.  This segment serves a number of markets and applications,
including among other areas,  interventional cardiology,
interventional radiology, vascular surgery, orthopedics, plastic surgery, dental
surgery, urology, veterinary medicine, pain management, endoscopy, and spinal
surgery. 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 related products and
services.
 
 In the
first quarter of 2009, we changed the manner in which we allocate the cost of
corporate activities to our business segments.  Operating expenses
associated with corporate activities are now allocated based on the relative
revenue of each business segment.  With the acquisition of NeedleTech
in July 2008, the continued integration of acquired companies, the launch of our
R&D program for our surgical products segment, and the program to
standardize our information technology systems across all of our businesses,
among other things, we believe this method more accurately reflects the
utilization of our corporate resources.  This is also the method we
now utilize internally to review results and allocate
resources.  Previously, we charged the significant portion of expenses
associated with corporate activities to the brachytherapy segment.  We
have restated our segment results for the 2008 period to reflect this change in
the method of allocating corporate expenses.  This change had no
effect on our consolidated results of operations previously reported for the
2008 periods.
  Three
      Months Ended
                  
                  
                  Six
      Months EndedJuly
      5,
                    2009
                  
                  
                  June
      29,
                    2008
                  
                  
                  July
      5,
                    2009
                  
                  
                  June
      29,
                    2008RevenuesSurgical
      products
                  
                  $
                  13,667
                  
                  
                  $
                  8,444
                  
                  
                  $
                  26,816
                  
                  
                  $
                  15,764Brachytherapy
      seed
                  
                  
                  6,605
                  
                  
                  
                  7,548
                  
                  
                  
                  13,592
                  
                  
                  
                  15,514Intersegment
      eliminations
                  
                  
                  (53
                  )
                  
                  
                  (78
                  )
                  
                  
                  (112
                  )
                  
                  
                  (129
                  )$
                  20,219
                  
                  
                  $
                  15,914
                  
                  
                  $
                  40,296
                  
                  
                  $
                  31,149Earnings
      from operationsSurgical
      products
                  
                  $
                  804
                  
                  
                  $
                  961
                  
                  
                  $
                  883
                  
                  
                  $
                  1,535Brachytherapy
      seed
                  
                  
                  1,359
                  
                  
                  
                  1,651
                  
                  
                  
                  2,477
                  
                  
                  
                  3,315Intersegment
      eliminations
                  
                  
                  4
                  
                  
                  
                  (17
                  )
                  
                  
                  11
                  
                  
                  
                  (5
                  )$
                  2,167
                  
                  
                  $
                  2,595
                  
                  
                  $
                  3,371
                  
                  
                  $
                  4,845Increase
      in estimated value of asset held for saleSurgical
      products
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --Brachytherapy
      seed
                  
                  
                  --
                  
                  
                  
                  142
                  
                  
                  
                  --
                  
                  
                  
                  142$
                  --
                  
                  
                  $
                  142
                  
                  
                  $
                  --
                  
                  
                  $
                  142Capital
      expendituresSurgical
      products
                  
                  $
                  194
                  
                  
                  $
                  190
                  
                  
                  $
                  485
                  
                  
                  $
                  620Brachytherapy
      seed
                  
                  
                  316
                  
                  
                  
                  181
                  
                  
                  
                  571
                  
                  
                  
                  261$
                  510
                  
                  
                  $
                  371
                  
                  
                  $
                  1,056
                  
                  
                  $
                  881Depreciation
      and amortizationSurgical
      products
                  
                  $
                  1,219
                  
                  
                  $
                  655
                  
                  
                  $
                  2,425
                  
                  
                  $
                  1,293Brachytherapy
      seed
                  
                  
                  508
                  
                  
                  
                  532
                  
                  
                  
                  1,019
                  
                  
                  
                  1,074$
                  1,727
                  
                  
                  $
                  1,187
                  
                  
                  $
                  3,444
                  
                  
                  $
                  2,367
  16
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 We
evaluate 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.
 Supplemental
information related to significant assets and liabilities follows (in
thousands):
  July
      5,
                              2009
                            
                            
                            December
      31, 2008Identifiable assetsSurgical
      products
                            
                            $
                            63,013
                            
                            
                            $
                            62,738Brachytherapy
      seed
                            
                            
                            53,495
                            
                            
                            
                            51,731Corporate
      investment in subsidiaries
                            
                            
                            111,439
                            
                            
                            
                            111,439Intersegment
      eliminations
                            
                            
                            (111,489
                            )
                            
                            
                            (111,489
                            )$
                            116,458
                            
                            
                            $
                            114,419Customer relationships, netSurgical
      products
                            
                            $
                            11,660
                            
                            
                            $
                            12,742Brachytherapy
      seed
                            
                            
                            --
                            
                            
                            
                            --$
                            11,660
                            
                            
                            $
                            12,742Other intangible assets,
netSurgical
      products
                            
                            $
                            5,317
                            
                            
                            $
                            5,977Brachytherapy
      seed
                            
                            
                            229
                            
                            
                            
                            1$
                            5,546
                            
                            
                            $
                            5,978
 
  Information
regarding revenue by geographic regions follows (in thousands):
  Three
      Months Ended
                
                
                Six
      Months EndedJuly
      5, 2009
                
                
                June
      29, 2008
                
                
                July
      5, 2009
                
                
                June
      29, 2008Product
      salesUnited
      States
                
                $
                17,737
                
                
                $
                14,307
                
                
                $
                35,565
                
                
                $
                28,095Europe
                
                
                1,592
                
                
                
                1,238
                
                
                
                3,356
                
                
                
                2,252Other
      foreign countries
                
                
                563
                
                
                
                126
                
                
                
                815
                
                
                
                28419,892
                
                
                
                15,671
                
                
                
                39,736
                
                
                
                30,631License
      and fee incomeUnited
      States
                
                
                145
                
                
                
                25
                
                
                
                248
                
                
                
                25Canada
                
                
                182
                
                
                
                218
                
                
                
                312
                
                
                
                493327
                
                
                
                243
                
                
                
                560
                
                
                
                518$
                20,219
                
                
                $
                15,914
                
                
                $
                40,296
                
                
                $
                31,149
 
 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 our TheraSphere®
product.  Substantially all foreign product sales are related to the
surgical products segment.  All of our long-lived assets are located
within the United States.
 17
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY
5, 2009
 (Unaudited)
 NOTE
K – 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 endedJuly
      5,
                                2009
                              
                              
                              June
      29,
                                2008
                              
                              
                              July
      5,
                                2009
                              
                              
                              June
      29,
                                2008Net
      earnings
                              
                              $
                              1,271
                              
                              
                              $
                              1,638
                              
                              
                              $
                              1,878
                              
                              
                              $
                              3,274Weighted
      average common shares outstanding
                              
                              
                              33,145
                              
                              
                              
                              33,106
                              
                              
                              
                              33,124
                              
                              
                              
                              33,134Incremental
      common shares issuable under stock options and awards
                              
                              
                              53
                              
                              
                              
                              140
                              
                              
                              
                              60
                              
                              
                              
                              157Weighted
      average common shares outstanding assuming dilution
                              
                              
                              33,198
                              
                              
                              
                              33,246
                              
                              
                              
                              33,184
                              
                              
                              
                              33,291Earnings
      per shareBasic
                              
                              $
                              0.04
                              
                              
                              $
                              0.05
                              
                              
                              $
                              0.06
                              
                              
                              $
                              0.10Diluted
                              
                              $
                              0.04
                              
                              
                              $
                              0.05
                              
                              
                              $
                              0.06
                              
                              
                              $
                              0.10
  For both
the three and six months ended July 5, 2009, potential common stock from
approximately 1,560,000 stock options were not included in the diluted earnings
per share calculation because their effect is antidilutive.  For the
three and six months ended 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.
 
 NOTE
L – NON-OPERATING INCOME/(EXPENSE)
 
 Other
non-operating income/(expense) consists of the following:
 
 Three
      Months Ended
                        
                        
                        Six
      Months EndedJuly
      5, 2009
                        
                        
                        June
      29, 2008
                        
                        
                        July
      5, 2009
                        
                        
                        June
      29, 2008Realized
      loss on marketable securities
                        
                        $
                        --
                        
                        
                        $
                        (256
                        )
                        
                        $
                        --
                        
                        
                        $
                        (252
                        )Gain
      on sale of scrap metal
                        
                        
                        --
                        
                        
                        
                        244
                        
                        
                        
                        --
                        
                        
                        
                        244Miscellaneous
                        
                        
                        1
                        
                        
                        
                        (56
                        )
                        
                        
                        (1
                        )
                        
                        
                        (56
                        )Total
      other
                        
                        $
                        1
                        
                        
                        $
                        (68
                        )
                        
                        $
                        (1
                        )
                        
                        $
                        (64
                        )
 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, vascular access, and specialty
needle products.  Wound closure includes sutures, needles and other
surgical products. Vascular access includes introducers, guidewires, and related
products.  Specialty needles include coaxial, biopsy, spinal and
disposable veress needles, access trocars, and other needle based
products.  This segment serves a number of markets and applications,
including among other areas, interventional cardiology, interventional
radiology, vascular surgery, orthopedics, plastic surgery, dental surgery,
urology, veterinary medicine, pain management, endoscopy, and spinal
surgery.  Our surgical products business sells our devices and
components primarily to original equipment manufacturers (“OEMs”) and to a
network of distributors.
 
 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 maintain an in-house
sales force that sells our TheraSeed® and
I-Seed devices directly to physicians.
 
 We have
substantially diversified our operations and revenues in recent years. Prior to
2005, we operated one business segment, our brachytherapy seed
business.  Through 2002, 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”).  In August 2005, we restructured our brachytherapy seed
business to sharpen our focus on our two business segments and provide a more
focused platform for continued diversification.  In August 2006, we
acquired Galt Medical Corp. (“Galt”); and in July 2008, we acquired NeedleTech
Products, Inc. (“NeedleTech”).  CP Medical, Galt, and NeedleTech
comprise our surgical products business, which accounted for 68% and 67% of
consolidated revenue for the three and six months ended July 5, 2009,
respectively.  Prior to May 2005, the brachytherapy seed business
constituted 100% of our revenue.
 
 New
Credit Agreement
 
 In May
2009, we executed an Amended and Restated Credit Agreement (the “Credit
Agreement”) with a financial institution.  The Credit Agreement
provides for up to $30 million of borrowings under a revolving credit facility
(the “Revolver”) and a $10 million term loan (the “Term Loan”).  The
Revolver matures on October 31, 2012 with interest payable at the London
Interbank Offered Rate (“LIBOR”) plus 2.25%.  Maximum borrowings under
the Revolver can be increased to $40 million with the prior approval of the
financial institution under an accordion feature.  The Term Loan is
payable in equal monthly installments over 36 months commencing July 1, 2009
(totaling $3.3 million annually) plus interest at LIBOR plus
1.75%.  We also entered into interest rate swap agreements to hedge
our interest rate risk.  We
entered into a floating to fixed rate swap with respect to the outstanding
principal amount of the Term Loan, at a fixed interest rate of 3.27%, and a
separate floating to fixed rate swap with respect to $6 million of the principal
amount outstanding under the Revolver, at a fixed interest rate of 4.26%.This new Credit Agreement replaces the credit agreement that would have
matured in October 2009.  See “Credit Agreement”under “Liquidity and Capital
Resources” below for additional information.
 
 Acquisition
of NeedleTech Products
 
 We
acquired all of the outstanding common stock of NeedleTech on July 28,
2008.  The total purchase price, including transaction costs, was
approximately $44.1 million (net of cash, cash equivalents, and marketable
securities acquired of approximately $5.8 million).  We paid the
purchase price in cash, including $24.5 million from borrowings under our credit
facility.
 
 19
  NeedleTech
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, orthopedics,
pain management, endoscopy, spinal surgery, urology, and veterinary medicine
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 OEMs. The results of NeedleTech’s operations
were included in our consolidated results subsequent to
acquisition.
 
 Results
of Operations
 
 Change
in segment reporting
 
 In the
first quarter of 2009, we changed the manner in which we allocate the cost of
corporate activities to our business segments.  Operating expenses
associated with corporate activities are now allocated based on the relative
revenue of each business segment.  With the acquisition of NeedleTech
in July 2008, the continued integration of acquired companies, the launch of our
R&D program for our surgical products segment in late 2008, and our program
to standardize our information technology systems across all of our businesses,
among other things, we believe this method more accurately reflects the
utilization of corporate resources.  We also utilize this method
internally to review results and allocate resources.  Previously, we
charged the significant portion of expenses associated with corporate activities
to the brachytherapy segment.  We have restated our segment results
for the 2008 period to reflect this change in the method of allocating corporate
expenses.  This change did not affect the reported amounts of segment
revenue.  This change also had no effect on our consolidated results
of operations previously reported for the 2008 periods.
  Revenue
  Following
is a summary of revenue by segment (in thousands):
  Three
      Months Ended
                
                
                Six
      Months EndedJuly
      5, 2009
                
                
                June
      28, 2008
                
                
                Change
                  (%)
                
                
                July
      5, 2009
                
                
                June
      28, 2008
                
                
                Change
                  (%)Surgical
      products
                
                $
                13,667
                
                
                $
                8,444
                
                
                
                61.9
                %
                
                $
                26,816
                
                
                $
                15,764
                
                
                
                70.1
                %Brachytherapy
      seed
                
                
                6,605
                
                
                
                7,548
                
                
                
                (12.5
                %)
                
                
                13,592
                
                
                
                15,514
                
                
                
                (12.4
                %)Intersegment
      eliminations
                
                
                (53
                )
                
                
                (78
                )
                
                
                (32.1
                %)
                
                
                (112
                )
                
                
                (129
                )
                
                
                (13.2
                %)Consolidated
                
                $
                20,219
                
                
                $
                15,914
                
                
                
                27.1
                %
                
                $
                40,296
                
                
                $
                31,149
                
                
                
                29.4
                %
 
 Surigical
Products Segment
  Revenue
in our surgical products business increased 62% in the second quarter of 2009
and 70% in the first half of 2009 compared to the 2008 periods primarily as a
result of our NeedleTech acquisition.  On a pro forma basis, as if the
NeedleTech acquisition had occurred on January 1, 2008, revenue in our surgical
products segment would have increased 6% in the quarter and 9% in the first half
of 2009 compared to the 2008 periods.  A significant portion of the
revenues in our surgical business is generated by sales to OEMs and a network of
distributors.  Ordering patterns of these customers vary and are
difficult to predict.  Accordingly, surgical products revenue is
subject to fluctuation, especially on a quarter-to-quarter basis.  In
addition, the volatility and disruptions in the U.S. and global economies and
credit markets, and other uncertainties due to the economic slowdown have had an
effect on our surgical product revenue.  As general economic
conditions worsened in the fourth quarter of 2008, scheduled shipping dates for
our open orders during the fourth quarter were farther out than we historically
experienced.  We believe the lengthening lead times, at least in part,
reflect our customers’ response to efforts by hospitals to reduce inventories
and conserve cash.  We have not experienced a similar delay in
requested shipping dates during the first half of 2009.  Our open
orders were $13.2 million at July 5, 2009.  We do not know whether this
indicates a return to our historical lead times.  Looking forward, we
expect that the difficult economic climate and macroeconomic uncertainties
generally will continue to affect our surgical products business at least
through 2009 and into 2010, and perhaps make the fluctuations in our results
even more volatile from period to period.
  20
  Brachytherapy
Seed Segment
  Brachytherapy
product sales decreased 13% in the second quarter of 2009 and 12% in the first
half of 2009 compared to the 2008 periods.  We believe that the
industry wide decline in prostate brachytherapy procedure volume experienced in
2008 continued in 2009.  Some newer forms of treatment have increased
their market share, especially those with Medicare reimbursement levels that are
higher than reimbursement levels for brachytherapy.  These newer forms
of alternative treatments include Intensity Modulated Radiation Therapy (“IMRT”)
and robotic surgery.  We cannot predict when this industry wide
decline in procedure volume will stabilize and expect continued softness in
brachytherapy revenue for the remainder of 2009 and into 2010.  Our
revenues also continue to be affected by the performance of our main
distributor.  Sales to this distributor declined 22% in the second
quarter of 2009 and 23% in the first half of 2009 compared with the 2008
periods. We also maintain our own internal brachytherapy sales force that sells
TheraSeed®and I-Seed directly to hospitals and physicians. Our direct sales
declined 11% in the second quarter and 8% in the first half of 2009 compared to
2008.  Revenue from direct sales was 49% of total brachytherapy
segment revenue in the second quarter of 2009 and 50% in the first half of
2009.  In addition to competition from treatment options that enjoy
favorable reimbursement rates, we believe brachytherapy seed revenue is affected
by disruptive pricing from other brachytherapy providers and uncertainties
surrounding reimbursement as discussed below.  The average selling
price of the TheraSeed® device
sold directly to hospitals and physicians during the second quarter and the
first half of 2009 was comparable to the 2008 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, 2010 (the “Bard Agreement”). Sales under the Bard Agreement
represented 46% of brachytherapy product revenue in the second quarter of 2009
and 45% in the first half of 2009 versus 51% in both the comparable 2008
periods.  Sales under the Bard Agreement represented approximately 15%
of consolidated revenue in both the second quarter and first half of 2009 versus
approximately 25% of consolidated revenue for both the comparable 2008
periods.  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, 2010 and will be automatically extended for
one additional year unless either party gives notice of its intent not to extend
by December 31, 2009.  We also have a non-exclusive distribution
agreement in place with a second distributor, though revenue generated from the
second distributor was not material.
  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 long
standing 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 was
retroactive to July 1, 2008.  See “Medicare Developments” below.
 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.
 21
  Operating
income and costs and expenses
  Following
is a summary of operating income by segment (in thousands):
  
 Three
      Months Ended
                
                
                Six
      Months EndedJuly
      5, 2009
                
                
                June
      29, 2008
                
                
                Change
      (%)
                
                
                July
      5, 2009
                
                
                June
      29, 2008
                
                
                Change
      ($)Surgical
      products
                
                $
                804
                
                
                $
                961
                
                
                
                (16.3
                %)
                
                $
                883
                
                
                $
                1,535
                
                
                
                (42.5
                %)Brachytherapy
      seed
                
                
                1,359
                
                
                
                1,651
                
                
                
                (17.7
                %)
                
                
                2,477
                
                
                
                3,315
                
                
                
                (25.3
                %)Intersegment
      eliminations
                
                
                4
                
                
                
                (17
                )
                
                
                123.5
                %
                
                
                11
                
                
                
                (5
                )
                
                
                320.0
                %Consolidated
                
                $
                2,167
                
                
                $
                2,595
                
                
                
                (16.5
                %)
                
                $
                3,371
                
                
                $
                4,845
                
                
                
                (30.4
                %)
  Surgical
Products Segment
  Operating
income in our surgical products segment included the results of NeedleTech
subsequent to our acquisition on July 28, 2008.  Accordingly,
NeedleTech was included in our second quarter and first half results of 2009 but
not in the comparable 2008 periods.
  Our
organic growth and the addition of NeedleTech contributed to higher gross profit
(revenue less cost of sales) in the 2009 periods.  Gross profit was
$5.6 million, or 41% of sales in the second quarter of 2009 and $10.6 million,
or 40% of sales in the first half of 2009.  In the 2008 periods, gross
profit was 50% of sales in the second quarter and 49% in the first half of the
year.  The decline in gross profit percentage, sometimes referred to
as “gross margin”, is primarily due to the change in product mix after our
NeedleTech acquisition, with a larger percent of sales being to OEM
customers.  These sales typically carry a lower gross margin than
sales to our distributors and direct sales.  We also had higher than
normal rework and scrap rates in the first quarter of 2009.  Finally,
we have experienced pricing pressure from customers due to the uncertainties and
difficulties being encountered in the general economy.  We expect
these pricing pressures to continue throughout 2009 and into
2010.  Looking forward, we do not expect gross margins to return to
the 2008 levels because of the changes in sales channel mix and the
uncertainties in the general economy.
  Operating
income in our surgical products segment decreased $157,000 or 16% in the second
quarter of 2009 and decreased $652,000 or 43% in the first half of 2009 from the
comparable 2008 periods as a result of a number of factors.  First,
our investments in research and development (“R&D”) increased $448,000 in
the second quarter of 2009 and $931,000 for the first half of 2009 over the
comparable 2008 periods.  We launched a new R&D program in our
surgical products business in the second half of 2008.  This R&D
program is intended to focus on product extensions, next generation products,
and new products that are complementary to our current product
lines.  Our R&D program is intended to focus on 510(k) products,
and not on products that require lengthy and expensive clinical
trials.  We expect introduction of our first new products from this
R&D effort in late 2009 or early 2010.  Second, corporate costs
allocated to our surgical products business increased by $300,000 in the second
quarter of 2009 and $900,000 in the first half of 2009, as compared to the 2008
periods.  Our corporate costs are allocated based on the relative
revenue of each of our two business segments.  Revenue in our surgical
products business significantly increased as a percent of consolidated revenue
after the acquisition of NeedleTech in July 2008.  We expect
allocation of corporate costs will begin to become more comparable in the third
quarter of 2009, as NeedleTech results were included in the third quarter of
2008.  Third, we recorded amortization expense related to our
tradenames intangible assets totaling $81,000 in the second quarter of 2009 and
$162,000 in the first half of 2009.  We did not record any
amortization in the comparable 2008 periods.  Amortization of our
tradenames intangible assets resulted from our reassessment of their useful
lives during impairment testing at December 31, 2008. Total amortization expense
from tradename amortization is expected to be $324,000 for the full year in
2009.  We also incurred expenses in 2009 related to our program to
standardize the information technology (“IT”) systems across all of our
businesses and locations.  We expect to continue to invest in
infrastructure and R&D during 2009 as investments are made to support
anticipated future growth and to develop products 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.
 22
  Brachytherapy
Seed Segment
  Operating
income in our brachytherapy business decreased $292,000 or 18% in the second
quarter of 2009 and $838,000 or 25% in the first half of 2009 compared to the
2008 periods.  The decline in operating income is primarily a result
of lower revenues.  Manufacturing related expenses in our
brachytherapy business tend to be relatively 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.  Operating income
in our brachytherapy business benefited from a reduction in the allocation of
corporate costs in the 2009 periods.  We now allocate corporate costs
based on the relative revenue of each of our two business
segments.  Because our brachytherapy revenue comprised less of our
consolidated revenue in 2009, mainly due to the inclusion of NeedleTech results,
corporate costs allocated to our brachytherapy business declined $225,000 in the
second quarter and $376,000 in the first half of the year, compared to the 2008
periods.  We expect allocation of corporate costs will begin to become
more comparable in the third quarter of 2009, as NeedleTech results were
included in the third quarter of 2008.
  Other
income/expense
 
 Interest
income decreased to $6,000 in the second quarter of 2009 from $297,000 in the
second quarter of 2008 and to $17,000 in the first half of 2009 from $756,000 in
the first half of 2008 due to significantly lower yields on our investment
portfolio.  In the
2008 periods, we had significant investments in auction rate
securities.  These investments provided relatively higher returns than
we are currently experiencing, but these investments also turned out to be
illiquid and very risky.  The auction rate security market continues
to be relatively illiquid and risky.  We liquidated our auction rate
securities in late 2008 and early 2009 at full value and without incurring any
losses to principal.  However, due to the uncertainties and
risks inherent in the current investment and credit markets, our investment
portfolio in 2009 is much more conservatively invested than it was last
year.  All of our investments are currently held in banks, U.S.
Treasury Bills or highly rated money market accounts.  Looking
forward, we may invest our funds in higher yielding investments if those
investments meet the conservative criteria established by our investment
policies and the macroeconomic outlook becomes clearer.  In addition,
we had fewer funds invested in 2009.  A portion of our available funds
in the first half of 2008 were utilized in our NeedleTech acquisition in July
2008.  Finally, funds available for investment have and will continue
to be utilized for our current and future expansion programs, for strategic
opportunities for growth and diversification, and for installment payments on
the term loan. As funds continue to be used for these purposes, and as interest
rates continue to change, we expect interest income to fluctuate
accordingly.
 
 Interest
expense increased to $156,000 in the second quarter of 2009 from $131,000 in the
second quarter of 2008 and increased to $285,000 in the first half of 2009 from
$277,000 in the first half of 2008.  This increase was a result of
higher borrowings due to an additional $24.5 million of borrowings for the
NeedleTech acquisition.  Somewhat offsetting this increase in higher
borrowings was a lower effective interest rate during most of the first half of
2009.  Our weighted average effective interest rate was 3.1% at July
5, 2009.
 We manage
our interest rate risk using interest rate swaps associated with outstanding
borrowings under our credit agreement, as our interest rates are floating rates
based on LIBOR.  We do not hold or issue interest rate swaps for
trading purposes, and we hold no other derivative financial instruments other
than interest rate swaps. We enter into interest rate swaps that are designed to
hedge the interest rate risk but are not designated as hedging instruments under
SFAS No. 133.  Changes in the fair value of these instruments are
recognized as interest expense.  Such changes in fair value are based
on, among other things, discounted cash flows based upon current market
expectations about future amounts, yield curves, and mid-market
pricing.  Accordingly, the fair value of our interest rate swaps is
subject to fluctuation and may have a significant effect on our results of
operations in future periods.  Additionally, the counterparty to our
interest rate swaps is the lender under our Credit
Agreement.  Accordingly, we are exposed to counterparty credit risk
from this financial institution. We entered into interest rate swaps based on
the relationship with this financial institution as our lender and on their
credit rating and the rating of their parent company. We continue to monitor our
counterparty credit risk.
  23
 Income
tax expense
 
 Our
effective income tax rate for the second quarter and first half of 2009 was 37%
and 39%, respectively, compared to 39% and 38%, respectively, for each of the
2008 periods. We expect our 2009 tax rates to be reflective of our rates going
forward.  However, our tax rates can be significantly affected by,
among other things, tax expense for items unrelated to actual taxable income,
such as the write-off of deferred tax assets associated with share based
compensation.  Accordingly, our tax rate for financial reporting
purposes going forward is subject to significant fluctuations.
 
 Critical
Accounting Policies and Estimates
 
 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,
2008. Certain accounting policies, as more fully described under “Critical Accounting Policies and
Estimates” included in the Management’s Discussion and Analysis of our
2008 Form 10-K, 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. There have been no significant changes to our
critical accounting policies since December 31, 2008.
 
 The
following replaces and clarifies our critical accounting policies and estimates
with respect to our significant judgments and estimates related to revenue
recognition and goodwill and other intangible assets as disclosed in our Form
10-K for the year ended December 31, 2008:
  Revenue Recognition and Cost of
Sales.We recognize revenue when
persuasive evidence of a sales arrangement exists, title and risk of loss have
transferred, the selling price is fixed or determinable, contractual obligations
have been satisfied and collectibility is reasonably assured.  Revenue
for product sales is recognized upon shipment.  License fees are
recognized in the periods to which they relate.
 
 Charges
for returns and allowances are recognized as a deduction from revenue on an
accrual basis in the period in which the related revenue is
recorded.  The accrual for product returns and allowances is based on
our history.  We allow customers to return defective
products.  In our brachytherapy segment, we also allow customers to
return products in cases where the attending physician or hospital has certified
that the brachytherapy procedure was unable to be performed as scheduled due to
the patient’s health or other valid reason.  Historically, product
returns and allowances have not been material.
 
 Shipping
and handling costs are included in cost of sales. Billings to customers to
recover such costs are included in product sales. Any sales taxes charged to
customers are excluded from both net sales and expenses.
 Goodwill and other intangible
assets. We account for goodwill and other intangible assets in accordance
with the provisions of SFAS No. 142. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are not amortized to expense and must be reviewed
for impairment annually or more frequently if events or changes in circumstances
indicate that such assets might be impaired. The first step of the impairment
test, used to identify potential impairment, compares the fair value of a
reporting unit with its carrying amount, including goodwill and intangible
assets with indefinite lives. If fair value exceeds book value, goodwill is
considered not impaired, and the second step of the impairment test is
unnecessary. If book value exceeds fair value, the second step of the impairment
test is performed to measure the amount of impairment loss, if any. For this
step the implied fair value of the goodwill is compared with the book value of
the goodwill. If the carrying amount of the goodwill exceeds the implied fair
value of the goodwill, an impairment loss would be recognized in an amount equal
to that excess. Any loss recognized cannot exceed the carrying amount of
goodwill. After an impairment loss is recognized, the adjusted carrying amount
of goodwill is its new accounting basis. Subsequent reversal of a previously
recognized impairment loss is prohibited once the measurement of that loss is
completed.
 24
  When we
have goodwill or other intangible assets not subject to amortization recorded in
our consolidated balance sheet, we perform our annual impairment assessment
during the fourth quarter. We also make judgments about goodwill and other
intangible assets not subject to amortization whenever events or changes in
circumstances indicate that impairment in the value of such asset recorded on
our balance sheet may exist. The timing of an impairment test may result in
charges to our statements of income in future reporting periods that could
not have been reasonably foreseen in prior periods.
  In order
to estimate the fair value of goodwill and other intangible assets not subject
to amortization, we typically prepare discounted cash flow analyses (“income
approach”) and comparable company market multiples analyses (“market approach”)
to determine the fair value of our reporting units.
 
 For the
income approach, we project future cash flows for each reporting unit. This
approach requires significant judgments including the projected net cash flows,
the weighted average cost of capital (“WACC”) used to discount the cash flows
and terminal value assumptions. We derive the assumptions related to cash flows
primarily from our internal budgets and forecasts.  These budgets and
forecasts include information related to our current and future products,
revenues, capacity, operating costs, and other information.  All such
information is derived in the context of our long-term operational
strategies.  The WACC and terminal value assumptions are based on the
capital structure, cost of capital, inherent business risk profiles, and
industry outlooks for each of our reporting units, and for our Company on a
consolidated basis.
 
 For the
market approach, we identify reasonably similar public companies for each of our
reporting units, analyze the financial and operating performance of these
similar companies relative to our financial and operating performance, calculate
market multiples primarily based on the ratio of Business Enterprise Value
(“BEV”) to revenue and BEV to earnings before interest, taxes, depreciation and
amortization (“EBITDA”), adjust such multiples for differences between the
similar companies and our reporting units, and apply the resulting multiples to
the fundamentals of our reporting units to arrive at an indication of fair
value.
 
 To assess
the reasonableness of our valuations under each method, we reconcile the
aggregate fair values of our reporting units to our market
capitalization.
  The most
recent assessment under SFAS No 142 was performed in the fourth quarter of
2008.  We determined that all of our goodwill was impaired and that a
portion of our tradenames intangible asset was impaired, and these impairment
charges were recorded in the fourth quarter of 2008.
  Our
market capitalization declined significantly in the fourth quarter of 2008,
along with the significant declines in the overall market value of all of the
major stock markets in the United States and around the world.  We
considered our market capitalization when we developed the appropriate discount
rates and comparable company market multiples for purposes of estimating the
fair value of our reporting units.  The significant decline in our
market capitalization resulted in discount rates that were considerably higher,
and comparable company market multiples that were considerably lower, than the
discount rates and comparable company market multiples we previously considered
appropriate.  The most significant assumption leading to our
impairment charges in the fourth quarter of 2008 was the various discount rates
for our reporting units, all of which exceeded 20% at that point in
time.  We attempted to identify the underlying reasons for this
circumstance.  We considered many factors, including: the conditions
of the companies in our sectors; unusual short selling or other unusual activity
in the trading of our common stock; and whether the overall general economic
outlook and stock market declines could be considered as
“temporary.”  We were unable to identify any of these factors as
directly affecting the decline in our market capitalization.  The
long-term expectations for our reporting units did not materially change during
the period.  We concluded that the significant increase in our
discount rates and decrease in our comparable company market multiples was a
result of the increased risk associated with the distressed equity and credit
markets generally, especially as these factors relate to a small company such as
ours.  In addition, we believe the increasing prevalence of
shareholders and investors trading securities outside of the traditional stock
exchanges contributes to share price volatility, especially over the short tem.
Finally, the scarcity of capital, especially for smaller companies, affects
the risks associated with investments in its common stock and its share
price.
  25
  In
connection with our goodwill and tradenames impairment testing in the fourth
quarter of 2008, we also assessed the estimated useful lives of our
tradenames.  At December 31, 2008, we determined that current facts
and circumstances no longer supported an indefinite life for our tradenames
intangible asset.  In considering all of the facts and circumstances
at that time, including the increased risk associated with our businesses as
perceived by investors, the distressed general equity and credit markets,
especially as these factors relate to smaller companies such as ours, and the
significant economic uncertainties caused by the worsening overall economic
conditions, we concluded that an indefinite life for our tradenames intangible
assets was no longer supportable.  We also considered changes to our
terminal value assumptions in our estimate of fair value for each reporting
unit, which affected assumptions beyond year 10 in our cash flow
forecasts.  Accordingly, we estimated that the remaining useful life
of the recorded amount of our tradenames was 10 years, and we began to amortize
tradenames over 10 years beginning in 2009. Prior to December 31, 2008, we
estimated that our tradenames intangible assets had indeterminate lives and,
accordingly, were not subject to amortization.  Amortization expense
related to our tradenames was $81,000 in the second quarter of 2009 and $162,000
for the first half of 2009 and is expected to be $324,000 for the year ending
December 31, 2009.  Periods prior to this change will not be restated
or retrospectively adjusted.




New
Accounting Pronouncements
 
 In April
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) No. 142-3, Determination of the
UsefulLife of
Intangible Assets (“FSP
142-3”).  The intent of FSP 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets, and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141R, Business Combinations, and other U.S.
generally accepted accounting principles.  We adopted FSP FAS 142-3
effective January 1, 2009.  The adoption did not have a material
impact on our consolidated financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of SFAS No.
133.SFAS No. 161 seeks to improve financial reporting for
derivative instruments and hedging activities by requiring enhanced disclosures
regarding a company’s hedging strategies, the impact on financial position,
financial performance, and cash flows.  SFAS No. 161 was effective on
January 1, 2009 and applicable to us in May 2009 when we entered into two
interest rate swap agreements.  As SFAS No. 161 only required enhanced
disclosures, the adoption did not have a material impact on our consolidated
financial statements.
 
 In April
2009, the FASB issued FSP No. 107-1 and Accounting Principles Board (“APB”)
28-1, Interim Disclosure about
Fair Value of Financial Instruments(“FSP 107-1”).  FSP 107-1
amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods and annual financial
statements. FSP 107-1 also amended APB Opinion No. 28, Interim Financial Reporting,to require those disclosures in summarized financial information at
interim reporting periods.  We adopted FSP No. 107-1 effective for the
three months ending July 5, 2009.  As FSP 107-1 only required
enhanced disclosures, the adoption did not have a material impact on our
consolidated financial statements.
 
 In May
2009, the FASB issued SFAS No. 165, Subsequent
Events.SFAS No. 165 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but prior to the issuance of the financial statements.  The statement
requires disclosure of the date through which subsequent events were evaluated
and the basis for that date.  We adopted SFAS No. 165 effective for
the three months ending July 5, 2009.  As SFAS No. 165 only required
enhanced disclosures, the adoption did not have a material impact on our
consolidated financial statements.
 
 Liquidity
and Capital Resources
 
 We had
cash and cash equivalents of $46.7 million at July 5, 2009, compared to $39.1
million at December 31, 2008. The aggregate increase in cash and cash
equivalents was primarily the result of cash generated from operations,
partially offset by capital expenditures, repayment of borrowings and loan
closing costs.
 26
 Cash
provided by operations was $7.6 million and $5.2 million during the first half
of 2009 and 2008, 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, income taxes, and payables.  Net earnings for the first
half of 2009 was $1.9 million, compared to $3.3 million in the first half of
2008. However, cash provided from operations increased in the 2009 period
primarily as a result of a $1.5 million income tax refund received in 2009 and
higher non-cash depreciation and amortization charges in 2009. During 2008 we
sold our Oak Ridge facility and generated an income tax loss.  In the
second quarter of 2009, the use of this income tax loss allowed us to recover
$1.5 million of income taxes previously paid during 2008.  The use of this
loss also allowed us to reduce income taxes payable in the first half of 2009 by
$576,000.  We had no remaining tax losses from the sale of our Oak Ridge
facility at the end of the second quarter of 2009.  Looking forward,
we expect to pay income taxes on taxable income at our normal tax rates for the
remainder of 2009.  Our non-cash depreciation and amortization
expenses were $1.1 million higher in the first half of 2009 as compared to 2008,
primarily resulting from depreciation and amortization related to our NeedleTech
acquisition in July 2008.
  Working
capital was $60.7 million at July 5, 2009 compared to $28.1 million at December
31, 2008.  The increase in working capital is mainly due to the
classification of $28.4 million of outstanding borrowings under our Credit
Agreement as long-term at July 5, 2009.  These borrowings were
classified as short-term at December 31, 2008.  We obtained a new
Credit Agreement in May 2009.  See “Credit Agreement”
below.
 
 Capital
expenditures totaled $1.1 million and $881,000 during the first half of 2009 and
2008, respectively.  Capital expenditures were primarily to support
continued growth and capacity in the surgical products business, and for our
corporate wide investments in standardizing our information technology (“IT”)
systems.  We expect our capital expenditures to increase in 2009 as we
continue our investments to support growth in the surgical products segment and
to implement our standardized IT systems.  In particular, we expect to
move our specialty needle manufacturing facility to another plant in early
2010.  We expect to acquire and remodel an existing larger plant
beginning in the second half of 2009.  Capital expenditures are also
expected to increase during 2009 and 2010 as a result of our investments in our
IT systems.  Our strategic IT initiative is designed to improve
efficiencies and better support all of our businesses, employees and customers.
These programs, along with our capital expenditures in the normal course of
business, could increase our capital expenditure level to as much as $10 million
to $15 million over the next twelve months.
 
 Cash used
in financing activities in the first half of 2009 was $430,000 and related
primarily to our new Credit Agreement.  See “Credit Agreement”
below.  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.
 
 Wemay also continue to use cash for
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 combined with cash from future operations will be sufficient
to meet our current short-term anticipated working capital and capital
expenditure requirements. However, continued disruption and instability in the
U.S. and global financial markets and worldwide economies may hinder our ability
to take advantage of opportunities for long-term growth in our
businesses.  In the event additional financing becomes necessary, we
may choose to raise those funds through other means of financing as
appropriate.
 
 Research and
Development
 
 R&D
expenses were $588,000 in the second quarter of 2009 compared to $161,000 in the
second quarter of 2008 and $1.2 million in the first half of 2009 compared to
$294,000 in the comparable 2008 period.  These increases are a result
of the R&D program we launched in our surgical products segment in the
second half of 2008.  This R&D program is intended to focus on
product extensions, next generation products, and new products that are
complementary to our current product lines.  Our R&D program is
intended to focus on 510(k) products, and not on products that require lengthy
and expensive clinical trials.  We expect to continue to use cash in
2009 to support growth in the surgical products segment, especially for this
R&D program.  This new R&D effort may increase our R&D
expenses to as much as $3.5 million in 2009, depending on the
opportunities.
 27
  Credit
Agreement
 
 In May we
executed an Amended and Restated Credit Agreement (the “Credit Agreement”) with
a financial institution.  The Credit Agreement provides for up to $30
million of borrowings under a revolving credit facility (the “Revolver”) and a
$10 million term loan (the “Term Loan”).  The Revolver matures on
October 31, 2012 with interest payable at the London Interbank Offered Rate
(“LIBOR”) plus 2.25%.  Maximum borrowings under the Revolver can be
increased to $40 million with the prior approval of the lender under an
accordion feature.  The Revolver also provides for a $5 million
sub-limit for trade and stand-by letters of credit.  Letters of credit
totaling $876,000, representing decommission funding required by the Georgia
Department of Natural Resources, were outstanding under the Credit Agreement as
of July 5, 2009. The Term Loan is payable in thirty-six equal monthly
installments of principal plus interest at LIBOR plus 1.75%, commencing
July 1, 2009.  The Credit Agreement is unsecured, but provides
for a lien to be established on substantially all of our assets upon certain
events of default.  The Credit Agreement contains representations and
warranties, as well as affirmative, reporting and negative covenants customary
for financings of this type.  Among other things, the Credit Agreement
restricts the incurrence of certain additional debt and certain capital
expenditures, and requires the maintenance of certain financial ratios,
including a minimum fixed charge coverage ratio, a maximum liabilities to
tangible net worth ratio, and the maintenance of minimum liquid assets of $10
million, as all such ratios and terms are defined in the Credit
Agreement.  We were in compliance with all covenants at July 5,
2009.  This Credit Agreement amended and restated the prior credit
agreement, which was scheduled to mature on October 31, 2009 and provided
for a $40 million revolving loan and letter of credit commitment.
  Future
maturities under our Credit Agreement as of July 5, 2009 are as
follows:
 
  Twelve
      Months Ended July 5,2010
                                    
                                    
                                    2011
                                    
                                    
                                    2012
                                    
                                    
                                    TotalTerm
      loan
                                    
                                    $
                                    3,333
                                    
                                    
                                    $
                                    3,333
                                    
                                    
                                    $
                                    3,056
                                    
                                    
                                    $
                                    9,722Revolver
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    22,000
                                    
                                    
                                    
                                    22,000Total
                                    
                                    $
                                    3,333
                                    
                                    
                                    $
                                    3,333
                                    
                                    
                                    $
                                    25,056
                                    
                                    
                                    $
                                    31,722
 In May
2009 we also entered into certain interest rate swap agreements to manage our
variable interest rate exposure.  We entered into a floating to fixed
rate swap with respect to the entire principal amount of the Term Loan, at a
fixed interest rate of 3.27%, and a separate floating to fixed rate swap with
respect to $6 million of the principal amount outstanding under the Revolver, at
a fixed interest rate of 4.26%.  Both interest rate swaps expire on
June 1, 2012.  Our weighted average effective interest rate at July 5,
2009 was 3.1%.
 
 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 superseded 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.
 28
  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 superseded 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.
 
 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
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 was
retroactive to July 1, 2008.
  Consistent with proposals
that CMS attempted unsuccessfully to implement in recent years, CMS posted a
proposed OPPS rule on July 1, 2009 with fixed prospective payment rates for
brachytherapy seeds.  The proposed use of prospective payment rates
would fix the per seed rate at which Medicare would reimburse hospitals during
calendar year 2010.We expect to continue to
support efforts to urge Congress and CMS against finalizing this proposal by
extending the current “pass-through” reimbursement policies beyond
2009.  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, 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, implementation of information
technology systems, 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
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, results in general, plans and strategies for continuing
diversification, valuation of cash equivalents and marketable 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
 29
  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, ability and resources to implement
an information technology system, 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 acquisition, the
ability to realize our estimate of fair value upon sale or other liquidation of
marketable securities and cash equivalents that we may hold, the success of our
hedging strategies using interest rate swaps to manage our interest rate risk,
volatility in U.S. and global stock markets, economic conditions generally,
potential changes in tax rates and market interest rates, the effect of current
difficulties in the credit markets on our business, 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.
  Item
3. Quantitative and
Qualitative Disclosures About Market Risk
 
 We have exposure to market risk as a
result of changing interest rates on a portion of our borrowings under our
Credit Agreement.  Under our Credit Agreement we have outstanding
borrowings of $9.7 million under a term loan that is payable in equal monthly
installments of approximately $278,000 through July 2012.  Interest is
payable at LIBOR plus 1.75%.  We have entered into a floating to fixed
rate swap agreement that expires in July 2012 with respect to the outstanding
amount of the term loan at a fixed interest rate of 3.26%.  We also
have outstanding borrowings of $22 million under a revolving credit facility
feature of our Credit Agreement.  The revolving credit facility
matures in October 2012. Interest on outstanding borrowings under the revolving
credit facility is payable at LIBOR plus 2.25%. We entered into a separate
floating to fixed rate swap that expires in July 2012 with respect to $6 million
of the principal amount outstanding under the revolving credit facility at a
fixed interest rate of 4.26%.   Accordingly, we are exposed to
changes in interest rates on outstanding borrowings under our revolving credit
facility in excess of $6 million. At July 5, 2009, we had a total of $22 million
outstanding under our revolving credit facility.  A hypothetical 1%
change in the interest rate applicable to the borrowings in excess of $6 million
would result in an increase or decrease in interest expense of $160,000 per year
before income taxes, assuming the same level of borrowings.
 
 Item 4. Controls
and Procedures
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended.  Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of July 5, 2009,
the end of the period covered by this report. We acquired NeedleTech Products,
Inc. (“NeedleTech”) on July 28, 2008.  Since the date of acquisition,
we have been focusing on analyzing, evaluating, and implementing changes in
NeedleTech’s procedures and controls to determine their effectiveness and to
make them consistent with our disclosure controls and
procedures.  Prior to our acquisition of NeedleTech, they were not
required to maintain disclosure controls and procedures or maintain, document
and assess internal control over financial reporting, in each case as required
under the rules and regulation of the U.S. Securities and Exchange
Commission.  Accordingly, we expect that it will take several months
to continue to analyze NeedleTech’s procedures and controls and expect to make
additional changes to those controls in the future.  As permitted by
guidance issued by the staff of the U.S. Securities and Exchange Commission,
NeedleTech has been excluded from the scope of our quarterly discussion of
material changes in internal control over financial reporting
below.  We have performed additional procedures to review accounting
records and substantiate the financial information of NeedleTech included in
this report.  NeedleTech was included in our results of operations
subsequent to our acquisition on July 28, 2008 and constituted 23% of our
consolidated revenues for the first half of 2009 and 17% of consolidated assets
as of July 5, 2009.
 30
  No
changes in our internal control over financial reporting were identified as
having occurred during the quarter ended July 5, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting, except as described above with respect to NeedleTech.
Changes to processes, information technology systems, and other components of
internal control over financial reporting resulting from the acquisition of
NeedleTech are expected as the integration proceeds.
 
 PART
II. OTHER INFORMATION
 
 Item
1. Legal
Proceedings
 
 From time
to time, we are subject to certain legal proceedings and claims in the ordinary
course of business. We currently are not aware of any such legal proceedings or
claims that we believe will have, individually or in aggregate, a material
adverse effect on our business, financial condition, or operating
results.
  Item
1A. Risk
Factors
 
 In
addition to the information set forth below and 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, 2008, 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 14,
    2009.  (b)
                Kathleen
      A. Dahlberg was elected to the board of directors to serve for a
      three-year term. Ms. Dahlberg received 25,209,681 votes for her election
      while 539,792 votes withheld authority for her
  election.
  (c)
              C.
      David Moody, Jr. was elected to the board of directors to serve for a
      three-year term. Mr. Moody received 25,210,107 votes for his election
      while 539,366 withheld authority for his
      election.
  (d)
              The
      appointment of Dixon Hughes PLLC as the Company’s independent registered
      public accounting firm for the year ending December 31, 2009 was ratified
      with 24,850,616 votes for ratification, 839,207 votes against ratification
      and 59,650 abstentions.
  31
 
 Item
6. Exhibits
  Exhibit
      No.
                
                Title10.1
                
                Amended
      and Restated Credit Agreement dated May 27, 2009 among the Company, C.P.
      Medical Corporation, Galt Medical Corp., NeedleTech Products, Inc. and
      Wachovia, together with related Term Loan Note and Amended, Restated and
      Consolidated Line of Credit Note.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.
  32
 
 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 13, 2009
                        By:
                        /s/ M.
      Christine JacobsM.
      Christine Jacobs
                          Chief
      Executive Officer
 Date:
      August 13, 2009
                    By:
                    /s/ Francis
      J. TaralloFrancis
      J. Tarallo
                      Chief
      Financial Officer