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 March 30, 2008
  or
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
transition period from __________ to __________
  Commission
File No. 0-15443
  THERAGENICS CORPORATION®
 (Exact
name of registrant as specified in its charter)
  Delaware
              58-1528626(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      Number)
  5203 Bristol Industrial
      WayBuford,
      Georgia
              30518(Address
      of principal executive offices)
              (Zip
      Code)
  Registrant's telephone
number, including area code: (770) 271-0233
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
at least the past 90 days. YES x  
NO o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or smaller reporting
company.  See definitions of “large accelerated file,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
 Large
      Accelerated Filer  o
              Accelerated
      Filer  x
              Non
      Accelerated Filer  o
              Smaller
      Reporting Company  o
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 YES o  
NO x
  As of May
5, 2008 the number of shares of $0.01 par value common stock outstanding was
33,405,018.
 
 THERAGENICS
CORPORATION
 
 TABLE OF
CONTENTS
 
 
 
 Page
      No.PART
      I. FINANCIAL INFORMATIONITEM
      1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Condensed
      Consolidated Balance Sheets – March 30, 2008 and December 31,
      2007
                3Condensed
      Consolidated Statements of Earnings for the quarters ended March 30, 2008
      and April 1, 2007
                5Condensed
      Consolidated Statements of Cash Flows for the quarters ended March 30,
      2008 and April 1, 2007
                6Condensed
      Consolidated Statement of Shareholders’ Equity for the quarter ended March
      30, 2008
                7Notes
      to Condensed Consolidated Financial Statements
                8ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS
                15ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
                21ITEM
      4. CONTROLS AND PROCEDURES
                21PART
      II. OTHER INFORMATIONITEM
      1. LEGAL PROCEEDINGS
                21ITEM
      1A. RISK FACTORS
                21ITEM
      6. EXHIBITS
                22SIGNATURES
                23
  2
  PART
      I. FINANCIAL INFORMATION
                  
                  Item
      1. Financial
      Statements
                  THERAGENICS
      CORPORATION AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETS(Amounts
      in thousands, except per share data)ASSETSMarch
      30,
                  2008
                  (Unaudited)
                
                
                December
      31,
                  2007CURRENT
      ASSETSCash
      and cash equivalents
                
                $
                35,219
                
                
                $
                28,666Marketable
      securities
                
                
                15,132
                
                
                
                20,123Trade
      accounts receivable, less allowance of $298 in 2008 and $372 in
      2007
                
                
                7,955
                
                
                
                7,882Inventories
                
                
                8,309
                
                
                
                7,644Deferred
      income tax asset
                
                
                1,664
                
                
                
                1,664Prepaid
      expenses and other current assets
                
                
                1,396
                
                
                
                1,338TOTAL
      CURRENT ASSETS
                
                
                69,675
                
                
                
                67,317PROPERTY
      AND EQUIPMENTBuildings
      and improvements
                
                
                22,623
                
                
                
                22,579Machinery
      and equipment
                
                
                37,881
                
                
                
                37,349Office
      furniture and equipment
                
                
                1,014
                
                
                
                98861,518
                
                
                
                60,916Less
      accumulated depreciation
                
                
                (34,988
                )
                
                
                (34,327
                )26,530
                
                
                
                26,589Land
      and improvements
                
                
                822
                
                
                
                822Construction
      in progress
                
                
                422
                
                
                
                561PROPERTY
      AND EQUIPMENT, NET
                
                
                27,774
                
                
                
                27,972Goodwill
                
                
                38,658
                
                
                
                38,658Other
      intangible assets
                
                
                11,412
                
                
                
                11,881Asset
      held for sale
                
                
                2,900
                
                
                
                2,900Other
      assets
                
                
                93
                
                
                
                9353,063
                
                
                
                53,532TOTAL
      ASSETS
                
                $
                150,512
                
                
                $
                148,821
  The
accompanying notes are an integral part of these statements.
  3
  THERAGENICS
      CORPORATION AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETS – Continued(Amounts
      in thousands, except per share data)LIABILITIES
      & SHAREHOLDERS’ EQUITYMarch
      30,
                  2008
                  (Unaudited)
                
                
                December
      31,
                  2007CURRENT
      LIABILITIESTrade
      accounts payable
                
                $
                1,802
                
                
                $
                1,530Accrued
      salaries, wages and payroll taxes
                
                
                1,134
                
                
                
                1,868Income
      tax payable
                
                
                914
                
                
                
                867Other
      current liabilities
                
                
                985
                
                
                
                724TOTAL
      CURRENT LIABILITIES
                
                
                4,835
                
                
                
                4,989LONG-TERM
      LIABILITIESLong-term
      debt
                
                
                7,500
                
                
                
                7,500Deferred
      income taxes
                
                
                1,342
                
                
                
                1,369Contract
      termination liability
                
                
                1,480
                
                
                
                1,487Decommissioning
      retirement liability
                
                
                613
                
                
                
                602Other
      long-term liabilities
                
                
                284
                
                
                
                255TOTAL
      LONG-TERM LIABILITIES
                
                
                11,219
                
                
                
                11,213COMMITMENTS
      AND CONTINGENCIES
                
                
                -
                
                
                
                -SHAREHOLDERS’
      EQUITYCommon
      stock, authorized 100,000 shares of
                  $0.01
      par value, issued and outstanding,33,402
      in 2008 and 33,274 in 2007
                
                
                334
                
                
                
                333Additional
      paid-in capital
                
                
                73,141
                
                
                
                72,918Retained
      earnings
                
                
                61,060
                
                
                
                59,424Accumulated
      other comprehensive loss
                
                
                (77
                )
                
                
                (56
                )TOTAL
      SHAREHOLDERS' EQUITY
                
                
                134,458
                
                
                
                132,619TOTAL
      LIABILITIES ANDSHAREHOLDERS'
      EQUITY
                
                $
                150,512
                
                
                $
                148,821
 
 The
accompanying notes are an integral part of these statements.
  4
 
 THERAGENICS
      CORPORATION AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF EARNINGS(UNAUDITED)(Amounts
      in thousands, except per share data)Quarter
      EndedMarch
      30,
                
                
                April
      1,2008
                
                
                2007REVENUEProduct
      sales
                
                $
                14,960
                
                
                $
                15,227License
      fees
                
                
                275
                
                
                
                22415,235
                
                
                
                15,451COST
      OF SALES
                
                
                7,578
                
                
                
                8,109GROSS
      PROFIT
                
                
                7,657
                
                
                
                7,342OPERATING
      EXPENSESSelling,
      general & administrative
                
                
                4,803
                
                
                
                4,856Amortization
      of purchased intangibles
                
                
                469
                
                
                
                469Research
      & development
                
                
                133
                
                
                
                291Loss
      on sale of equipment
                
                
                2
                
                
                
                -5,407
                
                
                
                5,616EARNINGS
      FROM OPERATIONS
                
                
                2,250
                
                
                
                1,726OTHER
      INCOME/(EXPENSE)Interest
      income
                
                
                459
                
                
                
                389Interest
      expense
                
                
                (146
                )
                
                
                (183
                )Other
                
                
                4
                
                
                
                1317
                
                
                
                207EARNINGS
      BEFORE INCOME TAXES
                
                
                2,567
                
                
                
                1,933Income
      tax expense
                
                
                931
                
                
                
                765NET
      EARNINGS
                
                $
                1,636
                
                
                $
                1,168EARNINGS
      PER SHARE:Basic
                
                $
                0.05
                
                
                $
                0.04Diluted
                
                $
                0.05
                
                
                $
                0.04WEIGHTED
      AVERAGE SHARESBasic
                
                
                33,162
                
                
                
                33,074Diluted
                
                
                33,286
                
                
                
                33,170
  The
accompanying notes are an integral part of these statements.
  5
 THERAGENICS
CORPORATION AND SUBSIDIARY
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (Amounts
in thousands)
  Quarter
    EndedMarch
      30,
                  2008
                
                
                April
      1,
                  2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      earnings
                
                $
                1,636
                
                
                $
                1,168Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                1,180
                
                
                
                1,567Deferred
      income taxes
                
                
                (17
                )
                
                
                693Provision
      for allowances
                
                
                (42
                )
                
                
                (144
                )Share
      based compensation
                
                
                218
                
                
                
                193Contract
      termination liability
                
                
                (7
                )
                
                
                (6
                )Decommissioning
      retirement liability
                
                
                11
                
                
                
                10Loss
      on sale of equipment
                
                
                2
                
                
                
                -Changes
      in assets and liabilities:Accounts
      receivable
                
                
                (54
                )
                
                
                (749
                )Inventories
                
                
                (642
                )
                
                
                863Prepaid
      expenses and other current assets
                
                
                (58
                )
                
                
                (17
                )Trade
      accounts payable
                
                
                272
                
                
                
                (413
                )Accrued
      salaries, wages and payroll taxes
                
                
                (734
                )
                
                
                (401
                )Income
      tax payable
                
                
                47
                
                
                
                -Other
      current liabilities
                
                
                261
                
                
                
                38Other
                
                
                29
                
                
                
                36Net
      cash provided by operating activities
                
                
                2,102
                
                
                
                2,838CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      and construction of property and equipment
                
                
                (510
                )
                
                
                (342
                )Purchases
      of marketable securities
                
                
                (8,000
                )
                
                
                (6,100
                )Maturities
      of marketable securities
                
                
                2,788
                
                
                
                3,924Proceeds
      from sales of marketable securities
                
                
                10,167
                
                
                
                -Net
      cash provided by (used in) investing activities
                
                
                4,445
                
                
                
                (2,518
                )CASH
      FLOWS FROM FINANCING ACTIVITIESExercise
      of stock options and stock purchase plan
                
                
                6
                
                
                
                63NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                
                $
                6,553
                
                
                $
                383CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                
                
                28,666
                
                
                
                18,258CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                
                $
                35,219
                
                
                $
                18,641SUPPLEMENTARY
      CASH FLOW DISCLOSURE:Interest
      paid
                
                $
                156
                
                
                $
                183Income
      taxes paid
                
                $
                904
                
                
                $
                -
  The
accompanying notes are an integral part of these statements.
  6
  THERAGENICS
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
 FOR
THE QUARTER ENDED MARCH 30, 2008
 (UNAUDITED)
 (Amounts
in thousands)
  Common
      Stock
                
                
                
                
                
                
                
                
                AccumulatedNumber
                  of
                
                
                Par
                  Value
                
                
                Additional
                  Paid-in
                
                
                Retained
                
                
                Other
                  ComprehensiveShares
                
                
                Amount
                
                
                Capital
                
                
                Earnings
                
                
                Loss
                
                
                TotalBALANCE,
      December 31, 2007
                
                
                33,274
                
                
                $
                333
                
                
                $
                72,918
                
                
                $
                59,424
                
                
                $
                (56
                )
                
                $
                132,619Employee
      stock purchase plan
                
                
                2
                
                
                
                -
                
                
                
                6
                
                
                
                -
                
                
                
                -
                
                
                
                6Issuance
      of restricted units and restricted shares
                
                
                126
                
                
                
                1
                
                
                
                (1
                )
                
                
                -
                
                
                
                -
                
                
                
                -Share
      based compensation
                
                
                -
                
                
                
                -
                
                
                
                218
                
                
                
                -
                
                
                
                -
                
                
                
                218Other
      comprehensive loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (21
                )
                
                
                (21
                )Net
      earnings for the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,636
                
                
                
                -
                
                
                
                1,636BALANCE,
      March 30, 2008
                
                
                33,402
                
                
                $
                334
                
                
                $
                73,141
                
                
                $
                61,060
                
                
                $
                (77
                )
                
                $
                134,458
  The
accompanying notes are an integral part of these statements.
  7
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March
30, 2008
 (Unaudited)
  NOTE
A - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
 
 The
unaudited interim condensed consolidated financial statements included herein
reflect the consolidated operations of Theragenics Corporation and its
wholly-owned subsidiaries (collectively, “Theragenics” or the “Company”). All
material intercompany accounts and transactions have been eliminated in
consolidation. These statements reflect all adjustments that are, in the opinion
of management, necessary to present fairly the consolidated financial position,
consolidated results of operations, consolidated cash flows and changes in
shareholders’ equity for the periods presented. All such adjustments are of a
normal recurring nature. Pursuant to the rules and regulations of the Securities
and Exchange Commission for reporting on Form 10-Q, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted. These unaudited condensed consolidated
financial statements and notes should be read in conjunction with the audited
consolidated financial statements and notes for the year ended December 31,
2007, included in the Form 10-K Annual Report filed by the Company. The December
31, 2007 condensed consolidated balance sheet included herein has been derived
from the December 31, 2007 audited consolidated balance sheet included in the
aforementioned Form 10-K.  The consolidated results of operations for
the quarter ended March 30, 2008 are not necessarily indicative of the results
to be expected for a full year.
 
 Theragenics
Corporation is a medical device company serving the cancer treatment and
surgical markets, operating in two business segments. The Company’s surgical
products business consists of wound closure and vascular access
products.  Wound closure includes sutures, needles, and other surgical
products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery, and dental.  Vascular access
includes introducers and guidewires used in the interventional radiology,
interventional cardiology, and vascular surgery markets. In its brachytherapy
seed business, the Company produces, markets and sells TheraSeed®, its
premier palladium-103 prostate cancer treatment device, I-Seed, its iodine-125
based prostate cancer treatment device, and related products and
services.
  NOTE
B – RECENTLY ISSUED ACCOUNTING STANDARDS
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 was effective for the Company on January
1, 2008. However, in February 2008 the FASB released FASB Staff Position No. FAS
157-2, Effective Date of FASB
Statement No. 157, which delayed the effective date  of
SFAS 157 for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed in the financial statements at fair value
at least annually.  Accordingly, the Company has adopted the
provisions of SFAS 157 only with respect to its financial assets and liabilities
as of January 1, 2008. The adoption of SFAS 157 for the Company’s financial
assets and liabilities did not have a material impact on its consolidated
financial statements.  The Company is currently assessing the
potential effect on its consolidated financial statements of the adoption of
SFAS 157 for its non-financial assets and liabilities, which the Company will
adopt on January 1, 2009.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
11 (“SFAS 159”).  SFAS 159 permits entities to choose to
measure eligible items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  SFAS No. 159,
which the Company adopted on January 1, 2008, did not have a material impact on
its consolidated financial statements. As permitted under SFAS 159, the Company
hascurrently chosen
not to elect the fair value option for any items that are not already required
to be measured at fair value in accordance with accounting principles generally
accepted in the United States.
  8
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March
30, 2008
 (Unaudited)
 In
December 2007, the FASB issued SFAS 141R, Business Combinations, which
the Company will adopt on January 1, 2009. This standard will significantly
change the accounting for business acquisitions both during the period of the
acquisition and in subsequent periods. Among the more significant changes in the
accounting for acquisitions are the following:
  ·
                Transaction
      costs will generally be expensed. Certain such costs are presently treated
      as costs of the acquisition.
  ·
                In-process
      research and development (IPR&D) will be accounted for as an asset,
      with the cost recognized as the research and development is realized or
      abandoned. IPR&D is presently expensed at the time of the
      acquisition.
  ·
                Contingencies,
      including contingent consideration, will generally be recorded at fair
      value with subsequent adjustments recognized in operations. Contingent
      consideration is presently accounted for as an adjustment of purchase
      price.
  ·
                Decreases
      in valuation allowances on acquired deferred tax assets will be recognized
      in operations. Such changes previously were considered to be subsequent
      changes in the allocation of the purchase price and were
      recorded as decreases in goodwill.
  Generally,
the effects of SFAS 141R on the Company’s consolidated financial statements will
depend on its future acquisitions.
 
 NOTE
C- COMPREHENSIVE INCOME
 
 The
following table summarizes comprehensive income for the applicable period (in
thousands):
 
 Quarter
      EndedMarch
      30,
                  2008
                
                
                April
      1,
                  2007Comprehensive
      income:Net
      earnings
                
                $
                1,636
                
                
                $
                1,168Other
      comprehensive income (loss), net of taxes:Reclassification
      adjustment for realized gain included in net earnings
                
                
                (4
                )
                
                
                -Unrealized
      gain (loss) on securities available for sale
                
                
                (17
                )
                
                
                9Total
      other comprehensive income (loss)
                
                
                (21
                )
                
                
                9Total
      comprehensive income
                
                $
                1,615
                
                
                $
                1,177
  NOTE
D - INVENTORIES
 
 Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. Market is replacement cost or net realizable
value. The Company estimates reserves for inventory obsolescence based on
management’s judgment of future realization. Inventories were comprised of the
following (in thousands):
  March
      30,
                  2008
                
                
                December
      31,
                  2007Raw
      materials
                
                $
                3,731
                
                
                $
                3,702Work
      in process
                
                
                1,907
                
                
                
                1,463Finished
      goods
                
                
                2,430
                
                
                
                2,211Spare
      parts and supplies
                
                
                863
                
                
                
                9138,931
                
                
                
                8,289Allowance
      for obsolete inventory
                
                
                (622
                )
                
                
                (645
                )Total
                
                $
                8,309
                
                
                $
                7,644
  9
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March
30, 2008
 (Unaudited)
  NOTE
E – PROPERTY, EQUIPMENT, AND DEPRECIATION
  In
December 2007 the Company changed the estimated service lives of certain
depreciable assets, mainly the cyclotron equipment used in its brachytherapy
segment. The estimated service life of the cyclotron equipment was increased
from 10 years to 15 years, and was based on, among other things, an assessment
of the equipment’s operating and maintenance history and expected future
performance. The Company accounted for this change as a change in estimate in
accordance with Statement of Financial Accounting (“SFAS”) No. 154, Accounting Changes and Error
Corrections. Accordingly, this change was accounted for in the period of
the change and will be accounted for in future periods. This change reduced
depreciation expense by $438,000 from what would have been reported otherwise in
the first quarter of 2008.  This change is expected to reduce
depreciation expense by approximately $1.4 million for the year ended December
31, 2008.
 
 NOTE
F - SHARE-BASED COMPENSATION
  During
the quarter ended March 30, 2008, the Company granted to its executive officers
204,000 stock options and 99,000 shares of restricted stock, each which vest
over four years, under the 2008 Long Term Incentive Plan.  The
exercise price of the stock options is $3.79 per share, which is equal to the
fair value of the underlying common stock on the date of grant.  The
grant date fair value of the stock options was $1.95 per share and was estimated
using the Black-Scholes options-pricing model using the following
assumptions:
  Expected
      dividend yield
                0.0%Expected
      volatility
                50.5%Risk-free
      interest rate
                3.2%Expected
      life
                6
      years
 
 Expected
stock price volatility is based on the historical volatility of the Company’s
stock price over the most recent period commensurate with the expected option
life. Whendetermining
the expected life of stock options, the Company classifies options into groups
for employees where relatively homogeneous exercise behavior is expected. The
vesting period of the options, the length of time similar grants have remained
outstanding in the past, and the expected volatility of the stock is also
considered. These factors may cause the expected volatility and expected life of
options granted to differ from period to period.
 
 The
weighted average grant date fair value of the restricted shares issued was $3.79
per share, and was based on the fair value of the underlying common stock at the
grant date.
 
 Compensation
cost for the stock options and restricted stock is being recorded over the
requisite service period of the grants.  As of March 30, 2008, there
was approximately $372,000 and $351,000 of unrecognized compensation cost
related to the stock options and restricted stock, respectively, granted in the
first quarter of 2008, which is expected to be recognized over a weighted
average period of 2.5 years and 2.3 years, respectively.
 
 NOTE
G - DISTRIBUTION AGREEMENT AND MAJOR CUSTOMERS
  Distribution
Agreement
  The
Company’s brachytherapy business sells its TheraSeed® device
directly to health care providers and to third party
distributors.  The Company’s primary non-exclusive distribution
agreement is with C. R. Bard (“Bard”) for the distribution of the TheraSeed® device
(the “Bard Agreement”). The terms of the Bard Agreement provide for automatic
one year extensions of the term, unless either party gives notice of its intent
not to renew at least twelve months prior to the end of the current term. The
current terms expires December 31, 2009, and will be automatically extended for
one additional year unless either party gives notice of its intent not to extend
by December 31, 2008. The Bard Agreement gives Bard the non-exclusive right to
distribute the TheraSeed® device
in the U.S., Canada, and other international locations for the treatment of
prostate cancer and other solid localized cancerous tumors.
  10
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March
30, 2008
 (Unaudited)
  Major
Customers
 
 Sales to
Bard under the Bard Agreement represented approximately 52% of total
brachytherapy seed product revenue, and approximately 26% of consolidated
revenue, for the quarter ended March 30, 2008. For the quarter ended April 1,
2007, sales to Bard under the Bard Agreement represented approximately 54% of
brachytherapy seed product revenue and 29% of consolidated revenue.
 
 Accounts
receivable from Bard under the Bard Agreement represented approximately 41% of
brachytherapy accounts receivable and 24% of consolidated accounts receivable at
March 30, 2008. At December 31, 2007, accounts receivable from Bard under the
Bard Agreement represented approximately 40% of brachytherapy accounts
receivable and 24% of consolidated accounts receivable.
  No single
customer equaled or exceeded 10% of surgical products sales for the quarter
ended March 30, 2008.  For the quarter ended April 1, 2007, one
customer represented approximately 12% of surgical product
revenue.  No single customer exceeded 10% of surgical products
accounts receivable at March 30, 2008.  One customer represented
approximately 23% of surgical products accounts receivable and 10% of
consolidated accounts receivable at December 31, 2007.
 
 NOTE H–FAIR VALUE
  Effective
January 1, 2008, the Company adopted SFAS No. 157, which defines fair
value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants at the measurement date. SFAS No. 157 establishes a
three-level fair value hierarchy that prioritizes the inputs used to measure
fair value. This hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three levels of inputs
used to measure fair value are as follows:
  • Level 1 — Quoted prices in
active markets for identical assets or liabilities.
 • Level 2 — Observable inputs
other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data.
 • Level 3 — Unobservable inputs
that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. This includes certain pricing
models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
  The Company's adoption of SFAS
No. 157for its
financial assets and liabilitiesdid not have a material impact on its
consolidated financial statements. The Company has segregated all financial
assets and liabilities that are measuredat fair value on a recurring basis (at
least annually) into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the measurement date in
the table below. FSP FAS 157-2 delayed the effective date for all
nonfinancial assets and liabilities until January 1, 2009, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis.
  The
Company’s assets measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS 157 at March 30, 2008 were as follows (in
thousands):
 
 Quoted
      Prices
                  in
      Active
                  Markets
                  (Level
      1)
                
                
                Significant
                  Other
                  Observable
                  Inputs
                  (Level
      2)
                
                
                Significant
                  Unobservable
                  Inputs
                  (Level
      3)
                
                
                TotalMarketable
      securities
                
                $
                5,132
                
                
                $
                10,000
                
                
                $
                -
                
                
                $
                15,132
  11
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March
30, 2008
 (Unaudited)
  Through
December 31, 2007, the Company valued all of its marketable securities at fair
value based on quoted market prices.  At March 30,
2008 marketable securities were valued at fair value based on quoted market
prices, with the exception of its municipal auction rate
securities.  The Company’s estimated fair value of its municipal
auction rate securities is $10.0 million based on significant other observable
inputs.  Recent auctions of these securities have failed resulting in
a lack of liquidity but do not represent a default in the underlying
instrument.  Other observable inputs included among other things, the
most recent trading values and quoted market prices for these securities in the
most recent successful auction, the values at which auction rate securities
similar to those held by the Company have been refinanced and liquidated, the
creditworthiness of the counterparty and their plans to refinance if auctions
continue to fail, the collateralization underlying the security investments, and
the estimates of fair value provided by the Company’s brokers that hold these
securities.  Auction rate securities similar to the ones held by the
Company have been refinanced and called during the first quarter of 2008
allowing the security holders to fully recover their
investment. Accordingly, the Company intends to hold these securities until
they can be sold in a market that facilitates orderly transactions or until they
are called.  The Company does not expect to experience any liquidity
problems or alter any business plans if these investments in municipal auction
rate securities are maintained indefinitely. However, due to the current
uncertainties related to auction rate securities markets, and the U.S. and
global credit markets generally, the Company is exposed to the risk of changes
in fair value of these securities in future periods, which may cause the Company
to take impairment charges that are not currently anticipated.
 
 NOTE
I - SEGMENT REPORTING
 
 Segment
Reporting
 
 Theragenics
is a medical device company serving the cancer treatment and surgical markets,
operating in two business segments. The Company’s surgical products business
consists of wound closure and vascular access products.  Wound closure
includes sutures, needles and other surgical products with applications in,
among other areas, urology, veterinary, cardiology, orthopedics, plastic surgery
and dental. Vascular access includes introducers and guidewires used in the
interventional radiology, interventional cardiology and vascular surgery
markets. In its brachytherapy seed business, the Company produces, markets and
sells TheraSeed®, its
premier palladium-103 prostate cancer treatment device, I-Seed, its iodine-125
based prostate cancer treatment device, and related products and
services. The following tables provide certain information for these
segments (in thousands):
 
 Quarter
      EndedMarch
      30,
                  2008
                
                April
      1,
                  2007RevenuesBrachytherapy
      seed
                
                $
                7,966
                
                
                $
                8,649Surgical
      products
                
                
                7,320
                
                
                
                6,839Intersegment
      eliminations
                
                
                (51
                )
                
                
                (37
                )$
                15,235
                
                
                $
                15,451Earnings
      from operationsBrachytherapy
      seed
                
                $
                942
                
                
                $
                1,150Surgical
      products
                
                
                1,296
                
                
                
                578Intersegment
      eliminations
                
                
                12
                
                
                
                (2
                )$
                2,250
                
                
                $
                1,726Capital
      expendituresBrachytherapy
      seed
                
                $
                80
                
                
                $
                123Surgical
      products
                
                
                430
                
                
                
                219$
                510
                
                
                $
                342Depreciation
      and amortizationBrachytherapy
      seed
                
                $
                546
                
                
                $
                969Surgical
      products
                
                
                634
                
                
                
                598$
                1,180
                
                
                $
                1,567
 
 12
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March
30, 2008
 (Unaudited)
 The
Company evaluates business segment performance based on segment revenue and
segment earnings from operations.Earnings
from operations by segment do not include interest expense, interest income,
other income and expense, or provisions for income
taxes.  Intersegment eliminations are primarily for surgical products
segment sales transactions.
 
 Supplemental
information related to significant assets follows (in thousands):
 
 March
      30,
                
                
                December
      31,2008
                
                
                2007Identifiable
      assetsBrachytherapy
      seed
                
                $
                82,313
                
                
                $
                83,934Surgical
      products
                
                
                75,571
                
                
                
                74,906Corporate
      investment in subsidiaries
                
                
                61,667
                
                
                
                61,667Intersegment
      eliminations
                
                
                (69,039
                )
                
                
                (71,686
                )$
                150,512
                
                
                $
                148,821GoodwillBrachytherapy
      seed
                
                $
                2,578
                
                
                $
                2,578Surgical
      products
                
                
                36,080
                
                
                
                36,080$
                38,658
                
                
                $
                38,658Other intangible
      assetsBrachytherapy
      seed
                
                $
                1
                
                
                $
                1Surgical
      products
                
                
                11,411
                
                
                
                11,880$
                11,412
                
                
                $
                11,881
 
 Information
regarding revenue by geographic regions follows (in thousands):
 
 Quarter
      EndedMarch
      30, 2008
                
                
                April
      1, 2007United
      States
                
                $
                13,788
                
                
                $
                14,411Europe
                
                
                1,014
                
                
                
                621Other
      foreign countries
                
                
                158
                
                
                
                195License
      fees (Canada)
                
                
                275
                
                
                
                224$
                15,235
                
                
                $
                15,451
 
 Foreign
sales are attributed to countries based on the location of the customer. License
fees are recognized from the TheraSphere®
licensing agreement with Nordion, a Canadian based company.  All other
foreign sales are related to the surgical products segment.  All of
the Company’s long-lived assets are located within the United
States.
  13
 THERAGENICS
CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March
30, 2008
 (Unaudited)
  NOTE
J – EARNINGS PER SHARE
  Basic
earnings per share represents net earnings divided by the weighted average
shares outstanding. Diluted earnings per share represents net earnings divided
by weighted average shares outstanding adjusted for the incremental dilution of
outstanding stock options and awards.  A reconciliation of weighted
average common shares outstanding to weighted average common shares outstanding
assuming dilution for the periods presented follows (in thousands, except per
share data):
  Quarter
      endedMarch
      30,
                  2008
                
                
                April
      1,
                  2007Net
      earnings
                
                $
                1,636
                
                
                $
                1,168Weighted
      average common shares outstanding
                
                
                33,162
                
                
                
                33,074Incremental
      common shares issuable under stock options and awards
                
                
                124
                
                
                
                96Weighted
      average common shares outstanding assuming dilution
                
                
                33,286
                
                
                
                33,170Earnings
      per shareBasic
                
                $
                0.05
                
                
                $
                0.04Diluted
                
                $
                0.05
                
                
                $
                0.04
   For the
quarters ended March 30, 2008 and April 1, 2007, common stock equivalents from
1,619,000 and 1,969,333 stock options, respectively, were not included in the
diluted earnings per share calculation because their effect is
antidilutive.
  14
 
 Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
 
 Overview
 
 Theragenics Corporation is
a medical device company serving the cancer treatment and surgical markets,
operating in two business segments.   The terms
"Company," "we," "us" or "our" mean Theragenics Corporation and all entities
included in our consolidated financial statements.
 
 Our surgical
products business consists of wound closure and vascular access
products.  Wound closure includes sutures, needles and other surgical
products with applications in, among other areas, urology, veterinary,
cardiology, orthopedics, plastic surgery and dental. Vascular access includes
introducers and guidewires used in the interventional radiology, interventional
cardiology and vascular surgery markets.
 
 In our
brachytherapy seed business, we produce, market and sell TheraSeed®,
our premier palladium-103 prostate cancer treatment device; I-Seed, our
iodine-125 based prostate cancer treatment device; and other related products
and services. We are the world’s largest producer of palladium-103, the
radioactive isotope that supplies the therapeutic radiation for our
TheraSeed® device.
Physicians, hospitals and other healthcare providers, primarily located in the
United States, utilize the TheraSeed® device.
The majority of TheraSeed®sales are channeled through third-party distributors. We also sell our
TheraSeed® and
I-Seed devices directly to physicians.
 
 We have
substantially diversified our operations and revenues in recent years. Prior to
2003, our sole product was the palladium-103 TheraSeed®prostate cancer treatment device. In 2003, we began to market an
iodine-125 based I-Seed prostate cancer treatment product. In May 2005, we
expanded into the surgical products business with the acquisition of CP Medical
Corporation (“CP Medical”), followed by the acquisition of Galt Medical Corp.
(“Galt”) in August 2006. CP Medical and Galt comprise our surgical products
business, which accounted for 48% of consolidated revenue in the first quarter
of 2008.  Prior to May 2005, the brachytherapy seed business
constituted 100% of our revenue.
 
 Results
of Operations
  Revenue
  Following
is a summary of revenue by segment (in thousands):
  Quarter
      EndedMarch
      30,
                  
                  
                  April
      1,
                  
                  
                  Change2008
                  
                  
                  2007
                  
                  
                  (%)Brachytherapy
      seedProduct
      sales
                  
                  $
                  7,691
                  
                  
                  $
                  8,425
                  
                  
                  
                  (8.7
                  %)License
      fees
                  
                  
                  275
                  
                  
                  
                  224
                  
                  
                  
                  22.8
                  %Total
      brachytherapy seed
                  
                  $
                  7,966
                  
                  
                  $
                  8,649
                  
                  
                  
                  (7.9
                  %)Surgical
      products
                  
                  
                  7,320
                  
                  
                  
                  6,839
                  
                  
                  
                  7.0
                  %Intersegment
      eliminations
                  
                  
                  (51
                  )
                  
                  
                  (37
                  )
                  
                  
                  37.8
                  %Consolidated
                  
                  $
                  15,235
                  
                  
                  $
                  15,451
                  
                  
                  
                  (1.4
                  %)
   Revenue
in our surgical products business increased 7%.  This growth was
driven by increases in revenue from new products in the vascular access area and
the addition of new customers.  This was partially offset by
reductions in sales to certain larger original equipment manufacturers (“OEM”)
and third party distributors.  A significant portion of our wound
closure and vascular access products are sold to OEM customers and a network of
distributors.  Ordering patterns of these customers vary and are
difficult to predict.  Accordingly, our surgical products revenue is
subject to fluctuation, especially on a quarter to quarter basis.
  15
 Brachytherapy
revenue decreased 8% compared to 2007.  This included a 12% decline in
sales to our main distributor, and a 5% decrease in direct sales.  We
believe the industry as a whole experienced softness in the first quarter of
2008.  We also believe this softness may be attributable to a number
of factors, includinguncertainties surrounding
reimbursement, the economic outlook in general, competing treatments (especially
those with favorable reimbursement levels) and patients not getting
checkups.   The average selling price of the TheraSeed® device sold directly to
hospitals and physicians during the first quarter of 2008 was comparable to the
2007 period.
  We have
two non-exclusive distribution agreements in place for the distribution of the
TheraSeed® device.  The
primary distribution agreement is with C. R. Bard (“Bard”), which is effective
through December 31, 2009 (the “Bard Agreement”). Sales to Bard under the Bard
Agreement represented approximately 52% and 54% of brachytherapy product revenue
in the first quarter of 2008 and 2007, respectively, and 26% and 29% of
consolidated revenue in the first quarter of 2008 and 2007,
respectively.  The terms of the Bard Agreement provide for automatic
one-year extensions of the term, unless either party gives notice of its intent
not to renew at least twelve months prior to the end of the current term. The
current term expires on December 31, 2009 and will be automatically extended for
one additional year unless either party gives notice of its intent not to extend
by December 31, 2008.  We also have a non-exclusive distribution
agreement in place with a second distributor, though revenue generated from the
second distributor was not material.
  In
addition to the impact of continued disappointing performance by our largest
distributor, we believe that the brachytherapy industry continues to be affected
by competition from alternative therapies, declining prices for iodine-125 and
palladium-103 seeds, competitors’ selling tactics and the effects of
consolidation in the industry.  Medicare reimbursement policies have
affected and, we believe, 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.  Under current law,
fixed reimbursement rates for seeds are scheduled to be implemented under
Medicare in July 2008, (see “Medicare Developments”
below).  This 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.
  Operating
Income and costs and expenses
  Following
is a summary of operating income by segment (in thousands):
  Quarter
      Ended
                  
                  
                  Increase
      (decrease)March
      30,
                  
                  
                  April
      1,2008
                  
                  
                  2007
                  
                  
                  $
                  
                  
                  %Operating
      incomeBrachytherapy
      seed
                  
                  $
                  942
                  
                  
                  $
                  1,150
                  
                  
                  $
                  (208
                  )
                  
                  
                  (18.1
                  %)Surgical
      Products
                  
                  
                  1,296
                  
                  
                  
                  578
                  
                  
                  
                  718
                  
                  
                  
                  124.2
                  %Intersegment
      eliminations
                  
                  
                  12
                  
                  
                  
                  (2
                  )
                  
                  
                  14
                  
                  
                  
                  700.0
                  %Consolidated
                  
                  $
                  2,250
                  
                  
                  $
                  1,726
                  
                  
                  $
                  524
                  
                  
                  
                  30.4
                  %
  Operating
income in our surgical products segment was $1.3 million in the first quarter of
2008, more than double the 2007 period.  This improvement was a result
of revenue growth and improvements in gross margins on product sales. Our gross
margins on products sales increased from 41% in 2007 to 47% in
2008.  This increase was a result of product mix and gaining some
scale from growth.  The gross margins in our surgical products
business are subject to fluctuation from product and sales channel
mix.  In addition, operating income in the first quarter of 2008
improved as 2007 included certain severance costs that were not incurred in
2008.  This contributed to a reduction of SG&A expenses as a
percent of sales in our surgical products segment to 21% in the first quarter of
2008 from 23% in the comparable 2007 period.  We expect to continue to
invest in infrastructure and R&D during 2008, as investments are made to
support anticipated future growth and in product development 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.
  16
 Operating
income in our brachytherapy business decreased 18% from the first quarter of
2007.  In the fourth quarter of 2007 we changed the estimated useful
life of our cyclotrons from 10 years to 15 years.  This change reduced
depreciation expense in our brachytherapy segment by $438,000 from what would
have been reported otherwise in the first quarter of 2008 over the comparable
2007 period.  Excluding this reduction in depreciation expense, total
operating costs in our brachytherapy business were flat in the first quarter of
2008 compared to 2007.  Manufacturing related expenses in our
brachytherapy business tend to be fixed in nature.  Accordingly, even
modest declines in revenue have a negative impact on operating
income.  Gross margins and operating income in our brachytherapy seed
business are expected to continue to be highly dependent on sales levels, due to
this high fixed cost component.
  Other
income/expense
  Interest
income increased to $459,000 in the first quarter of 2008 from $389,000 in 2007,
due to an increase in invested funds from cash generated by operations. This
increase in invested funds was partially offset by lower yields on our
investments.  Our investments consist primarily of short-term cash
investments and high-credit quality corporate and municipal obligations, in
accordance with our investment policies. Funds available for investment have and
will continue to be utilized for our current and future expansion programs and
strategic opportunities for growth and diversification. As funds continue to be
used for these programs and activities, and as interest rates continue to
change, we expect interest income to fluctuate accordingly.  In
addition, during the first quarter of 2008 we began to move a significant
portion of our invested funds to cash and investments with lower yields, in an
effort to reduce investment related risks.
  Interest
expense decreased from $183,000 in the first quarter of 2007 to $146,000 in
2008.  This decline was a result of lower interest rates on the $7.5
million in outstanding borrowings under our $40.0 million credit
facility.  Interest on outstanding borrowings is payable at LIBOR plus
1%, which had an effective rate of 4.1% at March 30, 2008.  The
effective rate at the end of the first quarter in 2007 was 6.3%.  We
expect to maintain borrowings under our credit facility to provide flexibility
for future strategic initiatives and diversification.  Accordingly,
interest expense will be impacted by increases or decreases in the effective
interest rate on the borrowings.  Interest expense may also increase
in future periods as a result of any future borrowings to support expansion
programs and strategic opportunities for growth and
diversification.
  Income
tax expense
  Our
effective income tax rate for the first quarter of 2008 and 2007 was
approximately 36% and 40%, respectively, which includes federal and state income
taxes.   Our effective income tax rate was lower in the first
quarter of 2008 compared to 2007 due to a higher proportion of tax exempt
interest income.
  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,
2007. Certain accounting policies, as more fully described under “Critical Accounting Policies and
Estimates” included in our Form 10-K for the year ended December 31,
2007, are those which we believe are most critical in fully understanding and
evaluating our reported financial results, and are areas in which our judgment
in selecting an available alternative might produce a materially different
result.
  In
addition to those critical accounting policies and estimates listed in our Form
10-K for the year ended December 31, 2007, the following critical accounting
policies and estimates should also be considered.
  Marketable
securities.We review our investments in marketable securities
for impairment based on both quantitative and qualitative criteria that include
the extent to which cost exceeds market value, the duration of any market
decline, our intent and ability to hold to maturity or expected recovery, and
the creditworthiness of the issuer.  We perform research and analysis,
and monitor market conditions to identify potential
impairments.  Currently, we have not recognized any impairment charges
related to our current investments in marketable securities.  However,
due to the uncertainties related to the U.S. and global investment and credit
markets, including markets related to auction rate securities, we are exposed to
the risk of changes in fair value of our marketable securities in future
periods, which may cause us to take impairment charges that we do not currently
anticipate. You can
find more information related to the valuation of our marketable securities in
footnote H in the accompanying condensed financial statements, “Liquidity and Capital Resources”in Management’s Discussion and Analysis, and “Item 3,Quantitative and Qualitative
Disclosures About Market Risk”, all of which are included in this
report.
  17
  New Accounting
Pronouncements
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements.  SFAS 157 was effective for our Company
on January 1, 2008.  However, in February 2008 the FASB released FASB
Staff Position No. FAS 157-2, Effective Date of FASB Statement
No. 157, which delayed the effective date  of SFAS 157 for
all non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually.  Accordingly, we have adopted the provisions of SFAS 157
only with respect to our financial assets and liabilities as of January 1, 2008.
The adoption of SFAS 157 for our financial assets and liabilities did not have a
material impact on our consolidated financial statements.  We are
currently assessing the potential effect on our consolidated financial
statements of the adoption of SFAS 157 for our non-financial assets and
liabilities, which we will adopt on January 1, 2009.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
11 (“SFAS 159”).  SFAS 159 permits entities to choose to
measure eligible items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  SFAS No. 159,
which we adopted on January 1, 2008, did not have a material impact on our
consolidated financial statements. As permitted under SFAS 159, we havecurrently chosen not to
elect the fair value option for any items that are not already required to be
measured at fair value in accordance with accounting principles generally
accepted in the United States.
  In
December 2007, the FASB issued SFAS 141R, Business Combinations, which
we will adopt on January 1, 2009. This standard will significantly change the
accounting for business acquisitions both during the period of the acquisition
and in subsequent periods. Among the more significant changes in the accounting
for acquisitions are the following:
  ·
                Transaction
      costs will generally be expensed. Certain such costs are presently treated
      as costs of the acquisition.
  ·
                In-process
      research and development (IPR&D) will be accounted for as an asset,
      with the cost recognized as the research and development is realized or
      abandoned. IPR&D is presently expensed at the time of the
      acquisition.
  ·
                Contingencies,
      including contingent consideration, will generally be recorded at fair
      value with subsequent adjustments recognized in operations. Contingent
      consideration is presently accounted for as an adjustment of purchase
      price.
  ·
                Decreases
      in valuation allowances on acquired deferred tax assets will be recognized
      in operations. Such changes previously were considered to be subsequent
      changes in the allocation of the purchase price and were
      recorded as decreases in goodwill.
  Generally,
the effects of SFAS 141R will depend on our future acquisitions.
 
 Liquidity
and Capital Resources
 
 We had
cash, cash equivalent and marketable securities of $50.4 million at March 30,
2008, compared to $48.8 million at December 31, 2007. Marketable securities
consist primarily of high-credit quality corporate and municipal obligations in
accordance with our investment policies. The aggregate increase in cash, cash
equivalents and marketable securities was primarily the result of cash generated
from operations.
 
 At March
30, 2008, our marketable securities included municipal auction rate securities
with an estimated fair value of $10 million. Recent auctions of these securities
have failed resulting in a lack of liquidity but do not represent a default in
the underlying instrument.  We believe the failure of these auctions
is symptomatic of the current state of the markets for all types of auction rate
securities, and of the U.S. and global credit markets in general.  The
underlying credit of the issuers of our municipal auction rate securities is
rated as AAA by Standard & Poor’s, and we expect these securities ultimately
will be liquidated at our estimate of fair value.  Accordingly, we
intend to hold these securities until they can be sold in a market that
facilitates orderly transactions or until they are called.  We do not
expect to experience any liquidity problems or alter any business plans if we
maintain our investments in these municipal auction rate securities
indefinitely. However, due to the current uncertainties related to auction
rate securities markets, and the U.S. and global credit markets generally, we
are exposed to the risk of changes in fair value of these securities in future
periods, which may cause us to take impairment charges that we do not currently
anticipate.
  18
 
  Working
capital was $64.8 million at March 30, 2008, compared to $62.3 million at
December 31, 2007. We also have a Credit Agreement with a financial institution
that provides for revolving borrowings of up to $40.0 million, including a $5.0
million sub-limit for letters of credit, through a credit facility which expires
on October 31, 2009.  $7.5 million of borrowings was outstanding under
the Credit Agreement as of March 30, 2008. Interest is payable quarterly at
LIBOR plus 1% (effective rate of 4.1% at March 30, 2008).  Letters of
credit, representing decommission funding required by the Georgia Department of
Natural Resources, totaling $876,000 were outstanding under the Credit Agreement
as of March 30, 2008. The Credit Agreement is unsecured, but provides for a lien
to be established on substantially all of our assets (subject to certain
exceptions) in the event certain events of default occur under the Credit
Agreement. The Credit Agreement, as amended, contains representations and
warranties, as well as affirmative, reporting and negative covenants, customary
for financings of this type. Among other things, certain provisions of the
Credit Agreement limit the incurrence of additional debt and require the
maintenance of certain financial ratios and tests.  We were in
compliance with these covenants as of March 30, 2008.
  Cash
provided by operations was $2.1 million and $2.8 million during the first
quarter of 2008 and 2007, respectively. Cash provided by operations consists of
net earnings plus non-cash expenses such as depreciation, amortization, deferred
income taxes and changes in balance sheet items such as accounts receivable,
inventories, prepaid expenses and payables.  The increase in
inventories and payment of current taxes were the primary reasons for the
reduction in cash provided from operations in 2008 as compared to
2007.  In the first quarter of 2007, we had net operating loss
carryforwards for federal income taxes available to reduce the significant
portion of income taxes that would otherwise have been payable.  All
net operating loss carryforwards for federal income tax purposes were utilized
by December 31, 2007.  Accordingly, we expect to pay income taxes at
normal rates going forward, which will have a negative effect on cash flows from
operations in the future.  We do have a deferred tax asset of
$3.7 million related to our asset held for sale that is expected to reduce
income taxes payable in the period in which it is sold.
 Capital
expenditures totaled $510,000 and $342,000 during the first quarter of 2008 and
2007, respectively.  We expect capital expenditures in 2008 to
continue to be higher than 2007 as we make investments primarily in the surgical
products business.
 
 Cash
provided by financing activities was $6,000 and $63,000 in the first quarter of
2008 and 2007, respectively, consisting of cash proceeds from our Employee Stock
Purchase Plan and, in 2007, from the exercise of stock options.
 
 Cash
could be used in 2008 to support growth in the surgical products segment,
increased marketing and TheraSeed®support
activities, and in the pursuit of additional diversification efforts such as
product development and the purchase of technologies, products or
companies.
 
 We
believe that current cash and investment balances and cash from future
operations and credit facilities will be sufficient to meet our current
anticipated working capital and capital expenditure requirements. In the event
additional financing becomes necessary, we may choose to raise those funds
through other means of financing as appropriate.
 
 Medicare
Developments
  The
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “2003
Act”), which went into effect on January 1, 2004, contained brachytherapy
provisions requiring Medicare to reimburse hospital outpatient
departments for each brachytherapy seed/source furnished between January 1,
2004 to December 31, 2006 based on the hospital’s costs for each patient
(calculated from the hospital’s charges adjusted by the hospital’s specific
cost-to-charge ratio). The 2003 Act also directed the U.S. Government
Accountability Office (“GAO”) to conduct a study examining future payment
policies for brachytherapy seeds. The GAO published its report on July 25, 2006,
concluding that the Centers for Medicare & Medicaid Services (“CMS”), the
regulatory body that sets Medicare reimbursement policies, could establish
separate prospective payment rates effective in 2007 for palladium-103
brachytherapy seeds/sources (such as TheraSeed®) and
iodine-125 seeds/sources using Medicare’s hospital outpatient data.
  Although
subsequently superceded by Congress, CMS posted a final rule on November 1, 2006
with fixed prospective payment rates for brachytherapy seeds for Medicare’s
hospital outpatient prospective payment system (“OPPS”) that would have applied
to calendar year 2007. The use of prospective payment rates would have fixed the
per seed rate at which Medicare would have reimbursed hospitals in 2007. We
believed that CMS’ approach to determining the fixed prospective reimbursement
rate for brachytherapy seeds was fundamentally flawed. For example, CMS did not
stratify cost data on differing seed configurations, such as loose versus
“stranded” seeds. Accordingly, we continued to work with policy makers in an
effort to rectify the shortcomings we believed to be contained in the new
CMS rule.
  19
 
  In
December 2006, Congress enacted the Tax Relief and Health Care Act of 2006 (the
“2006 Act”), which extended and refined the Medicare safeguards initially
enacted by Congress in 2003 for brachytherapy seeds administered in the hospital
outpatient setting. The 2006 Act’s provisions on brachytherapy superceded the
final rule published by CMS on November 1, 2006 by extending the existing
“charges adjusted to cost” reimbursement policies (which we sometimes refer to
as a “pass-through” methodology) for brachytherapy seeds through the end of
2007, ensuring that the Medicare program would not implement potentially
restrictive caps on reimbursement during that period. In addition, the
legislation recognized that prostate cancer patients must have meaningful access
to stranded brachytherapy seeds, which increasingly are used in clinical
practice to further enhance the safety and efficacy of treatment. The 2006 Act
also established a permanent requirement for Medicare to use separate codes for
the reimbursement of stranded brachytherapy devices. Stranded seeds are becoming
a larger portion of our brachytherapy business.
  Effective
July 2007, CMS issued new reimbursement codes for brachytherapy sources. The
codes are isotope specific and recognize the distinction between nonstranded
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 new 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
been scheduled to become effective on January 1, 2008 without the enactment of
the 2007 Act. Under the current law, fixed reimbursement rates for seeds will be
implemented in July 2008. This 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. We
intend to continue to pursue delays in implementation of fixed
reimbursement.
 Forward
Looking and Cautionary Statements
  This
document contains certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, the accuracy of which is
necessarily subject to risks and uncertainties, including, without limitation,
statements regarding sales, marketing and distribution efforts, ordering
patterns of customers, our direct sales organization and its growth and
effectiveness, third-party reimbursement, CMS policy, sales mix, effectiveness
and continuation of non-exclusive distribution agreements, pricing for the
TheraSeed® and
I-Seed devices, anticipated growth in the surgical products business segment,
future cost of sales and gross margins, R&D efforts and expenses, investment
in additional personnel and infrastructure, SG&A expenses, other income,
potential new products and opportunities, results in general, plans and
strategies for continuing diversification, plans to hold auction rate
securities, and the sufficiency of our liquidity and capital resources. From
time to time, we may also make other forward-looking statements relating to such
matters as well as statements relating to anticipated financial performance,
business prospects, technological developments and similar matters. These
forward-looking statements are subject to certain risks, uncertainties and other
factors which could cause actual results to differ materially from those
anticipated, including risks associated with new product development cycles,
effectiveness and execution of marketing and sales programs of our business
segments and its 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 our brachytherapy, wound
closure and vascular access products, integration of acquired companies into the
Theragenics organization, capitalization on opportunities for growth within our
surgical products business segment, competition within the medical device
industry, development and growth of new applications within our markets,
competition from other methods of treatment, ability to execute on acquisition
opportunities on favorable terms and successfully integrate any acquisitions,
the ability to realize our estimate of fair value upon sale of auction rate
securities that we hold, and the risks identified elsewhere in this report. All
forward looking statements and cautionary statements included in this document
are made as of the date hereof based on information available to us, and we
assume no obligation to update any forward looking statement or cautionary
statement.
  20
  Item
3. Quantitative and
Qualitative Disclosures About Market Risk
 
 We have
generated substantial cash balances, portions of which are invested in
securities that meet our requirements for quality and return.  At
March 30, 2008, we had $35.2 million in cash and cash equivalents and $15.1
million of investments in marketable securities.  Our cash and cash
equivalents represent cash deposits, and money market funds, which are invested
with four financial institutions, commercial paper, and U.S. Treasury notes. Our
marketable securities primarily represent investments in certificates of deposit
and high-credit quality corporate and municipal obligations, in accordance with
our investment policies. Certain of these cash, cash equivalents and marketable
securities investments are subject to general credit, liquidity, market and
interest rate risks, which may be exacerbated by sub-prime mortgage defaults and
other credit related problems that have affected various sectors of the
financial markets and caused credit and liquidity issues.  These
market risks associated with our investment portfolio may have an adverse effect
on our results of operations, liquidity and financial condition.
 
 At March
30, 2008, our marketable securities included municipal auction rate securities
with an estimated fair value of $10 million. Recent auctions of these securities
have failed resulting in a lack of liquidity but do not represent a default in
the underlying instrument.  We believe the failure of these auctions
is symptomatic of the current state of the markets for all types of auction rate
securities, and of the U.S. and global credit markets in general.  The
underlying credit of the issuers of our municipal auction rate securities is
rated as AAA by Standard & Poor’s, and we expect these securities ultimately
will be liquidated at our estimate of fair value.  Accordingly, we
intend to hold these securities until they can be sold in a market that
facilitates orderly transactions or until they are called.  We do not
expect to experience any liquidity problems or alter any business plans if we
maintain our investments in these municipal auction rate securities
indefinitely. However, due to the current uncertainties related to auction
rate securities markets, and the U.S. and global credit markets generally, we
are exposed to the risk of changes in fair value of these securities in future
periods, which may cause us to take impairment charges that we do not currently
anticipate.
 
 As of
March 30, 2008, we had borrowings of $7.5 million and letters of credit of
approximately $876,000 outstanding under the terms of our Credit Agreement.
Interest on outstanding borrowings is payable monthly at LIBOR plus 1%
(effective rate of 4.1% as of March 30, 2008).
  Item 4. Controls
and Procedures
 
 Under the
supervision and with the participation of the Company's management, including
its Chief Executive Officer and Chief Financial Officer, the Company conducted
an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective as of March 30, 2008, the end of the period covered by this
report.
 
 No
changes in the Company's internal control over financial reporting were
identified as having occurred during the fiscal quarter ended March 30, 2008
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
 
 PART
II. OTHER INFORMATION
 
 Item
1. Legal
Proceedings
 
 From time
to time, 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 other information set forth in this report, the factors
discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K
for the year ended December 31, 2007, which could materially affect our
business, financial condition or future results, should be carefully considered.
The risks described in this report and 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.
  21
  Item 6.Exhibits
 Exhibit
      No.
                Title31.1
                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.
  22
 
 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: May
      7, 2008
                By:
                /s/ M.
      Christine JacobsM.
      Christine JacobsChief
      Executive OfficerDate: May
      7, 2008
                By:
                /s/ Francis
      J. TaralloFrancis
      J. TaralloChief
      Financial Officer
 23